U S PHYSICIANS INC, S-1, 1997-11-12

U S PHYSICIANS INC
S-1, 1997-11-12

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997

REGISTRATION NO. 333-________
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

U.S. PHYSICIANS, INC.
(Exact name of registrant as specified in its charter)

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

PENNSYLVANIA 8011 23-2795906
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)

220 COMMERCE DRIVE, FORT WASHINGTON, PA 19034, (215) 542-2170
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

THOMAS J. KEANE
Chairman, President and Chief Executive Officer
U.S. PHYSICIANS, INC.
220 Commerce Drive
Fort Washington, PA 19034, (215) 542-2170
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

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

Copy to:

JASON M. SHARGEL, ESQUIRE MARK KESSEL, ESQUIRE
JOHN M. COOGAN, JR., ESQUIRE SHEARMAN & STERLING
WOLF, BLOCK, SCHORR AND SOLIS-COHEN LLP 599 LEXINGTON AVENUE
TWELFTH FLOOR PACKARD BUILDING NEW YORK, NY 10022
111 SOUTH 15TH STREET (212) 848-4000
PHILADELPHIA, PA 19102-2678
(215) 977-2000

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after the effective date of this Registration
Statement.

If 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. / /

CALCULATION OF REGISTRATION FEE
<TABLE>
===================================================================================================================

TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED (1) SHARE PRICE(1)(2) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value.......................... $50,000,000 $15,151.52
===================================================================================================================
</TABLE>

(1) Includes shares which the Underwriters have a right to purchase to cover
over-allotments, if any.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).

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>

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 SALES 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 NOVEMBER 12, 1997

PRELIMINARY PROSPECTUS

___________ SHARES

U.S. PHYSICIANS, INC.

COMMON STOCK

All of the __________ shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby are being sold by U.S. PHYSICIANS, Inc. (the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Application has been made to have the Common Stock approved for
quotation on The Nasdaq Stock Market's National Market under the symbol "USPI."

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

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.

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

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

===============================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------
Per Share................ $ $ $
- -------------------------------------------------------------------------------
Total(3)................. $ $ $
===============================================================================

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

(2) Before deducting estimated expenses of $ payable by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock on the same terms and conditions
as set forth above solely to cover over-allotments, if any. If such option
is exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."

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

The Common Stock is offered by the Underwriters, as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made at
the offices of BancAmerica Robertson Stephens, New York, New York, on or about
___________ __, 1997.

BANCAMERICA ROBERTSON STEPHENS

NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.

THE DATE OF THIS PROSPECTUS IS _________, 1997
<PAGE>

[MAP OF MID-ATLANTIC UNITED STATES AND SURROUNDING STATES IDENTIFYING
AREAS IN WHICH THE COMPANY MANAGES OR HAS AGREEMENTS TO
MANAGE PHYSICIAN PRACTICES]

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING BIDS, SYNDICATE COVERING TRANSACTIONS AND THE IMPOSITION
OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>

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

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

UNTIL _____ __, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS

PAGE
----
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Financial Data..................................... 17
Unaudited Pro Forma Consolidated Financial Statements....... 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Business.................................................... 32
Management.................................................. 47
Certain Transactions........................................ 53
Principal Shareholders...................................... 55
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 58
Underwriting................................................ 59
Legal Matters............................................... 60
Experts..................................................... 60
Additional Information...................................... 61
Index to Financial Statements............................... F-1

Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" including, without limitation, those
concerning the Company's strategy and the Company's growth plans, contain
certain forward-looking statements concerning the Company's operations, economic
performance and financial condition. Because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause such
differences include, but are not limited to, those discussed under "Risk
Factors."

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements of the Company and the
Notes thereto appearing elsewhere in this Prospectus.

Except as otherwise indicated, all information in this Prospectus assumes
that the Underwriters' overallotment option will not be exercised and gives
effect to the following transactions which will occur simultaneously with the
completion of the Offering: (i) the automatic conversion of all outstanding
shares of the Company's Series A Convertible Preferred Stock, $.01 par value
(the "Series A Preferred Stock"), and the Company's Series B Convertible
Preferred Stock, $.01 par value (the "Series B Preferred Stock" and, together
with the Series A Preferred Stock, the "Convertible Preferred Stock"), into
5,766,578 shares of Common Stock (the "Preferred Stock Conversion"); (ii) the
automatic conversion of all outstanding warrants to purchase 488,890 shares of
Series B Preferred Stock ("Series B Warrants") into warrants to purchase shares
of Common Stock ("Common Stock Warrants" and, together with the Series B
Warrants, the "Warrants") in a like amount (the "Series B Warrant Conversion");
and (iii) the issuance of ____ shares of Common Stock issued in connection with
Affiliation Transactions (as defined below). The information in this Prospectus
assumes that the Offering will be completed at an initial public offering price
of $____ per share. In addition, except as otherwise noted, all information in
this Prospectus assumes (i) no exercise of outstanding employee and affiliate
stock options (the "Options") to purchase 2,102,577 shares of Common Stock; (ii)
no conversion of the Company's outstanding convertible notes (the "Convertible
Notes") in the aggregate principal amount of $19.8 million which are convertible
into ___ shares of Common Stock; and (iii) no exercise of outstanding Warrants
to purchase 738,096 shares of Common Stock. See "Management -- Stock Incentive
Plans," "Description of Capital Stock" and "Underwriting."

THE COMPANY

The Company is a multi-specialty physician practice management company
that, upon completion of the Initial Affiliation Transactions (as defined
below), will include 90 physicians providing care in 64 practice locations in
four states in the mid-Atlantic region. The Company believes that, as consumers
demand higher quality care and payors focus on overall treatment costs rather
than only physician fees, specialists increasingly will be the patient's point
of access to the health care delivery system and will control, directly or
indirectly, a growing percentage of health care expenditures. The Company
targets local service areas in which it can establish significant market share
in multiple specialties to enhance its leverage with payors, employers and
consumers and seeks to affiliate primarily with physicians in higher dollar
volume specialties. The Company's affiliated specialists currently include
orthopedic surgeons, physiatrists, neurologists, oncologists, urologists,
obstetrician/gynecologists, radiologists, ophthalmologists, otolaryngologists
and occupational medicine specialists.

Escalating health care costs have resulted in the growth of managed care,
which frequently involves restricting access by insured parties to providers,
decreasing levels of reimbursement to providers, reducing the number and
duration of hospital inpatient stays and, more recently, transferring risk from
payors to providers. Many payors have also attempted to control costs by
reducing the utilization and reimbursement of specialists through the use of
primary care "gatekeepers." Patients and employers, however, are becoming more
conscious of not only the cost of care, but also of the quality of care and
levels of customer service, and are often demanding greater physician choice and
the option of seeking care directly from specialists.

The Company believes that specialist physicians have a greater
understanding of the treatment and management of complex disease and injury
conditions and can therefore provide more timely, appropriate and, ultimately,
less costly care than that controlled by primary care physicians. As a result,
the Company believes that the market will increasingly demand
specialist-directed provider models and move away from primary care gatekeeper
models for managed care. In addition, consumers of health care will begin to
differentiate between providers based on customer service in areas such as
scheduling, patient follow-up and aftercare and the availability of a variety of
services at the patient's point of access.

The Company's objective is to be a leading provider of specialist physician
services in each of its local service areas. Key elements of the Company's
strategy to attain this objective are to: (i) develop integrated

4
<PAGE>

local networks of specialists in service areas surrounding or adjacent to major
population centers in the mid-Atlantic region and surrounding states in which
the Company can achieve significant market share in multiple specialties; (ii)
enhance same practice growth through the addition of new physicians and new
practice locations, enhancement of payor contracting, and improvement of
practice management and practice marketing; (iii) increase ancillary and other
revenues through, for example, physical and occupational therapy, diagnostic
imaging and participation in clinical trials; (iv) grow in existing and new
service areas through Affiliation Transactions and the Company's Provider
Network (as defined below); (v) capitalize on its specialists' clinical
leadership by establishing, marketing and providing complex disease and injury
management services; and (vi) integrate the Company's management information
systems in its affiliated physician practices.

The Company conducts its operations through Management and Services
Agreements (the "Management Agreements") with one professional corporation
("PC") in each state in which the Company provides services. The Company enters
into affiliation transactions ("Affiliation Transactions") pursuant to
agreements ("Affiliation Agreements") with physicians ("Affiliated Physicians")
desiring to affiliate their practices ("Affiliated Practices") with the Company
and the PCs. The Company consummated its first Initial Affiliation Transactions
in January 1997. As a result of Affiliation Transactions completed to date (the
"Conditional Affiliation Transactions"), the Company provides management
services to 21 Affiliated Practices with a total of 71 Affiliated Physicians and
has entered into agreements with respect to Affiliation Transactions that are
expected to close upon completion of the Offering that would add nine Affiliated
Practices with a total of 19 Affiliated Physicians (the "IPO Affiliation
Transactions" and, together with the Conditional Affiliation Transactions, the
"Initial Affiliation Transactions"). Also, the Company has acquired two related
health care businesses (the "Completed Transactions") and has acquired a third
related health care business on a conditional basis (the "Conditional
Transaction"). In addition, in order to supplement its Affiliated Practices and
Affiliated Physicians and to enhance contracting leverage, the Company is
developing a provider network which includes physicians not affiliated with the
Company ("Provider Network"), for which the Company has certain contracting
authority with payors and which currently has over 2,500 physicians under
contract.

The Company was formed as a Pennsylvania corporation in July 1994. The
Company's principal executive office is located in suburban Philadelphia at 220
Commerce Drive, Fort Washington, Pennsylvania 19034, and its telephone number is
(215) 542-2170.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... _________ shares
Common Stock to be outstanding after the _________ shares
Offering...................................
Use of Proceeds.............................. To make required cash payments in connection
with the Initial Affiliation Transactions; to
repay certain indebtedness of the Company and
for working capital and other general
corporate purposes, including possible future
Affiliation Transactions and acquisitions.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... USPI
</TABLE>

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk, including, among others, risks related to limited operating
history, integration of operations, growth strategy, limited capital and need
for additional financing, government regulation, relationships with third party
payors, provision of medical services, dependence on management information
systems, dependence on Affiliated Physicians, competition, intangible assets,
dependence on key personnel, control by principal shareholders and anti-takeover
provisions, lack of a prior public market and potential for volatility of stock
price, shares eligible for future sale and dilution. See "Risk Factors."

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1996 ENDED JUNE 30,
------------------------- ----------------------------------
1997
PRO FORMA 1996 1997 PRO FORMA
ACTUAL AS ADJUSTED (1) ACTUAL ACTUAL AS ADJUSTED (1)
------- --------------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................. $ 70 $65,137 $ 68 $ 1,121 $32,996
Cost of revenues............................. -- 57,896 -- 297 28,729
------- ------- ----- ------- -------
Gross profit................................. 70 7,241 68 824 4,267
Operating expenses:
General and administrative................. 2,295 2,295 617 1,975 1,975
Depreciation and amortization.............. 6 3,227 3 55 1,667
------- ------- ----- ------- -------
Income (loss) from operations................ (2,231) 1,719 (552) (1,206) 625
Interest expense............................. 13 5 387
Other (income) expense, net.................. 492 75 (53)
------- ------- ----- ------- -------
Income (loss) before income taxes............ (2,736) (632) (1,540)
Income tax provision (benefit)............... -- -- --
------- ------- ----- ------- -------
Net income (loss)............................ $(2,736) $ $(632) $(1,540) $
======= ======= ===== ======= =======
Pro forma net income (loss)
per common share (2)....................... $ $
======= =======
Shares used in computing pro forma net income
(loss) per common share (2)................
======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED (4)
------- ------------- ---------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 2,048 $ 4,609 $
Working capital (deficit)................................... (7,090) (15,207)
Total assets (5)............................................ 39,794 89,872
Cash due to Initial Affiliation Transactions................ -- 12,299
Current portion of long-term debt........................... 7,332 13,333
Long-term debt, less current portion........................ 16,813 34,706
Convertible preferred stock securities...................... 6,379 --
Shareholders' equity (deficit).............................. (4,802) 21,614
</TABLE>

- ------------------
(1) Adjusted on a pro forma basis to give effect to (i) the two Completed
Transactions which occurred during 1997, (ii) the 21 Conditional Affiliation
Transactions and the Conditional Transaction which, for accounting purposes,
will occur simultaneously with the completion of the Offering, (iii) the
nine IPO Affiliation Transactions which will occur simultaneously with the
completion of the Offering, and (iv) the reduction in interest expense
resulting from the assumed use of the estimated net proceeds of the Offering
made hereby to retire certain long-term debt obligations, as if all of the
foregoing transactions had occurred as of the beginning of the respective
periods. Excludes a charge of $788,000 (estimated at September 30, 1997) for
the early extinguishment of certain long-term debt obligations which will be
taken in the fiscal quarter in which the Offering is completed. See "Use of
Proceeds." The pro forma statement of operations data does not purport to
represent what the Company's results of operations would have been had such
transactions occurred as of the beginning of the respective periods or
project the Company's results for any future period. See the Unaudited Pro
Forma Consolidated Financial Statements and Note 8 of the Notes to
Consolidated Financial Statements.

(2) For information concerning the computation of pro forma net income (loss)
per common share, see Note 6 of Notes to Unaudited Pro Forma Consolidated
Financial Statements.

(3) Adjusted on a pro forma basis to give effect to (i) the issuance of term
notes in the aggregate principal amount of $2.0 million in September 1997,
(ii) the 21 Conditional Affiliation Transactions, the nine IPO Affiliation
Transactions and the Conditional Transaction, (iii) the Preferred Stock
Conversion and (iv) the Series B Warrant Conversion, as if all of the
foregoing transactions had occurred on June 30, 1997.

(4) Adjusted on a pro forma as adjusted basis to give effect to (i) the pro
forma adjustments described in Note 3 above and (ii) the sale of the Common
Stock offered hereby (at an assumed initial public offering price of $_____
per share) and the application of the net proceeds therefrom. In connection
with the repayment of certain long-term debt obligations, the Company will
record a charge to its statement of operations in the fiscal quarter in
which the Offering is completed. This charge will expense the unamortized
portion of the discount on certain long-term debt obligations which was
$788,000 at September 30, 1997. See "Use of Proceeds" and the Unaudited Pro
Forma Consolidated Financial Statements.

(5) Includes $0.1 million on an actual and $67.2 million on a pro forma and pro
forma as adjusted basis of intangible assets at June 30, 1997.

6
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and an
investment in the shares of Common Stock offered by this Prospectus.

LIMITED OPERATING HISTORY; RISKS RELATED TO INTEGRATION OF OPERATIONS

The Company completed its first Initial Affiliation Transactions in January
1997. As a result of the Conditional Affiliation Transactions, the Company
provides management services to 21 Affiliated Practices with a total of 71
Affiliated Physicians and has entered into Affiliation Agreements with respect
to IPO Affiliation Transactions that are expected to close upon completion of
the Offering that would add nine Affiliated Practices with a total of 19
Affiliated Physicians. The Company is or will be responsible, upon completion of
the Offering, for the management of substantially all non-medical aspects of the
operations of, and for the employment and supervision of most non-physician
personnel providing services to, these Affiliated Practices. There can be no
assurance that the Company will be able to integrate and manage successfully the
assets and personnel of or provide services profitably to the Affiliated
Practices. In addition, there can be no assurance that the Initial Affiliation
Transactions will not result in a loss of patients previously associated with
the Affiliated Practices or other unanticipated adverse consequences. Any of
such events or conditions could have a material adverse effect on the Company.

RISKS ASSOCIATED WITH GROWTH STRATEGY

The Company intends to grow through Affiliation Transactions and same
practice growth. Identifying appropriate quality physicians, closing
transactions with them, and integrating them into the Company's management and
information systems may be a difficult process. There can be no assurance that
suitable affiliation opportunities will be identified or that Affiliation
Transactions will be consummated on terms favorable to the Company, on a timely
basis or at all. In addition, there can be no assurance that the Company will be
able to integrate successfully additional Affiliated Practices into its existing
operations, or that such integration and the measures taken to achieve same
practice growth will not result in the loss of a significant number of patients
by the applicable Affiliated Practices after the completion of the relevant
Affiliation Transactions or other unanticipated adverse consequences. The
Company's results will be materially adversely affected if it is unable to
implement its growth strategy successfully or to manage growth effectively.

LIMITED CAPITAL; NEED FOR ADDITIONAL FINANCING

The Company's growth strategy requires a substantial amount of cash to
finance Affiliation Transactions, for working capital and for capital
expenditures. As of June 30, 1997 the Company had cash and a working capital
deficit of $2.0 million and $7.1 million, respectively. The Company currently is
negotiating a line of credit financing (the "Line of Credit"), pursuant to which
the Company expects to be able to obtain loans outstanding in the maximum
aggregate principal amount of $_____ at any one time. The Company believes that
the net proceeds of this Offering, the Line of Credit, cash generated from
operations and working capital will be sufficient to fund the Company's
requirements for a period of approximately one year from the completion of the
Offering. Subsequent to that time, the Company may require additional debt
and/or equity financing. There is no assurance that the Company will be able to
obtain sufficient subsequent debt or equity financing on favorable terms or at
all. If the Company is unable to secure adequate financing, its ability to
implement its growth strategy will be impaired and its financial condition and
results of operations are likely to be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

GOVERNMENT REGULATION

The health care industry is highly regulated at the federal and state
levels. Laws regulating the industry include the fraud and abuse provisions of
the Social Security Act, which include the "anti-kickback" and "anti-referral"
(i.e., Stark) laws. The "anti-kickback" laws prohibit the offering, payment,
solicitation or receipt of any direct or indirect remuneration for the referral
of Medicare or Medicaid or other state or federal health

7
<PAGE>

benefit patients or for the ordering or providing of Medicare or Medicaid or
other state or federal health benefit covered services, items or equipment. The
"anti-referral" laws impose restrictions on physicians' referrals for designated
health services to entities with which they have financial relationships.
Violations of these laws may result in substantial civil or criminal penalties
for individuals or entities, including civil monetary penalties and exclusion
from participation in the Medicare and Medicaid programs. The laws of many
states, including states in which the Affiliated Practices are located, have
adopted laws similar to the "anti-kickback" laws and "anti-referral" laws. The
laws of many states also prohibit physicians from splitting fees with
non-physicians and prohibit business corporations from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities with substantial discretion. A determination of liability
under any such laws could have a material adverse effect on the Company.
Although the Company believes it is in material compliance with applicable
federal and state laws, given the complexity of such laws, there is no assurance
that the Company may not be deemed to be in violation thereof or that in the
future it will be able to remain in material compliance with these laws.
Furthermore, many aspects of the relationship between the Company and the PCs
have not been the subject of judicial or regulatory interpretation. There is no
assurance that a review of the Company's business by courts or by health care,
tax, labor or other regulatory authorities would not result in determinations
that could adversely affect the Company's operations, or that the health care
regulatory environment will not change so as to restrict the Company's existing
operations or potential for expansion. New rules are expected to be promulgated
in the near future to implement the Stark law, and such rules could adversely
affect the Company's structure or operations. Numerous legislative proposals
have been introduced or proposed in the U.S. Congress and in some state
legislatures that would effect major changes in the U.S. health care system
nationally or at the state level. It is not clear at this time what proposals,
if any, will be adopted or, if adopted, what effect, if any, such proposals
would have on the Company's business. Certain proposals, such as reducing
Medicare and Medicaid expenditures, implementing price controls and permitting
greater flexibility of states' administration of Medicaid, could adversely
affect the Company. There can be no assurance that currently proposed or future
health care legislation or other changes in the administration or interpretation
of governmental health care programs will not have a material adverse effect on
the Company.

The Company is also subject to certain federal and state antitrust laws,
some of which could prohibit the potential control by the Company of certain
specialist physician services within a relevant market, which, among other
impacts, may adversely affect the Company's ability to engage in Affiliation
Transactions. In addition, certain laws which prohibit or restrict the fixing or
setting of prices, the tying of services and other similar activities may
adversely affect the Company's ability to negotiate payor contracts on behalf of
the PCs or the Provider Network if such activities were deemed to be in
violation of such prohibitions or restrictions.

Certain New York state regulations prohibit a physician from sharing or
splitting fees with persons not authorized to practice medicine. This
prohibition precludes the Company from receiving fees from its affiliated PC
operating in New York (the "New York PC") which constitute a percentage of or
are otherwise dependent upon the income or receipts of the PC. The Company
believes that the compensation arrangement for services provided to the New York
PC under the relevant Management Agreement, which provides for a fee based on
the Company's costs plus an additional percentage of the Company's costs,
complies with applicable New York state law and regulation. However, there can
be no assurance that certain actions by New York state regulatory authorities
would not result in a judicial or administrative determination with regard to
such compensation structure that could adversely affect the Company's
operations. If the Company is found to be engaged in a fee splitting arrangement
with the New York PC, the New York PC and its Affiliated Physicians would be
subject to charges of professional misconduct with penalties ranging from
censure to reprimand to revocation of their professional licenses, potentially
resulting in the Company being deprived of its ability to operate its business
with, and to collect fees due and owing from, the New York PC, which would have
a material adverse effect on the Company and its operations.

See "Business -- Government Regulation."

8
<PAGE>

RISKS RELATED TO RELATIONSHIPS WITH THIRD PARTY PAYORS

Physician groups typically bill various third party payors, such as
governmental programs (e.g., Medicare and Medicaid), private insurance plans and
managed care plans, for the health care services provided to their patients.
Such third party payors increasingly are negotiating the prices charged for
medical services, pharmaceuticals and other supplies in order to lower
reimbursement and utilization rates. Third party payors can also deny
reimbursement for medical services, pharmaceuticals and other supplies if they
determine that a treatment was not performed in accordance with treatment
protocols established by such payors or for other reasons. Loss of revenue by
the PCs as a result of such payors' cost containment efforts could have a
material adverse effect on the Company. The Company anticipates that the PCs and
the Provider Network will eventually offer their services to payors on a fully
or partially capitated basis (i.e., fixed payments would be made to the
applicable provider based on the number of covered patients for whom the
provider was responsible during a specified time period and actuarial
assumptions related thereto, rather than based on specific services rendered) or
other risk-sharing basis, including certain "case rate" or other similar
arrangements under which payors provide a fixed fee to the Company for managing
and/or providing physician and other medical services rendered in connection
with the treatment of certain injuries, disease states or other episodes of
care. To the extent that patients or enrollees covered by a capitated or other
risk-sharing contract require more frequent or extensive care than is
anticipated by the Company, the revenue to the Company derived from such
contracts may be insufficient to cover the costs of the services provided. There
is no assurance that the PCs or the Provider Network will be able to enter into
such contracts that will generate sufficient revenues to cover the costs of
services provided under such contracts or that such contracts would be
profitable to the PCs and, ultimately, the Company. If the PCs or the Provider
Network enter into capitation or other risk-sharing arrangements, they may be
considered to be in the business of insurance, in which event they could become
subject to various regulatory and licensing requirements that could have a
material adverse effect on the Company.

The federal government has implemented, through the Medicare program, a
resource-based relative value scale ("RBRVS") payment methodology for health
care provider services. RBRVS is a fee schedule that, except for certain
geographical and other adjustments, pays similarly situated health care
providers the same amount for the same services. The RBRVS is adjusted each year
and is subject to increases or decreases at the discretion of Congress. To date,
the implementation of RBRVS has reduced payment rates for certain of the
procedures historically provided by the Affiliated Practices. Further reductions
could significantly affect the PCs, each of which derives a portion of its
revenue from Medicare. RBRVS types of payment systems have also been adopted by
certain private third party payors and may become a predominant payment
methodology. Expanded implementation of such programs would reduce payments from
private third party payors, and could indirectly reduce revenue to the Company.
The Balanced Budget Act of 1997 (the "BBA") includes certain provisions that
over time are designed to limit increases in Medicare payments and that may have
the effect of reducing reimbursement to Affiliated Practices. It is probable
that new and more restrictive Medicare payment rules, procedures and programs
for determining global Medicare capitation fees will be implemented in the
future.

The Company currently provides or intends to provide specialist physician
services and ancillary services to patients on behalf of the workers'
compensation programs in certain states in which the Company operates. There can
be no assurance that reductions in applicable fee schedules, movement by one or
more of such state programs toward managed care models or other regulatory
changes will not have an adverse effect on the revenues received by the Company
for the provision of such services. See "Business -- Reimbursement for Services"
and "-- Government Regulation."

RISKS INHERENT IN PROVISION OF MEDICAL SERVICES

The PCs, the Affiliated Physicians and physicians who become members of the
Provider Network are involved in the delivery of health care services to the
public, and are exposed to the risk of professional liability claims. Even
though the Company does not directly provide health care services, it is
possible for the Company to be joined as a defendant in any such claim due to
its relationship with the PCs and the Provider Network. Even if the Company is
not a direct party, successful claims against the PC would generally adversely
affect the amount of management fees from the applicable PC to which the Company
is entitled.

9
<PAGE>

Claims of this nature, if successful, could result in damage awards to the
claimants in excess of the limits of any applicable insurance coverage.
Insurance against losses related to claims of this type can be expensive and
costs may vary widely from state to state and year to year. The Company and the
PCs maintain liability insurance in amounts and coverages the Company believes
are appropriate. Nevertheless, successful malpractice claims asserted against
the PCs, the Provider Network or the Company could have a material adverse
effect on the Company. See "Business -- Legal Proceedings."

DEPENDENCE ON MANAGEMENT INFORMATION SYSTEMS

The successful execution of the Company's strategy is, in part, dependent
on its ability to integrate practice management information and financial
information systems into the Affiliated Practices as soon as practicable upon
the consummation of each Affiliation Transaction. To date, the Company's
practice management information system has been implemented in two Affiliated
Practices and it is expected to be implemented by the end of 1998 in a majority
of the Affiliated Practices that become affiliated with the Company through the
Initial Affiliation Transactions. In addition, the Company's financial
information system has been implemented in all of the Company's Affiliated
Practices. In addition to their integral role in helping the PCs realize
operating efficiencies, such systems are critical to negotiating, pricing and
managing fully or partially capitated managed care contracts and other
risk-sharing arrangements. The Company will need to continue to invest in, and
administer, sophisticated management information systems to support these
activities. The Company may experience unanticipated delays, complications and
expenses in implementing, integrating and operating such systems. Furthermore,
such systems may require modifications, improvements or replacements as the
Company expands and as new technologies become available. Such modifications,
improvements or replacements may require substantial expenditures and may
require interruptions in operations during periods of implementation. The
failure to implement successfully and maintain practice management information
and financial information systems would have a material adverse effect on the
Company. See "Business -- Management Information Systems."

DEPENDENCE ON AFFILIATED PHYSICIANS

Substantially all of the Company's revenue is currently earned by the
Company pursuant to Management Agreements with four PCs, which, upon
consummation of all the Initial Affiliation Transactions, will employ a total of
90 Affiliated Physicians pursuant to Employment Agreements between the PCs and
the Affiliated Physicians (the "Employment Agreements"). While the Company
intends to maintain, through the PCs, its relationships with the Affiliated
Physicians employed by the PCs, the termination of employment by a sufficient
number of Affiliated Physicians or the significant deterioration of the business
or operations of a sufficient number of the Affiliated Practices could have a
material adverse effect on the applicable PC and the Company. Although
Affiliated Physicians generally are required to pay liquidated damages to the PC
in the event that they terminate their employment prematurely, are subject to
certain restrictive covenants during the terms of their respective Employment
Agreements, and are generally prohibited from becoming employees of or from
being managed by other physician practice entities, hospitals and certain other
entities for a period of two years following employment, such Affiliated
Physicians generally will be able to compete with the Company at the end of
their respective employment terms (generally five to seven years from the date
of the applicable Employment Agreement) by returning to private practice. The
loss of the services of and such competition from former Affiliated Physicians
could have a material adverse effect on the Company's operations and results. In
addition, each of the PCs operates within a limited geographic area, and a
deterioration of economic or other conditions within such area could have a
material adverse impact upon the PC and the Company. Such results, as well as a
deterioration in the financial condition of a substantial number of the other
physicians or physician groups affiliated with the Company through the Provider
Network, could also have a material adverse effect on the Company. See "Business
- -- Affiliation Transactions."

COMPETITION

10
<PAGE>

other health care providers such as hospitals, physicians and providers of
ancillary services, and negotiation and execution of payor contracts. Most of
these entities have been in business longer than the Company, and have
substantially greater assets and resources than those of the Company. The
Company believes other health care companies and institutions have also been
investigating forming single- or multi-specialty physician management companies,
and still other businesses with substantial resources may decide to enter the
specialist physician practice management business, all of which entities are
potentially in competition with the Company. New competition may arise from
provider service organizations authorized under the BBA. The Company's success
is highly dependent on the competitiveness of its Affiliated Practices, which
must compete for payors and consumers with numerous solo practitioners, single-
and multi-specialty physician groups, hospitals and managed care organizations,
many of which have substantially greater resources than those of the Company's
Affiliated Practices. See "Business -- Competition."

RISKS RELATED TO INTANGIBLE ASSETS

As a result of the Company's various Affiliation Transactions, intangible
assets, net of accumulated amortization, of approximately $67.2 million on a pro
forma basis have been recorded on the Company's pro forma balance sheet as of
June 30, 1997. Such intangible assets are being amortized over periods of three
to 40 years. The Company expects the amount allocable to intangible assets on
its balance sheet to increase in the future in connection with additional
Affiliation Transactions, which will increase the Company's amortization
expense. In the event of any sale or liquidation of the Company or a portion of
its assets, there can be no assurance that the value of the Company's intangible
assets will be realized. In addition, the Company continually evaluates whether
events and circumstances have occurred indicating that any portion of the
remaining balance of the amount allocable to the Company's intangible assets may
not be recoverable. When factors indicate that the carrying value of the
Company's intangible assets may be impaired, the Company may be required to
reduce the carrying value of such assets. Any future determination requiring the
write-off of a significant portion of unamortized intangible assets could have a
material adverse effect on the Company's business, financial condition and
results of operations. See Note 3 of Notes to Consolidated Financial Statements.

DEPENDENCE ON KEY PERSONNEL

The Company is highly dependent on its executive officers, particularly
Thomas J. Keane, the Company's Chairman, President and Chief Executive Officer.
The loss of Mr. Keane or its other executive officers could have a material
adverse effect on the implementation of the Company's strategy and the
operations of the Company. There can be no assurance that the Company will be
successful in retaining its key personnel. The Company's success is also
dependent on its ability to attract and retain additional key personnel which it
requires. The loss of the services of one or more of its key personnel or the
inability to add additional key personnel could have a material adverse effect
on the Company. See "Management."

CONTROL BY PRINCIPAL SHAREHOLDERS; ANTI-TAKEOVER PROVISIONS

Mr. Keane, Edison Venture Fund III, L.P. ("Edison"), Dominion Fund IV
("Dominion"), Keystone Venture IV, L.P. ("Keystone") and NEPA Venture Fund II,
L.P. ("NEPA") (collectively, the "Principal Shareholders") will own, after the
Offering, approximately ____% of the outstanding Common Stock (approximately
____% if all outstanding Options and Warrants are exercised). As a result, the
Principal Shareholders would effectively be able to control all matters
requiring approval by the Company's shareholders, including the election of
directors. See "Principal Shareholders" and "Shares Eligible for Future Sale."
In addition, the Company is subject to the anti-takeover provisions of
Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of 1988,
as amended (the "BCL"), which prohibit the Company from engaging in a "business
combination" with an "interested shareholder" for a period of five years after
the date of the transaction as a result of which such shareholder became an
"interested shareholder" unless the business combination is approved in a
prescribed manner. These provisions, together with other provisions in the
Company's Second Amended and Restated Articles of Incorporation, as amended (the
"Articles"), and By-laws, may discourage acquisition bids for the Company by
persons unrelated to certain existing shareholders. The effect of Principal
Shareholders' stock ownership and these provisions may be to limit the price
that

11
<PAGE>

investors might be willing to pay in the future for shares of the Common Stock
or to prevent or delay a merger, takeover or other change in control of the
Company and thus discourage attempts to acquire the Company. In addition, the
Company's Board of Directors has the authority to issue up to 5,000,000 shares
of Preferred Stock ("Preferred Stock") and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the shareholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no present plan to issue any shares of Preferred Stock.
The Company's Articles and By-laws contain other provisions, such as provisions
for a classified Board of Directors, notice requirements for shareholders'
nominations of directors and limitations on the shareholders' ability to remove
directors or to present proposals to the shareholders for a vote, all of which
may have the further effect of making it more difficult for a third party to
gain control of or to acquire the Company. See "Description of Capital Stock."

NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after the Offering. The initial public offering price will be
determined through negotiation between the Company and the Representatives of
the Underwriters and may bear no relationship to the price at which the Common
Stock will trade after the Offering. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price. The
market price of the Common Stock may be volatile and may be significantly
affected by factors such as actual or anticipated fluctuations in the Company's
operating results, announcements of new areas of business by the Company or its
competitors, developments with respect to conditions and trends in the Company's
business or in the health care industry as a whole, governmental regulation,
changes in estimates by securities analysts of the Company's or its competitors'
future financial performance, general market conditions and other factors, many
of which are beyond the Company's control. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have adversely affected the market prices of securities of companies
irrespective of such companies' operating performances.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of the Common Stock in the public market
following the Offering could adversely affect the market price of the Common
Stock. Upon the completion of the Offering, the Company will have ____ shares of
Common Stock outstanding. Of these shares, the ___ shares of Common Stock sold
in the Offering will be freely tradeable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The remaining 9,718,159 shares of Common Stock outstanding as of the date
of this Prospectus are "restricted securities" as defined by Rule 144 under the
Securities Act ("Rule 144"). Of these shares, ____% have been held by the
Principal Shareholders for more than one year and would be able to be sold in
accordance with the provisions of Rule 144 beginning 90 days from the date of
this Prospectus. See "Shares Eligible for Future Sale."

Upon the completion of the Offering, there will be 2,102,577 shares of
Common Stock issuable upon exercise of outstanding Options under the Company's
1995 Company Stock Option Plan (the "1995 Company Option Plan") and 1995
Affiliate Stock Option Plan (the "1995 Affiliate Option Plan," and together with
the Company's Stock Incentive Plan (the "Stock Incentive Plan") and the 1995
Company Option Plan, the "Stock Incentive Plans"). Approximately 295,223 of the
Options will be exercisable upon completion of the Offering and the remainder
will vest in various amounts through September 2002. In addition, 1,250,000
shares will be eligible for issuance upon the exercise of Options not yet
granted under the Stock Incentive Plan. The Company intends to file a
registration statement or statements on Form S-8 covering the shares of Common
Stock issuable under the Stock Incentive Plans upon exercise of Options within
one year from the date of this Prospectus. The shares registered under such
registration statement or statements will be available for resale in the open
market upon the exercise of Options, subject to Rule 144 volume limitations
applicable to affiliates. See "Management -- Stock Incentive Plans."

12
<PAGE>

The Company and each executive officer and director and certain other
shareholders of the Company have agreed that, for a period of 180 days after the
date of this Prospectus (the "Lock-up Period"), they will not, without the prior
written consent of BancAmerica Robertson Stephens, issue, offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for or that represent the right to receive any shares of Common
Stock or enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, the economic consequences of ownership of the
Common Stock except, in the case of the Company, in certain limited
circumstances. See "Underwriting."

The Company and certain of its shareholders are parties to an agreement
under which such shareholders may cause certain of their shares of Common Stock
to be registered for sale under the Securities Act. See "Certain Transactions."

DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of the Common Stock. Purchasers of shares of
Common Stock in the Offering will suffer immediate and substantial dilution of
$_____ (assuming an initial public offering price of $____ per share) in the pro
forma net tangible book value per share of Common Stock. See "Dilution."

13
<PAGE>

USE OF PROCEEDS

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

The Company anticipates applying approximately $______ to make required
cash payments in connection with the Initial Affiliation Transactions, and
$______ to repay certain indebtedness of the Company. Such indebtedness, the
proceeds of which were used primarily for working capital, consists of (i) loans
provided by certain investors consisting of a term loan in the principal amount
of $2 million bearing interest at an annual rate of 12% and term notes in the
aggregate principal amount of $2 million bearing interest at an annual rate of
10% and (ii) a bridge loan currently being negotiated. See "Certain
Transactions." In addition, the Company anticipates applying approximately
$______ to repay certain indebtedness assumed pursuant to various Affiliation
Transactions, which indebtedness bears interest at annual rates ranging from
____% to ____%. The remainder of the net proceeds will be used for working
capital and other general corporate purposes, including possible Affiliation
Transactions and other acquisitions. Pending such uses, the Company intends to
invest the net proceeds from the Offering in investment grade, interest-bearing
instruments.

The Company intends to enter into Affiliation Transactions and possibly to
seek acquisitions of businesses that are complementary to those of the Company,
and a portion of the net proceeds may be used for such purposes. While the
Company engages from time to time in discussions with respect to such
transactions, the Company has no commitments or agreements with respect to any
such transactions as of the date of this Prospectus, and there can be no
assurance that any such transactions will be completed.

DIVIDEND POLICY

Prior to the Offering, the Company has not paid cash dividends on its
capital stock. The Company currently expects it will retain its future earnings
for use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.

14
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1997, (i) on an actual basis; (ii) on a pro forma basis to give effect to
(a) the issuance of term notes in an aggregate principal amount of $2.0 million
in September 1997, (b) the 21 Conditional Affiliation Transactions and the
Conditional Transaction which, for accounting purposes, will occur
simultaneously with completion of the Offering, (c) the nine IPO Affiliation
Transactions which will occur simultaneously with completion of the Offering,
(d) the Preferred Stock Conversion, and (e) the Series B Warrant Conversion, as
if all of the foregoing transactions had occurred on June 30, 1997; and (iii) on
a pro forma as adjusted basis to give effect to the pro forma adjustments and to
the sale of ________ shares of Common Stock offered hereby (at an assumed public
offering price of $______ per share) and the application of the net proceeds
therefrom as described in "Use of Proceeds." See the Unaudited Pro Forma
Consolidated Financial Statements. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Current portion of notes payable on Initial Affiliation
Transactions........................................... $ 7,250 $11,182 $
Current portion of other long-term debt(1)................ 82 2,151
------- -------
Total current portion of long-term debt.............. 7,332 13,333
Pro forma cash due to Initial Affiliation Transactions.... -- 12,299
------- ------- --------
Total short-term debt................................ $ 7,332 $25,632 $
======= ======= ========
LONG-TERM DEBT:
Notes payable on Initial Affiliation Transactions......... $15,001 $30,251 $
Other long-term debt(1)................................... 1,812 4,455
------- ------- --------
Total long-term debt................................. 16,813 34,706
------- ------- --------
Series A Convertible Preferred Stock........................ 2,174 --
------- ------- --------
Series B Convertible Preferred Stock........................ 3,792 --
------- ------- --------
Series B Convertible Preferred Stock Warrants............... 413 --
------- ------- --------
Common Stock to be issued on Conditional Affiliation
Transactions.............................................. 11,039 --
------- ------- --------
Shareholders' Equity (Deficit):
Common Stock, $.01 par value 25,000,000 shares authorized;
3,936,581 shares (actual); _____ shares (pro forma),
______ shares (as adjusted) issued and
outstanding(2)......................................... 39 120
Additional paid-in capital................................ 434 25,918
Common Stock Warrants..................................... 96 947
Accumulated deficit....................................... (5,371) (5,371)
------- ------- --------
Total shareholders' equity (deficit)................... (4,802) 21,614
------- ------- --------
Total capitalization................................. $29,429 $56,320 $
======= ======= ========
</TABLE>

- ------------------
(1) In connection with the issuance of term notes in an aggregate principal
amount of $2.0 million in September 1997, the Company issued Warrants to
purchase 222,223 shares of Series B Preferred Stock. The term notes have
been recorded net of the estimated value ($438,000) associated with the
Warrants.
(2) Excludes (i) 2,500,000 shares of Common Stock reserved for issuance under
the 1995 Company Option Plan and the 1995 Affiliate Stock Option Plan of
which 1,173,844 shares were issuable at June 30, 1997 upon the exercise of
outstanding Options, and (ii) 515,873 shares of Common Stock issuable upon
exercise of Warrants outstanding as of June 30, 1997. For the period July 1,
1997 through November 7, 1997: 15,000 shares of Common Stock were issued
upon exercise of outstanding Options; Options for 1,054,900 shares of Common
Stock were granted; Options for 111,167 shares of Common Stock were
canceled; and Warrants to purchase 223,223 shares of Series B Preferred
Stock were issued. See "Management -- Stock Incentive Plans" and "Certain
Transactions."

15
<PAGE>

DILUTION

As of June 30, 1997, the Company had a net tangible book value (deficit) of
approximately $(5.1 million) or $(1.30) per share. Net tangible book value
(deficit) per share represents the total assets of the Company, less (i)
identifiable intangible assets and (ii) total liabilities (including Convertible
Preferred Stock and Series B Warrants), divided by the number of shares of
Common Stock outstanding at that date. The increase in pro forma net tangible
book value (deficit) per share of $_________ reflected in the following table is
attributable to the 21 Conditional Affiliation Transactions and the Conditional
Transaction that, for accounting purposes, will occur simultaneously with the
completion of this Offering and the nine IPO Affiliation Transactions which will
occur simultaneously with the Offering. The increase in pro forma net tangible
book value (deficit) per share of $________ reflected in the following table is
attributable to the Preferred Stock Conversion and the Series B Warrant
Conversion. After giving effect to the sale of ______ shares offered by the
Company hereby (at an assumed initial public offering price of $_______ per
share) and the application of the net proceeds therefrom, the pro forma as
adjusted net tangible book value (deficit) of the Company at June 30, 1997 would
have been approximately $__________ million or $______ per share. This
represents an immediate increase in historical net tangible book value of
$______ per share to existing shareholders and an immediate dilution of $_____
per share to new investors. The following table illustrates this per share
dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $
Net tangible book value (deficit) per share at June 30,
1997................................................... $ (1.30)
Increase per share attributable to the:
Initial Affiliation Transactions and Conditional
Transaction.......................................
Preferred Stock Conversion and
Series B Warrant Conversion.......................
-------
Pro forma net tangible book value (deficit) per share
before the Offering..................................
Increase per share attributable to new investors.......
-------
Pro forma as adjusted net tangible book value per share
after the Offering........................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>

The following table summarizes, on a pro forma basis as of June 30, 1997,
the difference among existing common shareholders, shareholders who will receive
shares as a result of the Initial Affiliation Transactions, shareholders who
will receive shares as a result of the Preferred Stock Conversion and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price paid per share
(based upon, in the case of new investors, an assumed public offering price of
$_____ per share):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- --------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing common shareholders.............. 3,936,581 $572,250 $ 0.15
Initial Affiliation Transaction
shareholders............................
Preferred shareholders....................
--------- --- -------- --- ------
New investors.............................
--------- --- -------- --- ------
Total................................... 100% $ 100%
========= === ======== === ======
</TABLE>

The foregoing computations assume as of November 12, 1997 (i) no exercise
of outstanding Options to purchase 2,102,577 shares of Common Stock at a
weighted average exercise price of $2.52 (ii) no exercise of outstanding
Warrants to purchase 738,096 shares of Common Stock at exercise prices of $3.15
per share (as to 682,540 shares) and $_______ per share (45% of the Price to
Public) (as to 55,556 shares). To the extent these Options and Warrants are
exercised, there will be further dilution to new investors. See "Description of
Capital Stock," "Underwriting," and "Management -- Stock Incentive Plans."

16
<PAGE>

SELECTED FINANCIAL DATA

The selected historical financial data of the Company as of and for the
period from inception (July 14, 1994) to December 31, 1994 and for the years
ended December 31, 1995 and 1996, have been derived from the audited
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The selected historical financial data of the Company as of June 30,
1997, and for the six months ended June 30, 1996 and 1997, are derived from the
unaudited Consolidated Financial Statements of the Company and, in the opinion
of management, include all adjustments, (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of the
financial position and results of operations for such periods. The selected
historical financial data of the Company should be read in conjunction with the
Consolidated Financial Statements of the Company and Notes thereto appearing
elsewhere in this Prospectus. The selected pro forma financial data set forth
below as of June 30, 1997 and for the year ended December 31, 1996 and the six
months ended June 30, 1997, have been derived from the Unaudited Pro Forma
Consolidated Financial Statements of the Company. The pro forma selected
financial data is not necessarily indicative of the actual results of operations
or financial position that would have been achieved had the Completed
Transactions, Initial Affiliation Transactions, Conditional Transaction and the
Offering been completed as of January 1, 1996, nor are the statements
necessarily indicative of the Company's future results of operations or
financial position. See the Unaudited Pro Forma Consolidated Financial
Statements.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30, 1997
------------------------------------------- SIX MONTHS ----------------------
1996 ENDED PRO FORMA
1994 1995 1996 PRO FORMA JUNE 30, AS
ACTUAL ACTUAL ACTUAL AS ADJUSTED(1) 1996 ACTUAL ADJUSTED (1)
------ ------ ------- --------------- ---------- ------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................. $ -- $ -- $ 70 $65,137 $ 68 $ 1,121 $32,996
Cost of revenues............. -- -- -- 57,896 -- 297 28,729
----- ----- ------- ------- ------- ------- -------
Gross profit................. -- -- 70 7,241 68 824 4,267
Operating expenses:
General and
administrative........... 321 692 2,295 2,295 617 1,975 1,975
Depreciation and
amortization............. -- 2 6 3,227 3 55 1,667
----- ----- ------- ------- ------- ------- -------
Income (loss) from
operations................. (321) (694) (2,231) 1,719 (552) (1,206) 625
Interest expense............. -- 11 13 5 387
Other (income) expense,
net........................ -- (25) 492 75 (53)
----- ----- ------- ------- ------- ------- -------
Income (loss) before income
taxes...................... (321) (680) (2,736) (632) (1,540)
Income tax provision
(benefit).................. -- -- -- -- --
----- ----- ------- ------- ------- ------- -------
Net income (loss)............ $(321) $(680) $(2,736) $ $ (632) $(1,540) $
===== ===== ======= ======= ======= ======= =======
Pro forma net income (loss)
per common share (2)....... $
======= =======
Shares used in computing pro
forma net income (loss) per
common share (2)...........
======= =======
</TABLE>

17
<PAGE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1997
------------------------- -----------------------------------------
PRO FORMA
1994 1995 1996 ACTUAL PRO FORMA (3) AS ADJUSTED (4)
----- ------- ------- ------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............. $ -- $ 1,395 $ 2,066 $ 2,048 $ 4,609 $
Working capital (deficit)............. (25) 1,225 697 (7,090) (15,207)
Total assets(5)....................... -- 1,492 2,632 39,794 89,872
Cash due to Initial Affiliation
Transactions........................ -- -- -- -- 12,299
Current portion of long-term debt..... -- -- -- 7,332 13,333
Long-term debt, less current
portion............................. 262 172 172 16,813 34,706
Convertible preferred stock
securities.......................... -- 2,159 4,087 6,379 --
Shareholders' equity (deficit)........ (287) (1,028) (3,353) (4,802) 21,614
</TABLE>

- ------------------
(1) Adjusted on a pro forma basis to give effect to (i) the two Completed
Transactions which occurred during 1997, (ii) the 21 Conditional Affiliation
Transactions and the Conditional Transaction which, for accounting purposes,
will occur simultaneously with the completion of the Offering, (iii) the
nine IPO Affiliation Transactions which will occur simultaneously with the
completion of the Offering and (iv) the reduction in interest expense
resulting from the assumed use of the estimated net proceeds of the Offering
made hereby to retire certain long-term debt obligations, as if all of the
foregoing transactions had occurred as of the beginning of the respective
periods. Excludes a charge of $788,000 (estimated at September 30, 1997) for
the early extinguishment of certain long-term debt obligations which will be
taken in the fiscal quarter in which the Offering is completed. See "Use of
Proceeds." The pro forma statement of operations data does not purport to
represent what the Company's results of operations would have been had such
transactions occurred as of the beginning of the respective periods or
project the Company's results for any future period. See the Unaudited Pro
Forma Consolidated Financial Statements and Note 8 of the Notes to
Consolidated Financial Statements.

(2) For information concerning the computation of pro forma net income (loss)
per common share, see Note 6 of Notes to Unaudited Pro Forma Consolidated
Financial Statements.

(5) Includes $0.1 million on an actual and $67.2 million on a pro forma and pro
forma as adjusted basis of intangible assets at June 30, 1997.

<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following unaudited pro forma consolidated statements of operations for
the six months ended June 30, 1997 and the year ended December 31, 1996 and the
unaudited pro forma consolidated balance sheet as of June 30, 1997 are based on
the historical Consolidated Financial Statements of the Company, adjusted to
give effect to the 21 Conditional Affiliation Transactions and the Conditional
Transaction which, for accounting purposes, will occur simultaneously with the
completion of an initial public offering by the Company (the "IPO"), the nine
IPO Affiliation Transactions that will occur upon completion of the Offering and
the Completed Transactions.

The unaudited pro forma consolidated statements of operations have been
prepared assuming the above transactions occurred on January 1, 1996. The
unaudited pro forma consolidated balance sheet has been prepared assuming that
the Initial Affiliation Transactions and the Conditional Transaction had
occurred on June 30, 1997 and also reflects the IPO, the issuance of term notes
in an aggregate principal amount of $2.0 million in September 1997, the
Preferred Stock Conversion and the Series B Warrant Conversion, as if such
transactions had occurred on June 30, 1997. The transactions and the related
adjustments are described in the notes hereto.

The unaudited pro forma consolidated statements of operations also give
effect to the reduction in interest expense resulting from the assumed use, as
of the beginning of the respective periods, of the estimated net proceeds of the
Offering to retire certain long-term obligations, together with accrued
interest. The unaudited pro forma consolidated statements of operations exclude
a charge of $788,000 (estimated at September 30, 1997) for the early
extinguishment of certain long-term debt obligations which will be taken in the
fiscal quarter in which the IPO is completed, as described under "Use of
Proceeds."

The pro forma adjustments are based on estimates, available information and
certain assumptions and may be revised, as additional information becomes
available. The pro forma financial information does not purport to represent
what the Company's results of operations or financial position would have been
had the acquisitions in fact occurred on those dates, or to project the
Company's results of operations or financial position for any future period or
date, nor does it give effect to any matters other than those described in the
notes thereto. The pro forma financial information should be read in conjunction
with the Consolidated Financial Statements of the Company and the Financial
Statements of certain of the parties to the above transactions appearing
elsewhere in this Prospectus. See "Risk Factors."

<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
----------------------------------------- TRANSACTION OFFERING
U.S. PHYSICIANS, INC. PRO FORMA PRO FORMA
AND SUBSIDIARIES TRANSACTIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS
--------------------- ------------ ----------- --------- -----------
(NOTE 2) (NOTE 3) (NOTE 3)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Net patient revenues........................ $ 47 $ 33,700 $(3,410) $30,337 $
Management fees from Conditional Affiliation
Transactions.............................. 940 -- (940) --
Management fees............................. 50 -- 2,402 2,452
Other revenues.............................. 84 123 -- 207
------- -------- ------- ------- -------
Total net revenues........................ 1,121 33,823 (1,948) 32,996
COST OF REVENUES............................. 297 32,401 (3,969) 28,729
------- -------- ------- ------- -------
Gross profit.............................. 824 1,422 2,021 4,267
OPERATING EXPENSES:
General and administrative.................. 1,975 -- -- 1,975
Depreciation and amortization............... 55 529 1,083 1,667
------- -------- ------- ------- -------
Income (loss) from operations............. (1,206) 893 938 625
OTHER (INCOME) EXPENSE....................... -- (71) -- (71)
INTEREST INCOME.............................. (53) (13) -- (66)
INTEREST EXPENSE............................. 387 178 1,242 1,807
------- -------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES............ (1,540) 799 (304) (1,045)
INCOME TAX PROVISION (BENEFIT)............... -- 37 (207) (170)
------- -------- ------- ------- -------
NET INCOME (LOSS)............................ $(1,540) $ 762 $ (97) $ (875) $
======= ======== ======= ======= =======
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
(Note 6).................................... $
=======

SHARES USED IN COMPUTING PRO FORMA NET INCOME
(LOSS) PER COMMON SHARE (Note 6)............
=======

PRO FORMA
AS ADJUSTED
-----------

<S> <C>
NET REVENUES:
Net patient revenues........................ $
Management fees from Conditional Affiliation
Transactions..............................
Management fees.............................
Other revenues..............................
-------
Total net revenues........................
COST OF REVENUES.............................
-------
Gross profit..............................
OPERATING EXPENSES:
General and administrative..................
Depreciation and amortization...............
-------
Income (loss) from operations.............
OTHER (INCOME) EXPENSE.......................
INTEREST INCOME..............................
INTEREST EXPENSE.............................
-------
INCOME (LOSS) BEFORE INCOME TAXES............
INCOME TAX PROVISION (BENEFIT)...............
-------
NET INCOME (LOSS)............................ $
=======
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
(Note 6).................................... $
=======
SHARES USED IN COMPUTING PRO FORMA NET INCOME
(LOSS) PER COMMON SHARE (Note 6)............
=======
</TABLE>

See accompanying notes to unaudited pro forma consolidated financial statements.

<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
--------------------------------------- TRANSACTION OFFERING
U.S. PHYSICIANS, INC. PRO FORMA PRO FORMA
AND SUBSIDIARIES TRANSACTIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS
--------------------- ------------ ----------- --------- -----------
(NOTE 2) (NOTE 4) (NOTE 4)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Net patient revenues........................ $ -- $ 66,252 $(6,863) $59,389 $
Management fees from Conditional Affiliation
Transactions.............................. -- -- -- --
Management fees............................. -- -- 4,835 4,835
Other revenues.............................. 70 843 -- 913
------- -------- ------- ------- -------
Total net revenues........................ 70 67,095 (2,028) 65,137
COST OF REVENUES............................. -- 65,163 (7,267) 57,896
------- -------- ------- ------- -------
Gross profit.............................. 70 1,932 5,239 7,241
OPERATING EXPENSES:
General and administrative.................. 2,295 -- -- 2,295
Depreciation and amortization............... 6 1,055 2,166 3,227
------- -------- ------- ------- -------
Income (loss) from operations............. (2,231) 877 3,073 1,719
LOSS IN TERMINATED JOINT VENTURE............. 529 -- -- 529
OTHER (INCOME) EXPENSE....................... -- (229) -- (229)
INTEREST INCOME.............................. (37) (7) -- (44)
INTEREST EXPENSE............................. 13 392 2,483 2,888
------- -------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES............ (2,736) 721 590 (1,425)
INCOME TAX PROVISION (BENEFIT)............... -- 29 (118) (89)
------- -------- ------- ------- -------
NET INCOME (LOSS)............................ $(2,736) $ 692 $ 708 $(1,336) $
======= ======== ======= ======= =======
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
(Note 6).................................... $
=======
SHARES USED IN COMPUTING PRO FORMA NET INCOME
(LOSS) PER COMMON SHARE (Note 6)............
=======

PRO FORMA
AS ADJUSTED
-----------

<S> <C>
NET REVENUES:
Net patient revenues........................ $
Management fees from Conditional Affiliation
Transactions..............................
Management fees.............................
Other revenues..............................
-------
Total net revenues........................
COST OF REVENUES.............................
-------
Gross profit..............................
OPERATING EXPENSES:
General and administrative..................
Depreciation and amortization...............
-------
Income (loss) from operations.............
LOSS IN TERMINATED JOINT VENTURE.............
OTHER (INCOME) EXPENSE.......................
INTEREST INCOME..............................
INTEREST EXPENSE.............................
-------
INCOME (LOSS) BEFORE INCOME TAXES............
INCOME TAX PROVISION (BENEFIT)...............
-------
NET INCOME (LOSS)............................ $
=======
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE
(Note 6).................................... $
=======
SHARES USED IN COMPUTING PRO FORMA NET INCOME
(LOSS) PER COMMON SHARE (Note 6)............
=======
</TABLE>

See accompanying notes to unaudited pro forma consolidated financial statements.

<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS (NOTE 1)
----------------------------------------- TRANSACTION OFFERING
U.S. PHYSICIANS, INC. PRO FORMA PRO FORMA
AND SUBSIDIARIES TRANSACTIONS ADJUSTMENTS PRO FORMA ADJUSTMENTS
ASSETS --------------------- ------------ ----------- --------- -----------
(NOTE 2) (NOTE 5) (NOTE 5)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $ 2,048 $ 1,623 $ 938 $ 4,609 $
Accounts receivable......................... 123 11,843 -- 11,966
Due from Conditional Affiliation
Transactions.............................. 603 368 (971) --
Prepaid expenses and other.................. 224 874 392 1,490
Deferred income taxes....................... -- 23 (23) --
------- -------- ------- ------- -------
Total current assets.................. 2,998 14,731 336 18,065
PROPERTY AND EQUIPMENT, net.................. 896 3,673 (296) 4,273
INVESTMENT IN CONDITIONAL AFFILIATION
TRANSACTIONS................................ 35,467 -- (35,467) --
INTANGIBLE ASSETS, net....................... 128 -- 67,101 67,229
DEFERRED OFFERING COSTS...................... 184 -- -- 184
DEFERRED INCOME TAXES........................ -- 155 (155) --
OTHER ASSETS................................. 121 411 (411) 121
------- -------- ------- ------- -------
$39,794 $ 18,970 $31,108 $89,872 $
======= ======== ======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable on Initial
Affiliation Transactions.................. $ 7,250 $ -- $ 3,932 $11,182 $
Current portion of other long-term debt..... 82 2,592 (523) 2,151
Accounts payable............................ 382 1,162 (155) 1,389
Accrued expenses............................ 2,006 2,096 294 4,396
Deferred income taxes....................... -- 1,311 544 1,855
Pro forma cash due to Initial Affiliation
Transactions.............................. -- -- 12,299 12,299
Due to Conditional Affiliation
Transactions.............................. 368 603 (971) --
------- -------- ------- ------- -------
Total current liabilities............. 10,088 7,764 15,420 33,272
------- -------- ------- ------- -------
NOTES PAYABLE ON INITIAL AFFILIATION
TRANSACTIONS................................ 15,001 -- 15,250 30,251
------- -------- ------- ------- -------
OTHER LONG-TERM DEBT......................... 1,812 1,340 1,303 4,455
------- -------- ------- ------- -------
OTHER LONG-TERM LIABILITIES.................. 277 128 (125) 280
------- -------- ------- ------- -------
DEFERRED INCOME TAXES........................ -- 195 (195) --
------- -------- ------- ------- -------
CONVERTIBLE PREFERRED STOCK SECURITIES....... 6,379 -- (6,379) --
------- -------- ------- ------- -------
COMMON STOCK TO BE ISSUED ON CONDITIONAL
AFFILIATION TRANSACTIONS.................... 11,039 -- (11,039) --
------- -------- ------- ------- -------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock................................ 39 160 (79) 120
Additional paid-in capital.................. 434 19 25,465 25,918
Common stock warrants....................... 96 -- 851 947
Accumulated deficit......................... (5,371) 9,364 (9,364) (5,371)
------- -------- ------- ------- -------
Total shareholders' equity
(deficit)........................... (4,802) 9,543 16,873 21,614
------- -------- ------- ------- -------
$39,794 $ 18,970 $31,108 $89,872 $
======= ======== ======= ======= =======

PRO FORMA
AS ADJUSTED
-----------

<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................... $
Accounts receivable.........................
Due from Conditional Affiliation
Transactions..............................
Prepaid expenses and other..................
Deferred income taxes.......................
-------
Total current assets..................
PROPERTY AND EQUIPMENT, net..................
INVESTMENT IN CONDITIONAL AFFILIATION
TRANSACTIONS................................
INTANGIBLE ASSETS, net.......................
DEFERRED OFFERING COSTS......................
DEFERRED INCOME TAXES........................
OTHER ASSETS.................................
-------
$
=======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT
CURRENT LIABILITIES:
Current portion of notes payable on Initial
Affiliation Transactions.................. $
Current portion of other long-term debt.....
Accounts payable............................
Accrued expenses............................
Deferred income taxes.......................
Pro forma cash due to Initial Affiliation
Transactions..............................
Due to Conditional Affiliation
Transactions..............................
-------
Total current liabilities.............
-------
NOTES PAYABLE ON INITIAL AFFILIATION
TRANSACTIONS................................
-------
OTHER LONG-TERM DEBT.........................
-------
OTHER LONG-TERM LIABILITIES..................
-------
DEFERRED INCOME TAXES........................
-------
CONVERTIBLE PREFERRED STOCK SECURITIES.......
-------
COMMON STOCK TO BE ISSUED ON CONDITIONAL
AFFILIATION TRANSACTIONS....................
-------
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock................................
Additional paid-in capital..................
Common stock warrants.......................
Accumulated deficit.........................
-------
Total shareholders' equity
(deficit)...........................
-------
$
=======
</TABLE>

See accompanying notes to unaudited pro forma consolidated financial statements.

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL AND BASIS OF PRESENTATION:

U.S. PHYSICIANS, Inc. (the "Company") is a multi-specialty physician
practice management company that, upon completion of the Initial Affiliation
Transactions (as defined below), will include 90 physicians providing care in
64 practice locations in four states in the mid-Atlantic region.

Since January 1, 1997, the Company and its affiliated professional
corporations ("PCs") have acquired either the stock or the majority of the
assets of 21 physician practices (the "Conditional Affiliation Transactions").
However, because each of the Affiliation Agreements relating to the Conditional
Affiliation Transactions contains a repurchase provision that allows the selling
owners, in the event that an IPO has not been completed by the Company by a
specified date, to repurchase their practice, the Conditional Affiliation
Transactions are not considered effective for applying purchase accounting until
the completion of an IPO. For the period of time between the closing of the
Conditional Affiliation Transactions and the completion of the IPO, the Company
is entitled to a management fee equal to the income earned by each practice and
is responsible for centrally managing the cash of each practice.

In addition to the Conditional Affiliation Transactions discussed above,
since January 1, 1997, the Company has entered into Affiliation Agreements to
purchase nine physician practices which will close upon completion of the IPO
(the "IPO Affiliation Transactions" and, together with the Conditional
Affiliation Transactions, the "Initial Affiliation Transactions"). There is no
interim management agreement in place between the Company and the practices that
are parties to the IPO Affiliation Transactions.

Also, since January 1, 1997, the Company has acquired two related health
care businesses (the "Completed Transactions") and has acquired a third related
health care business that contains substantially the same repurchase provision
as the Conditional Affiliation Transactions (the "Conditional Transaction").

The Company conducts its operations through Management and Services
Agreements (the "Management Agreements") with one PC in each state in which the
Company provides services. Pursuant to the Management Agreements, which have
40-year terms and provide for continuing renewal terms of five years (unless
either party elects not to renew), the Company manages the business operations
and all non-medical aspects of the business of the PCs and employs and
supervises all personnel providing services on behalf of the PCs, except for the
services of physicians and certain other licensed medical personnel required by
state law to be employed directly by the PCs. In addition, each PC (except the
PC operating in New York, the "New York PC"), the officers and directors of
which are generally officers of the Company, has the contractual right to
designate, in its sole discretion, at any time, the licensed doctor who is the
owner of the capital stock of the PC ("Nominee Arrangements"). As compensation
for the Company's services thereunder, the PCs, other than the New York PC, pay
to the Company an amount equal to all billings by the PCs less expenses for
physician compensation and certain other expenses, and the New York PC pays the
Company an amount equal to the Company's costs plus a percentage of such costs.
The Company has established an other-than-temporary controlling financial
interest in each PC (except with respect to the New York PC) and accordingly
each PC (except the New York PC) is consolidated with the financial statements
of the Company. All significant intercompany accounts and transactions have been
eliminated.

The historical balance sheet data for the Affiliated Practices as of June
30, 1997 represents the combined June 30, 1997 balance sheets for the
Conditional Affiliation Transactions and the Conditional Transaction, all of
which will be considered effective, for purposes of purchase accounting,
simultaneously with completion of the IPO and the IPO Affiliation Transactions
that will be effective simultaneously with the completion of the IPO. The
historical statement of operations data for the transactions for the year ended
December 31, 1996 represents the results of operations of the Completed
Transactions, the Conditional Transaction and the Initial Affiliation
Transactions for the entire year. The historical statement of operations data
for the six months ended June 30, 1997 represents the results of operations of
the Completed Transactions from January 1, 1997 to their respective dates of
acquisition and for the Conditional Transaction and the Initial Affiliation
Transactions for the entire period. See the Consolidated Financial Statements of
the Company and the Financial Statements of certain of entities party to the
above transactions appearing elsewhere in this Prospectus.

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. AFFILIATION TRANSACTIONS:

Simultaneously with the completion of this IPO, the Company's Conditional
Affiliation Transactions will, for accounting purposes, be considered effective
and the Company and its affiliated PCs will purchase all of the outstanding
capital stock or substantially all of the net assets of the parties to the IPO
Affiliation Transactions. The Initial Affiliation Transactions will be accounted
for using the purchase method of accounting, with the Company treated as the
accounting acquirer.

The following table sets forth the consideration to be paid (assuming the
Initial Affiliation Transactions occurred on June 30, 1997) in cash, notes,
convertible notes and shares of Common Stock to each of the applicable
affiliated practices or their owners. The Affiliation Agreements relating to the
Conditional Affiliation Transactions require the Company to issue additional
shares if the IPO price is less than $10 per share. The Affiliation Agreements
relating to the IPO Affiliation Transactions require the Company to issue Common
Stock at the IPO price for a guaranteed amount. The Common Stock to be issued
has been recorded at the guaranteed value to the selling owners, net of a 15%
discount. The 15% discount is warranted due to the restrictions on the sale and
transferability of the shares issued. If a 10% discount were used, annual pro
forma goodwill amortization would increase by approximately $28,000. The total
estimated purchase price of $76.3 million, including $1.3 million of transaction
costs, for the Initial Affiliation Transactions is based upon preliminary
estimates, subject to certain purchase price adjustments at and following
closing.

<TABLE>
<CAPTION>
ESTIMATED
CONVERTIBLE SHARES OF FAIR VALUE
CASH NOTES NOTES COMMON STOCK OF SHARES
---- ----- ----- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Conditional Affiliation Transactions entered
into prior to June 30, 1997................ $ 1,697 $11,917 $10,334 $11,039
Conditional Affiliation Transactions entered
into after June 30, 1997................... 2,673 5,293 9,466 5,224
IPO Affiliation Transactions................. 9,626 4,423 -- 3,337
------- ------- ------- ------- -------
$13,996 $21,633 $19,800 $19,600
======= ======= ======= ======= =======
</TABLE>

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS -- SIX
MONTHS ENDED JUNE 30, 1997:

The following table summarizes the unaudited pro forma consolidated
statement of operations adjustments for the six months ended June 30, 1997 (in
thousands):

<TABLE>
<CAPTION>
OFFERING
TOTAL PRO FORMA TOTAL
TRANSACTION PRO FORMA ADJUSTMENTS TRANSACTION ADJUSTMENTS OFFERING
----------------------------------------------------------- PRO FORMA ----------- PRO FORMA
(A) (B) (C) (D) (E) (F) ADJUSTMENTS (G) ADJUSTMENTS
--- --- --- --- --- --- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Net patient revenues..... $ -- $ -- $ -- $ -- $ -- $ (3,410) $ (3,410) $ $
Management fees from
Conditional Affiliation
Transactions........... (940) -- -- -- -- -- (940)
Management fees.......... -- -- -- -- -- 2,402 2,402
Other revenues........... -- -- -- -- -- -- --
------ -------- -------- -------- ------ -------- -------- -------- --------
Total net revenues..... (940) -- -- -- -- (1,008) (1,948)
COST OF REVENUES.......... (940) (2,021) -- -- -- (1,008) (3,969)
------ -------- -------- -------- ------ -------- -------- -------- --------
Gross profit........... -- 2,021 -- -- -- -- 2,021
OPERATING EXPENSES:
General and
administrative......... -- -- -- -- -- -- --
Depreciation and
amortization........... -- -- 1,083 -- -- -- 1,083
------ -------- -------- -------- ------ -------- -------- -------- --------
Income (loss) from
operations........... -- 2,021 (1,083) -- -- -- 938
OTHER (INCOME) EXPENSE.... -- -- -- -- -- -- --
INTEREST INCOME........... -- -- -- -- -- -- --
INTEREST EXPENSE.......... -- -- -- 1,242 -- -- 1,242
------ -------- -------- -------- ------ -------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES............. -- 2,021 (1,083) (1,242) -- (304)
INCOME TAX PROVISION
(BENEFIT)................ -- -- -- -- (207) -- (207)
------ -------- -------- -------- ------ -------- -------- -------- --------
NET INCOME (LOSS)......... $ -- $ 2,021 $ (1,083) $ (1,242) $ 207 $ -- $ (97) $ $
====== ======== ======== ======== ====== ======== ======== ======== ========
</TABLE>

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

(a) Reflects the elimination of intercompany activity among the Company and the
parties to the Conditional Affiliation Transactions.

(b) Reflects the reduction in salaries, bonuses and benefits to the physicians.
These reductions are in accordance with the terms of employment agreements
entered into pursuant to the Initial Affiliation Transactions. Such
employment agreements are for terms ranging from 5 to 15 years, contain
restrictions related to competition and provide for liquidated damages if
the physician terminates the employment agreement or is terminated for
cause.

(c) Reflects the amortization of intangible assets based upon the Company's
preliminary allocation of purchase price for the Initial Affiliation
Transactions. The intangible assets include goodwill, patient lists and
covenants not to compete and are being amortized over periods of 3 to 40
years.

(d) Reflects the additional interest expense related to the convertible notes
and the notes issued in connection with the Initial Affiliation
Transactions.

(e) Reflects the incremental provision (benefit) for federal and state income
taxes based on the effective tax rate that would have resulted on a C
Corporation basis assuming consolidated tax filing status.

(f) Reflects the elimination of net patient revenues and medical expenses and
the creation of a management fee for the affiliated physician practice
located in New York.

(g) Reflects the elimination of interest expense resulting from the repayment of
certain long-term debt obligations. Excludes a charge of $788,000 (estimated
at September 30, 1997) for the early extinguishment of certain long-term
debt obligations which will be taken in the fiscal quarter in which the IPO
is completed.

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS -- YEAR
ENDED DECEMBER 31, 1996:

The following table summarizes the unaudited pro forma consolidated
statement of operations adjustments for the year ended December 31, 1996 (in
thousands):

<TABLE>
<CAPTION>
OFFERING
TOTAL PRO FORMA TOTAL
TRANSACTION PRO FORMA ADJUSTMENTS TRANSACTION ADJUSTMENTS OFFERING
-------------------------------------------------- PRO FORMA ----------- PRO FORMA
(A) (B) (C) (D) (E) ADJUSTMENTS (F) ADJUSTMENTS
--- --- --- --- --- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Net patient revenues....... $ -- $ -- $ -- $ -- $ (6,863) $ (6,863) $ $
Management fees from
Conditional Affiliation
Transactions............. -- -- -- -- -- --
Management fees............ -- -- -- -- 4,835 4,835
Other revenues............. -- -- -- -- -- --
-------- -------- -------- ------ -------- -------- -------- --------
Total net revenues....... -- -- -- -- (2,028) (2,028)
COST OF REVENUES............ (5,239) -- -- -- (2,028) (7,267)
-------- -------- -------- ------ -------- -------- -------- --------
Gross profit............. 5,239 -- -- -- -- 5,239
OPERATING EXPENSES:
General and
administrative........... -- -- -- -- -- --
Depreciation and
amortization............. -- 2,166 -- -- -- 2,166
-------- -------- -------- ------ -------- -------- -------- --------
Income (loss) from
operations............. 5,239 (2,166) -- -- -- 3,073
OTHER (INCOME) EXPENSE...... -- -- -- -- -- --
INTEREST INCOME............. -- -- -- -- -- --
INTEREST EXPENSE............ -- -- 2,483 -- -- 2,483
-------- -------- -------- ------ -------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES...................... 5,239 (2,166) (2,483) -- -- 590
INCOME TAX PROVISION
(BENEFIT).................. -- -- -- (118) -- (118)
-------- -------- -------- ------ -------- -------- -------- --------
NET INCOME (LOSS)........... $ 5,239 $ (2,166) $ (2,483) $ 118 $ -- $ 708 $ $
======== ======== ======== ====== ======== ======== ======== ========
</TABLE>

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

(a) Reflects the reduction in salaries, bonuses and benefits to the physicians.
These reductions are in accordance with the terms of employment agreements
entered into pursuant to the Initial Affiliation Transactions. Such
employment agreements are for terms ranging from 5 to 15 years, contain
restrictions related to competition and provide for liquidated damages if
the physician terminates the employment agreement or is terminated for
cause.

(b) Reflects the amortization of intangible assets based upon the Company's
preliminary allocation of purchase price for the Initial Affiliation
Transactions. The intangible assets include goodwill, patient lists and
covenants not to compete and are being amortized over periods of 3 to 40
years.

(c) Reflects the additional interest expense related to the convertible notes
and the notes issued in connection with the Initial Affiliation
Transactions.

(d) Reflects the incremental provision (benefit) for federal and state income
taxes based on the effective tax rate that would have resulted on a C
Corporation basis assuming consolidated tax filing status.

(e) Reflects the elimination of net patient revenues and medical expenses and
the creation of a management fee for the affiliated physician practice
located in New York.

(f) Reflects the elimination of interest expense resulting from the repayment of
certain long-term debt obligations. Excludes a charge of $788,000 (estimated
at September 30, 1997) for the early extinguishment of certain long-term
debt obligations which will be taken in the fiscal quarter in which the IPO
is completed.

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS -- JUNE 30, 1997:

The following table summarizes the unaudited pro forma consolidated balance
sheet adjustments as of June 30, 1997 (in thousands):

<TABLE>
<CAPTION>
TRANSACTION PRO FORMA TOTAL OFFERING PRO FORMA TOTAL
ADJUSTMENTS TRANSACTION ADJUSTMENTS OFFERING
---------------------------------------- PRO FORMA ------------------ PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS (E) (F) (G) ADJUSTMENTS
--- --- --- --- ----------- --- --- --- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.... $ -- $ -- $ (1,062) $ 2,000 $ 938 $ $ $ $
Accounts receivable.......... -- -- -- -- --
Due from Conditional
Affiliation Transactions... (971) -- -- -- (971)
Prepaid expenses and other... -- -- 392 -- 392
Deferred income taxes........ -- (39) 16 -- (23)
------ --------- -------- -------- --------- -------- ------ ------ --------
Total current assets... (971) (39) (654) 2,000 336
PROPERTY AND EQUIPMENT, net... -- -- (296) -- (296)
INVESTMENT IN CONDITIONAL
AFFILIATION TRANSACTIONS..... -- (35,467) -- -- (35,467)
INTANGIBLE ASSETS, net........ -- 65,976 1,125 -- 67,101
DEFERRED OFFERING COSTS....... -- -- -- -- --
DEFERRED INCOME TAXES......... -- (249) 94 -- (155)
OTHER ASSETS.................. -- -- (411) -- (411)
------ --------- -------- -------- --------- -------- ------ ------ --------
$ (971) $ 30,221 $ (142) $ 2,000 $ 31,108 $ $ $ $
====== ========= ======== ======== ========= ======== ====== ====== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes
payable on Initial
Affiliation Transactions... $ -- $ 3,932 $ -- $ -- $ 3,932 $ $ $ $
Current portion of other
long-term debt............. -- -- (689) 166 (523)
Accounts payable............. -- -- (155) -- (155)
Accrued expenses............. -- 772 (478) -- 294
Deferred income taxes........ -- (201) 745 -- 544
Pro forma cash due to Initial
Affiliation Transactions... -- 12,299 -- -- 12,299
Due to Conditional
Affiliation Transactions... (971) -- -- -- (971)
------ --------- -------- -------- --------- -------- ------ ------ --------
Total current
liabilities.......... (971) 16,802 (577) 166 15,420
------ --------- -------- -------- --------- -------- ------ ------ --------
NOTES PAYABLE ON INITIAL
AFFILIATION TRANSACTIONS..... -- 15,250 -- -- 15,250
------ --------- -------- -------- --------- -------- ------ ------ --------
OTHER LONG TERM DEBT.......... -- -- (93) 1,396 1,303
------ --------- -------- -------- --------- -------- ------ ------ --------
OTHER LONG-TERM LIABILITIES... -- -- (125) -- (125)
------ --------- -------- -------- --------- -------- ------ ------ --------
DEFERRED INCOME TAXES......... -- (848) 653 -- (195)
------ --------- -------- -------- --------- -------- ------ ------ --------
CONVERTIBLE PREFERRED STOCK
SECURITIES................... -- -- -- (6,379) (6,379)
------ --------- -------- -------- --------- -------- ------ ------ --------
COMMON STOCK TO BE ISSUED ON
CONDITIONAL AFFILIATION
TRANSACTIONS................. -- (11,039) -- -- (11,039)
------ --------- -------- -------- --------- -------- ------ ------ --------
SHAREHOLDERS' EQUITY
(DEFICIT):
Common stock................. -- (137) -- 58 (79)
Additional paid-in capital... -- 19,557 -- 5,908 25,465
Common stock warrants........ -- -- -- 851 851
Accumulated deficit.......... -- (9,364) -- -- (9,364)
------ --------- -------- -------- --------- -------- ------ ------ --------
Total shareholders'
equity (deficit)..... -- 10,056 -- 6,817 16,873
------ --------- -------- -------- --------- -------- ------ ------ --------
$ (971) $ 30,221 $ (142) $ 2,000 $ 31,108 $ $ $ $
====== ========= ======== ======== ========= ======== ====== ====== ========
</TABLE>

<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS --
JUNE 30, 1997: -- (CONTINUED)
- ------------------
(a) Reflects the elimination of the intercompany accounts among the Company and
the parties to the Conditional Affiliation Transactions.
(b) Reflects the Initial Affiliation Transactions and the allocation of the
purchase price using the purchase method of accounting. The purchase price
is estimated at $76.3 million, consisting of (i) $14.0 million in cash, (ii)
$21.7 million in notes, (iii) $19.8 million in convertible notes, (iv)
shares of Common Stock valued at $ per share (or $19.6 million) and (v)
estimated transaction costs of $1.3 million (see Note 2). As of June 30,
1997, the Company had recorded $35.5 million of the purchase price for the
Conditional Affiliation Transactions that were signed prior to June 30,
1997.
(c) Reflects assets and liabilities excluded from net assets in certain Initial
Affiliation Transactions, including specific cash balances.
(d) Reflects (i) the issuance of term notes in the aggregate principal amount of
$2.0 million in September 1997, (ii) the Preferred Stock Conversion and
(iii) the Series B Warrant Conversion.
(e) Reflects the net cash of $ million from the sale of shares of
Common Stock, net of estimated offering costs of $ million (based on an
assumed IPO price of $ per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and
printing expenses paid upon completion of the IPO.
(f) Reflects the payment of the cash consideration for the Initial Affiliation
Transactions, including estimated transaction costs.
(g) Reflects the use of a portion of the net proceeds of the IPO to repay
certain long-term debt obligations. In connection with the repayment of
certain long-term debt obligations, the Company will take a charge in the
fiscal quarter in which the IPO is completed. This charge will expense the
unamortizated portion of the discount on certain long-term debt obligations
which was $788,000 at September 30, 1997.

6. PRO FORMA NET INCOME (LOSS) PER COMMON SHARE:

The shares used in computing pro forma net income (loss) per common share
includes the following:

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Weighted average shares of Common Stock.....................
Dilutive effect of Common Stock Options.....................
Shares issued in connection with Initial Affiliation
Transactions..............................................
Incremental number of shares related to Convertible
Preferred Stock, Common Stock issuances, Options and
Warrants granted within twelve months of the IPO
-- Convertible Preferred Stock............................
-- Common Stock...........................................
-- Options and Warrants...................................
Preferred Stock Conversion..................................
-------- --------
Pro forma shares.......................................
Shares issued in the IPO necessary to pay the cash portion
of the Initial Affiliation Transactions consideration
(including expenses)......................................
Shares issued in the IPO necessary to repay certain
long-term obligations.....................................
-------- --------
Pro forma as adjusted shares...........................
======== ========
</TABLE>

The remaining shares to be sold in the IPO have been excluded.

<PAGE>

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

The following discussion and analysis of the results of operations and
financial condition of the Company should be read in conjunction with the
Consolidated Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus. This Prospectus contains certain statements of a
forward-looking nature relating to future events or the future financial
performance of the Company. Such forward-looking statements may be found in the
material set forth below, in "Prospectus Summary," and "Business," as well as
elsewhere in this Prospectus. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ materially from
those in the forward-looking statements as a result of various factors,
including, without limitation, the risk factors set forth under "Risk Factors"
and the matters set forth elsewhere in this Prospectus.

OVERVIEW

The Company is a multi-specialty physician practice management company
that, upon completion of the Initial Affiliation Transactions, will include 90
physicians providing care in 64 practice locations in four states in the
mid-Atlantic region. The Company believes that, as consumers demand higher
quality care and payors focus on overall treatment costs rather than only
physician fees, specialists increasingly will be the patient's point of access
to the health care delivery system and will control, directly or indirectly, a
growing percentage of health care expenditures. The Company targets local
service areas in which it can establish significant market share in multiple
specialties to enhance its leverage with payors, employers and consumers and
seeks to affiliate primarily with physicians in higher dollar volume
specialties. The Company's affiliated specialists currently include orthopedic
surgeons, physiatrists, neurologists, oncologists, urologists,
obstetrician/gynecologists, radiologists, ophthalmologists, otolaryngologists
and occupational medicine specialists.

The Company had no significant operations prior to entering into its first
Initial Affiliation Transactions in January 1997. Since January 1, 1997, the
Company has entered into Conditional Affiliation Transactions with 21 practices
comprising 71 physicians. In addition to the Conditional Affiliation
Transactions, since January 1, 1997, the Company has entered into agreements
with respect to IPO Affiliation Transactions with nine physician practices
comprising 19 physicians, which will close upon completion of the Offering. The
Company has also entered into the Completed Transactions and the Conditional
Transaction.

Because of laws restricting the corporate practice of medicine in the
states in which the Company operates, the Company does not own the Affiliated
Practices, but instead enters into exclusive long-term Management Agreements
with PCs, which operate the Affiliated Practices. The Management Agreements give
the Company broad decision making authority over all major operations of the
underlying PC, except for the provision of physician and other medical services
as required by state law. With the exception of the New York PC, each PC, the
officers and directors of which are generally officers of the Company, has the
contractual right to designate at any time, in its sole discretion, the
physician who is the owner of the capital stock of the PC at a nominal cost
("nominee arrangements"). Through the Management Agreements and the nominee
arrangements, the Company has significant long-term financial interests in the
PCs, which interests are unilaterally saleable and transferable by the Company
and fluctuate based upon the actual performance of the operations of the PCs.

HISTORICAL FINANCIAL DATA

Basis of Presentation

The Company's historical financial data included in "Selected Financial
Data" include the results of operations of the parties to the Conditional
Affiliation Transactions, the Completed Transactions and the Conditional
Transaction. The Conditional Affiliation Transactions and the Conditional
Transaction contain a repurchase provision that allows the selling owners, in
the event that an initial public offering has not been completed by the Company
by a specified date (the "Repurchase Date"), to repurchase the applicable stock
or net assets for a defined period of time (the "Repurchase Period") by
returning all of the consideration received, excluding certain cash payments
made to the selling owners at the closing of the Conditional

<PAGE>

Affiliation Transactions and the Conditional Transaction. If the selling owners
do not exercise their rights to repurchase their practice by the end of the
Repurchase Period, the repurchase provision terminates.

In accordance with Accounting Principles Board Opinion No. 16, "Accounting
for Business Combinations," the Conditional Affiliation Transactions and the
Conditional Transaction are not considered effective for purposes of applying
purchase accounting until either the date that the Company completes an initial
public offering or the repurchase provision terminates (the "Final Closing
Date"). As a result, for the period of time between the closing of the
Conditional Affiliation Transactions (the "Initial Closing Date") and the Final
Closing Date, the Company is entitled to all of the income earned under the
Management Agreements. Accordingly, the Conditional Affiliation Transactions and
the Conditional Transaction, for the period from the Initial Closing Date to
June 30, 1997, are accounted for as management agreements, as opposed to
Affiliation Transactions accounted for under the purchase method of accounting
and consolidated with those of the Company. Net revenues included in historical
results of operations represent net management fees earned under the Management
Agreements entered into pursuant to the Conditional Affiliation Transactions and
net revenues from the Completed Transactions.

Cost of revenues included in the historical financial data represents labor
and overhead attributable to the businesses acquired pursuant to the Completed
Transactions and costs incurred in advance of revenues from the Provider
Network.

Results of Operations

The Company was formed in July 1994. Prior to entering into its first
Initial Affiliation Transactions in January 1997, the Company's operations
consisted primarily of a physical rehabilitation facility, operated as a joint
venture with a hospital, that commenced in 1995 and was terminated in 1996. As a
result, comparisons of 1997 results of operations with prior periods are not
meaningful.

Net revenues for the six months ended June 30, 1997 comprise primarily
management fees earned under the Management Agreements entered into pursuant to
the Conditional Affiliation Transactions. Net revenues for the period also
include net patient revenues from amounts billed to third-party payors and
patients for services rendered by a physical therapy and rehabilitation practice
acquired by the Company in May 1997. Other revenues represent revenues for
billing and collection services performed for unaffiliated physician practices.

General and administrative expenses for the six months ended June 30, 1997
and prior periods presented represent primarily (i) compensation, occupancy and
overhead costs relating to the Company's headquarters and (ii) legal, accounting
and other professional fees.

Interest expense for the six months ended June 30, 1997 represents
primarily interest on long-term debt, including approximately $22,251,500 of
notes payable issued in connection with Conditional Affiliation Transactions
completed during the period from January 1, 1997 through June 30, 1997.

Other income and expense for the year ended December 31, 1996 includes a
charge of $459,053 relating to the termination of the Company's joint venture
with a hospital.

PRO FORMA FINANCIAL DATA

Effective with the completion of the Offering, the Conditional Affiliation
Transactions and the Conditional Transaction will be considered effective for
purposes of applying the purchase method of accounting. The Pro Forma Financial
Data reflects the results of operations of the Company assuming the Conditional
Affiliation Transactions, the IPO Affiliation Transactions and the Conditional
Transaction had occurred as of the beginning of the periods presented and such
transactions were accounted for under the purchase method of accounting as of
such date. The Pro Forma Financial Data also reflect the fact that, because of
significant long-term interests in the Affiliated Practices effective with the
Offering, the Pro Forma Financial Data include the consolidated accounts of the
Company and all wholly-owned and beneficially-owned subsidiaries (which for
accounting purposes includes the PCs). All significant intercompany accounts and
transactions have been eliminated.

The Pro Forma Financial Data reflect net patient revenues on a consolidated
basis, unlike certain other physician practice management companies, which
record management fee revenues. Company net patient revenues represent amounts
billed by the Affiliated Practices to third-party payors and patients for
services

<PAGE>

rendered. Such amounts also include any monthly capitation payments received
from third-party payors pursuant to managed care contracts.

Cost of revenues consists primarily of physician and non-physician practice
labor and labor-related costs, practice occupancy costs, professional liability
insurance and practice materials and supplies.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company's operations have been financed primarily through
Convertible Preferred Stock and term loans from shareholders of the Company. See
"Certain Transactions."

The non-contingent consideration paid for the Conditional Affiliation
Transactions includes an aggregate of approximately $4.4 million of cash, $17.2
million of notes, $19.8 million of Convertible Notes and rights to receive
shares of Common Stock. In addition, in connection with certain Affiliation
Transactions, the Company is obligated to pay additional consideration
("Contingent Consideration") to sellers of practices contingent upon achievement
of certain net revenues and pre-tax earnings criteria primarily over periods of
one to three years from the date of the applicable Affiliation Transactions.
Payment under these Contingent Consideration arrangements will be accounted for
as adjustments to the purchase price of the Affiliated Practices, with a
corresponding increase in goodwill and the related amount of amortization
thereof in periods following the payment. The amount of Contingent Consideration
to be issued cannot be determined until the Contingent Consideration periods
terminate. If the Affiliated Practices attain, but do not exceed, specified net
revenue and profitability criteria, the Company would be obligated to make
aggregate payments of Contingent Consideration equal to $3.5 million in cash and
15,000 Options. No amounts would be paid if the minimum net revenue and
profitability objectives are not met. If the Affiliated Practices achieve the
maximum net revenue and profitability criteria, the Company would be obligated
to make payments of Contingent Consideration equal to $10.4 million in cash and
15,000 Options.

Consideration to be paid at the Offering for the IPO Affiliation
Transactions includes an aggregate of approximately $9.6 million of cash, $4.4
million of notes and rights to receive shares of Common Stock.

The Company's intends to continue to grow through both Affiliation
Transactions and internal growth. See "Business -- Strategy." Management
presently intends to maintain the rate of Affiliation Transactions in the
foreseeable future at a rate at least equal to the rate experienced during the
period from January 1, 1997, through June 30, 1997. Management anticipates that
the terms of payment in connection with future Affiliation Transactions will
continue to be a combination of cash, notes and shares of Common Stock. For
certain Affiliation Transactions, a portion of the purchase price will be paid
at closing and a portion will be contingent upon achievement of contingent
payment criteria. It is anticipated that funds required for future Affiliation
Transactions and the integration of Affiliated Practices into the Company will
be provided from the proceeds of the Offering, proceeds of future borrowings
under the Line of Credit and internally generated funds. However, there can be
no assurance that the Company will identify suitable candidates for Affiliation
Transactions in the future, can obtain suitable financing or that any such
Affiliation Transactions will occur. See "Risk Factors -- Risks Associated with
Growth Strategy."

As of June 30, 1997, the Company had a working capital deficit of
approximately $7.1 million and cash and cash equivalents of approximately $2.0
million. The Company has incurred losses since its inception and is subject to
those risks associated with companies in the early stages of development. These
conditions have raised substantial doubt about the Company's ability to continue
as a going concern.

The Company is currently in the process of obtaining a bridge loan. The
Company expects that the proceeds of the bridge loan will be sufficient to fund
its cash and working capital needs prior to the Offering. There can be no
assurance that the Company will obtain the bridge loan or suitable alternative
financing. If such financing cannot be obtained, the Company's ability to
implement its growth strategy will be impaired and its financial condition and
results of operations are likely to be materially adversely affected.

Effective with the Offering, the Company expects to obtain a $__ Line of
Credit with a bank to fund future working capital needs and Affiliation
Transactions.

The Company expects that the proceeds from the bridge loan and the
Offering, borrowings on the Line of Credit and cash generated from operations
will be adequate to fund the Company's cash requirements for approximately the
next year.

<PAGE>

BUSINESS

GENERAL

The Company is a multi-specialty physician practice management company
that, upon completion of the Initial Affiliation Transactions will include 90
physicians providing care in 64 practice locations in four states in the
mid-Atlantic region. The Company believes that, as consumers demand higher
quality care and payors focus on overall treatment costs rather than only
physician fees, specialists increasingly will be the patient's point of access
to the health care delivery system and will control, directly or indirectly, a
growing percentage of health care expenditures. The Company targets local
service areas in which it can establish significant market share in multiple
specialties to enhance its leverage with payors, employers and consumers and
seeks to affiliate primarily with physicians in higher dollar volume
specialties. The Company's affiliated specialists currently include orthopedic
surgeons, physiatrists, neurologists, oncologists, urologists,
obstetrician/gynecologists, radiologists, ophthalmologists, otolaryngologists
and occupational medicine specialists.

INDUSTRY OVERVIEW

The health care delivery system in the United States has been undergoing
substantial change, largely in response to the escalating cost of health care.
According to the Congressional Budget Office, national expenditures for health
care have grown from an estimated $27 billion, or 5.1% of the gross domestic
product ("GDP"), in 1960 to an estimated $1 trillion, or 13.6% of GDP in 1996,
and are projected by the Congressional Budget Office to increase to more than $2
trillion, or 16.2% of GDP, by 2007. In 1995, approximately 85% of health care
expenditures were attributable to services provided by physicians and/or
provided under physician direction.

Escalating health care costs have resulted in an increasing emphasis on
cost containment by third party payors and government programs. Cost containment
efforts have generally taken the form of managed care, which frequently involves
restricting access by insured parties to providers, decreasing levels of
reimbursement to providers, reducing the number and duration of hospital
inpatient stays and, more recently, transferring risk from payors to providers
through capitation and other risk-sharing arrangements.

Many payors have attempted to reduce overall health care expenditures in
large part by reducing the utilization and reimbursement of specialists, who
typically charge higher fees per office visit than primary care physicians.
These payors have reduced specialist utilization by providing reimbursement only
to patients who seek services from specialists who are part of such payor's
panel of contracted physicians, by designating primary care physicians as
"gatekeepers" who are required to pre-approve the access of patients to
specialists and by providing to such primary care physicians various financial
incentives designed to limit specialist referrals. Recently, however, consumers
of physician services, including both patients and employers, are becoming more
conscious of not only the cost of care, but also the quality of care and levels
of customer service. The Company believes that specialist physicians have a
greater understanding of the treatment and management of complex disease and
injury conditions and therefore provide complex disease and injury care which
may be more efficient, and ultimately less costly, than that controlled by
primary care physicians. As a result of these factors, the Company believes
there will be a continued, gradual movement toward specialist-directed provider
models and away from primary care gatekeeper models for managed care. The
Company also believes that a growing number of health care consumers place an
increased emphasis on customer service, including factors such as more flexible
physician office hours, scheduling efficiency to reduce patient waiting time,
the provision of patient follow-up and aftercare and the availability of a
greater variety of services at more convenient locations.

In addition to restricting access to specialists, payors have attempted to
reduce the variability of provider-related expenses through an increasing
variety and volume of risk-sharing arrangements involving physicians, including
fully or partially capitated and episode of care or "case rate" arrangements.
The Company believes that the prudent sharing of risk by physicians can only
occur when physicians are organized in sufficient critical mass in local service
areas to reasonably bear risk and have access to the quantity and quality of
clinical information that is essential to managing risk pools effectively.

<PAGE>

Physician Practice Management Industry. The trends in the health care
market described above, among other factors, have placed many small and
mid-sized physician groups at a competitive disadvantage and precipitated
significant changes in the manner in which physicians organize themselves.
Physicians are increasingly abandoning traditional private practice in favor of
affiliations with larger organizations which have a more significant market
presence and which can provide management expertise, capital and information
systems that enhance the quality, efficiency and competitiveness of physician
practices. Despite this trend toward affiliation, physician practices remain
largely fragmented, with only about one-third of the 700,000 non-federal
physicians (i.e., physicians who do not provide services directly through
Veterans Administration, public health or other federal programs) in the U.S.
belonging to a group practice and fewer than 21,000 physicians in the U.S.
practicing in affiliation with publicly-held physician practice management
companies in 1996.

Specialist Physician Services; Complex Disease and Injury Management. It is
estimated that approximately 490,000, or 70%, of the physicians in the U.S. are
specialists. In 1995, average annual revenue per specialist in the U.S. was
$215,932 as compared to $133,322 for primary care physicians. Reimbursement of
specialists is predominately on a "fee for service" as opposed to a "capitated"
or other risk-sharing basis. Fully capitated risk-sharing arrangements, under
which providers undertake to provide a specified range of services for a
predetermined fixed fee per managed care enrollee, have been far more prevalent
among primary care physicians.

The Company believes that for most insured populations a majority of health
care dollars are spent on a relatively small percentage of such populations. The
conditions typically requiring the most extensive treatment include cancer,
heart disease, musculoskeletal injury or disease, diabetes and infectious
diseases. The management of such complex diseases and injuries generally
requires the services of one or more specialist physicians for certain aspects
of patient care, including diagnosis, restorative and palliative treatment
(which includes both invasive surgery and non-invasive drug therapies),
rehabilitation and aftercare, all of which frequently involve the coordination
of other specialist physicians, ancillary services and pharmaceutical treatment.
The Company believes that its Affiliated Physicians who engage in complex
disease and injury management will benefit from their familiarity with and
enhanced access to other Affiliated Physicians who are leading practitioners in
other specialties, as well as their access to ancillary services provided by the
PCs.

The Company initially is focusing primarily on developing integrated local
service area networks of specialists involved in the treatment of
musculoskeletal injury and disease, cancer, women's health and other areas of
complex disease and injury management. The Company has generally entered local
service areas by affiliating with a pedestal practice specializing in
musculoskeletal care. Orthopedic surgeons are the primary providers of
musculoskeletal care. In addition to orthopedic surgeons, musculoskeletal care
is also provided by physiatrists, neurosurgeons, neurologists, rheumatologists,
podiatrists, occupational medicine specialists and rehabilitative therapists.
The American Academy of Orthopedic Surgeons (the "AAOS") estimates that in 1995
there were approximately 23,000 orthopedic surgeons, 5,500 physiatrists, 4,900
neurosurgeons, 11,400 neurologists, 3,500 rheumatologists, and 3,000
occupational medicine specialists. The AAOS estimates that in 1995 less than
five percent of all orthopedic practices were affiliated with physician practice
management companies. According to the AAOS, the market for musculoskeletal care
in the U.S. grew from approximately $60 billion in 1988 to $72 billion in 1992.
This increase is attributable to several factors, including advancements in
medical technology and the aging of the overall population. In 1992, the
65-and-over age group represented approximately 12% of the U.S. population, but
accounted for over half of all expenditures for musculoskeletal care. Recent
trends in musculoskeletal care include an increasing number of procedures
performed on an outpatient basis and consolidation of surgical and non-surgical
specialists. The Company believes these trends are largely attributable to
advancements in less invasive surgical techniques, less frequent and shorter
hospital inpatient stays, inherently lower costs of the outpatient environment
and increased consumer demand for outpatient settings and fully integrated
services, including ancillary services such as physical therapy and diagnostic
imaging.

In addition to practices specializing in the treatment of musculoskeletal
injury and disease, the Company has completed Affiliation Transactions with
Affiliated Practices specializing in cancer, women's health and addiction. The
Company believes that such areas are subject to certain trends similar to those
found in musculoskeletal care, including advancements in less invasive surgical
techniques, less frequent and shorter

<PAGE>

hospital stays mandated by payors, inherently lower costs of the outpatient
environment and consumer demand for direct access to specialists, outpatient
settings and more fully integrated services.

Mid-Atlantic Market. The Company's overall target market is the
mid-Atlantic region, which includes Pennsylvania, New Jersey, New York, Maryland
and Delaware, and the Company may extend its overall target market to include
the states surrounding this region. The mid-Atlantic region and surrounding
states account for approximately one-third of the U.S. population. The physician
services market in this region is particularly fragmented, with an average
private practice size of approximately four physicians.

STRATEGY

The Company's objective is to be a leading provider of specialist physician
services in each of its local service areas. In so doing, the Company believes
it will enable its Affiliated Physicians to have greater control over patient
care and access to premium dollars in the health care delivery system.

The key elements of the Company's strategy to attain this objective are to:

Develop integrated local networks of specialists in the mid-Atlantic
region. Health care is generally provided and contracted for in local service
areas. The Company believes that consumers of health care services generally
seek care in the immediate vicinity of their home or workplace. The Company
seeks to be a leading provider of specialist physician services in terms of
market share, demonstrated quality, clinical leadership and cost-effectiveness
of its health care services in each of its local service areas. To achieve this
leadership position, the Company targets markets surrounding or adjacent to
major population centers in which it can achieve significant market share in
multiple specialties. The Company believes that obtaining a leadership position
in each of its markets will enhance its attractiveness to payors, employers and
consumers. In addition, the establishment of local market multi-specialty
networks is expected to increase revenues from referrals among Affiliated
Practices and from ancillary services provided by the PCs within such networks.

Focus on same practice growth. The Company expects to enhance same
practice revenue and margin growth for each of its Affiliated Practices by (i)
adding same-speciality physicians to existing practices, (ii) adding new
practice locations, (iii) integrating new specialties and sub-specialties into
existing practices, (iv) increasing local practice marketing, (v) improving
payor contracting in order to achieve greater patient volume and enhanced
reimbursement, (vi) enhancing practice management, including billing and
collection procedures, patient scheduling and flow, quality assurance, customer
service and utilization management and (vii) utilizing physicians across
multiple practice locations. The Company is currently implementing one or more
of these measures in each of its Affiliated Practices, including, to date, the
addition of same specialty physicians to four Affiliated Practices, the
integration of new specialties or sub-specialties into three Affiliated
Practices and the addition of new practice locations to one Affiliated Practice.
In addition, in order to enhance same practice revenue growth, Affiliated
Physicians are compensated based directly on the productivity of their
practices. The Company believes that same practice revenue growth, as well as
expected cost-reduction opportunities arising from economies of scale, such as
group purchasing and the centralization of management, billing and collection
and accounting functions, will enhance the profitability of each of its
Affiliated Practices.

Increase ancillary and other revenues. The Company intends to establish
one or more of the following ancillary and other services in each of its local
service areas: physical and occupational therapy, diagnostic imaging and
participation in clinical trials. Complementing its regional focus, the Company
believes its relationships with Affiliated Physicians will enable it to
facilitate intra-network referrals and capture an increased volume and variety
of ancillary service revenues. The Company is focusing initially on adding
ancillary and other services based on the following criteria: (i) ability to
complement the type of specialists in its networks, (ii) management experience
in operating the particular ancillary services and (iii) relatively low barriers
to entry in the relevant market. To date, the Company has opened four and
acquired four physical therapy rehabilitation centers in four service areas as
part of its integrated musculoskeletal care. The Company intends to develop
additional types of ancillary services, as well as additional locations for the
provision of ancillary services, and, when appropriate, to identify and pursue
related acquisition opportunities.

<PAGE>

The Company believes that its concentration of specialist physicians (and,
eventually, their ability to share data on a common clinical information system)
will be attractive to clinical research organizations ("CROs") and
pharmaceutical and medical device companies desiring to conduct clinical trials
utilizing practicing physicians outside the hospital setting and that
participation in such clinical trials may be a source of the Company's revenue
growth in the future. The Company has also initiated its first pharmaceutical
clinical trial utilizing its Affiliated Physicians.

Grow through Affiliation Transactions and Provider Network. The Company
believes it can realize substantial operating and payor contracting leverage by
completing additional Affiliation Transactions and further developing the
Provider Network. The Company's goal is to develop each local service area
network of Affiliated Practices into a leading provider of specialist physician
and related ancillary services in such service area. The Company generally seeks
to enter a new local service area by affiliating with a pedestal practice that
is highly visible and has a reputation for quality health care. Additional
practices will be added in local service areas based on a number of criteria,
including type of specialty or sub-specialty, reputation of practice and
physicians, historical financial performance, growth potential, geographic
location and potential for development of related ancillary services. The
Company believes that its attractiveness to payors and to practices which may
wish to become Affiliated Practices will be enhanced by growth in the Company's
size, scope and geographic coverage of its specialist physician services and
related ancillary services.

The Company is supplementing its Affiliated Practices by developing its
Provider Network, thereby expanding the Company's geographic coverage and, as a
result, its leverage in negotiations with third party payors. The Company has
non-exclusive contracting authority for the physicians and other providers in
its Provider Network, subject to the successful negotiation with payors of
specified minimum levels of reimbursement and certain other contractual
provisions. The Company receives fees from certain payors based upon the number
of insured individuals who have access to the Provider Network. In addition, the
Company also generates revenues based on its ability to negotiate payor
contracts for the Provider Network at reimbursement levels in excess of
specified levels of reimbursement. The Provider Network also enables the Company
to establish relationships with practices that may wish to become Affiliated
Practices in the future.

Provide disease and injury management services. Specialist physicians
manage the treatment of complex disease and injury conditions commencing with
diagnosis and continuing through the implementation of restorative and
palliative care (both invasive and non-invasive), the selected involvement of
other specialist physicians and ancillary service providers, the prescription of
rehabilitation, pharmaceutical and other therapies and the provision of
follow-up services and aftercare. The Company intends to utilize its integrated
multi-specialty networks to deliver a variety of disease and injury management
services to patients, payors and employers. The Company plans to enter into
relationships, including certain risk-sharing arrangements, with managed care
organizations, health insurers and employers, under which the Company will be a
preferred or exclusive provider of disease and injury management services in
areas such as sports medicine, workers' compensation, cancer care, addiction,
incontinence and women's health.

Implement practice management information system. The Company believes
that practice management information is critical to the growth of integrated
health care delivery and that the availability of detailed practice management
and clinical data is fundamental to improving the quality of care, reducing the
cost of care, and, ultimately, competing effectively for the health care premium
dollar. The Company believes that its practice management information system
will allow its Affiliated Physicians to engage more efficiently in complex
disease and injury management, particularly in those cases requiring care by
various Affiliated Physicians across specialty lines and involving physician
coordination and sharing of clinical data. The Company also is developing
additional clinical information components to its practice management
information system that will provide a platform for applying clinical pathways,
measuring outcomes and enhancing medical management. In addition, the Company
believes this system will be attractive to CROs and pharmaceutical and medical
device companies engaging in clinical trials.

<PAGE>

DEVELOPMENT AND OPERATIONS

The Company targets local service areas in the mid-Atlantic region of the
United States. To date, the Company's primary focus has been local service areas
surrounding or adjacent to major population centers, with Affiliated Practices
currently in Pennsylvania, New Jersey, Delaware and New York.

The Company completed its first Initial Affiliation Transaction in January
1997. Including both the Conditional Affiliation Transactions and the IPO
Affiliation Transactions, the Company has entered into Affiliation Agreements
with 30 Affiliated Practices, comprising 90 Affiliated Physicians (including six
physicians added to Affiliated Practices subsequent to the respective
Affiliation Transactions), in eight geographic markets, as set forth below:

<TABLE>
<CAPTION>
NUMBER OF ANCILLARY AND
GEOGRAPHIC MARKETS PHYSICIANS SPECIALTIES OTHER SERVICES
------------------ ---------- ----------- --------------
<S> <C> <C> <C>
Southeastern Pennsylvania 25 Orthopedics, Physiatry, Physical therapy/
(Bucks, Chester, Delaware and Urology, Otolaryngology, rehabilitation; clinical
Montgomery Counties) Obstetrics/Gynecology, trials
Ophthalmology, Addiction
Northwestern Pennsylvania 21 Orthopedics, Occupational Physical therapy/
(Clarion, Crawford, Mercer Medicine rehabilitation
and Venango Counties)
Southern/Coastal New Jersey 14 Orthopedics, Neurology, Physical therapy/
(Atlantic, Burlington, Physiatry, rehabilitation
Camden, Cape May and Ocean Obstetrics/Gynecology, Oncology
Counties)
Central Pennsylvania (Berks and 14 Orthopedics, Occupational Physical therapy/
Lancaster Counties) Medicine rehabilitation
Lehigh Valley, Pennsylvania 5 Orthopedics Physical therapy/
(Lehigh County) rehabilitation
Northwestern New York (Monroe 5 Breast cancer diagnosis
County)
Northeastern Pennsylvania 4 Orthopedics
(Lackawanna County)
Delaware (New Castle County) 2 Orthopedics
</TABLE>

Upon completion of the Initial Affiliation Transactions, the Company's
Affiliated Physicians will comprise 62 physicians specializing in
musculoskeletal injury and disease, seven physicians specializing in cancer
care, 16 physicians specializing in areas such as gynecology/obstetrics,
urology, ophthalmology and otolaryngology and five primary care physicians. The
Company believes that having Affiliated Physicians in multiple specialties in
local service areas will enhance its attractiveness to payors. The Company has
focused initially on the above specialties because of (i) the Company's
expertise and history of relationships with specialist physicians in these
areas; (ii) the degree to which these specialties lend themselves to ancillary
service development; and (iii) the high dollar volume of reimbursement for
services in these specialties.

Each of the geographic markets outlined above comprises one or more service
areas. Each service area is distinguished by its distinct consumer/patient
demographics, major health care institutions and payors. The Company manages its
operations on a service area basis, assigning management responsibility to area
managers responsible for one or more service areas. Each Affiliated Practice
(which may have one or more locations) is managed by a practice manager, who is
responsible for the daily operations of all non-medical aspects of the business
of such Affiliated Practice and the supervision of non-medical personnel
providing services to such Affiliated Practice. The Affiliated Practices in a
service area are supported and managed by

<PAGE>

one of the Company's area managers, who assist the practice managers in the
integration of the Affiliated Practice, in accessing the Company's various
resources to assist in the operation of the Affiliated Practice, in the
enhancement of synergies across Affiliated Practices in such service area and in
the assessment and implementation of growth opportunities for such Affiliated
Practices, including the pursuit of additional practices with which the Company
may seek to complete an Affiliation Transaction. The area managers and the
practice managers are supported by the Company's centralized functions at its
Fort Washington, Pennsylvania headquarters, including billing and collections,
human resources, sales and marketing, contracting, finance and accounting,
reimbursement, provider relations, legal and management information systems.

Substantially all of the personnel providing non-medical services to the
Affiliated Practices are employed by the Company, while the Affiliated
Physicians, other physicians and certain other licensed medical personnel (to
the extent required by law) are employed by the applicable PCs. The Company's
employees manage all non-medical aspects of the operations of the Affiliated
Practices, including billing and collections, human resources, sales and
marketing, contracting, finance and accounting, reimbursement, provider
relations, legal and management information systems. The Affiliated Practices
operate in facilities leased and maintained by the Company and utilize supplies,
equipment and furniture provided by the Company. Certain management personnel at
the Affiliated Practice level, including practice managers, are eligible to
receive incentive compensation based upon the profitability levels of the
applicable Affiliated Practice.

The Company intends to provide one or more of the following ancillary and
other services in each of its markets, generally through its affiliated PCs:
physical and occupational therapy, diagnostic imaging and the implementation of
clinical trials. The Company intends to develop additional ancillary services,
as well as additional locations for the provision of ancillary services, and,
when appropriate, to identify and pursue related acquisition opportunities. The
Company presently provides physical therapy at eight locations and has commenced
participation in its first pharmaceutical clinical trial.

The Company has formed committees of physicians to develop clinical
pathways that will provide treatment guidelines for the delivery of medical
services associated with specific episodes of care. The Company believes such
guidelines will assist its Affiliated Physicians in establishing medical service
patterns that demonstrate the highest quality of care. The Company intends to
assess the effectiveness of these guidelines in the achievement of clinical
outcomes in patient care by Affiliated Practices. The Company expects these
measures to enhance its ability to provide disease and injury management
services to payors, employers and consumers.

REIMBURSEMENT FOR SERVICES

The Company's Affiliated Practices derive their revenues from a variety of
payors, including private third party payors and managed care providers,
Medicare and workers' compensation insurance programs.

Private third party and managed care payors. Rates paid by private third
party payors (such as Blue Cross/Blue Shield and other indemnity health
insurance providers) are based on established health care provider charges.
Specialist physician services generally are reimbursed by such payors on a
fee-for-service basis, based on the physician's usual and customary charge for
the type and amount of services provided, or on a discounted fee-for-service
basis, which involves negotiated rates for specified procedures and services.
Recently, case rate payments, in which providers received fixed payments for all
treatment provided to a patient based on the patient's classification of illness
or injury, have been adopted by certain private third party payors and may
become a predominant payment methodology in the future. Wider implementation of
such programs could reduce or limit increases in payments from private third
party payors and could indirectly reduce the revenues of the Company. An
increasing portion of the Company's revenues is expected to be derived from
managed care payors (primarily health maintenance organizations ("HMOs") and
insurance companies) that make payments under discounted fee-for-service, case
rate and capitation arrangements. Although rates paid by managed care payors are
generally lower than commercial indemnity rates, managed care payors can provide
access to large volumes of patients. Under capitated arrangements with such
managed care payors, providers deliver health care services to managed care
enrollees for payments based on the

<PAGE>

number of enrollees and typically bear (subject to stop-loss insurance coverage)
all or a portion of the risk that the cost of such services may exceed these
capitated payments.

Medicare. The federal government has implemented, through the Medicare
program, the resource-based relative value scale ("RBRVS") payment methodology
for health care provider services. RBRVS is a fee schedule that, except for
geographic and other adjustments, pays similarly situated health care providers
the same amount for the same services. The RBRVS is subject to annual increases
or decreases at the discretion of Congress or the Health Care Financing
Administration ("HCFA"). To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures provided by the Affiliated
Practices. Furthermore, in implementation of the Balanced Budget Act of 1997
(the "BBA"), it is expected that, during a four-year period beginning in 1999,
HCFA will phase in adjustments to certain components of the RBRVS that will
generally decrease reimbursement to physicians for services rendered in a
hospital setting, and potentially increase reimbursement to physicians for
services rendered in a non-institutional setting. The BBA also contains various
measures that over time are designed to limit increases in Medicare payments and
that may have the effect of reducing reimbursement to Affiliated Practices.

Workers' compensation. Workers' compensation is a state-mandated,
comprehensive insurance program that requires employers to fund medical
expenses, lost wages and other costs resulting from work-related injuries and
illnesses. Provider reimbursement methods vary on a state-by-state basis. Most
states, including Pennsylvania and New York, have adopted fee schedules (that
vary from state to state) that prescribe the maximum amount of reimbursement
that a health care provider can receive, while in states without fee schedules,
health care providers are generally reimbursed based on usual, customary and
reasonable fees charged in the state in which the services are provided.

PROVIDER NETWORK

The Company is supplementing its Affiliated Practices by developing its
Provider Network, which enhances the Company's geographic coverage and, as a
result, its leverage in negotiations with third party payors. The Company has
non-exclusive contracting authority for the physicians and other providers in
its Provider Network, subject to the successful negotiation with payors of
specified minimum levels of reimbursement and certain other contractual
provisions. The Company receives fees from certain payors based upon the number
of insured individuals who have access to the Provider Network. In addition, the
Company also generates revenues based on its ability to negotiate payor
contracts for the Provider Network at reimbursement levels in excess of
specified levels of reimbursement. The Provider Network also enables the Company
to establish relationships with practices that may wish to become Affiliated
Practices in the future. The Company currently has over 2,500 physicians under
contract in the Provider Network, including approximately 370 primary care
physicians.

MARKETING

The marketing of specialist physician services has historically been
limited. The Company believes that specialist physician services can be marketed
effectively to payors, employers and consumers by emphasizing the availability
of direct access to specialist physicians and the nature of the complex disease
and injury management services they provide. There are two core elements of the
Company's marketing strategy:

Local practice and service area marketing. Local marketing consists
primarily of targeted practice and/or service area marketing of Affiliated
Practices and Affiliated Physicians. The Company employs marketing
representatives whose primary goals are (i) to attract new sources of referrals
to the Company's Affiliated Practices and (ii) to ensure that physicians and
others who currently refer patients to the Company's Affiliated Practices and
providers of the Company's ancillary and other services are satisfied with
clinical outcomes and customer service provided by such Affiliated Physicians
and other providers. Other marketing programs include conducting patient
education seminars and distributing brochures, press releases and newsletters,
developing relationships with local employers and educational institutions and
systems and utilizing direct mail and yellow page advertising programs.

Marketing of specific disease and injury management services. The Company
is currently marketing and expects to significantly increase its marketing of
specific disease and injury management services to payors and

<PAGE>

consumers. Such marketing typically might include one or more of patient
education seminars, direct mail and print or radio advertising. Disease and
injury management services currently being marketed include the treatment of
osteoporosis, incontinence, sports injuries and breast cancer.

MANAGEMENT INFORMATION SYSTEMS

The Company believes that integrated practice management information and
financial information systems are essential to the development of integrated
health care delivery capabilities and fundamental to improving the quality of
care, reducing the cost of care and enhancing the Company's attractiveness to
payors.

The Company has selected a third-party practice management information
system that it is implementing in each of its Affiliated Practices. This
practice management information system links all of the Company's Affiliated
Practice locations via a frame relay network to the Company's Fort Washington,
Pennsylvania headquarters, and gives the Company the ability to monitor the
operations of its Affiliated Practices on a real-time basis. To date, the
Company has implemented this system in two Affiliated Practices and expects to
have implemented this practice management information system by the end of 1998
in a majority of the Affiliated Practices that become affiliated with the
Company through the Initial Affiliation Transactions. The Company believes that
utilizing a common practice management information system will enhance its
ability to cost-effectively monitor, manage and generate management data
regarding the operations of its Affiliated Practices. The system currently
provides management with uniform practice information including patient
scheduling, procedure histories, billing and collection and other relevant data.
The system also has the potential to interface with an electronic patient
medical record system and to incorporate proprietary clinical pathways currently
being developed by the Company.

The Company's financial information system is centralized in its Fort
Washington, Pennsylvania headquarters. All Affiliated Practices are integrated
with this system as soon as practicable upon the Company's consummation of an
Affiliation Transaction with such Affiliated Practice, typically within one
week.

Data from both the practice management information and financial
information systems is captured and maintained in a common relational database.
The Company believes that this database of practice management and financial
information will facilitate quantitative analysis of outcomes, quality and cost.
Such analysis will enhance the Company's ability to contract with payors,
control costs and assist in the continued development of proprietary clinical
pathways.

The Company's financial information system will not require any
modification to be year 2000 compliant. The third-party vendor of the Company's
practice management information system has agreed to bear all costs relating to
making that system year 2000 compliant.

AFFILIATION TRANSACTIONS

The Company and the PCs enter into affiliation transactions ("Affiliation
Transactions") pursuant to agreements ("Affiliation Agreements") with physicians
desiring to become affiliated with the Company and the PCs ("Affiliated
Physicians"). Pursuant to Affiliation Agreements, the physicians (or, in certain
cases, professional corporations or partnerships owned by such Affiliated
Physicians) sell the assets of their practices or the equity of such
professional corporations or partnerships to the Company. The Company acquires
the non-medical assets and the relevant PC acquires the medical assets,
consisting primarily of pharmaceuticals and patient records and documentation.
The Affiliation Agreements generally contain restrictive covenants pursuant to
which the Affiliated Physicians may not compete with the Company within a
relevant market area for a period of five years following the closing date of
the Affiliation Transaction. In addition, each Affiliated Physician executes an
employment agreement ("Employment Agreement") with the relevant PC pursuant to
which the Affiliated Physician generally receives as compensation for physician
services a percentage of the revenues of the Affiliated Practice (less
compensation paid to certain other licensed providers in the relevant Affiliated
Practice), as well as a bonus based on the Affiliated Physician's personal
productivity. Since the level of physician reimbursement is related to the
physician's personal productivity, the Company believes that this structure
provides an effective incentive to increase productivity and profitability. If
the Affiliated Physician voluntarily elects to terminate the Employment
Agreement during its term or is terminated by the PC for

<PAGE>

cause, the Affiliated Physician is required to pay to the PC liquidated damages
in amounts generally ranging from two times to one-half the amount of the
Affiliated Physician's annual salary, bonus and pension contributions, with the
specific level of liquidated damages depending upon how many years remain in the
employment term at the time of termination. In most cases, no liquidated damages
would be paid if employment is so terminated after a term of five to seven
years. In addition, the Affiliated Physician is subject to a restrictive
covenant under the Employment Agreement which generally prevents the Affiliated
Physician from competing with the PC within a relevant market area during the
term of his or her Employment Agreement, and for a period of two years
thereafter. However, if an Affiliated Physician does not terminate his or her
employment prior to the end of the employment term, and has not been discharged
by the PC for cause, the Affiliated Physician may, immediately after the
employment term, return to private practice, alone or with former partners in
the applicable Affiliated Practice (and/or in most cases with one additional
physician), subject to certain limitations on affiliation, during the two years
following the end of the employment term, with certain health care organizations
and providers such as other physician practice management entities, HMOs or
other third party insurers, hospitals or hospital systems, or any integrated
delivery systems or similar or comparable entities. An Affiliated Physician's
obligations under the restrictive covenant are not relieved or limited by a
required payment to the PC of liquidated damages by such Affiliated Physician
who prematurely terminates his or her employment with the PC.

Although the Company intends that future Affiliation Transactions will be
entered into on terms similar to those described above, the terms of future
Affiliation Transactions may be materially different as a result of regulatory,
financial, operational and other considerations.

MANAGEMENT AND SERVICES AGREEMENTS; CONTROL OF PCS

The Company has entered into Management and Services Agreements with each
of the PCs (the "Management Agreements"). The Management Agreements each have a
term of 40 years and, unless either party elects not to renew, automatically
renew for additional five-year terms. Neither party may terminate the Management
Agreement, provided that the Company may terminate, in the event of a breach of
a material provision by the PC or if the PC materially breaches its obligations
to obtain medical licenses and participation agreements from all physicians
employed by it or under contract to it or fails to maintain malpractice
insurance and, in the case of the Management Agreement with the PC operating in
New York (the "New York PC"), upon 120 days prior written notice; and the PC may
terminate, in the event the Company files a voluntary petition in bankruptcy or
any bankruptcy proceeding is filed against the Company which in either case
remains undismissed for a period of 360 days. Under the Management Agreements,
the PCs are responsible for the hiring and supervision of all physicians as well
as nurses, therapists, technicians and other licensed health care providers
(collectively, "Professionals") who provide services incidental to physician
services and are responsible for the payment of all compensation to such
Professionals, except to the extent that Professionals other than physicians
become employees of the Company. In addition, the PC is responsible for the
appointment of medical directors, the monitoring of the quality of medical
services provided and the adoption of peer review/quality assessment programs,
the maintenance of medical records, the establishment and revision (after
consultation with the Company) of fee schedules and certain other duties as may
be required by law. The Company remains solely responsible for the business
operation of the PCs and for the management of all non-medical aspects of the
PCs, including the leasing of office locations, the provision of medical
equipment and furnishings, the employment of all necessary clerical, secretarial
and bookkeeping personnel and the payment of salaries of such personnel,
assistance in the negotiation of employment agreements with nursing staff,
technicians and other allied and ancillary health care personnel, the management
of payroll and personnel related activities, the supervision of all employees
(other than Professionals), the procurement of all medical supplies (to the
extent permitted by law), the provision of insurance (provided that the PCs have
the exclusive responsibility for maintaining malpractice liability insurance for
Professionals), the maintenance of all books and records, the provision of all
billing services, the provision of marketing services and certain other
services. The Company either arranges financing for the PCs or, as necessary,
advances funds to the PCs, with such advanced funds to be repaid to the Company
together with interest accruing at the rate from time to time charged to the
Company by its primary lender (or, if there is no such lender, the prime rate
plus 2%).

<PAGE>

As compensation for the Company's services under the Management Agreements
(other than in New York), the PCs pay to the Company an amount equal to all
receipts, including without limitation receipts from billings for medical
services and for the services of Professionals other than physicians, for
medical supplies, for ancillary medical services and for facility and equipment
charges ("Gross Collected Revenues"), less all compensation expenses to be paid
in accordance with the PC's employment agreements with physicians, insurance
costs, legal and accounting fees, taxes and certain other incidental expenses
which are paid by the PC but otherwise would be the obligation of the Company
("Permitted Expenses"), and less the amounts of any advances repaid to the
Company and any accrued interest thereon. The PC's Permitted Expenses may not
exceed 20% of the Gross Collected Revenues on an annual basis, provided that the
PC is not subject to any limit with respect to the payment of amounts due to
physicians under employment agreements. In New York, the Company receives a fee
for its services based on the Company's costs of providing such services plus an
additional amount equal to a percentage of such costs. The Company retains a
security interest in all of the PC's accounts receivable, cash, bank accounts,
medical supplies and the proceeds thereof. The PC is also subject to certain
covenants of exclusivity, non-competition and non-disclosure.

Under the Management Agreements, PCs indemnify and hold harmless the
Company against all liabilities as a result of the performance of medical
services or ancillary services or any other acts or omissions of the PC or its
shareholders, agents, employees or subcontractors (other than the Company). The
Company indemnifies and holds harmless each PC and its officers, directors,
shareholders and employees from liabilities resulting as a consequence of the
Company's gross negligence or wilful misconduct in its performance under the
Management Agreement. In addition, each Management Agreement provides that, in
the event that Medicare or Medicaid, any other payor or any other federal, state
or local government or agency establishes laws, regulations or policies
materially affecting the method or amounts of payment from the PCs to the
Company under the Management Agreement or which otherwise materially affect
either party's rights or obligations thereunder, either party may amend the
Management Agreement to reflect such event, provided that no such amendment may
alter the basic economic status of the parties under the Management Agreement.

All of the voting capital stock of each PC is owned by a single physician
who has entered into a shareholder agreement with the PC pursuant to which such
physician shareholder's ability to transfer the capital stock of the PC is
subject to a right of first refusal in favor of the PC or its designated
transferee, and pursuant to which the PC may remove such physician as a
shareholder of the PC with or without cause and require such physician to sell
the shares of the PC (except that the physician shareholder of the New York PC
may be removed, and required to sell, for cause only) to the PC or a designee of
the PC legally qualified to own such shares. The physician shareholder of each
PC has agreed to elect to the board of directors of the PC persons selected by
the Company. The boards of directors of the PCs operating in Pennsylvania and
New Jersey are classified into classes of directors who serve for multi-year
terms and consists solely of officers of the Company (and, where required by
law, the physician shareholder), who may be removed by the physician shareholder
only for cause. The agreements with respect to the New York PC and the PC
operating in Delaware contain various provisions which restrict the ability of
the directors and officers of the PC to alter each such PC's relationship with
the Company under the relevant Management Agreement. The Company believes that
the ownership and management structure of the PCs is highly favorable to the
maintenance of the relationship of the Company and the PCs under the respective
Management Agreements.

Although the Company intends that future agreements with PCs will be
similar to those described above, the terms of future agreements may be
materially different as a result of regulatory, financial, operational and other
considerations.

GOVERNMENT REGULATION

The delivery of health care services has become one of the most highly
regulated of professional and business endeavors in the United States. Both the
federal government and the individual state governments are responsible for
overseeing the activities of individuals and businesses engaged in the delivery
of health care services. Federal law and regulations are based primarily upon
the Medicare program and the Medicaid program, each of which is financed, at
least in part, with federal funds. State jurisdiction is based upon the state's
interest in regulating the quality of health care in the state, regardless of
the source of payment. Recent

<PAGE>

laws, including the Health Insurance Portability and Accountability Act
("HIPAA") and the BBA, have expanded the coverage of such regulation to other
federally funded health care programs.

The Company believes its operations are in material compliance with
applicable laws; however, the Company has not received or applied for a legal
opinion from counsel or an advisory opinion from any federal or state judicial
or regulatory authority to this effect, and many aspects of the Company's
business operations have not been the subject of state or federal regulatory
interpretation. The laws applicable to the Company are subject to amendment and
to evolving interpretations, and therefore there is no assurance that a review
of the Company or the Affiliated Practices by a court or law enforcement or
regulatory authority would not result in a determination that could have a
material adverse effect on the Company. Furthermore, there is no assurance that
the laws applicable to the Company and the Affiliated Practices will not be
amended in a manner that could have a material adverse effect on the Company.
See "Risk Factors -- Government Regulation."

Federal Law

The federal health care laws apply in any case in which a PC is providing
an item or service that is reimbursable under Medicare, Medicaid or other
federally funded health care program or in which the Company is claiming
reimbursement from Medicare, Medicaid or other federally funded health care
programs on behalf of Affiliated Physicians or physicians who are participating
in the Provider Network. The principal federal laws include those that prohibit
the filing of false or improper claims with the Medicare or Medicaid programs,
those that prohibit unlawful inducements for the referral of business
reimbursable under Medicare or Medicaid and those that prohibit the provision of
certain services by a provider to a patient if the patient was referred by a
physician with which the provider has certain types of financial relationships.

False and Other Improper Claims. The federal government is authorized to
seek criminal, civil and administrative penalties with respect to any health
care provider that files a false claim for reimbursement from Medicare, Medicaid
or other federally funded health care program. Criminal penalties are also
available in the case of claims filed with private insurers if the government
can show that the claims constitute mail fraud or wire fraud. While the criminal
statutes are generally reserved for instances evincing an obviously fraudulent
intent, the criminal and administrative penalty statutes are being applied by
the government in an increasingly broad range of circumstances. The government
has taken the position, for example, that a pattern of claiming reimbursement
for unnecessary services violates these statutes if the claimant should have
known that the services were unnecessary. The government has also taken the
position that claiming reimbursement for services that are of substandard
quality is a violation of the false claims statutes if the claimant should have
known that the services were substandard.

The Company believes that its billing activities on behalf of the PCs and
the Provider Network are in material compliance with such laws, but there is no
assurance that the Company's activities will not be challenged or scrutinized by
governmental authorities. A determination that the Company has violated such
laws could have a material adverse impact on the Company.

Anti-Kickback Law. A federal law commonly known as the "Anti-kickback Law"
(as amended) prohibits the offer, solicitation, payment or receipt of anything
of value (direct or indirect, overt or covert, in cash or in kind) which is
intended to induce the referral of Medicare, Medicaid or other federally funded
health care program patients, or the ordering of items or services reimbursable
under those programs. The law also prohibits remuneration that is intended to
induce the recommendation of, or the arranging for, the provision of items or
services reimbursable under Medicare, Medicaid or other federally funded health
care program. The law has been broadly interpreted by a number of courts to
prohibit remuneration that is offered or paid for otherwise legitimate purposes
if the circumstances show that one purpose of the arrangement is to induce
referrals. Even bona fide investment interests in a health care provider may be
questioned under the Anti-kickback Law if the government concludes that the
opportunity to invest was offered as an inducement for referrals. The penalties
for violations of this law include criminal sanctions, civil monetary penalties
and exclusion from the Medicare and Medicaid programs.

In part to address concerns regarding the implementation of the
Anti-kickback Law, the federal government in 1991 published regulations that
provide exceptions, or "safe harbors," for certain transactions that will not be
deemed to violate the Anti-kickback Law. Among the safe harbors included in the
regulations

<PAGE>

were provisions relating to the sale of physician practices, management and
personal services agreements and employee relationships. Subsequently,
regulations were published offering safe harbor protection to additional
activities, including referrals within group practices consisting of active
investors. Proposed amendments clarifying the existing safe harbor regulations
were published in 1994. If any of the proposed regulations are ultimately
adopted, they would result in substantive changes to existing regulations. The
failure of an activity to qualify under a safe harbor provision, while
potentially leading to greater regulatory scrutiny, does not render the activity
illegal per se.

There are several aspects of the Company's relationships with physicians to
which the Anti-kickback Law may be relevant. In some instances, for example, the
government may construe some of the marketing and managed care contracting
activities of, or exclusive dealing arrangements required by, the Company as
arranging for the referral of patients to the Affiliated Physicians or
physicians with whom the Company has a relationship through the Provider
Network.

Although neither the investments in the Company by physicians nor the
Management Agreements between the Company and the PCs necessarily qualify for
protection under the safe harbor regulations, the Company does not believe that
these activities constitute the type of activities the Anti-kickback Law is
intended to prohibit. A determination that the Company had violated the
Anti-kickback Law could have a material adverse effect on the Company.

The Stark Self-Referral Law. The Stark Self-Referral Law (the "Stark Law")
prohibits a physician from referring a patient to a health care provider for
certain designated health services reimbursable by Medicare or Medicaid if the
physician has a financial relationship with that provider, including an
investment interest, a loan or debt relationship or a compensation relationship.
In addition to the conduct directly prohibited by the law, the statute also
prohibits schemes that are designed to obtain referrals indirectly that cannot
be made directly. The penalties for violating the law include (i) a refund of
any Medicare or Medicaid payments for services that resulted from an unlawful
referral, (ii) civil fines and (iii) exclusion from the Medicare and Medicaid
programs.

The Company does not currently provide any designated health service under
the Stark Law, but rather provides management services to affiliated PCs that
may themselves provide designated services and which are structured to fall
within the group medical practice exception to the Stark Law. However, because
the Company will provide management services related to designated health
services provided by Affiliated Physicians, there is no assurance that the
Company will not be deemed the provider of those services for purposes of the
Stark Law and, accordingly, the recipient of referrals from Affiliated
Physicians. In that event, such referrals will be permissible only if (i) the
financial arrangements under the Management Agreements with the PCs meet certain
exceptions in the Stark Law and (ii) the ownership of shares of Common Stock of
the Company by the referring physicians meets certain investment exceptions
under the Stark Law. The Company believes that the financial arrangements under
the Management Agreements qualify for applicable exceptions under the Stark Law;
however, there is no assurance that a review by courts or regulatory authorities
would not result in a contrary determination. In addition, the Company will not
meet the Stark Law exception related to investment interests until the Company's
stockholders' equity exceeds $75 million.

Antitrust. The Company is also subject to certain federal and state
antitrust laws, some of which could prohibit the potential control by the
Company of certain specialist physician services within a relevant market,
which, among other impacts, may adversely affect the Company's ability to engage
in Affiliation Transactions. In addition, certain laws which prohibit or
restrict the fixing or setting of prices, the tying of services and other
similar activities may adversely affect the Company's ability to negotiate payor
contracts on behalf of the PCs or the Provider Network if such activities were
deemed to be in violation of such prohibitions or restrictions.

State Law

State Anti-Kickback Laws. Many states have laws that prohibit payment of
kickbacks in return for the referral of patients. Some of these laws apply only
to services reimbursable under state Medicaid programs. However, a number of
these laws apply to all health care services in the state, regardless of the
source of payment for the service. Based on judicial administrative
interpretations of the Anti-kickback Law, the Company believes that these laws
prohibit payments to referral sources where a purpose for payment is for

<PAGE>

referrals. However, the laws in most states regarding kickbacks have been
subjected to limited judicial and regulatory interpretation, and therefore there
is no assurance that the Company's activities will be found to be in compliance
therewith. Noncompliance with such laws could have an adverse effect upon the
Company and subject it and Affiliated Physicians to penalties and sanctions.

State Self-Referral Laws. A number of states have enacted self-referral
laws that are similar in purpose to the Stark Law, but which impose different
restrictions. Some states, for example, only prohibit referrals when the
physician's financial relationship with a health care provider is based upon an
investment interest of a certain magnitude. Other state laws apply only to a
limited number of designated health services. Some states do not prohibit
referrals to owned or related entities, but require that a patient be informed
of the financial relationship when a referral is made. Although the Company
believes that its operations are in material compliance with the self-referral
law of the states in which the PCs are located, there is no assurance that the
Company's activities will be found in compliance therewith. Noncompliance with
such laws could have an adverse effect upon the Company and subject it and
Affiliated Physicians to penalties and sanctions.

Fee-Splitting Laws. Many states prohibit a physician from splitting with a
referral source the fees generated from physician services. Other states have a
broader prohibition against any splitting of a physician's fees, regardless of
whether the other party is a referral source. In most states, it is not
considered to be fee-splitting when the payment made by the physician is
reasonable reimbursement for services rendered on the physician's behalf.

The compensation provisions of the Company's Management Agreements with the
PCs have been designed in a manner which the Company believes complies with
applicable state laws relating to fee-splitting. There can be no certainty,
however, that, if challenged, the Company and the PCs will be found to be in
compliance with each state's fee-splitting laws. A determination in any state
that the Company is engaged in any unlawful fee-splitting arrangement could
render a Management Agreement or any other management and services agreement
between the Company and a PC located in such state unenforceable or subject to
modification in a manner adverse to the Company and subject the Company to other
sanctions.

Certain New York state regulations prohibit a physician from sharing or
splitting fees with persons not authorized to practice medicine. This
prohibition precludes the Company from receiving fees from its affiliated New
York PC which constitute a percentage of or are otherwise dependent upon the
income or receipts of the New York PC. The Company believes that the
compensation arrangement for services provided to the New York PC under the
relevant Management Agreement, which provides for a fee based on the Company's
costs plus an additional percentage of the Company's costs, complies with
applicable New York state law and regulation. However, there is no assurance
that certain actions by New York state regulatory authorities would not result
in a judicial or administrative determination with regard to such compensation
structure that could adversely affect the Company's operations. If the Company
is found to be engaged in a fee-splitting arrangement with the New York PC, the
New York PC and its Affiliated Physicians would be subject to charges of
professional misconduct and penalties ranging from censure to reprimand to
revocation of their professional licenses, and the Company could be deprived of
its ability to operate its business with, and to collect fees due and owing
from, the New York PC, which would have a material adverse effect on the Company
and its operations.

Corporate Practice of Medicine. Most states prohibit business corporations
from engaging in the practice of medicine. Many states prohibit a business
corporation from employing a physician. States differ, however, with respect to
the extent to which a licensed physician can affiliate with corporate entities
for the delivery of medical services. Some states interpret the "practice of
medicine" broadly to include activities of corporations such as the Company that
have an indirect impact on the practice of medicine, even where the physician
rendering the medical services is not an employee of the corporation and the
corporation exercises no discretion with respect to the diagnosis or treatment
of a particular patient.

The Company intends not to exercise any responsibility on behalf of
Affiliated Physicians pursuant to the Management Agreements that could be
construed as affecting the practice of medicine. Accordingly, the Company
believes that its operations do not violate applicable state laws relating to
the corporate practice of medicine. Such laws and legal doctrines have been
subjected to only limited judicial and regulatory interpretation and there is no
assurance that, if challenged, the Company would be considered to be in

<PAGE>

compliance with all such laws and doctrines. A determination in any state that
the Company is engaged in the corporate practice of medicine could render any
Management Agreement between the Company and a PC located in such state
unenforceable or subject to modification in a manner adverse to the Company and
subject the Company to other sanctions.

Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of health care providers under the auspices of an integrated
delivery system ("IDS"). While these laws do not generally apply to companies
that provide management services to networks of physicians or to physician
practice groups that assume financial risk under a subcapitation agreement with
a managed care organization, there is no assurance that regulatory authorities
of the states in which the Company operates would not apply these laws to
require licensure or some lesser regulation of the Company's operations as an
insurer, as an HMO or as a provider network or IDS. Other states have enacted
statutes or adopted regulations affecting risk assumption in the health care
industry, including statutes and regulations that subject any physician or
physician network engaged in risk-based contracting to applicable insurance laws
and regulations, which may include, among others, laws and regulations providing
for minimum capital requirements and other safety and soundness requirements.
The Company believes that its current and proposed operations are in compliance
with these laws in the states in which it currently does business, but there is
no assurance that future interpretations or amendments of insurance and health
care network laws by regulatory authorities in these states or in the states
into which the Company may expand will not require licensure or a restructuring
of some or all of the Company's operations.

The National Association of Insurance Commissioners ("NAIC") in 1995
endorsed a policy proposing the state regulation of risk assumption by
physicians. The policy proposes prohibiting physicians from entering into
capitated payment or other risk sharing contracts except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
PCs will be precluded from entering into capitated contracts directly with
employers, individuals and benefit plans unless they qualify to do business as
HMOs or insurance companies. In addition, in December 1996, the NAIC issued a
white paper entitled "Regulation of Health Risk Bearing Entities," which sets
forth issues to be considered by state insurance regulators when considering new
regulations and encourages that a uniform body of regulation be adopted by the
states. The Company believes that additional regulation at the state level will
be forthcoming in response to the NAIC initiatives. In addition, state
regulations in this area may be affected or superseded by federal standards for
provider service organizations that are currently being developed through
rulemaking required by the BBA.

COMPETITION

The business of providing health care-related services is intensely
competitive. The Company is potentially in competition with a number of
publicly- and privately-owned physician practice management businesses, as well
as hospitals and other health care institutions and organizations. The Company
competes with such entities in a variety of areas, including affiliation with
specialist physician practices, alignment with other health care providers such
as hospitals, physicians and providers of ancillary services, and negotiation
and execution of payor contracts. Most of these entities have been in business
longer than the Company, and have substantially greater assets and resources
than those of the Company. The Company believes other health care companies and
institutions have also been investigating forming single- or multi-specialty
physician management companies, and still other businesses with substantial
resources may decide to enter the specialist physician practice management
business, all of which entities are potentially in competition with the Company.
New competition may arise from provider service organizations authorized under
the BBA. The Company's success is highly dependent on the competitiveness of its
Affiliated Practices, which must compete for payors and consumers with numerous
solo practitioners, single- and multi-specialty physician groups, hospitals and
managed care organizations, many of which have substantially greater resources
than those of the Company's Affiliated Practices.

<PAGE>

INSURANCE

The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. However, the Company does not influence or
control the practice of medicine by physicians or have responsibility for
compliance with certain regulatory and other requirements directly applicable to
physicians, physician groups or other health care providers. As a result of the
relationship between the Company and the PCs, the Company may become subject to
medical malpractice actions under various theories, including successor
liability and certain theories relating to the power to control or direct care.
There can be no assurance that claims, suits or complaints relating to services
and products provided by the PCs will not be asserted against the Company in the
future. The Company's medical professional liability insurance provides coverage
of up to $1 million per occurrence, with maximum coverage of $3 million per
year. The Company's general liability insurance provides coverage of up to $3
million per occurrence, with maximum coverage of $3 million per year.

The physicians employed by the PCs are required to maintain medical
malpractice liability insurance in amounts which are mandated by the state in
which they practice. While the Company believes such insurance policies are
appropriate in amount and coverage for its current operations, there is no
assurance that the coverage maintained by the PCs and 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

As of October 31, 1997, the Company had a total of 294 employees and the
PCs had a total of 123 employees. None of the employees of the Company or the
PCs is represented by a labor union. The Company believes that its and the PCs'
relations with their respective employees are good.

PROPERTIES

The Company's headquarters are located in 13,423 square feet of leased
office space in Fort Washington, Pennsylvania, pursuant to leases which expire
in June and October 2002 and contain one-year renewal options. The Company
believes that these facilities are adequate for the foreseeable future. The
Affiliated Practices operate in offices leased by the Company with widely
varying terms.

LEGAL PROCEEDINGS

The Company is not a party to any pending legal proceedings. The Company's
Affiliated Physicians and the PCs are from time to time subject to medical
malpractice claims. Such claims, if successful, could result in substantial
damage awards that may exceed the limits of insurance coverage. No such claims
are presently pending, other than claims which arose against certain Affiliated
Physicians and Affiliated Practices prior to their respective Affiliation
Transactions, which claims the Company believes are adequately covered by
insurance.

<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Thomas J. Keane................... 41 Chairman, President and Chief Executive
Officer
Martin G. Chilek.................. 47 Senior Vice President--Administration and
Secretary
Edward R. Miersch................. 41 Senior Vice President and Chief Operating
Officer
Warren D. Barratt................. 37 Senior Vice President, Treasurer and Chief
Financial Officer
John M. Hogan..................... 37 Vice President and General Counsel
Linda F. Larson................... 50 Vice President--Management Information
Systems
Constance M. Phillips-Jones....... 42 Vice President--Network Development
Kerry J. Dale..................... 41 Director
William P. Ferretti............... 54 Director
Gustav H. Koven, III.............. 55 Director
Daniel Promislo................... 64 Director
</TABLE>

Thomas J. Keane has served as the Chairman, President and Chief Executive
Officer of the Company since its inception in July 1994. From 1989 to 1993, Mr.
Keane was President and CEO of Work Hardening Centers of America, Inc., which,
as the managing partner of a series of entities, provided workers' compensation
services for work-related injuries through managed care agreements with
businesses and physician referral sources and was sold to Medifit of America in
1993. From 1988 to 1989, Mr. Keane was Vice President--Marketing at Cellcor
Therapies, a startup company in the immunotherapy business. From 1981 to 1988,
Mr. Keane was Vice President of Fox Chase Cancer Center ("Fox Chase") and held
the position of Executive Director for a variety of entities affiliated with Fox
Chase. Prior to Fox Chase, Mr. Keane was a senior consultant within the emerging
business practice group of Coopers & Lybrand.

Martin G. Chilek has been Senior Vice President--Administration and
Secretary of the Company since July 1997 and prior to such time served as Vice
President and Secretary of the Company since joining the Company in December
1995. From January 1992 until joining the Company, he was a general partner of
the Edison Venture Fund specializing in health care investments. From 1979 to
1992, Mr. Chilek served in various capacities with the Humana Inc., including
serving as Director of Acquisitions and Development from 1985 to 1988 and
Director of Humana Venture Capital, the equity investment affiliate of Humana
Inc. from 1988 until 1992.

Edward R. Miersch has been Senior Vice President and Chief Operating
Officer of the Company since July 1997 and prior to such time served as Vice
President--Operations of the Company since joining the Company in July 1996.
From April 1994 until joining the Company, Mr. Miersch served as Eastern Region
President of the Outpatient Rehabilitation Division of NovaCare, Inc.
("NovaCare"), a provider of physical therapy and rehabilitation services. He
served as President of Pat Croce's Sports Physical Therapists, Inc. from 1980
until September 1993 at which time that company was acquired by RehabClinics,
Inc., which was acquired by NovaCare in early 1994. Mr. Miersch also served as
Director of Physical Therapy and Sports Medicine at Haverford Community Hospital
from 1980 to 1986.

Warren D. Barratt has been Senior Vice President, Treasurer and Chief
Financial Officer of the Company since July 1997 and prior to such time served
as Vice President, Treasurer and Chief Financial Officer since joining the
Company in September 1996. From June 1994 until joining the Company, Mr. Barratt
served as Chief Financial Officer of The Pet Practice, Inc. ("The Pet
Practice"), a provider of veterinary care, until its merger with Veterinary
Centers of America, Inc. in July 1996. From 1982 to June 1994, Mr. Barratt held
various positions with Price Waterhouse LLP.

<PAGE>

John M. Hogan has been Vice President and General Counsel of the Company
since joining the Company in October 1996. From February 1995 until joining the
Company, Mr. Hogan served as Assistant General Counsel of NovaCare, with primary
responsibility for representation of the NovaCare Outpatient Rehabilitation
Division. From March 1992 to February 1995, Mr. Hogan practiced law at Weissburg
and Aronson in San Diego, California. From 1985 to March 1992, Mr. Hogan
practiced law at Saul, Ewing, Remick & Saul in Philadelphia, Pennsylvania.

Linda F. Larson has been Vice President--Management Information Systems of
the Company since joining the Company in October 1996. From February 1995 until
joining the Company, Ms. Larson served as Director of Information Systems at The
Pet Practice. She was Director of Information Systems of the Hospital Division
of NovaCare from 1991 until January 1995. Before joining NovaCare in 1991, she
was Director of System Development and Maintenance at National Medical
Enterprises, Specialty Hospital Group.

Constance M. Phillips-Jones has been Vice President--Network Development of
the Company since joining the Company in November 1996. From July 1991 until
joining the Company, Ms. Phillips-Jones was Vice President--Managed Care
Services for the PMA Group, one of the largest commercial workers' compensation
insurance carriers in Pennsylvania. From 1986 until July 1991, she served as
Director of Utilization, Management and Quality Assurance for Penn Health
Corporation (a subsidiary of Maxicare). From 1976 to 1986 Ms. Phillips-Jones
held various positions with The Graduate Hospital and the Hospital of the
Medical College of Pennsylvania as well as other tertiary acute care hospitals
in Philadelphia.

Kerry J. Dale has been a director of the Company since January 1997. Mr.
Dale is a General Partner of Keystone Venture Capital and an officer of the
general partner of Keystone Venture Fund IV, L.P. ("Keystone"), which he joined
in 1988. From 1982 to 1988, he was an owner/operator of two related
manufacturers of industrial products.

William P. Ferretti has been a director of the Company since May 1995. Mr.
Ferretti is the Chairman and Chief Executive Officer of Medstar Television,
Inc., a television programming company, which he co-founded in 1982. Mr.
Ferretti is also a limited partner of the general partner of NEPA Venture
Fund--II, L.P. ("NEPA"). He is a former director of Access Health. Mr. Ferretti
currently serves on the board of directors of Vitas Health Care Corp., a
provider of hospice services in homes, hospitals and nursing homes and MHM
Services, Inc., an American Stock Exchange-listed behavioral health services
company.

Gustav H. Koven, III has been a director of the Company since September
1996. Mr. Koven is a General Partner of Edison Venture Fund, which he joined in
1990, and a general partner of the general partner of Edison Venture Fund III,
L.P. ("Edison"). From 1985 to 1990, Mr. Koven served as President of Chase
Manhattan Capital Corp. From 1980 to 1985, he served as a Vice President in
Corporate Development and Planning at The Chase Manhattan Bank. Before joining
Chase in 1980, Mr. Koven held marketing and corporate development positions at
Union Carbide. He serves as a director of Novalis Corporation, a provider of
services and software for managed care organizations.

Daniel Promislo has been a director of the Company since February 1995 and
since November 3, 1997 has been Managing Director of the law firm of Wolf,
Block, Schorr and Solis-Cohen LLP, where he was a partner specializing in
corporate and securities law from 1977 to 1994. For more than five years, he has
been the President and a Director of Historical Documents Company and Historical
Souvenir Company, manufacturers of souvenirs related to American history. Mr.
Promislo is also a trustee of Resource Asset Investment Trust, a real estate
investment trust.

CLASSIFIED BOARD; COMMITTEES; ADDITIONAL DIRECTORS

The Company's Board of Directors is divided into three classes. Each class
holds office until the third annual meeting for the election of directors
following the election of such class, except that the initial terms of the Class
I, Class II and Class III directors expire in 1999, 2000 and 2001, respectively.
Messrs. ________ and ________ are Class I directors, Messrs. ________ and
________ are Class II directors and Mr. ________ is a Class III director.

The Board of Directors has a Compensation Committee, which currently is
composed of the entire Board of Directors, and an Audit Committee composed of
Messrs. Ferretti, Koven and Promislo. The Compensation

<PAGE>

Committee determines salaries and bonuses and other compensation matters for
officers of the Company, administers employee health and benefit plans, and
administers the Stock Incentive Plans and any similar plans created in the
future. The Audit Committee recommends the appointment of the Company's
independent public accountants and reviews the scope and results of audits,
internal accounting controls and tax and other accounting related matters.

The Company intends that two additional independent directors will be
elected to the Board of Directors within 90 days after the completion of the
Offering.

DIRECTOR COMPENSATION

Each non-employee director of the Company is expected to receive a fee of
$1,000 per meeting of the Board of Directors (or board committee of which he is
a member) attended, plus reimbursement of out-of-pocket expenses. In addition,
non-employee directors receive a grant of options to purchase 40,000 shares of
Common Stock upon commencement of service as a director, and may receive annual
or other additional grants of options in amounts that have not yet been
determined.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information with respect to compensation paid or accrued by the Company during
1996 to the Company's Chief Executive Officer and to the other executive officer
of the Company whose salary and bonus for 1996 exceeded $100,000 for all
services rendered in all capacities to the Company (the "Named Executive
Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
NAME AND ------------ LONG TERM ALL OTHER
PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION
------------------ ------ ----- ------------ ------------
<S> <C> <C> <C> <C>
Thomas J. Keane ................................. $150,102 -0- -0- -0-
Chairman, President and Chief Executive Officer
Martin G. Chilek ................................ 149,340 -0- -0- -0-
Senior Vice President--Administration and
Secretary
</TABLE>

Option Values. No stock options were granted to either Named Executive
Officer during 1996. The following table sets forth certain information
regarding stock options held as of December 31, 1996 by the Named Executive
Officers. Neither of the Named Executive Officers exercised stock options during
1996.

FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END(#) FISCAL YEAR END($)(1)
---------------------- -----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas J. Keane............................. -0- -0- -- --
Martin G. Chilek............................ 34,438 68,877 $ $
</TABLE>

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

(1) There was no public trading market for the Common Stock as of December 31,
1996. These values have been calculated on the basis of the assumed initial
public offering price of $________ per share, less the applicable per share
exercise price.

EMPLOYMENT AGREEMENTS

The Company entered into an employment agreement with Thomas J. Keane,
Chairman, President and Chief Executive Officer, in October 1997. The agreement
has an initial term of three years and automatically renews for successive
one-year terms unless either party elects not to renew. The agreement provides
for an

<PAGE>

annual base salary of $157,532 and further provides that Mr. Keane will be
included in any bonus system, pool or incentive compensation program for senior
executives of the Company that may be implemented by the Board. The agreement
further provides that Mr. Keane's positions, titles or responsibilities will not
be diminished materially without his consent. In the event Mr. Keane's
employment is terminated for reasons other than his death, disability or for
cause, or if the Company elects not to renew his employment for any additional
term, the Company is obligated to continue to pay Mr. Keane his then current
base salary for the greater of a period of six months or the remainder of the
initial term or any additional term, or until such time as he commences other
full time employment. In the event Mr. Keane's employment is terminated without
cause upon a change in control (as defined), he is entitled to receive a lump
sum payment upon such termination equal to 300% of his then current base salary
plus 300% of any annual incentive compensation for the prior year. The agreement
also contains covenants with respect to confidential information as well as a
restrictive covenant which generally prevents Mr. Keane from owning a material
interest in or being employed by or affiliated with competitors of the Company
during his term of employment and for a period of one year thereafter.

The Company entered into an employment agreement with Martin G. Chilek,
Senior Vice President--Administration and Secretary, in December 1995, which
agreement was amended and restated in October 1997. The employment agreement
expires in December 1998 and automatically renews for successive one-year terms
unless either party elects not to renew. The agreement provides for an annual
base salary of $150,000 and that Mr. Chilek will be included in any bonus
system, pool or incentive compensation plan for senior executives of the Company
that may be implemented by the Board. In addition, the agreement provides for a
grant to Mr. Chilek under the 1995 Company Option Plan of Options to purchase
103,315 shares of Common Stock at an exercise price of $0.49 per share, which
options are intended to be "incentive stock options" within the meaning of
Section 422 of the Code ("ISOs") and become exercisable in three equal
installments upon each of the first three anniversaries of December 19, 1995,
the first day of Mr. Chilek's employment with the Company. In the event Mr.
Chilek's employment is terminated for reasons other than his death, disability
or for cause, or if the Company elects not to renew his employment for any
additional term, then the Company shall continue to pay Mr. Chilek his
then-current base salary for the greater of a period of six months or the
remainder of the initial term or any additional term, or until such time as he
commences other full-time employment, whichever occurs earlier. In the event Mr.
Chilek's employment is terminated without cause upon a change of control, he is
entitled to receive a lump sum payment upon such termination equal to the
greater of: 200% of his then-current base salary plus 200% of any annual
incentive compensation for the prior year, or 100% of his then-current base
salary plus 100% of his annual incentive compensation for the remainder of the
initial term or any additional term. The agreement also contains covenants with
respect to confidential information as well as a restrictive covenant which
generally prevents Mr. Chilek from owning a material interest in or being
employed by or affiliated with competitors of the Company during his term of
employment and for a period of one year thereafter.

STOCK INCENTIVE PLANS

Stock Incentive Plan

Under the Company's 1997 Stock Incentive Plan (the "Stock Incentive Plan"),
a variety of awards, including stock options, stock appreciation rights and
restricted and unrestricted stock grants may be made to the Company's employees,
officers, directors, affiliates, consultants and advisors who are expected to
contribute to the Company's future growth and success. The Company has reserved
1,250,000 shares of Common Stock for issuance under the Stock Incentive Plan.
Notwithstanding the foregoing, under the terms of the Stock Incentive Plan,
stock options to acquire more than _________ shares of Common Stock may not be
granted to any individual optionee during any one fiscal year of the Company.
Approximately ______ individuals are currently eligible to receive grants or
awards under the Stock Incentive Plan. There are 2,102,577 shares of Common
Stock currently outstanding under the 1995 Company Option Plan and the 1995
Affiliate Option Plan. The Compensation Committee will administer the Stock
Incentive Plan and determine the price and other terms upon which awards shall
be made. Stock options may be granted either in the form of ISOs or
non-statutory stock options. The option exercise price of ISOs may not be less
than the fair market value of the Common Stock on the date of the grant. While
the Company currently anticipates that most

<PAGE>

grants under the Stock Incentive Plan will consist of stock options, the
Company may grant stock appreciation rights, which represent rights to receive
any excess in value of shares of Common Stock over the exercise price;
restricted stock awards, which entitle recipients to acquire shares of Common
Stock, subject to the right of the Company to repurchase all or a part of such
shares at their purchase price in the event that the conditions specified in the
award are not satisfied; or unrestricted stock awards, which represent grants of
shares to participants free of any restrictions under the Stock Incentive Plan.
Options or other awards that are granted under the Stock Incentive Plan but
expire unexercised are available for future grants. It is expected that, prior
to the completion of the Offering, Options to purchase approximately 135,000
shares of Common Stock will be granted under the Stock Incentive Plan to the
employees, officers and directors of the Company with an exercise price equal to
the initial public offering price and a three-year vesting schedule will be
granted under the Stock Incentive Plan. It is not anticipated that any stock
appreciation rights or restricted or unrestricted stock grants will be made
under the Stock Incentive Plan prior to the completion of the Offering. No
Options or other awards have been granted to date under the Stock Incentive
Plan.

Under the terms of the Stock Incentive Plan, if a "Change of Control"
(which is defined as including certain changes in the ownership or corporate
structure of the Company, as well as a liquidation of the Company or any other
event that may be defined by the Company's Board of Directors as constituting a
Change of Control) occurs, the Compensation Committee (or such other committee
as may be charged with responsibility for administration of the Stock Incentive
Plan) has the right to take whatever actions are deemed to be necessary or
desirable with respect to any outstanding options (which actions may be taken on
a case by case basis), including, without limitation, the acceleration of the
expiration or termination of the options (to a date no earlier than thirty days
after notice is given to the optionees affected) and the acceleration of the
exercisability of any outstanding options.

In general, no income is recognized by an optionee on the grant of an
option. On the exercise of an option, the excess of the fair market value of the
shares acquired over the option exercise price paid for the shares (the
"spread") is recognized as income if the option is a non-statutory option. If
the option is an ISO, the spread will be taken into account as income for
purposes of the federal alternative minimum tax, but not for purposes of the
regular federal income tax. The Company generally is allowed a deduction for
federal income tax purposes equal to the income recognized by an optionee on
exercise of a non-statutory option (subject to applicable limitations on
deductibility of compensation expenses, including the limitations imposed under
Section 162(m) of the Code), but is allowed no deduction with respect to the
exercise of an ISO.

If an optionee exercises an ISO and holds the shares acquired beyond a
required holding period (which ends on the later of two years after the date the
ISO was granted or one year after the shares were acquired), the optionee will
recognize capital gain (or loss) on the disposition of the shares determined by
reference to the optionee's purchase price. The tax liability, if any,
attributable to such a subsequent disposition will depend, in part, on the
optionee's holding period. The maximum tax liability on capital gains with
respect to property that has been held more than 18 months is 20%. If an
optionee exercises an ISO and sells without satisfying the applicable holding
period (a "disqualifying disposition"), the sale will result in ordinary
compensation income equal to the excess of the amount realized over the price
paid for the shares. The Company will be allowed a deduction equal to the amount
of ordinary income recognized by the optionee on a disqualifying disposition.

If shares which are acquired on exercise of a non-statutory option are
subject to any restrictions that would be treated as creating a risk of
forfeiture that is "substantial," in the absence of a special election by the
optionee under Section 83(b) of the Code, the tax treatment described above will
vary, as the income to the optionee (and the deduction to the Company) will be
determined as of the date the substantial risk of forfeiture lapses.

Section 162(m) of the Code set limits on the deductibility of compensation
in excess of $1,000,000 paid by publicly held companies to certain "covered"
employees (the "million dollar cap"). It is anticipated that compensation
expense attributable to the exercise of non-statutory options granted under the
Stock Incentive Plan will be exempt from these limitations pursuant to certain
exemptions contained in Treasury Regulations promulgated by the IRS.

<PAGE>

1995 Company Option Plan and 1995 Affiliate Option Plan

In 1995, the Company adopted the 1995 Company Stock Option Plan (the "1995
Company Option Plan") and the 1995 Affiliate Stock Option Plan (the "1995
Affiliate Option Plan"). An aggregate of 1,775,077 ISOs and 160,000
non-statutory stock options have been granted under the 1995 Company Option Plan
and 182,500 non-statutory stock options have been granted under the 1995
Affiliate Option Plan. All such Options were granted with a 10-year term and
with an exercise price equal to the fair market value of the Common Stock as
determined by the Board of Directors at the date of grant. The 1995 Company
Option Plan and the 1995 Affiliate Option Plan have been amended to provide that
no additional Options may be granted pursuant to such plans.

<PAGE>

CERTAIN TRANSACTIONS

Thomas J. Keane, Chairman, President and Chief Executive Officer of the
Company, has received shares of Common Stock in exchange for services rendered
to the Company as follows: in July 1994, he received 1,020,000 shares;
and in February 1995, he received 1,744,518 shares.

Daniel Promislo, a director of the Company, has received shares of Common
Stock in exchange for services rendered to the Company as follows: in September
1994, he received 30,000 shares; in February 1995, he received 52,194 shares; in
November 1995, he received 205,479 shares; and in July 1996, he received 25,000
shares.

From the Company's inception through January 1995, a corporation owned by
Thomas J. Keane, Chairman, President and Chief Executive Officer of the Company,
made advances to the Company in the aggregate amount of $262,000, of which
amount $90,000 was repaid during 1995 and $172,000 bears interest at an annual
rate of 6%.

In February 1995, the Company issued shares of Series A Preferred Stock to
Edison and NEPA as follows: to Edison, 856,164 shares of Series A Preferred
Stock for a purchase price of $1,249,999, and to NEPA, 513,699 shares of Series
A Preferred Stock for a purchase price of $750,001. Each outstanding share of
Series A Preferred Stock will be converted into three shares of Common Stock
upon completion of the Offering. See "Description of Capital Stock."

In February 1996, William P. Ferretti purchased 205,479 shares of Common
Stock for $100,000. In July 1996, Edward R. Miersch purchased 408,163 shares of
Common Stock for $200,000.

In December 1996, the Company issued shares of Series B Preferred Stock and
Common Stock Warrants to Keystone, Edison and NEPA as follows: to Keystone,
396,825 shares of Series B Preferred Stock and 79,365 Common Stock Warrants for
an aggregate purchase price of $1,250,000; to Edison, 128,968 shares of Series B
Preferred Stock and 25,794 Common Stock Warrants for an aggregate purchase price
of $406,250; and to NEPA, 109,127 shares of Series B Preferred Stock and 21,825
Common Stock Warrants for an aggregate purchase price of $343,750. Each
outstanding share of Series B Preferred Stock will be converted into one share
of Common Stock upon completion of the Offering, subject to an adjustment if the
Price to Public in the Offering is less than $9.45, which could result in the
issuance of additional shares of Common Stock upon such conversion. See
"Description of Capital Stock."

In February 1997, the Company issued shares of Series B Preferred Stock and
Common Stock Warrants to various investors, including 31,746 shares of Series B
Preferred Stock for a purchase price of $99,500 and 6,349 Common Stock Warrants
for a purchase price of $500 to Mr. Keane; and 317,460 shares of Series B
Preferred Stock for a purchase price of $995,000 and 63,492 Common Stock
Warrants for a purchase price of $5,000 to Dominion.

In April 1997, Dominion made a loan to the Company in the aggregate
principal amount of $2,000,000, bearing interest at an annual rate of 12%, which
will be repaid in full upon completion of the Offering. See "Use of Proceeds."
In connection with the loan, the Company granted to Dominion a security interest
in all of the Company's assets. Also, in connection with such loan, the Company
issued to Dominion a Series B Warrant to purchase 266,667 shares of Series B
Preferred Stock at an exercise price of $3.15 per share, which Series B Warrant
expires four years from the date of completion of the Offering and converts to a
Common Stock Warrant to purchase a like number of shares of Common Stock,
subject to adjustment, upon completion of the Offering. Series B Warrants will
become Common Stock Warrants to purchase an equal number of shares of Common
Stock (subject to adjustment if the Price to Public in the Offering is less than
$9.45) upon completion of the Offering. See "Description of Capital Stock" and
"Use of Proceeds."

In September 1997, certain shareholders of the Company made bridge loans to
the Company in the following respective principal amounts: Dominion, $1,500,000;
Keystone, $150,000; Edison, $125,000; NEPA, $125,000, and Mr. Keane, $100,000.
Such loans bear interest at an annual rate of 10%, and will be repaid upon
completion of the Offering. See "Use of Proceeds." In connection with such
loans, the Company issued to

<PAGE>

Dominion a Series B Warrant to purchase 166,667 shares of Series B Preferred
Stock at an exercise price of $3.15 per share and Series B Warrants to purchase
shares of Series B Preferred Stock at an exercise price of $____ per share (45%
of the Price to Public) to the other lenders in the following amounts: Keystone,
16,667 shares; Edison, 13,889 shares; NEPA, 13,889 shares; and Mr. Keane, 11,111
shares. All of such Series B Warrants expire four years from the date of
completion of the Offering and convert to Common Stock Warrants to purchase a
like number of shares of Common Stock, subject to adjustment, upon completion of
the Offering. Such loans shall be repaid upon completion of the Offering with
the proceeds of the Offering. See "Description of Capital Stock" and "Use of
Proceeds."

The Company, Mr. Keane and the holders of the Convertible Preferred Stock
and the Warrants are parties to an Amended and Restated Registration Rights
Agreement dated as of December 31, 1996, as amended as of February 6, 1997 (the
"Registration Rights Agreement") to provide for the registration under the
Securities Act of the shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock and exercise of the Warrants (the "Underlying
Shares"). The Registration Rights Agreement provides that the holders of at
least 40% of the Underlying Shares may demand registration of at least 20% of
the Underlying Shares originally issued ("Demand Registration"). The Company is
required to effect a total of two Demand Registrations. In connection with any
Demand Registration, the Company and Mr. Keane, for their own accounts, may
include shares of Common Stock in any such registration, subject to reduction by
a managing underwriter if such inclusion would adversely affect the marketing of
the shares to be included in the Demand Registration. The Registration Rights
Agreement also provides for incidental registration of the Underlying Shares
with respect to any registrations of Common Stock undertaken by the Company
(other than registrations on Forms S-4 and S-8). The Registration Rights
Agreement provides the holders of Underlying Shares the right to register their
shares on Form S-3 if and when the Company becomes eligible to use such form.
The costs to register shares will be borne by the Company, except for
underwriting discounts and commissions. The Registration Rights Agreement also
requires the Company to indemnify each selling shareholder for violations of
certain securities laws in connection with a registration that results in losses
to the selling shareholder, unless a violation is caused by such shareholder. In
turn, the selling shareholders must indemnify the Company for losses due to any
violation of securities laws by them in the registration process.

Daniel Promislo, a director of the Company, is currently Managing Director
of Wolf, Block, Schorr and Solis-Cohen LLP, which provides legal services to the
Company.

<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the ownership
of the Common Stock as of October 31, 1997 as adjusted to reflect the sale of
shares offered pursuant to this Prospectus, by (i) each of the Company's Named
Executive Officers and directors; (ii) all of the Company's executive officers
and directors as a group; and (iii) each person known to the Company to own more
than five percent of the outstanding shares of Common Stock.

<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED ------------------------------
PRIOR TO THE PRIOR TO THE AFTER THE
NAME OF BENEFICIAL OWNER OFFERING OFFERING OFFERING
- ------------------------ ------------------ ------------ ---------
<S> <C> <C> <C>
Thomas J. Keane(1)................................. 2,843,724 29.2
Martin G. Chilek(2)................................ 68,876 *
Kerry J. Dale(3)................................... 0 --
William P. Ferretti(4)............................. 205,479 2.1
Gustav H. Koven, III(5)............................ 0 --
Daniel Promislo (6)................................ 282,673 2.9
Edison Venture Fund III, L.P.(7)................... 2,737,143 28.1
NEPA Venture Fund II, L.P.(8)...................... 1,685,938 17.3
Keystone Venture IV, L.P.(9)....................... 492,857 5.0
Dominion Fund IV (10).............................. 814,286 8.0
All executive officers and directors as a
group (11 persons)(11)........................... 3,920,290 39.8
</TABLE>

- ------------------
* Less than one percent.

(1) Includes presently exercisable Warrants to purchase 6,349 shares at an
exercise price of $3.15 per share and 11,111 shares at an exercise price of
$____ per share; also includes 173,000 shares owned by Mr. Keane which may
be acquired from Mr. Keane by certain lenders, at their election, in
satisfaction of outstanding loans to Mr. Keane.

(2) Consists of options to purchase 68,876 shares presently exercisable at an
exercise price of $0.49 per share.

(3) Does not include 492,857 shares and currently exercisable Warrants to
purchase 79,365 shares at an exercise price of $3.15 per share and 16,667
shares at an exercise price of $____ per share owned by Keystone, of which
Mr. Dale is an officer of the general partner of the general partner.

(4) Does not include 1,685,938 shares owned by NEPA, of which Mr. Ferretti is a
limited partner of the general partner.

(5) Does not include 2,737,143 shares owned by Edison, of which Mr. Koven is a
general partner of the general partner.

(6) Does not include 30,000 shares owned by Mr. Promislo's children, all of
whom are adults. Mr. Promislo disclaims any beneficial ownership with
respect to such shares.

(7) Includes currently exercisable Warrants to purchase 25,794 shares at an
exercise price of $3.15 per share and 13,889 shares at an exercise price of
$______ per share.

(8) Includes currently exercisable Warrants to purchase 21,825 shares at an
exercise price of $3.15 per share and 13,889 shares at an exercise price of
$______ per share.

(9) Includes currently exercisable Warrants to purchase 79,365 shares at an
exercise price of $3.15 per share and 16,667 shares at an exercise price of
$____ per share.

(10) Includes currently exercisable Warrants to purchase 496,826 shares at an
exercise price of $3.15 per share.

(11) See notes one through six above. Also includes currently exercisable
Options to purchase 34,438 shares at an exercise price of $0.49 per share
and 76,937 shares at an exercise price of $1.00 per share.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon completion of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, and 5,000,000 shares
of undesignated Preferred Stock, par value $.01 ("Preferred Stock"). Of the
Common Stock, 3,951,581 shares are issued and outstanding, an aggregate of
1,250,000 shares are reserved for issuance pursuant to outstanding Options which
may be issued pursuant to the Stock Incentive Plan, 1,935,077 shares are
reserved for issuance pursuant to the exercise of outstanding Options issued
pursuant to the 1995 Company Option Plan, and 182,500 shares are reserved for
issuance pursuant to the exercise of outstanding Options issued pursuant to the
1995 Affiliate Option Plan. In addition, the Company has issued warrants to
purchase 249,206 shares of Common Stock at an exercise price of $3.15 per share,
which warrants are currently exercisable and expire on December 31, 1999;
warrants to purchase 433,334 shares of Series B Preferred Stock which upon
completion of the Offering will convert into warrants to purchase the same
number of shares of Common Stock at an exercise price of $3.15 per share, which
warrants expire four years from the date of completion of the Offering; and
warrants to purchase 55,556 shares of Series B Preferred Stock which upon
completion of the Offering will convert into warrants to purchase the same
number of shares of Common Stock at an exercise price of $____ per share (45% of
the Price to Public), which warrants expire four years from the date of
completion of the Offering. The Company has also issued and outstanding
convertible promissory notes (the "Convertible Notes") in an aggregate principal
amount of $19,800,049 which upon completion of the Offering are convertible at
the election of the holders into an aggregate of up to _____ shares of Common
Stock at a conversion price of $_____ per share. No shares of the undesignated
Preferred Stock are issued and outstanding.

The Company's authorized capital stock also currently includes 1,506,849
shares of Series A Preferred Stock, all of which is outstanding as of the date
of this Prospectus, and 1,830,158 shares of Series B Preferred Stock, of which
1,246,031 shares are outstanding as of the date of this Prospectus. All of such
shares will be converted into an aggregate of 5,766,578 shares of Common Stock,
subject to adjustment as described below, on the completion of this Offering,
and no additional shares of Convertible Preferred Stock will be issued. Upon the
completion of the Offering, the 1,506,849 issued and outstanding shares of
Series A Preferred Stock will be converted, at a three-to-one ratio, into
4,520,547 shares of Common Stock, and each of the 1,246,031 issued and
outstanding shares of Series B Preferred Stock will be converted into one share
of Common Stock, provided that if, the Price to Public is less than $9.45, each
share of Series B Preferred Stock will be converted into a number of shares of
Common Stock equal to a number determined by dividing $3.15 by an amount equal
to one-third of the Price to Public. In addition, upon completion of the
Offering, outstanding warrants to purchase 682,540 shares of Series B Preferred
Stock at an exercise price of $3.15 per share (subject to adjustment as
described above if the Price to Public is less than $9.45) and outstanding
warrants to purchase 55,556 shares of Series B Preferred Stock at an exercise
price of $____ per share (45% of the Price to Public) will be converted into
Warrants to purchase the same number of shares of Common Stock at the same
respective exercise price, which Warrants are currently exercisable and will
expire four years from the date of the completion of the Offering. After the
completion of the Offering no shares of Convertible Preferred Stock will be
outstanding or authorized for issuance.

The holders of Common Stock are entitled to receive dividends, when and as
declared by the Board of Directors, out of funds legally available therefor and
to receive pro rata the assets of the Company legally available for distribution
upon liquidation after payment to holders of Preferred Stock having a
liquidation preference over the Common Stock. In addition, holders of Common
Stock are entitled to one vote per share on all matters voted on by shareholders
generally, including the election of directors, and do not have cumulative
voting rights. There are no preemptive, conversion or redemption rights
applicable to the shares of the Common Stock. The currently outstanding shares
of Common Stock are, and the shares of Common Stock offered by the Company
hereby, upon issuance by the Company against receipt of the purchase price
therefor, will be, fully paid and non-assessable.

The Board of Directors is empowered by the Company's Second Amended and
Restated Articles of Incorporation, as amended (the "Articles"), to designate
and issue from time to time one or more classes or series of Preferred Stock
without any action of the shareholders. The Board of Directors may fix and
determine the relative rights, preferences and limitations of each class or
series so authorized. The issuance of, or the ability to issue, the Preferred
Stock could adversely affect the voting power and other rights of the

<PAGE>

holders of the Common Stock or could have the effect of decreasing the market
price of the Common Stock or of discouraging or making difficult any attempt by
a person or group to obtain control of the Company, including any attempt
involving a bid for the Common Stock at a premium over the then market price.
The Company does not have any present intention to issue any Preferred Stock.

Subchapter F of Chapter 25 of the Pennsylvania Business Corporation Law of
1988, as amended (the "BCL"), which is applicable to the Company, may have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in his or her best interest, including
those attempts that might result in a premium over the market price for the
shares held by shareholders. In general, Subchapter F of Chapter 25 of the BCL
delays for five years and imposes conditions upon "business combinations"
between an "interested shareholder" and the Company, unless prior approval of
the Board of Directors is given. The term "business combination" is defined
broadly to include various merger, consolidation, division, exchange or sale
transactions, including transactions utilizing the Company's assets for purchase
price amortization or refinancing purposes. An "interested shareholder," in
general, would be a beneficial owner of shares entitling that person to cast at
least 20% of the votes that all shareholders would be entitled to cast in an
election of directors of the Company.

As permitted by the BCL, the Articles and the By-laws provide that a
director shall not be personally liable, as such, for monetary damages for any
action taken, or any failure to take any action, unless the director breaches or
fails to perform the duties of his or her office under the BCL, and the breach
or failure to perform constitutes self-dealing, willful misconduct or
recklessness. These provisions, however, do not apply to the responsibility or
liability of a director pursuant to any criminal statute, or to the liability of
a director for the payment of taxes pursuant to local, Pennsylvania or federal
law. These provisions offer persons who serve on the Board of Directors of the
Company protection against awards of monetary damages for negligence in the
performance of their duties. The Articles and the By-laws also provide that
every person who is or was a director or executive officer of the Company, or of
any corporation which he or she served as such at the request of the Company,
shall be indemnified by the Company to the fullest extent permitted by law
against all expenses and liabilities reasonably incurred by or imposed upon him
or her, in connection with any proceeding to which he or she may be made, or
threatened to be made, a party, or in which he or she may become involved by
reason of his or her being or having been a director or executive officer of the
Company, or of such other Company, whether or not he or she is a director or
executive officer of the Company or such other Company at the time the expenses
or liabilities are incurred, and that such directors and executive officers are
entitled to the advancement of expenses in connection therewith.

The By-laws provide that shareholders seeking to nominate candidates for
election as directors at an annual or a special meeting of shareholders must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive offices
of the Company (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of shareholders, not less than 120 days prior to the
anniversary of the date that the Company's proxy statement was released to
stockholders in connection with the immediately preceding annual meeting, and
(ii) in the case of an annual meeting that is called for a date that is not
within 30 days before or after the anniversary date of the immediately preceding
annual meeting, or in the case of a special meeting of shareholders called for
the purpose of electing directors, not later than the close of business on the
tenth day following the day on which notice of the date of the meeting was
mailed or public disclosure of the date of the meeting was made, whichever
occurs first. The By-laws also specify certain requirements for a shareholder's
notice to be in proper written form.

Application has been made to have the Common Stock approved for quotation
on The Nasdaq Stock Market's National Market under the symbol "USPI."

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company.

<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offering, there has been no public market for the Common
Stock. Sales of substantial amounts of shares of the Common Stock in the public
market following the Offering could adversely affect the market price of the
Common Stock, making it more difficult for the Company to sell equity securities
in the future at a time and price which it deems appropriate.

Upon the completion of the Offering, assuming no exercise of the
overallotment option, the Company will have outstanding _______ shares of Common
Stock. Of these shares, the _______ shares of Common Stock sold in the Offering
will be freely tradeable without restriction or registration under the
Securities Act. The remaining 9,718,159 shares of Common Stock outstanding as of
the date of this Prospectus are "restricted securities" as defined by Rule 144,
___% of which are held by the Principal Shareholders and would be able to be
sold in accordance with the provisions of Rule 144 beginning 90 days after the
date of this Prospectus.

In general, under Rule 144, a person who has beneficially owned shares for
at least one year, including an "affiliate," as that term is defined in the
Securities Act, is entitled to sell within any three-month period a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of Common Stock (approximately _______ shares after the completion of the
Offering), or the average weekly trading volume during the four calendar weeks
preceding filing of notice of such sale, subject to certain requirements
concerning availability of public information, manner and notice of sale.

In addition, affiliates must comply with the restrictions and requirements
of Rule 144, other than the one-year holding period requirements, in order to
sell shares of Common Stock which are not restricted securities. Under Rule
144(k), a person who is not an affiliate and has not been an affiliate for at
least three months prior to the sale and who has beneficially owned restricted
shares for at least a two year holding period may resell such shares without
compliance with the foregoing restrictions.

Upon the completion of the Offering, it is expected that there will be
2,117,577 shares of Common Stock issuable upon exercise of outstanding Options
granted under the Stock Incentive Plans, 285,223 of which are currently vested
and the remainder of which will vest in various installments through September
2002. Pursuant to the Underwriting Agreement, the Company has agreed not to
file, at any time prior to the date 180 days from the date of this Prospectus, a
registration statement under the Securities Act covering any of such shares. The
Company, however, intends to file a Form S-8 registration statement covering a
portion of these shares within one year from the date of this Prospectus. The
shares registered under such registration statement will be available for resale
in the open market upon the exercise of vested options, subject to Rule 144
volume limitations applicable to affiliates.

In addition, upon completion of the Offering, there will be outstanding
Warrants to purchase an aggregate of 682,540 shares of Common Stock at an
exercise price of $3.15 per share and outstanding warrants to purchase an
aggregate of 55,556 shares of Common Stock at an exercise price of $____ per
share (45% of the Price to Public), which warrants are presently exercisable and
expire four years from the date of completion of the Offering. In addition, upon
completion of the Offering, the Company will have outstanding Convertible Notes
in the aggregate principal amount of $19.8 million, which Convertible Notes are
convertible at the election of the holders into an aggregate of up to _______
shares of Common Stock at a conversion price of $____ per share.

The Company, each executive officer and director and certain other
shareholders of the Company have agreed that, for a period of 180 days after the
date of this Prospectus (the "Lock-Up Period"), they will not, without the prior
written consent of BancAmerica Robertson Stephens, issue, offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for or that represent the right to receive any shares of Common
Stock or enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, the economic consequences of ownership of the
Common Stock except in certain limited circumstances.

For a description of the Registration Rights Agreement, which provides
registration rights, including rights to Demand Registration, to holders of the
Convertible Preferred Stock and Warrants, see "Certain Transactions."

<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives
BancAmerica Robertson Stephens, NationsBanc Montgomery Securities, Inc. and
Piper Jaffray Inc. (the "Representatives"), have severally agreed, subject to
the terms and conditions of the Underwriting Agreement, to purchase from the
Company 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.

NUMBER OF
UNDERWRITER SHARES
----------- ---------

BancAmerica Robertson Stephens..............................
NationsBanc Montgomery Securities, Inc......................
Piper Jaffray Inc...........................................
Total..................................................
-------

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the price to the public set
forth on the cover page of this Prospectus and to certain dealers at such price
less a concession of not more than $0.__ per share, of which $0.__ may be
reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to _______
additional shares of Common Stock at the same price per share as the Company
will receive for the _______ shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
______ shares offered hereby. If purchased, such additional shares will be sold
by the Underwriters on the same terms as those on which the _______ shares are
being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the Underwriting Agreement.

Each executive officer and director and certain other shareholders of the
Company have agreed with the Representatives for the Lock-Up Period not to offer
to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of Common Stock, any options or warrants
to purchase any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for or that represent the right to receive any
shares of Common Stock or enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequences of
ownership of the Common Stock owned as of the date of this Prospectus or
thereafter acquired directly by such holders for with respect to which they have
or hereinafter acquire the power of disposition, without the prior written
consent of BancAmerica Robertson Stephens, subject to certain limited
exceptions. However, BancAmerica Robertson Stephens may, in its sole discretion
at any time or from time to time, without notice, release all or any portion of
the securities subject to the lock-up agreements. In addition, the Company has
agreed that during the Lock-Up Period, it will not, without the prior written
consent of BancAmerica Robertson Stephens, issue, sell, contract to sell or
otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for or represent the right to receive any shares
of Common Stock or enter into any swap, option, future, forward or other
agreement that transfers, in whole or in part, the economic consequences of
ownership of the Common Stock, other than the issuance of Common Stock upon the
exercise of outstanding Options and Warrants, the Company's issuance of Options
under existing Stock Incentive Plans and certain other conditions. See "Shares
Eligible For Future Sale."

Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be

<PAGE>

considered in determining the initial public offering price of the Common Stock,
in addition to prevailing market conditions, will be the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related business.

The Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority in excess of 5% of the number of shares of
Common Stock offered hereby.

The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Act, certain persons participating in the offering may
engage in transactions, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have the effect of
stabilizing or maintaining the market price of the Common Stock at a level above
that which might otherwise prevail in the open market. A "stabilizing bid" is a
bid for or the purchase of the Common Stock on behalf of the Underwriters for
the purpose of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is the bid for or the purchase of the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Representatives have advised the Company that such transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.

From time to time in the ordinary course of their respective business,
certain of the Underwriters and their affiliates have engaged in and may in the
future engage in commercial and/or investment banking transactions with the
Company and its affiliates.

LEGAL MATTERS

Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, has
rendered an opinion that the shares of Common Stock offered hereby will be
legally issued, fully paid and non-assessable. Daniel Promislo, a director of
the Company, is the Managing Director of Wolf, Block, Schorr and Solis-Cohen LLP
and presently owns 282,673 shares of Common Stock. Certain legal matters
relating to the Offering will be passed upon for the Underwriters by Shearman &
Sterling.

EXPERTS

The audited financial statements included in this Prospectus and elsewhere
in the Registration Statement, to the extent and for the periods indicated on
their reports, have been audited by Arthur Andersen LLP, independent public
accountants, and are included herein in reliance upon the authority of said firm
as experts in giving said reports.

<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-1 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock, reference is hereby made to the Registration Statement
and the exhibits and schedules filed as a part thereof. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and, in each instance, reference is made to the copy of
such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
Commission's Regional Offices located at Seven World Trade Center, Suite 1300,
New York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may also be obtained at
prescribed rates from the Public Reference Section of the Commission,
Washington, D.C. 20549. In addition, registration statements and certain other
filings made with the Commission through its Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") systems are publicly available through the Commission's
site on the Internet's World Wide Web, located at http://www.sec.gov. The
Registration Statement, including all exhibits thereto and amendments thereof,
has been filed with the Commission through EDGAR.

<PAGE>

U.S. PHYSICIANS, INC.

INDEX TO FINANCIAL STATEMENTS

I. U.S. PHYSICIANS, INC.

Report of Independent Public Accountants.................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1996
and June 30, 1997 (unaudited)............................. F-8
Consolidated Statements of Operations for the period from
inception (July 14, 1994) to December 31, 1994, for the
years ended December 31, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited).......... F-9
Consolidated Statements of Convertible Preferred Stock
Securities, Common Stock to be Issued on Conditional
Affiliation Transactions and Shareholders' Equity
(Deficit) for the period from inception (July 14, 1994) to
December 31, 1994, for the years ended December 31, 1995
and 1996, and for the six months ended June 30, 1997
(unaudited)............................................... F-10
Consolidated Statements of Cash Flows for the period from
inception (July 14, 1994) to December 31, 1994, for the
years ended December 31, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-11
Notes to Consolidated Financial Statements.................. F-12
II. CONDITIONAL AFFILIATION TRANSACTIONS
- ENTERED INTO PRIOR TO JUNE 30, 1997
BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC
Report of Independent Public Accountants.................... F-27
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-28
Statements of Operations for the years ended December 31,
1994, 1995 and 1996, and for the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-29
Statements of Owners' Equity for the years ended December
31, 1994, 1995 and 1996, and for the six months ended
June 30, 1997 (unaudited)................................. F-30
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended
June 30, 1996 and 1997 (unaudited)........................ F-31
Notes to Financial Statements............................... F-32
BRYN MAWR UROLOGY ASSOCIATES, PC
Report of Independent Public Accountants.................... F-37
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-38
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-39
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-40
Notes to Financial Statements............................... F-41
CENTER FOR WOMEN'S HEALTH CARE, PC AND CORAZON G. GEMIL,
M.D., PC
Report of Independent Public Accountants.................... F-46
Combined Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)................................. F-47
Combined Statements of Operations and Owner's Deficit for
the years ended December 31, 1994, 1995 and 1996, and for
the six months ended June 30, 1996 and 1997 (unaudited)... F-48
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997 (unaudited).................. F-49
Notes to Combined Financial Statements...................... F-50

F-1

<PAGE>

FAMILY CARE OF LANCASTER, PC

Report of Independent Public Accountants.................... F-54
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-55
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-56
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-57
Notes to Financial Statements............................... F-58

NETWORK MEDICAL, INC.

Report of Independent Public Accountants.................... F-64
Balance Sheets as of September 30, 1995 and 1996 and June
30, 1997 (unaudited)...................................... F-65
Statements of Operations for the years ended September 30,
1994, 1995 and 1996, and for the nine months ended June
30, 1996 and 1997 (unaudited)............................. F-66
Statements of Shareholders' Deficit for the years ended
September 30, 1994, 1995 and 1996, and for the nine months
ended June 30, 1997 (unaudited)........................... F-67
Statements of Cash Flows for the years ended September 30,
1994, 1995 and 1996, and for the nine months ended June
30, 1996 and 1997 (unaudited)............................. F-68
Notes to Financial Statements............................... F-69

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF THE MAIN
LINE, PC

Report of Independent Public Accountants.................... F-73
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-74
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-75
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-76
Notes to Financial Statements............................... F-77

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

Report of Independent Public Accountants.................... F-81
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-82
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-83
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-84
Notes to Financial Statements............................... F-85

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

Report of Independent Public Accountants.................... F-89
Balance Sheets as of March 31, 1996 and 1997 and June 30,
1997 (unaudited).......................................... F-90
Statements of Operations for the year ended March 31, 1995,
1996 and 1997, and for the three months ended June 30,
1996 and 1997 (unaudited)................................. F-91
Statements of Shareholders' Equity for the years ended March
31, 1995, 1996 and 1997, and for the three months ended
June 30, 1997 (unaudited)................................. F-92
Statements of Cash Flows for the years ended March 31, 1995,
1996 and 1997, and for the three months ended June 30,
1996 and 1997 (unaudited)................................. F-93
Notes to Financial Statements............................... F-94

F-2

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

Report of Independent Public Accountants.................... F-99
Balance Sheets as of December 31, 1996 and June 30, 1997
(unaudited)............................................... F-100
Statements of Operations and Retained Earnings for the year
ended December 31, 1996, and for the six months ended June
30, 1996 and 1997 (unaudited)............................. F-101
Statements of Cash Flows for the year ended December 31,
1996, and for the six months ended June 30, 1996 and 1997
(unaudited)............................................... F-102
Notes to Financial Statements............................... F-103

SOUTH SHORE ORTHOPEDICS, PA

Report of Independent Public Accountants.................... F-107
Balance Sheets as of March 31, 1996 and 1997 and June 30,
1997 (unaudited).......................................... F-108
Statements of Operations and Retained Earnings for the year
ended March 31, 1995, 1996 and 1997, and for the three
months ended June 30, 1996 and 1997 (unaudited)........... F-109
Combined Statements of Cash Flows for the years ended March
31, 1995, 1996 and 1997, and for the three months ended
June 30, 1996 and 1997 (unaudited)........................ F-110
Notes to Financial Statements............................... F-111

SPORTS MEDICINE AND REHABILITATION CENTER, INC. AND RELATED
COMPANIES

Report of Independent Public Accountants.................... F-115
Combined Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)................................. F-116
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997 (unaudited).................. F-117
Combined Statements of Owner's Equity for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1997 (unaudited)........................... F-118
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997 (unaudited).................. F-119
Notes to Combined Financial Statements...................... F-120

VALLEY FORGE FACIAL PLASTIC SURGERY/EAR,
NOSE & THROAT ASSOCIATES, LTD.

Report of Independent Public Accountants.................... F-123
Balance Sheets as of September 30, 1995 and 1996 and June
30, 1997.................................................. F-124
Statements of Operations and Retained Earnings for the years
ended September 30, 1995 and 1996, and for the nine months
ended June 30, 1996 (unaudited) and 1997 (audited)........ F-125
Statements of Cash Flows for the years ended September 30,
1995 and 1996, and for the nine months ended June 30, 1996
(unaudited) and 1997 (audited)............................ F-126
Notes to Financial Statements............................... F-127

F-3

<PAGE>

III. CONDITIONAL AFFILIATION TRANSACTIONS
- ENTERED INTO AFTER JUNE 30, 1997

CESARE, METZGER, COYLE AND HENZES, PC
Report of Independent Public Accountants.................... F-131
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-132
Statements of Operations for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-133
Statements of Shareholders' Equity for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1997 (unaudited)........................... F-134
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-135
Notes to Financial Statements............................... F-136

THE ELIZABETH WENDE BREAST CLINIC

Report of Independent Public Accountants.................... F-140
Combined Balance Sheets as of December 31, 1995 and 1996 and
June 30, 1997 (unaudited)................................. F-141
Combined Statements of Operations for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997 (unaudited).................. F-142
Combined Statements of Owners' Equity for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1997 (unaudited)........................... F-143
Combined Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996, and for the six months
ended June 30, 1996 and 1997 (unaudited).................. F-144
Notes to Combined Financial Statements...................... F-145

LEHIGH VALLEY ORTHOPEDICS, INC.

Report of Independent Public Accountants.................... F-149
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-150
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-151
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-152
Notes to Financial Statements............................... F-153

STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

Report of Independent Public Accountants.................... F-158
Balance Sheets as of February 29, 1996, February 28, 1997
and June 30, 1997 (unaudited)............................. F-159
Statements of Operations and Retained Earnings for the years
ended February 28, 1995, February 29, 1996 and February
28, 1997, and for the four months ended June 30, 1996 and
1997 (unaudited).......................................... F-160
Statements of Cash Flows for the years ended February 28,
1995, February 29, 1996 and February 28, 1997, and for the
four months ended June 30, 1996 and 1997 (unaudited)...... F-161
Notes to Financial Statements............................... F-162

F-4

<PAGE>

IV. INITIAL PUBLIC OFFERING ("IPO") AFFILIATION TRANSACTIONS

DENNIS JAMES BONNER, M.D., LTD.

Report of Independent Public Accountants.................... F-167
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-168
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-169
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-170
Notes to Financial Statements............................... F-171

NORTHERN OPHTHALMIC ASSOCIATES, INC.

Report of Independent Public Accountants.................... F-175
Balance Sheets as of November 30, 1995 and 1996, and June
30, 1997 (unaudited)...................................... F-176
Statements of Operations and Retained Earnings for the years
ended November 30, 1994, 1995 and 1996, and for the seven
months ended June 30, 1996 and June 30, 1997
(unaudited)............................................... F-177
Statements of Cash Flows for the years ended November 30,
1994, 1995 and 1996, and for the seven months ended June
30, 1996 and 1997 (unaudited)............................. F-178
Notes to Financial Statements............................... F-179

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

Report of Independent Public Accountants.................... F-183
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-184
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-185
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-186
Notes to Financial Statements............................... F-187

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

Report of Independent Public Accountants.................... F-190
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-191
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-192
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-193
Notes to Financial Statements............................... F-194

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

Report of Independent Public Accountants.................... F-198
Balance Sheets as of September 30, 1995 and 1996, and June
30, 1997 (unaudited)...................................... F-199
Statements of Operations for the years ended September 30,
1994, 1995 and 1996, and for the nine months ended June
30, 1996 and 1997 (unaudited)............................. F-200
Statements of Shareholders' Equity for the years ended
September 30, 1994, 1995 and 1996, and for the nine months
ended June 30, 1997 (unaudited)........................... F-201
Statements of Cash Flows for the years ended September 30,
1994, 1995 and 1996, and for the nine months ended June
30, 1996 and 1997 (unaudited)............................. F-202
Notes to Financial Statements............................... F-203

F-5

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL
PROFESSIONAL ASSOCIATION

Report of Independent Public Accountants.................... F-207
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (unaudited).......................................... F-208
Statements of Operations and Retained Earnings for the years
ended December 31, 1994, 1995 and 1996, and for the six
months ended June 30, 1996 and 1997 (unaudited)........... F-209
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996, and for the six months ended June 30,
1996 and 1997 (unaudited)................................. F-210
Notes to Financial Statements............................... F-211

F-6

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To U.S. PHYSICIANS, Inc.:

We have audited the accompanying consolidated balance sheets of U.S. PHYSICIANS,
Inc. (a Pennsylvania corporation) and subsidiaries as of December 31, 1995 and
1996, and the related consolidated statements of operations, convertible
preferred stock securities, common stock to be issued on conditional affiliation
transactions and shareholders' equity (deficit) and cash flows for the period
from inception (July 14, 1994) to December 31, 1994, and for the years ended
December 31, 1995 and 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of U.S. PHYSICIANS, Inc. and
subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the period from inception to December 31,
1994, and for the years ended December 31, 1995 and 1996, in conformity with
generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As of June 30, 1997 the Company had a
working capital deficit and an accumulated deficit of $7,090,415 and $5,370,745,
respectively. Further, the Company's growth strategy will require substantial
additional funds to finance acquisitions, for working capital and for capital
expenditures. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management plans in regard to these matters are
described in Note 2. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classifications of liabilities that might be necessary
should the Company be unable to continue as a going concern.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
November 4, 1997

F-7

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SHAREHOLDERS'
------------------------- JUNE 30, EQUITY
1995 1996 1997 (NOTE 3)
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................ $ 1,394,698 $ 2,066,089 $ 2,047,918
Accounts receivable.............................. -- -- 123,373
Due from Conditional Affiliation Transactions.... -- -- 602,738
Prepaid expenses and other....................... 19,818 47,824 223,704
----------- ----------- -----------
Total current assets......................... 1,414,516 2,113,913 2,997,733
PROPERTY AND EQUIPMENT, net........................ 13,601 251,177 895,848
INVESTMENT IN CONDITIONAL AFFILIATION
TRANSACTIONS..................................... -- 223,806 35,466,787
INTANGIBLE ASSETS, net............................. -- -- 128,401
DEFERRED OFFERING COSTS............................ -- -- 184,029
OTHER ASSETS....................................... 64,277 42,835 121,289
----------- ----------- -----------
$ 1,492,394 $ 2,631,731 $39,794,087
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current portion of notes payable on Conditional
Affiliation Transactions....................... $ -- $ -- $ 7,250,300
Current portion of long-term debt................ -- -- 81,698
Accounts payable................................. 103,442 682,468 382,421
Accrued expenses................................. 85,853 734,656 2,005,697
Due to Conditional Affiliation Transactions...... -- -- 368,032
----------- ----------- -----------
Total current liabilities.................... 189,295 1,417,124 10,088,148
----------- ----------- -----------
NOTES PAYABLE ON CONDITIONAL AFFILIATION
TRANSACTIONS..................................... -- -- 15,001,200
----------- ----------- -----------
OTHER LONG-TERM DEBT............................... 172,000 172,000 1,811,450
----------- ----------- -----------
OTHER LONG-TERM LIABILITIES........................ -- 309,241 276,334
----------- ----------- -----------
SERIES A CONVERTIBLE PREFERRED STOCK............... 2,158,774 2,169,082 2,174,236
----------- ----------- -----------
SERIES B CONVERTIBLE PREFERRED STOCK............... -- 1,917,752 3,792,153
----------- ----------- -----------
SERIES B CONVERTIBLE PREFERRED STOCK WARRANTS...... -- -- 413,000
----------- ----------- -----------
COMMON STOCK TO BE ISSUED ON CONDITIONAL
AFFILIATION TRANSACTIONS......................... -- -- 11,039,366
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS' EQUITY (DEFICIT):
Common Stock, $.01 par value; 25,000,000 shares
authorized; 3,205,479, 3,919,121, 3,936,581 and
______ shares issued and outstanding........... 32,055 39,191 39,366
Additional paid-in capital....................... -- 380,114 433,579
Common Stock warrants............................ -- 33,500 96,000
Accumulated deficit.............................. (1,059,730) (3,806,273) (5,370,745)
----------- ----------- ----------- -----------
Total shareholders' equity (deficit)......... (1,027,675) (3,353,468) (4,801,800)
----------- ----------- ----------- -----------
$ 1,492,394 $ 2,631,731 $39,794,087 $
=========== =========== =========== ===========
</TABLE>

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

F-8

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
FROM
INCEPTION
(JULY 14, 1994) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, JUNE 30,
DECEMBER 31, ----------------------- -----------------------
1994 1995 1996 1996 1997
--------------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES:
Net patient revenues................... $ -- $ -- $ -- $ -- $ 46,756
Management fees from Conditional
Affiliation Transactions............. -- -- -- -- 989,902
Other revenues......................... -- -- 69,833 67,500 84,399
--------- --------- ----------- --------- -----------
-- -- 69,833 67,500 1,121,057
COST OF REVENUES......................... -- -- -- -- 296,649
--------- --------- ----------- --------- -----------
-- -- 69,833 67,500 824,408
--------- --------- ----------- --------- -----------
OPERATING EXPENSES:
General and administrative............. 321,232 691,740 2,295,202 617,435 1,975,454
Depreciation and amortization.......... -- 2,525 5,881 2,658 54,729
--------- --------- ----------- --------- -----------
321,232 694,265 2,301,083 620,093 2,030,183
--------- --------- ----------- --------- -----------
Loss from operations............... (321,232) (694,265) (2,231,250) (552,593) (1,205,775)
LOSS IN TERMINATED JOINT VENTURE......... -- 56,012 528,829 97,575 --
INTEREST INCOME.......................... -- (80,597) (36,714) (23,673) (53,386)
INTEREST EXPENSE......................... -- 10,688 12,870 5,117 387,951
--------- --------- ----------- --------- -----------
NET LOSS................................. $(321,232) $(680,368) $(2,736,235) $(631,612) $(1,540,340)
========= ========= =========== ========= ===========
PRO FORMA NET LOSS PER COMMON SHARE (NOTE
3) (UNAUDITED)......................... $ $
=========== ===========
SHARES USED IN COMPUTING PRO FORMA NET
LOSS PER COMMON SHARE (NOTE 3)
(UNAUDITED)............................
=========== ===========
</TABLE>

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

F-9

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK SECURITIES,
COMMON STOCK TO BE ISSUED ON CONDITIONAL AFFILIATION
TRANSACTIONS AND SHAREHOLDERS' EQUITY (DEFICIT)

CONVERTIBLE PREFERRED STOCK SECURITIES
--------------------------------------------------------------------
SERIES A SERIES B SERIES B WARRANTS
---------------------- ---------------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
DATE OF INCEPTION, JULY 14, 1994........... -- $ -- -- $ -- -- $ --
Issuance of Common Stock for services
rendered................................ -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
--------- ---------- --------- ---------- ------- --------

BALANCE AT DECEMBER 31, 1994............... -- -- -- -- -- --
Sale of Series A Preferred Stock.......... 1,506,849 2,148,466 -- -- -- --
Accretion of redemption premium on Series
A Preferred Stock....................... -- 10,308 -- -- -- --
Issuance of Common Stock for services
rendered................................ -- -- -- -- -- --
Purchase of Common Stock.................. -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
--------- ---------- --------- ---------- ------- --------

BALANCE AT DECEMBER 31, 1995............... 1,506,849 2,158,774 -- -- -- --
Sale of Series B Preferred Stock.......... -- -- 634,920 1,917,752 -- --
Accretion of redemption premium on Series
A Preferred Stock....................... -- 10,308 -- -- -- --
Sale of Common Stock...................... -- -- -- -- -- --
Issuance of Common Stock for services
rendered................................ -- -- -- -- -- --
Net loss.................................. -- -- -- -- -- --
--------- ---------- --------- ---------- ------- --------

BALANCE AT DECEMBER 31, 1996............... 1,506,849 2,169,082 634,920 1,917,752 -- --
Sale of Series B Preferred Stock
(unaudited)............................. -- -- 611,111 1,855,423 -- --
Accretion of redemption premium on Series
A Preferred Stock (unaudited)........... -- 5,154 -- -- -- --
Accretion of redemption premium on Series
B Preferred Stock (unaudited)........... -- -- -- 18,978 -- --
Sale of Common Stock (unaudited).......... -- -- -- -- -- --
Issuance of Series B Warrants
(unaudited)............................. -- -- -- -- 266,667 413,000
Common Stock to be issued in connection
with Conditional Affiliation
Transactions (unaudited)................ -- -- -- -- -- --
Net loss (unaudited)...................... -- -- -- -- -- --
--------- ---------- --------- ---------- ------- --------
BALANCE AT JUNE 30, 1997 (unaudited)....... 1,506,849 $2,174,236 1,246,031 $3,792,153 266,667 $413,000
========= ========== ========= ========== ======= ========

COMMON STOCK TO BE
ISSUED ON CONDITIONAL
AFFILIATION TRANSACTIONS
------------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
DATE OF INCEPTION, JULY 14, 1994........... -- $ --
Issuance of Common Stock for services
rendered................................ -- --
Net loss.................................. -- --
--------- -----------
BALANCE AT DECEMBER 31, 1994............... -- --
Sale of Series A Preferred Stock.......... -- --
Accretion of redemption premium on Series
A Preferred Stock....................... -- --
Issuance of Common Stock for services
rendered................................ -- --
Purchase of Common Stock.................. -- --
Net loss.................................. -- --
--------- -----------
BALANCE AT DECEMBER 31, 1995............... -- --
Sale of Series B Preferred Stock.......... -- --
Accretion of redemption premium on Series
A Preferred Stock....................... -- --
Sale of Common Stock...................... -- --
Issuance of Common Stock for services
rendered................................ -- --
Net loss.................................. -- --
--------- -----------
BALANCE AT DECEMBER 31, 1996............... -- --
Sale of Series B Preferred Stock
(unaudited)............................. -- --
Accretion of redemption premium on Series
A Preferred Stock (unaudited)........... -- --
Accretion of redemption premium on Series
B Preferred Stock (unaudited)........... -- --
Sale of Common Stock (unaudited).......... -- --
Issuance of Series B Warrants
(unaudited)............................. -- --
Common Stock to be issued in connection
with Conditional Affiliation
Transactions (unaudited)................ -- 11,039,366
Net loss (unaudited)...................... -- --
--------- -----------
BALANCE AT JUNE 30, 1997 (unaudited)....... -- $11,039,366
========= ===========

<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------------------------------
COMMON STOCK TOTAL
COMMON STOCK ADDITIONAL WARRANTS SHAREHOLDERS'
------------------- PAID-IN ----------------- ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT (DEFICIT)
--------- ------- ---------- ------- ------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
DATE OF INCEPTION, JULY 14, 1994........... -- $ -- $ -- -- $ -- $ -- $ --
Issuance of Common Stock for services
rendered................................ 3,423,288 34,233 -- -- -- -- 34,233
Net loss.................................. -- -- -- -- -- (321,232) (321,232)
--------- ------- -------- ------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1994............... 3,423,288 34,233 -- -- -- (321,232) (286,999)
Sale of Series A Preferred Stock.......... -- -- -- -- -- -- --
Accretion of redemption premium on Series
A Preferred Stock....................... -- -- -- -- -- (10,308) (10,308)
Issuance of Common Stock for services
rendered................................ 205,479 2,055 97,945 -- -- -- 100,000
Purchase of Common Stock.................. (423,288) (4,233) (97,945) -- -- (47,822) (150,000)
Net loss.................................. -- -- -- -- -- (680,368) (680,368)
--------- ------- -------- ------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1995............... 3,205,479 32,055 -- -- -- (1,059,730) (1,027,675)
Sale of Series B Preferred Stock.......... -- -- -- 126,984 33,500 -- 33,500
Accretion of redemption premium on Series
A Preferred Stock....................... -- -- -- -- -- (10,308) (10,308)
Sale of Common Stock...................... 688,642 6,886 368,114 -- -- -- 375,000
Issuance of Common Stock for services
rendered................................ 25,000 250 12,000 -- -- -- 12,250
Net loss.................................. -- -- -- -- -- (2,736,235) (2,736,235)
--------- ------- -------- ------- ------- ----------- -----------
BALANCE AT DECEMBER 31, 1996............... 3,919,121 39,191 380,114 126,984 33,500 (3,806,273) (3,353,468)
Sale of Series B Preferred Stock
(unaudited)............................. -- -- -- 122,222 62,500 -- 62,500
Accretion of redemption premium on Series
A Preferred Stock (unaudited)........... -- -- -- -- -- (5,154) (5,154)
Accretion of redemption premium on Series
B Preferred Stock (unaudited)........... -- -- -- -- -- (18,978) (18,978)
Sale of Common Stock (unaudited).......... 17,460 175 53,465 -- -- -- 53,640
Issuance of Series B Warrants
(unaudited)............................. -- -- -- -- -- -- --
Common Stock to be issued in connection
with Conditional Affiliation
Transactions (unaudited)................ -- -- -- -- -- -- --
Net loss (unaudited)...................... -- -- -- -- -- (1,540,340) (1,540,340)
--------- ------- -------- ------- ------- ----------- -----------
BALANCE AT JUNE 30, 1997 (unaudited)....... 3,936,581 $39,366 $433,579 249,206 $96,000 $(5,370,745) $(4,801,800)
========= ======= ======== ======= ======= =========== ===========
</TABLE>

F-10

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FROM INCEPTION
(JULY 14, 1994) YEAR ENDED SIX MONTHS
TO DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------ ------------------------
1994 1995 1996 1996 1997
--------------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............................ $(321,232) $ (680,368) $(2,736,235) $ (631,612) $(1,540,340)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization... -- 2,525 5,881 2,658 54,729
Amortization of debt discount... -- -- -- -- 20,650
Stock issued for services
rendered..................... 34,233 100,000 12,250 -- --
Loss in terminated joint
venture...................... -- 56,012 528,829 97,575 --
Changes in assets and
liabilities--
Accounts receivable.......... -- -- -- -- (123,373)
Due from Conditional
Affiliation Transactions... -- -- -- -- (602,738)
Prepaid expenses and other... -- (19,818) (28,006) (98,508) (175,880)
Other assets................. -- -- (42,835) (29,265) (78,454)
Accounts payable............. -- 103,442 579,026 (68,442) (300,047)
Accrued expenses............. 25,000 60,853 392,420 26,885 791,227
Due to Conditional
Affiliation Transactions... -- -- -- -- 368,032
--------- ---------- ----------- ---------- -----------
Net cash used in operating
activities............... (261,999) (377,354) (1,288,670) (700,709) (1,586,194)
--------- ---------- ----------- ---------- -----------
INVESTING ACTIVITIES:
Purchases of property and
equipment......................... -- (16,126) (184,555) (7,896) (549,947)
Completed acquisitions.............. -- -- -- -- (150,000)
Cash deposits on Conditional
Affiliation Transactions.......... -- -- -- -- (1,696,500)
Investment in joint venture......... -- (120,289) (177,002) (171,486) --
--------- ---------- ----------- ---------- -----------
Net cash used in financing
activities............... -- (136,415) (361,557) (179,382) (2,396,447)
--------- ---------- ----------- ---------- -----------
FINANCING ACTIVITIES:
Proceeds from long-term debt........ 262,000 -- -- -- 2,000,000
Repayment of long-term debt......... -- (90,000) -- -- --
Net proceeds from sale of Common
Stock............................. -- -- 375,000 100,000 53,640
Repurchase of Common Stock.......... -- (150,000) -- -- --
Net proceeds from sale of Series A
Preferred Stock................... -- 2,148,466 -- -- --
Net proceeds from sale of Series B
Preferred Stock................... -- -- 1,951,252 -- 1,917,923
Repayment of capital lease
obligations....................... -- -- (4,634) (2,317) (7,093)
--------- ---------- ----------- ---------- -----------
Net cash provided by
financing activities..... 262,000 1,908,466 2,321,618 97,683 3,964,470
--------- ---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 1 1,394,697 671,391 (782,408) (18,171)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................... -- 1 1,394,698 1,394,698 2,066,089
--------- ---------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF
PERIOD.............................. $ 1 $1,394,698 $ 2,066,089 $ 612,290 $ 2,047,918
========= ========== =========== ========== ===========
</TABLE>

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

F-11

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. BUSINESS AND ORGANIZATION:

U.S. PHYSICIANS, Inc. (a Pennsylvania corporation) and its affiliated
professional corporations (the "Company"), is a multi-specialty physician
practice management company that, upon completion of the Initial Affiliation
Transactions (as defined below), will include 90 physicians providing care in 64
practice locations in four states in the mid-Atlantic region. The Company,
primarily through affiliation agreements with physician practices, is developing
integrated, multi-specialty physician networks in various health care service
areas in the mid-Atlantic region and surrounding states.

Since January 1, 1997, the Company and its affiliated professional
corporations have entered into Affiliation Agreements and acquired either the
stock or the majority of the assets of 21 physician practices (the "Conditional
Affiliation Transactions"). In consideration, the selling owners received a
combination of cash, notes, convertible notes and rights to receive shares of
the Company's Common Stock in the future.

The Affiliation Agreements for the Conditional Affiliation Transactions
contain a repurchase provision that allows the selling owners, in the event that
an initial public offering ("IPO") has not been completed by the Company by a
specified date (the "Repurchase Date"), to repurchase the net assets of their
practice for a defined period of time by returning all of the consideration
received, excluding the nonrefundable cash consideration. If the selling owners
do not exercise their rights to repurchase their practice the provision expires.
The Repurchase Date can be extended to a later date if the Company makes certain
payments, as defined, in prepayment of the principal amounts due under the
convertible notes.

In accordance with Accounting Principles Board Opinion No. 16, "Accounting
for Business Combinations," ("APB No. 16"), the Conditional Affiliation
Transactions are not considered effective for applying purchase accounting until
either the date that the Company completes an IPO or the repurchase provision
lapses (the "Final Closing Date"). Pursuant to the Affiliation Agreements for
the period of time between the closing of the Affiliation Agreement (the
"Initial Closing Date") and the Final Closing Date, the Company is entitled to a
management fee equal to the income earned by each practice and is responsible
for centrally managing the cash of each practice. Accordingly, the statement of
operations includes management fee revenue for the income earned by the practice
for the period from the Initial Closing Date to June 30, 1997, and the balance
sheet as of June 30, 1997 reflects a Due from/to Conditional Affiliation
Transactions account to reflect the net cash activity for the same period.

In addition to the Conditional Affiliation Transactions discussed above,
since January 1, 1997, the Company and its affiliated professional corporations
have entered into Affiliation Agreements to purchase nine physician practices,
which will close upon the completion of the Company's IPO, as defined (the "IPO
Affiliation Transactions" and, with the Conditional Affiliation Transactions,
the "Initial Affiliation Transactions"). There is no interim management
agreement in place between the Company and the physician practices that are
parties to IPO Affiliation Transactions. In accordance with APB No. 16, the IPO
Affiliation Transactions are not considered effective for applying purchase
accounting until the Company completes its IPO, as defined.

Also, since January 1, 1997 the Company has acquired substantially all of
the assets of a medical billings and collection company and a physical therapy
practice (the "Completed Transactions"). In addition the Company has acquired a
preferred provider organization which contains substantially the same repurchase
provision as the Conditional Affiliation Transactions (the "Conditional
Transaction").

2. LIQUIDITY:

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As of June 30, 1997, the Company had a
working capital deficit of $7,090,415 and an accumulated deficit of $5,370,745.
Included in the working capital deficit is $7,250,300 for the current portion of
notes payable issued on Conditional Affiliation Transactions as of June 30,
1997. The Company has incurred losses since its inception and is subject to
those risks associated with companies in the early stages of

F-12

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. LIQUIDITY: -- (CONTINUED)

development. Substantial financing will be required to continue the Company's
affiliation transactions strategy and to fund operations.

The Company is currently in the process of obtaining senior debt financing
in order to fund the Company's short term working capital needs and to fund any
necessary acquisition or affiliation payments pending completion of the IPO. In
addition, effective with the completion of the IPO, the Company expects to
obtain a demand credit facility with a bank to provide additional funding for
future working capital needs and affiliation transactions. The Company expects
that adequate financing will be available to fund the Company's working capital
needs and to fund the required acquisition payments. However, there is no
assurance that the Company will be able to obtain sufficient debt or equity
financing on favorable terms or at all. If the Company is unable to secure
adequate financing, its ability to implement its growth strategy will be
impaired and its financial condition and results of operations are likely to be
materially adversely affected.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all wholly and beneficially owned subsidiaries including its affiliated
professional corporations. Due to laws restricting the corporate practice of
medicine in the states in which the Company operates, simultaneous with the
effective date of the Affiliation Agreement, the physicians of the physician
practice enter into employment agreements with a single professional corporation
in the state in which they practice. There is a 40-year Management and Services
Agreement ("Management Agreement") in place between the Company and the
professional corporation. Through the Management Agreement, the Company has
exclusive authority over decision making relating to all major ongoing
operations of the underlying professional corporations with the exception of the
professional aspects of medical practice as required by state law. Under the
Management Agreement, the Company establishes annual operating and capital
budgets for the professional corporations and compensation guidelines for the
licensed medical professionals. In addition, the applicable professional
corporation (other than the professional corporation in New York, the "New York
PC"), the officers and directors of which are generally officers of the Company,
has the contractual right to designate, in its sole discretion, at any time, the
licensed doctor who is the owner of the capital stock of the professional
corporation ("Nominee Arrangements"). Through the Management Agreement and the
Nominee Arrangements, the Company has significant long-term financial interests
in the professional corporations, the interests in which are unilaterally
saleable and transferable by the Company and fluctuate based upon the actual
performance of the operations of the professional corporations. The Company has
established an other-than-temporary controlling financial interest in each
professional corporation (except with respect to the New York PC) and
accordingly each professional corporation (except the New York PC) is
consolidated with the financial statements of the Company. All significant
intercompany accounts and transactions have been eliminated.

Interim Financial Statements

The consolidated financial statements as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 are unaudited, and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position as of
June 30, 1997 and the results of operations for the six months ended June 30,
1996 and 1997. The results of operations for the six months ended June 30, 1996
and 1997, are not necessarily indicative of the results to be expected for the
entire year.

F-13

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

Revenues

Net patient revenues are reported in the period services are provided at
the estimated amounts to be realized through payments from third-party payors,
patients and others. Provisions for adjustments are estimated and recorded in
the period the related services are provided. Any adjustments to the amounts
recognized are recorded in the period in which the revised amount is determined.

Management fees from Conditional Affiliation Transactions represent the
income earned by the Physician Practices that are parties to the Conditional
Affiliation Transactions for the period from the Initial Closing Date to June
30, 1997. The Company is entitled to this income pursuant to the Affiliation
Agreements (see Notes 1 and 5).

Other revenues consist of fees charged to customers for billing and
collection services provided by the Company's wholly owned subsidiary, RRI Corp.
(see Note 5).

Accounts Receivable

Accounts receivable consist primarily of receivables from third-party
payors and patients for medical services provided by physicians. Such amounts
are reduced by an allowance for contractual adjustments and doubtful accounts.
Contractual adjustments result from the differences between the rates charged by
the physicians for the services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers. The
allowance for doubtful accounts is estimated based on an ongoing review of
collectibility.

Concentration of Credit Risk

The Company grants credit without collateral to its patients, most of whom
are insured under third-party payor agreements. The Company manages credit risk
with the various public and private insurance providers, as appropriate.
Allowances for doubtful accounts have been made for potential losses, when
appropriate.

Property and Equipment

Property and equipment are stated at cost. Depreciation of property and
equipment is provided using the straight-line method over the estimated useful
lives of the assets which range from three to seven years. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
lease term or estimated useful life of the assets.

F-14

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Investment in Conditional Affiliation Transactions

Investment in Conditional Affiliation Transactions consists of various
external costs, including legal, accounting, and other professional services
associated with Conditional Affiliation Transactions and the consideration paid
in connection with the Conditional Affiliation Transactions which includes
$1,696,500 of nonrefundable deposits, $11,917,250 of notes, $10,334,250 of
convertible notes and $11,039,366 of common stock to be issued in the future
(see Note 5). Internal costs associated with completing acquisitions have been
expensed as incurred. Upon the Final Closing Date of the Conditional Affiliation
Transactions, the rest of the Investment in Conditional Affiliation Transactions
will be allocated to the fair value of the tangible assets acquired and
liabilities assumed with any excess allocated to identifiable intangible assets.

Deferred Offering Costs

Deferred offering costs consist of external costs including legal,
accounting and other professional services which are necessary to complete the
Company's IPO. These costs will be charged against the proceeds from the IPO
upon its successful completion.

Intangible Assets

Assets and liabilities acquired in connection with business combinations
accounted for under the purchase method are recorded at their respective fair
values. The excess of the purchase price over the fair value of the tangible net
assets acquired is amortized on a straight-line basis over the estimated useful
lives of the intangible assets, which range from three to 40 years. Intangible
assets include covenants not-to-compete, patient lists and goodwill.

Subsequent to its acquisitions, the Company continually evaluates whether
later events and circumstances have occurred that indicate the remaining
estimated useful life of intangible assets may warrant revision or that the
remaining balance may not be recoverable. When factors indicate that intangible
assets should be evaluated for possible impairment, the Company uses an estimate
of the related undiscounted cash flows over the remaining life of the intangible
asset in measuring whether the intangible asset is recoverable. As of June 30,
1997, management believes that no revision to the remaining useful lives or
write-down of intangible assets is required.

Terminated Joint Venture

Prior to adopting its current physician practice management strategy, the
Company was party to a joint venture which operated a cancer rehabilitation
facility. The Company had a 50% interest in the joint venture and shared in
profits and losses equally. In connection with the joint venture termination in
1996, the Company assumed 100% of certain lease obligations and recorded certain
other charges totalling $459,053 for the year ended December 31, 1996.

Income Taxes

The Company records income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109, the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using enacted tax rates and laws that are expected
to be in effect when the differences reverse. A valuation allowance is
established against deferred tax assets unless the Company believes it is more
likely than not that the benefit will be realized.

F-15

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Statements of Cash Flows Information

For the period ended December 31, 1994 and the year ended December 31,
1995, no amounts were paid for taxes or interest. For the year ended December
31, 1996, the Company paid $2,605 in interest and no taxes were paid.

Disclosures About the Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments" requires disclosure about the fair value of
financial instruments. Carrying amounts of all financial instruments (including
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, notes payable and long-term debt) approximate their fair values.

Unaudited Pro Forma Net Loss Per Common Share

Pro forma net loss per common share was calculated by dividing net loss by
the weighted average number of common shares outstanding for the respective
periods adjusted for the dilutive effect of common stock equivalents, which
consist of stock options and warrants using the treasury stock method. Pursuant
to the requirements of the Securities and Exchange Commission, Common Stock
issued by the Company during the 12 months immediately preceding the IPO, plus
the number of common equivalent shares which became issuable during the same
period pursuant to the grant of Common Stock options and warrants, have been
included in the calculation of the shares used in computing pro forma net loss
per share as if they were outstanding for all periods presented (using the
treasury stock method and an assumed IPO price of $___ per share). Pursuant to
the policy of the staff of the Securities and Exchange Commission, the
calculation of shares used in computing pro forma net loss per Common share also
includes the Series A Preferred Stock which will convert into ___________ shares
of Common Stock on consummation of the IPO contemplated in the Prospectus as if
they were converted to Common Stock on their original date of issuance. The
Series B Preferred Stock, which will convert into _______ shares of Common Stock
upon the consummation of the IPO, has been included as outstanding for all
periods presented (using the treasury stock method and an assumed IPO price of
$_____ per share) since they were issued during the twelve months immediately
preceding the IPO (see Note 9).

Unaudited Pro Forma Shareholders' Equity

Upon consummation of the proposed IPO of the Company's Common Stock, all of
the outstanding shares of the Series A and Series B Convertible Preferred Stock
will convert into Common Stock. In addition, the Series B Convertible Preferred
Stock Warrants will convert into Common Stock Warrants. The unaudited pro forma
shareholders' equity (deficit) at June 30, 1997 reflects the assumed conversion
of the Series A and Series B Convertible Preferred Stock into ________ and
________ shares, respectively, of Common Stock and the conversion of the Series
B Convertible Preferred Stock Warrants into ________ Common Stock Warrants. In
addition, in conjunction with the proposed IPO, Common Stock to be issued on
Conditional Affiliation Transactions of _________ shares will convert into
Common Stock issued and outstanding.

Recently Issued Accounting Standards

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which the Company is required to adopt in its financial statements for the
quarter ended December 31, 1997. SFAS No. 128 requires dual presentation of
basic and diluted earnings per share for complex capital structures on the face
of the statement of operations. According to SFAS No. 128 basic earnings per
share, which replaces primary earnings per share, is calculated by dividing net
income available to common shareholders by the weighted average number of common
shares

F-16

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

outstanding for the period. Diluted earnings per share, which replaces fully
diluted earnings per share, reflects the potential dilution from the exercise or
conversion of securities into common stock such as options and warrants. The
adoption of this pronouncement is not expected to have a significant impact on
the Company's pro forma net loss per share reported in the accompanying
financial statements.

4. RISKS AND UNCERTAINTIES:

The Company's future results of operations involve a number of risks and
uncertainties. Factors that could cause the Company's future operating results
to vary materially from expectations include, but are not limited to, limited
operating history, integration of operations, growth strategy, limited capital
and the need for additional financing, government regulation, relationships with
third party payors, provision of medical services, dependence on information
systems, dependence on Affiliated Physicians, competition, dependence on key
personnel and the realizability of intangible assets.

5. COMPLETED AND AFFILIATION TRANSACTIONS:

Completed Transactions

On April 7, 1997, in consideration for the assumption of certain
liabilities, the Company acquired substantially all of the assets of a business
specializing in medical billings and collections for medical providers. On May
19, 1997, the Company acquired substantially all of the assets of an independent
physical therapy practice for $150,000 in cash. Both of these acquisitions have
been accounted for using the purchase method of accounting with the total
purchase price allocated to the fair value of assets and liabilities. The
results of operations of each acquisition are included in the accompanying
statement of operations from each of their respective acquisition dates.

The following table displays the noncash assets and liabilities that were
consolidated as a result of the two acquisitions:

Noncash assets (liabilities)
Property and equipment.................................. $ 37,732
Intangible assets....................................... 129,083
Accounts payable and accrued expenses................... (16,815)
--------
Cash paid................................................. $150,000
========

The following unaudited pro forma summary presents the results of
operations of the Company as if the acquisitions had occurred on January 1,
1996. The pro forma information does not purport to be indicative of the results
that would have been attained if the operations had actually been combined
during the periods presented and is not necessarily indicative of operating
results to be expected in the future.

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------

Net revenues....................................... $1,362,180 $1,445,627
Pro forma net loss................................. (2,751,054) (1,647,653)
Pro forma net loss per share.......................

Conditional and IPO Affiliation Transactions

During the six months ended June 30, 1997, the Company and its affiliated
professional corporations have entered into Affiliation Agreements and acquired
either the stock or the majority of the assets of fourteen physician practices.
In addition, in January 1997, the Company acquired a preferred provider
organization (the

F-17

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. COMPLETED AND AFFILIATION TRANSACTIONS: -- (CONTINUED)

"Conditional Transaction"). The consideration given by the Company in these
acquisitions was a combination of cash, notes, convertible notes and Common
Stock to be issued in the future. Each of the agreements contains a repurchase
provision that allows the selling owners, in the event that an IPO has not been
completed by the Company by a specified date, to repurchase their practice by
returning all of the consideration received excluding the nonrefundable cash
consideration. Because of this provision, these transactions are not considered
effective for applying purchase accounting until either the date that the
Company completes an IPO or the repurchase provision lapses (the "Final Closing
Date"). However, for the period of time from the closing of the agreement (the
"Initial Closing Date") through the Final Closing Date, the Company is entitled
to a management fee equal to the income earned by each practice, except for the
Conditional Transaction, and is responsible for centrally managing the cash of
each practice. Accordingly, the statement of operations includes management fee
revenue for the income earned by these practices for the period from the Initial
Closing Date to June 30, 1997, except for the Conditional Transaction, and the
balance sheet as of June 30, 1997 reflects a Due to/from Conditional Affiliation
Transactions account to reflect the net cash activity for the same period. The
balance sheet also reflects an Investment in Conditional Affiliation
Transactions account which includes external transaction costs and the
consideration paid by the Company to the selling owners since legally the
transactions have closed.

The total consideration paid by the Company to the selling owners was
$1,696,500 in cash, $11,917,250 in notes, $10,334,250 in convertible notes and
$11,039,366 in Common Stock to be issued in the future (_________ shares of
Common Stock assuming an IPO price of $___ per share). The Affiliation
Agreements may require the Company to issue additional shares if the IPO price
is less than $10 per share. The common stock to be issued has been recorded at
the guaranteed value to the selling owners net of a 15% discount due to the
restriction on the sale and transferability of the shares to be issued.

After June 30, 1997, the Company and its affiliated professional
corporations has entered into Affiliation Agreements and acquired either the
stock or the majority of the assets of seven physician practices. These
transactions have the same repurchase provisions as the transactions made prior
to June 30, 1997 and accordingly will not be considered effective for applying
purchase accounting until the Final Closing Date. The total consideration paid
by the Company to the selling owners was $2,672,950 in cash, $5,292,880 in
notes, $9,465,799 in convertible notes and $5,223,939 in Common Stock to be
issued in the future (_________ shares of Common Stock assuming an IPO stock
price of $___ per share). The Affiliation Agreements may require the Company to
issue additional shares if the initial public offering price is less than $10
per share. The Common Stock to be issued has been recorded at the guaranteed
value to the selling owners net of a 15% discount due to the restriction on the
sale and transferability of the shares to be issued.

In addition to the Conditional Affiliation Transactions discussed above,
since January 1, 1997, the Company has entered into Affiliation Agreements to
purchase nine physician practices, which will close upon the completion of an
IPO by the Company (the "IPO Affiliation Transactions"). The total purchase
price to be paid by the Company to the selling owners will be cash of
$9,626,500, notes of $4,423,385 and Common Stock of $3,336,531 (_______ shares
of Common Stock assuming an IPO price of $___ per share). The Common Stock will
be recorded at the guaranteed value to the selling owners net of a 15% discount
due to the restriction on the sale and transferability of the shares to be
issued.

Additional consideration could be paid in connection with the Conditional
and the IPO Affiliation Transactions if specific financial criteria are attained
(see Note 14).

F-18

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- -------- --------

<S> <C> <C> <C>
Medical equipment...................................... $ -- $ -- $140,049
Office equipment....................................... 16,126 235,837 705,650
Furniture and fixtures................................. -- 21,547 89,680
Leasehold improvements................................. -- 2,199 22,922
------- -------- --------
16,126 259,583 958,301
Less -- Accumulated depreciation and amortization...... (2,525) (8,406) (62,453)
------- -------- --------
$13,601 $251,177 $895,848
======= ======== ========
</TABLE>

7. NOTES PAYABLE ON CONDITIONAL AFFILIATION TRANSACTIONS:

JUNE 30,
1997
-----------

Convertible Notes Payable for Conditional Affiliation
Transactions, annual payments of principal through June
2002, interest of 6% payable annually..................... $10,334,250
Notes Payable for Conditional Affiliation Transactions,
annual payments of principal through June 2002, interest
of 6% payable annually.................................... 8,467,250
Notes Payable for Conditional Affiliation Transactions,
principal and interest of 6% due December 1997............ 3,450,000
-----------
22,251,500
Less -- Current portion..................................... (7,250,300)
-----------
$15,001,200
-----------

In connection with the Conditional Affiliation Transactions (see Note 5),
the Company issued convertible notes (the "Convertible Notes") and subordinated
notes (the "Notes Payable") to the selling owners.

The Convertible Notes are payable in five equal annual installments
commencing on the first anniversary date unless the Company files a Registration
Statement for an IPO. If the Company files a Registration Statement, then the
convertible noteholder can elect either (i) to have all or any portion of the
principal and accrued interest paid in full upon the closing of the IPO, (ii) to
have all or any portion of the principal and accrued interest converted into
Common Stock of the Company at the IPO price or (iii) to maintain the
Convertible Notes with the original terms.

Maturities of these notes as of June 30, 1997 are as follows:

<TABLE>
<CAPTION>
NOTES CONVERTIBLE
PAYABLE NOTES
----------- -----------
<S> <C> <C>
Remaining 1997............................................. $ 3,508,125 $ --
1998....................................................... 1,683,450 2,066,850
1999....................................................... 1,683,450 2,066,850
2000....................................................... 1,683,450 2,066,850
2001....................................................... 1,683,450 2,066,850
2002 and thereafter........................................ 1,675,325 2,066,850
----------- -----------
$11,917,250 $10,334,250
=========== ===========
</TABLE>

F-19

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

8. OTHER LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Term loan, monthly principal payments of $55,556
beginning May 1999 through April 2002, interest at
12%, net of original issue discount of $392,350... $ -- -- $1,607,650
Note payable to physician employee for medical
equipment purchase, payable in monthly
installments of $1,074 through June 2000, interest
at 7.5%........................................... -- -- 38,650
Note payable to bank, payable in monthly
installments of $803 through February 2000,
interest at 9.35%, collateralized by equipment.... -- -- 22,670
Capital lease obligations........................... -- -- 52,178
Note payable to related party, payable in four
quarterly installments commencing on May 1, 1995,
with interest at 6%, payments under the note are
only required to the extent the Company has net
profits........................................... 131,000 131,000 131,000
Advances from related party, contains no definitive
repayment terms, with interest at 6% ............. 41,000 41,000 41,000
-------- -------- ----------
172,000 172,000 1,893,148
Less -- Current portion............................. -- -- (81,698)
-------- -------- ----------
$172,000 $172,000 $1,811,450
======== ======== ==========
</TABLE>

In April 1997, the Company entered into a $2,000,000 term loan (the "Term
Loan") with a preferred shareholder, which is secured by substantially all of
the Company's assets. The Term Loan is due immediately upon the completion of
the Company's IPO or other significant event, as defined, or otherwise is
payable in 36 equal monthly installments of $55,556 beginning on May 1, 1999
through April 1, 2002. The Term Loan bears interest at 12%, which is payable
monthly. In connection with the Term Loan, the Company issued warrants to
purchase 266,667 shares of Series B Convertible Preferred Stock at an exercise
price of $3.15 per share. The warrants expire the earlier of April 7, 2007 or
four years after the Company's IPO. The warrants were valued at $413,000, based
on an independent valuation, and have been recorded as an original issue
discount on the Term Loan. The original issue discount is being amortized to
interest expense over the life of the Term Loan. In addition, the Company is
required to comply with various financial and nonfinancial covenants, the most
restrictive of which are limitations on the assumption of additional
non-acquisition related debt, minimum net worth requirements, as defined, and
limitations on capital expenditures.

In September 1997, the Company issued $2,000,000 of subordinated term notes
(the "Term Notes") to common and preferred shareholders. The Term Notes bear
interest at 10% through May 31, 1998 and 12% thereafter. The Term Notes are
payable beginning June 1, 1998 through May 1, 1999 in twelve monthly principal
installments of $166,667. The Term Notes become due upon completion of the
Company's IPO or other significant events, as defined. In connection with the
Term Notes, the Company issued warrants to purchase 222,223 shares of Series B
Convertible Preferred Stock. The exercise price for 166,667 of the warrants is
$3.15 per share. The exercise price for the remaining warrants is equal to 45%
of the IPO price, as defined. If an IPO is not completed prior to the warrant
expiration, the exercise price of the warrants shall be equal to 45% of the
value of the Company's Common Stock as determined at that date. These warrants
expire on the earlier of ten years from the grant date or four years after the
completion of an IPO. The warrants were valued at $438,000, based on an
independent valuation, and will be recorded as an original issue discount on the
Term Notes. The original

F-20

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

8. OTHER LONG-TERM DEBT: -- (CONTINUED)

issue discount will be amortized to interest expense over the life of the Term
Notes. In addition, if the Company has a default under the terms of the Term
Notes, as defined, the Company is required to issue additional warrants to
purchase 444,446 shares of the Company's Common Stock at an exercise price of
$0.01 per share.

Long-term debt maturities as of June 30, 1997, are as follows:

Remaining 1997.................................. $ 19,449
1998............................................ 212,594
1999............................................ 489,253
2000............................................ 675,313
2001............................................ 666,667
2002 and thereafter............................. 222,222
----------
2,285,498
Less -- Unamortized discount.................... (392,350)
----------
$1,893,148
==========

9. CONVERTIBLE PREFERRED STOCK:

Series A and Series B Convertible Preferred Stock

The Company is authorized to issue 1,506,849 shares of Series A Convertible
Preferred Stock ("Series A Stock") and 1,830,158 shares of Series B Convertible
Preferred Stock ("Series B Stock").

In January 1995, the Company sold 1,506,849 shares of Series A Stock for
$2,148,466, net of expenses of $51,534. The Series A Stock is convertible, at
any time, at the holder's option into an aggregate of 4,520,547 shares of Common
Stock, subject to adjustment as defined. The holders of Series A Stock are
entitled to cumulative quarterly dividends at the per annum rate of $0.073 per
share. No dividends have ever been declared on the Series A Stock.

In December 1996 and February 1997, the Company sold 1,246,031 shares of
Series B Stock for $3,869,175, net of expenses of $55,825. The Series B Stock is
convertible, at any time, at the holder's option into an aggregate of 1,246,031
shares of Common Stock, subject to adjustment as defined. The holders of Series
B Stock are entitled to cumulative quarterly dividends at the per annum rate of
$0.1575 per share. No dividends have ever been declared on the Series B Stock.
The holders of the Series B Stock also received warrants to purchase 249,206
shares of the Common Stock at an exercise price of $3.15 per share which expire
on December 31, 1999. The warrants were valued at $96,000, based on an
independent valuation, and have been recorded as a discount on the Series B
Stock.

Immediately prior to the consummation of an IPO of the Company's Common
Stock, as defined, all shares of Series A Stock and Series B Stock will convert
into 4,520,547 and 1,246,031 shares of Common Stock, respectively, subject to
adjustment as defined. In the event that an IPO is not completed by February 1,
2000, the Company is required to redeem any outstanding Series A Stock and
Series B Stock upon written request of two thirds of the holders. The redemption
price is equal to the aggregate stated value of Series A Stock ($1.46 per share)
and Series B Stock ($3.15 per share) plus dividends declared but unpaid. The
Series A and Series B Stock value in the accompanying consolidated balance sheet
reflects the original investment, less transaction expenses plus the accretion
recorded. The accretion is recognized to record the Preferred Stock at the per
share redemption value as of the redemption date.

The Series A and Series B shareholders are entitled to one vote for each
share of Common Stock into which the Series A and Series B Stock is convertible.
The Series A and Series B Stock is senior to Common

F-21

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

9. CONVERTIBLE PREFERRED STOCK: -- (CONTINUED)

Stock in liquidation and has a liquidation preference equal to the aggregate
stated value of Series A and Series B Stock plus accrued and unpaid dividends,
whether declared or not.

Series B Convertible Preferred Stock Warrants

In February 1997, in connection with the $2,000,000 Term Loan (see Note 8)
the Company issued warrants to purchase 266,667 shares of Series B Stock at an
exercise price of $3.15 per share. In September 1997, in connection with the
$2,000,000 Term Notes (see Note 8), the Company issued warrants to purchase
222,223 shares of Series B Stock at an exercise price of $3.15 per share as to
166,667 shares and 45% of the IPO price, as defined, as to 55,556 shares. Upon
consummation of an IPO, as defined, all of the Series B Stock warrants will
convert into warrants to purchase the same number of Common Stock at the same
exercise prices.

10. SHAREHOLDERS' EQUITY:

Common Stock to be Issued

In connection with the Conditional Affiliation Transactions which occurred
between January 1, 1997 and June 30, 1997 (see Note 5), common shares valued at
$11,039,366 (________ shares of Common Stock assuming an IPO price of $___ per
share) will be issued no later than the Final Closing Date. The Affiliation
Agreements may require the Company to issue additional shares if the IPO price
is less than $10 per share. The Common Stock to be issued has been recorded at
the guaranteed value to the selling owners net of a 15% discount due to
restrictions on the sale and transferability of the shares to be issued.

Stock Options

Effective December 1, 1995, the Company established the U.S. PHYSICIANS,
Inc. 1995 Company Stock Option Plan (the "Company Plan") and the U.S.
PHYSICIANS, Inc. 1995 Affiliate Stock Option Plan (the "Affiliate Plan"), which
provide for the grant of options to employees of the Company and affiliates as
defined. There are 1,500,000 shares available for grant under the Company Plan
and 1,000,000 available under the Affiliate Plan. Stock options are granted at
an exercise price equal to the fair value of the Common Stock as of the grant
date and expire ten years from the date of grant.

The following summarizes the activity for both plans:

<TABLE>
<CAPTION>
EXERCISE WEIGHTED
PRICE PER AVERAGE AGGREGATE
OPTIONS SHARE EXERCISE PRICE PROCEEDS
--------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Balance, July 14, 1994 and December 31,
1994................................. -- $ -- $ -- $ --
Granted.............................. 212,630 0.49 0.49 104,189
--------- --------- ----- ----------
Balance, December 31, 1995............. 212,630 0.49 0.49 104,189
Granted.............................. 491,630 0.49-3.15 0.94 461,579
Canceled............................. (27,000) 0.49 0.49 13,230
--------- --------- ----- ----------
Balance, December 31, 1996............. 677,260 0.49-3.15 0.82 578,998
Granted.............................. 538,399 3.15-5.00 3.32 1,788,457
Canceled............................. (41,815) 0.49-1.00 0.50 20,744
--------- --------- ----- ----------
Balance, June 30, 1997................. 1,173,844 $.49-5.00 $1.98 $2,388,199
========= ========= ===== ==========
</TABLE>

F-22

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

10. SHAREHOLDERS' EQUITY: -- (CONTINUED)

Subsequent to June 30, 1997, the Company granted options to purchase
1,054,900 shares of Common Stock at a weighted average exercise price of $3.23.
Additionally, subsequent to June 30, 1997, 15,000 options were exercised and
options to purchase 111,167 shares were canceled.

The following table summarizes information relating to the Company Plan and
the Affiliate Plan based upon each exercise price.

WEIGHTED
OPTIONS AVERAGE OPTIONS
OUTSTANDING REMAINING EXERCISABLE
OPTION AT JUNE CONTRACTUAL AT JUNE 30,
EXERCISE PRICES 30,1997 LIFE (YEARS) 1997
- --------------- ----------- ------------ -------------

$0.49 308,630 8.70 68,768
$1.00 301,815 9.30 --
$3.15 513,399 9.78 --
$5.00 50,000 10.00 --
--------- ----- ------
1,173,844 9.39 68,768
========= ===== ======

The Company accounts for all of its option plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
under which no compensation cost has been recognized. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No.
123 establishes a fair value based method of accounting for stock-based
compensation plans. This statement also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. SFAS No. 123 requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for the plan. Had the Company
recognized compensation cost for its stock option plans consistent with the
provisions of SFAS No. 123, the Company's net loss in 1995 and 1996 would have
been increased to the following pro forma amounts:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE 30,
1995 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
Net loss, as reported............... $(680,368) $(2,736,235) $(1,540,340)
Pro forma net loss.................. (681,050) (2,759,853) (1,605,968)
Pro forma net loss per common share,
as reported (unaudited)...........
Pro forma net loss per common share,
as adjusted (unaudited)...........
</TABLE>

The weighted average fair value of the options granted during the years
ended December 31, 1995 and 1996 and the six months ended June 30, 1997 is
estimated as $0.14, $0.30 and $1.10 per share, respectively. The fair value of
each option is estimated on the date of grant using the Black-Scholes option
pricing model with the following assumptions:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS
DECEMBER 31, DECEMBER 31, ENDED JUNE 30,
1995 1996 1997
------------ ------------ --------------
<S> <C> <C> <C>
Risk-free interest rate............. 5.7% 6.5% 7.5%
Expected dividend yield............. 0.0% 0.0% 0.0%
Expected life....................... 6 years 6 years 6 years
</TABLE>

F-23

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

10. SHAREHOLDERS' EQUITY: -- (CONTINUED)

In accordance with SFAS No. 123 no volatility factor was assumed since the
Company is not a public entity.

Common Stock Warrants

In connection with the December 1996 and February 1997 Series B Stock
issuances (see Note 9), the Company granted to the holders warrants to purchase
126,984 and 122,222 shares of Common Stock, respectively, at an exercise price
of $3.15 per share. The warrants expire on December 31, 1999.

11. INCOME TAXES:

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
--------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.......................................... $ -- $ -- $ --
State............................................ -- -- --
--------- --------- ----------
Total current provision....................... -- -- --
--------- --------- ----------
Deferred:
Federal.......................................... (109,219) (338,133) (1,192,318)
State............................................ (21,201) (65,638) (231,450)
--------- --------- ----------
Total deferred benefit........................ (130,420) (403,771) (1,423,768)
Increase in valuation allowance.................... 130,420 403,771 1,423,768
--------- --------- ----------
$ -- $ -- $ --
========= ========= ==========
</TABLE>

At December 31, 1996, the Company has net operating loss carryforwards
which begin to expire in 2009. Since the realization of the tax benefit
associated with these carryforwards is not assured, a valuation allowance was
recorded as required by SFAS No. 109. The Tax Reform Act of 1986 contains
provisions that may limit the net operating loss carryforwards available to be
used in any given year in the event of significant changes in ownership.

The effective tax rate on income before income taxes is reconciled to
statutory federal income tax rate as follows:

YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Statutory federal rate...................................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax benefit....... 6.6 6.6 6.6
Valuation allowance......................................... (40.6) (40.6) (40.6)
----- ----- -----
--% --% --%
===== ===== =====
</TABLE>

F-24

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

11. INCOME TAXES: -- (CONTINUED)

The following is a summary of the deferred income tax assets and
liabilities:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- ----------
<S> <C> <C>
Deferred tax assets:
Start up costs............................................ $164,276 $ 164,276
Joint venture............................................. 5,749 163,055
Accrued vacation.......................................... 4,503 22,328
Net operating losses...................................... 229,472 1,093,140
-------- ----------
404,000 1,442,799
Gross deferred tax liabilities.............................. (228) (19,031)
Less -- Valuation allowance................................. (403,772) (1,423,768)
-------- ----------
$ -- $ --
======== ==========
</TABLE>

12. EMPLOYEE BENEFIT PLAN:

In June 1997, the Company adopted a 401(k) defined contribution plan for
eligible employees. Employees are eligible to participate in the plan provided
that they have completed one year of service and have attained the age of 21.
Employer matching contributions are discretionary and determined on an annual
basis. Employee contributions are fully vested while employer contributions vest
ratably over seven years. As of June 30, 1997, no employer contributions have
been made.

13. RELATED PARTY TRANSACTIONS:

A director of the Company is currently Managing Director of a law firm
which provides legal services to the Company. During the year ended December 31,
1996 and the six months ended June 30, 1997, legal services of $165,553 and
$87,971 were provided by this firm.

14. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases office space and certain equipment under noncancellable
operating lease agreements. Rental expense under noncancellable operating leases
during the period from inception (July 14, 1994) to December 31, 1994, for the
years ended December 31, 1995 and 1996 was $0, $20,836 and $117,060,
respectively.

At June 30, 1997, minimum annual rental commitments under noncancellable
operating leases are as follows:

Remaining 1997.................................... $110,243
1998.............................................. 228,897
1999.............................................. 243,192
2000.............................................. 254,867
2001.............................................. 267,614
2002.............................................. 137,073

Litigation

The Company and its affiliated professional corporations maintain insurance
with respect to medical malpractice risks on a claims-made basis in amounts
believed to be customary. Management is not aware of any outstanding claims or
unasserted claims probable of assertion against it or its affiliated
professional corporations that would have a material impact on the Company's
financial position or results of operations.

F-25

<PAGE>

U.S. PHYSICIANS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

14. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

Employment Agreements

The Company has employment agreements with certain of its key executive
management. The agreements provide for minimum levels of compensation during
current and future years and are subject to adjustment, as defined. In addition,
the agreements provide for a lump sum payment, as defined, upon termination
without cause and change in control. The following table summarizes the
aggregate amounts the Company is obligated to pay to those employees as of June
30, 1997 based on these agreements:

Remaining 1997.................................... $381,883
1998.............................................. 842,532
1999.............................................. 547,115
2000.............................................. 118,149

Contingent Consideration in Affiliation Transactions

In connection with certain Conditional Affiliation Transactions and IPO
Affiliation Transactions (see Note 5), the Company has entered into contractual
arrangements whereby cash and Common Stock options may be issued to former
owners of acquired businesses upon attainment of specified financial criteria
primarily over periods of one to three years as set forth in the respective
agreements. The amount of the cash and common stock options to be issued cannot
be fully determined until the periods expire and the attainment of criteria is
established. If the criteria are attained, but not exceeded, the amount of
Common Stock options which could be issued and cash which could be paid under
all Conditional Affiliation Transactions and IPO Affiliation Transactions is
15,000 options and $3,505,000, respectively. If the maximum targets are
achieved, the amount of Common Stock options which could be issued and cash
which could be paid is 15,000 options and $10,445,000, respectively. The Company
will account for additional consideration, when the specified financial criteria
are achieved and it is probable it will be paid, as additional purchase price
for the related acquisitions.

Health Care Regulatory Environment and Reliance on Government Programs

The health care industry in general and the services that the Company
provides are subject to extensive federal and state laws and regulations.
Additionally, a portion of the Company's net revenue is from payments by
government-sponsored health care programs, principally Medicare and Medicaid,
and is subject to audit and adjustments by applicable regulatory agencies.
Failure to comply with any of these laws or regulations, the results of
regulatory audits and adjustments, or changes in the amounts payable for the
Company's services under these programs could have a material adverse effect on
the Company's financial position and results of operations.

F-26

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Bone and Joint Specialists of Western Pennsylvania, PC:

We have audited the accompanying balance sheets of Bone and Joint Specialists of
Western Pennsylvania, PC (a Pennsylvania corporation) as of December 31, 1995
and 1996, and the related statements of operations, owners' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bone and Joint Specialists of
Western Pennsylvania, PC as of December 31, 1995 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
March 28, 1997

F-27

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 38,157 $ 15,916 $ --
Accounts receivable, net of allowance of $309,906,
$463,272 and $703,329................................. 442,611 377,303 528,263
Due from U.S. PHYSICIANS, Inc............................ -- -- 69,958
Prepaid expenses and other............................... 21,090 21,780 27,036
---------- -------- --------
Total current assets................................ 501,858 414,999 625,257
---------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................ 433,234 417,167 417,167
Building and improvements................................ 1,027,784 -- --
---------- -------- --------
1,461,018 417,167 417,167
Less -- Accumulated depreciation......................... (242,566) (163,230) (198,767)
---------- -------- --------
1,218,452 253,937 218,400
---------- -------- --------
$1,720,310 $668,936 $843,657
========== ======== ========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt..................... $ 147,366 $ 46,751 $ 46,459
Accounts payable......................................... 16,000 31,683 11,654
Accrued compensation..................................... 63,943 25,922 241,792
---------- -------- --------
Total current liabilities........................... 227,309 104,356 299,905
---------- -------- --------
LONG-TERM DEBT............................................. 960,240 116,852 93,454
---------- -------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 6)
OWNERS' EQUITY............................................. 532,761 447,728 450,298
---------- -------- --------
$1,720,310 $668,936 $843,657
========== ======== ========
</TABLE>

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

F-28

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES........................... $3,061,872 $3,187,200 $2,492,447 $1,289,196 $1,566,028
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits......... 2,272,581 2,281,363 1,673,331 961,982 1,025,880
Pharmaceuticals and medical
supplies........................... 87,607 99,334 65,770 35,379 39,507
General and administrative........... 509,846 574,994 616,483 289,151 328,364
Management fee due
U.S. PHYSICIANS, Inc............... -- -- -- -- 125,457
Depreciation......................... 53,124 88,245 90,775 48,757 35,537
---------- ---------- ---------- ---------- ----------
2,923,158 3,043,936 2,446,359 1,335,269 1,554,745
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS........................... 138,714 143,264 46,088 (46,073) 11,283
INTEREST EXPENSE, NET.................. 83,606 106,038 84,493 52,742 8,713
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)...................... $ 55,108 $ 37,226 $ (38,405) $ (98,815) $ 2,570
========== ========== ========== ========== ==========
</TABLE>

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

F-29

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

STATEMENTS OF OWNERS' EQUITY

BALANCE, JANUARY 1, 1994.................................... $440,427

Net income................................................ 55,108
--------

BALANCE, DECEMBER 31, 1994.................................. 495,535

Net income................................................ 37,226
--------

BALANCE, DECEMBER 31, 1995.................................. 532,761

Net loss.................................................. (38,405)

Issuance of Common Stock.................................. 200

Distributions............................................. (46,828)
--------

BALANCE, DECEMBER 31, 1996.................................. 447,728

Net income (unaudited).................................... 2,570
--------

BALANCE, JUNE 30, 1997 (UNAUDITED).......................... $450,298
========

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

F-30

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 55,108 $ 37,226 $(38,405) $(98,815) $ 2,570
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities --
Depreciation............................ 53,124 88,245 90,775 48,757 35,537
Changes in assets and liabilities --
Accounts receivable................... 132,923 80,243 (22,210) 148,134 (150,960)
Due from related parties.............. (38,716) 38,716 -- -- --
Due from U.S. PHYSICIANS, Inc......... -- -- -- -- (69,958)
Prepaid expenses and other............ (11,000) 1,910 (5,780) 12,250 (5,256)
Accounts payable...................... (26,000) 2,000 55,683 9,000 (20,029)
Accrued compensation.................. 1,453 (111,182) (38,021) (43,768) 215,870
-------- -------- -------- -------- --------
Net cash provided by operating
activities....................... 166,892 137,158 42,042 75,558 7,774
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.......... (8,310) (192,944) (16,734) (4,546) --
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt................. -- 161,986 75,452 -- --
Repayments on long-term debt................. (87,372) (162,941) (107,983) (79,064) (23,690)
Proceeds from issuance of common stock....... -- -- 200 -- --
Distributions................................ -- -- (15,218) -- --
-------- -------- -------- -------- --------
Net cash used in financing
activities....................... (87,372) (955) (47,549) (79,064) (23,690)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 71,210 (56,741) (22,241) (8,052) (15,916)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 23,688 94,898 38,157 38,157 15,916
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 94,898 $ 38,157 $ 15,916 $ 30,105 $ --
======== ======== ======== ======== ========
</TABLE>

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

F-31

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

William D. Fritz M.D. (the "Fritz Practice"), formerly Northwest
Orthopedic, and Orthopedic, Occupational and Sports Medicine Specialists (the
"Smith Practice"), formerly Venango Orthopedics and Sports Medicine Center,
provide medical orthopedic and rehabilitative services to the general public. On
October 7, 1996, the Fritz Practice and the Smith Practice merged to form Bone
and Joint Specialists of Western Pennsylvania, PC (the "Company"). The combined
practice serves Franklin, Grove City and Titusville, Pennsylvania as well as
surrounding areas in Western Pennsylvania. In conjunction with the merger,
certain assets and liabilities of the individual practices were not contributed
to the Company including cash of $15,218, net accounts receivable of $87,518,
property and equipment of $965,274, other assets of $5,090, payables of $40,000
and debt of $986,272.

On January 28, 1997 (the "Initial Closing Date"), the Company and the
selling owners entered into an Asset Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the majority of the assets and liabilities of the Company in exchange for cash,
notes, convertible notes and shares of USP Common Stock, subject to adjustment,
as defined. The Affiliation Agreement contains a repurchase provision that
allows the selling owners, in the event that an initial public offering ("IPO")
has not been completed by USP by September 30, 1997 (the "Repurchase Date"), to
repurchase the net assets of their practice for a defined period of time (the
"Repurchase Period") by returning all of the consideration received excluding
the initial cash payment. If the selling owners do not exercise their rights
under the repurchase provision during the Repurchase Period, the provision
terminates. The Repurchase Date can be extended to December 24, 1997, if USP
makes a payment, as defined, in prepayment of the principal amount due under the
convertible notes issued at the Initial Closing Date. On September 30, 1997, USP
extended the Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision terminates (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due from U.S. PHYSICIANS, Inc. account to reflect the net cash
activity for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The financial statements combine the accounts of both the Fritz and Smith
Practices for all periods presented. Prior to the merger, these companies were
unrelated, and there were no transactions between the entities.

Interim Financial Statements

The financial statements for the six months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
its operations for the six months ended June 30, 1996 and 1997. The results of
operations for the six-month period are not necessarily indicative of the
results to be expected for the entire year.

F-32

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Use of Estimates

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts
receivable, certain current liabilities and debt obligations. The carrying
amounts reported in the balance sheets for these items approximate their fair
value.

Net Revenues

Revenues are accounted for in the period the services are provided. The
revenues are reported at the estimated realizable amounts from patients,
third-party payors and others. Provisions for estimated third-party payor
adjustments are estimated and recorded in the period the related services are
provided. Any adjustments to the amounts recorded are recorded in the period in
which the revised amount is determined.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as
Medicare, Medicaid and private insurers. The Company manages credit risk with
the various public and private insurance providers, as appropriate. Allowances
for bad debts have been made for potential losses when appropriate.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is provided over the
estimated useful life of each class of depreciable asset ranging from five to
seven years with the exception of building and improvements which are
depreciated over thirty years and are computed using the straight-line method.

Income Taxes

Prior to October 1996, the individual practices were treated as sole
proprietorships whereby income taxes were the responsibility of the individual
physicians. Effective in October 1996, the Company has elected treatment as an
"S" Corporation for both federal and state income tax purposes, and accordingly
is not taxed as a separate entity. The Company's taxable income or loss is
allocated to each owner and recognized on their

F-33

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

individual tax return. Accordingly, no provision for income taxes has been
reflected in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than that reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of December
31, 1996 was approximately $350,000. If the S Corporation status is terminated,
then a deferred income tax liability of approximately $85,000 related to these
cumulative differences would need to be reflected in the accompanying financial
statements.

Owners' Equity

Equity includes the capital stock and retained earnings of the Company.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $83,621, $106,073, and $84,052, respectively. Amounts paid for taxes
were insignificant.

In 1996, the Company entered into capital lease obligations of $74,800.

3. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
---------- --------
<S> <C> <C>
Mortgage with a bank, payable in monthly installments of
$8,866 through 2007, interest at bank's prime plus 1%,
assumed by Dr. Smith in 1996.............................. $ 834,090 $ --
Equipment notes with a bank, payable in monthly installments
of $2,496 through 1997, interest at bank's prime plus 1%,
secured by equipment, repaid in 1996...................... 38,179 --
Notes payable from a local medical center payable in various
monthly installments through 1999, interest ranging from
8% to 9.25% repaid in 1996................................ 105,473 --
Equipment note with a bank, payable in monthly installments
through 1998, interest at bank's prime rate, secured by
equipment, repaid in 1996................................. 100,026 --
Equipment note with a bank, payable in monthly installments
of $6,944 through 1999, interest at bank's prime rate,
secured by equipment...................................... -- 90,853
Vehicle loan with a bank, payable in monthly installments of
$1,063 through 1998, interest at bank's prime plus 1%,
secured by the vehicle, assumed by Dr. Smith in 1996...... 29,838 --
Capital lease obligations (see Note 6)...................... -- 72,750
---------- --------
1,107,606 163,603
Less -- Current maturities.................................. (147,366) (46,751)
---------- --------
$ 960,240 $116,852
========== ========
</TABLE>

F-34

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. LONG-TERM DEBT: -- (CONTINUED)

Future maturities of long-term debt, excluding capital lease obligations
(see Note 6), as of December 31, 1996, are as follows:

1997........................................................ $34,070
1998........................................................ 34,070
1999........................................................ 22,713
-------
$90,853
=======

4. EMPLOYEE BENEFIT PLANS:

In 1994 and 1995, the Fritz and the Smith Practices, respectively,
terminated deferred profit sharing plans in which all employees were eligible to
participate after one year of service, as defined in the plan agreements. At the
time of termination, all participants became 100% vested in their plan benefits.
The assets of the plans are expected to be distributed to the participants
during 1997. Discretionary contributions to the Fritz plan for the year ended
December 31, 1994, were $9,659. Discretionary contributions to the Smith plan
for the years ended December 31, 1994 and 1995, were $74,920 and $7,300,
respectively.

The assets of both plans are held at local financial institutions which
serve as trustees for the respective plans.

5. RELATED-PARTY TRANSACTIONS:

The Fritz Practice leased office space from its sole shareholder for
approximately $120,000, $90,000 and $77,000 for the years ended December 31,
1994, 1995 and 1996, respectively. The Company leased office space from its two
shareholders for approximately $47,000 for the year ended December 31, 1996.

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The company leases office space and equipment under noncancellable
operating and capital leases. Future minimum lease payments under the Company's
leases as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $20,371 $44,016
1998........................................................ 18,804 16,800
1999........................................................ 18,804 --
2000........................................................ 18,804 --
2001........................................................ 17,237 --
-------
Total................................................ 94,020
Less -- Amounts representing interest....................... (21,270)
-------
Present value of future minimum lease payments.............. 72,750
Less -- Current maturities.................................. (12,681)
-------
$60,069
=======
</TABLE>

F-35

<PAGE>

BONE AND JOINT SPECIALISTS OF WESTERN PENNSYLVANIA, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

Rent expense, including related party leases (see Note 5), under operating
leases for the years ended December 31, 1994, 1995 and 1996, was $141,111,
$150,880 and $193,280, respectively. The cost of assets capitalized under
capital lease obligations was $74,800 as of December 31, 1996 and accumulated
depreciation was $5,343.

Insurance Policies

The Company maintains insurance with respect to medical malpractice risks
on an occurrence basis in amounts management believes to be adequate. Management
is not aware of any outstanding claims which would have a material impact on the
Company's financial position or results of operations.

The Pennsylvania Medical Professional Liability Catastrophic Loss Fund (the
"CAT Fund"), an agency fund of the Commonwealth of Pennsylvania, acts as a
service agent to facilitate the payment of medical malpractice claims exceeding
the primary layer of professional liability insurance carried by physicians and
other health care providers practicing in Pennsylvania. The CAT Fund policies
are retrospectively rated on a claims-made basis. The CAT Fund levies health
care provider surcharges, as a percentage of insurance premiums for basic
coverage, to pay claims and administrative expenses on behalf of CAT Fund
participants.

The CAT Fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
Company and the other CAT Fund participants received a surcharge assessment
during fiscal 1996. No provision has been made for any future CAT Fund
assessments in the accompanying financial statements as the Company's portion of
the CAT Fund unfunded liability could not be reasonably estimated.

F-36

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Bryn Mawr Urology Associates, PC:

We have audited the accompanying balance sheets of Bryn Mawr Urology Associates,
PC (a Pennsylvania corporation) as of December 31, 1995 and 1996 and the related
statements of operations and retained earnings and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bryn Mawr Urology Associates,
PC as of December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
March 14, 1997

F-37

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 31,675 $ 57,672 $ --
Accounts receivable, net of allowance of $249,656,
$248,566 and $320,754.................................. 464,416 517,922 655,764
Due from related parties.................................. 14,211 8,348 --
Prepaid expenses and other................................ 113,578 97,861 --
-------- -------- --------
Total current assets................................. 623,880 681,803 655,764
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 128,739 151,590 151,590
Leasehold improvements.................................... 161,204 140,669 140,669
-------- -------- --------
289,943 292,259 292,259
Less -- Accumulated depreciation and amortization......... (183,093) (201,686) (231,562)
-------- -------- --------
106,850 90,573 60,697
-------- -------- --------
DEFERRED INCOME TAXES....................................... 15,236 15,224 15,224
-------- -------- --------
OTHER ASSETS................................................ 11,665 10,005 --
-------- -------- --------
$757,631 $797,605 $731,685
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 26,400 $ 30,000 $ 30,000
Current maturities of officer loans....................... 60,000 65,360 --
Accounts payable.......................................... 205,219 319,681 59,602
Accrued compensation...................................... 109,139 95,354 230,972
Deferred income taxes..................................... 85,857 63,542 65,053
Due to U.S. PHYSICIANS, Inc............................... -- -- 121,581
-------- -------- --------
Total current liabilities............................ 486,615 573,937 507,208
-------- -------- --------
LONG-TERM DEBT.............................................. 26,400 112,500 97,500
-------- -------- --------
OFFICER LOANS............................................... 65,360 -- --
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common Stock, no par value, 1,000 shares authorized, 600
shares issued and outstanding.......................... 300 300 300
Retained earnings......................................... 178,956 110,868 126,677
-------- -------- --------
Total shareholders' equity........................... 179,256 111,168 126,977
-------- -------- --------
$757,631 $797,605 $731,685
======== ======== ========
</TABLE>

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

F-38

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $2,297,850 $2,640,036 $2,630,529 $1,305,298 $1,244,898
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,327,039 1,411,350 1,528,663 623,310 516,904
Pharmaceuticals and medical supplies..... 449,812 508,357 591,529 222,372 445,164
General and administrative............... 545,671 636,306 539,972 307,536 186,506
Management fee due U.S. PHYSICIANS,
Inc.................................... -- -- -- -- 37,096
Depreciation and amortization............ 40,056 44,114 39,643 20,191 29,876
---------- ---------- ---------- ---------- ----------
2,362,578 2,600,127 2,699,807 1,173,409 1,215,546
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (64,728) 39,909 (69,278) 131,889 29,352
INTEREST EXPENSE, NET...................... 19,095 18,451 19,582 8,687 6,651
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.......... (83,823) 21,458 (88,860) 123,202 22,701
INCOME TAX (BENEFIT) PROVISION............. (18,200) 6,717 (20,772) 29,445 6,892
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... (65,623) 14,741 (68,088) 93,757 15,809
RETAINED EARNINGS, BEGINNING OF PERIOD..... 229,838 164,215 178,956 178,956 110,868
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD........... $ 164,215 $ 178,956 $ 110,868 $ 272,713 $ 126,677
========== ========== ========== ========== ==========
</TABLE>

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

F-39

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- ------------------
1994 1995 1996 1996 1997
-------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $(65,623) $14,741 $(68,088) $93,757 $ 15,809
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating
activities --
Loss on disposal of property and equipment..... -- -- 33,013 33,019 --
Depreciation and amortization.................. 40,056 44,114 39,643 20,191 29,876
Deferred income taxes.......................... (17,410) 6,936 (22,303) 29,445 1,511
Changes in assets and liabilities --
Accounts receivable......................... 80,745 (91,077) (53,506) (78,485) (137,842)
Due from related parties.................... 10,005 (3,174) 5,863 (12,229) 8,348
Prepaid expenses and other.................. 16,055 (35,071) 15,717 14,427 97,861
Other assets................................ -- -- 1,660 6,812 10,005
Accounts payable............................ (56,666) 70,260 114,462 (6,287) (260,079)
Accrued compensation........................ (11,683) 26,936 (13,785) (19,610) 135,618
Due to U.S. PHYSICIANS, Inc................. -- -- -- -- 121,581
-------- ------- -------- ------- --------
Net cash (used in) provided by operating
activities.............................. (4,521) 33,665 52,676 81,040 22,688
-------- ------- -------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment................ (27,798) (12,778) (56,379) (56,379) --
-------- ------- -------- ------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt....................... -- -- 150,000 -- --
Repayments on long-term debt....................... (53,483) (26,400) (60,300) (13,200) (15,000)
Proceeds (repayment) of officer loans.............. 65,660 -- (60,000) (7,543) (65,360)
-------- ------- -------- ------- --------
Net cash provided by (used in) financing
activities.............................. 12,177 (26,400) 29,700 (20,743) (80,360)
-------- ------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ (20,142) (5,513) 25,997 3,918 (57,672)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 57,330 37,188 31,675 31,675 57,672
-------- ------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 37,188 $31,675 $ 57,672 $35,593 $ --
======== ======= ======== ======= ========
</TABLE>

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

F-40

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Bryn Mawr Urology Associates, PC (the "Company") provides urological and
incontinence care and related medical services to the general public. The
Company operates two divisions, Bryn Mawr Urology ("BMU") and Continence
Management Specialists ("CMS").

On February 19, 1997 (the "Initial Closing Date"), the Company and the
selling owners entered into a Stock Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the outstanding stock of the Company in exchange for cash, notes, convertible
notes and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by September 30, 1997 (the "Repurchase Date"), to repurchase
the stock of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received excluding the initial
cash payment. If the selling owners do not exercise their rights under the
repurchase provision during the Repurchase Period, the provision terminates. The
Repurchase Date can be extended to December 31, 1997, if USP makes a payment, as
defined, in prepayment of the principal amount due under the convertible notes
issued at the Initial Closing Date. On September 30, 1997, USP extended the
Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision terminates (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due to U.S. PHYSICIANS, Inc. account to reflect the net cash activity
for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

F-41

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to ten years for equipment, furniture and fixtures and the remaining lease
term for leasehold improvements and are computed using the straight-line method.

Income Taxes

The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109").
SFAS No. 109 requires the liability method of accounting for deferred income
taxes. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. Deferred tax assets or liabilities at the end of each period are
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $19,526, $19,473 and $19,587, respectively. Amounts paid for taxes
were not significant.

3. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
------- --------
<S> <C> <C>
Note payable to bank, monthly principal payments of $2,500
plus interest at prime (8.25% at December 31, 1996)
through September 2001, collateralized by certain assets
of the Company............................................ $ -- $142,500
Note payable to bank originally payable through December
1997, repaid in full in September 1996.................... 52,800 --
------- --------
52,800 142,500
Less -- Current maturities.................................. (26,400) (30,000)
------- --------
$26,400 $112,500
======= ========
</TABLE>

F-42

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. LONG-TERM DEBT: -- (CONTINUED)

The Company advanced $50,000 of the proceeds from the note payable through
December 1997 to a related entity, SSE Leasing Associates ("SSE"), whose sole
shareholders are the owning physicians of the Company. The Company has the full
obligation of the debt included in its financial statements with an offsetting
receivable from SSE for its portion of the proceeds. At December 31, 1995 and
1996, advances due from SSE were $20,911 and $12,673, respectively. The notes
are subject to certain covenants as defined by the agreements and are guaranteed
by the owning physicians of the Company.

Minimum principal repayments for long-term debt as of December 31, 1996,
are as follows:

1997...................................................... $ 30,000
1998...................................................... 30,000
1999...................................................... 30,000
2000...................................................... 30,000
2001...................................................... 22,500
--------
$142,500
========

4. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Contributions to the plan are
discretionary and are determined by the Company on an annual basis. The
contributions for the years ended December 31, 1994, 1995 and 1996, were
$81,994, $68,195 and $38,461, respectively. Employer contributions vest pro rata
over six years beginning after their first year as a participant. The three
owning physicians are the trustees of the plan.

5. RELATED PARTY TRANSACTIONS:

Due from related parties consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
------- -------
<S> <C> <C>
Loan receivable from SSE (see Note 3)....................... $20,911 $12,673
Advance from SSE............................................ (8,975) --
Advances to officers........................................ 13,180 5,680
------- -------
25,116 18,353
Less -- Current portion..................................... (14,211) (8,348)
------- -------
Amount included in other assets............................. $10,905 $10,005
======= =======
</TABLE>

In 1995, the owners of BMU established a corporation, UroRehab, to provide
incontinence services to residents of long-term care facilities. Start-up cost
funding, the sharing of certain facilities and administrative services were
provided to UroRehab. The physicians will continue to provide management and
consultation services to UroRehab; however, the Company does not feel these
efforts will be significant.

In December 1994, the officers of the Company collectively loaned $150,000
to the Company. The loan was to be repaid in monthly installments of $1,062
including interest at 10% through January 1999. As of February 1995, the Company
and the officers amended the terms to monthly interest at 12% with no stated
repayment date for the remaining principal balance of $125,360. During 1996,
principal of $60,000 was repaid by the Company.

The Company leases a significant portion of its equipment from a related
entity, SSE. Payments made to SSE for the years ended December 31, 1994, 1995
and 1996, were $30,615, $39,793 and $37,146, respectively. In 1993, SSE also
paid $8,975 for leasehold improvements to office space on behalf of the Company.
During 1996, the Company repaid the balance due to SSE.

F-43

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. RELATED PARTY TRANSACTIONS: -- (CONTINUED)

In addition, the Company leases its office space from two separate
partnerships in which the owning physicians are the sole partners (see Note 7).

6. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- ------ --------
<S> <C> <C> <C>
Current:
Federal............................................ $ (474) $ (131) $ 919
State.............................................. (316) (88) 612
-------- ------ --------
(790) (219) 1,531
-------- ------ --------
Deferred:
Federal............................................ (10,446) 4,162 (13,382)
State.............................................. (6,964) 2,774 (8,921)
-------- ------ --------
(17,410) 6,936 (22,303)
-------- ------ --------
$(18,200) $6,717 $(20,772)
======== ====== ========
</TABLE>

Income tax expense (benefit) differs from the amount currently payable or
receivable because certain expenses, primarily depreciation and accruals, are
reported in different periods for financial reporting and income tax purposes.
The Company is on a cash basis of accounting for income tax purposes.

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- ------ --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................... $(28,500) $7,296 $(30,212)
Tax impact of Federal rate differential for graduated
rates.............................................. 16,045 (4,045) 16,653
State income taxes, net of federal benefit........... (8,303) 2,168 (9,039)
Non-deductible travel and entertainment.............. 2,558 1,298 1,826
-------- ------ --------
$(18,200) $6,717 $(20,772)
======== ====== ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Property and equipment.................................... $ 15,236 $ 15,224
Net operating loss carryforward........................... 4,883 8,534
-------- --------
20,119 23,758
Deferred liabilities:
Cash to accrual adjustments............................... (90,740) (72,076)
-------- --------
Net deferred tax liability.................................. $(70,621) $(48,318)
======== ========
</TABLE>

F-44

<PAGE>

BRYN MAWR UROLOGY ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases office space in two buildings that are partially owned
by two of the owning physicians. As indicated in Note 5, the equipment is leased
from a related party, SSE. Future minimum lease payments under the Company's
leases are as follows:

<TABLE>
<CAPTION>
EQUIPMENT BUILDING
LEASES LEASES
--------- --------
<S> <C> <C>
1997......................................... $40,203 $ 72,009
1998......................................... 10,051 72,009
1999......................................... -- 72,009
2000......................................... -- 24,978
</TABLE>

Rent expense under noncancelable operating leases for the years ended
December 31, 1994, 1995 and 1996, was approximately $132,788, $127,594 and
$118,141, respectively.

Insurance Policies

The Company maintains insurance with respect to medical malpractice risks
on an occurrence basis in amounts management believes to be adequate. Management
is not aware of any outstanding claims that would have a material impact on the
Company's financial position or results of operations.

F-45

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Center for Women's Healthcare, PC and
Corazon G. Gemil, M.D., PC:

We have audited the accompanying combined balance sheets of the Center for
Women's Healthcare, PC and Corazon G. Gemil, M.D., PC (Pennsylvania
corporations) as of December 31, 1995 and 1996 and the related combined
statements of operations and owner's deficit and cash flows for the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined financial statements based on our audits.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Center for
Women's Healthcare, PC and Corazon G. Gemil, M.D., PC as of December 31, 1995
and 1996, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
April 8, 1997

F-46

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 27,883 $ 12,154 $ --
Accounts receivable, net of allowance of $49,101, $51,129
and $51,060............................................ 87,290 90,896 146,758
Prepaid expenses and other................................ 417 -- 22,438
-------- -------- --------
Total current assets................................. 115,590 103,050 169,196
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 82,425 85,594 86,050
Leasehold improvements.................................... 50,389 50,389 50,389
-------- -------- --------
132,814 135,983 136,439
Less -- Accumulated depreciation and amortization......... (69,361) (82,000) (83,781)
-------- -------- --------
63,453 53,983 52,658
-------- -------- --------
OTHER ASSETS................................................ 1,859 -- --
-------- -------- --------
$180,902 $157,033 $221,854
======== ======== ========
LIABILITIES AND OWNER'S DEFICIT
CURRENT LIABILITIES:
Short term notes payable.................................. $ 73,778 $ 63,316 $ 58,312
Accounts payable.......................................... 35,920 30,726 26,822
Accrued compensation...................................... 81,481 59,729 23,245
Due to U.S. PHYSICIANS, Inc............................... -- -- 50,578
Deferred service revenues................................. 118,880 118,880 118,880
-------- -------- --------
Total current liabilities............................ 310,059 272,651 277,837
-------- -------- --------
DEFERRED SERVICE REVENUES................................... 267,477 148,597 89,184
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
OWNER'S DEFICIT............................................. (396,634) (264,215) (145,167)
-------- -------- --------
$180,902 $157,033 $221,854
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-47

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

COMBINED STATEMENTS OF OPERATIONS AND OWNER'S DEFICIT

The accompanying notes are an integral part of these combined financial
statements.

F-48

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $(79,805) $(20,998) $132,419 $83,630 $119,048
Adjustments to reconcile net income (loss) to net
cash used in operating activities --
Depreciation and amortization.................. 20,411 15,532 12,639 6,319 1,781
Changes in assets and liabilities --
Accounts receivable......................... (15,067) 32,370 (3,606) (2,536) (55,862)
Prepaid expenses and other.................. 20,223 13,617 417 -- (22,438)
Other assets................................ (19,243) 30,386 1,859 1,392 --
Accounts payable............................ 20,089 (26,757) (5,194) (2,597) (3,904)
Accrued compensation........................ 3,224 (370) (21,752) (38,235) (36,484)
Due to U.S. PHYSICIANS, Inc................. -- -- -- -- 50,578
Deferred service revenues................... -- (82,961) (118,880) (59,440) (59,413)
-------- -------- -------- ------- --------
Net cash used in operating activities..... (50,168) (39,181) (2,098) (11,467) (6,694)
-------- -------- -------- ------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment................ -- (19,788) (3,169) (3,169) (456)
-------- -------- -------- ------- --------
FINANCING ACTIVITIES:
Net proceeds (payments) on related party payable... 26,195 20,517 (23,396) 4,634 34,996
Proceeds from notes payable........................ 90,000 47,000 40,000 -- --
Repayments on notes payable........................ (64,607) (2,718) (27,066) -- (40,000)
-------- -------- -------- ------- --------
Net cash provided by (used in) financing
activities.............................. 51,588 64,799 (10,462) 4,634 (5,004)
-------- -------- -------- ------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................................ 1,420 5,830 (15,729) (10,002) (12,154)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 20,633 22,053 27,883 27,883 12,154
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 22,053 $ 27,883 $ 12,154 $17,881 $ --
======== ======== ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-49

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

The Center for Women's Healthcare, PC and Corazon G. Gemil, M.D., PC
(collectively, the Company), were merged on January 1, 1996 with the Center for
Women's Healthcare, PC as the surviving entity. The Company provides obstetrical
and gynecological care and related medical services to the general public.

On March 6, 1997 (the "Initial Closing Date"), the Company and the selling
owner entered into an Asset Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the majority
of the assets and liabilities of the Company in exchange for cash, notes,
convertible notes and shares of USP Common Stock, subject to adjustment, as
defined. The Affiliation Agreement contains a repurchase provision that allows
the selling owner, in the event that an initial public offering ("IPO") has not
been completed by USP by September 30, 1997 (the "Repurchase Date"), to
repurchase the net assets of her practice for a defined period of time (the
"Repurchase Period") by returning all of the consideration received excluding
the initial cash payment. If the selling owner does not exercise her rights
under the repurchase provision during the Repurchase Period, the provision
terminates. The Repurchase Date can be extended to December 31, 1997, if USP
makes a payment, as defined, in prepayment of the principal amount due under the
convertible notes issued at the Initial Closing Date. On September 30, 1997, USP
extended the Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision terminates (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due to U.S. PHYSICIANS, Inc. account to reflect the net cash activity
for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The financial statements combine the accounts of both the Center for
Women's Healthcare, PC and Corazon G. Gemil, M.D., PC practices. Prior to the
merger, these companies were unrelated, and there were no transactions between
the entities.

Interim Financial Statements

The financial statements for the six months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
their operations for the six months ended June 30, 1996 and 1997. The results of
operations for the six-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

F-50

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Fair Value of Financial Instruments

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consists of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and other estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to seven years for equipment, furniture and fixtures and the remaining
lease term for leasehold improvements and are computed using the straight-line
method.

Deferred Service Revenues

During 1995, the Company committed to provide limited administrative
services at an area hospital and provide limited educational support to the
hospital and the community for a period of four years in exchange for the
settlement of a debt obligation of the Company to the hospital. The debt
reduction of $469,318 has been recorded as deferred service revenues in the
accompanying balance sheets and is being amortized ratably over the four years
as other income in the statements of operations. Other income in 1994 includes
payments for services at the area hospital.

F-51

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Owner's Deficit

Owner's deficit includes the capital stock, additional paid-in capital and
accumulated losses of The Center for Women's Healthcare, PC and Corazon G.
Gemil, M.D., PC.

Income Taxes

The Company has elected treatment as an "S" Corporation for both federal
and state income tax purposes, and accordingly is not taxed as a separate
entity. The Company's taxable income or loss is allocated to the owner and
recognized on her individual tax return. Accordingly, no provision for income
taxes has been reflected in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of December
31, 1996 was approximately $300,000. If the S Corporation status is terminated,
then a deferred income tax liability of approximately $72,000 related to these
cumulative differences would need to be reflected in the accompanying financial
statements.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $4,923, $3,592 and $548, respectively. Amounts paid for taxes were
not significant.

3. SHORT TERM NOTES PAYABLE:

DECEMBER 31,
-----------------
1995 1996
------- -------
Demand note payable to bank, interest at prime plus 1%,
repaid March 1997......................................... $ -- $40,000
Demand note payable to shareholder, no stated interest rate
or repayment terms........................................ 46,712 23,316
Other....................................................... 27,066 --
------- -------
$73,778 $63,316
======= =======

4. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan covering substantially all full
time employees who are at least 21 years of age and have completed 2 years of
service. Contributions to the plan are discretionary and are determined by the
Company on an annual basis. Employees vest in company contributions immediately.
For the years ended December 31, 1994, 1995 and 1996 discretionary
contribution's made by the Company were $20,000, $45,000 and $15,000.

F-52

<PAGE>

CENTER FOR WOMEN'S HEALTHCARE, PC AND
CORAZON G. GEMIL, M.D., PC

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Future minimum lease payments for property under noncancellable operating
leases primarily for office space as of December 31, 1996 are as follows:

1997............................................... $40,049
1998............................................... 26,696

Rent expense under noncancellable operating leases for the years ended
December 31, 1994, 1995 and 1996 was approximately $91,817, $71,750 and $40,049,
respectively.

Insurance Policies

The Pennsylvania Medical Professional Liability Catastrophic Loss Fund (the
"CAT Fund"), an agency fund of the Commonwealth of Pennsylvania, acts as a
service agent to facilitate the payment of medical malpractice claims exceeding
the primary layer of professional liability insurance carried by the physicians
and other health care providers practicing in Pennsylvania. The CAT Fund
policies are retrospectively rated on a claims-made basis. The CAT Fund levies
health care provider surcharges, as a percentage of insurance premiums for basic
coverage, to pay claims and administrative expenses on behalf of CAT Fund
participants.

F-53

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Family Care of Lancaster, PC:

We have audited the accompanying balance sheets of Family Care of Lancaster, PC
(a Pennsylvania corporation) as of December 31, 1995 and 1996 and the related
statements of operations and retained earnings, and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Family Care of Lancaster, PC as
of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
June 13, 1997

F-54

<PAGE>

FAMILY CARE OF LANCASTER, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13,258 $ 3,078 $ --
Accounts receivable, net of allowance of $0, $0 and
$42,827................................................ 99,150 98,470 70,310
Due from U.S. PHYSICIANS, Inc............................. -- -- 5,701
Prepaid expenses and other................................ 15,748 9,637 13,541
-------- -------- --------
Total current assets................................. 128,156 111,185 89,552
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 120,444 125,813 141,136
Leasehold improvements.................................... 16,513 16,513 16,513
-------- -------- --------
136,957 142,326 157,649
Less -- Accumulated depreciation and amortization......... (87,213) (101,280) (110,813)
-------- -------- --------
49,744 41,046 46,836
-------- -------- --------
DEFERRED INCOME TAXES....................................... 1,206 4,683 7,723
-------- -------- --------
INTANGIBLE ASSETS........................................... 82,081 72,023 62,147
-------- -------- --------
$261,187 $228,937 $206,258
======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ 22,307 $ 22,000 $ --
Current maturities of long-term debt...................... 8,713 9,284 11,022
Accounts payable.......................................... 14,977 21,411 51,775
Accrued compensation...................................... 30,998 40,834 --
Deferred income taxes..................................... 31,035 22,058 22,447
Due to related parties.................................... 1,782 16,700 --
-------- -------- --------
Total current liabilities............................ 109,812 132,287 85,244
-------- -------- --------
LONG-TERM DEBT.............................................. 52,593 43,309 38,727
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDER'S EQUITY:
Common Stock, $10 par value, 30,000 shares authorized, 755
shares issued and outstanding.......................... 7,550 7,550 7,550
Retained earnings......................................... 91,232 45,791 74,737
-------- -------- --------
Total shareholder's equity........................... 98,782 53,341 82,287
-------- -------- --------
$261,187 $228,937 $206,258
======== ======== ========
</TABLE>

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

F-55

<PAGE>

FAMILY CARE OF LANCASTER, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- -------------------
1994 1995 1996 1996 1997
-------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES.................................... $931,011 $1,283,589 $1,248,634 $660,044 $774,919
-------- ---------- ---------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits.................. 562,858 867,942 882,865 371,969 630,915
Pharmaceuticals and medical supplies.......... 99,360 119,267 111,696 49,753 39,002
General and administrative.................... 205,263 251,000 287,503 175,997 68,320
Management fee credit from
U.S. PHYSICIANS, Inc........................ -- -- -- -- (22,340)
Depreciation and amortization................. 22,488 22,477 24,125 12,467 19,409
-------- ---------- ---------- -------- --------
889,969 1,260,686 1,306,189 610,186 735,306
-------- ---------- ---------- -------- --------
INCOME (LOSS) FROM OPERATIONS................... 41,042 22,903 (57,555) 49,858 39,613
INTEREST EXPENSE, NET........................... 3,402 2,919 2,360 1,680 1,018
-------- ---------- ---------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES............... 37,640 19,984 (59,915) 48,178 38,595
INCOME TAX PROVISION (BENEFIT).................. 9,390 5,007 (14,474) 11,659 9,649
-------- ---------- ---------- -------- --------
NET INCOME (LOSS)............................... 28,250 14,977 (45,441) 36,519 28,946
RETAINED EARNINGS, BEGINNING OF PERIOD.......... 48,005 76,255 91,232 91,232 45,791
-------- ---------- ---------- -------- --------
RETAINED EARNINGS, END OF PERIOD................ $ 76,255 $ 91,232 $ 45,791 $127,751 $ 74,737
======== ========== ========== ======== ========
</TABLE>

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

F-56

<PAGE>

FAMILY CARE OF LANCASTER, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................... $28,250 $14,977 $(45,441) $36,519 $28,946
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization.................... 22,488 22,477 24,125 12,467 19,409
Deferred income taxes............................ 9,309 5,050 (12,454) 11,659 (2,651)
Changes in assets and liabilities --
Accounts receivable........................... (23,151) (22,861) 680 (18,932) 28,160
Amount due from U.S. PHYSICIANS, Inc.......... -- -- -- -- (5,701)
Prepaid expenses and other.................... (396) (6,548) 6,111 2,143 (3,904)
Accounts payable.............................. 7,323 251 6,434 (715) 30,364
Accrued compensation costs.................... 4,879 (9,679) 9,836 (6,606) (40,834)
Due to related parties........................ (1,931) 1,782 14,918 (1,782) (16,700)
------- ------- -------- ------- -------
Net cash provided by operating activities... 46,771 5,449 4,209 34,753 37,089
------- ------- -------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment.................. (36,785) -- (5,369) -- (15,323)
------- ------- -------- ------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit........ 11,577 10,730 (307) (20,418) (22,000)
Repayments on long-term debt......................... (27,585) (5,672) (8,713) (4,284) (2,844)
------- ------- -------- ------- -------
Net cash (used in) provided by financing
activities................................ (16,008) 5,058 (9,020) (24,702) (24,844)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (6,022) 10,507 (10,180) 10,051 (3,078)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 8,773 2,751 13,258 13,258 3,078
------- ------- -------- ------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 2,751 $13,258 $ 3,078 $23,309 $ --
======= ======= ======== ======= =======
</TABLE>

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

F-57

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Family Care of Lancaster, PC (the "Company") is engaged in the business of
providing health care services in the areas of pediatrics, obstetrics,
gynecology, surgery and psychiatry.

On May 5, 1997 (the "Initial Closing Date"), the Company and the selling
owner entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owner, in the event that an initial public offering ("IPO") has not been
completed by USP by December 15, 1997 (the "Repurchase Date"), to repurchase the
net assets of his practice for a defined period of time (the "Repurchase Date")
by returning all of the consideration received, excluding the initial cash
payment. If the selling owner does not exercise his rights under the repurchase
provision during the Repurchase Period, the provision terminates.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

F-58

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to seven years for equipment, furniture and fixtures and the remaining
lease term for leasehold improvements and is computed using the straight-line
method.

Intangible Assets

Intangible assets include the excess of cost over the net asset value of an
acquired physician practice, patient lists and a covenant not to compete and are
being amortized over 15 years, 15 years and 10 years, respectively. The Company
continually evaluates whether later events and circumstances have occurred that
indicate the remaining estimated useful life of intangible assets may warrant
revision or that the remaining balance may not be recoverable. When factors
indicate that intangible assets should be evaluated for possible impairment, the
Company uses an estimate of the related undiscounted operating income over the
remaining life of the intangible asset in measuring whether the intangible asset
is recoverable. As of December 31, 1996, management believes that no revision to
the remaining useful lives or write-down of intangible assets is required.

Income Taxes

F-59

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $3,402, $2,919 and $2,360, respectively. Amounts paid for taxes were
not significant.

3. ACQUISITION OF PHYSICIAN PRACTICE:

In 1993, the Company purchased substantially all of the fixed assets and
patient lists of a medical practice for total consideration of $95,000 which was
payable with a note of $50,000 (see Note 6) and cash of $45,000. The acquisition
was accounted for using the purchase method of accounting. The excess purchase
price over the fair value of the tangible assets acquired was $75,000 of which
$50,000 was recorded as goodwill and $25,000 was recorded as patient lists. In
addition, the seller signed a 10 year noncompete agreement which was payable
with a note payable of $30,000 (see Note 6). The selling physician is currently
employed by the Company.

4. INTANGIBLE ASSETS:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
-------- --------
<S> <C> <C>
Excess of cost over net asset value of acquired physician
practice.................................................. $ 50,000 $ 50,000
Covenant not to compete..................................... 25,272 25,272
Patient lists............................................... 25,000 25,000
Other....................................................... 3,073 3,073
-------- --------
103,345 103,345
Less -- Accumulated amortization............................ (21,264) (31,322)
-------- --------
$ 82,081 $ 72,023
======== ========
</TABLE>

Amortization expense for each of the years ended December 31, 1994, 1995
and 1996 was $7,798, $9,409 and $10,058, respectively.

5. LINE OF CREDIT:

In July 1994, the Company obtained a $75,000 line of credit with a bank.
The line of credit bears interest at the bank's prime rate plus 0.5% (8.75% at
December 31, 1996) and expires on November 30, 1997. The shareholder and his
wife guarantee the line. As of December 31, 1995 and 1996, the Company had
$22,307 and $22,000 outstanding on this line.

F-60

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- -------
<S> <C> <C>
Note payable issued in connection with medical practice
acquisition, interest rate at 6.371%, monthly payments
of $531 plus interest through July 2003................... $37,885 $33,814
Note payable issued in connection with covenant not to
compete, interest rate at 6.371%, monthly payments of
$500 plus interest through June 2000...................... 23,421 18,779
------- -------
61,306 52,593
Less -- Current maturities.................................. (8,713) (9,284)
------- -------
$52,593 $43,309
======= =======
</TABLE>

Future maturities of long-term debt at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997............................................... $ 9,284
1998............................................... 9,868
1999............................................... 10,515
2000............................................... 8,168
2001............................................... 5,564
2002 and thereafter................................ 9,194
-------
$52,593
=======
</TABLE>

7. EMPLOYEE BENEFIT PLAN:

The Company has a profit sharing plan (Section 401(k)) in which all
employees are eligible to participate after completion of one year of service
and 1,000 hours, as defined by the plan agreement. Employees vest pro rata over
five years. Contributions to the plan are discretionary and are determined by
management on an annual basis. The Company contributed $4,800 to the plan for
each of the years ended December 31, 1994, 1995 and 1996.

8. RELATED-PARTY TRANSACTIONS:

The Company leases both of its facilities from the Company's shareholder.
Payments under these leases were $76,605, $91,358 and $89,311 for the years
ended December 31, 1994, 1995 and 1996, respectively. Minimum annual rental
commitments under these leases, which represent all non-cancelable operating
leases having terms in excess of one year, as of December 31, 1996, are as
follows:

1997.............................................. $108,000
1998.............................................. 108,000
1999.............................................. 108,000
2000.............................................. 108,000
2001.............................................. 108,000
2002 and thereafter............................... 126,000

F-61

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

9. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Current:
Federal................................................. $ 49 $ (26) $ (1,212)
State................................................... 32 (17) (808)
------ ------ --------
81 (43) (2,020)
------ ------ --------
Deferred:
Federal................................................. 5,585 3,030 (7,472)
State................................................... 3,724 2,020 (4,982)
------ ------ --------
9,309 5,050 (12,454)
------ ------ --------
$9,390 $5,007 $(14,474)
====== ====== ========
</TABLE>

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------ --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate....................... $12,797 $6,795 $(20,371)
Tax impact of Federal rate differential for graduated
rates.................................................. (7,163) (3,791) 11,687
State income taxes, net of federal benefit............... 3,756 2,003 (5,790)
------- ------ --------
$ 9,390 $5,007 $(14,474)
======= ====== ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets --
Property and equipment.................................... $ 1,206 $ 4,683
Net operating loss carryforward........................... 13 399
-------- --------
1,219 5,082
-------- --------
Deferred tax liabilities --
Deferred compensation..................................... (11,684) (11,684)
Cash to accrual adjustments............................... (19,364) (10,773)
-------- --------
(31,048) (22,457)
-------- --------
Net deferred tax liability.................................. $(29,829) $(17,375)
======== ========
</TABLE>

F-62

<PAGE>

FAMILY CARE OF LANCASTER, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

10. COMMITMENTS AND CONTINGENCIES:

Insurance Policies

F-63

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Network Medical, Inc.:

We have audited the accompanying balance sheets of Network Medical, Inc. (a
Pennsylvania corporation) as of September 30, 1995 and 1996, and the related
statements of operations, shareholders' deficit and cash flows for each of the
three years in the period ended September 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Network Medical, Inc. as of
September 30, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1996, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has experienced a net loss for the three years
ended September 30, 1996 and has a substantial debt obligation that is payable
upon demand. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classifications of liabilities that might
be necessary should the Company be unable to continue as a going concern.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 22, 1997

F-64

<PAGE>

NETWORK MEDICAL, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,643 $ 17,385 $ --
Accounts receivable....................................... 1,154 5,066 6,586
Prepaid expenses and other................................ -- 1,209 1,717
-------- -------- --------
Total current assets................................... 5,797 23,660 8,303
-------- -------- --------
INVESTMENTS................................................. -- -- 50,000
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 8,554 8,931 8,931
Less -- Accumulated depreciation.......................... (433) (2,164) (4,612)
-------- -------- --------
8,121 6,767 4,319
-------- -------- --------
$ 13,918 $ 30,427 $ 62,622
======== ======== ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Line of credit............................................ $ -- $350,000 $500,000
Short-term note payable................................... -- 12,500 --
Accounts payable.......................................... 19,812 27,903 7,349
Accrued compensation...................................... 4,858 32,282 2,615
Due to U.S. PHYSICIANS, Inc............................... -- -- 130,157
-------- -------- --------
Total current liabilities.............................. 24,670 422,685 640,121
-------- -------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common Stock, $1 par value; authorized 10,000,000 shares
of Class A; 10,000,000 shares of Class B; and 51,000
Founders shares; outstanding -- 51,000 Founders
shares................................................. 51,000 51,000 51,000
Additional paid-in capital................................ 136,500 136,500 136,500
Accumulated deficit....................................... (109,752) (567,258) (764,999)
Stock subscriptions receivable............................ (88,500) (12,500) --
-------- -------- --------
Total shareholders' deficit............................ (10,752) (392,258) (577,499)
-------- -------- --------
$ 13,918 $ 30,427 $ 62,622
======== ======== ========
</TABLE>

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

F-65

<PAGE>

NETWORK MEDICAL, INC.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
------------------------------- ---------------------
1994 1995 1996 1996 1997
------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES..................................... $ -- $ 10,111 $ 11,236 $ 10,109 $ 19,487
------- --------- --------- --------- ---------
OPERATING EXPENSES:
Salaries, wages and benefits............... -- 66,054 183,418 135,883 98,361
General and administrative................. 2,851 50,220 275,424 202,577 88,147
Depreciation............................... -- 433 1,731 1,280 2,448
------- --------- --------- --------- ---------
2,851 116,707 460,573 339,740 188,956
------- --------- --------- --------- ---------
LOSS FROM OPERATIONS......................... (2,851) (106,596) (449,337) (329,631) (169,469)
INTEREST EXPENSE, NET........................ -- -- 8,169 3,381 28,272
------- --------- --------- --------- ---------
NET LOSS..................................... $(2,851) $(106,596) $(457,506) $(333,012) $(197,741)
======= ========= ========= ========= =========
</TABLE>

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

F-66

<PAGE>

NETWORK MEDICAL, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
ADDITIONAL STOCK
COMMON PAID-IN ACCUMULATED SUBSCRIPTIONS
STOCK CAPITAL DEFICIT RECEIVABLE TOTAL
------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993........... $ -- $ -- $ (305) $ -- $ (305)
Net loss.............................. -- -- (2,851) -- (2,851)
------- -------- --------- -------- ---------
BALANCE AT SEPTEMBER 30, 1994........... -- -- (3,156) -- (3,156)
Issuance of Common Stock.............. 51,000 136,500 -- (88,500) 99,000
Net loss.............................. -- -- (106,596) -- (106,596)
------- -------- --------- -------- ---------
BALANCE AT SEPTEMBER 30, 1995........... 51,000 136,500 (109,752) (88,500) (10,752)
Payment of stock subscriptions........ -- -- -- 76,000 76,000
Net loss.............................. -- -- (457,506) -- (457,506)
------- -------- --------- -------- ---------
BALANCE AT SEPTEMBER 30, 1996........... 51,000 136,500 (567,258) (12,500) (392,258)
Payment of stock subscriptions
(unaudited)......................... -- -- -- 12,500 12,500
Net loss (unaudited).................. -- -- (197,741) -- (197,741)
------- -------- --------- -------- ---------
BALANCE AT JUNE 30, 1997 (UNAUDITED).... $51,000 $136,500 $(764,999) $ -- $(577,499)
======= ======== ========= ======== =========
</TABLE>

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

F-67

<PAGE>

NETWORK MEDICAL, INC.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................. $ (2,851) $(106,596) $(457,506) $(333,012) $(197,741)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities --
Depreciation........................ -- 433 1,731 1,280 2,448
Changes in assets and liabilities --
Accounts receivable............... -- (1,154) (3,912) (7,621) (1,520)
Prepaid expenses and other........ -- -- (1,209) (1,497) (508)
Accounts payable.................. 970 15,992 8,091 57,344 (20,554)
Accrued compensation.............. -- 4,858 27,424 30,630 (29,667)
Other............................. 13,905 (13,905) -- -- --
Due to U.S. PHYSICIANS, Inc....... -- -- -- -- 130,157
--------- --------- --------- --------- ---------
Net cash provided by (used in)
operating activities......... 12,024 (100,372) (425,381) (252,876) (117,385)
--------- --------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment...... -- (8,554) (377) (377) --
Investments.............................. -- -- -- -- (50,000)
--------- --------- --------- --------- ---------
Net cash used in investing
activities................... -- (8,554) (377) (377) (50,000)
--------- --------- --------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings from line of credit....... -- -- 350,000 165,000 150,000
Net borrowings (repayments) on short-term
note payable........................... -- -- 12,500 12,500 (12,500)
Proceeds from issuance of stock.......... -- 99,000 -- -- --
Proceeds from stock subscriptions........ -- -- 76,000 76,000 12,500
--------- --------- --------- --------- ---------
Net cash provided by financing
activities................... -- 99,000 438,500 253,500 150,000
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 12,024 (9,926) 12,742 247 (17,385)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................... 2,545 14,569 4,643 4,643 17,385
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD... $ 14,569 $ 4,643 $ 17,385 $ 4,890 $ --
========= ========= ========= ========= =========
</TABLE>

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

F-68

<PAGE>

NETWORK MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Network Medical, Inc. (the "Company") assists physicians in delivering
health care services for workers' compensation injuries and administers a
network of physicians, employers, and third party administrators for the purpose
of providing high quality, cost effective care in a managed care environment.

On January 27, 1997 (the "Initial Closing Date"), the Company and the
selling owners entered into a Stock Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP acquired 85% of the outstanding stock of the Company
in exchange for notes and convertible notes. The notes issued pursuant to the
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by December 31, 1997 (the "Repurchase Date"), to repurchase the
stock of the Company for a defined period of time (the "Repurchase Period") by
returning all of the notes received. If the selling owners do not exercise their
rights to repurchase their shares during the Repurchase Period, the provision
expires.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Transaction is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision lapses (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management. Accordingly, the balance sheet as of June 30, 1997 reflects a Due to
U.S. PHYSICIANS, Inc. account to reflect the net cash activity for the same
period.

Going Concern

The Company has experienced a net loss for the three years ended September
30, 1996 and has a substantial debt obligation that is payable upon demand.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are described in
the following paragraph. The accompanying financial statements do not include
any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.

For the year ended September 30, 1996, the Company reported a net loss of
$457,506, and as of September 30, 1996 had a total shareholders' deficiency of
$392,258. The Company is highly leveraged, with a line of credit due on demand
totaling $350,000 at September 30, 1996. In the event that the line of credit is
called by the bank, the shareholders of the Company who personally guaranteed
the debt would be required to satisfy the obligation. With the purchase of 85%
of the stock by USP in January 1997, management has implemented a plan to
control costs by reducing staff and is focusing on aggressively marketing its
products to increase revenues. There can be no assurances that the bank will not
demand payment on the line of credit or that the Company will be successful in
its attempts to control costs and raise revenues.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

The financial statements for the nine months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
its operations for the nine months ended June 30, 1996 and 1997. The results of
operations for the nine-month period are not necessarily indicative of the
results to be expected for the entire year.

F-69

<PAGE>

NETWORK MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Use of Estimates

Fair Value of Financial Instruments

Cash and Cash Equivalents

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

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is provided over the
estimated useful lives of the applicable assets ranging from five to ten years
and are computed using the straight-line method.

Income Taxes

Statements of Cash Flows Information

For the years ended September 30, 1994, 1995 and 1996, the Company paid
interest of $0, $0 and $8,169, respectively. Amounts paid for taxes were
insignificant.

3. INVESTMENTS:

In November 1996, the Company acquired 15% of the outstanding stock of
Preferred Care Life Insurance Company ("PCLIC") for a purchase price of
$100,000. Of the purchase price, $50,000 was paid at acquisition and the balance
will be paid at the time PCLIC meets certain covenants contained in the purchase
agreement. The purchase entitles the Company to receive 95% of the net profits
generated by PCLIC in the Lancaster, Pennsylvania region, as defined.

4. LINE OF CREDIT:

The Company has a line of credit totaling $500,000, bearing interest at the
bank's prime rate (8.25% at September 30, 1996). The line is due on demand and
is collateralized by the personal guarantees of the shareholders. At September
30, 1996, the balance outstanding on the line of credit was $350,000.

F-70

<PAGE>

NETWORK MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. SHORT-TERM NOTE PAYABLE:

The Company borrowed $12,500 from a bank, bearing interest at the bank's
prime rate (8.25% at September 30, 1996). The loan is guaranteed by a
shareholder and was repaid with the proceeds from the shareholder's stock
subscription receivable on November 29, 1996.

6. RELATED PARTY TRANSACTIONS:

The Company rents its property from a related entity. Rent expense amounted
to $950 and $12,350 for the years ended September 30, 1995 and 1996,
respectively. The lease expires in 1998. In addition, the Company owed $13,905
for expense reimbursements to an entity related through common ownership at
September 30, 1994. This amount was paid in fiscal year 1995. Accounts
receivable as of September 30, 1996 includes $1,833 from providers who are also
shareholders.

7. INCOME TAXES:

The components of the income tax benefit are as follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1994 1995 1996
----- ------- --------
<S> <C> <C> <C>
Current:
Federal................................................. $ -- $ -- $ --
State................................................... -- -- --
----- ------- --------
-- -- --
----- ------- --------
Deferred:
Federal................................................. (383) (16,022) (68,494)
State................................................... (255) (10,682) (45,663)
----- ------- --------
(638) (26,704) (114,157)
----- ------- --------
Increase in valuation allowance........................... 638 26,704 114,157
----- ------- --------
$ -- $ -- $ --
===== ======= ========
</TABLE>

F-71

<PAGE>

NETWORK MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES: -- (CONTINUED)

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1994 1995 1996
----- -------- ---------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate....................... $(969) $(36,243) $(152,775)
Tax impact of Federal rate differential for graduated
rates.................................................. 541 20,197 84,136
State income taxes, net of federal benefit............... (285) (10,660) (45,751)
Other.................................................... 75 2 233
Valuation allowance...................................... 638 26,704 114,157
----- -------- ---------
$ -- $ -- $ --
===== ======== =========
</TABLE>

The components of the net deferred tax asset, measured under SFAS No. 109,
are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $23,211 $140,131
Accrued expenses.......................................... 4,134 1,675
------- --------
27,345 141,806
Gross deferred tax liabilities.............................. -- (304)
Less valuation allowance.................................... (27,345) (141,502)
------- --------
Net deferred tax asset...................................... $ -- $ --
======= ========
</TABLE>

8. STOCK SPLIT:

During the year ended September 30, 1996, the stockholders approved a
30-for-1 stock split for its existing shares and authorized 10,000,000 shares of
Class A and 10,000,000 shares of Class B Common Stock. All amounts in these
financial statements have been restated to reflect the stock split.

F-72

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orthopaedic and Sports Medicine Specialists of the Main Line, PC:

We have audited the accompanying balance sheets of Orthopaedic and Sports
Medicine Specialists of the Main Line, PC (a Pennsylvania corporation) as of
December 31, 1995 and 1996 and the related statements of operations and retained
earnings and cash flows for each of the three years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthopaedic and Sports Medicine
Specialists of the Main Line, PC as of December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
May 30, 1997

F-73

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 28,779 $ 10,337 $ 26,625
Accounts receivable, net of allowance of $509,004,
$848,707 and $738,488.................................. 549,606 456,996 492,326
Due from U.S. PHYSICIANS, Inc............................. -- -- 8,010
Prepaid expenses and other................................ 69,322 -- 31,260
-------- -------- --------
Total current assets................................. 647,707 467,333 558,221
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 223,047 243,082 243,082
Leasehold improvements.................................... 21,526 21,526 21,526
-------- -------- --------
244,573 264,608 264,608
Less -- Accumulated depreciation and amortization......... (119,584) (149,097) (163,022)
-------- -------- --------
124,989 115,511 101,586
-------- -------- --------
$772,696 $582,844 $659,807
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ -- $ 15,000 $ --
Current maturities of long-term debt...................... 62,388 1,438 1,438
Accounts payable.......................................... 10,914 9,190 54,853
Accrued compensation...................................... 85,659 106,405 70,193
Deferred income taxes..................................... 145,593 104,344 106,102
-------- -------- --------
Total current liabilities............................ 304,554 236,377 232,586
-------- -------- --------
LONG-TERM DEBT.............................................. -- 7,062 6,259
-------- -------- --------
DEFERRED INCOME TAXES....................................... 14,356 15,806 14,605
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 1,000 shares authorized,
100 shares issued and outstanding...................... 100 100 100
Retained earnings......................................... 453,686 323,499 406,257
-------- -------- --------
Total shareholders' equity........................... 453,786 323,599 406,357
-------- -------- --------
$772,696 $582,844 $659,807
======== ======== ========
</TABLE>

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

F-74

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $1,696,165 $2,123,495 $1,961,309 $1,022,334 $1,177,116
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,148,236 1,426,695 1,654,870 729,577 684,734
Pharmaceuticals and medical supplies..... 39,836 32,543 37,282 21,637 17,507
General and administrative............... 448,755 462,116 410,569 199,542 263,631
Management fee due U.S. PHYSICIANS,
Inc.................................... -- -- -- -- 86,964
Depreciation and amortization............ 29,363 29,641 29,513 14,455 13,925
---------- ---------- ---------- ---------- ----------
1,666,190 1,950,995 2,132,234 965,211 1,066,761
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. 29,975 172,500 (170,925) 57,123 110,355
INTEREST (EXPENSE) INCOME, NET............. (8,644) (3,707) (506) (955) 800
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES.................................... 21,331 168,793 (171,431) 56,168 111,155
INCOME TAX PROVISION (BENEFIT)............. 6,817 42,517 (41,244) 13,536 28,397
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... 14,514 126,276 (130,187) 42,632 82,758
RETAINED EARNINGS, BEGINNING OF PERIOD..... 312,896 327,410 453,686 453,686 323,499
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD........... $ 327,410 453,686 323,499 496,318 406,257
========== ========== ========== ========== ==========
</TABLE>

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

F-75

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ ------------------
1994 1995 1996 1996 1997
------- -------- --------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $14,514 $126,276 $(130,187) $ 42,632 $82,758
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization................. 29,363 29,641 29,513 14,455 13,925
Deferred income taxes......................... 7,726 39,590 (39,799) 13,536 557
Accounts receivable........................... (12,328) (98,306) 92,610 121,667 (35,330)
Prepaid expenses and other.................... 3,000 (69,322) 69,322 34,661 (31,260)
Due from U.S. PHYSICIANS, Inc................. -- -- -- -- (8,010)
Accounts payable.............................. (5,828) 3,054 (1,724) (4,178) 45,663
Accrued compensation.......................... 7,371 4,288 20,746 (27,570) (36,212)
------- -------- --------- -------- -------
Net cash provided by operating
activities............................... 43,818 35,221 40,481 195,203 32,091
------- -------- --------- -------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (31,207) (6,595) (20,035) (11,554) --
------- -------- --------- -------- -------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit..... 17,000 (17,000) 15,000 -- (15,000)
Proceeds from long-term debt...................... 81,291 139,519 8,500 -- 635
Repayments on long-term debt...................... (74,304) (84,118) (62,388) (33,106) (1,438)
Repayments on shareholder loans................... (39,800) (40,200) -- -- --
------- -------- --------- -------- -------
Net cash used in financing activities...... (15,813) (1,799) (38,888) (33,106) (15,803)
------- -------- --------- -------- -------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (3,202) 26,827 (18,442) 150,543 16,288
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 5,154 1,952 28,779 28,779 10,337
------- -------- --------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 1,952 $ 28,779 $ 10,337 $179,322 $26,625
======= ======== ========= ======== =======
</TABLE>

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

F-76

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Orthopaedic and Sports Medicine Specialists of the Main Line, PC (the
"Company") is a physician owned medical practice serving the Philadelphia,
Pennsylvania area. The Company is engaged in the business of rendering health
care services in the area of orthopedic, surgical and related support services.

On March 17, 1997, (the "Initial Closing Date"), the Company and the
selling owners entered into a Stock Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the outstanding stock of the Company in exchange for cash, notes, convertible
notes and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by September 30, 1997 (the "Repurchase Date"), to repurchase
the stock of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received, excluding the initial
cash payment. If the selling owners do not exercise their rights under the
repurchase provision during the Repurchase Period, the provision terminates. The
Repurchase Date can be extended to December 31, 1997, if USP makes a payment, as
defined, in prepayment of the principal amount due under the convertible notes
issued at the Initial Closing Date. On September 30, 1997 USP extended the
Repurchase Date.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain 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.

Fair Value of Financial Instruments

F-77

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to seven years for equipment, furniture and fixtures and the remaining
lease term for leasehold improvements and are computed using the straight-line
method.

Income Taxes

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $8,683, $3,763 and $2,114, respectively. Amounts paid for taxes were
not significant.

3. LINE OF CREDIT:

At December 31, 1996, the Company had a $55,000 line of credit. The line is
secured by substantially all of the Company's assets and bears interest at the
bank's prime rate plus 1% (9.5% at December 31, 1996). At December 31, 1994,
1995 and 1996, the Company had $17,000, $0 and $15,000 outstanding against the
line, respectively. The line expires on December 31, 1997.

F-78

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. LONG-TERM DEBT:

The Company has financed all or a portion of its malpractice insurance
premiums with a bank with one-year notes. In January 1994, January 1995 and
December 1995, the Company borrowed $81,291, $77,131 and $62,388, respectively.
The interest rate on these notes for the years ended December 31, 1994, 1995 and
1996, was 7.0%, 8.5% and 8.5%, respectively.

In December 1996, the Company entered into an agreement with a bank to
borrow $8,500 for the purchase of new equipment, payable monthly through
December 2001. The note bears an interest rate of 9.5%.

5. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan covering substantially all
full-time employees who are at least 21 years of age and completed one year of
service in which at least 1,000 hours are worked. Employer contributions vest
ratably in 20% increments over five years commencing after the second year of
employment. The Company's contributions to the plan totaled $71,075, $74,977 and
$86,173 for the years ended December 31, 1994, 1995 and 1996.

6. RELATED-PARTY TRANSACTIONS:

The Company paid $85,000 each year during the years ended December 31,
1994, 1995 and 1996, respectively, for the lease of office space from a
shareholder. The lease agreement expires on December 31, 1997.

7. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------ ------- --------
<S> <C> <C> <C>
Current:
Federal............................................. $ (545) $ 1,756 $ (867)
State............................................... (364) 1,171 (578)
------ ------- --------
(909) 2,927 (1,445)
------ ------- --------
Deferred:
Federal............................................. 4,636 23,754 (23,879)
State............................................... 3,090 15,836 (15,920)
------ ------- --------
7,726 39,590 (39,799)
------ ------- --------
$6,817 $42,517 $(41,244)
====== ======= ========
</TABLE>

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

F-79

<PAGE>

ORTHOPAEDIC AND SPORTS MEDICINE SPECIALISTS OF
THE MAIN LINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES: -- (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
------ -------- --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................... $7,253 $ 57,390 $(58,286)
Tax impact of Federal rate differential for graduated
rates.............................................. (3,917) (32,510) 32,788
State income taxes, net of federal benefit........... 2,224 16,587 (16,999)
Non-deductible travel and entertainment.............. 1,257 1,050 1,253
------ -------- --------
$6,817 $ 42,517 $(41,244)
====== ======== ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities --
Property and equipment............................. $ 14,356 $ 15,806
Cash to accrual adjustments........................ 145,593 104,344
-------- --------
Net deferred tax liability........................... $159,949 $120,150
======== ========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Minimum annual rental commitments for noncancelable operating leases having
terms in excess of one year as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
RELATED OTHER
PARTY OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................... $85,000 $89,221
</TABLE>

Rental expense, including related party leases (see Note 6), under
noncancelable operating leases for the years ended December 31, 1994, 1995 and
1996 was $209,298, $218,045 and $203,879, respectively.

Insurance Policies

F-80

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orthopaedic Surgery and Sports Medicine, PC:

We have audited the accompanying balance sheets of Orthopaedic Surgery and
Sports Medicine, PC (a Pennsylvania corporation) as of December 31, 1995 and
1996, and the related statements of operations and retained earnings and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthopaedic Surgery and Sports
Medicine, PC as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
April 1, 1997

F-81

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $134,074 $ 59,096 $ 864
Accounts receivable, net of allowance of $381,012,
$546,021 and $551,874.................................. 413,820 632,261 633,649
Due from shareholders..................................... 21,676 -- --
Due from U.S. PHYSICIANS, Inc............................. -- -- 139,091
Prepaid expenses and other................................ 5,663 5,813 17,632
-------- -------- --------
Total current assets................................. 575,233 697,170 791,236
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 128,118 123,760 123,760
Leasehold improvements.................................... 81,680 81,680 81,680
-------- -------- --------
209,798 205,440 205,440
Less -- Accumulated depreciation and amortization......... (186,225) (192,002) (194,251)
-------- -------- --------
23,573 13,438 11,189
-------- -------- --------
PATIENT LIST, NET........................................... 63,750 46,750 38,250
-------- -------- --------
OTHER ASSETS................................................ 2,500 2,500 2,500
-------- -------- --------
$665,056 $759,858 $843,175
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $240,177 $212,428 $249,428
Note payable.............................................. 21,250 -- --
Accounts payable.......................................... 142,586 161,754 14,318
Accrued compensation...................................... 146,858 9,927 91,413
-------- -------- --------
Total current liabilities............................ 550,871 384,109 355,159
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, no par value; 100 shares authorized, issued
and outstanding........................................ 200 200 200
Retained earnings......................................... 113,985 375,549 487,816
-------- -------- --------
Total shareholders' equity........................... 114,185 375,749 488,016
-------- -------- --------
$665,056 $759,858 $843,175
======== ======== ========
</TABLE>

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

F-82

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $2,843,679 $2,733,804 $2,993,431 $1,520,886 $1,644,646
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 2,130,469 2,435,236 1,925,177 1,073,494 1,209,317
Pharmaceuticals and medical supplies..... 29,421 21,357 58,380 41,110 32,409
General and administrative............... 761,442 432,364 706,248 354,352 208,856
Management fee due
U.S. PHYSICIANS, Inc................... -- -- -- -- 62,822
Depreciation and amortization............ 21,159 20,219 22,777 12,351 10,749
---------- ---------- ---------- ---------- ----------
2,942,491 2,909,176 2,712,582 1,481,307 1,524,153
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (98,812) (175,372) 280,849 39,579 120,493
INTEREST EXPENSE, NET...................... 14,784 16,167 19,285 9,338 8,226
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... (113,596) (191,539) 261,564 30,241 112,267
RETAINED EARNINGS, BEGINNING OF PERIOD..... 419,120 305,524 113,985 113,985 375,549
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD........... $ 305,524 $ 113,985 $ 375,549 $ 144,226 $ 487,816
========== ========== ========== ========== ==========
</TABLE>

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

F-83

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................... $(113,596) $(191,539) $261,564 $ 30,241 $112,267
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities --
Depreciation and amortization............... 21,159 20,219 22,777 12,351 10,749
Changes in assets and liabilities --
Accounts receivable...................... 34,646 154,074 (218,441) (67,994) (1,388)
Due from shareholders.................... 45,863 17,477 21,676 142,142 --
Due from U.S. PHYSICIANS, Inc............ -- -- -- -- (139,091)
Prepaid expenses and other............... 19,336 1,725 (150) (150) (11,819)
Accounts payable......................... 120,053 (92,242) 19,168 (21,320) (147,436)
Accrued compensation..................... (95,479) 111,262 (136,931) (65,493) 81,486
--------- --------- -------- -------- --------
Net cash provided by (used in)
operating activities................. 31,982 20,976 (30,337) 29,777 (95,232)
--------- --------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment............. (19,504) (5,608) -- -- --
Sale of property and equipment.................. -- -- 4,358 4,358 --
Purchase of patient list........................ (10,625) -- -- -- --
--------- --------- -------- -------- --------
Net cash (used in) provided by
investing activities................. (30,129) (5,608) 4,358 4,358 --
--------- --------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit..... 5,571 74,365 (27,749) (1,749) 37,000
Repayments on long-term debt.................... (10,625) (42,500) (21,250) (21,250) --
--------- --------- -------- -------- --------
Net cash (used in) provided by
financing activities................. (5,054) 31,865 (48,999) (22,999) 37,000
--------- --------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS..................................... (3,201) 47,233 (74,978) 11,136 (58,232)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 90,042 86,841 134,074 134,074 59,096
--------- --------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 86,841 $ 134,074 $ 59,096 $145,210 $ 864
========= ========= ======== ======== ========
</TABLE>

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

F-84

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Orthopaedic Surgery and Sports Medicine, PC (the "Company") is a
physician-owned medical practice serving the Philadelphia, Pennsylvania area.
The Company was formed in July 1978 for the purpose of rendering professional
medical orthopaedic and rehabilitative services.

On March 31, 1997 (the "Initial Closing Date"), the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP at its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by September 30, 1997 (the "Repurchase Date"), to repurchase
the stock of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received, excluding the initial
cash payment. If the selling owners do not exercise their rights under the
repurchase provision during the Repurchase Period, the provision terminates. The
Repurchase Date can be extended to December 31, 1997, if USP makes a payment, as
defined in prepayment of the principal amount due under the convertible notes
issued at the Initial Closing Date. On September 30, 1997, USP extended the
Repurchase Date.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

F-85

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Repairs and maintenance are
charged to expense as incurred. Depreciation and amortization are provided over
the estimated useful lives of the applicable assets ranging from five to seven
years for equipment, furniture and fixtures and the remaining lease term for
leasehold improvements and are computed using the straight-line method.

Patient List

The patient list represents the value assigned to patient relationships
obtained from other physicians. The patient list is being amortized on a
straight-line basis over five years. For the years ended December 31, 1994, 1995
and 1996 amortization expense was $4,250, $17,000 and $17,000, respectively.

Due from Shareholders

Due from shareholders represent advances to shareholders which are repaid
in subsequent periods.

Income Taxes

The Company has elected treatment as an "S" Corporation for both federal
and state income tax purposes, and accordingly is not taxed as a separate
entity. The Company's taxable income or loss is allocated to each owner and
recognized on their individual tax return. Accordingly, no provision for income
taxes has been reflected in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than that reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of December
31, 1996 was approximately $470,000. If the S Corporation status is terminated,
then a deferred income tax liability of

F-86

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

approximately $115,000 related to these cumulative differences would need to be
reflected in the accompanying financial statements.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $14,784, $16,167 and $19,285, respectively.

In September 1994, the Company purchased a patient list for total
consideration of $85,000 consisting of a note for $74,375 and cash of $10,625
(see Note 4).

3. LINE OF CREDIT:

In June 1993, the Company entered into a credit agreement (the "Agreement")
with a local bank for a $250,000 line of credit. Under the terms of the
Agreement, the Company must maintain a zero balance for a period of at least 30
consecutive days for each 12-month period. Interest is accrued on the
outstanding balance at the bank's prime rate plus .25% (8.50% at December 31,
1996). Outstanding borrowings plus any unpaid interest, fees or expenses are
guaranteed by an owning physician and his spouse.

4. NOTE PAYABLE:

In September 1994, the Company signed a note payable for the purchase of a
patient list. The $74,375 note is payable in quarterly principal payments of
$10,625 plus interest at 6%. The balance was paid off in June 1996.

5. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest pro rata over five
years beginning after their first year as a participant. Contributions to the
plan are discretionary and are determined by the Company on an annual basis. For
the years ended December 31, 1994, 1995 and 1996, contributions to the plan were
$88,445, $0 and $0, respectively.

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases some of its office space from entities affiliated with
certain of the owners of medical groups affiliated with the Company. Future
minimum lease payments for noncancellable operating leases primarily for office
space as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
RELATED-PARTY NONRELATED-PARTY
LEASES LEASES
------------- ----------------
<S> <C> <C>
1997........................................... $133,552 $29,843
1998........................................... 139,048 10,243
1999........................................... 55,935 7,111
2000........................................... 59,292 6,604
2001........................................... -- 3,812
</TABLE>

Rent expense on related-party operating leases was $119,079, $128,304 and
$110,420 for the years ended December 31, 1994, 1995 and 1996, respectively.
Rent expense on nonrelated-party operating leases was $76,708, $41,309 and
$99,582 for the years ended December 31, 1994, 1995 and 1996, respectively.

F-87

<PAGE>

ORTHOPAEDIC SURGERY AND SPORTS MEDICINE, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

Employment Agreements

The Company has employment agreements with two employees that require
minimum levels of compensation. The following table summarizes the aggregate
minimum annual compensation due under the agreements as of December 31, 1996:

<TABLE>
<S> <C>
1997...................................................... $253,500
1998...................................................... 170,000
1999...................................................... 202,500
2000...................................................... 235,000
2001 and thereafter....................................... 125,000
</TABLE>

Insurance Policies

F-88

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orthopedic Associates of Lancaster, Ltd.:

We have audited the accompanying balance sheets of Orthopedic Associates of
Lancaster, Ltd. (a Pennsylvania corporation) as of March 31, 1996 and 1997, and
the related statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended March 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthopedic Associates of
Lancaster, Ltd. as of March 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
April 16, 1997

F-89

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
----------------------- JUNE 30,
1996 1997 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 28,811 $ 28,102 $ 32,324
Accounts receivable, net of allowance of $1,022,557,
$848,342 and $964,360............................... 1,037,360 835,220 849,696
Due from shareholders.................................. 10,000 11,904 --
Prepaid expenses and other............................. 156,090 208,292 23,602
---------- ---------- ----------
Total current assets.............................. 1,232,261 1,083,518 905,622
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures...................... 525,993 796,256 796,457
Less -- Accumulated depreciation....................... (278,317) (187,274) (218,720)
---------- ---------- ----------
247,676 608,982 577,737
---------- ---------- ----------
$1,479,937 $1,692,500 $1,483,359
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit......................................... $ 70,000 $ 100,000 $ 240,000
Current maturities of long-term debt................... -- 123,845 119,936
Accounts payable....................................... 166,557 391,342 6,975
Accrued compensation................................... 80,192 63,234 68,553
Due to U.S. PHYSICIANS, Inc............................ -- -- 13,709
Deferred income taxes.................................. 214,784 114,291 152,218
---------- ---------- ----------
Total current liabilities......................... 531,533 792,712 601,391
---------- ---------- ----------
LONG-TERM DEBT........................................... 241,563 526,010 510,056
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Preferred Stock, $100 par value, 5,000 shares
authorized, 0, 126 and 126 shares issued and
outstanding......................................... -- 12,600 12,600
Common Stock $100 par value, 5,000 shares authorized,
56, 63 and 63 shares issued and outstanding......... 5,600 6,300 6,300
Additional paid-in capital............................. 4,579 7,799 7,799
Retained earnings...................................... 696,662 347,079 345,213
---------- ---------- ----------
Total shareholders' equity........................ 706,841 373,778 371,912
---------- ---------- ----------
$1,479,937 $1,692,500 $1,483,359
========== ========== ==========
</TABLE>

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

F-90

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------ -----------------------
1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $6,119,208 $5,894,962 $5,507,561 $1,341,614 $1,573,645
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 4,827,404 4,750,277 4,661,298 1,069,037 1,059,935
Pharmaceuticals and medical supplies..... 168,028 213,615 192,967 53,761 37,163
General and administrative............... 1,131,594 1,050,914 945,079 274,013 422,828
Management fee due
U.S. PHYSICIANS, Inc................... -- -- -- -- 11,600
Depreciation and amortization............ 23,796 53,724 102,382 12,476 31,446
---------- ---------- ---------- ---------- ----------
6,150,822 6,068,530 5,901,726 1,409,287 1,562,972
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (31,614) (173,568) (394,165) (67,673) 10,673
INTEREST EXPENSE, NET...................... 5,658 10,397 52,187 11,139 12,674
---------- ---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES................... (37,272) (183,965) (446,352) (78,812) (2,001)
INCOME TAX BENEFIT......................... (12,078) (44,271) (109,369) (19,312) (135)
---------- ---------- ---------- ---------- ----------
NET LOSS................................... $ (25,194) $ (139,694) $ (336,983) $ (59,500) $ (1,866)
========== ========== ========== ========== ==========
</TABLE>

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

F-91

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------- ------ ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994........... -- $ -- 490 $ 4,900 $1,400 $861,550 $867,850
Net loss.......................... -- -- -- -- -- (25,194) (25,194)
--- ------- ---- ------- ------ -------- --------
BALANCE AT MARCH 31, 1995........... -- -- 490 4,900 1,400 836,356 842,656
Proceeds from issuance of Common
Stock........................... -- -- 70 700 3,179 -- 3,879
Net loss.......................... -- -- -- -- -- (139,694) (139,694)
--- ------- ---- ------- ------ -------- --------
BALANCE AT MARCH 31, 1996........... -- -- 560 5,600 4,579 696,662 706,841
Proceeds from issuance of Common
Stock........................... -- -- 70 700 3,220 -- 3,920
Stock dividend.................... -- -- 126 12,600 -- (12,600) --
Exchange of Common Stock for
Preferred Stock................. 126 12,600 (126) (12,600) -- -- --
Net loss.......................... -- -- -- -- -- (336,983) (336,983)
--- ------- ---- ------- ------ -------- --------
BALANCE AT MARCH 31, 1997........... 126 12,600 630 6,300 7,799 347,079 373,778
Net loss (unaudited).............. -- -- -- -- -- (1,866) (1,866)
--- ------- ---- ------- ------ -------- --------
BALANCE AT JUNE 30, 1997
(UNAUDITED)....................... 126 $12,600 630 $ 6,300 $7,799 $345,213 $371,912
=== ======= ==== ======= ====== ======== ========
</TABLE>

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

F-92

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
-------------------------------- -----------------------
1995 1996 1997 1996 1997
-------- --------- --------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss..................................... $(25,194) $(139,694) $(336,983) $(59,500) $ (1,866)
Adjustments to reconcile net loss to net cash
provided by (used in) operating
activities --
Depreciation and amortization............ 23,796 53,724 102,382 12,476 31,446
Deferred income taxes.................... (23,117) (37,389) (100,493) (19,312) 37,927
Loss on sale of equipment................ -- -- 79,722 -- --
Changes in assets and liabilities:
Accounts receivable................... 281,673 (75,359) 202,140 120,607 (14,476)
Due from shareholders................. -- (10,000) (1,904) -- 11,904
Prepaid expenses and other............ (21,475) 78,168 (52,202) 52,030 184,690
Accounts payable...................... (13,137) 50,783 224,785 (10,435) (384,367)
Accrued compensation.................. (5,087) 28,089 (16,958) 1,968 5,319
Due to U.S. PHYSICIANS, Inc........... -- -- -- -- 13,709
Other current liabilities............. 17,191 (17,191) -- -- --
-------- --------- --------- -------- --------
Net cash provided by (used in)
operating activities.............. 234,650 (68,869) 100,489 97,834 (115,714)
-------- --------- --------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.......... (28,256) (237,883) (549,964) (199,946) (201)
Proceeds from sales of equipment............. -- -- 6,554 -- --
-------- --------- --------- -------- --------
Net cash used in investing
activities........................ (28,256) (237,883) (543,410) (199,946) (201)
-------- --------- --------- -------- --------
FINANCING ACTIVITIES:
Net (payments) borrowings on line of
credit..................................... (210,000) 70,000 30,000 (70,000) 140,000
Proceeds from notes payable.................. -- 241,563 455,000 194,000 --
Repayments on notes payable.................. -- -- (46,708) -- (19,863)
Proceeds from issuance of Common Stock....... -- 3,879 3,920 -- --
Proceeds (payments) on stockholder loans..... 75,000 (75,000) -- -- --
-------- --------- --------- -------- --------
Net cash (used in) provided by
financing activities.............. (135,000) 240,442 442,212 124,000 120,137
-------- --------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 71,394 (66,310) (709) 21,888 4,222
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD....................................... 23,727 95,121 28,811 28,811 28,102
-------- --------- --------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 95,121 $ 28,811 $ 28,102 $ 50,699 $ 32,324
======== ========= ========= ======== ========
</TABLE>

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

F-93

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Orthopedic Associates of Lancaster, Ltd. (the "Company") is engaged in the
business of providing health care services in the area of orthopedic medical,
surgical and related support services.

On June 10, 1997 (the "Initial Closing Date"), the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professioal corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by September 30, 1997 (the "Repurchase Date"), to repurchase
the stock of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received, excluding the initial
cash payment. If the selling owners do not exercise their rights under the
repurchase provision during the Repurchase Period, the provision terminates. The
Repurchase Date can be extended to December 20, 1997, if USP makes a payment, as
defined, in prepayment of the principal amount due under the convertible notes
issued at the Initial Closing Date. On September 30, 1997, USP extended the
Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision terminates (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due to U.S. PHYSICIANS, Inc. account to reflect the net cash activity
for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

The financial statements for the three months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
its operations for the three months ended June 30, 1996 and 1997. The results of
operations for the three-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

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

Fair Value of Financial Instruments

F-94

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is provided over the
estimated useful lives of the related assets over a five-year life and is
computed using the straight-line method.

In connection with the Company relocating to a new facility in June 1996,
the Company sold and abandoned a significant amount of equipment at a net loss
of $79,722.

Income Taxes

Due from Shareholders

Due from shareholders represent advances to shareholders which are repaid
in subsequent periods.

Statements of Cash Flows Information

For the years ended March 31, 1995, 1996 and 1997, the Company paid
interest of $5,658, $10,404 and $52,244, respectively. Amounts paid for taxes
were not significant.

3. LINE OF CREDIT:

At March 31, 1997, the Company had lines of credit totaling $500,000
available. The lines are secured by substantially all of the Company's assets
and bear interest at the bank's prime rate. At March 31, 1995, 1996 and 1997,
the Company had $0, $70,000 and $100,000 outstanding under these lines. These
lines expire from July 31, 1997 through September 30, 1997.

F-95

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. LONG-TERM DEBT:

In September 1996, the Company entered into an agreement with a bank which
included borrowings up to $750,000 for the purchase of new equipment in
connection with the Company's relocation. The interest rate on the note was
equal to the bank's prime rate through November 29, 1996, 7.3% from November 30,
1996 through November 29, 1998, and the bank's prime rate thereafter. The loan
is secured by substantially all of the Company's assets. As of March 31, 1996
and 1997, $241,563 and $649,855, respectively, was outstanding. The Company
began repaying the loan in November 1996. Long-term debt outstanding as of March
31, 1997, matures as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1998.............................................. $123,845
1999.............................................. 133,194
2000.............................................. 143,208
2001.............................................. 154,092
2002.............................................. 95,516
--------
$649,855
========
</TABLE>

5. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan covering all eligible full-time
employees. The Company's contributions to the plan totaled $299,823, $201,486
and $108,250 for the years ended March 31, 1995, 1996 and 1997, respectively.

6. RELATED-PARTY TRANSACTIONS:

The Company paid $398,689, $339,050 and $46,848, during the years ended
March 31, 1995, 1996 and 1997, for the lease of office space from a partnership
comprised of the Company's principal stockholders. The Company terminated the
lease in June 1996.

At March 31, 1995, the Company had borrowed $75,000 from two stockholders,
which it repaid during the year ended March 31, 1996.

7. INCOME TAXES:

The components of the income tax benefit are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Current:
Federal......................................... $ 6,623 $ (4,129) $ (5,326)
State........................................... 4,416 (2,753) (3,550)
-------- -------- ---------
11,039 (6,882) (8,876)
-------- -------- ---------
Deferred:
Federal......................................... (13,870) (22,433) (60,296)
State........................................... (9,247) (14,956) (40,197)
-------- -------- ---------
(23,117) (37,389) (100,493)
-------- -------- ---------
$(12,078) $(44,271) $(109,369)
======== ======== =========
</TABLE>

Income tax benefit differs from the amount currently payable or receivable
because certain expenses, primarily depreciation and accruals, are reported in
different periods for financial reporting and income tax purposes. The Company
is on a cash basis of accounting for income tax purposes.

F-96

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES: -- (CONTINUED)

The benefit for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the following
items:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................ $(12,672) $(62,548) $(151,760)
Tax impact of Federal rate differential for
graduated rates................................. 5,425 35,986 86,138
State income taxes, net of federal benefit........ (4,831) (18,289) (44,477)
Non-deductible travel and entertainment........... -- 580 730
-------- -------- ---------
$(12,078) $(44,271) $(109,369)
======== ======== =========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward................... $ 29,066 $ 29,066
Deferred tax liabilities --
Cash to accrual adjustments....................... (243,850) (143,357)
--------- ---------
Net deferred tax liability.......................... $(214,784) $(114,291)
========= =========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Minimum annual rental commitments for noncancellable operating leases
having terms in excess of one year as of March 31, 1997, are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1998.............................................. $224,692
1999.............................................. 224,692
2000.............................................. 224,692
2001.............................................. 221,204
2002.............................................. 217,102
2003 and thereafter............................... 899,800
</TABLE>

Insurance Policies

The Pennsylvania Medical Professional Liability Catastrophic Loss Fund (the
"CAT Fund"), an agency of the Commonwealth of Pennsylvania, acts as a service
agent to facilitate the payment of medical malpractice claims exceeding the
primary layer of professional liability insurance carried by physicians and
other health care providers practicing in Pennsylvania. The CAT Fund policies
are retrospectively rated on a claims-made basis. The CAT Fund levies health
care provider surcharges, as a percentage of insurance premiums for basic
coverage, to pay claims and administrative expenses on behalf of CAT Fund
participants.

F-97

<PAGE>

ORTHOPEDIC ASSOCIATES OF LANCASTER, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

8. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

The CAT Fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
Company and other CAT Fund participants received a surcharge assessment during
fiscal 1996. No provision has been made for any future CAT Fund assessments in
the accompanying financial statements as the Company's portion of the CAT Fund
unfunded liability could not be reasonably estimated.

Stock Purchase Agreement

The Company and the stockholders have entered into a buy-sell agreement.
Upon the death, disability or termination of employment of a stockholder, the
Company is obligated to buy any shares of stock, at a price per share set
annually, that the remaining stockholders do not purchase. The price per share
in effect at March 31, 1997, was $685 for common shares and $100 for preferred
shares.

Employment Agreements

The Company has entered into employment agreements with each of its
stockholders. Upon termination of employment for any reason other than
dishonesty or fraud, each stockholder is entitled to a severance payment in an
amount set annually by the stockholders. The amount per stockholder as of March
31, 1997, was $79,500.

The Company has also entered into an employment contract with its business
manager. Under the terms of the agreement, the Company is required to make
payments totaling $155,000 over the next 12 months.

F-98

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To RJK Medical Associates, Ltd.:

We have audited the accompanying balance sheet of RJK Medical Associates, Ltd.
(a Pennsylvania corporation) as of December 31, 1996 and the related statements
of operations and retained earnings and cash flows for the year ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RJK Medical Associates, Ltd. as
of December 31, 1996, and the results of its operations and its cash flows for
the year ended December 31, 1996, in conformity with generally accepted
accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 24, 1997

F-99

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 30,332 $ 5,936
Accounts receivable, net of allowance of $308,605 and
$300,844............................................... 221,973 278,606
Prepaid expenses and other................................ 2,719 4,217
-------- --------
Total current assets................................. 255,024 288,759
-------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 144,933 145,075
Less -- Accumulated depreciation.......................... (104,998) (107,564)
-------- --------
39,935 37,511
-------- --------
$294,959 $326,270
======== ========
LIABILITIES AND RETAINED EARNINGS
CURRENT LIABILITIES:
Accounts payable.......................................... $ 28,748 $ 4,325
Accrued compensation...................................... 15,253 14,197
Deferred income taxes..................................... 3,149 18,964
Due to U.S. PHYSICIANS, Inc............................... -- 42,634
-------- --------
Total current liabilities............................ 47,150 80,120
-------- --------
DEFERRED INCOME TAXES....................................... 9,417 9,417
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 5)
RETAINED EARNINGS........................................... 238,392 236,733
-------- --------
$294,959 $326,270
======== ========
</TABLE>

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

F-100

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ -------------------
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
NET REVENUES............................................... $943,045 $540,250 $460,907
-------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits............................. 717,654 366,813 351,767
General and administrative............................... 162,885 71,803 19,518
Management fee due U.S. PHYSICIANS, Inc.................. -- -- 87,645
Depreciation............................................. 3,356 3,734 2,566
-------- -------- --------
883,895 442,350 461,496
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.......................... 59,150 97,900 (589)
INCOME TAX PROVISION....................................... 14,989 24,809 1,070
-------- -------- --------
NET INCOME (LOSS).......................................... 44,161 73,091 (1,659)
RETAINED EARNINGS, BEGINNING OF PERIOD..................... 194,231 194,231 238,392
-------- -------- --------
RETAINED EARNINGS, END OF PERIOD........................... $238,392 $267,322 $236,733
======== ======== ========
</TABLE>

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

F-101

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------ -------------------
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................ $ 44,161 $ 73,091 $ (1,659)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization....................... 3,356 3,734 2,566
Deferred income taxes............................... 11,527 19,079 15,815
Changes in assets and liabilities --
Accounts receivable.............................. (12,471) (5,694) (56,633)
Prepaid expenses and other....................... (418) (268) (1,498)
Accounts payable................................. (12,158) (2,232) (24,423)
Accrued compensation............................. (21,004) 10,062 (1,056)
Due to U.S. PHYSICIANS, Inc...................... -- -- 42,634
-------- -------- --------
Net cash provided by (used in) operating
activities.................................. 12,993 97,772 (24,254)
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment...................... (2,500) (1,000) (142)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 10,493 96,772 (24,396)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 19,839 19,839 30,332
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 30,332 $116,611 $ 5,936
======== ======== ========
</TABLE>

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

F-102

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

RJK Medical Associates, Ltd. (the "Company") is a physician owned medical
practice serving the Philadelphia, Pennsylvania area. The Company was formed in
1980 for the purpose of rendering professional medical orthopedic and
rehabilitative services and related medical services to the general public.

On January 13, 1997 (the "Initial Closing Date"), the Company and the
selling owner entered into an Asset Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the majority of the assets of the Company in exchange for cash, notes,
convertible notes and shares of USP Common Stock, subject to adjustment, as
defined. The Affiliation Agreement contains a repurchase provision that allows
the selling owner, in the event that an initial public offering ("IPO") has not
been completed by USP by September 30, 1997 (the "Repurchase Date"), to
repurchase the net assets of his practice for a defined period of time (the
"Repurchase Period") by returning all of the consideration received, excluding
the initial cash payment. If the selling owner does not exercise his rights
under the repurchase provision during the Repurchase Period, the provision
terminates. The Repurchase Date can be extended to December 31, 1997, if USP
makes a payment, as defined, in prepayment of the principal amount due under the
convertible notes issued at the Initial Closing Date. On September 30, 1997, USP
extended the Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision terminates (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due to U.S. PHYSICIANS, Inc. account to reflect the net cash activity
for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

F-103

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, accounts
receivable and certain current liabilities. The carrying amounts reported in the
balance sheets for these items approximate fair value.

Net Revenues

Revenues are accounted for in the period the services are provided. The
revenues are reported at the estimated realizable amounts from patients,
third-party payors and others. Provisions for estimated third-party payor
adjustments are estimated and recorded in the period the related services are
provided. Any adjustment to the amounts recorded are recorded in the period in
which the revised amount is determined.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation is provided over the
estimated useful lives of the applicable assets ranging from five to seven years
and is computed using the straight-line method.

Income Taxes

Statements of Cash Flows Information

Amounts paid for interest and taxes were not significant.

3. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest pro rata over five
years beginning after their first year as a participant. Contributions to the
plan are discretionary and are determined by the Company on an annual basis. For
the year ended December 31, 1996, contributions to the plan were $30,000.

F-104

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. INCOME TAXES:

The components of the income tax provision are as follows as of December
31, 1996:

<TABLE>
<S> <C>
Current:
Federal................................................. $ 2,077
State................................................... 1,385
-------
3,462
-------
Deferred:
Federal................................................. 6,916
State................................................... 4,611
-------
11,527
-------
$14,989
=======
</TABLE>

Income tax expense differs from the amount currently payable or receivable
because certain expense, primarily depreciation and accruals, are reported in
different periods for financial reporting and income tax purposes. The Company
is on a cash basis of accounting for income tax purposes.

The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the following
items as of December 31, 1996:

<TABLE>
<S> <C>
Tax at U.S. Federal statutory rate........................ $ 20,111
Tax impact of Federal rate differential for graduated
rates................................................... (11,758)
State income taxes, net of federal benefit................ 5,569
Non-deductible travel and entertainment................... 1,067
--------
$ 14,989
========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows as of December 31, 1996:

<TABLE>
<S> <C>
Deferred tax liabilities:
Property and equipment..................................... $ 9,417
Cash to accrual adjustments................................ 3,149
-------
$12,566
=======
</TABLE>

5. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company has verbal leases for office space from the hospitals where the
Company has operations. Rent expense on operating leases was $12,456 for the
year ended December 31, 1996.

Insurance Policies

F-105

<PAGE>

RJK MEDICAL ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

F-106

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To South Shore Orthopedics, PA:

We have audited the accompanying balance sheets of South Shore Orthopedics, PA
(a New Jersey corporation) as of March 31, 1996 and 1997, and the related
statements of operations and retained earnings and cash flows for each of the
three years in the period ended March 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of South Shore Orthopedics, PA as
of March 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended March 31, 1997, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
May 28, 1997

F-107

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
--------------------- JUNE 30,
1996 1997 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 70,149 $ 123,856 $ 5,303
Accounts receivable, net of allowance of $599,990,
$780,468 and $493,759................................. 733,320 878,773 656,810
Due from U.S. PHYSICIANS, Inc............................ -- -- 115,939
Prepaid expenses and other............................... 20,871 2,771 34,932
-------- ---------- --------
Total current assets................................ 824,340 1,005,400 812,984
-------- ---------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................ 161,331 161,331 161,331
Leasehold improvements................................... 27,051 27,051 27,051
-------- ---------- --------
188,382 188,382 188,382
Less -- Accumulated depreciation and amortization........ (136,946) (154,972) (158,243)
-------- ---------- --------
51,436 33,410 30,139
-------- ---------- --------
DEFERRED INCOME TAXES...................................... 29,075 -- --
-------- ---------- --------
$904,851 $1,038,810 $843,123
======== ========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit........................................... $ 48,500 $ 27,843 $ --
Current maturities of long-term debt..................... 30,000 -- --
Accounts payable......................................... 12,649 10,267 37,443
Accrued compensation..................................... 74,096 292,424 137,801
Deferred income taxes.................................... 176,243 196,574 165,953
Due to U.S. PHYSICIANS, Inc.............................. -- 8,559 --
-------- ---------- --------
Total current liabilities........................... 341,488 535,667 341,197
-------- ---------- --------
LONG-TERM DEBT............................................. 110,000 -- --
-------- ---------- --------
COMMITMENTS AND CONTINGENCIES (Note 8)
SHAREHOLDERS' EQUITY:
Common Stock, no par value, 100 shares authorized, issued
and outstanding....................................... 2,000 2,000 2,000
Retained earnings........................................ 451,363 501,143 499,926
-------- ---------- --------
Total shareholders' equity.......................... 453,363 503,143 501,926
-------- ---------- --------
$904,851 $1,038,810 $843,123
======== ========== ========
</TABLE>

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

F-108

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

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

F-109

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
----------------------------- -------------------
1995 1996 1997 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $21,573 $(75,171) $ 49,780 $ 32,652 $ (1,217)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities --
Depreciation and amortization................. 10,530 14,811 18,026 4,507 3,271
Deferred income taxes......................... 10,010 (15,237) 49,406 18,366 (30,621)
Changes in assets and liabilities --
Accounts receivable........................ (51,964) (31,840) (145,453) 51,967 221,963
Prepaid expenses and other................. 19,661 (10,282) 18,100 8,689 (32,161)
Due from U.S. PHYSICIANS, Inc.............. -- -- -- -- (115,939)
Accounts payable........................... (8,214) 3,966 (2,382) (4,517) 27,176
Accrued compensation....................... (6,369) 9,017 218,328 21,734 (154,623)
Due to U.S. PHYSICIANS, Inc................ -- -- 8,559 -- (8,559)
------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities............................. (4,773) (104,736) 214,364 133,398 (90,710)
------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (5,560) (37,241) -- -- --
------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit....... -- 48,500 (20,657) (5,379) (27,843)
Proceeds from long-term debt...................... -- 150,000 -- -- --
Repayments on long-term debt...................... -- (10,000) (140,000) (16,548) --
------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................. -- 188,500 (160,657) (21,927) (27,843)
------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (10,333) 46,523 53,707 111,471 (118,553)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 33,959 23,626 70,149 70,149 123,856
------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD............................................ $23,626 $ 70,149 $123,856 $181,620 $ 5,303
======= ======== ======== ======== ========
</TABLE>

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

F-110

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BACKGROUND:

South Shore Orthopedics, P.A. (the "Company") is a physician-owned medical
practice serving the southern New Jersey area. The Company is engaged in the
business of rendering health care services in the area of orthopedic, medical,
surgical and related support services.

On March 10, 1997 (the "Initial Closing Date"), the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by September 30, 1997 (the "Repurchase Date"), to repurchase
the stock of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received, excluding the initial
cash payment. If the selling owners do not exercise their rights under the
repurchase provision during the Repurchase Period, the provision expires. The
Repurchase Date can be extended to December 31, 1997, if USP makes a payment, as
defined, in prepayment of the principal amount due under the convertible notes
issued at the Initial Closing Date. On September 30, 1997, USP extended the
Repurchase Date.

In accordance with Accounting Principles Board Opinion No. 16, the
affiliation transaction is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision lapses (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheets as of March 31, 1997 and
June 30, 1997 reflects a Due to or from U.S. PHYSICIANS, Inc. account to reflect
the net cash activity for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

F-111

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and other estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance are
charged to expense as incurred. Depreciation is provided using the straight-line
method over the estimated useful life of each class of depreciable asset ranging
from five to seven years for equipment, furniture and fixtures and over the
remaining lease term for leasehold improvements.

Income Taxes

Statements of Cash Flows Information

For the years ended March 31, 1995, 1996 and 1997, the Company paid
interest of $0, $9,656 and $16,334, respectively. Amounts paid for taxes were
not significant.

3. LINE OF CREDIT:

In May 1995, the Company entered into a credit agreement (the "Agreement")
with a local bank for a $50,000 line of credit. The line is unsecured and bears
interest at the bank's prime rate plus 1%. Under the terms of the Agreement, the
Company must maintain a zero balance for a period of at least 30 consecutive
days for each 12-month period. Borrowings under the line are secured by
substantially all of the Company's assets. At March 31, 1996 and 1997, the
Company had $48,500 and $27,843 outstanding against the line, respectively. The
line expires on June 30, 1997.

F-112

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. LONG-TERM DEBT:

In December 1995, the Company entered into an agreement with a bank to
borrow $150,000 for the costs associated with employing an additional physician
and establishing a new facility. The note was payable monthly in 60 equal
installments of $2,500 plus interest equal to the Bank's prime rate plus 1%
(9.75% and 9.5% at March 31, 1996 and 1997, respectively). In December 1996, the
physician's employment was terminated and the operations of the additional
facility were transferred to the departing physician. In consideration for this
transaction, the physician assumed the $122,500 remaining balance of the loan.

5. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan covering substantially all
full-time employees who are at least 21 years of age and have completed one year
of service. The Company's contributions to the plan totaled $59,561, $61,815 and
$58,818 for the years ended March 31, 1995, 1996 and 1997.

6. RELATED-PARTY TRANSACTIONS:

For the years ended March 31, 1995, 1996 and 1997, the Company paid $34,800
for the lease of office space in a building owned by a shareholder of the
Company. There is no formal lease agreement for this space.

The Company also leases office space from a partnership in which the
shareholders of the Company hold a cumulative 22.22% interest. The monthly rent
is negotiated annually. For the years ended March 31, 1995, 1996 and 1997, the
Company paid rent of $37,643, $58,586 and $46,543, respectively.

7. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................... $ (973) $ (2,770) $(13,156)
State............................................. (649) (1,847) (8,770)
------- -------- --------
(1,622) (4,617) (21,926)
------- -------- --------
Deferred:
Federal........................................... 6,006 (9,142) 29,644
State............................................. 4,004 (6,095) 19,762
------- -------- --------
10,010 (15,237) 49,406
------- -------- --------
$ 8,388 $(19,854) $ 27,480
======= ======== ========
</TABLE>

F-113

<PAGE>

SOUTH SHORE ORTHOPEDICS, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE THREE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. INCOME TAXES: -- (CONTINUED)

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................... $10,187 $(32,308) $26,268
Tax impact of Federal rate differential for graduated
rates.............................................. (5,450) 18,747 (11,391)
State income taxes, net of federal benefit........... 3,158 (9,041) 9,919
Non-deductible travel and entertainment.............. 493 2,748 2,684
------- -------- -------
$ 8,388 $(19,854) $27,480
======= ======== =======
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
MARCH 31,
------------------------
1996 1997
--------- ---------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward........................... $ 31,549 $ --
--------- ---------
Deferred tax liabilities --
Property and equipment.................................... (2,474) --
Cash to accrual adjustments............................... (176,243) (196,574)
--------- ---------
(178,717) (196,574)
--------- ---------
Net deferred tax liability.................................. $(147,168) $(196,574)
========= =========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Total minimum annual rental commitments for noncancellable operating leases
having terms in excess of one year as of March 31, 1997, are as follows:

Rental expense, including related party leases (see Note 6), under
noncancellable operating leases for the years ended March 31, 1995, 1996 and
1997, was $89,528, $165,586 and $154,972, respectively.

Insurance Policies

F-114

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Sports Medicine & Rehabilitation Center, Inc.:

We have audited the accompanying combined balance sheets of Sports Medicine &
Rehabilitation Center, Inc. and related companies identified in Note 1 as of
December 31, 1995 and 1996 and the related combined statements of operations,
owner's equity and cash flows for each of the three years in the period ended
December 31, 1996. These combined financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
combined 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 combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall combined
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Sports
Medicine & Rehabilitation Center, Inc. and related companies identified in Note
1 as of December 31, 1996 and 1995, and the combined results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 20, 1997

F-115

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $233,206 $ 269,759 $ --
Accounts receivable, net of allowance of $683,288,
$780,467 and $1,607,541............................... 615,822 718,260 1,058,717
Due from U.S. PHYSICIANS, Inc............................ -- -- 29,332
Prepaid expenses and other............................... 36,749 13,328 --
-------- ---------- ----------
Total current assets................................ 885,777 1,001,347 1,088,049
-------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................ 298,629 356,437 366,334
Leasehold improvements................................... 29,622 29,622 42,492
-------- ---------- ----------
328,251 386,059 408,826
Less -- Accumulated depreciation and amortization........ (230,672) (285,483) (307,328)
-------- ---------- ----------
97,579 100,576 101,498
-------- ---------- ----------
$983,356 $1,101,923 $1,189,547
======== ========== ==========
LIABILITIES AND OWNER'S EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 33,881 $ 37,319 $ 13,303
Accrued compensation..................................... 32,174 52,780 1,955
-------- ---------- ----------
Total current liabilities........................... 66,055 90,099 15,258
-------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
OWNER'S EQUITY............................................. 917,301 1,011,824 1,174,289
-------- ---------- ----------
$983,356 $1,101,923 $1,189,547
======== ========== ==========
</TABLE>

The accompanying notes are an integral part of
these combined financial statements.

F-116

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $2,613,545 $2,862,909 $3,206,586 $2,133,544 $2,074,684
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,714,569 1,621,785 1,895,690 862,224 1,432,214
Pharmaceuticals and medical supplies..... 54,728 52,987 104,346 45,147 33,906
General and administrative............... 850,506 1,054,387 975,285 527,419 343,703
Management fee due
U.S. PHYSICIANS, Inc................... -- -- -- -- 80,551
Depreciation and amortization............ 39,500 56,672 54,811 27,970 21,845
---------- ---------- ---------- ---------- ----------
Total operating expenses............. 2,659,303 2,785,831 3,030,132 1,462,760 1,912,219
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (45,758) 77,078 176,454 670,784 162,465
INTEREST INCOME............................ 2,809 3,874 -- -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... $ (42,949) $ 80,952 $ 176,454 $ 670,784 $ 162,465
========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of
these combined financial statements.

F-117

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

COMBINED STATEMENTS OF OWNER'S EQUITY

<TABLE>
<S> <C>
BALANCE, DECEMBER 31, 1993.................................. $ 879,298

Net loss.................................................. (42,949)
----------

BALANCE, DECEMBER 31, 1994.................................. 836,349

Net income................................................ 80,952
----------

BALANCE, DECEMBER 31, 1995.................................. 917,301

Distributions............................................. (81,931)

Net income................................................ 176,454
----------

BALANCE, DECEMBER 31, 1996.................................. 1,011,824

Net income (unaudited).................................... 162,465
----------

BALANCE, JUNE 30, 1997 (UNAUDITED).......................... $1,174,289
==========
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-118

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $(42,949) $ 80,952 $176,454 $670,784 $162,465
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities --
Depreciation and amortization................ 39,500 56,672 54,811 27,970 21,845
Changes in assets and liabilities --
Accounts receivable....................... 74,865 (111,864) (102,438) (442,341) (340,457)
Due from U.S. PHYSICIANS, Inc............. -- -- -- -- (29,332)
Prepaid expenses and other................ (1,724) (15,525) 14,246 14,505 13,328
Accounts payable.......................... 4,483 17,150 3,759 14,862 (24,016)
Accrued compensation...................... 2,922 6,415 20,606 (3,710) (50,825)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 77,097 33,800 167,438 282,070 (246,992)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (60,305) (50,548) (73,749) (54,659) (22,767)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Distributions.................................... -- -- (57,136) (57,136) --
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 16,792 (16,748) 36,553 170,275 (269,759)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................ 233,162 249,954 233,206 233,206 269,759
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD........................................ $249,954 $233,206 $269,759 $403,481 $ --
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of
these combined financial statements.

F-119

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Sports Medicine & Rehabilitation Center, Inc. and related companies (the
"Company") provide physiatry care and related medical services to the general
public. The combined financial statements include the combined accounts of
Sports Medicine & Rehabilitation Center, Inc. (a Pennsylvania professional
corporation), Industrial Rehabilitation (a Pennsylvania partnership), James
Bonner - PT Testing (a Pennsylvania sole proprietorship), James Bonner - PT (a
Pennsylvania sole proprietorship) and James Bonner Physical Medicine (a
Pennsylvania sole proprietorship). Effective January 1, 1996, the net assets of
Industrial Rehabilitation were distributed to the partners and the operations
became part of Sports Medicine & Rehabilitation Center, Inc.

On April 4, 1997 (the Initial Closing Date), the Company and the selling
owner entered into an Asset Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the majority
of the assets and liabilities of the Company in exchange for cash, notes,
convertible notes and shares of USP Common Stock, subject to adjustment, as
defined. The Affiliation Agreement contains a repurchase provision that allows
the selling owner, in the event that an initial public offering ("IPO") has not
been completed by USP by September 30, 1997 (the "Repurchase Date"), to
repurchase the net assets of his practice for a defined period of time (the
"Repurchase Period") by returning all of the consideration received excluding
the initial cash payment. If the selling owner does not exercise his rights
under the repurchase provision during the Repurchase Period, the provision
terminates. The Repurchase Date can be extended to December 31, 1997, if USP
makes a payment, as defined, in prepayment of the principal amount due under the
convertible notes issued at the Initial Closing Date. On September 30, 1997, USP
extended the Repurchase Date.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The combined financial statements include the accounts of Sports Medicine &
Rehabilitation Center, Inc. and related companies (see Note 1). The related
companies are controlled by the sole shareholder of Sports Medicine &
Rehabilitation Center, Inc. All material intercompany accounts and transactions
have been eliminated in combination.

Interim Financial Statements

The financial statements for the six months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
their operations for the six months ended June 30, 1996 and 1997. The results of
operations for the six-month period are not necessarily indicative of the
results to be expected for the entire year.

F-120

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

Revenues are accounted for in the period the services are provided. The
revenues are reported at the estimated realizable amounts from patients,
third-party payors and others. Provision for estimated third-party payor
adjustments are estimated and recorded in the period the related services are
provided. Any adjustments to the amounts recorded are recorded in the period in
which the revised amount is determined.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as
Medicare, Medicaid and private insurers. The Company manages credit risk with
the various public and private insurance providers, as appropriate. Allowances
for bad debt have been made for potential losses when appropriate.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful life of each class of depreciable asset
ranging from five to seven years and are computed using the straight-line
method.

Income Taxes

Sports Medicine & Rehabilitation Center, Inc. and related companies have
elected treatment as either an "S" Corporation, partnership or sole
proprietorship for both federal and state income tax purposes, and accordingly
are not taxed as separate entities. The companies' taxable income or loss is
allocated to the owner and recognized on his individual tax return. Accordingly,
no provision for income taxes has been reflected in the accompanying financial
statements.

F-121

<PAGE>

SPORTS MEDICINE & REHABILITATION CENTER, INC.
AND RELATED COMPANIES (SEE NOTE 1)

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

was approximately $1,025,000. If the S Corporation, partnership and sole
proprietorship status is terminated, then a deferred income tax liability of
approximately $250,000 related to these cumulative differences would need to be
reflected in the accompanying financial statements.

Owner's Equity

Owner's equity includes the capital stock, partners capital and retained
earnings of the Company.

Statements of Cash Flows Information

Amounts paid for interest and taxes were not significant.

Effective January 1, 1996, the net assets of Industrial Rehabilitation were
distributed to the partners including cash of $57,136, property of $15,941 and
other net assets of $8,854.

3. RELATED-PARTY TRANSACTIONS:

The Company paid $13,403 during the year ended December 31, 1996 for the
lease of office space from the shareholder. The Company is leasing the space on
a month to month basis.

4. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Rent expense under all noncancellable operating leases for the years ended
December 31, 1994, 1995 and 1996 was $113,428, $142,771 and $184,973,
respectively. The Company leases office space and equipment under noncancellable
operating leases. Future minimum lease payments under the Company's leases as of
December 31, 1996, are as follows:

Insurance Policies

F-122

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Valley Forge Facial Plastic Surgery/Ear, Nose & Throat Associates, Ltd.:

We have audited the accompanying balance sheets of Valley Forge Facial Plastic
Surgery/Ear, Nose & Throat, Ltd. (a Pennsylvania corporation) as of September
30, 1995 and 1996 and June 30, 1997 and the related statements of operations and
retained earnings and cash flows for each of the two years in the period ended
September 30, 1996, and the nine months ended June 30, 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valley Forge Facial Plastic
Surgery/Ear, Nose & Throat Associates, Ltd. as of September 30, 1995 and 1996,
and the results of its operations and its cash flows for each of the two years
in the period ended September 30, 1996 and the nine months ended June 30, 1997,
in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
August 19, 1997

F-123

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,509 $ -- $ 84,554
Accounts receivable, net of allowance of $317,273,
$482,604 and $414,459.................................. 270,763 405,891 409,064
Prepaid expenses and other................................ 29,317 37,590 --
-------- -------- --------
Total current assets................................. 308,589 443,481 493,618
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 223,767 232,347 183,898
Leasehold improvements.................................... 34,540 34,540 34,540
-------- -------- --------
258,307 266,887 218,438
Less -- Accumulated depreciation and amortization......... (232,060) (244,792) (212,336)
-------- -------- --------
26,247 22,095 6,102
-------- -------- --------
$334,836 $465,576 $499,720
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 22,825 $ 35,407 $ 23,554
Accrued compensation...................................... 115,429 103,606 38,659
Deferred income taxes..................................... 56,572 81,752 88,218
Due to U.S. PHYSICIANS, Inc............................... -- -- 39,530
-------- -------- --------
Total current liabilities............................ 194,826 220,765 189,961
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, $10 par value, 1,000 shares authorized, 100
shares issued and outstanding.......................... 1,000 1,000 1,000
Retained earnings......................................... 139,010 243,811 308,759
-------- -------- --------
Total shareholders' equity........................... 140,010 244,811 309,759
-------- -------- --------
$334,836 $465,576 $499,720
======== ======== ========
</TABLE>

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

F-124

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
----------------------- ------------------------
1995 1996 1996 1997
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET REVENUES........................................... $1,945,585 $2,049,394 $1,483,727 $1,610,986
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits......................... 1,302,642 1,243,634 767,117 975,832
Pharmaceuticals and medical supplies................. 133,858 160,871 118,487 115,932
General and administrative........................... 498,626 493,519 370,947 368,537
Management fee due U.S. PHYSICIANS, Inc.............. -- -- -- 62,295
Depreciation and amortization........................ 4,152 12,732 11,694 2,507
---------- ---------- ---------- ----------
1,939,278 1,910,756 1,268,245 1,525,103
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS................................. 6,307 138,638 215,482 85,883
INTEREST INCOME, NET................................... 1,152 1,761 947 1,100
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES............................. 7,459 140,399 216,429 86,983
INCOME TAX PROVISION................................... 4,143 35,598 54,107 22,035
---------- ---------- ---------- ----------
NET INCOME............................................. 3,316 104,801 162,322 64,948
RETAINED EARNINGS, BEGINNING OF PERIOD................. 135,694 139,010 139,010 243,811
---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD....................... $ 139,010 $ 243,811 $ 301,332 $ 308,759
========== ========== ========== ==========
</TABLE>

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

F-125

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------ ---------------------
1995 1996 1996 1997
------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 3,316 $104,801 $162,322 $64,948
Adjustments to reconcile net income to net cash (used in)
provided by operating activities --
Depreciation and amortization......................... 4,152 12,732 11,694 2,507
Deferred income taxes................................. 4,251 25,180 54,107 6,466
Changes in assets and liabilities --
Accounts receivable................................ (19,337) (135,128) (92,307) (3,173)
Prepaid expenses and other......................... 1,325 (8,273) 20,309 37,590
Accounts payable................................... 7,255 12,582 (7,061) (11,853)
Accrued compensation............................... (26,170) (11,823) (22,939) (64,947)
Due to U.S. PHYSICIANS, Inc........................ -- -- -- 39,530
------- -------- -------- -------
Net cash (used in) provided by operating
activities..................................... (25,208) 71 126,125 71,068
------- -------- -------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment....................... -- (8,580) (8,580) --
Sale of property and equipment............................ -- -- -- 13,486
------- -------- -------- -------
Net cash (used in) provided by investing
activities..................................... -- (8,580) (8,580) 13,486
------- -------- -------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (25,208) (8,509) 117,545 84,554
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 33,717 8,509 8,509 --
------- -------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 8,509 $ -- $126,054 $84,554
======= ======== ======== =======
</TABLE>

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

F-126

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED
JUNE 30, 1996 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Valley Forge Facial Plastic Surgery/Ear, Nose & Throat Associates, Ltd.
(the "Company") is a physician owned medical practice serving the Philadelphia,
Pennsylvania area. The Company is engaged in the business of rendering health
care services in the area of otolaryngology, as well as facial plastic surgery.

On May 29, 1997 (the "Initial Closing Date"), the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by December 31, 1997 (the "Repurchase Date"), to repurchase the
stock of their practice for a defined period of time (the "Repurchase Period")
by returning all of the consideration received, excluding the initial cash
payment. If the selling owners do not exercise their rights under the repurchase
provision during the Repurchase Period, the provision expires.

In accordance with Accounting Principles Board Opinion No. 16, the
affiliation transaction is not considered effective for applying purchase
accounting until either the date that USP completes an IPO or the repurchase
provision lapses (the "Final Closing Date"). Pursuant to the Affiliation
Agreement, for the period of time between the Initial Closing Date and the Final
Closing Date, USP is responsible for managing the Company, including cash
management, and receives a management fee equal to the income earned by the
Company. Accordingly, the statement of operations includes a management fee
charge for the income earned by the Company for the period from the Initial
Closing Date to June 30, 1997, and the balance sheet as of June 30, 1997
reflects a Due to U.S. PHYSICIANS, Inc. account to reflect the net cash activity
for the same period.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

The financial statements for the nine months ended June 30, 1996, are
unaudited, and in the opinion of management, include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair presentation of the
results of its operations for the nine months ended June 30, 1996. The results
of operations for the nine-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

F-127

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JUNE 30, 1996 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Fair Value of Financial Instruments

Net Revenues

Revenues are accounted for in the period the services are provided. The
revenues are reported at the estimated realizable amounts from patients,
third-party payors and others. Provisions for estimated third-party payor
adjustments are estimated and recorded in the period the related services are
provided. Any adjustment to the amounts recorded will be recorded in the period
in which the revised amount is determined.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

The Company extends credit to its patients, covered by programs such as
Medicare, Medicaid and private insurers. The Company manages credit risk with
the various public and private insurance providers, as appropriate. Allowances
for bad debts have been made for potential losses when appropriate.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful life of each class of depreciable asset
ranging from five to seven years for equipment, furniture and fixtures and over
the related lease term for leasehold improvements and are computed using the
straight-line method.

Income Taxes

Statements of Cash Flows Information

Amounts paid for interest and taxes were not significant.

3. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan covering substantially all
full-time employees who are at least 21 years of age and completed one year of
service in which at least 1,000 are worked. The Company's contributions to the
plan totaled $103,132, $26,963 and $0 for the years ended September 30, 1995 and
1996,

F-128

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JUNE 30, 1996 IS UNAUDITED)

3. EMPLOYEE BENEFIT PLAN: -- (CONTINUED)

and the nine months ended June 30, 1997, respectively. The Company intends
to terminate the profit sharing plan in connection with the anticipated sale
(see Note 1).

4. RELATED-PARTY TRANSACTIONS:

The Company paid $118,500, $118,500 and $79,000 during the years ended
September 30, 1995 and 1996 and nine months ended June 30, 1997, respectively,
for the lease of office space from the shareholders.

5. INCOME TAXES:

The components of the income tax provision are as follows:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED
------------------- JUNE 30,
1995 1996 1997
------ ------- -----------
<S> <C> <C> <C>
Current:
Federal.................................. $ (65) $ 6,251 $ 9,341
State.................................... (43) 4,167 6,228
------ ------- -------
(108) 10,418 15,569
------ ------- -------
Deferred
Federal.................................. 2,551 15,108 3,880
State.................................... 1,700 10,072 2,586
------ ------- -------
4,251 25,180 6,466
------ ------- -------
$4,143 $35,598 $22,035
====== ======= =======
</TABLE>

Income tax expense differs from the amount currently payable or receivable
because certain expenses, primarily depreciation and accruals, are reported in
different periods for financial reporting and income tax purposes. The Company
is on a cash basis of accounting for income tax purposes.

The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the following
items:

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED
--------------------- JUNE 30,
1995 1996 1997
------- -------- -----------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate........ $ 2,536 $ 47,735 $ 29,574
Tax impact of Federal rate differential
for graduated rates..................... (1,402) (28,237) (17,230)
State income taxes, net of federal
benefit................................. 757 12,998 8,230
Non-deductible travel and entertainment... 2,252 3,102 1,461
------- -------- --------
$ 4,143 $ 35,598 $ 22,035
======= ======== ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Cash to accrual adjustments................ $56,572 $81,752 $88,218
------- ------- -------
Net deferred tax liabilities................. $56,572 $81,752 $88,218
======= ======= =======
</TABLE>

F-129

<PAGE>

VALLEY FORGE FACIAL PLASTIC SURGERY/
EAR, NOSE & THROAT ASSOCIATES, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED
JUNE 30, 1996 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Rental expense, including related party leases (see Note 4), under
noncancellable operating leases for the years ended September 30, 1995 and 1996,
and nine months ended June 30, 1997 was $175,562, $141,254 and $96,468,
respectively. There are no annual rental commitments for noncancellable
operating leases having terms in excess of one year as of June 30, 1997.

Insurance Policies

The Company is subject to certain claims and legal actions that have arisen
in the ordinary course of its business. The Company has insurance coverage that
includes malpractice insurance. The Company believes that the ultimate
liability, if any, with respect to these claims and legal actions, will not have
a material effect on the financial position or results of operations of the
Company.

The CAT Fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
Company and other CAT Fund participants received a surcharge assessment during
fiscal 1996. No provision has been made for any future CAT Fund assessments in
the accompanying financial statements as the Company's portion of the CAT Fund
unfunded liability could not be reasonably estimated.

F-130

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Cesare, Metzger, Coyle and Henzes, PC:

We have audited the accompanying balance sheets of Cesare, Metzger, Coyle and
Henzes, PC (a Pennsylvania corporation) as of December 31, 1995 and 1996, and
the related statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cesare, Metzger, Coyle and
Henzes, PC as of December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
August 22, 1997

F-131

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 1,996 $ 2,784 $ 64,690
Accounts receivable, net of allowance of $379,932,
$371,578 and $409,313.................................. 540,763 462,184 496,002
Prepaid expenses and other................................ 9,880 5,296 8,621
Due from shareholder...................................... -- 5,470 4,470
-------- -------- --------
Total current assets................................. 552,639 475,734 573,783
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 123,643 137,152 137,152
Leasehold improvements.................................... 108,390 108,390 116,881
-------- -------- --------
232,033 245,542 254,033
Less -- Accumulated depreciation and amortization......... (137,035) (158,995) (168,737)
-------- -------- --------
94,998 86,547 85,296
-------- -------- --------
CASH SURRENDER VALUE OF LIFE INSURANCE
(FACE VALUE OF $1,100,000)................................ 124,852 134,958 139,858
-------- -------- --------
$772,489 $697,239 $798,937
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ 47,000 $ 40,000 $ 98,791
Accounts payable.......................................... 32,636 12,590 11,284
Accrued compensation...................................... 79,694 99,034 129,925
Deferred income taxes..................................... 106,056 86,768 106,992
-------- -------- --------
Total current liabilities............................ 265,386 238,392 346,992
-------- -------- --------
DEFFERED INCOME TAXES....................................... 5,454 7,870 5,499
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value; 100,000 shares authorized;
4,000, 5,000 and 5,000 issued; 3,000, 4,000 and 4,000
outstanding............................................ 4,000 5,000 5,000
Additional paid-in capital................................ 61,748 66,218 66,218
Retained earnings......................................... 446,901 390,759 386,228
Treasury stock (1,000 shares at cost)..................... (11,000) (11,000) (11,000)
-------- -------- --------
Total shareholders' equity........................... 501,649 450,977 446,446
-------- -------- --------
$772,489 $697,239 $798,937
======== ======== ========
</TABLE>

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

F-132

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $1,945,552 $2,342,162 $2,185,229 $ 988,080 $1,220,137
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,234,258 1,575,985 1,560,865 745,631 773,987
Pharmaceuticals and medical supplies..... 69,409 54,219 53,294 22,328 31,722
General and administrative............... 560,537 595,144 618,290 251,522 404,834
Depreciation and amortization............ 12,493 20,484 21,960 11,001 9,742
---------- ---------- ---------- ---------- ----------
1,876,697 2,245,832 2,254,409 1,030,482 1,220,285
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. 68,855 96,330 (69,180) (42,402) (148)
INTEREST EXPENSE, NET...................... 7,607 5,168 2,280 1,515 3,203
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES.................................... 61,248 91,162 (71,460) (43,917) (3,351)
INCOME TAX PROVISION (BENEFIT)............. 18,933 23,725 (15,318) (9,414) 1,180
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... $ 42,315 $ 67,437 $ (56,142) $ (34,503) $ (4,531)
========== ========== ========== ========== ==========
</TABLE>

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

F-133

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED TREASURY SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK EQUITY
------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................... $3,000 $20,000 $337,149 $(11,000) $387,799
Net income.................................. -- -- 42,315 -- 42,315
Contribution of property and equipment...... -- 38,650 -- -- 38,650
BALANCE, DECEMBER 31, 1994.................... 3,000 58,650 379,464 (11,000) 430,114
Issuance of Common Stock.................... 1,000 3,098 -- -- 4,098
Net income.................................. -- -- 67,437 -- 67,437
------ ------- -------- -------- --------
BALANCE, DECEMBER 31, 1995.................... 4,000 61,748 446,901 (11,000) 501,649
Issuance of Common Stock.................... 1,000 4,470 -- -- 5,470
Net loss.................................... -- -- (56,142) -- (56,142)
------ ------- -------- -------- --------
BALANCE, DECEMBER 31, 1996.................... 5,000 66,218 390,759 (11,000) 450,977
Net loss (unaudited)........................ -- -- (4,531) -- (4,531)
------ ------- -------- -------- --------
BALANCE, JUNE 30, 1997 (UNAUDITED)............ $5,000 $66,218 $386,228 $(11,000) $446,446
====== ======= ======== ======== ========
</TABLE>

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

F-134

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................ $ 42,315 $ 67,437 $ (56,142) $(34,503) $ (4,531)
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities --
Depreciation and amortization............ 12,493 20,484 21,960 11,001 9,742
Deferred income taxes.................... 17,390 12,392 (16,872) (9,414) 17,853
Changes in assets and liabilities --
Accounts receivable................... (62,904) (63,462) 78,579 120,155 (33,818)
Prepaid expenses and other............ 11,579 (1,100) (5,522) (4,200) (8,225)
Due from shareholder.................. -- -- -- -- 1,000
Accounts payable...................... 20,120 (3,889) (20,046) (10,576) (1,306)
Accrued compensation.................. 10,105 19,620 19,340 2,524 30,891
---------- ---------- ---------- -------- --------
Net cash provided by operating
activities........................ 51,098 51,482 21,297 74,987 11,606
---------- ---------- ---------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.......... (10,998) (16,252) (13,509) (11,211) (8,491)
---------- ---------- ---------- -------- --------
FINANCING ACTIVITIES:
Net (payments) borrowings on line of
credit..................................... (6,000) (38,000) (7,000) (6,000) 58,791
Proceeds from long-term debt................. (43,994) -- -- -- --
Repayments on long-term debt................. 21,610 -- -- -- --
Proceeds from issuance of stock.............. -- 4,098 -- -- --
Repayment of advance......................... (15,000) -- -- -- --
---------- ---------- ---------- -------- --------
Net cash (used in) provided by
financing activities.............. (43,384) (33,902) (7,000) (6,000) 58,791
---------- ---------- ---------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUILAVENTS.................................. (3,284) 1,328 788 57,776 61,906
CASH AND CASH EQUILAVENTS, BEGINNING OF
PERIOD....................................... 3,952 668 1,996 1,996 2,784
---------- ---------- ---------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD....... $ 668 $ 1,996 $ 2,784 $ 59,772 $ 64,690
========== ========== ========== ======== ========
</TABLE>

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

F-135

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Cesare, Metzger, Coyle and Henzes, PC (the "Company") is a physician-owned
medical practice serving the Scranton, Pennsylvania area. The Company was formed
in 1974 for the purpose of rendering orthopedic surgical services.

On July 30, 1997, (the "Initial Closing Date") the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by January 15, 1998 (the "Repurchase Date"), to repurchase the
net assets of their practice for a defined period of time (the "Repurchase
Period") by returning all of the consideration received, excluding the initial
cash payment. The Repurchase Date can be extended to March 30, 1998, if USP
makes a payment, as defined, in prepayment of the principal amount due under the
convertible notes issued at the Initial Closing Date. If the selling owners do
not exercise their rights to repurchase their practice during the repurchase
period during the Repurchase Period, the provision terminates.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

F-136

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful life of each class of depreciable asset
ranging from five to seven years for equipment, furniture and fixtures and over
the remaining lease term for leasehold improvements and are computed using the
straight-line method.

Due from Shareholder

Amounts due from shareholder represents a promissory note from a
shareholder in conjunction with the issuance of stock.

Income Taxes

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $8,686, $7,078 and $3,936, respectively. Amounts paid for taxes were
not significant.

On December 31, 1994, the Company's shareholders contributed to the Company
fixed assets with a net book value of $38,650. Additional paid-in-capital was
increased by this amount.

F-137

<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

On October 1, 1996, the Company entered into an agreement with a physician
for the purchase of 1,000 shares of the Company's Common stock for $5,470. The
purchase price was represented by a promissory note receivable which was paid in
full during 1997.

3. LINE OF CREDIT:

In 1993, the Company entered into a credit agreement (the "Agreement") with
a local bank for a $100,000 line of credit. Interest is accrued on the
outstanding balance at the bank's prime rate plus 1.5% (9.75% at December 31,
1996). Outstanding borrowings plus any unpaid interest, fees or expenses are
guaranteed by the shareholders.

4. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest immediately in all
contributions. The Company makes contributions of 5% of an employee's salary.
For the years ended December 31, 1994, 1995 and 1996, contributions to the plan
were $36,192, $57,032 and $62,698, respectively.

5. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Current:
Federal............................................ $ 926 $ 6,800 $ 932
State.............................................. 617 4,533 622
------- ------- --------
1,543 11,333 1,554
------- ------- --------
Deferred:
Federal............................................ 10,434 7,435 (10,123)
State.............................................. 6,956 4,957 (6,749)
------- ------- --------
17,390 12,392 (16,872)
------- ------- --------
$18,933 $23,725 $(15,318)
======= ======= ========
</TABLE>

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
------- ------- --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................... $20,824 $30,995 $(24,296)
Tax impact of Federal rate differential for graduated
rates.............................................. (10,727) (18,245) 13,685
State income taxes, net of federal benefit........... 6,731 8,500 (7,073)
Non-deductible travel and entertainment.............. 2,105 2,475 2,366
------- ------- --------
$18,933 $23,725 $(15,318)
======= ======= ========
</TABLE>

F-138
<PAGE>

CESARE, METZGER, COYLE AND HENZES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. INCOME TAXES: -- (CONTINUED)

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- -------
<S> <C> <C>
Deferred tax liabilities:
Property and equipment.................................... $ 5,454 $ 7,870
Cash to accrual adjustments............................... 106,056 86,768
-------- -------
Net deferred tax liability.................................. $111,510 $94,638
======== =======
</TABLE>

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases its office space from entities affiliated with several
of the owners of the Company. Future minimum lease payments for noncancelable
operating leases primarily for office space as of December 31, 1996, are as
follows:

<TABLE>
<CAPTION>
RELATED-PARTY
LEASES OTHER LEASES
------------- ------------
<S> <C> <C>
1997..................................................... $ 87,262 $31,240
1998..................................................... 87,262 14,702
1999..................................................... 87,262 3,936
2000..................................................... 87,262 --
2001..................................................... 87,262 --
Thereafter............................................... 283,600 --
</TABLE>

Rent expense on related-party operating leases was $84,908, $86,673 and
$87,262 for the years ended December 31, 1994, 1995 and 1996, respectively. Rent
expense on nonrelated-party operating leases was $9,998, $15,845 and $32,133 for
the years ended December 31, 1994, 1995 and 1996, respectively.

Insurance Policies

F-139

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Elizabeth Wende Breast Clinic and Mt. Hope Publishing Company, Inc.:

We have audited the accompanying combined balance sheets of The Elizabeth Wende
Breast Clinic (a New York sole proprietorship) and Mt. Hope Publishing Company,
Inc. (a New York corporation) as of December 31, 1995 and 1996, and the related
combined statements of operations, owners' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the combined financial statements referred to above present, in
all material respects, the financial position of The Elizabeth Wende Breast
Clinic and Mt. Hope Publishing Company, Inc. as of December 31, 1995 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
September 30, 1997

F-140

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 37,509 $ 220,925 $ 627,216
Marketable security.................................... 158,492 138,453 165,172
Accounts receivable, net of allowance of $206,974,
$486,700 and $645,248............................... 615,789 531,802 593,612
Prepaid expenses and other............................. 256,423 149,592 132,238
---------- ---------- ----------
Total current assets.............................. 1,068,213 1,040,772 1,518,238
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures...................... 1,704,405 2,289,227 2,316,337
Leasehold improvements................................. 41,948 45,833 45,833
---------- ---------- ----------
1,746,353 2,335,060 2,362,170
Less -- Accumulated depreciation and amortization...... (1,099,732) (1,277,292) (1,390,891)
---------- ---------- ----------
646,621 1,057,768 971,279
---------- ---------- ----------
$1,714,834 $2,098,540 $2,489,517
========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of equipment notes payable............. $ 49,300 $ 84,596 $ 60,800
Notes payable to shareholders.......................... 345,000 345,000 345,000
Accounts payable....................................... 52,917 47,816 80,780
Accrued compensation................................... 243,423 232,696 306,722
---------- ---------- ----------
Total current liabilities......................... 690,640 710,108 793,302
---------- ---------- ----------
EQUIPMENT NOTES PAYABLE.................................. 90,821 52,486 35,982
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 9)
OWNERS' EQUITY........................................... 933,373 1,335,946 1,660,233
---------- ---------- ----------
$1,714,834 $2,098,540 $2,489,517
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these
combined financial statements.

F-141

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $5,469,463 $6,153,334 $6,862,955 $3,277,289 $3,410,494
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 3,620,615 4,096,550 4,561,109 2,200,595 2,170,784
Pharmaceuticals and medical supplies..... 531,963 530,533 527,175 239,848 217,953
General and administrative............... 1,072,451 1,233,185 1,175,865 511,660 560,490
Depreciation and amortization............ 123,586 146,642 177,560 44,345 113,599
---------- ---------- ---------- ---------- ----------
5,348,615 6,006,910 6,441,709 2,996,448 3,062,826
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS..................... 120,848 146,424 421,246 280,841 347,668
OTHER INCOME (EXPENSE)..................... 1,588 23,221 31,866 39,473 (12,600)
INTEREST EXPENSE, NET...................... 28,912 26,120 30,500 22,500 37,500
---------- ---------- ---------- ---------- ----------
NET INCOME................................. $ 93,524 $ 143,525 $ 422,612 $ 297,814 $ 297,568
========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these
combined financial statements.

F-142

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

COMBINED STATEMENTS OF OWNERS' EQUITY

Balance, December 31, 1993.................................. $ 687,832

Net income................................................ 93,524
----------

Balance, December 31, 1994.................................. 781,356

Unrealized gain on available-for-sale security............ 8,492

Net income................................................ 143,525
----------

Balance, December 31, 1995.................................. 933,373

Unrealized loss on available-for-sale security............ (20,039)

Net income................................................ 422,612
----------

Balance, December 31, 1996.................................. 1,335,946

Unrealized gain on available-for-sale security
(unaudited)............................................ 26,719

Net income (unaudited).................................... 297,568
----------

Balance, June 30, 1997 (unaudited).......................... $1,660,233
==========

The accompanying notes are an integral part of these
combined financial statements.

F-143

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income....................................... $ 93,524 $143,525 $422,612 $297,814 $297,568
Adjustments to reconcile net income to net cash
(used in) provided by operating activities --
Depreciation and amortization................ 123,586 146,642 177,560 44,345 113,599
Changes in assets and liabilities --
Accounts receivable....................... (71,296) (13,950) 83,987 96,726 (61,810)
Prepaid expenses and other................ (192,383) (30,612) 106,831 1,133 17,354
Accounts payable.......................... (24,633) 26,998 (5,101) 14,797 32,964
Accrued compensation...................... 41,889 (41,350) (10,727) (39,596) 74,026
-------- -------- -------- -------- --------
Net cash (used in) provided by operating
activities............................ (29,313) 231,253 775,162 415,219 473,701
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (58,704) (260,505) (529,207) (234,620) (27,110)
Purchase of marketable security.................. -- (150,000) -- -- --
-------- -------- -------- -------- --------
Net cash used in investing activities... (58,704) (410,505) (529,207) (234,620) (27,110)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (payments) on line of credit...... 100,000 (100,000) -- -- --
Payments on notes payable to shareholders........ (180,750) (6,250) -- -- --
Payments on equipment notes payable.............. -- (47,979) (62,539) (24,889) (40,300)
Proceeds from notes payable...................... 6,000 171,000 -- -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing
activities............................ (74,750) 16,771 (62,539) (24,889) (40,300)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. (162,767) (162,481) 183,416 155,710 406,291
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................ 362,757 199,990 37,509 37,509 220,925
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD........................................ $199,990 $ 37,509 $220,925 $193,219 $627,216
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these
combined financial statements.

F-144

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

The Elizabeth Wende Breast Clinic (the "Company") is a physician-owned
medical practice serving the Rochester, New York area. The Company was formed in
January 1976 for the purpose of rendering professional medical breast cancer
screening and other breast cancer related services.

Mt. Hope Publishing Company, Inc. is the publishing company for books
written by the sole proprietor physician of the Company and is owned by the
physician and her children.

On September 30, 1997, (the "Initial Closing Date") the Company and the
selling owner entered into an Asset Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the majority of the assets and liabilities of the Company in exchange for cash,
notes payable, convertible notes payable and shares of USP Common Stock, subject
to adjustment as defined. The Affiliation Agreement contains a repurchase
provision that allows the selling owner, in the event that an initial public
offering ("IPO") has not been completed by USP by January 15, 1998 (the
"Repurchase Date"), to repurchase the net assets of the practice for a defined
period of time (the "Repurchase Period") by returning all of the consideration
received, excluding the initial cash payment. The Repurchase Date can be
extended to March 31, 1998, if USP makes a payment, as defined, in prepayment of
the principal amount due under the convertible note issued at the Initial
Closing Date. The Repurchase Date can be further extended to May 14, 1998, if
USP makes an additional payment, as defined, in prepayment of the principal
amount due under the convertible note issued at the Initial Closing Date. If the
selling owner does not exercise the rights to repurchase the practice during the
Repurchase Period, the provision terminates.

As part of the Affiliation Agreement, USP has also agreed to acquire the
assets of Mt. Hope Publishing Company, Inc. ("Mt. Hope") in exchange for cash
of, notes and shares of USP Common Stock, subject to adjustment, as defined,
within 20 days of completing an IPO. In the event USP fails to acquire Mt. Hope,
USP shall pay the selling owner an additional purchase price for the Company.

In accordance with Accounting Principles Board Opinion No. 16, the
Affiliation Agreement is not effective for applying purchase accounting until
either the date that USP completes an IPO or the repurchase provision
terminates.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Combination

The combined financial statements include the accounts of the Company and
Mt. Hope. The companies are controlled by the selling physician and her
children. All material intercompany accounts and transactions have been
eliminated in combination.

Interim Financial Statements

The financial statements for the six months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
their operations for the six months ended June 30, 1996 and 1997. The results of
operations for the six-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

F-145

<PAGE>

THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, marketable
security, accounts receivable, certain current liabilities and debt obligations.
The carrying amounts reported in the balance sheets for these items approximate
fair value.

Net Revenues

Revenues are accounted for in the period the services are provided. The
revenues are reported at the estimated realizable amounts from patients,
third-party payors and others. Provisions for estimated third-party payor
adjustments are estimated and recorded in the period the related services are
provided. Any adjustment to the amounts recorded will be recorded in the period
in which the revised amount is determined.

Other Income (Expense)

Other income (expense) represents the net revenues received from book sales
less associated costs.

Cash and Cash Equivalents

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

Marketable Security

Mt. Hope's marketable security, classified as available-for-sale, is
carried at its fair value based upon the quoted market price of the investment.
Accordingly, net unrealized gains and losses on the security are included in
owners' equity.

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Prepaids and Other

Included in prepaid expenses and other are the costs associated with the
remaining supply of published books.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as
Medicare, Medicaid and private insurers. The practice manages credit risk with
the various public and private insurance providers, as appropriate. Allowances
for bad debts have been made for potential losses when appropriate.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to seven years for equipment, furniture and fixtures and the related lease
term for leasehold improvements and are computed using the straight-line method.

F-146
<PAGE>
THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Income Taxes

The Company and Mt. Hope have elected treatment as a sole proprietorship
and a "S" Corporation, respectively, for both Federal and state income tax
purposes and accordingly are not taxed as separate entities. The Companies'
taxable income or loss is allocated to each owner and recognized on their
individual tax returns. Accordingly, no provision for taxes has been reflected
in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of December
31, 1996 was approximately $400,000. If the S Corporation and sole
proprietorship status is terminated, then a deferred income tax liability of
approximately $165,000 related to these cumulative differences would need to be
reflected in the accompanying financial statements.

Owners' Equity

Equity includes the capital stock, retained earnings and net unrealized
gains or losses on the available-for-sale marketable security for the Company
and Mt. Hope.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996 the Company paid
interest of $28,912, $26,120 and $30,500, respectively.

For the years ended December 31, 1994, 1995 and 1996 the Company financed
the purchase of equipment of $112,500, $75,600 and $59,500, respectively.

3. MARKETABLE SECURITY:

The following presents the estimated cost and fair value of the marketable
security at December 31, 1995 and 1996:

<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
COST FAIR VALUE COST FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Common Stock............................... $150,000 $158,492 $150,000 $138,453
</TABLE>

4. LINE OF CREDIT:

In November 1994, the Company entered into a credit agreement with a local
bank for a $100,000 line of credit. Interest is accrued on the outstanding
balance at the bank's prime rate plus 1.0% (9.25% at December 31, 1996).
Outstanding borrowings plus any unpaid interest, fees or expenses are personally
guaranteed by the owning physician.

5. NOTES PAYABLE TO SHAREHOLDERS:

Mt. Hope has interest bearing notes payable to its shareholders. The notes
have no stated repayment terms. Interest expense on the notes for the years
ended December 31, 1994, 1995 and 1996 was $13,952, $22,680 and $30,500,
respectively.

F-147
<PAGE>
THE ELIZABETH WENDE BREAST CLINIC AND
MT. HOPE PUBLISHING COMPANY, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. EQUIPMENT NOTES PAYABLE:

The Company financed certain equipment with notes payable. Equipment notes
payable outstanding at December 31, 1996, mature as follows:

7. RELATED PARTY TRANSACTIONS:

The Company pays consulting, marketing and public relations fees to the
husband of the owner of the Company. Fees paid to this individual were $386,000,
$277,500 and $150,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.

The Company made principal and interest payments on several notes payable
to the owning physician's children during fiscal 1994 and 1995. The principal
amount of the notes and the related interest accrued thereon, were paid in full
prior to the year ended December 31, 1995. Total interest expense paid for the
years ended December 31, 1994 and 1995 was $14,960 and $3,440, respectively.

8. EMPLOYEE BENEFIT PLANS:

The Company provides a profit sharing plan and a money purchase plan that
covers all qualified employees, as defined in the plan agreements. Employees for
either plan are 100% vested upon becoming a participant. Contributions to the
plans are discretionary and are determined by the Company on an annual basis.
For the years ended December 31, 1994, 1995 and 1996, contributions to the plans
were $395,591, $430,150 and $438,104, respectively.

9. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases office space on a month to month basis. Rent expense for
the years ended December 31, 1994, 1995 and 1996 was $173,412, $184,159 and
$287,631, respectively.

Maintenance and Service Agreements

The Company has entered into several equipment maintenance and service
agreements with various expiration dates through the year 2000. Minimum future
payments under maintenance and service agreements having remaining terms in
excess of one year as of December 31, 1996 are as follows:

Maintenance and service costs charged to operations under these agreements
for the years ended December 31, 1994, 1995, and 1996 were $60,800, $61,841 and
$52,746, respectively.

Insurance Policies

F-148
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Lehigh Valley Orthopedics, Inc.:

We have audited the accompanying balance sheets of Lehigh Valley Orthopedics,
Inc. (a Pennsylvania corporation) as of December 31, 1995 and 1996, and the
related statements of operations and retained earnings and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lehigh Valley Orthopedics, Inc.
as of December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
August 26, 1997

F-149
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1995 1996 1997
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 35,524 $ 94,936 $ 44,932
Accounts receivable, net of allowance of $573,764,
$846,105 and $961,559............................... 681,484 734,509 831,387
Due from shareholders.................................. -- -- 3,714
Prepaid expenses and other............................. 18,969 18,089 121,983
---------- ---------- ----------
Total current assets.............................. 735,977 847,534 1,002,016
---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures...................... 576,194 519,871 559,905
Leasehold improvements................................. 56,804 65,510 65,510
---------- ---------- ----------
632,998 585,381 625,415
Less -- Accumulated depreciation and amortization...... (378,872) (370,394) (399,123)
---------- ---------- ----------
254,126 214,987 226,292
---------- ---------- ----------
DEFERRED INCOME TAXES.................................... 81,427 40,793 47,655
---------- ---------- ----------
OTHER ASSETS............................................. 14,227 17,619 17,369
---------- ---------- ----------
$1,085,757 $1,120,933 $1,293,332
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit......................................... $ 100,000 $ 100,000 $ 100,000
Short-term notes....................................... -- -- 114,850
Current maturities of long-term debt................... 99,290 99,882 106,220
Accounts payable....................................... 84,006 77,001 74,345
Accrued compensation................................... 60,051 90,941 107,797
Deferred income taxes.................................. 131,284 138,409 158,872
Due to shareholders.................................... 25,000 530 --
---------- ---------- ----------
Total current liabilities......................... 499,631 506,763 662,084
---------- ---------- ----------
LONG-TERM DEBT........................................... 533,796 433,914 410,717
---------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common Stock, no par value; $10 stated value; 5,000
shares authorized, 100 shares issued and
outstanding......................................... 1,000 1,000 1,000
Retained earnings...................................... 51,330 179,256 219,531
---------- ---------- ----------
Total shareholders' equity........................ 52,330 180,256 220,531
---------- ---------- ----------
$1,085,757 $1,120,933 $1,293,332
========== ========== ==========
</TABLE>

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

F-150
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $2,800,418 $4,318,868 $4,974,776 $2,626,841 $2,214,351
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 2,094,784 3,179,119 3,633,826 1,802,316 1,665,829
Pharmaceuticals and medical supplies..... 60,110 100,478 111,677 55,922 31,418
General and administrative............... 619,661 1,055,481 953,909 485,557 399,542
Depreciation and amortization............ 46,109 48,526 37,646 28,695 28,729
---------- ---------- ---------- ---------- ----------
2,820,664 4,383,604 4,737,058 2,372,490 2,125,518
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (20,246) (64,736) 237,718 254,351 88,833
INTEREST EXPENSE, NET...................... 12,050 45,612 62,664 33,346 32,861
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES.................................... (32,296) (110,348) 175,054 221,005 55,972
INCOME TAX PROVISION (BENEFIT)............. (5,767) (23,236) 47,128 59,450 15,697
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... (26,529) (87,112) 127,926 161,555 40,275
RETAINED EARNINGS, BEGINNING OF PERIOD..... 164,971 138,442 51,330 51,330 179,256
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF
PERIOD................................... $ 138,442 $ 51,330 $ 179,256 $ 212,885 $ 219,531
========== ========== ========== ========== ==========
</TABLE>

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

F-151
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $(26,529) $(87,112) $127,926 $161,555 $ 40,275
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities --
Depreciation and amortization................ 46,109 48,526 37,646 28,695 28,729
Deferred income taxes........................ (6,274) (20,508) 47,759 59,450 13,601
Loss on disposal of fixed assets............. -- (31,894) -- -- --
Changes in assets and liabilities --
Accounts receivable....................... (15,583) (330,525) (53,025) (295,322) (96,878)
Prepaid expenses and other................ 43,275 12,498 (2,512) (70,694) (103,644)
Accounts payable.......................... (14,927) 58,243 (7,005) 36,559 (2,656)
Due to/from shareholders, net............. (6,306) 62,755 (24,470) 67,123 (4,244)
Accrued compensation...................... 15,257 (128,745) 30,890 11,202 16,856
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 35,022 (416,762) 157,209 (1,432) (107,961)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (2,644) (242,552) (17,800) (17,186) (40,034)
Sale of property and equipment................... -- 59,958 19,293 -- --
-------- -------- -------- -------- --------
Net cash (used in) provided by investing
activities............................ (2,644) (182,594) 1,493 (17,186) (40,034)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings on line of credit................. 99,491 509 -- -- --
Proceeds from long-term debt..................... 23,473 782,496 152,494 152,494 322,243
Repayment of long-term debt...................... (130,584) (172,883) (251,784) (148,345) (224,252)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................ (7,620) 610,122 (99,290) 4,149 97,991
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................................. 24,758 10,766 59,412 (14,469) (50,004)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD........................................ -- 24,758 35,524 35,524 94,936
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END
OF PERIOD........................................ $ 24,758 $ 35,524 $ 94,936 $ 21,055 $ 44,932
======== ======== ======== ======== ========
</TABLE>

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

F-152
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Lehigh Valley Orthopedics, Inc. (the "Company") is a physician-owned
medical practice serving the Lehigh Valley, Pennsylvania area. The Company was
formed in 1978 for the purpose of rendering professional medical orthopedic and
rehabilitative services.

On August 1, 1997, (the "Initial Closing Date") the Company and the selling
owners entered into a Stock Acquisition Agreement (the "Affiliation Agreement")
with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the Affiliation
Agreement, USP and its affiliated professional corporation acquired the
outstanding stock of the Company in exchange for cash, notes, convertible notes
and shares of USP Common Stock, subject to adjustment, as defined. The
Affiliation Agreement contains a repurchase provision that allows the selling
owners, in the event that an initial public offering ("IPO") has not been
completed by USP by January 15, 1998 (the "Repurchase Date"), to repurchase the
stock of their practice for a defined period of time (the "Repurchase Period")
by returning all of the consideration received excluding the initial cash
payment. The Repurchase Date can be extended to March 30, 1998, if USP makes a
payment, as defined, in prepayment of the principal amount due under the
convertible note issued at the Initial Closing Date. If the selling owners do
not exercise their rights to repurchase their practice during the Repurchase
Period, the provision expires.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

F-153
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the applicable assets ranging from
five to seven years for equipment, furniture and fixtures and the related lease
term for leasehold improvements and are computed using the straight-line method.

Due to/from Shareholders

Amounts due to/from shareholders represent advances to or from shareholders
which are repaid in subsequent periods.

Income Taxes

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $12,581, $46,250 and $62,673, respectively. Amounts paid for taxes
were not significant.

3. LINE OF CREDIT:

The Company has a credit agreement with a local bank for a $100,000 line of
credit. Interest is accrued on the outstanding balance at the bank's prime rate
plus .50% through April 1995 and the bank's prime rate plus .25% from April 1995
forward (8.5% at December 31, 1996). Outstanding borrowings plus any unpaid
interest, fees or expenses are guaranteed by the shareholders.

F-154
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable to a bank, interest at bank's prime rate plus
.25%, principal payments of $7,738 per month through June
2002...................................................... $603,572 $510,714
Note payable to a bank, interest at 8.85%, monthly payments
of principal and interest of $732 through December 1999... 29,514 23,082
-------- --------
633,086 533,796
Less-Current maturities..................................... (99,290) (99,882)
-------- --------
$533,796 $433,914
======== ========
</TABLE>

Future maturities of long-term debt at December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997........................................................ $ 99,882
1998........................................................ 100,531
1999........................................................ 101,238
2000........................................................ 92,857
2001........................................................ 92,857
2002 and thereafter......................................... 46,431
--------
$533,796
========
</TABLE>

5. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest immediately.
Contributions to the plan are discretionary and are determined by the Company on
a September 30 plan year-end basis. Effective October 1, 1994, the Company no
longer contributes to the plan. For the years ended December 31, 1994, 1995 and
1996, contributions to the plan were $110,701, $0 and $0, respectively.

6. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 304 $ (1,637) $ (379)
State........................................... 203 (1,091) (252)
-------- -------- --------
507 (2,728) (631)
-------- -------- --------
Deferred:
Federal......................................... (3,764) (12,305) 28,655
State........................................... (2,510) (8,203) 19,104
-------- -------- --------
(6,274) (20,508) 47,759
-------- -------- --------
$ (5,767) $(23,236) $ 47,128
======== ======== ========
</TABLE>

F-155
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. INCOME TAXES: -- (CONTINUED)

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................ $(10,981) $(37,518) $ 59,518
Tax impact of Federal rate differential for
graduated rates................................. 6,061 21,375 (33,165)
State income taxes, net of federal benefit........ (3,280) (10,762) 17,569
Non-deductible travel and entertainment........... 2,433 3,669 3,206
-------- -------- --------
$ (5,767) $(23,236) $ 47,128
======== ======== ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- ---------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward........................... $ 82,902 $ 50,427
----------- ---------
Deferred tax liabilities --
Property and equipment.................................... (1,336) (9,565)
Cash to accrual adjustments............................... (131,423) (138,478)
----------- ---------
(132,759) (148,043)
----------- ---------
Net deferred tax liability.................................. $ (49,857) $ (97,616)
=========== =========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Future minimum lease payments for noncancelable operating leases primarily
for office space as of December 31, 1996, are as follows:

Rent expense on operating leases was $125,484, $176,212 and $233,477 for
the years ended December 31, 1994, 1995 and 1996, respectively.

Insurance Policies

The Company maintains insurance with respect to medical malpractice risks
on an occurrence basis for all of the physicians except one in amounts
management believes to be adequate. The remaining physician has a malpractice
insurance policy on a claims basis. Management is not aware of any outstanding
claims which would have a material impact on the Company's financial position or
results of operations.

F-156
<PAGE>
LEHIGH VALLEY ORTHOPEDICS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

F-157
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Steel Valley Orthopedic Association, PC:

We have audited the accompanying balance sheets of Steel Valley Orthopedic
Association, PC (a Pennsylvania corporation) as of February 29, 1996 and
February 28, 1997, and the related statements of operations and retained
earnings and cash flows for each of the three years in the period ended February
28, 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.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Steel Valley Orthopedic
Association, PC as of February 29, 1996 and February 28, 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended February 28, 1997, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 17, 1997

F-158
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28, JUNE 30,
1996 1997 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 66,388 $ 64,645 $130,797
Accounts receivable, net of allowance of $337,981,
$349,747 and $298,857............................... 346,279 369,459 294,138
Prepaid expenses and other............................. 101,503 33,273 80,753
-------- -------- --------
Total current assets.............................. 514,170 467,377 505,688
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures...................... 446,592 512,105 583,752
Leasehold improvements................................. 26,801 26,801 40,369
-------- -------- --------
473,393 538,906 624,121
Less -- Accumulated depreciation and amortization...... (372,242) (408,878) (423,917)
-------- -------- --------
101,151 130,028 200,204
-------- -------- --------
DEFERRED INCOME TAXES.................................... -- 315 646
-------- -------- --------
OTHER ASSETS............................................. 1,216 1,216 1,216
-------- -------- --------
$616,537 $598,936 $707,754
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Line of credit......................................... $ -- $ 46,659 $150,000
Current maturities of capitalized lease obligations.... 10,742 12,246 12,792
Accounts payable....................................... 48,353 42,690 93,421
Accrued compensation................................... 157,389 173,614 103,335
Deferred income taxes.................................. 57,053 52,789 45,754
-------- -------- --------
Total current liabilities......................... 273,537 327,998 405,302
-------- -------- --------
DEFERRED INCOME TAXES.................................... 10,175 -- --
-------- -------- --------
CAPITALIZED LEASE OBLIGATIONS............................ 29,610 17,363 12,912
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common Stock, $10 par value, 1,000 shares authorized,
500 shares issued and outstanding................... 5,000 5,000 5,000
Retained earnings...................................... 298,215 248,575 284,540
-------- -------- --------
Total shareholders' equity........................ 303,215 253,575 289,540
-------- -------- --------
$616,537 $598,936 $707,754
======== ======== ========
</TABLE>

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

F-159
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED
------------------------------------------ JUNE 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................. $2,908,863 $2,867,209 $2,911,760 $882,985 $926,430
---------- ---------- ---------- -------- --------
OPERATING EXPENSES:
Salaries, wages and benefits........... 2,121,542 2,137,832 2,238,063 521,472 504,599
Pharmaceuticals and medical supplies... 86,501 76,147 89,760 30,674 25,008
General and administrative............. 654,669 632,530 614,449 228,764 306,303
Depreciation and amortization.......... 30,012 38,270 36,636 19,083 33,259
Loss on disposal of fixed assets....... -- -- -- -- 8,581
---------- ---------- ---------- -------- --------
2,892,724 2,884,779 2,978,908 799,993 877,750
---------- ---------- ---------- -------- --------
INCOME (LOSS) FROM OPERATIONS............ 16,139 (17,570) (67,148) 82,992 48,680
INTEREST INCOME (EXPENSE), NET........... (8,863) (3,400) 1,912 (947) (403)
---------- ---------- ---------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES.................................. 7,276 (20,970) (65,236) 82,045 48,277
INCOME TAX PROVISION (BENEFIT)........... 3,028 (4,966) (15,596) 19,608 12,312
---------- ---------- ---------- -------- --------
NET INCOME (LOSS)........................ 4,248 (16,004) (49,640) 62,437 35,965
RETAINED EARNINGS, BEGINNING OF PERIOD... 309,971 314,219 298,215 298,215 248,575
---------- ---------- ---------- -------- --------
RETAINED EARNINGS, END OF
PERIOD................................. $ 314,219 $ 298,215 $ 248,575 $360,652 $284,540
========== ========== ========== ======== ========
</TABLE>

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

F-160
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED FOUR MONTHS ENDED
------------------------------------------ JUNE 30,
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, -------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................... $ 4,248 $(16,004) $(49,640) $ 62,437 $ 35,965
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities --
Loss on disposal of property and
equipment....................... -- -- -- -- 8,581
Depreciation and amortization...... 30,012 38,270 36,636 19,083 33,259
Deferred income taxes.............. 5,268 (5,480) (14,754) 19,608 (7,366)
Changes in assets and
liabilities --
Accounts receivable............. 416 69,685 (23,180) 47,460 75,321
Prepaid expenses and other...... 3,444 (18,377) 68,230 18,301 (47,480)
Accounts payable................ 4,798 16,615 (5,663) (14,410) 50,731
Accrued compensation............ (20,622) 20,264 16,225 (73,754) (70,279)
------- -------- -------- -------- --------
Net cash provided by operating
activities.................. 27,564 104,973 27,854 78,725 78,732
------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.... (11,161) (8,005) (65,513) -- (112,016)
------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net proceeds (repayments) on line of
credit............................... 40,000 (40,000) 46,659 -- 103,341
Payment on short-term debt............. (36,210) -- -- -- --
Payments on capitalized lease
obligations.......................... (8,947) (8,683) (10,743) (3,426) (3,905)
------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities........ (5,157) (48,683) 35,916 (3,426) 99,436
------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 11,246 48,285 (1,743) 75,299 66,152
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD................................. 6,857 18,103 66,388 66,388 64,645
------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................. $18,103 $ 66,388 $ 64,645 $141,687 $130,797
======= ======== ======== ======== ========
</TABLE>

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

F-161
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE FOUR MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Steel Valley Orthopedic Association, PC (the "Company") is a
physician-owned medical practice serving the Pittsburgh, Pennsylvania, area. The
Company was formed in 1971 for the purpose of rendering orthopedic surgical
services. The Company has a fiscal year end as of the last day in February;
herein referred to as "fiscal year end."

On August 27, 1997, (the "Initial Closing Date") the Company and the
selling owners entered into a Stock Acquisition Agreement (the "Affiliation
Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the terms of the
Affiliation Agreement, USP and its affiliated professional corporation acquired
the majority of the assets of the Company in exchange for cash, notes,
convertible notes and shares of USP Common Stock, subject to adjustment, as
defined. The Affiliation Agreement contains a repurchase provision that allows
the selling owners, in the event that an initial public offering ("IPO") has not
been completed by USP by January 15, 1998, (the "Repurchase Date"), to
repurchase the net assets of their practice for a defined period of time (the
"Repurchase Period") by returning all of the consideration received excluding
the initial cash payment. The Repurchase Date can be extended to March 31, 1998,
if USP makes a payment, as defined, in prepayment of the principal amount due
under the convertible notes issued at the Initial Closing Date. If the selling
owners do not exercise their rights to repurchase their practice during the
Repurchase Period, the provision terminates.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

The financial statements for the four months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
its operations for the four months ended June 30, 1996 and 1997. The results of
operations for the four-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

Fair Value of Financial Instruments

F-162
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE FOUR MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Net Revenues

In September 1996, the Company entered into an agreement with a third party
to provide medical services to subscribing participants. Under this agreement
the Company receives monthly capitation payments based on the number of
participants, regardless of services actually provided by the Company. Total
revenues received under this agreement for the year ended February 28, 1997 were
$429,220.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Repairs and maintenance are
charged to expense as incurred. Depreciation is provided over the estimated
useful lives of the applicable assets ranging from five to seven years for
equipment, furniture and fixtures and the remaining lease term for leasehold
improvements and are computed using the straight-line method.

Income Taxes

F-163
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE FOUR MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Statements of Cash Flows Information

For the fiscal years ended 1995, 1996 and 1997, the Company paid interest
of $10,901, $6,561 and $4,683, respectively. Amounts paid for taxes were not
significant.

3. LINE OF CREDIT:

In fiscal year 1996, the Company entered into a credit agreement with a
local bank for $150,000. The line has no specified expiration date. Interest is
accrued on the outstanding balance at the bank's prime rate plus .25%.

4. EMPLOYEE BENEFIT PLAN:

The Company maintains a defined contribution money purchase pension plan
that covers all qualified employees, as defined by the plan agreement.
Contributions to the plan are discretionary and are determined by the Company on
an annual basis. Employees are fully vested in Company contributions after seven
years. For the fiscal years 1995, 1996 and 1997, contributions to the plan were
$48,540, $55,540 and $83,934, respectively.

5. RELATED PARTY:

The Company has an operating lease for a piece of equipment from an entity
affiliated with owners of the Company. The lease is a month to month lease with
monthly payments of $1,514.

6. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal................................... $(1,344) $ 308 $ (505)
State..................................... (896) 206 (337)
------- ------- --------
(2,240) 514 (842)
------- ------- --------
Deferred:
Federal................................... 3,161 (3,288) (8,852)
State..................................... 2,107 (2,192) (5,902)
------- ------- --------
5,268 (5,480) (14,754)
------- ------- --------
$ 3,028 $(4,966) $(15,596)
======= ======= ========
</TABLE>

F-164
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE FOUR MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. INCOME TAXES: -- (CONTINUED)

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate.......... $ 2,474 $(7,130) $(22,180)
Tax impact of Federal rate differential for
graduated rates........................... (1,047) 3,907 12,521
State income taxes, net of federal
benefit................................... 951 (2,148) (6,439)
Non-deductible travel and entertainment..... 650 405 502
------- ------- --------
$ 3,028 $(4,966) $(15,596)
======= ======= ========
</TABLE>

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward................ $ -- $ 7,419
-------- --------
Deferred tax liabilities --
Property and equipment......................... (10,175) (7,104)
Cash to accrual adjustments.................... (57,053) (52,789)
-------- --------
(67,228) (59,893)
-------- --------
Net deferred tax liability....................... $(67,228) $(52,474)
======== ========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Future minimum lease payments under the Company's leases as of February 28,
1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASES
- ----------- -------- ---------
<S> <C> <C>
1998................................................. $ 15,425 $133,328
1999................................................. 18,778 135,211
2000................................................. -- 93,367
2001................................................. -- 82,466
2002................................................. -- 78,832
Thereafter........................................... -- 328,340
--------
Total........................................... 34,203

Less -- Amounts representing interest................ (4,594)
--------
Present value of future minimum lease payments....... 29,609
Less -- Current maturities........................... (12,246)
--------
$ 17,363
========
</TABLE>

F-165
<PAGE>
STEEL VALLEY ORTHOPEDIC ASSOCIATION, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE FOUR MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

7. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)

Rent expense under noncancelable operating leases for the fiscal years
1995, 1996 and 1997 was $79,013, $93,051 and $102,267, respectively. The cost of
assets capitalized under capitalized lease obligations aggregated $59,235 as of
February 28, 1997 and accumulated depreciation was $38,503.

Insurance Policies

The CAT fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
Company and the other CAT Fund participants received a surcharge assessment
during fiscal 1996. No provision has been made for any future CAT Fund
assessments in the accompanying financial statements as the Company's portion of
the CAT Fund unfunded liability could not be reasonably estimated.

F-166

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Dennis James Bonner, M.D., Ltd.:

We have audited the accompanying balance sheets of Dennis James Bonner, M.D.,
Ltd. (a Pennsylvania Corporation) as of December 31, 1995 and 1996 and the
related statements of operations and retained earnings and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dennis James Bonner, M.D., Ltd.
as of December 31, 1995, and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 31, 1997

F-167

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

BALANCE SHEETS

STOCKHOLDER'S EQUITY:
Common Stock, $1 par, 1,000 shares authorized, issued
and outstanding..................................... 1,000 1,000 1,000
Additional paid-in capital............................. 79,578 79,578 79,578
Retained earnings...................................... 690,761 915,005 999,853
---------- ---------- ----------
771,339 995,583 1,080,431
---------- ---------- ----------
$ 873,821 $1,141,328 $1,205,610
========== ========== ==========
</TABLE>

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

F-168

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

OPERATING EXPENSES:

Salaries, wages and benefits................ 1,649,949 1,455,969 1,426,883 783,717 691,343

Pharmaceuticals and medical supplies........ 75,901 93,730 101,190 51,411 36,804

General and administrative.................. 1,169,680 820,384 741,717 303,705 197,367

Depreciation and amortization............... 86,479 49,422 44,985 21,945 24,358
---------- ---------- ---------- ---------- ----------

2,982,009 2,419,505 2,314,775 1,160,778 949,872
---------- ---------- ---------- ---------- ----------

INCOME (LOSS) FROM OPERATIONS................. (95,805) 38,520 228,786 189,343 87,438

INTEREST EXPENSE, NET......................... 4,767 4,801 4,542 1,750 2,590
---------- ---------- ---------- ---------- ----------

NET INCOME (LOSS)............................. (100,572) 33,719 224,244 187,593 84,848

RETAINED EARNINGS, BEGINNING OF PERIOD........ 757,614 657,042 690,761 690,761 915,005
---------- ---------- ---------- ---------- ----------

RETAINED EARNINGS, END OF PERIOD.............. $ 657,042 $ 690,761 $ 915,005 $ 878,354 $ 999,853
========== ========== ========== ========== ==========
</TABLE>

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

F-169

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
--------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $(100,572) $ 33,719 $224,244 $187,593 $ 84,848
Adjustments to reconcile net income (loss) to net
cash provided by operating activities--
Depreciation and amortization.................. 86,479 49,422 44,985 21,945 24,358
Loss on disposal............................... -- 91,770 31,314 -- --
Changes in assets and liabilities--
Accounts receivable......................... 23,305 (11,295) (221,321) (72,950) (2,581)
Prepaids and other current.................. 15,440 150 (5,591) (10,066) (7,245)
Accounts payable............................ -- -- 25 -- (25)
Accrued compensation........................ 15,361 1,485 (13,109) (21,363) (8,254)
--------- -------- -------- -------- --------
Net cash provided by operating
activities.............................. 40,013 165,251 60,547 105,159 91,101
--------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment................ (12,360) (95,477) (112,580) (105,082) (18,840)
--------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt........... -- -- 99,506 92,007 --
Repayment on long-term debt........................ (26,966) (39,902) (43,159) (22,372) (12,287)
--------- -------- -------- -------- --------
Net cash (used in) provided by financing
activities.............................. (26,966) (39,902) 56,347 69,635 (12,287)
--------- -------- -------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS............ 687 29,872 4,314 69,712 59,974
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD....... 926 1,613 31,485 31,485 35,799
--------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 1,613 $ 31,485 $ 35,799 $101,197 $ 95,773
========= ======== ======== ======== ========
</TABLE>

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

F-170

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Dennis James Bonner, M.D., Ltd. (the "Company") was formed in 1982 as a
physician owned medical practice engaged in the rendering of professional
medical rehabilitative services to the general public.

On October 20, 1997, the Company entered into an Asset Acquisition
Agreement (the "Affiliation Agreement") with U.S. PHYSICIANS ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire the majority of the assets and liabilities of the
Company in exchange for cash, notes payable and USP Common Stock, subject to
adjustment as defined. The closing, as defined in the Affiliation Agreement,
will occur upon the completion of an initial public offering by USP. If the
closing has not occurred prior to December 31, 1997, the Affiliation Agreement
may be terminated by either the Company or USP by written notice to the other
party.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

F-171

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the shorter of the estimated useful lives of the applicable assets
or the lease term and are computed using the straight-line method. The
depreciation lives for property and equipment range from five to seven years
with the exception of the building and improvements which are depreciated over
thirty years.

Income Taxes

The Company has elected treatment as an "S" Corporation for both federal
and state income tax purposes, and accordingly is not taxed as a separate
entity. The Company's taxable income or loss is allocated to each owner and
recognized on their individual tax return. Accordingly, no provision for income
taxes has been reflected in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than that reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of December
31, 1996 was approximately $900,000. If the S Corporation status is terminated,
then a deferred income tax liability of approximately $225,000 related to these
cumulative differences would need to be reflected in the accompanying financial
statements.

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $4,967, $4,813 and $4,554, respectively.

F-172

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. LONG-TERM DEBT:

DECEMBER 31,
------------------------
1995 1996
--------- ---------
<S> <C> <C>
Note payable to a bank, payable in monthly installments of
$602 plus interest at 8.25%, final payment due May
2001...................................................... $ -- $ 26,701
Note payable to a bank, payable in monthly installments of
$551 including interest at 7.5%, final payment due
December 2000............................................. -- 22,717
Note payable to a bank, payable in monthly installments of
$321 including interest at 9.0%, final payment due January
2000...................................................... -- 10,346
Note payable to a financial services company, payable in
monthly installments of $727 including interest at 7.9%,
final payment due April 2001.............................. -- 28,043
Note payable to a bank, payable in monthly installments of
$480, including interest, final payment due February
1999...................................................... 15,393 10,859
Note payable to a bank, payable in monthly installments of
$1,627 plus interest at 7.5%, final payment due December
1999 (repaid in 1996)..................................... 27,226 --
--------- ---------
42,619 98,966
Less -- Current maturities............................. (10,285) (26,571)
--------- ---------
$ 32,334 $ 72,395
========= =========
</TABLE>

Minimum principal repayments for long-term debt as of December 31, 1996,
are as follows:

1997............................................... $26,571
1998............................................... 26,571
1999............................................... 23,995
2000............................................... 16,032
2001............................................... 5,797
-------
$98,966
=======

4. EMPLOYEE BENEFIT PLAN:

The Corporation has a defined contribution profit sharing plan. For the
years ended December 31, 1994, 1995 and 1996, the Company has elected not to
make a contribution to the plan. The Corporation has also received written
approval from the Internal Revenue Service to begin termination of the profit
sharing plan and is still in the process of dissolving this plan.

5. RELATED-PARTY TRANSACTIONS:

The Company rents office space from T. Baxter, Inc. which is a corporation
related by common ownership. The Company also rents office space from Langhorne
Medical Building Partners, a partnership in which Dr. Bonner is a partner.

Rent expense on related-party operating leases was $127,766, $90,510 and
$81,106 for the years ended December 31, 1994, 1995 and 1996, respectively.

F-173

<PAGE>

DENNIS JAMES BONNER, M.D., LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Future minimum lease payments for noncancellable operating leases primarily
for office space as of December 31, 1996, are as follows:

NONRELATED-PARTY
LEASES
----------------

1997......................................... $58,264
1998......................................... 33,764
1999......................................... 2,405

Rent expense on nonrelated-party operating leases was $41,183, $60,694 and
$62,744 for the years ended December 31, 1994, 1995 and 1996, respectively.

Insurance Policies

The CAT Fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
practice and the other CAT Fund participants received a surcharge assessment
during fiscal 1996. No provision has been made for any future CAT Fund
assessments in the accompanying financial statements as the practice's portion
of the CAT Fund unfunded liability could not be reasonably estimated.

F-174

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Northern Ophthalmic Associates, Inc.:

We have audited the accompanying balance sheets of Northern Ophthalmic
Associates, Inc. (a Pennsylvania corporation) as of November 30, 1995 and 1996,
and the related statements of operations and retained earnings and cash flows
for each of the three years ended November 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northern Ophthalmic Associates,
Inc. as of November 30, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years ended November 30, 1996, in conformity
with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 20, 1997

F-175

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
NOVEMBER 30,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 50,005 $ 8,744 $ 6,940
Accounts receivable, net of allowance of $151,136,
$128,927 and $131,660.................................. 141,722 157,511 152,030
Prepaid expenses and other................................ 8,479 -- 5,000
-------- -------- --------
Total current assets................................... 200,206 166,255 163,970
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 919,571 986,914 986,914
Less -- Accumulated depreciation.......................... (530,417) (588,980) (639,344)
-------- -------- --------
389,154 397,934 347,570
-------- -------- --------
INTANGIBLE ASSETS........................................... 42,667 39,333 39,333
-------- -------- --------
$632,027 $603,522 $550,873
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $100,000 $ 66,640 $ 65,813
Current maturities of long-term debt...................... 80,881 107,634 61,532
Accounts payable.......................................... 23,593 32,956 40,906
-------- -------- --------
Total current liabilities......................... 204,474 207,230 168,251
-------- -------- --------
LONG-TERM DEBT.............................................. 159,345 122,940 78,508
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value; 200 shares authorized, issued
and outstanding........................................ 200 200 200
Retained earnings......................................... 268,008 273,152 303,914
-------- -------- --------
Total shareholders' equity............................. 268,208 273,352 304,114
-------- -------- --------
$632,027 $603,522 $550,873
======== ======== ========
</TABLE>

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

F-176

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED NOVEMBER 30, JUNE 30,
------------------------------------ -------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES................................... $1,717,728 $1,830,986 $1,639,488 $939,577 $951,006
---------- ---------- ---------- -------- --------

OPERATING EXPENSES:

Salaries, wages and benefits................. 992,746 1,096,764 919,805 496,480 493,226

Pharmaceuticals and medical supplies......... 166,283 173,945 170,419 98,921 91,021

General and administrative................... 478,327 472,899 440,786 274,730 272,868

Depreciation................................. 67,007 71,311 75,671 44,141 50,364
---------- ---------- ---------- -------- --------

1,704,363 1,814,919 1,606,681 914,272 907,479
---------- ---------- ---------- -------- --------

INCOME FROM OPERATIONS......................... 13,365 16,067 32,807 25,305 43,527

INTEREST EXPENSE, NET.......................... 14,958 28,977 27,663 15,136 12,765
---------- ---------- ---------- -------- --------

NET INCOME (LOSS).............................. (1,593) (12,910) 5,144 10,169 30,762

RETAINED EARNINGS, BEGINNING OF PERIOD......... 282,511 280,918 268,008 268,008 273,152
---------- ---------- ---------- -------- --------

RETAINED EARNINGS, END OF PERIOD............... $ 280,918 $ 268,008 $ 273,152 $278,177 $303,914
========== ========== ========== ======== ========
</TABLE>

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

F-177

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
YEAR ENDED NOVEMBER 30, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................. $(1,593) $(12,910) $ 5,144 $ 10,169 $ 30,762
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation.................................... 67,007 71,311 75,671 44,141 50,364
Changes in assets and liabilities --
Accounts receivable........................... 2,011 (3,733) (15,789) (6,529) 5,481
Prepaid expenses and other.................... 5,521 1,000 8,479 (10,000) (5,000)
Accounts payable.............................. (32,690) 2,387 9,363 27,921 7,950
------- -------- -------- -------- --------
Net cash provided by operating
activities............................... 40,256 58,055 82,868 65,702 89,557
------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment................ (37,000) (24,206) -- -- --
Sale of property and equipment.................... -- -- 9,706 9,105 --
------- -------- -------- -------- --------
Net cash (used in) provided by investing
activities............................... (37,000) (24,206) 9,706 9,105 --
------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit..... 75,000 25,000 (33,360) (23,856) (827)
Repayments on long-term debt...................... (19,202) (77,891) (100,475) (75,954) (90,534)
------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities............................... 55,798 (52,891) (133,835) (99,810) (91,361)
------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... 59,054 (19,042) (41,261) (25,003) (1,804)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 9,993 69,047 50,005 50,005 8,744
------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $69,047 $ 50,005 $ 8,744 $ 25,002 $ 6,940
======= ======== ======== ======== ========
</TABLE>

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

F-178

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SEVEN MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Northern Ophthalmic Associates, Inc. (the "Company") is an ophthalmic
medical practice serving the Philadelphia, Pennsylvania area. The Company was
formed in December 1984.

On September 30, 1997, the Company entered into an Asset Acquisition
Agreement (the "Affiliation Agreement") with U.S. PHYSICIANS ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire the majority of the assets and liabilities of the
Company in exchange for cash, notes payable and USP Common Stock, subject to
adjustment as defined. The closing, as defined in the Affiliation Agreement,
will occur upon the completion of an initial public offering by USP. If the
closing has not occurred prior to December 31, 1997, the Affiliation Agreement
may be terminated by either the Company or USP by written notice to the other
party.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

The financial statements for the seven months ended June 30, 1996 and 1997,
are unaudited, and in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position as of June 30, 1997, and the results of
its operations for the seven months ended June 30, 1996 and 1997. The results of
operations for the seven-month period are not necessarily indicative of the
results to be expected for the entire year.

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

Cash and Cash Equivalents

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

F-179

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SEVEN MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

The Company extends credit to patients covered by programs such as Medicare
and Medicaid and private insurers. The Company manages credit risk with the
various public and private insurance providers, as appropriate. Allowances for
bad debts have been made for potential losses when appropriate.

Property and Equipment

Equipment, furniture and fixtures are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation is
provided over the estimated useful life of each class of depreciable asset
ranging from five to seven years.

Intangible Assets

Intangible assets include the excess of cost over the net asset value of an
acquired physician practice and a covenant not to compete and are being
amortized over 15 years. The Company continually evaluates whether later events
and circumstances have occurred that indicate the remaining estimated useful
life of intangible assets may warrant revision or that the remaining balance may
not be recoverable. When factors indicate that intangible assets should be
evaluated for possible impairment, the Company uses an estimate of the related
undiscounted operating income over the remaining life of the intangible asset in
measuring whether the intangible asset is recoverable. As of November 30, 1996,
management believes that no revision to the remaining useful lives or write-down
of intangible assets is required.

Income Taxes

The Company has elected treatment as an "S" Corporation for both federal
and state income tax purposes and accordingly is not taxed as a separate entity.
The Company's taxable income or loss is allocated to each owner and recognized
on their individual tax return. Accordingly, no provision for income taxes has
been reflected in the accompanying financial statements.

The Company reports certain income and expense items for income tax
purposes on a different basis than that reflected in the accompanying financial
statements. The primary differences are due to the cash basis of accounting for
income tax purposes. The cumulative amount of these differences as of November
30, 1996 was approximately $150,000. If the S Corporation status is terminated,
then a deferred income tax liability of approximately $37,000 related to these
cumulative differences would need to be reflected in the accompanying financial
statements.

F-180

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SEVEN MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Statements of Cash Flows Information

For the years ended November 30, 1994, 1995 and 1996, the Company paid
interest of $14,958, $28,977 and $27,663, respectively. Amounts paid for taxes
were not significant.

3. INTANGIBLE ASSETS:

<TABLE>
<CAPTION>
NOVEMBER 30,
----------------------
1995 1996
-------- --------
<S> <C> <C>
Excess of cost over net asset value of acquired
physician practice................................. $ 20,334 $ 20,334
Covenant not to compete.............................. 76,000 76,000
-------- --------
96,334 96,334
Less -- Accumulated amortization..................... (53,667) (57,001)
-------- --------
$ 42,667 $ 39,333
======== ========
</TABLE>

4. LONG-TERM DEBT:

<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------
1995 1996
-------- ---------
<S> <C> <C>
Note payable to a lending agent, interest at 22.40%, monthly
payments of $995 per month through May 2001............... $ -- $ 41,676
Note payable to a bank, interest at 9.75%, monthly payments
of $6,586 per month through September 1997................ 129,433 66,096
Note payable to an auto dealer, interest at 4.99%, monthly
payments of $1,237 through February 1999.................. -- 33,387
Note payable to a bank, interest at 6.75%, monthly payments
of $588 through February 1999............................. 19,413 13,440
Note payable to a bank, interest at 8.75%, monthly payments
of $1,185, due in full by April 2001...................... 91,380 75,975
-------- ---------
240,226 230,574
Less -- Current maturities.................................. (80,881) (107,634)
-------- ---------
$159,345 $ 122,940
======== =========
</TABLE>

5. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest pro rata over five
years beginning after their first year as a participant. The Company matches
twenty-five cents for every dollar contributed by the employees. For the years
ended November 30, 1994, 1995 and 1996, contributions to the plan were $0, $0
and $2,465.

F-181

<PAGE>

NORTHERN OPHTHALMIC ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SEVEN MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

Future minimum lease payments for noncancellable operating leases primarily
for office space as of November 30, 1996 are as follows:

FISCAL YEAR
-----------
1997............................................. $153,681
1998............................................. 136,253
1999............................................. 136,253
2000............................................. 136,253
2001............................................. 142,445
2002 and thereafter.............................. 142,445

Rent expense on operating leases was $114,620, $132,405 and $129,027 for
the years ended November 30, 1994, 1995 and 1996, respectively.

Insurance Policies

F-182

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Northwest Orthopedic Associates, PC:

We have audited the accompanying balance sheets of Northwest Orthopedic
Associates, PC (a Pennsylvania corporation) as of December 31, 1995 and 1996,
and the related statements of operations and retained earnings and cash flows
for each of the three years ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northwest Orthopedic
Associates, PC as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years ended December 31,
1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 17, 1997

F-183

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 6,735 $ 2,343 $ 10,952
Accounts receivable, net of allowance of
$164,543, $130,558 and $103,283....................... 183,309 153,956 116,291
Prepaid expenses and other............................... 5,000 5,000 5,000
-------- ---------- ----------
Total current assets................................ 195,044 161,299 132,243
-------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................ 352,695 295,060 297,041
Less -- Accumulated depreciation......................... (264,407) (238,550) (251,297)
-------- ---------- ----------
88,288 56,510 45,744
-------- ---------- ----------
DEFERRED INCOME TAXES...................................... -- -- 18,557
-------- ---------- ----------
$283,332 $ 217,809 $ 196,544
======== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt........................ $ 20,000 $ -- $ 49,000
Accounts payable......................................... 30,254 23,862 48,574
Accrued compensation..................................... 14,318 12,860 5,569
Deferred income taxes.................................... 34,217 30,409 32,042
-------- ---------- ----------
Total current liabilities........................... 98,789 67,131 135,185
-------- ---------- ----------
DEFERRED INCOME TAXES...................................... 13,038 8,694 --
-------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY:
Common Stock, $10 par value; 2,000 shares
authorized; 300 issued and 200 outstanding............ 3,000 3,000 3,000
Additional paid in capital............................... 3,000 3,000 3,000
Retained earnings........................................ 170,447 140,926 60,301
Treasury stock, 100 shares at cost....................... (4,942) (4,942) (4,942)
-------- ---------- ----------
Total shareholders' equity.......................... 171,505 141,984 61,359
-------- ---------- ----------
$283,332 $ 217,809 $ 196,544
======== ========== ==========
</TABLE>

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

F-184

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $1,651,693 $1,415,223 $1,251,074 $ 713,025 $ 509,612
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,073,997 934,178 852,746 470,348 367,715
Pharmaceuticals and medical supplies..... 85,633 78,537 83,722 40,983 32,192
General and administrative............... 441,606 357,890 319,282 175,469 203,307
Depreciation............................. 29,121 32,137 33,865 35,703 12,747
---------- ---------- ---------- ---------- ----------
1,630,357 1,402,742 1,289,615 722,503 615,961
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. 21,336 12,481 (38,541) (9,478) (106,349)
INTEREST EXPENSE (INCOME), NET............. 2,643 1,592 (160) 1,095 593
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.......... 18,693 10,889 (38,381) (10,573) (106,942)
INCOME TAX PROVISION (BENEFIT)............. 4,577 2,982 (8,860) (2,442) (26,317)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... 14,116 7,907 (29,521) (8,131) (80,625)
RETAINED EARNINGS, BEGINNING OF PERIOD..... 148,424 162,540 170,447 170,447 140,926
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD........... $ 162,540 $ 170,447 $ 140,926 $ 162,316 $ 60,301
========== ========== ========== ========== ==========
</TABLE>

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

F-185

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $ 14,116 $ 7,907 $(29,521) $ (8,131) $(80,625)
Adjustments to reconcile net income (loss)
to net cash provided by (used
in) operating activities --
Depreciation................................. 29,121 32,137 33,865 35,703 12,747
Deferred income taxes........................ 3,255 2,560 (8,152) (2,442) (25,618)
Loss on disposal of asset.................... -- -- -- (901) --
Changes in assets and liabilities --
Accounts receivable....................... 20,213 (18,719) 29,353 53,648 37,665
Prepaid expenses and other................ -- -- -- (15,879) --
Accounts payable.......................... (23,058) 3,347 (6,392) 14,962 24,712
Accrued compensation...................... (5,171) (2,070) (1,458) (5,785) (7,291)
-------- -------- -------- -------- --------
Net cash provided by (used in) operating
activities............................ 38,476 25,162 17,695 71,175 (38,410)
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (39,342) (5,620) (2,087) -- (1,981)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt..................... 47,442 -- -- -- 49,000
Repayments on long-term debt..................... (47,556) (24,886) (20,000) (13,384) --
-------- -------- -------- -------- --------
Net cash (used in) provided by financing
activities............................ (114) (24,886) (20,000) (13,384) 49,000
-------- -------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS...................................... (980) (5,344) (4,392) 57,791 8,609
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..... 13,059 12,079 6,735 6,735 2,343
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 12,079 $ 6,735 $ 2,343 $ 64,526 $ 10,952
======== ======== ======== ======== ========
</TABLE>

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

F-186

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Northwest Orthopedic Associates, PC (the "Company") is an orthopedic
medical practice serving the Western Pennsylvania area. The Company was formed
in February 1973.

On October 1, 1997, the Company entered into a Stock Acquisition Agreement
(the "Affiliation Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire the stock of the Company in exchange for cash, notes
payable and USP Common Stock, subject to adjustment as defined. The closing, as
defined in the Affiliation Agreement, will occur upon the completion of an
initial public offering by USP. If the closing has not occurred prior to
December 31, 1997, the Affiliation Agreement may be terminated by either the
Company or USP by written notice to the other party.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are contractual and estimated bad
debts.

Concentration of Credit Risk

F-187

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Property and Equipment

Equipment, furniture and fixtures are stated at cost. Expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation is
provided over the estimated useful life of the applicable assets ranging from
five to seven years and is computed using the straight-line method.

Income Taxes

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $3,573, $2,385 and $2,114, respectively. Amounts paid for taxes were
not significant.

3. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 793 $ 253 $ (424)
State................................................ 529 169 (284)
------ ------ -------
1,322 422 (708)
------ ------ -------
Deferred:
Federal.............................................. 1,953 1,536 (4,891)
State................................................ 1,302 1,024 (3,261)
------ ------ -------
3,255 2,560 (8,152)
------ ------ -------
$4,577 $2,982 $(8,860)
====== ====== =======
</TABLE>

The provision (benefit) for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate................... $ 6,356 $ 3,702 $(13,050)
Tax impact of Federal rate differential for graduated
rates.............................................. (3,750) (2,132) 7,399
State income taxes, net of federal benefit........... 1,737 1,047 (3,767)
Non-deductible travel and entertainment.............. 234 365 558
------- ------- --------
$ 4,577 $ 2,982 $ (8,860)
======= ======= ========
</TABLE>

F-188

<PAGE>

NORTHWEST ORTHOPEDIC ASSOCIATES, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

3. INCOME TAXES: -- (CONTINUED)

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
------- -------
<S> <C> <C>
Deferred tax liabilities --
Property and equipment............................... $13,038 $ 8,694
Cash to accrual adjustments.......................... 34,217 30,409
------- -------
Net deferred tax liability............................. $47,255 $39,103
======= =======
</TABLE>

4. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases some of its office space from shareholders of the
Company. Future minimum lease payments for related-party and nonrelated-party
noncancellable operating leases primarily for office space as of December 31,
1996, are as follows:

RELATED-PARTY NONRELATED-PARTY
LEASES LEASES
------------- ----------------

1997.................................. $50,400 $28,908

Rent expense on related-party operating leases was $50,400 for each of the
years ended December 31, 1994, 1995 and 1996. Rent expense on nonrelated-party
operating leases was $63,540, $64,325 and $66,105 for the years ended December
31, 1994, 1995 and 1996, respectively.

Insurance Policies

F-189

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Oncology and Hematology Associates, PA:

We have audited the accompanying balance sheets of Oncology and Hematology
Associates, PA (a New Jersey corporation) as of December 31, 1995 and 1996, and
the related statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oncology and Hematology
Associates, PA as of December 31, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 10, 1997

F-190

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 8,296 $ 1,728 $ 51,215
Accounts receivable, net of allowance of
$106,828, $114,246 and $122,930....................... 201,405 173,606 223,187
Prepaid expenses and other............................... 567 567 1,007
-------- ---------- ----------
Total current assets................................ 210,268 175,901 275,409
-------- ---------- ----------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures........................ 170,812 170,812 171,872
Less -- Accumulated depreciation......................... (115,479) (127,800) (139,224)
-------- ---------- ----------
55,333 43,012 32,648
-------- ---------- ----------
DEFERRED INCOME TAXES...................................... 7,363 6,338 --
-------- ---------- ----------
OTHER ASSETS............................................... 44,389 36,616 36,616
-------- ---------- ----------
$317,353 $ 261,867 $ 344,673
======== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
Note payable to shareholder.............................. $ 15,000 $ -- $ --
Accounts payable......................................... 73,065 128,889 156,357
Accrued compensation..................................... 12,348 14,296 26,837
Deferred income taxes.................................... 28,235 7,405 9,928
-------- ---------- ----------
Total current liabilities........................... 128,648 150,590 193,122
-------- ---------- ----------
DEFERRED INCOME TAXES...................................... -- -- 3,557
-------- ---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDER'S EQUITY:
Common Stock, no par, 100 shares authorized and
issued, 50 shares outstanding......................... 3,766 3,766 3,766
Retained earnings........................................ 249,597 172,169 208,886
Treasury stock, 50 shares at cost........................ (64,658) (64,658) (64,658)
-------- ---------- ----------
Total shareholder's equity.......................... 188,705 111,277 147,994
-------- ---------- ----------
$317,353 $ 261,867 $ 344,673
======== ========== ==========
</TABLE>

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

F-191

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $1,958,218 $2,168,924 $2,000,191 $ 875,529 $1,160,148
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,517,723 1,677,382 1,351,788 395,479 627,015
Pharmaceuticals and medical
supplies............................... 191,563 285,615 368,819 143,300 312,478
General and administrative............... 258,008 257,406 370,095 134,535 159,100
Depreciation............................. 10,917 13,873 12,321 6,658 11,424
---------- ---------- ---------- ---------- ----------
1,978,211 2,234,276 2,103,023 679,972 1,110,017
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS............................... (19,993) (65,352) (102,832) 195,557 50,131
INTEREST INCOME
(EXPENSE), NET........................... 1,559 1,837 2,313 292 (201)
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES............................. (18,434) (63,515) (100,519) 195,849 49,930
INCOME TAX PROVISION
(BENEFIT)................................ (2,207) (16,393) (23,091) 45,978 13,213
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... (16,227) (47,122) (77,428) 149,871 36,717
RETAINED EARNINGS,
BEGINNING OF PERIOD...................... 312,946 296,719 249,597 249,597 172,169
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END
OF PERIOD................................ $ 296,719 $ 249,597 $ 172,169 $ 399,468 $ 208,886
========== ========== ========== ========== ==========
</TABLE>

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

F-192

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $(16,227) $(47,122) $(77,428) $149,871 $ 36,717
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities --
Depreciation................................. 10,917 13,873 12,321 6,658 11,424
Deferred income taxes........................ 4,340 (23,318) (19,805) 45,978 12,418
Changes in assets and liabilities --
Accounts receivable....................... (7,147) 18,939 27,799 (44,177) (49,581)
Prepaid expenses and other................ -- 61 -- -- (440)
Accounts payable.......................... 18,772 19,499 55,824 (12,676) 27,468
Accrued compensation...................... (10,035) 398 1,948 7,350 12,541
Other assets.............................. 7,183 15,058 7,773 -- --
-------- -------- -------- -------- --------
Net cash provided by (used
in) operating activities.............. 7,803 (2,612) 8,432 153,004 50,547
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (15,864) (9,099) -- -- (1,060)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Proceeds from note payable to
shareholder.................................... 30,000 -- -- -- --
Repayment on note payable to
shareholder.................................... -- (15,000) (15,000) (15,000) --
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities.............. 30,000 (15,000) (15,000) (15,000) --
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS........................ 21,939 (26,711) (6,568) 138,004 49,487
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.............................. 13,068 35,007 8,296 8,296 1,728
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.................................... $ 35,007 $ 8,296 $ 1,728 $146,300 $ 51,215
======== ======== ======== ======== ========
</TABLE>

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

F-193

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Oncology and Hematology Associates, PA (the "Company") is a physician-owned
medical practice in Woodbury, New Jersey. The Company was formed in 1971 for the
purpose of both cancer evaluation and treatment and evaluation of patients with
hematologic disorders.

On April 18, 1997, the Company entered into a Stock Acquisition Agreement
(the "Affiliation Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire the stock of the Company in exchange for cash and USP
Common Stock, subject to adjustment as defined. The closing, as defined in the
Affiliation Agreement, will occur upon the completion of an initial public
offering by USP. If the closing has not occurred prior to December 31, 1997, the
Affiliation Agreement may be terminated by either the Company or USP by written
notice to the other party.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

F-194

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation is provided over
the estimated useful life of the applicable assets ranging from five to seven
years for equipment, furniture, and fixtures and is computed using the
straight-line method.

Income Taxes

Note Payable to Shareholder

In December 1994 and 1995, the Company signed a short-term interest-free
note payable to the shareholder. The notes were repaid in January 1995 and 1996,
respectively.

Statements of Cash Flows Information

Amounts paid for interest and taxes were not significant.

3. EMPLOYEE BENEFIT PLAN:

The Company provides a 401(k) profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Employees vest pro rata over six
years beginning after their first year as a participant. Contributions to the
plan are discretionary and are determined by the Company on an annual basis. For
the years ended December 31, 1994, 1995 and 1996, contributions to the plan were
$44,063, $0 and $0, respectively.

F-195

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. INCOME TAXES:

The components of the income tax benefit are as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
-------- -------- ---------
Current:
Federal...................................... $(3,928) $ 4,455 $ (1,972)
State........................................ (2,619) 2,970 (1,314)
------- -------- --------
(6,547) 7,425 (3,286)
------- -------- --------
Deferred:
Federal...................................... 2,604 (14,291) (11,883)
State........................................ 1,736 (9,527) (7,922)
------- -------- --------
4,340 (23,818) (19,805)
------- -------- --------
$(2,207) $(16,393) $(23,091)
======= ======== ========

The benefit for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the following
items:

YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
Tax at U.S. Federal statutory rate............. $(6,268) $(21,595) $(34,176)
Tax impact of Federal rate differential for
graduated rates.............................. 4,485 11,029 19,591
State income taxes, net of federal benefit..... (1,189) (7,044) (9,723)
Non-deductible travel and entertainment........ 765 1,217 1,217
------- -------- --------
$(2,207) $(16,393) $(23,091)
======= ======== ========

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

YEAR ENDED
DECEMBER 31,
------------------
1995 1996
-------- -------
Deferred tax assets--
Net operating loss carryforward................ $ 18,996 $16,561
-------- -------
Deferred tax liabilities--
Property and equipment......................... (11,633) (10,223)
Cash to accrual adjustments.................... (28,235) (7,405)
-------- -------
(39,868) (17,628)
-------- -------
Net deferred tax liability....................... $(20,872) $(1,067)
======== =======

F-196

<PAGE>

ONCOLOGY AND HEMATOLOGY ASSOCIATES, PA

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The company leases its administrative office space from the shareholder. In
addition, the medical office is leased from Woodbury Medical Center Associates
in which the Company has a 7% partnership interest. The net investment in the
partnership has been included in other assets. Management has compared the
investment in the partnership to the anticipated undiscounted operating income
of the partnership noting that no revision to the carrying value of the
investment is needed. Future minimum lease payments for noncancellable operating
leases for office space and medical equipment having terms in excess of one year
as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
NON-RELATED RELATED PARTY
PARTY LEASE LEASE
----------- -------------
<S> <C> <C>
1997................................................ $14,898 $59,333
1998................................................ 13,812 59,333
1999................................................ 13,812 50,783
2000................................................ 13,812 52,290
2001................................................ -- 52,290
Thereafter.......................................... -- 78,435
</TABLE>

Rent expense on related party operating leases for the years ended December
31, 1994, 1995 and 1996 was $55,928, $56,428 and $56,428, respectively. Rent
expense on nonrelated party operating leases for the years ended December 31,
1994, 1995 and 1996 was $8,100, $12,060 and $36,732, respectively.

Employment Agreement

On May 1, 1996, the Company entered into a seven-year employment agreement
with a physician which includes his gross annual salary of $236,000.

Insurance Policies

The Company maintains insurance with respect to medical malpractice risks
on an occurrence basis in amounts management believes to be adequate. Management
is not aware of any outstanding claims, which would have a material impact on
the Company's financial position or results of operations.

F-197

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Orthopedic Associates of Pittsburgh, Inc.:

We have audited the accompanying balance sheets of Orthopedic Associates of
Pittsburgh, Inc. (a Pennsylvania corporation) as of September 30, 1995 and 1996,
and the related statements of operations, shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Orthopedic Associates of
Pittsburgh, Inc. as of September 30, 1995 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
June 20, 1997

F-198

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,775 $ 89,357 $ 64,493
Accounts receivable, net of allowance of $385,201,
$388,973 and $332,699.................................. 577,802 475,411 406,632
Prepaid expenses and other................................ 46,941 38,559 --
-------- -------- --------
Total current assets................................. 637,518 603,327 471,125
-------- -------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 459,210 463,741 464,557
Leasehold improvements.................................... 49,813 51,842 59,410
-------- -------- --------
509,023 515,583 523,967
Less -- Accumulated depreciation and amortization......... (386,739) (423,514) (455,150)
-------- -------- --------
OTHER ASSETS................................................ 5,963 5,963 5,963
-------- -------- --------
$765,765 $701,359 $545,905
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit............................................ $ 85,000 $ 85,000 $ 69,000
Current maturities of long-term debt...................... -- 34,858 --
Accounts payable.......................................... 49,573 33,427 51,315
Accrued compensation...................................... 54,481 -- --
Deferred income taxes..................................... 143,104 117,034 90,897
-------- -------- --------
Total current liabilities............................ 332,158 270,319 211,212
-------- -------- --------
LONG-TERM DEBT.............................................. -- 70,020 --
-------- -------- --------
DEFERRED INCOME TAXES....................................... 5,467 36,968 34,917
-------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common Stock, $1 par value, 3,000 shares authorized, 2,063
shares issued and 1,688, 1,407 and 1,125 shares
outstanding............................................ 2,063 2,063 2,063
Additional paid in capital................................ 123,168 123,168 283,168
Retained earnings......................................... 452,909 461,884 427,608
Treasury stock, 375, 656 and 938 shares at cost........... (150,000) (263,063) (413,063)
-------- -------- --------
Total shareholders' equity........................... 428,140 324,052 299,776
-------- -------- --------
$765,765 $701,359 $545,905
======== ======== ========
</TABLE>

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

F-199

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $4,676,438 $4,506,677 $3,888,067 $2,896,994 $2,760,450
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 3,481,920 3,301,356 2,847,501 2,026,769 2,074,298
Pharmaceuticals and medical supplies..... 120,670 125,970 97,790 74,360 68,081
General and administrative............... 1,067,859 1,022,440 865,033 741,945 613,197
Depreciation and amortization............ 67,264 58,427 51,567 41,303 31,636
---------- ---------- ---------- ---------- ----------
4,737,713 4,508,193 3,861,891 2,884,377 2,787,212
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS.............. (61,275) (1,516) 26,176 12,617 (26,762)
INTEREST EXPENSE........................... 10,944 8,358 12,379 5,736 17,642
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.......... (72,219) (9,874) 13,797 6,881 (44,404)
INCOME TAX PROVISION (BENEFIT)............. (18,599) (1,178) 4,822 2,408 (10,128)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).......................... $ (53,620) $ (8,696) $ 8,975 $ 4,473 $ (34,276)
========== ========== ========== ========== ==========
</TABLE>

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

F-200

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993............... 2,063 $2,063 $123,168 $515,225 $(150,000) $490,456
Net loss................................ -- -- -- (53,620) -- (53,620)
----- ------ -------- -------- --------- --------
Balance, September 30, 1994............... 2,063 2,063 123,168 461,605 (150,000) 436,836
Net loss................................ -- -- -- (8,696) -- (8,696)
----- ------ -------- -------- --------- --------
Balance, September 30, 1995............... 2,063 2,063 123,168 452,909 (150,000) 428,140
Purchase of treasury stock.............. -- -- -- -- (113,063) (113,063)
Net income.............................. -- -- -- 8,975 -- 8,975
----- ------ -------- -------- --------- --------
Balance, September 30, 1996............... 2,063 2,063 123,168 461,884 (263,063) 324,052
Capital contribution (unaudited)........ -- -- 160,000 -- -- 160,000
Purchase of treasury stock
(unaudited)........................... -- -- -- -- (150,000) (150,000)
Net loss (unaudited).................... -- -- -- (34,276) -- (34,276)
----- ------ -------- -------- --------- --------
Balance, June 30, 1997 (unaudited)........ 2,063 $2,063 $283,168 $427,608 $(413,063) $299,776
===== ====== ======== ======== ========= ========
</TABLE>

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

F-201

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
SEPTEMBER 30, JUNE 30,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)................................ $(53,620) $ (8,696) $ 8,975 $ 4,473 $(34,276)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Depreciation and amortization................ 67,264 58,427 51,567 41,303 31,636
Deferred income taxes........................ (22,071) (1,313) 5,431 2,408 (28,188)
Changes in assets and liabilities --
Accounts receivable....................... 47,500 (57,091) 102,391 180,342 68,779
Prepaid expenses and other................ (3,849) 422 8,382 46,941 38,559
Accounts payable.......................... 17,150 (4,523) (16,146) 5,656 17,888
Accrued compensation...................... 5,355 13,354 (54,481) (54,481) --
-------- -------- -------- -------- --------
Net cash provided by operating
activities............................ 57,729 580 106,119 226,642 94,398
-------- -------- -------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment.............. (18,738) (23,034) (21,352) (17,596) (8,384)
-------- -------- -------- -------- --------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit.... -- 35,000 -- -- (16,000)
Proceeds from long-term debt..................... 50,000 10,000 -- -- --
Repayments on long-term debt..................... (70,000) (60,000) (8,185) -- (104,878)
Purchase of treasury stock....................... -- -- -- -- (150,000)
Capital contributions............................ -- -- -- -- 160,000
-------- -------- -------- -------- --------
Net cash used in financing activities... (20,000) (15,000) (8,185) -- (110,878)
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 18,991 (37,454) 76,582 209,046 (24,864)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD.............................. 31,238 50,229 12,775 12,775 89,357
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD.................................... $ 50,229 $ 12,775 $ 89,357 $221,821 $ 64,493
======== ======== ======== ======== ========
</TABLE>

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

F-202

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Orthopedic Associates of Pittsburgh, Inc. (the "Company") is a
physician-owned medical practice serving the Pittsburgh, Pennsylvania, area. The
Company was formed in September 1974 for the purpose of rendering professional
medical services.

On April 18, 1997, the Company entered into a Stock Acquisition Agreement
(the "Affiliation Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire stock of the Company in exchange for cash, notes
payable and USP Common Stock, subject to adjustment as defined. The closing, as
defined in the Affiliation Agreement, will occur upon the completion of an
initial public offering by USP. If the closing has not occurred prior to
December 31, 1997, the Affiliation Agreement may be terminated by either the
Company or USP by written notice to the other party.

2. SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

The Company has an agreement with a related party to provide medical
services to subscribing participants. Under this agreement the Company receives
monthly capitation payments based on the number of participants, regardless of
services actually provided by the Company. Total revenues received under this
agreement for the years ended September 30, 1994, 1995 and 1996 were $620,628,
$530,391 and $458,649, respectively.

F-203

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to expense as incurred. Depreciation and amortization are
provided over the estimated useful lives of the related assets ranging from five
to seven years for equipment, furniture and fixtures and the remaining lease
term for leasehold improvements and is computed using the straight-line method.

Income Taxes

Statements of Cash Flows Information

For the years ended September 30, 1994, 1995 and 1996, the Company paid
interest of $10,944, $8,358 and $12,379, respectively. Amounts paid for taxes
were not significant.

In 1996, the Company purchased treasury shares from a former shareholder
and issued a note payable in the amount of $113,063.

3. LINE OF CREDIT:

The Company has a line of credit for $150,000 with a local bank. Interest
is accrued on the outstanding balance at the bank's prime rate plus 1% (8.75% at
September 30, 1996). Outstanding borrowings under the line as of September 30,
1995 and 1996 were $85,000.

F-204

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. NOTE PAYABLE TO FORMER SHAREHOLDER:

In August 1996, the Company purchased a shareholder's interest for $113,063
and issued a note payable.

<TABLE>
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Note payable to shareholder, monthly payments of
$3,649 including interest of 10% through July 1999
(repaid in 1997)................................... $104,878
Less -- Current maturities........................... (34,858)
--------
$ 70,020
========
</TABLE>

5. EMPLOYEE BENEFIT PLAN:

The Company maintains a profit sharing plan that covers all qualified
employees, as defined by the plan agreement. Contributions to the plan are
discretionary and are determined by the Company on an annual basis. Employees
vest in Company contributions, as defined. For the years ended September 30,
1994, 1995 and 1996, contributions to the plan were $216,126, $236,481 and
$212,986, respectively.

6. INCOME TAXES:

The components of the income tax (benefit) provision are as follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1994 1995 1996
-------- ------- ------
<S> <C> <C> <C>
Current:
Federal.................................... $ 2,083 $ 81 $ (365)
State...................................... 1,389 54 (244)
-------- ------- ------
3,472 135 (609)
-------- ------- ------
Deferred:
Federal.................................... (13,243) (788) 3,259
State...................................... (8,828) (525) 2,172
-------- ------- ------
(22,071) (1,313) 5,431
-------- ------- ------
$(18,599) $(1,178) $4,822
======== ======= ======
</TABLE>

Income tax (benefit) expense differs from the amount currently payable or
receivable because certain expenses, primarily depreciation and accruals, are
reported in different periods for financial reporting and income tax purposes.
The Company is on a cash basis of accounting for income tax purposes.

The (benefit) provision for income taxes differs from the amount computed
by applying the U.S. Federal income tax rate (34%) because of the effect of the
following items:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate.......... $(24,554) $(3,357) $ 4,691
Tax impact of Federal rate differential for
graduated rates........................... 13,200 1,856 (2,530)
State income taxes, net of federal
benefit................................... (7,569) (1,001) 1,441
Non-deductible travel and entertainment..... 324 1,324 1,220
-------- ------- -------
$(18,599) $(1,178) $ 4,822
======== ======= =======
</TABLE>

F-205

<PAGE>

ORTHOPEDIC ASSOCIATES OF PITTSBURGH, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

6. INCOME TAXES: -- (CONTINUED)

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets --
Net operating loss carryforward............... $ 32,653 $ --
----------- -----------
Deferred tax liabilities --
Property and equipment........................ (38,120) (36,968)
Cash to accrual adjustments................... (143,104) (117,034)
----------- -----------
(181,224) (154,002)
----------- -----------
Net deferred tax liability...................... $ (148,571) $ (154,002)
=========== ===========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The Company leases office space in two locations. Rent expense on operating
leases was $321,894, $378,791 and $278,185 for the years ended September 30,
1994, 1995 and 1996, respectively. Future minimum lease payments for
noncancellable operating leases as of September 30, 1996 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1997............................................. $173,396
1998............................................. 116,219
1999............................................. 56,677
</TABLE>

Insurance Policies

The CAT Fund is significantly underfunded and the Commonwealth has
indicated that the unfunded liability will be funded exclusively through
surcharge assessments in future years as claims are settled and paid. The
practice and the other CAT Fund participants received a surcharge assessment
during fiscal 1996. No provision has been made for any future CAT Fund
assessments in the accompanying financial statements as the practice's portion
of the CAT Fund unfunded liability could not be reasonably estimated.

F-206

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Vineland Obstetrical and Gynecological Professional Association:

We have audited the accompanying balance sheets of Vineland Obstetrical and
Gynecological Professional Association (a New Jersey corporation) as of December
31, 1995 and 1996 and the related statements of operations and retained earnings
and cash flows for each of the three years ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Vineland Obstetrical and
Gynecological Professional Association as of December 31, 1995 and 1996, and the
results of its operations and its cash flows for each of the three years ended
December 31, 1996, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Philadelphia, Pa.,
October 14, 1997

F-207

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 48,907 $ 78,264 $107,018
Accounts receivable, net of allowance of $360,963,
$378,431 and $263,474.................................. 431,049 412,754 332,100
Due from related parties.................................. 16,666 -- --
Prepaid expenses and other................................ 7,420 7,270 117,490
-------- --------- --------
Total current assets................................. 504,042 498,288 556,608
-------- --------- --------
PROPERTY AND EQUIPMENT:
Equipment, furniture and fixtures......................... 402,271 278,247 278,247
Less -- Accumulated depreciation.......................... (261,513) (166,182) (182,779)
-------- --------- --------
140,758 112,065 95,468
-------- --------- --------
OTHER ASSETS................................................ 4,300 4,300 4,300
-------- --------- --------
$649,100 $ 614,653 $656,376
======== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 41,825 $ 55,422 $ 45,012
Accounts payable.......................................... 72,611 109,129 194,477
Accrued compensation...................................... 214,426 173,677 155,746
Deferred income taxes..................................... 9,187 20,355 14,922
-------- --------- --------
Total current liabilities............................ 338,049 358,583 410,157
-------- --------- --------
LONG-TERM DEBT.............................................. 29,918 4,494 1,533
-------- --------- --------
DEFERRED INCOME TAXES....................................... 13,630 12,567 10,650
-------- --------- --------
DEFERRED COMPENSATION....................................... 52,630 19,390 2,770
-------- --------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common Stock, no par value; 1,000 shares authorized, 500
issued and 300 outstanding............................. 59,151 59,151 59,151
Additional paid-in capital................................ 3,832 3,832 3,832
Retained earnings......................................... 186,890 191,636 203,283
Treasury stock at cost, 200 shares........................ (35,000) (35,000) (35,000)
-------- --------- --------
Total shareholders' equity........................... 214,873 219,619 231,266
-------- --------- --------
$649,100 $ 614,653 $656,376
======== ========= ========
</TABLE>

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

F-208

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................... $2,928,635 $3,350,136 $3,437,967 $1,704,365 $1,533,905
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............. 1,829,260 2,094,475 2,132,141 981,518 930,282
Pharmaceuticals and medical supplies..... 69,225 92,026 106,596 57,322 51,072
General and administrative............... 908,076 1,067,809 1,146,372 541,100 514,094
Depreciation and amortization............ 27,756 29,179 32,893 17,325 16,597
---------- ---------- ---------- ---------- ----------
2,834,317 3,283,489 3,418,002 1,597,265 1,512,045
---------- ---------- ---------- ---------- ----------
INCOME FROM OPERATIONS..................... 94,318 66,647 19,965 107,100 21,860
INTEREST EXPENSE, NET...................... 3,983 9,763 6,655 2,169 2,314
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES................. 90,335 56,884 13,310 104,931 19,546
INCOME TAX PROVISION....................... 27,706 18,257 8,564 32,183 7,899
---------- ---------- ---------- ---------- ----------
NET INCOME................................. 62,629 38,627 4,746 72,748 11,647
RETAINED EARNINGS, BEGINNING OF PERIOD..... 85,634 148,263 186,890 186,890 191,636
---------- ---------- ---------- ---------- ----------
RETAINED EARNINGS, END OF PERIOD........... $ 148,263 $ 186,890 $ 191,636 $ 259,638 $ 203,283
========== ========== ========== ========== ==========
</TABLE>

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

F-209

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
-------- -------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income........................................ $ 62,629 $ 38,627 $ 4,746 $ 72,748 $ 11,647
Adjustments to reconcile net income to net cash
(used in) provided by operating activities--
Depreciation and amortization................. 27,756 29,179 32,893 17,325 16,597
Deferred income taxes......................... 25,351 17,854 10,105 32,183 (7,350)
Changes in assets and liabilities--
Accounts receivable...................... (143,575) (84,935) 18,295 58,305 80,654
Due from related parties................. 1,497 (14,105) 16,666 12,500 --
Prepaid expenses and other............... 2,697 (7,420) 150 (108,973) (110,220)
Accounts payable......................... 20,743 (2,099) 36,518 51,747 85,348
Accrued compensation..................... (27,105) 78,167 (40,749) (3,200) (17,931)
Deferred compensation.................... (36,565) (33,240) (33,240) (16,620) (16,620)
-------- -------- ------- -------- --------
Net cash (used in) provided by
operating activities................. (66,572) 22,028 45,384 116,015 42,125
-------- -------- ------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (15,230) (85,873) (4,200) (14,199) --
-------- -------- ------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt...................... 60,000 25,000 40,000 -- --
Repayments on long-term debt...................... (9,163) (35,124) (51,827) (24,821) (13,371)
-------- -------- ------- -------- --------
Net cash provided by (used in)
financing activities................. 50,837 (10,124) (11,827) (24,821) (13,371)
-------- -------- ------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS....................................... (30,965) (73,969) 29,357 76,995 28,754
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...... 153,841 122,876 48,907 48,907 78,264
-------- -------- ------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $122,876 $ 48,907 $78,264 $125,902 $107,018
======== ======== ======= ======== ========
</TABLE>

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

F-210

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND BUSINESS:

Vineland Obstetrical and Gynecological Professional Association (the
"Company") is an obstetrics and a gynecology medical practice serving the
Southern New Jersey area. The Company was formed in June 1969.

On August 29, 1997, the Company entered into a Stock Acquisition Agreement
(the "Affiliation Agreement") with U.S. PHYSICIANS, Inc. ("USP"). Under the
terms of the Affiliation Agreement, USP and its affiliated professional
corporation will acquire the stock of the Company in exchange for cash, notes
payable and USP Common Stock, subject to adjustment as defined. The closing, as
defined in the Affiliation Agreement, will occur upon completion of an initial
public offering by USP. If the closing has not occurred prior to December 31,
1997, the Affiliation Agreement may be terminated by either the Company or USP
by written notice to the other party.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Interim Financial Statements

Use of Estimates

Fair Value of Financial Instruments

Net Revenues

The Company also receives fees from a local hospital for providing clinic
services. Clinic fees included in net revenues for the years ended December 31,
1994, 1995 and 1996, were $805,186, $857,663 and $849,086, respectively.

F-211

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable primarily consist of receivables from patients,
third-party payors and others. Such amounts are recorded net of contractual
allowances and estimated bad debts.

Concentration of Credit Risk

Property and Equipment

Income Taxes

Statements of Cash Flows Information

For the years ended December 31, 1994, 1995 and 1996, the Company paid
interest of $7,563, 10,139 and $7,989, respectively. Amounts paid for taxes were
not significant.

3. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
-------- --------
<S> <C> <C>
Note payable to a bank, interest at 9.25%, payable on demand
and due in full on August 15, 1997........................ $ -- $ 30,000
Note payable to a bank, interest at 9.0%, principal payments
of $2,083 per month through August 28, 1996............... 16,667 --
Note payable to a bank, interest at 9.0%, monthly payments
of $1,880 through November 10, 1997....................... 39,965 19,878
Installment note to an employee, interest at 9.0%, quarterly
payments of $1,566, due in full on September 30, 1997..... 15,111 10,038
-------- --------
71,743 59,916
Less -- Current maturities.................................. (41,825) (55,422)
-------- --------
$ 29,918 $ 4,494
======== ========
</TABLE>

F-212

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

4. EMPLOYEE BENEFIT PLAN:

The Company provides a pension and a profit sharing plan covering all
full-time employees subject to minimum age and length of service requirements.
Pension plan expense is determined based on the salaries of the covered
employees, and is integrated with social security. Profit sharing plan expense
is determined annually by decision of the Board of Directors. Effective January
1, 1996, the corporation has frozen the pension plan. The corporation has
adopted a 401(k) profit sharing plan with a 10% matching contribution by the
employer. For the years ended December 31, 1994, 1995 and 1996, contributions to
the plans were $172,777, $184,695 and $60,572, respectively.

5. INCOME TAXES:

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.................................... $ 1,413 $ 242 $ (925)
State...................................... 942 161 (616)
------- ------- -------
2,355 403 (1,541)
------- ------- -------
Deferred:
Federal.................................... 15,211 10,712 6,063
State...................................... 10,140 7,142 4,042
------- ------- -------
25,351 17,854 10,105
------- ------- -------
$27,706 $18,257 $ 8,564
======= ======= =======
</TABLE>

The provision for income taxes differs from the amount computed by applying
the U.S. Federal income tax rate (34%) because of the effect of the following
items:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
-------- -------- -------
<S> <C> <C> <C>
Tax at U.S. Federal statutory rate......... $ 30,714 $ 19,341 $ 4,525
Tax impact of Federal rate differential for
graduated rates.......................... (17,517) (10,869) (2,298)
State income taxes, net of federal
benefit.................................. 8,798 5,648 1,485
Non-deductible travel and entertainment.... 5,711 4,137 4,852
-------- -------- -------
$ 27,706 $ 18,257 $ 8,564
======== ======== =======
</TABLE>

F-213

<PAGE>

VINELAND OBSTETRICAL AND GYNECOLOGICAL PROFESSIONAL ASSOCIATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND 1997 IS UNAUDITED)

5. INCOME TAXES: -- (CONTINUED)

The components of the net deferred tax liability, measured under SFAS No.
109, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
------- -------
<S> <C> <C>
Deferred liabilities:
Property and equipment............................... $13,630 $12,567
Cash to accrual adjustments.......................... 9,187 20,355
------- -------
Net deferred tax liability............................. $22,817 $32,922
======= =======
</TABLE>

6. COMMITMENTS AND CONTINGENCIES:

Lease Obligations

The corporation has entered into an informal lease agreement with APGO
Associates. The partners of APGO Associates are also shareholders of the
corporation. As the lease with APGO Associates is informal, there are no future
minimum lease payments included in the table below. Future minimum lease
payments for noncancellable operating leases, excluding related party leases,
primarily for office space as of December 31, 1996, are as follows:

<TABLE>
<CAPTION>
NONRELATED-PARTY
LEASES
----------------
<S> <C>
1997....................................... $46,584
1998....................................... 45,574
1999....................................... 21,540
</TABLE>

Rent expense on related-party operating leases was $82,800, $82,800 and
$85,800 for the years ended December 31, 1994, 1995 and 1996, respectively. Rent
expense on nonrelated-party operating leases was $14,400, $28,800 and $29,400
for the years ended December 31, 1994, 1995 and 1996, respectively.

Deferred Compensation

Pursuant to a deferred compensation agreement, the Company must pay a
former physician for services already rendered.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Agreement with Dr. John Frohwein, monthly
payments of $2,770 through July 1,
1998.................................... $ 85,870 $ 52,630 $ 36,010
Less -- Current portion (included in
accrued compensation)................... (33,240) (33,240) (33,240)
-------- -------- --------
$ 52,630 $ 19,390 $ 2,770
======== ======== ========
</TABLE>

Insurance Policies

The Company maintains insurance with respect to medical malpractice risks
on an occurrence basis in amounts management believes to be adequate. Management
is not aware of any outstanding claims, which would have a material impact on
the Company's financial position or results of operations.

F-214

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

The following table sets forth expenses in connection with the issuance and
distribution of the securities being registered, all of which are being borne by
the Registrant.

Securities and Exchange Commission registration fee......... $ 15,152
National Association of Securities Dealers, Inc. fee........ 5,500
Nasdaq Stock Market Inc./National Market listing fee........
Printing and engraving expenses.............................
Accountants' fees and expenses..............................
Legal fees and expenses.....................................
Blue Sky qualification fees and expenses....................
Transfer agent's fees and expenses..........................
Directors' and officers' insurance..........................
Miscellaneous...............................................
--------
TOTAL..................................................
========

The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. fee and
the Nasdaq Stock Market Inc. fee, are estimates.

ITEM 14. Indemnification of Directors and Officers.

Subchapter D (Sections 1741 through 1750) of Chapter 17 of the Pennsylvania
Business Corporation Law of 1988, as amended (the "BCL"), contains provisions
for mandatory and discretionary indemnification of a corporation's directors,
officers, employees and agents (collectively, "Representatives"), and related
matters.

Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors, officers and other Representatives under certain
prescribed circumstances against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with a threatened, pending or completed action or proceeding,
whether civil, criminal, administrative or investigative, to which any of them
is a party or threatened to be made a party by reason of his being a
Representative of the corporation or serving at the request of the corporation
as a Representative of another corporation, partnership, joint venture, trust or
other enterprise, if he acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.

Section 1742 provides for indemnification with respect to derivative
actions similar to that provided by Section 1741. However, indemnification is
not provided under Section 1742 in respect of any claim, issue or matter as to
which a Representative has been adjudged to be liable to the corporation unless
and only to the extent that the proper court determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, a Representative is fairly and reasonably entitled to indemnity for
the expenses that the court deems proper.

Section 1743 provides that indemnification against expenses is mandatory to
the extent that a Representative has been successful on the merits or otherwise
in defense of any such action or proceeding referred to in Section 1741 or 1742.

Section 1744 provides that unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of a
Representative is proper because the Representative met the applicable standard
of conduct, and such determination will be made by the board of directors by a
majority vote of a quorum of

II-1

<PAGE>

directors not parties to the action or proceeding; if a quorum is not obtainable
or if obtainable and a majority of disinterested directors so directs, by
independent legal counsel; or by the shareholders.

Section 1745 provides that expenses incurred by a Representative in
defending any action or proceeding referred to in Subchapter D of Chapter 17 of
the BCL may be paid by the corporation in advance of the final disposition of
such action or proceeding upon receipt of an undertaking by or on behalf of the
Representative to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the corporation.

Section 1746 provides generally that except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter D of Chapter
17 of the BCL shall not be deemed exclusive of any other rights to which a
Representative seeking indemnification or advancement of expenses may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding that office.

Section 1747 grants a corporation the power to purchase and maintain
insurance on behalf of any Representative against any liability incurred by him
in his capacity as a Representative, whether or not the corporation would have
the power to indemnify him against that liability under Subchapter D of Chapter
17 of the BCL.

Sections 1748 and 1749 apply the indemnification and advancement of
expenses provisions contained in Subchapter D of Chapter 17 of the BCL to
successor corporations resulting from consolidation, merger or division and to
service as a representative of a corporation or an employee benefit plan.

Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter D of Chapter 17 of the BCL
shall, unless otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Representative and shall inure to the benefit of
the heirs and personal representatives of such Representative.

Article Ninth of the Registrant's Second Amended and Restated Articles of
Incorporation, filed as Exhibit 3.1 hereto, provides indemnification to
directors and officers of the Registrant against all expenses, liability and
loss incurred as a result of such person's being a party to, or threatened to be
made a party to, any action, suit or proceeding by reason of the fact that he or
she is or was a director or officer of the Registrant or is or was serving at
the request of the Registrant as a director, officer, employee or agent of
another enterprise, to the fullest extent authorized by the BCL.

Article VII of the Registrant's By-laws, filed as Exhibit 3.2 hereto,
generally permits indemnification of directors and officers to the fullest
extent authorized by the BCL. Article VII further permits the Registrant to
maintain insurance, at its expense, to protect itself and any such director or
officer of the Registrant or another enterprise against any such expenses,
liability or loss.

The Registrant intends to purchase directors' and officers' liability
insurance.

See Section 8 of the Underwriting Agreement, filed as Exhibit 1 hereto,
pursuant to which the Underwriters agree to indemnify the Registrant, its
directors, officers and controlling persons against certain liabilities,
including liabilities under the Securities Act of 1933.

ITEM 15. Recent Sales of Unregistered Securities.

On July 14, 1994, in connection with the Registrant's incorporation, the
Registrant issued 1,020,000 shares of Common Stock to Thomas J. Keane, Chief
Executive Officer and President of the Registrant, for services rendered.

On September 30, 1994, for services rendered, the Registrant issued 45,000
shares of Common Stock to Noreen E. Burke, an employee of the Registrant, 30,000
shares of Common Stock to Daniel Promislo, a consultant to the Registrant, and
45,000 shares of Common Stock to James L. Weese, a consultant to the Registrant.

II-2

<PAGE>

On February 1, 1995, in connection with the Registrant's initial
capitalization, the Registrant sold 2,568,492 shares of Series A Preferred Stock
to Edison Venture Fund III, L.P. ("Edison"), 1,541,097 shares of Series A
Preferred Stock to NEPA Venture Fund II, L.P. ("NEPA") and 410,958 shares of
Series A Preferred Stock to Major Oil, Inc. (which shares were subsequently
transferred to Killion Liquidating Trust) for an aggregate purchase price of
$2,200,000. On February 1, 1995, the Registrant also issued 1,774,518 shares of
Common Stock to Thomas J. Keane, 52,194 shares of Common Stock to Daniel
Promislo and 78,288 shares of Common Stock to Noreen E. Burke valued at a price
of $0.01 per share. Also on February 1, 1995, the Registrant issued 78,288
shares of Common Stock to James L. Weese valued at a price of $0.01 per share
and entered into a Subscription Agreement with Mr. Weese, whereby the Registrant
sold 30,000 shares of Common Stock to Mr. Weese for an aggregate price of
$10,000.

On November 21, 1995, the Registrant issued 205,479 shares of Common Stock
to Daniel Promislo in consideration of services rendered to the Registrant.

On February 23, 1996, the Registrant sold 205,479 shares of Common Stock to
William P. Ferretti, a director of the Registrant, for an aggregate price of
$100,000.

On July 30, 1996, the Registrant sold 408,163 shares of Common Stock to
Edward R. Miersch, an officer of the Registrant, for an aggregate price of
$200,000.

On July 30, 1996, the Registrant issued 25,000 shares of Common Stock to
Daniel Promislo in consideration of services rendered to the Company.

On September 13, 1997, the Registrant sold 75,000 shares of Common Stock to
James M. McCrossin, an employee of the Registrant, for an aggregate price of
$75,000.

On December 31, 1996, the Registrant sold 396,825 shares of Series B
Preferred Stock and issued a Warrant to purchase 79,365 shares of Common Stock
to Keystone Venture IV, L.P. ("Keystone") for an aggregate price of $1,250,000;
128,968 shares of Series B Preferred Stock and issued a Warrant to purchase
25,794 shares of Common Stock to Edison for an aggregate price of $406,250; and
109,127 shares of Series B Preferred Stock and issued a Warrant to purchase
21,825 shares of Common Stock to NEPA for an aggregate price of $343,750.

On February 20, 1997, the Registrant sold 317,460 shares of Series B
Preferred Stock and issued a Warrant to purchase 63,492 shares of Common Stock
to Dominion Fund IV ("Dominion") for an aggregate price of $1,000,000; sold
71,429 shares of Series B Preferred Stock and issued a warrant to Warrant 14,286
shares of Common Stock to E.J.K. Real Estate Services Limited for an aggregate
price of $225,000; sold 63,492 shares of Series B Preferred Stock and issued a
Warrant to purchase 12,698 shares of Common Stock to Glenville Capital Partners,
L.P. for an aggregate price of $200,000; sold 31,746 shares of Series B
Preferred Stock and issued a Warrant to purchase 6,349 shares of Common Stock to
each of Thomas J. Keane, Douglas P. Heller, Charles Schwab & Co., Inc. FBO
William J. Barry IRA and Pasquale W. Croce, Jr. for an aggregate price of
$100,000, respectively; and sold 15,873 shares of Series B Preferred Stock and
issued a Warrant to purchase 3,175 shares of Common Stock to each of Robert W.
Muir, Jr. and Joseph J. Croce for an aggregate price of $50,000, respectively.

On April 7, 1997, the Registrant issued a Senior Subordinated Note in the
principal amount of $2,000,000 and issued a Warrant to purchase 266,667 shares
of Series B Preferred Stock to Dominion.

On June 13, 1997, the Registrant sold 7,937 shares of Common Stock to Lewis
S. Sharps, M.D. and 9,523 shares of Common Stock to an entity of which Dr.
Sharps is a beneficial owner for an aggregate purchase price of $55,000.

On September 8, 1997, the Registrant issued a Subordinated Note in the
principal amount of $1,500,000 and a Warrant to purchase 166,667 shares of
Series B Preferred Stock to Dominion, issued a Subordinated Note in the
principal amount of $150,000 and Warrants to purchase 16,667 shares of Series B
Preferred Stock to Keystone; issued a Subordinated Note in the principal amount
of $125,000 and Warrants to purchase 13,889 shares of Series B Preferred Stock
to each of Edison and NEPA; and issued a Subordinated Note in the principal
amount of $100,000 and Warrants to purchase 11,111 shares of Series B Preferred
Stock to Thomas J. Keane.

II-3

<PAGE>

On October 29, 1997, the Registrant issued 15,000 shares of Common Stock to
Donaldson, Lufkin and Jenrette Securities Corporation FBO Lucia S. Rosenberg IRA
for a purchase price of $7,350 pursuant to the exercise of a stock option.

In connection with the Conditional Affiliation Transactions, the Company
has issued $17.2 million of notes, $19.8 million of Convertible Notes and a
number of shares of Common Stock to be determined at the time of the Offering,
and, in connection with the IPO Affiliation Transactions, the Company has agreed
to issue an aggregate of approximately $4.4 million of notes and a number of
shares of Common Stock to be determined at the time of the Offering. See
"Prospectus Summary," "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" and
"Business -- Affiliation Transactions."

Registration under the Securities Act of the securities issued in the
transactions described in this Item was not required because such securities
were issued in transactions not involving any "public offering" within the
meaning of Section 4(2) of said Act, in reliance of Rule 506 under said Act.

II-4

<PAGE>

ITEM 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

EXHIBIT
NO.
- -------

1 -- Form of Underwriting Agreement.
3.1.1 -- Second Amended and Restated Articles of Incorporation of the
Company.
3.1.2 -- Amendment to Second Amended and Restated Articles of
Incorporation of the Company.
*3.1.3 -- Second Amendment to Second Amended and Restated Articles of
Incorporation of the Company.
3.2.1 -- Amended and Restated By-laws of the Company.
*3.2.2 -- Form of Second Amended and Restated By-laws of the Company.
*5 -- Opinion of Wolf, Block, Schorr and Solis-Cohen LLP with
respect to the legality of the securities being offered.
10.1 -- 1995 Company Stock Option Plan.
10.2 -- 1995 Affiliate Stock Option Plan.
*10.3 -- Stock Incentive Plan.
10.4.1 -- Amended and Restated Registration Rights Agreement by and
among the Company, Thomas J. Keane, Keystone Venture IV,
L.P., Edison Venture Fund III, L.P., NEPA Venture Fund II,
L.P., Dominion Fund IV, Joseph J. Croce, Douglas P. Heller,
E.J.K. Real Estate Services Limited, Glenville Capital
Partners, L.P., Robert W. Muir, Jr., Pasquale W. Croce, Jr.
and Charles Schwab & Co., Inc, f/b/o William J. Barry IRA,
dated as of December 31, 1996.
10.4.2 -- Amendment to Registration Rights Agreement dated as of
February 6, 1997.
10.5 -- Amended and Restated Management and Services Agreement
between the Company and U.S. Medical Services of
Pennsylvania, P.C. dated as of January 6, 1997.
10.6 -- Management and Services Agreement between the Company and
U.S. Medical Services of New Jersey, P.C. dated as of
February 13, 1997.
10.7 -- Management and Services Agreement between the Company and
U.S. Medical Services of Delaware, P.C. dated as of November
1, 1997.
10.8 -- Employment Agreement between the Company and Thomas J. Keane
dated as of October 9, 1997.
10.9 -- Amended and Restated Employment Agreement between the
Company and Martin G. Chilek dated as of October 9, 1997.
10.10 -- Amended and Restated Employment Agreement between the
Company and Edward R. Miersch dated as of October 9, 1997.
10.11 -- Amended and Restated Employment Agreement between the
Company and Warren D. Barratt dated as of October 9, 1997.
10.12 -- Amended and Restated Employment Agreement between the
Company and John M. Hogan dated as of October 9, 1997.
10.13 -- Amended and Restated Employment Agreement between the
Company and Linda F. Larson dated as of October 9, 1997.
10.14 -- Amended and Restated Shareholders' Agreement between U.S.
Medical Services of Pennsylvania, P.C. and James F. Bonner,
M.D. dated September 10, 1997.
10.15 -- Amended and Restated Shareholders' Agreement between U.S.
Medical Services of New Jersey, P.C. and James F. Bonner,
M.D. dated September 10, 1997.
10.16 -- Shareholders Agreement between U.S. Medical Services of
Delaware, P.A. and John E. Hocutt, Jr., M.D. dated November
3, 1997.
10.17 -- Form of Common Stock Purchase Warrant.

II-5

<PAGE>

EXHIBIT
NO.
- -------

10.18 -- Asset Purchase Agreement between the Company and Wende W.
Young, M.D. [Portions have been redacted pursuant to request
for confidential treatment.]
10.19 -- Employment Agreement between U.S. Medical Services of New
York, P.C. and Wende W. Young, M.D. [Portions have been
redacted pursuant to request for confidential treatment.]
11 -- Statement regarding Computation of Per Share Earnings.
21 -- Subsidiaries of the Company.
23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Wolf, Block, Schorr and Solis-Cohen LLP (included
as part of Exhibit 5).
24 -- Power of Attorney (included on signature page of this
Registration Statement).
27 -- Financial Data Schedule.

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

* To be filed by amendment.

II-6

<PAGE>

(b) Financial Statement Schedules

Financial Statement Schedules have been omitted because they are
inapplicable or the information is provided in the Financial Statements,
including the Notes thereto, included in the Prospectus.

ITEM 17. Undertakings.

The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.

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 Item 14 above, 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.

The undersigned Registrant hereby undertakes that:

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

(2) For the purpose of determining any liability under the Securities Act
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-7

<PAGE>

SIGNATURES AND POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Philadelphia, Pennsylvania on the
12th day of November, 1997.

U.S. PHYSICIANS, INC.

By: /s/ THOMAS J. KEANE
-----------------------------------------------
Thomas J. Keane
Chairman, President and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. Keane, Warren D. Barratt and Martin G.
Chilek, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection herewith, with authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises as fully to all intents and purposes as he might or could do in person,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
their substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS J. KEANE Chairman, President and Chief November 12, 1997
- --------------------------- Executive Officer (principal
Thomas J. Keane executive officer)

/s/ WARREN D. BARRATT Senior Vice President, Treasurer November 12, 1997
- --------------------------- and Chief Financial Officer
Warren D. Barratt (principal financial and accounting
officer)

/s/ KERRY J. DALE Director November 12, 1997
- ---------------------------
Kerry J. Dale

/s/ WILLIAM P. FERRETTI Director November 12, 1997
- ---------------------------
William P. Ferretti

/s/ GUSTAV H. KOVEN, III Director November 12, 1997
- ---------------------------
Gustav H. Koven, III

/s/ DANIEL PROMISLO Director November 12, 1997
- ---------------------------
Daniel Promislo
</TABLE>

II-8

____________ Shares

U.S. PHYSICIANS, INC.
Common Stock

UNDERWRITING AGREEMENT

______________, __

BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
PIPER JAFFRAY INC.
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
590 Madison Avenue, 36th Floor
New York, New York 10022

Ladies/Gentlemen:

U.S. Physicians, Inc., a Pennsylvania corporation (the "Company"),
addresses you as the Representatives of each of the persons, firms and
corporations listed in Schedule A hereto (herein collectively called the
"Underwriters") and hereby confirms its agreement with the several Underwriters
as follows:

1. Description of Shares. The Company proposes to issue and sell _______
shares of its authorized and unissued Common Stock, par value $.01 per share
(the "Firm Shares"), to the several Underwriters. The Company also proposes to
grant to the Underwriters an option to purchase up to ________ additional shares
of the Company's Common Stock, par value $.01 per share (the "Option Shares"),
as provided in Section 7 hereof. As used in this Agreement, the term "Shares"
shall include the Firm Shares and the Option Shares. All shares of Common Stock,
par value $.01 per share, of the Company to be outstanding after giving effect
to the sales contemplated hereby, including the Shares, are hereinafter referred
to as "Common Stock."

2. Representations, Warranties and Agreements of the Company. The Company
represents and warrants to and agrees with each Underwriter that:

<PAGE>

a. A registration statement on Form S-1 (File No. 333-_____) with
respect to the Shares, including a prospectus subject to completion, has been
prepared by the Company in conformity with the requirements of the Securities
Act of 1933, as amended (the "Act"), and the applicable rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") under the Act and has been filed with the Commission; such
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements pursuant to Rule 462(b)
of the Rules and Regulations as may have been required prior to the date hereof
have been similarly prepared and filed with the Commission; and the Company will
file such additional amendments to such registration statement, such amended
prospectuses subject to completion and such abbreviated registration statements
as may hereafter be required. Copies of such registration statement and
amendments, of each related prospectus subject to completion (the "Preliminary
Prospectuses") and of any abbreviated registration statement pursuant to Rule
462(b) of the Rules and Regulations have been delivered to you.

If the registration statement relating to the Shares has been declared
effective under the Act by the Commission, the Company will prepare and promptly
file with the Commission the information omitted from the registration statement
pursuant to Rule 430A(a) or, if BancAmerica Robertson Stephens, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the information required to be included in any term sheet filed
pursuant to Rule 434(b) or (c), as applicable, of the Rules and Regulations
pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if BancAmerica
Robertson Stephens, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits, in the form in which it became or
becomes, as the case may be, effective (including, if the Company omitted
information from the registration statement pursuant to Rule 430A(a) or files a
term sheet pursuant to Rule 434 of the Rules and Regulations, the information
deemed to be a part of the registration statement at the time it became
effective pursuant to Rule 430A(b) or Rule 434(d) of the Rules and Regulations)
and, in the event of any amendment thereto or the filing of any abbreviated
registration statement pursuant to Rule 462(b) of the Rules and Regulations
relating thereto after the effective date of such registration statement, shall
also mean (from and after the effectiveness of such amendment or the filing of
such abbreviated registration statement) such registration statement as so
amended, together with any such abbreviated registration statement. The term
"Prospectus" as used in this Agreement shall mean the prospectus relating to the
Shares as included in such Registration Statement at the time it becomes
effective (including, if the

<PAGE>

Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of the
Registration Statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations); provided, however, that if in reliance on Rule
434 of the Rules and Regulations and with the consent of BancAmerica Robertson
Stephens, on behalf of the several Underwriters, the Company shall have provided
to the Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable,
prior to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of BancAmerica Robertson Stephens, on behalf of
the several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that
a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.

b. The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus or instituted proceedings for that purpose,
and each such Preliminary Prospectus has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and, as of its date,
has not included any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date (hereinafter defined)
and on any later date on which Option Shares are to be purchased, (i) the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained and will contain all material information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, (ii) the Registration Statement, and any amendments or supplements
thereto, did not and will not include any 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 (iii) the Prospectus, and any
amendments or supplements thereto, did not and will not include any 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 under which they were
made, not misleading; provided, however, that none

<PAGE>

of the representations and warranties contained in this paragraph (b) shall
apply to information contained in or omitted from the Registration Statement or
Prospectus, or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information relating to any Underwriter furnished to
the Company by such Underwriter specifically for use in the preparation thereof.

c. Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation with full power and authority (corporate and
other) to own, lease and operate its properties and conduct its business as
described in the Prospectus; the Company owns all of the outstanding capital
stock of its subsidiaries free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; each of the Company and its
subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the ownership or leasing of its
properties or the conduct of its business requires such qualification, except
where the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
authorizations, licenses, certificates, consents, orders and permits from state,
federal and other regulatory authorities which are material to the conduct of
its business, all of which are valid and in full force and effect; neither the
Company nor any of its subsidiaries is in violation of its respective charter or
bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company or any of its subsidiaries is
a party or by which it or any of its subsidiaries or their respective properties
may be bound; and neither the Company nor any of its subsidiaries is in material
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or over
their respective properties of which it has knowledge. The Company does not own
or control, directly or indirectly, any corporation, association or other entity
other than _____________________.

d. The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and is a valid
and binding agreement on the part of the Company, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles;

<PAGE>

the performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a material breach or violation of any of
the terms and provisions of, or constitute a default under, (i) any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of its subsidiaries or their respective properties
may be bound, (ii) the charter or bylaws of the Company or any of its
subsidiaries, or (iii) any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties. No consent, approval,
authorization or order of or qualification with any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective properties is
required for the execution and delivery of this Agreement and the consummation
by the Company or any of its subsidiaries of the transactions herein
contemplated, except such as may be required under the Act, the Securities
Exchange Act of 1934, as amended ("Exchange Act") or under state or other
securities or Blue Sky laws, all of which requirements have been satisfied in
all material respects.

e. There is not any pending or, to the best of the Company's knowledge,
threatened action, suit, claim or proceeding against the Company, any of its
subsidiaries or any of their respective officers or any of their respective
properties, assets or rights before any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective officers or properties or otherwise which
(i) might result in any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise or might materially and
adversely affect their properties, assets or rights, (ii) might prevent
consummation of the transactions contemplated hereby or (iii) is required to be
disclosed in the Registration Statement or Prospectus and is not so disclosed;
and there are no agreements, contracts, leases or documents of the Company or
any of its subsidiaries of a character required to be described or referred to
in the Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement by the Act or the Rules and Regulations which have not
been accurately described in all material respects in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement.

f. All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption "Capitalization"
and conforms in all material respects to the statements relating thereto
contained in the Registration Statement and the Prospectus (and such statements
correctly state the substance of the instruments defining the capitalization of
the Company); the Firm

<PAGE>

Shares and the Option Shares have been duly authorized for issuance and sale to
the Underwriters pursuant to this Agreement and, when issued and delivered by
the Company against payment therefor in accordance with the terms of this
Agreement, will be duly and validly issued and fully paid and nonassessable, and
will be sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
shareholders exists with respect to any of the Firm Shares or Option Shares or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon and will
not apply to the consummation of the transactions contemplated on the Closing
Date. No further approval or authorization of any shareholder, the Board of
Directors of the Company or others is required for the issuance and sale or
transfer of the Shares except as may be required under the Act, the Exchange Act
or under state or other securities or Blue Sky laws. All issued and outstanding
shares of capital stock of each subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and were not
issued in violation of or subject to any preemptive right, or other rights to
subscribe for or purchase shares and are owned by the Company free and clear of
any pledge, lien, security interest, encumbrance, claim or equitable interest.
Except as disclosed in the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, neither the
Company nor any subsidiary has outstanding any options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.

g. Arthur Andersen LLP, which has examined the consolidated financial
statements of the Company, together with the related schedules and notes, as of
[December 31, 1996] and the quarters ended ____, 1997 and ____, 1997 and for
each of the years in the three (3) years ended [December 31, 1996] filed with
the Commission as a part of the Registration Statement, which are included in
the Prospectus, are independent accountants within the meaning of the Act and
the Rules and Regulations; the audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all audited consolidated
financial statements of the Company, together with the related schedules and
notes, and the unaudited consolidated financial information, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration

<PAGE>

Statement present fairly the information shown therein and have been compiled on
a basis consistent with the audited financial statements presented therein. The
pro forma financial statements and the related notes thereto included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. No other financial statements or schedules are required to be included
in the Registration Statement.

h. Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise, (ii) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions entered into in
the ordinary course of business, (iii) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise, incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (iv) any change in the capital
stock or outstanding indebtedness of the Company or any of its subsidiaries that
is material to the Company and its subsidiaries considered as one enterprise,
(v) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries, or (vi) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise.

i. Except as set forth in the Registration Statement and Prospectus, (i)
each of the Company and its subsidiaries has good and marketable title to all
properties and assets described in the Registration Statement and Prospectus as
owned by it, free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise, (ii) the agreements to which the Company or any of its
subsidiaries is a party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company and its subsidiaries (as
applicable), except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles and, to the best of the Company's knowledge, the other contracting
party or parties thereto are not in material breach or material default under
any of such agreements, and (iii) each of the Company and its subsidiaries has
valid and enforceable leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to

<PAGE>

or affecting creditors' rights generally or by general equitable principles.
Except as set forth in the Registration Statement and Prospectus, the Company
owns or leases all such properties as are necessary to its operations as now
conducted or as proposed to be conducted.

j. The Company and its subsidiaries have timely filed all necessary
federal, state and foreign income and franchise tax returns and have paid all
taxes shown thereon as due, and there is no tax deficiency that has been or, to
the best of the Company's knowledge, might be asserted against the Company or
any of its subsidiaries that might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; and
all tax liabilities are adequately provided for on the books of the Company and
its subsidiaries.

k. The Company and its subsidiaries maintain insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied for; and
neither the Company nor any such subsidiary has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise.

l. To the best of Company's knowledge, no labor disturbance by the
employees of the Company or any of its subsidiaries exists or is imminent; and
the Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal suppliers that might be expected to result in
a material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise. No collective bargaining agreement exists with any
of the Company's employees and, to the best of the Company's knowledge, no such
agreement is imminent.

m. Each of the Company and its subsidiaries owns or possesses adequate
rights to use all patents, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names and copyrights which are necessary to
conduct its businesses as described in the Registration Statement and
Prospectus; the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise; the Company has

<PAGE>

not received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of the Company by others with respect to any
patent, patent rights, inventions, trade secrets, know-how, trademarks, service
marks, trade names or copyrights; and the Company has not received any notice
of, and has no knowledge of, any infringement of or conflict with asserted
rights of others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise.

n. The Common Stock has been approved for quotation on The Nasdaq
National Market, subject to official notice of issuance.

o. The Company has been advised concerning the Investment Company Act of
1940, as amended (the "1940 Act"), and the rules and regulations thereunder, and
has in the past conducted, and intends in the future to conduct, its affairs in
such a manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.

p. The Company has not distributed and will not distribute prior to the
later of (i) the Closing Date, or any date on which Option Shares are to be
purchased, as the case may be, and (ii) completion of the distribution of the
Shares, any offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectuses, the Prospectus, the Registration
Statement and other materials, if any, permitted by the Act.

q. Neither the Company nor any of its subsidiaries has at any time during
the last five (5) years (i) made any unlawful contribution to any candidate for
foreign office or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.

r. The Company has not taken and will not take, directly or indirectly,
any action designed to or that might reasonably be expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.

s. Each officer and director of the Company and each beneficial owner of
__________ or more shares of Common Stock has agreed in writing that such person
will not, for a period of 180 days from the date that the Registration Statement
is declared effective by the Commission (the "Lock-up Period"), offer to sell,
contract to sell, or otherwise sell, dispose of, loan, pledge or grant any
rights with respect to (collectively, a "Disposition") any shares of Common
Stock, any options or warrants to purchase any shares of Common Stock or any

<PAGE>

securities convertible into or exercisable or exchangeable for or that represent
the right to receive any shares of Common Stock or enter into any swap, option,
future, forward or other agreement that transfers, in whole or in part, the
economic consequences of ownership of the shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to partners or shareholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or (iii)
with the prior written consent of BancAmerica Robertson Stephens. The foregoing
restriction has been expressly agreed to preclude the holder of the Securities
from engaging in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a Disposition of Securities during
the Lock-up Period, even if such Securities would be disposed of by someone
other than such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person has also agreed and consented to the entry of stop transfer instructions
with the Company's transfer agent against the transfer of the Securities held by
such person except in compliance with this restriction. The Company has provided
to counsel for the Underwriters a complete and accurate list of all
securityholders of the Company and the number and type of securities held by
each securityholder. The Company has provided to counsel for the Underwriters
true, accurate and complete copies of all of the agreements pursuant to which
its officers, directors and shareholders have agreed to such or similar
restrictions (the "Lock-up Agreements") presently in effect or effected hereby.
The Company hereby represents and warrants that it will not release any of its
officers, directors or other shareholders from any Lock-up Agreements currently
existing or hereafter effected without the prior written consent of BancAmerica
Robertson Stephens.

t. Except as set forth in the Registration Statement and Prospectus, (i)
the Company is in compliance with all rules, laws and regulations relating to
the use, treatment, storage and disposal of toxic substances and protection of
health or the environment ("Environmental Laws") which are applicable to its
business, (ii) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws, which
claim is required to be disclosed in the Registration Statement and the
Prospectus, (iii) the Company will not be required to make future material
capital expenditures to comply with Environmental Laws and (iv) no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Response, Compensation, and
Liability Act of 1980, as amended (42 U.S.C. ss. 9601, et seq.), or otherwise
designated as a contaminated site under applicable state or local law.

<PAGE>

u. The Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.

v. There are no outstanding loans, advances (except normal advances for
business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.

3. Purchase, Sale and Delivery of Shares. 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 sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company shall be to purchase from the Company that
number of Firm Shares which is set forth opposite the name of such Underwriter
in Schedule A hereto (subject to adjustment as provided in Section 10).

Delivery of definitive certificates for the Firm Shares to be purchased by
the several Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by wire
transfer of immediately available funds to an account specified by the Company
in writing at the offices of Wolf, Block, Schorr & Solis-Cohen, 111 South 15th
Street, Packard Building, 12th Floor, Philadelphia, Pennsylvania 19102-2678 (or
at such other place as may be agreed upon among the Representatives and the
Company, at 10:00 A.M., New York time (i) on the third (3rd) full business day
following the first day that Shares are traded, (ii) if this Agreement is
executed and delivered after 4:30 P.M., New York time, the fourth (4th) full
business day following the day that this Agreement is executed and delivered or
(iii) at such other time and date not later than seven (7) full business days
following the first day that Shares are traded as the Representatives and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date;" provided, however,
that if the Company has not made available to the Representatives copies of the
Prospectus within the time provided in Section 4(d) hereof, the Representatives
may, in their sole discretion, postpone the Closing Date until no later than two
(2) full business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will be
made available

<PAGE>

to you at such office or such other location including, without limitation, in
New York City, as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the 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.

It is understood that you, individually, and not as the Representatives
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.

After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.

The information set forth in the last paragraph on the front cover page
(insofar as such information relates to the Underwriters), on the inside front
cover concerning stabilization and over-allotment by the Underwriters, and under
the _____ and _____ paragraphs under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement, and you, on behalf of
the respective Underwriters, represent and warrant to the Company that the
statements made therein do not include any 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.

4. Further Agreements of the Company. The Company agrees with the several
Underwriters that:

a. The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed;

<PAGE>

if the Company omitted information from the Registration Statement at the time
it was originally declared effective in reliance upon Rule 430A(a) of the Rules
and Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence satisfactory
to you that the Prospectus and term sheet meeting the requirements of Rule
434(b) or (c), as applicable, of the Rules and Regulations, have been filed,
within the time period prescribed, with the Commission pursuant to subparagraph
(7) of Rule 424(b) of the Rules and Regulations; if for any reason the filing of
the final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in the opinion of counsel for the
several Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters; it will
promptly prepare and file with the Commission, and promptly notify you of the
filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
any 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
under which they were made, not misleading; in case any Underwriter is required
to deliver a prospectus nine (9) months or more after the effective date of the
Registration Statement in connection with the sale of the Shares, it will
prepare promptly upon request, but at the expense of such Underwriter, such
amendment or amendments to the Registration Statement and such prospectus or
prospectuses as may be necessary to permit compliance with the requirements of
Section 10(a)(3) of the Act; and it will file no amendment or supplement to the
Registration Statement or Prospectus which shall not previously have been
submitted to you a reasonable time prior to the proposed filing thereof or to
which you shall reasonably object in writing, subject, however, to compliance
with the Act and the Rules and Regulations, the Exchange Act and the rules and
regulations of the Commission thereunder and the provisions of this Agreement.

b. The Company will advise you, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the Commission suspending
the effectiveness of the Registration Statement or of the initiation or threat
of any proceeding for that purpose; and it will promptly use its best efforts to
prevent the issuance of any stop order or to obtain its withdrawal at the
earliest possible moment if such stop order should be issued.

<PAGE>

c. The Company will use its best efforts to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction.

d. The Company will furnish to you, as soon as available, and, in the
case of the Prospectus and any term sheet or abbreviated term sheet under Rule
434, in no event later than the first (1st) full business day following the
first day that Shares are traded, copies of the Registration Statement (three of
which will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if BancAmerica Robertson Stephens, on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.

e. The Company will make generally available to its securityholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.

f. During a period of five (5) years after the date hereof, the Company
will furnish to its shareholders as soon as practicable after the end of each
respective period, annual reports (including financial statements audited by
independent certified public accountants) and unaudited quarterly reports of
operations for each of the first three quarters of the fiscal year, and will
furnish to you and the other several Underwriters hereunder, upon request (i)
concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or

<PAGE>

filed with the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. ("NASD"), (v) every material press release and every
material news item or article in respect of the Company or its affairs which was
generally released to shareholders or prepared by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the Company shall have active
subsidiaries, the foregoing financial statements shall be on a consolidated
basis to the extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for any
significant subsidiary which is not so consolidated.

g. The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.

h. The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company, a registrar (which may be the same
entity as the transfer agent) for its Common Stock.

i. If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all out-of-pocket expenses (including
fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in
investigating or preparing to market or marketing the Shares.

j. If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to you, responding to or commenting on such rumor, publication or event.

k. During the Lock-up Period, the Company will not, without the prior
written consent of BancAmerica Robertson Stephens, effect the Disposition of,
directly or indirectly, any Securities other than the sale of the Firm Shares
and the Option Shares hereunder

<PAGE>

and the Company's issuance of options or Common Stock under the Company's
presently authorized 1995 Company Stock Option Plan, 1995 Affiliate Stock Option
Plan and 1997 Stock Incentive Plan (collectively, "Option Plans").

l. During a period of ninety (90) days from the effective date of the
Registration Statement, the Company will not file a registration statement
registering shares under the Option Plans or other employee benefit plan.

5. Expenses. The Company agrees with each Underwriter that:

a. The Company will pay and bear all costs and expenses in connection
with the preparation, printing and filing of the Registration Statement
(including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel for the Company; all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel in connection with such NASD filings and
Blue Sky qualifications); and all other expenses directly incurred by the
Company in connection with the performance of their obligations hereunder.

b. In addition to its other obligations under Section 8(a) hereof, the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding described in Section 8(a)
hereof, it will reimburse the Underwriters on a monthly basis for all reasonable
legal 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 Underwriters
shall promptly return such payment to the Company 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) listed from time to
time in The Wall Street Journal which represents the base rate on corporate
loans posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement

<PAGE>

payments which are not made to the Underwriters within thirty (30) days of a
request for reimbursement shall bear interest at the Prime Rate from the date of
such request.

c. It is agreed that any controversy arising out of the operation of the
interim reimbursement arrangements set forth in Section 5(b) hereof, including
the amounts of any requested reimbursement payments, the method of determining
such amounts and the basis on which such amounts shall be apportioned among the
reimbursing parties, shall be settled by arbitration conducted under the
provisions of the Constitution and Rules of the Board of Governors of the New
York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of
the NASD. Any such arbitration must be commenced by service of a written demand
for arbitration or a written notice of intention to arbitrate, therein electing
the arbitration tribunal. In the event the party demanding arbitration does not
make such designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Section 5(b) hereof and will not resolve the ultimate
propriety or enforceability of the obligation to indemnify for expenses which is
created by the provisions of Sections 8(a) and 8(b) hereof or the obligation to
contribute to expenses which is created by the provisions of Section 8(d)
hereof.

6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company herein, to the performance by
the Company of their respective obligations hereunder and to the following
additional conditions:

a. The Registration Statement shall have become effective not later than
9:00 A.M., New York time, on the date following the date of this Agreement, or
such later date as shall be consented to in writing by you; and no stop order
suspending the effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been initiated or, to the knowledge of the Company
or any Underwriter, threatened by the Commission, 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 the
satisfaction of Underwriters' Counsel.

b. All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares, shall have
been reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this Section.

<PAGE>

c. Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.

d. You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, the following
opinion of counsel for the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased addressed to the Underwriters and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:

(i) The Company and each Significant Subsidiary (as that term is
defined in Regulation S-X of the Act) has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation;

(ii) The Company and each Significant Subsidiary has the corporate
power and authority to own, lease and operate its properties and to conduct
its business as described in the Prospectus;

(iii) The Company and each Significant Subsidiary is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the ownership or leasing of its properties
or the conduct of its business requires such qualification, except where
the failure to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company and its subsidiaries
considered as one enterprise. To such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation, association or
other entity other than __________________________________;

(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption
"Capitalization" as of the dates stated therein, the issued and outstanding
shares of capital stock of the Company have been duly and validly issued
and are fully paid and nonassessable, and, to such counsel's knowledge,
will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right;

<PAGE>

(v) All issued and outstanding shares of capital stock of each
Significant Subsidiary of the Company have been duly authorized and validly
issued and are fully paid and nonassessable, and, to such counsel's
knowledge, have not been issued in violation of or subject to any
preemptive right, co-sale right, registration right, right of first refusal
or other similar right and are owned by the Company free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest;

(vi) The Firm Shares or the Option Shares, as the case may be, to be
issued by the Company pursuant to the terms of this Agreement have been
duly authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully
paid and nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right, right
of first refusal or other similar right.

(vii) The Company has the corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder;

(viii) This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly executed and
delivered by the Company;

(ix) The Registration Statement has become effective under the Act
and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;

(x) The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements
(including supporting schedules) and financial data derived therefrom as
to which such counsel need express no opinion), as of the effective date of
the Registration Statement, complied as to form in all material respects
with the requirements of the Act and the applicable Rules and Regulations;

(xi) The information in the Prospectus under the caption
"Description of Capital Stock," to the extent that it constitutes matters
of law or legal conclusions, has been reviewed by such counsel and is a
fair summary of such matters and conclusions; and the forms of certificates
evidencing the Common Stock and filed as exhibits to the Registration
Statement comply with Pennsylvania law;

<PAGE>

(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes,
regulations or legal or governmental proceedings are accurate and fairly
present the information required to be presented by the Act and the
applicable Rules and Regulations;

(xiii) To such counsel's knowledge, there are no agreements,
contracts, leases or documents to which the Company is a party of a
character required to be described or referred to in the Registration
Statement or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required;

(xiv) The performance of this Agreement and the consummation of the
transactions herein contemplated (other than performance of the Company's
indemnification obligations hereunder, concerning which no opinion need be
expressed) will not result in any violation of the Company's charter or
bylaws or to such counsel's knowledge, result in a material breach or
violation of any of the terms and provisions of, or constitute a default
under, any bond, debenture, note or other evidence of indebtedness, or any
lease, contract, indenture, mortgage, deed of trust, loan agreement, joint
venture or other agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to such counsel's
knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries, or over any of their properties or operations;

(xv) No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations is necessary in connection with the
consummation by the Company of the transactions herein contemplated, except
such as have been obtained under the Act or such as may be required under
state or other securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters;

(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company or any
of its subsidiaries of a character required to be disclosed in the
Registration Statement or the Prospectus by the Act or the Rules and
Regulations, other than those described therein;

(xvii) To such counsel's knowledge, neither the Company nor any of
its subsidiaries is presently in material violation of its respective
charter or bylaws,

<PAGE>

or in material breach of any applicable statute, rule or regulation known
to such counsel or, to such counsel's knowledge, any order, writ or decree
of any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries, or over any of their properties or
operations;

(xviii) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or other
securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration
Statement and Prospectus, all holders of securities of the Company having
rights known to such counsel to registration of such shares of Common Stock
or other securities, because of the filing of the Registration Statement by
the Company have, with respect to the offering contemplated thereby, waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement or have included securities in the Registration Statement
pursuant to the exercise of and in full satisfaction of such rights; and

(xviv) The Company is not an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
1940 Act.

In addition, such counsel shall state that such counsel has participated
in conferences with officials and other representatives of the Company, the
Representatives, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although they have not verified the accuracy or completeness of the statements
contained in the Registration Statement or the Prospectus, nothing has come to
the attention of such counsel which leads them to believe that, at the time the
Registration Statement became effective and at all times subsequent thereto up
to and on the Closing Date and on any later date on which Option Shares are to
be purchased, the Registration Statement and any amendment or supplement thereto
(other than the financial statements including supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Shares are to be purchased, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto (except as aforesaid) contained any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Pennsylvania upon
opinions of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so

<PAGE>
22

relied upon shall be delivered to you, as Representatives of the Underwriters,
and to Underwriters' Counsel.

e. You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, an opinion of
Shearman & Sterling, in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.

f. You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a letter from
Arthur Anderson LLP addressed to the Underwriters, dated the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in such letter delivered
to you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Anderson LLP
shall be addressed to or for the use of the Underwriters in form and substance
satisfactory to the Underwriters and shall (i) represent, to the extent true,
that they are independent certified public accountants with respect to the
Company within the meaning of the Act and the applicable published Rules and
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of [December 31, 1996] and
related consolidated statements of operations, shareholders' equity, and cash
flows for the twelve (12) months ended [December 31, 1996], (iii) state that
Arthur Anderson LLP has performed the procedures set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Arthur Anderson LLP as described in SAS
71 on the financial statements for each of the quarters in the ____-quarter
period ended ________________, 1997 (the "Quarterly Financial Statements"), (iv)
state that

<PAGE>
23

in the course of such review, nothing came to their attention that leads them to
believe that any material modifications need to be made to any of the Quarterly
Financial Statements in order for them to be in compliance with generally
accepted accounting principles consistently applied across the periods
presented, and (v) address other matters agreed upon by Arthur Anderson LLP and
you. In addition, you shall have received from Arthur Anderson LLP a letter
addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of [December 31, 1996] did not disclose any weaknesses in internal controls that
they considered to be material weaknesses.

g. You shall have received on the Closing Date and on any later date on
which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:

(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may
be, 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 the
Closing Date or any later date on which Option Shares are to be purchased,
as the case may be;

(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;

(iii) When the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained all material information required to be
included therein by the Act and the Rules and Regulations and in all
material respects conformed to the requirements of the Act and the Rules
and Regulations, the Registration Statement, and any amendment or
supplement thereto, did not and does not include any 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, the
Prospectus, and any amendment or supplement thereto, did not and does not
include any 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 under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required

<PAGE>
24

to be set forth in an amended or supplemented Prospectus which has not been
so set forth; and

(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise, any transaction that is material
to the Company and its subsidiaries considered as one enterprise, except
transactions entered into in the ordinary course of business, any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of
business, any change in the capital stock or outstanding indebtedness of
the Company or any of its subsidiaries that is material to the Company and
its subsidiaries considered as one enterprise, any dividend or distribution
of any kind declared, paid or made on the capital stock of the Company or
any of its subsidiaries, or any loss or damage (whether or not insured) to
the property of the Company or any of its subsidiaries which has been
sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company and its subsidiaries considered as one
enterprise.

h. The Company shall have obtained and delivered to you an agreement from
each officer and director of the Company, and each beneficial owner of ________
or more shares of Common Stock in writing prior to the date hereof that such
person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to partners or shareholders of such person, provided that the distributees
thereof agree in writing to be bound by the terms of this restriction, or (iii)
with the prior written consent of BancAmerica Robertson Stephens. The foregoing
restriction shall have been expressly agreed to preclude the holder of the
Securities from engaging in any hedging or other transaction which is designed
to or reasonably expected to lead to or result in a Disposition of Securities
during the Lock-up Period, even if such Securities would be disposed of by
someone other than the such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities. Furthermore, such person will have also agreed and consented to the
entry of stop transfer instructions with the Company's transfer agent against
the transfer of the Securities held by such person except in compliance with
this restriction.

<PAGE>
25

i. The Company shall have furnished to you such further certificates and
documents as you shall reasonably request (including certificates of officers of
the Company as to the accuracy of the representations and warranties of the
Company herein, as to the performance by the Company of its [their respective]
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.

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

7. Option Shares.

a. 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, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to an aggregate of ________ Option
Shares at the purchase price per share for the Firm Shares set forth in Section
3 hereof. Such option may be exercised by the Representatives on behalf of the
several Underwriters on one (1) or more occasions in whole or in part during the
period of thirty (30) days after the date on which the Firm Shares are initially
offered to the public, by giving written notice to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by the Representatives
in such manner as to avoid fractional shares.

Delivery of definitive certificates for the Option Shares to be purchased
by the several Underwriters pursuant to the exercise of the option granted by
this Section 7 shall be made against payment of the purchase price therefor by
the several Underwriters by wire transfer of immediately available funds to an
account specified by the Company in writing. In the event of any breach of the
foregoing, the Company shall reimburse the Underwriters for the interest lost
and any other expenses borne by them by reason of such breach. Such delivery and
payment shall take place at the offices of Wolf, Block, Schorr & Solis-Cohen,
111 South 15th Street, Packard Building, 12th Floor, Philadelphia, Pennsylvania
19102-2678 or at such other place as may be agreed upon among the
Representatives and the Company (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company at least two (2) full
business days prior to the Closing Date, or (ii) on a date which shall not be
later than the third (3rd) full business day following the date the Company
receives written notice of the exercise

<PAGE>
26

of such option, if such notice is received by the Company less than two (2) full
business days prior to the Closing Date.

The certificates for the Option Shares to be so delivered will be made
available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and denominations as you may request, such request to be
made at least two (2) full business days prior to such date of payment and
delivery. 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.

It is understood that you, individually, and not as the Representatives of
the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the date of payment and
delivery for the Option Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter or
Underwriters of any of its or their obligations hereunder.

b. Upon exercise of any option provided for in Section 7(a) hereof, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company or the satisfaction of any of the conditions herein contained.

8. 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 (including, without limitation, in its
capacity as an Underwriter or as a "qualified independent underwriter" within
the meaning of Schedule E of the Bylaws of the NASD), under the Act, the
Exchange Act or otherwise, specifically including, but not limited to, losses,
claims, damages or liabilities (or actions in respect thereof) arising out of or
based upon (i) any breach of any representation, warranty, agreement or covenant
of the Company

<PAGE>
27

herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or 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, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein 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, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any 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,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof.

The indemnity agreement in this Section 8(a) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each person, if any,
who controls any Underwriter within the meaning of the Act or the Exchange Act.
This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.

b. Each Underwriter, severally and not jointly, agrees to indemnify and
hold harmless the Company against any losses, claims, damages or liabilities,
joint or several, to which the Company may become subject under the Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities (or actions in respect thereof) arising out of or based upon (i)
any breach of any representation, warranty, agreement or covenant of such
Underwriter herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or any
amendment or supplement thereto, or 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, or (iii) any untrue statement or alleged
untrue statement of any material fact contained in any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or the omission or
alleged omission to state

<PAGE>
28

therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, 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 with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company for any legal or other expenses reasonably incurred by the Company
in connection with investigating or defending any such loss, claim, damage,
liability or action.

The indemnity agreement in this Section 8(b) shall extend upon the same
terms and conditions to, and shall inure to the benefit of, each officer of the
Company who signed the Registration Statement and each director of the Company,
and each person, if any, who controls the Company within the meaning of the Act
or the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which each Underwriter may otherwise have.

c. Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8. In case any such action is brought against any indemnified
party, and it notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the extent
that it shall elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of the indemnifying party's
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a)
and 8(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of

<PAGE>
29

commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
consent shall not be unreasonably withheld. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnification could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding.

d. In order to provide for just and equitable contribution in any action
in which a claim for indemnification is made pursuant to this Section 8 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 8 provides for indemnification
in such case, all the parties hereto shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Underwriters severally and not
jointly are responsible pro rata for the portion represented by the percentage
that the underwriting discount bears to the initial public offering price, and
the Company are responsible for the remaining portion, provided, however, that
(i) no Underwriter shall be required to contribute any amount in excess of the
amount by which the underwriting discount applicable to the Shares purchased by
such Underwriter exceeds the amount of damages which such Underwriter has
otherwise required to pay and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter, the Company within the meaning of
the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.

e. The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.

9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements

<PAGE>
30

contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any of its officers,
directors or controlling persons within the meaning of the Act or the Exchange
Act, and shall survive the delivery of the Shares to the several Underwriters
hereunder or termination of this Agreement.

10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.

If any Underwriter or Underwriters so defaults and the aggregate number
of Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or underwriters
shall have been substituted as aforesaid by such postponed Closing Date, the
Closing Date may, at the option of the Company, be postponed for a further
twenty-four (24) hours, if necessary, to allow the Company the privilege of
finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and pay
for all such Firm Shares so agreed to be purchased by the defaulting Underwriter
or Underwriters or

<PAGE>
31

substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.

In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company shall be liable to
any Underwriter (except as provided in Sections 5 and 8 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 number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company, and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 5 and 8 hereof).

The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.

11. Effective Date of this Agreement and Termination.

a. This Agreement shall become effective at the earlier of (i) 9:00 A.M.,
New York time, on the first full business day following the effective date of
the Registration Statement, or (ii) the time of the initial public offering of
any of the Shares by the Underwriters after the Registration Statement becomes
effective. The time of the initial public offering shall mean the time of the
release by you, for publication, of the first newspaper advertisement relating
to the Shares, or the time at which the Shares are first generally offered by
the Underwriters to the public by letter, telephone, telegram or telecopy,
whichever shall first occur. By giving notice as set forth in Section 12 before
the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company, may prevent this Agreement from becoming
effective without liability of any party to any other party, except as provided
in Sections 4(j), 5 and 8 hereof.

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 on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed, refused or been unable to perform any agreement on its part
to be performed, or because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise from that set forth in the Registration Statement
or Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional material governmental restrictions, not in force and effect on the
date hereof, shall have been imposed upon trading in securities generally or
minimum or maximum prices shall have been generally established on the New York
Stock Exchange or on

<PAGE>
32

the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured, or (iv)
if there shall have been a material adverse change in the general political or
economic conditions or financial markets as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities or of any other insurrection or armed conflict or the declaration by
the United States of a national emergency which, in the reasonable opinion of
the Representatives, makes it impracticable or inadvisable to proceed with the
public offering of the Shares as contemplated by the Prospectus. In the event of
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in Sections
5 and 8 hereof.

If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.

12. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or faxed (and confirmed
by letter) to you c/o BancAmerica Robertson Stephens, 590 Madison Avenue, 36th
Floor, New York, New York 10022, facsimile number (212) 407-0486, Attention:
General Counsel; if sent to the Company, such notice shall be mailed, delivered,
telegraphed (and confirmed by letter) or faxed (and confirmed by letter) to U.S.
Physicians, Inc., 220 Commerce Drive, Suite 300, Fort Washington, Pennsylvania
19034, facsimile number (215) 542-0380, Attention: Thomas J. Keane, Chairman,
President and Chief Executive Officer.

13. Parties. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters and the Company and their respective executors,
administrators, successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or entity, other
than the parties hereto and their respective executors, administrators,
successors and assigns, and the controlling persons within the meaning of the
Act or the Exchange Act, officers and directors referred to in Section 8 hereof,
any legal or equitable right, remedy or claim in respect of this Agreement or
any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and

<PAGE>
33

being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors and assigns and said
controlling persons and said officers and directors, and for the benefit of no
other person or entity. No purchaser of any of the Shares from any Underwriter
shall be construed a successor or assign by reason merely of such purchase.

In all dealings with the Company under this Agreement, you shall act on
behalf of each of the several Underwriters, and the Company shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by BancAmerica Robertson Stephens on behalf of you.

14. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.

15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.

<PAGE>
34

If the foregoing correctly sets forth the understanding among the Company
and the several Underwriters, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
the Company and the several Underwriters.

Very truly yours,

U.S. PHYSICIANS, INC.

By _______________________

Accepted as of the date first above written:

BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES,INC.
PIPER JAFFRAY INC.

On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.

By BANCAMERICA ROBERTSON STEPHENS

By ________________________________________
Authorized Signatory

<PAGE>

SCHEDULE A

Number of
Firm Shares
To Be
Underwriters Purchased
____________ __________

<PAGE>

SCHEDULE B

Number of
Firm
Shares To
Company Be Sold
_______ _________

SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION

U.S. PHYSICIANS, INC.

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

Pursuant to Sections 1914 and 1915 of
the Pennsylvania Business Corporation Law

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

U.S. PHYSICIANS, Inc., a Pennsylvania corporation (the "Corporation"),
incorporated on July 14, 1994, does hereby amend and restate its Articles of
Incorporation to read in its entirety as set forth in Schedule I attached
hereto.

IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Articles of Incorporation to be duly adopted in accordance with the
provisions of Sections 1914 and 1915 of the Business Corporation Law of the
Commonwealth of Pennsylvania ("Pennsylvania BCL") and to be executed in its
corporate name on November 22, 1996.

U.S. PHYSICIANS, Inc.

By: /s/ John M. Hogan
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Schedule I

SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
U.S. PHYSICIANS, INC.

(A Pennsylvania Corporation)

FIRST. Corporate Name. The name of the corporation is U.S. PHYSICIANS,
Inc. (hereinafter referred to as the "Corporation").

SECOND. Registered Office. The locations and post office address of the
registered office of the Corporation in the Commonwealth of Pennsylvania is 220
Commerce Drive, Suite 400, Fort Washington, PA 19034 in the County of
Montgomery.

THIRD. Governing Law. The Corporation is incorporated under the
provisions of the Pennsylvania BCL.

FOURTH. Corporate Purposes. The purposes for which the Corporation is
incorporated under the Pennsylvania BCL are to engage in, and to do any lawful
act concerning, any or all lawful business for which corporations may be
incorporated under said Pennsylvania BCL, including, but not limited to,
acquisition and management of physician practices.

FIFTH. Corporate Existence. The term of existence of the Corporation is
perpetual.

SIXTH. Capital Stock. The aggregate number of shares which the
corporation shall have authority to issue is Twenty-Eight Million Ninety-Four
Thousand One Hundred Fifty-One (28,094,151) shares consisting of:

(a) Twenty-Five Million (25,000,000) shares of Common Stock, par value
$.01; and

(b) Three Million Ninety-Four Thousand One Hundred Fifty-One
(3,094,151) shares of Preferred Stock, par value $.10.

SEVENTH. Preferred Stock.

(a) The Board of Directors of the Corporation (the "Board of
Directors") shall have the full authority permitted by law to fix by resolution
full, limited, multiple or fractional or no voting rights, and such
designations, preferences, qualifications, privileges, limitations,
restrictions, options, conversion rights, and other special or relative rights
of the Preferred Stock

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or any series of the Preferred Stock that may be desired and which have not been
fixed in these Articles.

(b) Unless otherwise provided in any resolution hereafter adopted by
the Board of Directors pursuant to this Article Seventh and filed in the manner
provided by law, the terms of the Preferred Stock to be issued by the Company
shall be as set forth in Exhibit A hereto.

EIGHTH. Shareholders.

(a) Shareholders of the Corporation shall not have the right to
cumulate their votes for the election of directors of the Corporation.

(b) Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting upon the written consent of the
shareholders who would have been entitled to cast the minimum number of votes
that would be necessary to authorize the action at a meeting at which all
shareholders entitled to vote thereon were present and voting.

NINTH. Board of Directors.

(a) The Board of Directors shall consist of such number of directors as
shall be fixed from time to time by resolutions adopted by a majority of all the
directors then in office.

(b) The directors of the Corporation shall not be personally liable, as
such, for monetary damages for any action taken, or any failure to take any
action, except as specifically provided in the Pennsylvania BCL, as the same may
be amended from time to time. In addition, the Corporation shall, to the fullest
extent permitted by the provisions of the Pennsylvania BCL relating to the
indemnification and advancement of expenses, as the same may be amended from
time to time, indemnity and advance expenses for the benefit of any and all
directors and representatives of the Corporation and any and all other persons
whom the Corporation shall have the power to indemnify under said provisions
from and against any and all of the expenses, liabilities, or other matters
referred to in or covered by said provisions, and the indemnification provided
for herein shall not be deemed exclusive of any other rights to which those
indemnified may be entitled to under any Bylaw, vote of shareholders or
disinterested directors, or otherwise, both as to action in official capacity
and as to action in another capacity while holding such office, and shall
continue as to any person who has ceased to be a director, officer, employee, or
agent and shall insure to the benefit of heirs, executors and administrators of
such person.

TENTH. Proposal of Amendments. Notwithstanding the provisions of
Section 1912(a)(2) of the Pennsylvania BCL, every amendment of these Second
Amended and Restated Articles of Incorporation of the Corporation shall be
proposed by the adoption by the Board of Directors of a resolution setting forth
the proposed amendment.

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ELEVENTH. Headings. Any headings preceding the text of the several
Articles, parts and paragraphs hereof are solely for the convenience of
reference and shall not constitute a part of these Articles or affect their
meaning, construction or effect.

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EXHIBIT A

to Second Amended and Restated Articles
of Incorporation of U.S. PHYSICIANS, Inc.

SERIES A CONVERTIBLE PREFERRED STOCK AND

SERIES B CONVERTIBLE PREFERRED STOCK

1. Number of shares. The series of Preferred Stock designated and known
as "Series A Convertible Preferred Stock" shall consist of 1,506,849 shares. The
series of Preferred Stock designated and known as "Series B Convertible
Preferred Stock" shall consist of 1,587,302 shares. The Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock are sometimes
collectively referred to herein as the "Convertible Preferred Stock."

2. Voting.

2A. General. Except as may be otherwise provided in these terms of
the Series A Convertible Preferred Stock and the Series B Convertible Preferred
Stock or by law, the Series A Convertible Preferred Stock and the Series B
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all actions to be taken
by the stockholders of the Corporation. Each share of Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock shall entitle the
holder thereof to such number of votes per share on each such action as shall
equal the number of shares of Common Stock (including fractions of a share) into
which each share of Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock, as applicable, is then convertible.

2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of each of the
then outstanding shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as two separate series,
increase the maximum number of directors constituting the Board of Directors to
a number in excess of seven (7).

2C. Board Seats. The holders of the Series A Convertible Preferred
Stock, voting as a separate series, shall be entitled to elect two (2) directors
of the Corporation (the "Series A Directors"). The holders of the Series B
Convertible Preferred Stock, voting as a separate series, shall be entitled to
elect one (1) director of the Corporation (the "Series B Director"). The holders
of the Common Stock, voting as a separate class, shall be entitled to elect
three (3) directors of the Corporation. A seventh director (the "Seventh
Director") of the Corporation shall be such person, if any, who has received a
plurality vote of the holders of the

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Common Stock, voting as a separate class, and a plurality vote of the holders of
the Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock, voting together as a separate series. Notwithstanding the foregoing or
anything else to the contrary provided in the Articles of Incorporation of the
Corporation, if the Corporation fails or refuses, for any reason or for no
reason, to redeem on any Redemption Date (as defined in Paragraph 7) all of the
shares of Convertible Preferred Stock required to be redeemed on such Redemption
Date in accordance with the terms and provisions of Paragraph 7 (a "Redemption
Default"), the holders of the Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock, voting together as a separate series, shall be
entitled to elect a majority of the directors of the Corporation. At any meeting
(or in a written consent in lieu thereof) held for the purpose of electing
directors, the presence in person or by proxy (or the written consent) of (i)
the holders of a majority of the shares of Series A Convertible Preferred Stock
or Series B Convertible Preferred Stock then outstanding shall constitute a
quorum of the Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock, as applicable, for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock or the Series
B Convertible Preferred Stock; or (ii) the holders of a majority of the
aggregate shares of Series A Convertible Preferred Stock and Series B
Convertible Preferred Stock then outstanding (calculated in accordance with
Paragraph 2A above) shall constitute a quorum of such shares for the election of
the Seventh Director. A vacancy in any directorship elected by the holders of
the Series A Convertible Preferred Stock or the Series B Convertible Preferred
Stock shall be filled only by vote or written consent of the holders of the
Series A Convertible Preferred Stock or the Series B Convertible Preferred
Stock, as applicable. A vacancy in any directorship elected by the holders of
the Common Stock shall be filled only by vote or written consent of the holders
of the Common Stock and a vacancy in the directorship elected jointly by the
holders of the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the Common Stock shall be filled only by vote or written
consent of the Series A Convertible Preferred Stock, the Series B Convertible
Preferred Stock and the Common Stock as provided above; provided, however, that
in the event of a Redemption Default the holders of the Series A Convertible
Preferred Stock and the Series B Convertible Preferred Stock, voting together as
a separate series, shall be entitled to remove the Seventh Director. With
respect to any other action by shareholders, the presence in person or by proxy
(or by written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Common
Stock (calculated in accordance with Paragraph 2A above), voting as a single
class, shall constitute a quorum for the consideration of any business.

3. Dividends. The holders of the Convertible Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors, quarterly dividends at the rate per annum of
$.073 per share of Series A Convertible Preferred Stock and $.1575 per share of
Series B Convertible Preferred Stock (the "Accruing Dividends"). Accruing
Dividends shall accrue from day to day whether or not earned or declared, and
shall be cumulative.

4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Convertible Preferred

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Stock shall be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Convertible Preferred Stock, to be
paid an amount equal to $1.46 per share of Series A Convertible Preferred Stock
and $3.15 per share of Series B Convertible Preferred Stock plus, in the case of
each share, an amount equal to all Accruing Dividends unpaid thereon (whether or
not declared) and any other dividends declared but unpaid thereon, computed to
the date payment thereof is made available (such amount being referred to as the
"Base Liquidation Amount"), provided that, as to any Convertible Preferred
Stock, holders shall receive, in lieu of the Base Liquidation Amount, the amount
per share, if greater than the Base Liquidation Amount, that would be payable to
each holder of one share of Convertible Preferred Stock in connection with such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, had all of the holders of Convertible Preferred Stock converted
into shares of Common Stock (including for purposes of this Paragraph 4, any
fractional shares of Common Stock issuable upon the conversion of one share of
Convertible Preferred Stock) immediately prior to such liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary. The amount
payable with respect to one share of Convertible Preferred Stock pursuant to
this Paragraph 4 is hereinafter referred to as the "Liquidation Preference
Payment" and with respect to all shares of Convertible Preferred Stock being
sometimes referred to as the "Liquidation Preference Payments." If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Convertible
Preferred Stock shall be insufficient to permit payment in full to the holders
of Convertible Preferred Stock of the Liquidation Preference Payments, then the
entire assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Convertible Preferred Stock based upon the
percentage of total Liquidation Preference Payments to which each such holder is
entitled. Upon any such liquidation, dissolution or winding up of the
Corporation, immediately after the holders of Convertible Preferred Stock shall
have been paid in full the Liquidation Preference Payments, the remaining net
assets of the Corporation available for distribution shall be distributed
ratably among the holders of Common Stock and all other classes or series of
stock ranking on liquidation junior to the Convertible Preferred Stock. Written
notice of such liquidation, dissolution or winding up, stating a payment date,
the amount of the Liquidation Preference Payments, and the place where said
payments shall be made, shall be delivered in person, mailed by certified or
registered mail, return receipt requested or sent by telecopier or telex, not
less than 20 days prior to the payment date stated therein, to the holders of
record of Convertible Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation. Unless
otherwise agreed to by the holders of at least 66-2/3% of the then outstanding
shares of Convertible Preferred Stock, consenting in writing or voting
separately as two separate series, any consolidation or merger involving the
Corporation and any other entity or entities (other than a merger to
reincorporate the Corporation in a different jurisdiction), and the sale, lease,
abandonment, transfer or other disposition by the Corporation of all or
substantially all its assets, shall be-deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
Paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Convertible Preferred Stock.

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5. Restrictions. At any time when shares of Convertible Preferred Stock
are outstanding, except where the vote or written consent of the holders of a
greater number of shares of the Corporation is required by law or by the
Articles of Incorporation and in addition to any other vote required by law or
the Articles of Incorporation, without the approval of the holders of at least
66-2/3% of the then outstanding shares of Convertible Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the case may be)
separately as two separate series, the Corporation will not:

5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, or increase the authorized amount of the Convertible Preferred
Stock or increase the authorized amount of any additional class or series of
shares of stock unless the same ranks junior to the Convertible Preferred Stock
as to the distribution of assets on the liquidation, dissolution or winding up
of the Corporation, or create or authorize any obligation or security
convertible into shares of Series A Convertible Preferred Stock or Series B
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Convertible Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Articles of Incorporation or by merger, consolidation
or otherwise;

5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities or
sell, lease, abandon, transfer or otherwise dispose of all or substantially all
its assets;

5C. Amend, alter or repeal its Articles of Incorporation or amend or
alter its By-laws, unless, in the case of an amendment or alteration of its
By-laws, such amendment or alteration, is approved by a majority of the
directors, which majority must include both of the Series A Directors and the
Series B Director.

5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than on both
series of Convertible Preferred Stock, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and except for the purchase of shares of Common Stock
from former employees of the Corporation who acquired such shares directly from
the Corporation, if each such purchase is made pursuant to contractual rights
held by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or

5E. Redeem or otherwise acquire any shares of Convertible Preferred
Stock except as expressly authorized in Paragraph 7 hereof or pursuant to a

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purchase offer made pro rata to all holders of the shares of Convertible
Preferred Stock on the basis of the aggregate number of outstanding shares of
Convertible Preferred Stock then held by each such holder.

5F. Increase the authorized amount of either series of the
Convertible Preferred Stock or create or authorize any obligation or security
convertible into shares of either series of the Convertible Preferred Stock.

6. Conversions. The holders of shares of Convertible Preferred Stock
shall have the following conversion rights:

6A. Right to Convert. Subject to the terms and conditions of this
Paragraph 6, the holder of any share or shares of Convertible Preferred Stock
shall have the right, at its option at any time, to convert any such shares of
Convertible Preferred Stock (except that upon any liquidation of the Corporation
the right of conversion shall terminate at the close of business on the business
day fixed for payment of the amount distributable on the Convertible Preferred
Stock) into such number of fully paid and nonassessable shares of Common Stock
as is obtained by (i) multiplying the number of shares of Convertible Preferred
Stock so to be converted by $1.46 subject to further adjustment pursuant to the
terms of Paragraph 6 (with respect to shares of Series A Convertible Preferred
Stock) or $3.15 subject to further adjustment pursuant to the terms of Paragraph
6 (with respect to shares of Series B Convertible Preferred Stock) (the "Initial
Conversion Price") and (ii) dividing the result by the applicable Initial
Conversion Price with respect to the Series A Convertible Preferred Stock and/or
the Series B Convertible Preferred Stock, as applicable, or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this Paragraph 6 then by the conversion price as last adjusted and in effect at
the date any share or shares of Convertible Preferred Stock are surrendered for
conversion (such price, or such price as last adjusted, being referred to as the
"Conversion Price"). Upon the consummation of a Liquidity Event (as defined
below) on or prior to December 31, 1999 at a Transaction Price (as defined
below) of less than $9.45 (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F subsequent to December 25, 1996), the
Conversion Price of the Series B Convertible Preferred Stock shall automatically
become, effective immediately prior to such consummation, one-third of such
Transaction Price; provided, however, that if the Transaction Price is $3.60 or
less (appropriately adjusted as described above), such Conversion Price shall
automatically become $1.20 (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F subsequent to December 25, 1996). Upon
the consummation of a Liquidity Event on or subsequent to January 1, 2000 at a
Transaction Price less than $12.60 (appropriately adjusted to reflect the
occurrence of any event described in subparagraph 6F subsequent to December 25,
1996), the Conversion Price of the Series B Convertible Preferred Stock shall
automatically become, effective immediately prior to such consummation,
one-quarter of such Transaction Price, provided, however, that if the
Transaction Price is $4.80 or less (appropriately adjusted as described above),
such Conversion Price shall automatically become $1.20 (appropriately adjusted
to reflect the occurrence of any event described in subparagraph 6F subsequent
to December 25, 1996). As used herein, "Liquidity Event" shall mean: (i) an
initial public offering of Common Stock (an "IPO"); (ii) a sale of all or
substantially all of the assets of the Corporation (a "Sale"); or (iii) a
capital reorganization or reclassification effected as contemplated by
subparagraph 6G (a "Reorganization"). As used herein, "Transaction Price" shall
mean: (i) as to an IPO, the price to public per share of Common Stock without
reduction for underwriting

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discounts or commissions; (ii) as to a Sale, the fair value of the consideration
received by the Corporation in such Sale (plus (A) the fair value of the
remaining assets of the Corporation and (B) the consideration that the
Corporation would receive upon exercise of any outstanding options, warrants or
similar rights, minus (C) the Corporation's remaining liabilities), all as
determined in good faith by the Board of Directors of the Corporation, divided
by the total number of shares of Common Stock outstanding or issuable upon the
exercise of any outstanding options, warrants or similar rights or the
conversion of outstanding convertible securities (including without limitation
the conversion of the Convertible Preferred Stock at the Conversion Price in
effect immediately prior to the consummation of the Sale); or (iii) as to a
Reorganization, the fair value of the consideration per share of Common Stock to
be received by the holders of Common Stock as determined in good faith by the
Board of Directors of the Corporation. Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number and series of shares of Convertible Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Convertible Preferred Stock) at any time
during its usual business hours on the date set forth in such notice, together
with a statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.

6B. Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Convertible Preferred Stock. To the extent permitted by law,
such conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Convertible Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby;

6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Convertible Preferred Stock into
Common Stock and no payment or adjustment shall be made upon any conversion on
account of any cash dividends on the Common Stock issued upon such conversion.
At the time of each conversion, the Corporation shall pay in cash an amount
equal to all declared but unpaid dividends, excluding Accruing Dividends,

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declared and unpaid on the shares of Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Convertible
Preferred Stock represented by the certificate or certificates surrendered
pursuant to subparagraph 6A exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver to the holder, at
the expense of the Corporation a new certificate or certificates for the number
and series of shares of Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Convertible Preferred Stock for conversion an amount in
cash equal to the current market price of such fractional share as determined in
good faith by the Board of Directors of the Corporation.

6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price for a series then outstanding of Convertible
Preferred Stock in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Conversion Price for such series
shall be reduced to the price determined by dividing (i) an amount equal to the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale multiplied by the then existing Conversion Price applicable
to such series and (b) the consideration, if any, received by the Corporation
upon such issue or sale, by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale.

For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:

6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such

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Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price for the applicable series of Convertible Preferred
Stock in effect immediately prior to the time of the granting of such Options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the exercise of such Options
shall be deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion Price for the applicable
series of Convertible Preferred Stock shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.

6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price for the applicable series of Convertible
Preferred Stock in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the applicable Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible Securities
for which adjustments of the applicable Conversion Price have been or are to be
made pursuant to other provisions of this subparagraph 6D, no further adjustment
of the applicable Conversion Price shall be made by reason of such issue or
sale.

6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate
at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price for the applicable

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series of Convertible Preferred Stock in effect at the time of such event shall
forthwith be readjusted to the Conversion Price for the applicable series of
Convertible Preferred Stock which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold, but only if as a result
of such adjustment the applicable Conversion Price then in effect hereunder is
thereby reduced; and on the termination of any such Option or any such right to
convert or exchange such Convertible Securities, the applicable Conversion Price
then in effect hereunder shall forthwith be increased to the applicable
Conversion Price which would have been in effect at the time of such termination
had such Options or Convertible Securities, to the extent outstanding
immediately prior to such termination, never been issued.

6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or distributions upon the Common
Stock), Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.

6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.

6D(6) Record Date. In case the Corporation shall determine a
record date to make a record of the holders of its Common Stock for the purpose
of entitling them (i) to receive a dividend or other distribution payable in
Common Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.

6D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this subparagraph
6D.

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<PAGE>

6E. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price for either series of Convertible Preferred
Stock in the case of the issuance from and after December 25, 1996: (i) of up to
an aggregate of 2,500,000 shares (appropriately adjusted to reflect the
occurrence of any event described in subparagraph 6F) of Common Stock (directly
or through the grant of Options or other Convertible Securities) to directors,
officers, employees, consultants or affiliated physicians of the Corporation in
connection with their service to the Corporation; (ii) of Common Stock made
solely in consideration for the acquisition of (whether by merger or otherwise)
by the Corporation or by an affiliate of the Corporation of all or substantially
all of the stock or assets of any other entity engaged primarily in the practice
of medicine or other operating business; or (iii) in connection with the
employment by the Corporation or an affiliate of the Corporation of a physician,
provided that the issuances contemplated by this clause (iii) shall be limited
to 600,000 shares of Common Stock in the aggregate; or (iv) of warrants on or
prior to January 15, 1997 (or Common Stock issued upon the exercise of such
warrants) to purchasers of Series B Convertible Preferred Stock.

6F. Subdivision or Combination of Common Stock. In case the
Corporation shall, as to Series A Convertible Preferred Stock, at any time after
February 1, 1995 and, as to Series B Convertible Preferred Stock at any time
after December 25, 1996, subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price for each series of Convertible Preferred Stock in
effect immediately prior to such subdivision shall be proportionately reduced,
and, conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased. In the
case of any such subdivision, no further adjustment shall be made pursuant to
subparagraph 6D(4) by reason thereof.

6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Convertible Preferred Stock shall thereupon have the right to receive, upon
the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Convertible Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such Common Stock immediately theretofore receivable upon such
conversion had such reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the applicable Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.

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<PAGE>

6H. Failure to Redeem. If the Corporation fails, for any reason or
for no reason, to redeem on any Redemption Date (as defined in Paragraph 7) all
of the shares of Convertible Preferred Stock required to be redeemed on such
Redemption Date in accordance with the terms and conditions of Paragraph 7, the
Conversion Price for each series of Convertible Preferred Stock then in effect
shall be immediately reduced to an amount equal to 90% of such Conversion Price.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, each such applicable Conversion Price shall be further
reduced on the 90th day following such Redemption Date and at the end of each
90-day period thereafter to an amount equal to 90% of such applicable Conversion
Price in effect immediately prior to each such reduction.

6I. Notice of Adjustment. Upon any adjustment of a Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested,
telecopier or telex, addressed to each holder of shares of Convertible Preferred
Stock affected by an adjustment to such Conversion Price at the address of such
holder as shown on the books of the Corporation, which notice shall state such
the Conversion Price for the applicable series of Convertible Preferred Stock
resulting from such adjustment, setting forth in reasonable detail the method
upon which such calculation is based.

6J. Other Notices. In case at any time:

(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;

(2) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;

(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into another entity or entities, or a sale,
lease, abandonment, transfer or other disposition of all or substantially all of
the assets of the Corporation; or

(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;

then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Convertible Preferred Stock at
the address of such holder as shown on the books of the Corporations (a) at

-15-
<PAGE>

least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up, at least 20 days' prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (a) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and such notice in accordance
with the foregoing clause (b) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, as
the case may be.

6K. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock solely for the purpose of
issuance upon the conversion of Convertible Preferred Stock as herein provided,
such number of shares of Common Stock as shall then be issuable upon the
conversion of all outstanding shares of Convertible Preferred stock. The
Corporation covenants that shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the lower of the Conversion Price for the Series A Convertible Preferred Stock
or the Conversion Price for the Series B Convertible Preferred Stock in effect
at the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Conversion Price
for the Series A Convertible Preferred Stock or the Conversion Price for the
Series B Convertible Preferred Stock if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Convertible
Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Articles of Incorporation.

6L. No Reissuance of Convertible Preferred Stock. Shares of
Convertible Preferred Stock which are converted into shares of Common Stock as
provided herein shall not be reissued.

6M. Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Convertible Preferred
Stock which is being converted.

-16-
<PAGE>

6N. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Convertible Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Convertible Preferred Stock in any manner which interferes with the timely
conversion of such Convertible Preferred Stock, except as may otherwise be
required to comply with applicable securities laws.

6O. Definition of Common Stock. As used in this Paragraph 6, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $.01 per share, and shall also include any capital stock of any
class of the Corporation thereafter authorized which shall neither be limited to
a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends nor entitled to a preference in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding up
of the Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.

6P. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $15,000,000 and (ii) the price paid by the public for such shares shall be
at least $4.50 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F occurring after December 25, 1996), then
effective upon the closing of the sale of such shares by the Corporation
pursuant to such public offering, all outstanding shares of Convertible
Preferred Stock shall automatically convert to shares of Common Stock on the
basis set forth in this Paragraph 6. Holders of shares of Convertible Preferred
Stock so converted may deliver to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to such holders) during its usual business hours, the
certificate or certificates for the shares so converted. As promptly as
practicable thereafter, the Corporation shall issue and deliver to such holder a
certificate or certificates for the number of whole shares of Common Stock to
which such holder is entitled, together with any cash dividends and payment in
lieu of fractional shares to which such holder may be entitled pursuant to
subparagraph 6C. Until such time as a holder of shares of Convertible Preferred
Stock shall surrender his or its certificates therefor as provided above, such
certificates shall be deemed to represent the shares of Common Stock to which
such holder shall be entitled upon the surrender thereof.

7. Redemption. The shares of Convertible Preferred Stock shall be
redeemed as follows:

7A. Mandatory Redemption. At any time and from time to time on or
after February 1, 2000, upon the written request of the holders of at least
66-2/3% of the then outstanding shares of Series A Convertible Preferred Stock
or upon the written request of holders of at least 66-2/3% of the outstanding
shares of Series B Convertible Preferred Stock, the Corporation shall redeem any

-17-

<PAGE>

outstanding shares of the series of Convertible Preferred Stock making such
request on the terms set forth in this Paragraph 7. Such written request (the
"Redemption Request") shall be made at least 90 days prior to the date of
redemption (the "Redemption Date"), shall specify the number and type of shares
of Convertible Preferred Stock to be redeemed on the Redemption Date and shall
be sent to the Corporation.

7B. Redemption Price and Payment. The shares of Series A Convertible
Preferred Stock to be redeemed on any Redemption Date shall be redeemed by
paying for each share in cash an amount equal to $1.46 per share plus, in the
case of each share, an amount equal to all dividend declared but unpaid thereon
(but excluding any undeclared Accruing Dividends, whether or not accrued),
computed to such Redemption Date, such amount being referred to as the "Series A
Redemption Price." The shares of Series B Convertible Preferred Stock to be
redeemed on any Redemption Date shall be redeemed by paying for each share in
cash an amount equal to $3.15 per share plus, in the case of each share, an
amount equal to all dividends declared but unpaid thereon (but excluding any
undeclared Accruing Dividends, whether or not accrued), computed to such
Redemption Date, such amount being referred to as the "Series B Redemption
Price." References to "Redemption Price" shall be to the Series A Redemption
Price or the Series B Redemption Price, as applicable. Any such payment shall be
made in full on the applicable Redemption Date to the holders entitled thereto.

7C. Redemption Mechanics. At least 20 but not more than 30 days
prior to each Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by delivery in person, certified or registered mail,
return receipt requested, telecopier or telex, to each holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Convertible Preferred Stock notifying
such holder of the redemption and specifying the Redemption Price, such
Redemption Date, the number and series of Convertible Preferred Stock to be
redeemed from such holder (computed on a pro rata basis in accordance with the
number of such shares held by all holders thereof) and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on a Redemption Date, unless there shall have been a
default in the payment of the Redemption Price, all rights of holders of shares
of Convertible Preferred Stock (except the right to receive the Redemption
Price) shall cease with respect to the shares to be redeemed on such Redemption
Date, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for redemption of shares of
Convertible Preferred Stock on a Redemption Date are insufficient to redeem the
total number of shares of Convertible Preferred Stock to be redeemed on such
Redemption Date, the holders of such shares shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts which would be payable to them if the full number of shares to be
redeemed on such Redemption Date were actually redeemed. The shares of
Convertible Preferred Stock required to be redeemed but not so redeemed shall
remain outstanding and entitled to all rights and preferences provided herein.
At any time thereafter when additional funds of the Corporation are legally

-18-
<PAGE>

available for the redemption of such shares of Convertible Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.

7D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of Convertible Preferred Stock redeemed pursuant to this Paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be canceled
and shall not under any circumstances be reissued; and the Corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Convertible Preferred
Stock.

8. Amendments. In addition to, and not in limitation of, any other
requirements set forth herein relating to the amendment, modification or waiver
of the terms hereof, no provision of these terms of the Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock may be amended,
modified or waived without the written consent or affirmative vote of the
holders of at least two-thirds of each series of the then outstanding shares of
Convertible Preferred Stock, each such series voting as a separate series.

-19-

<PAGE>

Microfilm Number Filed with the Department of State on
-------- ------------
Entity Number
-------- ---------------------------------------------------
Secretary of the Commonwealth

ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DSCB:15-1915 (Rev 90)

In compliance with the requirements of 15 Pa.C.S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:

1. The name of the corporation is: U.S. PHYSICIANS, Inc.
--------------------------------------------
- --------------------------------------------------------------------------------
2. The (a) address of this corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):

(a) 220 Commerce Drive, Suite 400, Fort Washington PA
----------------------------------------------------------------------
Number and Street City State

19034 Montgomery
----------------------------------------------------------------------
Zip County

(b) c/o : ----------------------------------------------------------------
Name of Commercial Registered Office Provider

- --------------------
County

For a corporation represented by a commercial registered office provider,
the county in (b) shall be deemed the county in which the corporation is located
for venue and official publication purposes.

3. The statute by or under which it was incorporated is: Pennsylvania
---------------------
4. The date of its incorporation is: July 14, 1994
-----------------------------------------
5. (Check, and if appropriate complete, one of the following):

X The amendment shall be effective upon filing these Articles of Amendment in
- ---- the Department of State.

The amendment shall be effective on: ___________ at ______________
- ---- Date Hour

6. (Check one of the following):

X The amendment was adopted by the shareholders (or members) pursuant to 15
- ---- Pa.C.S.ss.1914(a) and (b).

The amendment was adopted by the board of directors pursuant to 15 Pa.C.S.
- ---- ss. 1914(c).

7. (Check, and if appropriate complete, one of the following):

- ---- The amendment adopted by the corporation, set forth in full, is as follows:

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

X The amendment adopted by the corporation is set forth in full in Exhibit A
- ---- attached hereto and made a part hereof.

<PAGE>

8. (Check if the amendment restates the Articles):

The restated Articles of Incorporation supersede the original Articles and
- ---- all amendments thereto.

IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 5th day of
September, 1997.

U.S. PHYSICIANS, INC.
---------------------------------
(Name of Corporation)

BY: /s/ Martin G. Chilek
---------------------------------
(Signature)

TITLE: Secretary and Vice President
---------------------------------

<PAGE>

EXHIBIT A
TO
ARTICLES OF AMENDMENT - DOMESTIC BUSINESS CORPORATION
OF
U.S. PHYSICIANS, INC.

The Second Amended and Restated Articles of Incorporation of U.S. PHYSICIANS,
Inc. are hereby amended as follows:

1. Article SIXTH is deleted and replaced by a new Article SIXTH to read in its
entirety as follows:

SIXTH. Capital Stock. The aggregate number of shares which the corporation
shall have authority to issue is Twenty-Eight Million Three Hundred
Thirty-Seven Thousand Seven (28,337,007) shares consisting of:

(a) Twenty-Five Million (25,000,000) shares of Common Stock, par
value $.01; and

(b) Three Million Three Hundred Thirty-Seven Thousand Seven
(3,337,007) of Preferred Stock, par value $.01.

2. Paragraph 1 of Exhibit A to the Second Amended and Restated Articles of
Incorporation of U.S. PHYSICIANS, Inc. SERIES A CONVERTIBLE PREFERRED STOCK AND
SERIES B CONVERTIBLE PREFERRED STOCK is deleted and replaced by a new Article
SIXTH to read in its entirety as follows:

1. Number of shares. The series of Preferred Stock designated and known as
"Series A Convertible Preferred Stock" shall consist of 1,506,849 shares.
The series of Preferred Stock designated and known as "Series B Convertible
Preferred Stock" shall consist of 1,830,158 shares. The Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock
are sometimes collectively referred to herein as the "Convertible Preferred
Stock."

<PAGE>

AMENDED AND RESTATED BYLAWS
OF
CANCER RECOVERY, INC.
(a Pennsylvania Corporation)
...oo0oo...

ARTICLE I

Offices and Fiscal Year

Section 1.01. Registered Office.--The registered office of the corporation
in the Commonwealth of Pennsylvania shall be at 220 Commerce Drive, Suite 240,
Fort Washington, PA 19034, until otherwise established by an amendment of the
articles of incorporation (the "articles") or by the board of directors and a
record of such change is filed with the Pennsylvania Department of State in the
manner provided by law.

Section 1.02. Other Offices.--The corporation may also have offices at such
other places within or without the Commonwealth of Pennsylvania as the board of
directors may from time to time appoint or the business of the corporation may
require.

Section 1.03. Fiscal Year.--The fiscal year of the corporation shall begin
on the first day of January in each year.

ARTICLE II

Notice--Waivers--Meetings Generally

Section 2.01. Manner of Giving Notice.

(a) General Rule.--Whenever written notice is required to be given to any
person under the provisions of the Business Corporation Law or by the articles
or these bylaws, it may be given to the person either personally or by sending a
copy thereof by first class or express mail, postage prepaid, or by telegram
(with messenger service specified), telex or TWX (with answerback received) or
courier service, charges prepaid, or by facsimile transmission to the address
(or to the telex, TWX, facsimile or telephone number) of the person appearing on
the books of the corporation or, in the case of directors, supplied by the
director to the corporation for the purpose of notice. If the notice is sent by
mail, telegraph or courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the case
of telex or TWX, when dispatched or, in the case of facsimile transmission when
received. A notice of meeting shall specify the place, day and hour of the
meeting and any other information required by any other provision of the
Business Corporation Law, the articles or these bylaws.

<PAGE>

(b) Bulk Mail.--If the corporation has more than 30 shareholders, notice of
any regular or special meeting of the shareholders, or any other notice required
by the Business Corporation Law or by the articles or these bylaws to be given
to all shareholders or to all holders of a class or series of shares, may be
given by any class of postpaid mail if the notice is deposited in the United
States mail at least 20 days prior to the day named for the meeting or any
corporate or shareholder action specified in the notice.

(c) Adjourned Shareholder Meetings.--When a meeting of shareholders is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which the adjournment is taken, unless the board
fixes a new record date for the adjourned meeting in which event notice shall be
given in accordance with Section 2.03.

Section 2.02. Notice of Meetings of Board of Directors.-- Notice of a
regular meeting of the board of directors need not be given. Notice of every
special meeting of the board of directors shall be given to each director by
telephone or in writing at least 24 hours (in the case of notice by telephone,
telex, TWX or facsimile transmission) or 48 hours (in the case of notice by
telegraph, courier service or express mail) or five days (in the case of notice
by first class mail) before the time at which the meeting is to be held. Every
such notice shall state the time and place of the meeting. Neither the business
to be transacted at, nor the purpose of, any regular or special meeting of the
board need be specified in a notice of the meeting.

Section 2.03. Notice of Meetings of Shareholders.

(a) General Rule.--Except as otherwise provided in Section 2.01(b), written
notice of every meeting of the shareholders shall be given by, or at the
direction of, the secretary or other authorized person to each shareholder of
record entitled to vote at the meeting at least (1) ten days prior to the day
named for a meeting (and, in case of a meeting called to consider a merger,
consolidation, share exchange or division, to each shareholder of record not
entitled to vote at the meeting) called to consider a fundamental change under
15 Pa.C.S. Chapter 19 or (2) five days prior to the day named for the meeting in
any other case. If the secretary neglects or refuses to give notice of a
meeting, the person or persons calling the meeting may do so. In the case of a
special meeting of shareholders, the notice shall specify the general nature of
the business to be transacted.

(b) Notice of Action by Shareholders on Bylaws.--In the case of a meeting
of shareholders that has as one of its purposes action on the bylaws, written
notice shall be given to each

<PAGE>

shareholder that the purpose, or one of the purposes, of the meeting is to
consider the adoption, amendment or repeal of the bylaws. There shall be
included in, or enclosed with, the notice a copy of the proposed amendment or a
summary of the changes to be effected thereby.

(c) Notice of Action by Shareholders on Fundamental Change.--In the case of
a meeting of the shareholders that has as one of its purposes action with
respect to any fundamental change under 15 Pa.C.S. Chapter 19, each shareholder
shall be given, together with written notice of the meeting, a copy or summary
of the amendment or plan to be considered at the meeting in compliance with the
provisions of Chapter 19.

(d) Notice of Action by Shareholders Giving Rise to Dissenters Rights.--In
the case of a meeting of the shareholders that has as one of its purposes action
that would give rise to dissenters rights under the provisions of 15 Pa.C.S.
Subchapter 15D, each shareholder shall be given, together with written notice of
the meeting:

(1) a statement that the shareholders have a right to dissent and
obtain payment of the fair value of their shares by complying with the
provisions of Subchapter 15D (relating to dissenters rights); and

(2) a copy of Subchapter 15D.

Section 2.04. Waiver of Notice.

(a) Written Waiver.--Whenever any written notice is required to be given
under the provisions of the Business Corporation Law, the articles or these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
the notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of the notice. Neither the business to be transacted
at, nor the purpose of, a meeting need be specified in the waiver of notice of
the meeting.

(b) Waiver by Attendance.--Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting except where a person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting was not lawfully called
or convened.

Section 2.05. Modification of Proposal Contained in Notice.--Whenever the
language of a proposed resolution is included in a written notice of a meeting
required to be given under the provisions of the Business Corporation Law or the
articles or these bylaws, the meeting considering the resolution

<PAGE>

may without further notice adopt it with such clarifying or other amendments as
do not enlarge its original purpose.

Section 2.06. Exception to Requirement of Notice.

(a) General Rule.--Whenever any notice or communication is required to be
given to any person under the provisions of the Business Corporation Law or by
the articles or these bylaws or by the terms of any agreement or other
instrument or as a condition precedent to taking any corporate action and
communication with that person is then unlawful, the giving of the notice or
communication to that person shall not be required.

(b) Shareholders Without Forwarding Addresses.--Notice or other
communications need not be sent to any shareholder with whom the corporation has
been unable to communicate for more than 24 consecutive months because
communications to the shareholder are returned unclaimed or the shareholder has
otherwise failed to provide the corporation with a current address. Whenever the
shareholder provides the corporation with a current address, the corporation
shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.

Section 2.07. Use of Conference Telephone and Similar Equipment.--Any
director may participate in any meeting of the board of directors, and the board
of directors may provide by resolution with respect to a specific meeting or
with respect to a class of meetings that one or more persons may participate in
a meeting of the shareholders of the corporation, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Participation in a meeting
pursuant to this section shall constitute presence in person at the meeting.

ARTICLE III

Shareholders

Section 3.01. Place of Meeting.--All meetings of the shareholders of the
corporation shall be held at the registered office of the corporation or such
other place as may be designated by the board of directors in the notice of a
meeting.

Section 3.02. Annual Meeting.--The board of directors may fix and designate
the date and time of the annual meeting of the shareholders, but if no such date
and time is fixed and designated by the board, the meeting for any calendar year
shall be held on the Second Monday of March in such year, if not a legal holiday
under the laws of Pennsylvania, and, if a legal holiday, then on the next
succeeding business day, not a

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Saturday, at 10:00 o'clock A.M., and at said meeting the shareholders then
entitled to vote shall elect directors and shall transact such other business as
may properly be brought before the meeting. If the annual meeting shall not have
been called and held within six months after the designated time, any
shareholder may call the meeting at any time thereafter.

Section 3.03. Special Meetings.

(a) Call of Special Meetings.--Special meetings of the shareholders may be
called at any time:

(1) by any two members of the board of directors;

(2) any holder or holders of at least 25 % of the outstanding shares
of Series A Convertible Preferred Stock; or

(3) unless otherwise provided in the articles, by shareholders
entitled to cast at least 20% of the votes that all shareholders are
entitled to cast at the particular meeting.

(b) Fixing of Time for Meeting.--At any time, upon written request of any
person who has called a special meeting, it shall be the duty of the secretary
to fix the time of the meeting which shall be held not more than 60 days after
the receipt of the request. If the secretary neglects or refuses to fix the time
of the meeting, the person or persons calling the meeting may do so.

Section 3.04. Quorum and Adjournment.

(a) General Rule.--A meeting of shareholders of the corporation duly called
shall not be organized for the transaction of business unless a quorum is
present. The presence of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast on a particular matter to
be acted upon at the meeting shall constitute a quorum for the purposes of
consideration and action on the matter. Shares of the corporation owned,
directly or indirectly, by it and controlled, directly or indirectly, by the
board of directors of this corporation, as such, shall not be counted in
determining the total number of outstanding shares for quorum purposes at any
given time.

(b) Withdrawal of a Quorum.--The shareholders present at a duly organized
meeting can continue to do business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.

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(c) Adjournments Generally.--Any regular or special meeting of the
shareholders, including one at which directors are to be elected and one which
cannot be organized because a quorum has not attended, may be adjourned for such
period and to such place as the shareholders present and entitled to vote shall
direct, except that any meeting at which directors are to be elected shall be
adjourned only from day to day or for such longer periods not exceeding 15 days
each as the shareholders present and entitled to vote shall direct.

(d) Electing Directors at Adjourned Meeting.--Those shareholders entitled
to vote who attend a meeting called for the election of directors that has been
previously adjourned for lack of a quorum, although less than a quorum as fixed
in this section, shall nevertheless constitute a quorum for the purpose of
electing directors.

(e) Other Action in Absence of Quorum.--Those shareholders entitled to vote
who attend a meeting of shareholders that has been previously adjourned for one
or more periods aggregating at least 15 days because of an absence of a quorum,
although less than a quorum as fixed in this section, shall nevertheless
constitute a quorum for the purpose of acting upon any matter set forth in the
notice of the meeting if the notice states that those shareholders who attend
the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.

Section 3.05. Action by Shareholders.--Except as otherwise provided in the
Business Corporation Law or the articles or these bylaws, whenever any corporate
action is to be taken by vote of the shareholders of the corporation, it shall
be authorized upon receiving the affirmative vote of a majority of the votes
cast by all shareholders entitled to vote thereon and, if any shareholders are
entitled to vote thereon as a class, upon receiving the affirmative vote of a
majority of the votes cast by the shareholders entitled to vote as a class.

Section 3.06. Organization.--At every meeting of the shareholders, the
chairman of the board, if there be one, or, in the case of vacancy in office or
absence of the chairman of the board, one of the following persons present in
the order stated: the vice chairman of the board, if there be one, the
president, the vice presidents in their order of rank and seniority, or a person
chosen by vote of the shareholders present, shall act as chairman of the
meeting. The secretary or, in the absence of the secretary, an assistant
secretary, or, in the absence of both the secretary and assistant secretaries, a
person appointed by the chairman of the meeting, shall act as secretary of the
meeting.

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Section 3.07. Voting Rights of Shareholders.--Unless otherwise provided in
the articles, every shareholder of the corporation shall be entitled to one vote
for every share standing in the name of the shareholder on the books of the
corporation.

Section 3.08. Voting and Other Action by Proxy.

(a) General Rule.--

(1) Every shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent to corporate action in writing without a
meeting may authorize another person to act for the shareholder by proxy.

(2) The presence of, or vote or other action at a meeting of
shareholders, or the expression of consent or dissent to corporate action
in writing, by a proxy of a shareholder shall constitute the presence of,
or vote or action by, or written consent or dissent of, the shareholder.

(3) Where two or more proxies of a shareholder are present, the
corporation shall, unless otherwise expressly provided in the proxy, accept
as the vote of all shares represented thereby the vote cast by a majority
of them and, if a majority of the proxies cannot agree whether the shares
represented shall be voted or upon the manner of voting the shares, the
voting of the shares shall be divided equally among those persons.

(b) Execution and Filing.--Every proxy shall be executed in writing by the
shareholder or by the duly authorized attorney-in-fact of the shareholder and
filed with the secretary of the corporation. A telegram, telex, cablegram,
datagram or similar transmission from a shareholder or attorney-in-fact, or a
photographic, facsimile or similar reproduction of a writing executed by a
shareholder or attorney-in-fact:

(1) may be treated as properly executed for purposes of this
subsection; and

(2) shall be so treated if it sets forth a confidential and unique
identification number or other mark furnished by the corporation to the
shareholder for the purposes of a particular meeting or transaction.

(c) Revocation.--A proxy, unless coupled with an interest, shall be
revocable at will, notwithstanding any other agreement or any provision in the
proxy to the contrary, but the revocation of a proxy shall not be effective
until written notice thereof

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has been given to the secretary of the corporation. An unrevoked proxy shall not
be valid after three years from the date of its execution unless a longer time
is expressly provided therein. A proxy shall not be revoked by the death or
incapacity of the maker unless, before the vote is counted or the authority is
exercised, written notice of the death or incapacity is given to the secretary
of the corporation.

(d) Expenses.--The corporation shall pay the reasonable expenses of
solicitation of votes, proxies or consents of shareholders by or on behalf of
the board of directors or its nominees for election to the board, including
solicitation by professional proxy solicitors and otherwise.

Section 3.09. Voting by Fiduciaries and Pledgees.--Shares of the
corporation standing in the name of a trustee or other fiduciary and shares held
by an assignee for the benefit of creditors or by a receiver may be voted by the
trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged
shall be entitled to vote the shares until the shares have been transferred into
the name of the pledgee, or a nominee of the pledgee, but nothing in this
section shall affect the validity of a proxy given to a pledgee or nominee.

Section 3.10. Voting by Joint Holders of Shares.

(a) General Rule.--Where shares of the corporation are held jointly or as
tenants in common by two or more persons, as fiduciaries or otherwise:

(1) if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be
deemed to be represented for the purpose of determining a quorum and the
corporation shall accept as the vote of all the shares the vote cast by a
joint owner or a majority of them; and

(2) if the persons are equally divided upon whether the shares held by
them shall be voted or upon the manner of voting the shares, the voting of
the shares shall be divided equally among the persons without prejudice to
the rights of the joint owners or the beneficial owners thereof among
themselves.

(b) Exception.--If there has been filed with the secretary of the
corporation a copy, certified by an attorney at law to be correct, of the
relevant portions of the agreement under which the shares are held or the
instrument by which the trust or estate was created or the order of court
appointing them or of an order of court directing the voting of the shares, the
persons specified as having such voting power in the document latest in

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date of operative effect so filed, and only those persons, shall be entitled to
vote the shares but only in accordance therewith.

Section 3.11. Voting by Corporations.

(a) Voting by Corporate Shareholders.--Any corporation that is a
shareholder of this corporation may vote at meetings of shareholders of this
corporation by any of its officers or agents, or by proxy appointed by any
officer or agent, unless some other person, by resolution of the board of
directors of the other corporation or a provision of its articles or bylaws, a
copy of which resolution or provision certified to be correct by one of its
officers has been filed with the secretary of this corporation, is appointed its
general or special proxy in which case that person shall be entitled to vote the
shares.

(b) Controlled Shares.--Shares of this corporation owned, directly or
indirectly, by it and controlled, directly or indirectly, by the board of
directors of this corporation, as such, shall not be voted at any meeting and
shall not be counted in determining the total number of outstanding shares for
voting purposes at any given time.

Section 3.12. Determination of Shareholders of Record.

(a) Fixing Record Date.--The board of directors may fix a time prior to the
date of any meeting of shareholders as a record date for the determination of
the shareholders entitled to notice of, or to vote at, the meeting, which time,
except in the case of an adjourned meeting, shall be not more than 90 days prior
to the date of the meeting of shareholders. Only shareholders of record on the
date fixed shall be so entitled notwithstanding any transfer of shares on the
books of the corporation after any record date fixed as provided in this
subsection. The board of directors may similarly fix a record date for the
determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the board fixes a new record date for the adjourned
meeting.

(b) Determination When a Record Date is Not Fixed.--If a record date is not
fixed:

(1) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day immediately preceding the day
on which the meeting is held.

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(2) The record date for determining shareholders entitled to express
consent or dissent to corporate action in writing without a meeting, when
prior action by the board of directors is not necessary, to call a special
meeting or to propose an amendment of the articles shall be the close of
business on the day on which the first written consent or dissent, request
for a special meeting or petition proposing an amendment of the articles is
filed with the secretary of the corporation.

(3) The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.

(c) Certification by Nominee.--The board of directors may adopt a procedure
whereby a shareholder of the corporation may certify in writing to the
corporation that all or a portion of the shares registered in the name of the
shareholder are held for the account of a specified person or persons. Upon
receipt by the corporation of a certification complying with the procedure, the
persons specified in the certification shall be deemed, for the purposes set
forth in the certification, to be the holders of record of the number of shares
specified in place of the shareholder making the certification.

Section 3.13. Voting Lists.

(a) General Rule.--The officer or agent having charge of the transfer books
for shares of the corporation shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with the address of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting for
the purposes thereof except that if the corporation has 5,000 or more
shareholders, in lieu of the making of the list, the corporation may make the
information therein available at the meeting by any other means.

(b) Effect of List.--Failure to comply with the requirements of this
section shall not affect the validity of any action taken at a meeting prior to
a demand at the meeting by any shareholder entitled to vote thereat to examine
the list. The original share register or transfer book, or a duplicate thereof
kept in the Commonwealth of Pennsylvania, shall be prima facie evidence as to
who are the shareholders entitled to examine the list or share register or
transfer book or to vote at any meeting of shareholders.

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Section 3.14. Judges of Election.

(a) Appointment.--In advance of any meeting of shareholders of the
corporation, the board of directors may appoint judges of election, who need not
be shareholders, to act at the meeting or any adjournment thereof. If judges of
election are not so appointed, the presiding officer of the meeting may, and on
the request of any shareholder shall, appoint judges of election at the meeting.
The number of judges shall be one or three. A person who is a candidate for an
office to be filled at the meeting shall not act as a judge.

(b) Vacancies.--In case any person appointed as a judge fails to appear or
fails or refuses to act, the vacancy may be filled by appointment made by the
board of directors in advance of the convening of the meeting or at the meeting
by the presiding officer thereof.

(c) Duties.--The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with nominations by shareholders or the right to vote,
count and tabulate all votes, determine the result and do such acts as may be
proper to conduct the election or vote with fairness to all shareholders. The
judges of election shall perform their duties impartially, in good faith, to the
best of their ability and as expeditiously as is practical. If there are three
judges of election, the decision, act or certificate of a majority shall be
effective in all respects as the decision, act or certificate of all.

(d) Report.--On request of the presiding officer of the meeting or of any
shareholder, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be prima facie
evidence of the facts stated therein.

Section 3.15. Consent of Shareholders in Lieu of Meeting.

(a) Unanimous Written Consent.--Any action required or permitted to be
taken at a meeting of the shareholders or of a class of shareholders may be
taken without a meeting if, prior or subsequent to the action, a consent or
consents thereto by all of the shareholders who would be entitled to vote at a
meeting for such purpose shall be filed with the secretary of the corporation.

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(b) Partial Written Consent.--Any action required or permitted to be taken
at a meeting of the shareholders or of a class of shareholders may be taken
without a meeting upon the written consent of shareholders who would have been
entitled to cast the minimum number of votes that would be necessary to
authorize the action at a meeting at which all shareholders entitled to vote
thereon were present and voting. The consents shall be filed with the secretary
of the corporation. The action shall not become effective until after at least
ten days' written notice of the action has been given to each shareholder
entitled to vote thereon who has not consented thereto.

Section 3.16. Minors as Securityholders.--The corporation may treat a minor
who holds shares or obligations of the corporation as having capacity to receive
and to empower others to receive dividends, interest, principal and other
payments or distributions, to vote or express consent or dissent and to make
elections and exercise rights relating to such shares or obligations unless, in
the case of payments or distributions on shares, the corporate officer
responsible for maintaining the list of shareholders or the transfer agent of
the corporation or, in the case of payments or distributions on obligations, the
treasurer or paying officer or agent has received written notice that the holder
is a minor.

ARTICLE IV

Board of Directors

Section 4.01. Powers; Personal Liability.

(a) General Rule.--Unless otherwise provided by statute, all powers vested
by law in the corporation shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the board of directors.

(b) Fundamental Transactions.--Where any provision of 15 Pa.C.S. Ch. 19
requires that an amendment of the articles, a plan or the dissolution of the
corporation be proposed or approved by action of the board of directors, that
requirement shall be construed to authorize and be satisfied by the written
agreement or consent of all of the shareholders of the corporation entitled to
vote thereon.

(1) A director shall not be personally liable, as such, for monetary
damages (including, without limitation, any judgment, amount paid in
settlement, penalty, punitive

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damages or expense of any nature (including, without limitation, attorneys'
fees and disbursements)) for any action taken, or any failure to take any
action, unless:

(i) the director has breached or failed to perform the duties of
his or her office under Subchapter 17B of the Business Corporation Law
(or any successor provision); and

(ii) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.

(2) The provisions of paragraph (1) shall not apply to the
responsibility or liability of a director pursuant to any criminal statute,
or the liability of a director for the payment of taxes pursuant to local,
state or federal law.

(The provisions of this subsection (c) were first adopted by the shareholders of
the corporation on July 14, 1994.)

(d) Notation of Dissent.--A director who is present at a meeting of the
board of directors, or of a committee of the board, at which action on any
corporate matter is taken on which the director is generally competent to act,
shall be presumed to have assented to the action taken unless his or her dissent
is entered in the minutes of the meeting or unless the director files a written
dissent to the action with the secretary of the meeting before the adjournment
thereof or transmits the dissent in writing to the secretary of the corporation
immediately after the adjournment of the meeting. The right to dissent shall not
apply to a director who voted in favor of the action. Nothing in this section
shall bar a director from asserting that minutes of the meeting incorrectly
omitted his or her dissent if, promptly upon receipt of a copy of such minutes,
the director notifies the secretary, in writing, of the asserted omission or
inaccuracy.

Section 4.02. Qualifications and Selection of Directors.

(a) Qualifications.--Each director of the corporation shall be a natural
person of full age who need not be a resident of the Commonwealth of
Pennsylvania or a shareholder of the corporation.

(b) Power to Select Directors.--Except as otherwise provided in these
bylaws, directors of the corporation shall be elected by the shareholders.

(c) Nomination of Candidates.--Upon the demand of any shareholder at any
meeting of shareholders for the election of directors the chairman of the
meeting shall call for and shall afford a reasonable opportunity for the making
of nominations for the office of director. If the board of directors is
classified

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with respect to the power to elect directors or with respect to the terms of
directors and if, due to a vacancy or vacancies, or otherwise, directors of more
than one class are to be elected, each class of directors to be elected at the
meeting shall be nominated and elected separately. Any shareholder may nominate
as many persons for the office of director as there are positions to be filled.
If nominations for the office of director have been called for as provided in
this section only candidates who have been so nominated shall be eligible for
election.

(d) Election of Directors.--In elections for directors, voting need not be
by ballot, unless required by vote of the shareholders before the voting for the
election of directors begins. The candidates receiving the highest number of
votes from each class or group of classes, if any, entitled to elect directors
separately up to the number of directors to be elected by the class or group of
classes shall be elected. If at any meeting of shareholders, directors of more
than one class are to be elected, each class of directors shall be elected in a
separate election.

Section 4.03. Number and Term of Office.

(a) Number.--The board of directors shall consist of such number of
directors, not less than one nor more than five, as may be determined from time
to time by resolution of the board of directors.

(b) Term of Office.--Each director shall hold office for one year and until
a successor has been selected and qualified or until his or her earlier death,
resignation or removal. A decrease in the number of directors shall not have the
effect of shortening the term of any incumbent director.

(c) Resignation.--Any director may resign at any time upon written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as shall be specified in the notice
of resignation.

Section 4.04. Vacancies.

(a) General Rule.--Vacancies in the board of directors, including vacancies
resulting from an increase in the number of directors, may be filled by a
majority vote of the remaining members of the board though less than a quorum,
or by a sole remaining director, and each person so selected shall be a director
to serve until the next selection of the class for which such director has been
chosen, and until a successor has been selected and qualified or until his or
her earlier death, resignation or removal.

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(b) Action by Resigned Directors.--When one or more directors resign from
the board effective at a future date, the directors then in office, including
those who have so resigned, shall have power by the applicable vote to fill the
vacancies, the vote thereon to take effect when the resignations become
effective.

Section 4.05. Removal of Directors.

(a) Removal by the Shareholders.--The entire board of directors, or any
class of the board, or any individual director may be removed from office by
vote of the shareholders entitled to vote thereon without assigning any cause.
In case the board or a class of the board or any one or more directors are so
removed, new directors may be elected at the same meeting.

(b) Removal by the Board.--The board of directors may declare vacant the
office of a director who has been judicially declared of unsound mind or who has
been convicted of an offense punishable by imprisonment for a term of more than
one year or if, within 60 days after notice of his or her selection, the
director does not accept the office either in writing or by attending a meeting
of the board of directors.

Section 4.06. Place of Meetings.--Meetings of the board of directors may be
held at such place within or without the Commonwealth of Pennsylvania as the
board of directors may from time to time appoint or as may be designated in the
notice of the meeting.

Section 4.07. Organization of Meetings.--At every meeting of the board of
directors, the chairman of the board, if there be one, or, in the case of a
vacancy in the office or absence of the chairman of the board, one of the
following officers present in the order stated: the vice chairman of the board,
if there be one, the president, the vice presidents in their order of rank and
seniority, or a person chosen by a majority of the directors present, shall act
as chairman of the meeting. The secretary or, in the absence of the secretary,
an assistant secretary, or, in the absence of the secretary and the assistant
secretaries, any person appointed by the chairman of the meeting, shall act as
secretary of the meeting.

Section 4.08. Regular Meetings.--Regular meetings of the board of directors
shall be held at such time and place as shall be designated from time to time by
resolution of the board of directors.

Section 4.09. Special Meetings.--Special meetings of the board of directors
shall be held whenever called by the chairman,

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any two directors, or any holder or holders of at least 25 % of the outstanding
shares of Series A Convertible Preferred Stock.

Section 4.10. Quorum of and Action by Directors.

(a) General Rule.--A majority of the directors in office of the corporation
shall be necessary to constitute a quorum for the transaction of business and
the acts of a majority of the directors present and voting at a meeting at which
a quorum is present shall be the acts of the board of directors.

(b) Action by Written Consent.--Any action required or permitted to be
taken at a meeting of the directors may be taken without a meeting if, prior or
subsequent to the action, a consent or consents thereto by all of the directors
in office is filed with the secretary of the corporation.

Section 4.11. Executive and Other Committees.

(a) Establishment and Powers.--The board of directors may, by resolution
adopted by a majority of the directors in office, establish one or more
committees to consist of one or more directors of the corporation. Any
committee, to the extent provided in the resolution of the board of directors,
shall have and may exercise all of the powers and authority of the board of
directors except that a committee shall not have any power or authority as to
the following:

(1) The submission to shareholders of any action requiring approval of
shareholders under the Business Corporation Law.

(2) The creation or filling of vacancies in the board of directors.

(3) The adoption, amendment or repeal of these bylaws.

(4) The amendment or repeal of any resolution of the board that by its
terms is amendable or repealable only by the board.

(5) Action on matters committed by a resolution of the board of
directors to another committee of the board.

(b) Alternate Committee Members.--The board may designate one or more
directors as alternate members of any committee who may replace any absent or
disqualified member at any meeting of the committee or for the purposes of any
written action by the committee. In the absence or disqualification of a member
and alternate member or members of a committee, the member or members thereof
present at any meeting and not disqualified from voting,

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whether or not constituting a quorum, may unanimously appoint another director
to act at the meeting in the place of the absent or disqualified member.

(d) Committee Procedures.--The term "board of directors" or "board," when
used in any provision of these bylaws relating to the organization or procedures
of or the manner of taking action by the board of directors, shall be construed
to include and refer to any executive or other committee of the board.

Section 4.12. Compensation.--The board of directors shall have the
authority to fix the compensation of directors for their services as directors
and a director may be a salaried officer of the corporation.

ARTICLE V

Officers

Section 5.01. Officers Generally.

(a) Number, Qualifications and Designation.--The officers of the
corporation shall be a president, one or more vice presidents, a secretary, a
treasurer, and such other officers as may be elected in accordance with the
provisions of Section 5.03. Officers may but need not be directors or
shareholders of the corporation. The president and secretary shall be natural
persons of full age. The treasurer may be a corporation, but if a natural person
shall be of full age. The board of directors may elect from among the members of
the board a chairman of the board and a vice chairman of the board who shall be
officers of the corporation. Any number of offices may be held by the same
person.

(b) Bonding.--The corporation may secure the fidelity of any or all of its
officers by bond or otherwise.

(c) Standard of Care.--In lieu of the standards of conduct otherwise
provided by law, officers of the corporation shall be subject to the same
standards of conduct, including standards of care and loyalty and rights of
justifiable reliance, as shall at the time be applicable to directors of the
corporation. An officer of the corporation shall not be personally liable, as
such, to the corporation or its shareholders for monetary damages (including,
without limitation, any judgment, amount paid in settlement, penalty, punitive
damages or expense of any nature (including, without limitation, attorneys' fees
and

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disbursements) for any action taken, or any failure to take any action, unless
the officer has breached or failed to perform the duties of his or her office
under the articles of incorporation, these bylaws, or the applicable provisions
of law and the breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. The provisions of this subsection shall not apply to
the responsibility or liability of an officer pursuant to any criminal statute
or for the payment of taxes pursuant to local, state or federal law.

Section 5.02. Election, Term of Office and Resignations.

(a) Election and Term of Office.--The officers of the corporation, except
those elected by delegated authority pursuant to Section 5.03, shall be elected
annually by the board of directors, and each such officer shall hold office for
a term of one year and until a successor has been selected and qualified or
until his or her earlier death, resignation or removal.

(b) Resignations.--Any officer may resign at any time upon written notice
to the corporation. The resignation shall be effective upon receipt thereof by
the corporation or at such subsequent time as may be specified in the notice of
resignation.

Section 5.03. Subordinate Officers, Committees and Agents.--The board of
directors may from time to time elect such other officers and appoint such
committees, employees or other agents as the business of the corporation may
require, including one or more assistant secretaries, and one or more assistant
treasurers, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these bylaws, or as the board of
directors may from time to time determine. The board of directors may delegate
to any officer or committee the power to elect subordinate officers and to
retain or appoint employees or other agents, or committees thereof, and to
prescribe the authority and duties of such subordinate officers, committees,
employees or other agents.

Section 5.04. Removal of Officers and Agents.--Any officer or agent of the
corporation may be removed by the board of directors with or without cause. The
removal shall be without prejudice to the contract rights, if any, of any person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.

Section 5.05. Vacancies.--A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause, may be filled by the
board of directors or by the officer or committee to which the power to fill
such office has been delegated pursuant to Section 5.03, as the case may be, and
if

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the office is one for which these bylaws prescribe a term, shall be filled for
the unexpired portion of the term.

Section 5.06. Authority.

(a) General Rule.--All officers of the corporation, as between themselves
and the corporation, shall have such authority and perform such duties in the
management of the corporation as may be provided by or pursuant to resolutions
or orders of the board of directors or, in the absence of controlling provisions
in the resolutions or orders of the board of directors, as may be determined by
or pursuant to these bylaws.

(b) Chief Executive Officer.--The chairman of the board or the president,
as designated from time to time by the board of directors, shall be the chief
executive officer of the corporation.

Section 5.07. The Chairman and Vice Chairman of the Board.--The chairman
of the board or in the absence of the chairman, the vice chairman of the board,
shall preside at all meetings of the shareholders and of the board of directors,
and shall perform such other duties as may from time to time be requested by the
board of directors.

Section 5.08. The President.--The president shall have general supervision
over the business and operations of the corporation, subject however, to the
control of the board of directors and, if the chairman of the board is the chief
executive officer of the corporation, the chairman of the board. The president
shall sign, execute, and acknowledge, in the name of the corporation, deeds,
mortgages, bonds, contracts or other instruments, authorized by the board of
directors, except in cases where the signing and execution thereof shall be
expressly delegated by the board of directors, or by these bylaws, to some other
officer or agent of the corporation; and, in general, shall perform all duties
incident to the office of president and such other duties as from time to time
may be assigned by the board of directors and, if the chairman of the board is
the chief executive officer of the corporation, the chairman of the board.

Section 5.09. The Vice Presidents.--The vice presidents shall perform the
duties of the president in the absence of the president and such other duties as
may from time to time be assigned to them by the board of directors or the
president.

Section 5.10. The Secretary.--The secretary or an assistant secretary shall
attend all meetings of the shareholders and of the board of directors and all
committees thereof and shall record all the votes of the shareholders and of the
directors and the minutes of the meetings of the shareholders and of the board

<PAGE>

of directors and of committees of the board in a book or books to be kept for
that purpose; shall see that notices are given and records and reports properly
kept and filed by the corporation as required by law; shall be the custodian of
the seal of the corporation and see that it is affixed to all documents to be
executed on behalf of the corporation under its seal; and, in general, shall
perform all duties incident to the office of secretary, and such other duties as
may from time to time be assigned by the board of directors or the president.

Section 5.11. The Treasurer.--The treasurer or an assistant treasurer shall
have or provide for the custody of the funds or other property of the
corporation; shall collect and receive or provide for the collection and receipt
of moneys earned by or in any manner due to or received by the corporation;
shall deposit all funds in his or her custody as treasurer in such banks or
other places of deposit as the board of directors may from time to time
designate; shall, whenever so required by the board of directors, render an
account showing all transactions as treasurer, and the financial condition of
the corporation; and, in general, shall discharge such other duties as may from
time to time be assigned by the board of directors or the president.

Section 5.12. Salaries.--The salaries of the officers elected by the board
of directors shall be fixed from time to time by the board of directors or by
such officer as may be designated by resolution of the board. The salaries or
other compensation of any other officers, employees and other agents shall be
fixed from time to time by the officer or committee to which the power to elect
such officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 5.03. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a director of the corporation.

ARTICLE VI

Certificates of Stock, Transfer, Etc.

Section 6.01. Share Certificates.

(a) Form of Certificates.--Certificates for shares of the corporation shall
be in such form as approved by the board of directors, and shall state that the
corporation is incorporated under the laws of the Commonwealth of Pennsylvania,
the name of the person to whom issued, and the number and class of shares and
the designation of the series (if any) that the certificate represents. If the
corporation is authorized to issue shares of more than one class or series,
certificates for shares of the corporation shall set forth upon the face or back
of the

<PAGE>

certificate (or shall state on the face or back of the certificate that the
corporation will furnish to any shareholder upon request and without charge), a
full or summary statement of the designations, voting rights, preferences,
limitations and special rights of the shares of each class or series authorized
to be issued so far as they have been fixed and determined and the authority of
the board of directors to fix and determine the designations, voting rights,
preferences, limitations and special rights of the classes and series of shares
of the corporation.

(b) Share Register.--The share register or transfer books and blank share
certificates shall be kept by the secretary or by any transfer agent or
registrar designated by the board of directors for that purpose.

Section 6.02. Issuance.--The share certificates of the corporation shall be
numbered and registered in the share register or transfer books of the
corporation as they are issued. They shall be executed in such manner as the
board of directors shall determine.

Section 6.03. Transfer.--Transfers of shares shall be made on the share
register or transfer books of the corporation upon surrender of the certificate
therefor, endorsed by the person named in the certificate or by an attorney
lawfully constituted in writing. No transfer shall be made inconsistent with the
provisions of the Uniform Commercial Code, 13 Pa.C.S. ss.ss. 8101 et seq., and
its amendments and supplements.

Section 6.04. Record Holder of Shares.--The corporation shall be entitled
to treat the person in whose name any share or shares of the corporation stand
on the books of the corporation as the absolute owner thereof, and shall not be
bound to recognize any equitable or other claim to, or interest in, such share
or shares on the part of any other person.

Section 6.05. Lost, Destroyed or Mutilated Certificates.-- The holder of
any shares of the corporation shall immediately notify the corporation of any
loss, destruction or mutilation of the certificate therefor, and the board of
directors may, in its discretion, cause a new certificate or certificates to be
issued to such holder, in case of mutilation of the certificate, upon the
surrender of the mutilated certificate or, in case of loss or destruction of the
certificate, upon satisfactory proof of such loss or destruction and, if the
board of directors shall so determine, the deposit of a bond in such form and in
such sum, and with such surety or sureties, as it may direct.

ARTICLE VII

<PAGE>

Indemnification of Directors, Officers
and Other Authorized Representatives

(The provisions of this Article VII were first adopted
by the shareholders of the corporation on July , 1994.)

Section 7.01. Scope of Indemnification.

(a) General Rule.--The corporation shall indemnify an indemnified
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect of duty, error, misstatement or misleading
statement, negligence, gross negligence or act giving rise to strict or products
liability, except:

(1) where such indemnification is expressly prohibited by applicable
law;

(2) where the conduct of the indemnified representative has been
finally determined pursuant to Section 7.06 or otherwise:

(i) to constitute willful misconduct or recklessness within the
meaning of 15 Pa.C.S. ss. 1746(b) or any superseding provision of law
sufficient in the circumstances to bar indemnification against
liabilities arising from the conduct; or

(ii) to be based upon or attributable to the receipt by the
indemnified representative from the corporation of a personal benefit
to which the indemni fied representative is not legally entitled; or

(3) to the extent such indemnification has been finally determined in
a final adjudication pursuant to Section 7.06 to be otherwise unlawful.

(b) Partial Payment.--If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such person may be subject, the corporation shall indemnify such
indemnified representative to the maximum extent for such portion of the
liabilities.

(c) Presumption.--The termination of a proceeding by judgment, order,
settlement or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a

<PAGE>

presumption that the indemnified representative is not entitled to
indemnification.

(d) Definitions.--For purposes of this Article:

(1) "indemnified capacity" means any and all past, present and future
service by an indemnified representative in one or more capacities as a
director, officer, employee or agent of the corporation, or, at the request
of the corporation, as a director, officer, employee, agent, fiduciary or
trustee of another corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise;

(2) "indemnified representative" means any and all directors and
officers of the corporation and any other person designated as an
indemnified representative by the board of directors of the corporation
(which may, but need not, include any person serving at the request of the
corporation, as a director, officer, employee, agent, fiduciary or trustee
of another corporation, partnership, joint venture, trust, employee benefit
plan or other entity or enterprise);

(3) "liability" means any damage, judgment, amount paid in settlement,
fine, penalty, punitive damages, excise tax assessed with respect to an
employee benefit plan, or cost or expense of any nature (including, without
limitation, attorneys' fees and disbursements); and

(4) "proceeding" means any threatened, pending or completed action,
suit, appeal or other proceeding of any nature, whether civil, criminal,
administrative or investigative, whether formal or informal, and whether
brought by or in the right of the corporation, a class of its security
holders or otherwise.

Section 7.02. Proceedings Initiated by Indemnified Representatives.--
Notwithstanding any other provision of this Article, the corporation shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include counter
claims or affirmative defenses) or participated in as an intervenor or amicus
curiae by the person seeking indemnification unless such initiation of or
participation in the proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors in office.
This section does not apply to reimbursement of expenses incurred in
successfully prosecuting or defending an arbitration under Section 7.06 or
otherwise successfully prosecuting or defending

<PAGE>

the rights of an indemnified representative granted by or pursuant to this
Article.

Section 7.03. Advancing Expenses.--The corporation shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 7.01 or the initiation of or participation in which is
authorized pursuant to Section 7.02 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is ultimately
determined pursuant to Section 7.06 that such person is not entitled to be
indemnified by the corporation pursuant to this Article. The financial ability
of an indemnified representative to repay an advance shall not be a prerequisite
to the making of such advance.

Section 7.04. Securing of Indemnification Obligations.--To further effect,
satisfy or secure the indemnification obligations provided herein or otherwise,
the corporation may maintain insurance, obtain a letter of credit, act as
self-insurer, create a reserve, trust, escrow, cash collateral or other fund or
account, enter into indemnification agreements, pledge or grant a security
interest in any assets or properties of the corporation, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as the board of directors shall deem
appropriate. Absent fraud, the determination of the board of directors with
respect to such amounts, costs, terms and conditions shall be conclusive against
all security holders, officers and directors and shall not be subject to
voidability.

Section 7.05. Payment of Indemnification.--An indemnified representative
shall be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the secretary of the corporation.

Section 7.06. Arbitration.

(a) General Rule.--Any dispute related to the right to indemnification,
contribution or advancement of expenses as provided under this Article, except
with respect to indemnification for liabilities arising under the Securities Act
of 1933 that the corporation has undertaken to submit to a court for
adjudication, shall be decided only by arbitration in the metropolitan area in
which the principal executive offices of the corporation are located at the
time, in accordance with the commercial arbitration rules then in effect of the
American Arbitration Association, before a panel of three arbitrators, one of
whom shall be selected by the corporation, the second of whom shall be selected
by the indemnified representative and the third of whom shall be selected by the
other two arbitrators. In the

<PAGE>

absence of the American Arbitration Association, or if for any reason
arbitration under the arbitration rules of the American Arbitration Association
cannot be initiated, and if one of the parties fails or refuses to select an
arbitrator or the arbitrators selected by the corporation and the indemnified
representative cannot agree on the selection of the third arbitrator within 30
days after such time as the corporation and the indemnified representative have
each been notified of the selection of the other's arbitrator, the necessary
arbitrator or arbitrators shall be selected by the presiding judge of the court
of general jurisdiction in such metropolitan area.

(b) Qualifications of Arbitrators.--Each arbitrator selected as provided
herein is required to be or have been a director or executive officer of a
corporation whose shares of common stock were listed during at least one year of
such service on the New York Stock Exchange or the American Stock Exchange or
quoted on the National Association of Securities Dealers Automated Quotations
System.

(c) Burden of Proof.--The party or parties challenging the right of an
indemnified representative to the benefits of this Article shall have the burden
of proof.

(d) Expenses.--The corporation shall reimburse an indemnified
representative for the expenses (including attorneys' fees and disbursements)
incurred in successfully prosecuting or defending such arbitration.

(e) Effect.--Any award entered by the arbitrators shall be final, binding
and nonappealable and judgment may be entered thereon by any party in accordance
with applicable law in any court of competent jurisdiction, except that the
corporation shall be entitled to interpose as a defense in any such judicial
enforcement proceeding any prior final judicial determination adverse to the
indemnified representative under Section 7.01(a)(2) in a proceeding not directly
involving indemnification under this Article. This arbitration provision shall
be specifically enforceable.

Section 7.07. Contribution.--If the indemnification provided for in this
Article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the corporation shall contribute to the liabilities to which
the indemnified representative may be subject in such proportion as is
appropriate to reflect the intent of this Article or otherwise.

Section 7.08. Mandatory Indemnification of Directors, Officers, etc.--To
the extent that an authorized representative

<PAGE>

of the corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1741 or 1742 of the
Business Corporation Law or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees and
disbursements) actually and reasonably incurred by such person in connection
therewith.

Section 7.09. Contract Rights; Amendment or Repeal.--All rights under this
Article shall be deemed a contract between the corporation and the indemnified
representative pursuant to which the corporation and each indemnified
representative intend to be legally bound. Any repeal, amendment or modification
hereof shall be prospective only and shall not affect any rights or obligations
then existing.

Section 7.10. Scope of Article.--The rights granted by this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification, contribution or advancement of expenses may be entitled under
any statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in an indemnified capacity and as to action in any
other capacity. The indemnification, contribution and advancement of expenses
provided by or granted pursuant to this Article shall continue as to a person
who has ceased to be an indemnified representative in respect of matters arising
prior to such time, and shall inure to the benefit of the heirs, executors,
administrators and personal representatives of such a person.

Section 7.11. Reliance on Provisions.--Each person who shall act as an
indemnified representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article.

Section 7.12. Interpretation.--The provisions of this Article are intended
to constitute bylaws authorized by 15 Pa.C.S. ss. 1746.

ARTICLE VIII

Miscellaneous

Section 8.01. Corporate Seal.--The corporation shall have a corporate seal
in the form of a circle containing the name of the corporation, the year of
incorporation and such other details as may be approved by the board of
directors. The affixation of the corporate seal shall not be necessary to the
valid execution, assignment or endorsement by the corporation of any instrument
or other document.

<PAGE>

Section 8.02. Checks.--All checks, notes, bills of exchange or other
similar orders in writing shall be signed by such one or more officers or
employees of the corporation as the board of directors may from time to time
designate.

Section 8.03. Contracts.

(a) General Rule.--Except as otherwise provided in the Business Corporation
Law in the case of transactions that require action by the shareholders, the
board of directors may authorize any officer or agent to enter into any contact
or to execute or deliver any instrument on behalf of the corporation, and such
authority may be general or confined to specific instances.

(b) Statutory Form of Execution of Instruments.--Any note, mortgage,
evidence of indebtedness, contract or other document, or any assignment or
endorsement thereof, executed or entered into between the corporation and any
other person, when signed by one or more officers or agents having actual or
apparent authority to sign it, or by the president or vice president and
secretary or assistant secretary or treasurer or assistant treasurer of the
corporation, shall be held to have been properly executed for and in behalf of
the corporation, without prejudice to the rights of the corporation against any
person who shall have executed the instrument in excess of his or her actual
authority.

Section 8.04. Interested Directors or Officers; Quorum.

(a) General Rule.--A contract or transaction between the corporation and
one or more of its directors or officers or between the corporation and another
corporation, partnership, joint venture, trust or other enterprise in which one
or more of its directors or officers are directors or officers or have a
financial or other interest, shall not be void or voidable solely for that
reason, or solely because the director or officer is present at or participates
in the meeting of the board of directors that authorizes the contract or
transaction, or solely because his, her or their votes are counted for that
purpose, if:

(1) the material facts as to the relationship or interest and as to
the contract or transaction are disclosed or are known to the board of
directors and the board authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors even though
the disinterested directors are less than a quorum;

(2) the material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
shareholders entitled to vote

<PAGE>

thereon and the contract or transaction is specifically approved in good
faith by vote of those shareholders; or

(3) the contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified by the board of directors
or the shareholders.

(b) Quorum.--Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board which authorizes a contract
or transaction specified in subsection (a).

Section 8.05. Deposits.--All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such banks, trust
companies or other depositaries as the board of directors may approve or
designate, and all such funds shall be withdrawn only upon checks signed by such
one or more officers or employees of the corporation as the board of directors
shall from time to time designate.

Section 8.06. Corporate Records.

(a) Required Records.--The corporation shall keep complete and accurate
books and records of account, minutes of the proceedings of the incorporators,
shareholders and directors and a share register giving the names and addresses
of all shareholders and the number and class of shares held by each. The share
register shall be kept at either the registered office of the corporation in the
Commonwealth of Pennsylvania or at its principal place of business wherever
situated or at the office of its registrar or transfer agent. Any books, minutes
or other records may be in written form or any other form capable of being
converted into written form within a reasonable time.

(b) Right of Inspection.--Every shareholder shall, upon written verified
demand stating the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any proper purpose,
the share register, books and records of account, and records of the proceedings
of the incorporators, shareholders and directors and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to the
interest of the person as a shareholder. In every instance where an attorney or
other agent is the person who seeks the right of inspection, the demand shall be
accompanied by a verified power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the shareholder. The demand shall
be directed to the corporation at its registered office in the Commonwealth of
Pennsylvania or at its principal place of business wherever situated.

<PAGE>

Section 8.07. Financial Reports.--Unless otherwise agreed between the
corporation and a shareholder, the corporation shall furnish to its shareholders
annual financial statements, including at least a balance sheet as of the end of
each fiscal year and a statement of income and expenses for the fiscal year. The
financial statements shall be prepared on the basis of generally accepted
accounting principles, if the corporation prepares financial statements for the
fiscal year on that basis for any purpose, and may be consolidated statements of
the corporation and one or more of its subsidiaries. The financial statements
shall be mailed by the corporation to each of its shareholders entitled thereto
within 120 days after the close of each fiscal year and, after the mailing and
upon written request, shall be mailed by the corporation to any shareholder or
beneficial owner entitled thereto to whom a copy of the most recent annual
financial statements has not previously been mailed. Statements that are audited
or reviewed by a public accountant shall be accompanied by the report of the
accountant; in other cases, each copy shall be accompanied by a statement of the
person in charge of the financial records of the corporation:

(1) Stating the person's reasonable belief as to whether or not the
financial statements were prepared in accordance with generally accepted
accounting principles and, if not, describing the basis of presentation.

(2) Describing any material respects in which the financial statements
were not prepared on a basis consistent with those prepared for the
previous year.

Section 8.08. Amendment of Bylaws.--These bylaws may be amended or
repealed, or new bylaws may be adopted, either (i) by vote of the shareholders
at any duly organized annual or special meeting of shareholders, or (ii) with
respect to those matters that are not by statute committed expressly to the
shareholders and regardless of whether the shareholders have previously adopted
or approved the bylaw being amended or repealed, by vote of a majority of the
board of directors of the corporation in office at any regular or special
meeting of directors. Any change in these bylaws shall take effect when adopted
unless otherwise provided in the resolution effecting the change. See Section
2.03(b) (relating to notice of action by shareholders on bylaws).

U.S. PHYSICIANS, INC.
1995 COMPANY STOCK OPTION PLAN

The purpose of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the
"Plan") is to provide certain employees and directors (including non-employee
directors) of U.S. PHYSICIANS, Inc. and its subsidiaries (hereinafter
collectively referred to as the "Company") the opportunity to receive grants of
incentive stock options and nonqualified stock options. The Company believes
that the Plan will cause the participants to contribute materially to the growth
of the Company, thereby benefiting the Company's shareholders and will align the
economic interests of the participants with those of the shareholders.

1. Administration

The Plan shall be administered and interpreted by a committee (the
"Committee") consisting of not less than two persons appointed by the Board of
Directors of the Company (the "Board"). To the extent applicable, in accordance
with Section 17, the Committee shall consist of not less than two persons
appointed by the Board, all of whom shall be "disinterested persons" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act")
and "outside directors" as defined under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code") and related Treasury regulations.
Notwithstanding anything herein to the contrary, prior to the Effective Date
specified under Section 17(b), the Board may exercise any power or authority of
the Committee under the Plan and, in such case, any reference to the Committee
hereunder shall be deemed to include the Board as a whole.

Subject to the provisions of Section 5, the Committee shall have the sole
authority to (i) determine the individuals to whom options shall be granted
under the Plan, (ii) determine the type, size and terms of the options to be
granted to each such individual, (iii) determine the time when the options will
be granted and the duration of the exercise period, including the criteria for
exercisability and the acceleration of exercisability, (iv) prior to the
Effective Date of Section 17(b), determine the "fair market value," as defined
below, and (v) deal with any other matters arising under the Plan.

The Committee shall have full power and authority to administer and
interpret the Plan, to make factual determinations and to adopt or amend such
rules, regulations, agreements and instruments for implementing the Plan and for
conduct of its business as it deems necessary or advisable, in its sole
discretion. The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having any interests in the Plan or in any
options granted hereunder. All powers of the Committee shall be executed in the
best interest of the Company and in keeping with the objectives of the Plan. The
Committee may delegate any administrative function hereunder to the Company's
Human Resources Department except that, following the Effective Date specified
in Section 17(b), no such delegation may be made to the extent inconsistent with
the requirements of Rule 16b-3 under the Exchange Act.

<PAGE>

2. Grants

Incentives under the Plan shall consist of incentive stock options and
nonqualified stock options (hereinafter collectively referred to as "Stock
Options"). All Stock Options shall be subject to the terms and conditions set
forth herein and to those other terms and conditions consistent with this Plan
as the Committee deems appropriate and as are specified in writing by the
Committee to the recipient (the "Grant Letter"). The Committee shall approve the
form and provisions of each Grant Letter to an Employee or a Non-Employee
Director (both as defined below). Grants under a particular Section of the Plan
need not be uniform as among the Employees or Non-Employee Directors.

3. Shares Subject to the Plan

(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company, par value $.01 (the "Company Stock") that
have been or may be issued or transferred under the Plan is 2,250,000 shares.
Notwithstanding anything in the Plan to the contrary, during the term of the
Plan, the maximum aggregate number of shares of Company Stock that shall be
subject to options granted under the Plan to any single individual shall be 20%
of the shares that have been or may be issued or transferred under the Plan. The
shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company for purposes
of the Plan. If and to the extent options granted under the Plan terminate,
expire, cancel, are forfeited, or are exchanged or surrendered without having
been exercised, the shares subject to such option shall again be available for
purposes of the Plan.

(b) If there is any change in the number or kind of shares of Company Stock
issuable under the Plan through the declaration of stock dividends or if the
value of outstanding shares of Company Stock is substantially reduced due to the
Company's payment of an extraordinary dividend or distribution, or through a
recapitalization, stock splits, or combinations or exchanges of such shares, or
merger, reorganization or consolidation of the Company, reclassification or
change in par value or by reason of any other comparable extraordinary or
unusual events affecting the outstanding Company Stock as a class without the
Company's receipt of consideration, the maximum number of shares of Company
Stock available for Stock Options, the maximum number of shares of Company Stock
for which any one individual participating in the Plan may be granted over the
term of the Plan, the number of shares covered by outstanding Stock Options, and
the price per share or the applicable market value of such Stock Options, and
the other terms and conditions of the Stock Options, as the Committee may deem
necessary or desirable, shall be proportionately adjusted by the Committee to
reflect any increase or decrease in the number or kind of issued shares of
Company Stock to preclude the enlargement or dilution of rights and benefits
under such Stock Options; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. The adjustments determined
by the Committee shall be final, binding and conclusive. Notwithstanding the
foregoing, no adjustment shall be authorized or made pursuant to this Section to
the extent that

-2-
<PAGE>

such authority or adjustment would cause the Plan or any Incentive Stock Option
to fail to comply with Section 422 of the Code.

4. Eligibility for Participation

All individuals employed by the Company or a subsidiary ("Employees")
(including Employees who are officers or members of the Board) who hold
positions of responsibility and whose performance, in the judgment of the
Committee, can have a significant effect on the long-term success of the Company
and all non-employee directors ("Non-Employee Directors") shall be eligible to
participate in the Plan. Except as provided in Section 5, the Committee shall
select the Employees and Non-Employee Directors to receive Stock Options (the
"Optionees") and determine the number of shares of Company Stock subject to a
particular Stock Option in such manner as the Committee determines.

Nothing contained in this Plan shall be construed to limit the right of the
Company to grant options otherwise in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including options granted to employees
thereof who become Employees of the Company, or for other proper corporate
purpose.

5. Granting of Options

(a) Number of Shares. Subject to the limitations set forth in Section 3(a)
the Committee, in its sole discretion, shall determine the number of shares of
Company Stock that will be subject to each Stock Option granted hereunder.

(b) Type of Option and Price. The Committee may grant options intended to
qualify as incentive stock options ("Incentive Stock Options") within the
meaning of Section 422 of the Code or options which are not intended to so
qualify ("Nonqualified Stock Options") or any combination of Incentive Stock
Options and Nonqualified Stock Options, all in accordance with the terms and
conditions set forth herein; provided, however, Non-Employee Directors may only
receive Nonqualified Stock Options.

The purchase price of Company Stock subject to a Stock Option shall be
determined by the Committee and may be equal to, greater than, or less than the
fair market value of a share of such Stock on the date such Stock Option is
granted; provided, however, that the purchase price of Company Stock subject to
an Incentive Stock Option shall be equal to, or greater than, the fair market
value of a share of such Stock on the date such Stock Option is granted and in
no event, based upon the facts known at the time of the grant, may a purchase
price be established hereunder that would result in the disallowance of the
Company's expense deduction pursuant to Section 162(m) of the Code.

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<PAGE>

During such time that the Company Stock is not listed on an established
stock exchange or traded in the over-the-counter-market, the "fair market value"
of Company Stock shall be determined by the Committee in good faith based on the
best available facts and circumstances at the time. The Committee, in its sole
discretion may engage a valuation expert, with expertise in the valuation of
business entities and the securities thereof, to perform such valuation. Such
determination of "fair market value" shall be made as of the date of each grant
under the Plan and, if requested by the exercising Optionee, on the date of
exercise of a Stock Option by an Optionee, after taking into account such
factors as the Committee or the valuation expert shall deem appropriate. If the
Company Stock is listed upon an established stock exchange or other market
source, as determined by the Committee, "fair market value" on any date of
reference shall be the closing price of a share of Company Stock on the
principal exchange or other recognized market source, as determined by the
Committee, in its sole discretion, on the date of grant, or if there is no sale
on such date, then the closing price of a share of Company Stock on the last
previous day on which a sale is reported.

(c) Term. The Committee shall determine the option term of each Stock
Option. The term shall not exceed ten years from the date of grant.

(d) Exercisability of Options. Stock Options shall become exercisable in
accordance with the terms and conditions determined by the Committee, in its
sole discretion, and specified in the Grant Letter. All outstanding Employee
Stock Options shall become immediately exercisable upon a Change in Control (as
defined herein).

(e) Manner of Exercise. An Optionee may exercise a Stock Option which has
become exercisable by delivering a notice of exercise to the Committee with
accompanying payment of the option price in accordance with Section 5(g) below.
Should a Stock Option become exercisable on and after the Effective Date
specified in Section 17(b), such notice may instruct the Company to deliver
shares of Company Stock due upon the exercise of the Stock Option to any
registered broker or dealer designated by the Company ("Designated Broker") in
lieu of delivery to the Optionee. Such instructions must designate the account
into which the shares are to be deposited. The Optionee may tender this notice
of exercise, which has been properly executed by the Optionee, and the
aforementioned delivery instructions to any Designated Broker.

(f) Termination of Employment, Disability or Death.

(1) In the event the Optionee is an Employee who ceases to be an
Employee of the Company for any reason other than death or disability, any
Stock Option which is otherwise exercisable by the Optionee shall terminate
unless exercised within such period of time as may be specified in the
Grant Letter (with respect to Incentive Stock Options such period may not
exceed 90 days), but in the absence of any such specification in the Grant
Letter the Stock Option must be exercised within 90 days of the date on
which the Optionee ceases to be an Employee. In any event no Stock Option
may be exercised later than the date of expiration of

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<PAGE>

the option term. Any of the Employee's Stock Options which are not
otherwise exercisable as of the date on which the Optionee ceases to be an
Employee shall terminate as of such date (except as the Committee may
otherwise provide). Any Non-Employee Director Stock Options which are not
otherwise exercisable as of the date on which the Non-Employee Directors
ceases to be a Non-Employee Director shall terminate as of such date.

(2) In the event the Optionee ceases to be an Employee of the Company
on account of "disability," as that term is defined at the time in the
policy manual of the Company (and with respect to Incentive Stock Options,
within the meaning of section 22(e)(B) of the Code), any Stock Option which
is otherwise exercisable by the Optionee shall terminate unless exercised
within such period of time as may be specified in the Grant Letter (with
respect to Incentive Stock Options such period may not exceed one year),
but in the absence of any such specification in the Grant Letter the Stock
Option must be exercised within one year of the date on which the Optionee
ceases to be an Employee because of disability. In any event no Stock
Option may be exercised later than the date of expiration of the option
term. Any of the Optionee's Stock Options which are not otherwise
exercisable as of the date on which the Optionee ceases to be an Employee
because of disability shall terminate as of such date (except as the
Committee may otherwise provide).

(3) In the event of the death of the Optionee while he is an Employee
of the Company, any Stock Option which is otherwise exercisable by the
Optionee shall terminate unless exercised within such period of time as may
be specified in the Grant Letter (with respect to Incentive Stock Options
such period may not exceed one year), but in the absence of any such
specification in the Grant Letter the Stock Option must be exercised within
one year of the date on which the Optionee ceases to be an Employee or a
Non-Employee Director. In any event no Stock Option may be exercised later
than the date of expiration of the option term. Any of the Optionee's Stock
Options which are not otherwise exercisable as of the date on which the
Optionee ceases to be an Employee, or a Non-Employee Director, shall
terminate as of such date (except as the Committee may otherwise provide).

(g) Satisfaction of Option Price. The Optionee shall pay the option price
specified in the Grant Letter in (i) cash, (ii) with the approval of the
Committee, by delivering shares of Company Stock owned by the Optionee including
Company Stock acquired in connection with the exercise of a particular Stock
Option and having a fair market value on the date of exercise equal to the
option price (iii) if, as determined by the Committee, in its sole discretion,
with the proceeds of a promissory note payable by the Optionee to the Company,
but only in accordance with the provisions of a loan program established by the
Company, or any successor program as in effect from time to time, (A) in a
principal amount of up to 100% of the payment due upon the exercise of the Stock
Option, or such applicable lower percentage as may be specified by the Committee
pursuant to the Loan Program, and (B) bearing interest at a rate not less than
the applicable Federal rate prescribed by Section 1274 of the Code, or such
higher rate as may be specified by the Committee pursuant to the Loan Program,
or (iv) through any combination of (i), (ii) or (iii). The Optionee shall pay
the option price and the amount of

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<PAGE>

withholding tax due, if any, at the time of exercise. Shares of Company Stock
shall not be issued or transferred upon exercise of a Stock Option until the
option price and any applicable withholding taxes are fully paid.

(h) Rule 16b-3 Restrictions. Unless an Optionee could otherwise transfer
Company Stock issued pursuant to a Stock Option granted hereunder without
incurring liability under Section 16(b) of the Exchange Act, at least six months
must elapse from the date of acquisition of a Stock Option to the date of
disposition of the Company Stock issued upon exercise of such option.

(i) Limits on Incentive Stock Options. Incentive Stock Options shall only
be granted to Employees; provided, however, that an Incentive Stock Option shall
not be granted to any Employee who, at the time of grant, owns stock possessing
more than 10 percent of the total combined voting power of all classes of stock
of the Company or parent of the Company, unless the option price per share is
not less than 110% of the fair market value of Company Stock on the date of
grant and the option term is not more than five years from the date of grant.
Each Incentive Stock Option shall provide that to the extent that the aggregate
fair market value of the Company Stock on the date of the grant with respect to
which Incentive Stock Options are exercisable for the first time by an Optionee
during any calendar year under the Plan or any other stock option plan of the
Company exceeds $100,000, then such option as to the excess shall be treated as
a Nonqualified Stock Option.

(j) Optional Purchase by the Company. In the sole discretion of the
Committee, in lieu of the exercise of a Stock Option, the Optionee may be
permitted to transfer the Stock Option to the Company in exchange for a cash
payment equal to the excess over the purchase price of the then fair market
value of the shares of Company Stock subject to the Optionee's outstanding Stock
Options.

6. Transferability of Options

Only an Optionee or his or her authorized legal representative
may exercise rights under a Stock Option. Such persons may not transfer those
rights except (i) to the extent permitted under Rule 16b-3 of the Exchange Act
or any interpretations otherwise issued by the Securities Exchange Commission
and the Code, (ii) by will or by the laws of descent and distribution or, (iii)
if permitted under Rule 16b-3 of the Exchange Act and if permitted in any
specific case by the Committee in its sole discretion, pursuant to a qualified
domestic relations order as defined under the Code or Title I of ERISA or the
regulations thereunder, provided, however, that an Incentive Stock Option shall
only be transferred in the circumstances described in clause (ii). When an
Optionee dies, the personal representative or other person entitled to succeed
to the rights of the Optionee ("Successor Optionee") may exercise such rights. A
Successor Optionee must furnish proof satisfactory to the Company of his or her
right to receive the Stock Option under the Optionee's will or under the
applicable laws of descent and distribution.

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<PAGE>

7. Change in Control of the Company.

As used herein, a "Change in Control" shall be deemed to have occurred if:

(i) As a result of any transaction, any one shareholder or a group of
affiliated shareholders, other than a shareholder on the Effective Date of the
Plan specified in Section 18(a), becomes a beneficial owner, as defined below,
directly or indirectly, of securities of the Company representing more than 50%
of the Common Stock of the Company or the combined voting power of the Company's
then outstanding securities.

(ii) A liquidation or dissolution of the Company or the sale of all or
substantially all of the Company's assets occurs.

(iii) After the registration of the Company Stock under Section 12 of the
Exchange Act:

(a) As a result of a tender offer, stock purchase, other stock
acquisition, merger, consolidation, recapitalization, reverse split, or
sale or transfer of assets, any person or group (as such terms are used in
and under Section 13(d) of the Exchange Act) other than an existing
shareholder, becomes the beneficial owner (as defined in Rule 13-d under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the Company's
then outstanding securities; or

(b) During any period of two consecutive years, individuals who at the
beginning of such period constitute the board of directors cease for any
reason to constitute at least a majority thereof unless the election, or
the nomination for election by the Company's shareholders, of each new
director was approved by a vote of at least 2/3 of the directors then still
in office who were directors at the beginning of the period.

8. Certain Corporate Changes

(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger or
Consolidation Where the Company Does Not Survive. If all or substantially all of
the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, each Employee with any outstanding Stock Options shall have
the right to exercise in full any installments of such Stock Options not
previously exercised (whether or not the right to exercise such installments has
accrued pursuant to such Stock Options). In addition, if a cashout of such Stock
Options would not affect the accounting treatment of any such transaction, the
Committee may, in its sole discretion, require that the Company purchase such
Stock Options for a cash payment equal to the excess over the purchase price of
the then fair market value of the shares of Company Stock subject to the
Optionee's

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<PAGE>

outstanding Stock Options. In the event that options are accelerated pursuant to
this Section, any options not exercised shall thereafter terminate and cease to
remain outstanding.

(b) Merger or Consolidation Where the Company Survives. If the Company is a
party to a merger or consolidation in which the Company will be the surviving
corporation, then any Optionee with any outstanding Stock Options shall have the
right to exercise in full any installments of such Stock Options not previously
exercised (whether or not the right to exercise such installments has accrued
pursuant to such Stock Options) unless the Committee, in its sole discretion,
determines not to accelerate such Stock Options upon such transaction. In
addition, if a cashout of such Stock Options would not affect the accounting
treatment of any such transaction, the Committee may, in its sole discretion,
require that the Company purchase such Stock Options for a cash payment equal to
the excess over the purchase price of the then fair market value of the shares
of Company Stock subject to the Optionee's outstanding Stock Options. In the
event that options are accelerated pursuant to this Section, any options not
exercised shall thereafter terminate and cease to remain outstanding.

9. Amendment and Termination of the Plan

(a) Amendment. The Board, by written resolution, may amend or terminate the
Plan at any time; provided, however, that any amendment that materially
increases the benefits accruing to Employees under the Plan, changes the
aggregate number (or individual limit for any single Optionee) of shares of
Company Stock that may be issued or transferred under the Plan (other than by
operation of Section 3(b)), or modifies the requirements as to eligibility for
participation in the Plan, shall be subject to approval by the shareholders of
the Company, and provided, further, that the Board shall not amend the Plan if
such amendment would cause the Plan or any Stock Option, or, subsequent to the
Effective Date specified in Section 17(b), the exercise of any right under the
Plan to fail to comply with the requirements of Rule 16b-3 under the Exchange
Act.

(b) Termination of Plan. The Plan shall terminate on the tenth anniversary
of its effective date unless terminated earlier by the Board of Directors of the
Company or unless extended by the Board with the approval of the shareholders.

(c) Termination and Amendment of Outstanding Stock Options. A termination
or amendment of the Plan that occurs after a Stock Option is made shall not
materially impair the rights of an Optionee unless the Optionee consents or
unless the Committee acts under Section 18(b) hereof. The termination of the
Plan shall not impair the power and authority of the Committee with respect to
an outstanding Stock Option. Whether or not the Plan has terminated, an
outstanding Stock Option may be terminated or amended under Section 18(b) hereof
or may be amended by agreement of the Company and the Optionee consistent with
the Plan.

(d) Governing Document. The Plan shall be the controlling document. No

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<PAGE>

other statements, representations, explanatory materials, or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company, its successors and assigns.

10. Funding of the Plan

This Plan shall be unfunded. The Company shall not be required to establish
any special or separate fund or to make any other segregation of assets to
assure the payment of any Stock Options under this Plan. In no event shall
interest be paid or accrued on any Stock Option, including unpaid installments
of Stock Options.

11. Rights of Employees and Non-Employee Directors.

Nothing in this Plan shall entitle any Employee, Non-Employee Director or
other person to any claim or right to be granted a Stock Option under this Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any Employee or Non-Employee Director any rights to be retained by or in the
employ of the Company or any other employment rights or rights to serve as a
Director of the Company.

12. No Fractional Shares

No fractional shares of Company Stock shall be issued or delivered pursuant
to the Plan or any Stock Option. The Committee shall determine whether cash,
other awards or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.

13. Withholding of Taxes

The Optionee or other person receiving shares of Company Stock upon the
exercise of a Stock Option shall be required to pay to the Company in cash the
amount of any federal, state or local taxes which the Company is required to
withhold with respect to the exercise of such Stock Options or the Company shall
have the right (if then authorized by the Committee and applicable law) (i) to
deduct the appropriate amount from other wages paid to the Employee by the
Company, or (ii) to withhold the amount of any withholding tax due with respect
to the exercise of such Stock Options by retaining Company Stock purchased upon
the exercise of a Stock Option with a fair market value in the amount of 120% of
any withholding tax due.

14. Agreements with Optionees

Each Stock Option made under this Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee shall approve.

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<PAGE>

15. Requirements for Issuance of Shares

No Company Stock shall be issued or transferred upon the exercise of any
Stock Option hereunder unless and until all legal requirements applicable to the
issuance or transfer of such Company Stock have been complied with to the
satisfaction of the Committee. The Committee shall have the right to condition
any Stock Option made to any Optionee hereunder on such Optionee's undertaking
in writing to comply with such restrictions on his subsequent disposition of
such shares of Company Stock as the Committee shall deem necessary or advisable
as a result of any applicable law, regulation or official interpretation
thereof, and certificates representing such shares may be legended to reflect
any such restrictions. Certificates representing shares of Company Stock issued
under the Plan will be subject to such stop-transfer orders and other
restrictions as may be applicable under such laws, regulations and other
obligations of the Company, including any requirement that a legend or legends
be placed thereon.

16. Headings

Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

17. Effective Date

(a) Effective Date of the Plan. Subject to the approval of the Company's
shareholders, this Plan shall be effective as of December 1, 1995.

(b) Effectiveness of Section 16 and Section 162(m) Provisions. The
provisions of the Plan that refer to, or are applicable to persons subject to,
Section 16 of the Exchange Act or Section 162(m) of the Code shall be effective,
if at all, upon registration of the Company Stock under Section 12 of the
Exchange Act, and shall remain effective thereafter for so long as such stock is
so registered.

18. Miscellaneous

(a) Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Employee by reason of a corporate merger,
consolidation, acquisition of stock or property, reorganization or liquidation
involving the Company or any of its subsidiaries in substitution for a stock
option or restricted stock grant granted by such corporation ("Substituted Stock
Incentives"). The terms and conditions of the substitute Grant may vary from the
terms and conditions required by the Plan and from those of the Substituted
Stock Incentives. If this provision should from time to time ever become
applicable, the Committee shall at that or those times prescribe the provisions
of the substitute Grants.

(b) Compliance with Law. The Plan, the exercise of Stock Options and the

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<PAGE>

obligations of the Company to issue or transfer shares of Company Stock under
Stock Options shall be subject to all applicable laws and to approvals by an
governmental or regulatory agency as may be required. With respect to persons
subject to Section 16 of the Exchange Act, it is the intent of the Company that
the Plan and all transactions under the Plan comply with all applicable
provisions of Rule 16b-3 or its successors under the Exchange Act. The Committee
may modify a Stock Option to bring it into compliance with any federal or state
government law or regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to Optionees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.

(c) Ownership of Stock. An Optionee or Successor Optionee shall have no
rights as a stockholder with respect to any shares of Company Stock covered by a
Stock Option until the shares are issued or transferred to the Optionee or
Successor Optionee on the stock transfer records of the Company.

(d) Governing Law. The validity, construction, interpretation and effect of
the Plan and Grant Letters issued under the Plan shall exclusively be governed
by and determined in accordance with the law of the Commonwealth of
Pennsylvania.

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U.S. PHYSICIANS, INC.
1995 AFFILIATE STOCK OPTION PLAN

The purpose of the U.S. PHYSICIANS, Inc. 1995 Affiliate Stock Option Plan
(the "Plan") is to provide certain employees, consultants and independent
contractors of U.S. Medical Services of Pennsylvania, P.C. or employees,
consultants and independent contractors of any other comparable entity with
which U.S. PHYSICIANS, Inc. or its subsidiaries (hereinafter collectively
referred to as the "Company") has a management agreement or is involved on
significant projects (collectively "Key Affiliates") with the opportunity to
receive grants of nonqualified stock options. The Company believes that the Plan
will cause the participants to contribute materially to the growth of the
Company, thereby benefiting the Company's shareholders and will align the
economic interests of the participants with those of the shareholders.

A. Administration

The Plan shall be administered and interpreted by a committee (the
"Committee") consisting of not less than two persons appointed by the Board of
Directors of the Company (the "Board"). To the extent applicable, in accordance
with Section 17, the Committee shall consist of not less than two persons
appointed by the Board, all of whom shall be "disinterested persons" as defined
under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act").
Notwithstanding anything herein to the contrary, prior to the Effective Date
specified under Section 17(b), the Board may exercise any power or authority of
the Committee under the Plan and, in such case, any reference to the Committee
hereunder shall be deemed to include the Board as a whole.

<PAGE>

Effective Date specified in Section 17(b), no such delegation may be made
to the extent inconsistent with the requirements of Rule 16b-3 under the
Exchange Act.

B. Grants

Incentives under the Plan shall consist of nonqualified stock options
(hereinafter referred to as "Stock Options"). All Stock Options shall be subject
to the terms and conditions set forth herein and to those other terms and
conditions consistent with this Plan as the Committee deems appropriate and as
are specified in writing by the Committee to the recipient (the "Grant Letter").
The Committee shall approve the form and provisions of each Grant Letter to a
Key Affiliate. Grants under a particular Section of the Plan need not be uniform
as among the Key Affiliates.

C. Shares Subject to the Plan

(a) Subject to the adjustment specified below, the aggregate number of
shares of common stock of the Company, par value $.01 (the "Company Stock") that
have been or may be issued or transferred under the Plan is 1,000,000 shares.
The shares may be authorized but unissued shares of Company Stock or reacquired
shares of Company Stock, including shares purchased by the Company for purposes
of the Plan. If and to the extent options granted under the Plan terminate,
expire, cancel, are forfeited, or are exchanged or surrendered without having
been exercised, the shares subject to such option shall again be available for
purposes of the Plan.

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<PAGE>

D. Eligibility for Participation

All Key Affiliates shall be eligible to participate in the Plan. Except as
provided in Section 5, the Committee shall select the Key Affiliates to receive
Stock Options (the "Optionees") and determine the number of shares of Company
Stock subject to a particular Stock Option in such manner as the Committee
determines.

Nothing contained in this Plan shall be construed to limit the right of the
Company to grant options otherwise in connection with the acquisition, by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including options granted to employees
thereof who become employees of the Company, or for other proper corporate
purpose.

E. Granting of Options

(a) Number of Shares. Subject to the limitations set forth in Section 3(a)
and except as provided in Section 6, the Committee, in its sole discretion,
shall determine the number of shares of Company Stock that will be subject to
each Stock Option granted hereunder.

(b) Type of Option and Price. The Committee may grant only Stock Options
which are not intended to qualify as incentive stock options within the meaning
of section 422 of the Internal Revenue Code, of 1986, as amended (the "Code")
("Nonqualified Stock Options"), all in accordance with the terms and conditions
set forth herein.

During such time that the Company Stock is not listed on an established
stock exchange or traded in the over-the-counter-market, the "fair market value"
of Company Stock shall be determined by the Committee in good faith based on the
best available facts and circumstances at the time. The Committee, in its sole
discretion may engage a valuation expert, with expertise in the valuation of
business entities and the securities thereof, to perform such valuation. Such
determination of "fair market value" shall be made as of the date of each grant
under the Plan and, if requested by the exercising Optionee, on the date of
exercise of a Stock Option by an Optionee, after taking into account such
factors as the Committee or the valuation expert shall deem appropriate. If the
Company Stock is listed upon an established stock exchange or other market
source, as determined by the Committee, "fair market value" on any date of
reference shall be the closing price of a share of Company Stock (on a
consolidated basis) on the principal exchange or other recognized market source,
as determined by the Committee on the date of grant, or if there is no sale on
such date, then the closing price of a share of Company Stock on the last
previous day on which a sale is reported.

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<PAGE>

(c) Term. The Committee shall determine the option exercise period of each
Stock Option. The exercise period shall not exceed ten years from the date of
grant.

(d) Exercisability of Options. Except as provided in Section 6, Stock
Options shall become exercisable in accordance with the terms and conditions
determined by the Committee, in its sole discretion, and specified in the Grant
Letter. All outstanding Stock Options shall become immediately exercisable upon
a Change in Control (as defined herein), unless the Committee, in its sole
discretion, determines not to accelerate such Stock Options upon a Change in
Control.

(e) Manner of Exercise. An Optionee may exercise a Stock Option which has
become exercisable by delivering a notice of exercise to the Committee with
accompanying payment of the option price in accordance with (g) below. Should a
Stock Option become exercisable on and after the Effective Date specified in
Section 17(b), such notice may instruct the Company to deliver shares of Company
Stock due upon the exercise of the Stock Option to any registered broker or
dealer designated by the Company ("Designated Broker") in lieu of delivery to
the Optionee. Such instructions must designate the account into which the shares
are to be deposited. The Optionee may tender this notice of exercise, which has
been properly executed by the Optionee, and the aforementioned delivery
instructions to any Designated Broker.

(f) Termination of Employment, Disability or Death.

(1) In the event the Optionee during the Optionee's lifetime ceases to
be a Key Affiliate of the Company for any reason other than death or
disability, any Stock Option which is otherwise exercisable by the Optionee
shall terminate unless exercised within such period of time as may be
specified in the Grant Letter but in the absence of any such specification
in the Grant Letter the Stock Option must be exercised within 90 days of
the date on which the Optionee ceases to be a Key Affiliate. In any event
no Stock Option may be exercised later than the date of expiration of the
option term. Any of the Optionee's Stock Options which are not otherwise
exercisable as of the date on which the Optionee ceases to be a Key
Affiliate shall terminate as of such date (except as the Committee may
otherwise provide).

(2) In the event the Optionee ceases to be a Key Affiliate of the
Company on account of becoming "disabled" as that term is defined at such
time in the policy manual of the Company, any Stock Option which is
otherwise exercisable by the Optionee shall terminate unless exercised
within such period of time as may be specified in the Grant Letter but in
the absence of any such specification in the Grant Letter the Stock Option
must be exercised within one year of the date on which the Optionee becomes
disabled. In any event no Stock Option may be exercised later than the date
of expiration of the option term. Any of the Optionee's Stock Options which
are not otherwise exercisable as of the date on which the Optionee becomes
disabled shall terminate as of such date (except as the Committee may
otherwise provide).

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<PAGE>

(3) In the event of the death of the Optionee while he is a Key
Affiliate of the Company, any Stock Option which is otherwise exercisable
by the Optionee shall terminate unless exercised within such period of time
as may be specified in the Grant Letter but in the absence of any such
specification in the Grant Letter the Stock Option must be exercised within
one year of the date on which the Optionee ceases to be a Key Affiliate. In
any event no Stock Option may be exercised later than the date of
expiration of the option term. Any of the Optionee's Stock Options which
are not otherwise exercisable as of the date on which the Optionee ceases
to be a Key Affiliate shall terminate as of such date (except as the
Committee may otherwise provide).

(h) Optional Purchase by the Company. In the sole discretion of the
Committee, in lieu of the exercise of a Stock Option, the Optionee may be
permitted to transfer the Stock Option to the Company in exchange for a cash
payment equal to the excess over the purchase price of the then fair market
value of the shares of Company Stock subject to the Optionee's outstanding Stock
Options.

6. Transferability of Options

Only an Optionee or his or her authorized legal representative may exercise
rights under a Stock Option. Such persons may not transfer those rights except
(i) to the extent permitted under Rule 16b-3 of the Exchange Act or any
interpretations otherwise issued by the Securities Exchange Commission and the
Code, (ii) by will or by the laws of descent and distribution or, (iii) if
permitted under Rule 16b-3 of the Exchange Act and if permitted in any specific
case by the Committee in its sole discretion, pursuant to a qualified domestic
relations order as defined under the Code or Title I of ERISA or the regulations
thereunder. When an Optionee dies, the personal representative or other person
entitled to succeed to the rights of the Optionee ("Successor Optionee") may
exercise such rights. A Successor Optionee must furnish

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<PAGE>

proof satisfactory to the Company of his or her right to receive the Stock
Option under the Optionee's will or under the applicable laws of descent and
distribution.

7. Change in Control of the Company.

As used herein, a "Change in Control" shall be deemed to have occurred if:

(i) As a result of any transaction, any one shareholder or a group of
affiliated shareholders, other than a shareholder on the effective date of the
Plan specified in Section 17(a), becomes a beneficial owner, as defined below,
directly or indirectly, of securities of the Company representing more than 50%
of the Common Stock of the Company or the combined voting power of the Company's
then outstanding securities.

(ii) A liquidation or dissolution of the Company or the sale of all or
substantially all of the Company's assets occurs.

(iii) After registration of the Company Stock under Section 12 of the
Securities Exchange Act of 1934:

8. Certain Corporate Changes

(a) Sale or Exchange of Assets, Dissolution or Liquidation, or Merger or
Consolidation Where the Company Does Not Survive. If all or substantially all of
the assets of the Company are to be sold or exchanged, the Company is to be
dissolved or liquidated, or the Company is a party to a merger or consolidation
with another corporation in which the Company will not be the surviving
corporation, then, each Optionee with any outstanding Stock Options shall have
the right to exercise in full any installments of such Stock Options not
previously exercised (whether or not the right to exercise such installments has
accrued pursuant to such Stock Options), unless the Committee, in its sole
discretion, determines not to accelerate such Stock Options upon such
transaction. In addition, if a cashout of such Stock Options would not affect
the accounting treatment of any such transaction, the Committee may, in its sole

-6-

<PAGE>

discretion, require that the Company purchase such Stock Options for a cash
payment equal to the excess over the purchase price of the then fair market
value of the shares of Company Stock subject to the Optionee's outstanding Stock
Options. In the event that options are accelerated pursuant to this Section, any
options not exercised shall thereafter terminate and cease to remain
outstanding.

9. Amendment and Termination of the Plan

(a) Amendment. The Board, by written resolution, may amend or terminate the
Plan at any time; provided, however, that any amendment that materially
increases the benefits accruing Optionees under the Plan, changes the aggregate
number of shares of Company Stock that may be issued or transferred under the
Plan (other than by operation of Section 3(b)), or modifies the requirements as
to eligibility for participation in the Plan, shall be subject to approval by
the shareholders of the Company, and provided, further, that the Board shall not
amend the Plan if such amendment would cause the Plan or any Stock Option, or,
subsequent to the Effective Date specified in Section 17(b), the exercise of any
right under the Plan to fail to comply with the requirements of Rule 16b-3 under
the Exchange Act.

(c) Termination and Amendment of Outstanding Stock Options. A termination
or amendment of the Plan that occurs after a Stock Option is made shall not
materially impair the rights of an Optionee unless the Optionee consents. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Stock Option. Whether or not the Plan
has terminated, an outstanding Stock Option may be terminated or amended under
Section 18(b) hereof or may be amended by agreement of the Company and the
Optionee consistent with the Plan.

-7-

<PAGE>

(d) Governing Document. The Plan shall be the controlling document. No
other statements, representations, explanatory materials, or examples, oral or
written, may amend the Plan in any manner. The Plan shall be binding upon and
enforceable against the Company, its successors and assigns.

10. Funding of the Plan

11. Rights of Key Affiliates

Nothing in this Plan shall entitle any Key Affiliates or other person to
any claim or right to be granted a Stock Option under this Plan. Neither this
Plan nor any action taken hereunder shall be construed as giving any Key
Affiliate any rights to be employed or retained by the Company or any entity
which has entered into a management agreement or has any other business
relationship with the Company.

12. No Fractional Shares

13. Withholding of Taxes

The Optionee or other person receiving shares of Company Stock upon the
exercise of a Stock Option shall be required to pay to the Company or the
appropriate employer in cash the amount of any federal, state or local taxes
which the Company is required to withhold with respect to the exercise of such
Stock Options or the Company shall have the right to withhold Company Stock
purchased upon the exercise of a Stock Option, if then authorized by the
Committee and applicable law, with a fair market value of 120% of the amount of
any withholding tax due with respect to the exercise of such Stock Options.

14. Agreements with Optionees

Each Stock Option made under this Plan shall be evidenced by a Grant Letter
containing such terms and conditions as the Committee shall approve.

-8-

<PAGE>

15. Requirements for Issuance of Shares

16. Headings

Section headings are for reference only. In the event of a conflict between
a title and the content of a Section, the content of the Section shall control.

17. Effective Date

(a) Effective Date of the Plan. Subject to the approval of the Company's
shareholders, this Plan shall be effective as of December 1, 1995.

(b) Effectiveness of Section 16 Provisions. The provisions of the Plan that
refer to, or are applicable to persons subject to, Section 16 of the Exchange
Act shall be effective, if at all, upon registration of the Company Stock under
Section 12 of the Exchange Act, and shall remain effective thereafter for so
long as such stock is so registered.

18. Miscellaneous

(a) Substitute Grants. The Committee may make a Grant to a key affiliate of
another corporation who becomes a Key Affiliate of the Company by reason of a
corporate merger, consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company or any of its subsidiaries
in substitution for a stock option or restricted stock grant granted by such
corporation ("Substituted Stock Incentives"). The terms and conditions of the
substitute Grant may vary from the terms and conditions required by the Plan and
from those of the Substituted Stock Incentives. At such time that this provision
should from time to time ever become applicable, the Committee shall prescribe
the provisions of the substitute Grants.

(b) Compliance with Law. The Plan, the exercise of Stock Options and the
obligations of the Company to issue or transfer shares of Company Stock under
Stock Options shall be subject to all applicable laws and to approvals by an
governmental or regulatory agency

-9-

<PAGE>

as may be required. With respect to persons subject to Section 16 of the
Exchange Act, it is the intent of the Company that the Plan and all transactions
under the Plan comply with all applicable provisions of Rule 16b-3 or its
successors under the Exchange Act. The Committee may revise the terms of any
Stock Option if it is contrary to law to bring it into compliance with
government laws or regulations provided that in doing so it does not materially
impair the rights of an Optionee. The Committee may, in its sole discretion,
agree to limit its authority under this Section.

-10-

EXHIBIT A

AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT

December 31, 1996

To Thomas J. Keane and to each of the several
Purchasers (as defined below)

Dear Sirs:

This Amended and Restated Registration Rights Agreement (the "Amended
Agreement") amends, restates and supersedes in its entirety the Registration
Rights Agreement dated February 1, 1995 (the "Original Agreement") among U.S.
PHYSICIANS, Inc. (previously, Cancer Recovery, Inc.), a Pennsylvania corporation
("the Company"), the purchasers (such purchasers together with their permitted
transferees pursuant to Section 13(a) hereof, the "Series A Purchasers") of an
aggregate of 1,506,849 shares of Series A Convertible Preferred Stock, $.10 par
value (the "Series A Preferred Stock") of the Company and Thomas J. Keane
("Keane"). This Amended Agreement adds as parties purchasers (such purchasers
together with their permitted transferees pursuant to Section 13(a) hereof, the
"Series B Purchasers") of shares of Series B Convertible Preferred Stock, $.10
par value ("the Series B Preferred Stock") and of warrants to purchase shares of
the Company's common stock (the "Warrants") of the Company pursuant to the
Series B Convertible Preferred and Warrant Stock Purchase Agreement of even date
herewith (the "Series B Purchase Agreement") among the Company and the Series B
Purchasers and in all other respects amends, restates and supersedes the
Original Agreement in its entirety. In addition, purchasers of Series B
Preferred Stock and Warrants after the date hereof and on or prior to January
15, 1997 (such purchasers together with their permitted transferees pursuant to
Section 13(a) the "Subsequent Purchasers") shall become parties to this
Agreement by executing counterpart signature pages of this Amended Agreement in
connection with the closing of their acquisition of Series B Preferred Stock and
Warrants.

This will confirm that in consideration of the agreement of Keane and
the Series A Purchasers to amend and restate the Original Agreement as set forth
herein and the agreement of the Series B Purchasers to purchase shares of Series
B Preferred Stock and Warrants, pursuant to the Series B Purchase Agreement and
as an inducement to the Series B Purchasers to consummate the transactions
contemplated by the Series B Purchase Agreement, the Company covenants and
agrees with each of you as follows:

1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:

<PAGE>

"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.

"Common Stock" shall mean the Common Stock, $.01 par value, of
the Company, as constituted as of the date of this Agreement.

"Conversion Shares" shall mean shares of Common Stock issued
upon conversion of the Preferred Shares or exercise of the Warrants.

"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.

"Preferred Shares" shall mean shares of Series A Preferred
Stock and Series B Preferred Stock.

"Purchasers" shall mean each of the several Series A
Purchasers and Series B Purchasers named in Schedule I hereto and the
Subsequent Purchasers who shall become parties to this Agreement at
such time as they acquire Series B Preferred Stock on or prior to
January 15, 1997 and execute counterpart signature pages to this
Agreement, at which time Schedule I shall be amended accordingly.

"Registration Expenses" shall mean the expenses so described
in Section 8.

"Restricted Stock" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities
Act pursuant to an effective registration statement filed thereunder
and disposed of in accordance with the registration statement covering
them or (b) publicly sold pursuant to Rule 144 under the Securities
Act.

"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.

"Selling Expenses" shall mean the expenses described in
Section 8.

"Warrants" shall mean the Warrants issued by the Company to
the Purchasers pursuant to the Series B Purchase Agreement.

2. Restrictive Legend. Each certificate representing Preferred Shares,
Warrants or Conversion Shares shall, except as otherwise provided in this
Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:

<PAGE>

"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND ALL SUCH
APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE."

A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Ballard, Spahr, Andrews &
Ingersoll or Testa, Hurwitz & Thibeault, L.L.P. shall be satisfactory) the
securities represented thereby may be publicly sold without registration under
the Securities Act and any applicable state securities laws.

3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Preferred Shares, Warrants or Conversion Shares (other than under the
circumstances described in Sections 4, 5 or 6), the holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel satisfactory to
the Company (it being agreed that Ballard, Spahr, Andrews & Ingersoll or Testa,
Hurwitz & Thibeault, L.L.P. shall be satisfactory) to the effect that the
proposed transfer may be effected without registration under the Securities Act
and any applicable state securities laws, whereupon the holder of such
securities shall be entitled to transfer such securities in accordance with the
terms of its notice; provided, however, that no such opinion of counsel shall be
required for a transfer to one or more partners or members of the transferor (in
the case of a transferor that is a partnership) or to an affiliated corporation
(in the case of a transferor that is a corporation or a limited liability
company). Each certificate for Preferred Shares, Warrants or Conversion Shares
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.

4. Required Registration. (a) At any time after the earliest of (i) six
months after any registration statement covering a public offering of securities
of the Company under the Securities Act shall have become effective, (ii) six
months after the Company shall otherwise have become a reporting company under
Section 12 of the Exchange Act, and (iii) the third anniversary of the date of
this Agreement, the holders of Restricted Stock constituting at least 40% of the
total shares of Restricted Stock then outstanding and held by either Series A
Purchasers or Series B Purchasers may request the Company to register under the
Securities Act all or any portion of the shares of Restricted Stock held by or
issuable to such requesting holder or holders for sale in the manner specified
in such notice, provided that the shares of Restricted Stock for which
registration has been requested shall constitute at least 20% of the total
shares of Restricted Stock originally issued to and held by Series A Purchasers
or Series B Purchasers if

<PAGE>

such holder or holders shall request the registration of less than all shares of
Restricted Stock then held by such holder or holders (or any lesser percentage
if the reasonably anticipated aggregate price to the public of such public
offering would exceed $2,000,000). For purposes of this Section 4 and Sections
5, 6, 13(a) and 13(d), the term "Restricted Stock" shall be deemed to include
the number of shares of Restricted Stock which would be issuable to a holder of
Preferred Shares upon conversion of all Preferred Shares held by such holder at
such time and the number of shares of Restricted Stock which would be issuable
to a holder of Warrants upon exercise of all Warrants held by such holder at
such time, provided, however, that the only securities which the Company shall
be required to register pursuant hereto shall be shares of Common Stock, and
provided further, however, that, in any underwritten public offering
contemplated by this Section 4 or Sections 5 and 6, the holders of Preferred
Shares shall be entitled to sell such Preferred Shares to the underwriters for
conversion and sale of the shares of Common Stock issued upon conversion thereof
and the holders of warrants shall be entitled to sell to the underwriters the
shares of Common Stock issuable upon exercise of the Warrants. Notwithstanding
anything to the contrary contained herein, no request may be made under this
Section 4 within 180 days after the effective date of a registration statement
filed by the Company covering a firm commitment underwritten public offering in
which the holders of Restricted Stock shall have been entitled to join pursuant
to Sections 5 or 6 and in which there shall have been effectively registered all
shares of Restricted Stock as to which registration shall have been requested.

(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and, additionally, for purposes of Section (c)
hereof, Keane, and shall use its best efforts to register under the Securities
Act, for public sale in accordance with the method of disposition specified in
such notice from requesting holders, the number of shares of Restricted Stock
specified in such notice (and in all notices received by the Company from other
holders within 30 days after the giving of such notice by the Company). If such
method of disposition shall be an underwritten public offering, the holders of a
majority of the shares of Restricted Stock to be sold in such offering may
designate the managing underwriter of such offering, subject to the approval of
the Company, which approval shall not be unreasonably withheld or delayed. The
Company shall be obligated to register Restricted Stock pursuant to this Section
4 on two occasions only, provided, however, that such obligation shall be deemed
satisfied only when a registration statement covering all shares of Restricted
Stock specified in notices received as aforesaid, for sale in accordance with
the method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, all such shares shall have been sold pursuant thereto.

(c) The Company and Keane shall each be entitled to include in any
registration statement referred to in this Section 4 for sale in accordance with
the method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account, or shares of Common Stock
held by Keane on the date of this Agreement ("Keane Common Stock"), as the case
may be, except as and to the extent that, in the opinion of the managing
underwriter (if such method of disposition shall be an underwritten public
offering),

<PAGE>

such inclusion would adversely affect the marketing of the Restricted Stock to
be sold. Except for registration statements on Form S-4, S-8 or any successor
thereto, the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other stockholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby.

5. Incidental Registration. If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock or Keane Common Stock for sale to the public),
each such time it will give written notice to all holders of outstanding
Restricted Stock and to Keane (except if the registration statement filed in
connection with such registration covers an initial public offering of
securities of the Company under the Securities Act (the "IPO"), in which case
then to the holders of outstanding Restricted Stock alone) of its intention so
to do. Upon the written request of any such holder, and/or of Keane (except in
the case of such initial public offering), received by the Company within 30
days after the giving of any such notice by the Company, to register any of its
Restricted Stock and/or Keane Common Stock, as the case may be, the Company will
use its best efforts to cause the Restricted Stock and/or Keane Common Stock as
to which registration shall have been so requested to be included in the
securities to be covered by the registration statement proposed to be filed by
the Company, all to the extent requisite to permit the sale or other disposition
by the holder of such Restricted Stock and/or by Keane of Keane Common Stock so
registered. In the event that any registration pursuant to this Section 5 shall
be, in whole or in part, an underwritten public offering of Common Stock, the
number of shares of Restricted Stock and Keane Common Stock to be included,
collectively, in such an underwriting may be reduced (pro rata among the
requesting holders and Keane, based upon the number of shares of Restricted
Stock owned by such holders and the number of shares of Keane Common Stock,
collectively) if and to the extent that the managing underwriter shall be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein, provided, however, that such
number of shares of Restricted Stock and Keane Common Stock shall not be reduced
if any shares are to be included in such underwriting for the account of any
person other than the Company or requesting holders of Restricted Stock or
Keane, and provided, further, however, that, except in connection with the IPO,
in no event may less than one-third of the total number of shares of Common
Stock to be included in such underwriting be made available for shares of
Restricted Stock and/or Keane Common Stock. Notwithstanding the foregoing
provisions, the Company may withdraw any registration statement referred to in
this Section 5 without thereby incurring any liability to the holders of
Restricted Stock or to Keane.

6. Registration on Form S-3. If at any time (i) a holder or holders of
Preferred Shares or Restricted Stock request that the Company file a
registration statement on Form S-3 or any, successor thereto for a public
offering of all or any portion of the shares of Restricted Stock held by such
requesting holder or holders, the reasonably anticipated aggregate price to the
public of

<PAGE>

which would exceed $500,000, and (ii) the Company is a registrant entitled to
use Form S-3 or any successor thereto to register such shares, then the Company
shall use its best efforts to register under the Securities Act on Form S-3 or
any successor thereto, for public sale in accordance with the method of
disposition specified in such notice, the number of shares of Restricted Stock
specified in such notice. Whenever the Company is required by this Section 6 to
use its best efforts to effect the registration of Restricted Stock, each of the
procedures and requirements of Section 4 (including but not limited to the
requirement that the Company notify all holders of Restricted Stock from whom
notice has not been received and provide them with the opportunity to
participate in the offering) shall apply to such registration, provided,
however, that there shall be no limitation on the number of registrations on
Form S-3 which may be requested and obtained under this Section 6, and provided,
further, however, that the requirements contained in the first sentence of
Section 4(a) shall not apply to any registration on Form S-3 which may be
requested and obtained under this Section 6.

7. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock (which, for purposes of Sections
7, 8 and 11 hereof shall be deemed to include shares of Keane Common Stock)
under the Securities Act, the Company will, as expeditiously as possible:

(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);

(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;

(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;

(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;

<PAGE>

(e) use its best efforts to list the Restricted Stock covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;

(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock is delivered to the underwriters for sale pursuant to such registration:
(i) an opinion of counsel representing the Company for the purposes of such
registration, dated such date, addressed to the underwriters and to such seller,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and

(h) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection, with such
registration statement.

For purposes of Section 7(a) and 7(b) and of Section 4(c), the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend

<PAGE>

until each underwriter has completed the distribution of all securities
purchased by it, and the period of distribution of Restricted Stock in any other
registration shall be deemed to extend until the earlier of the sale of all
Restricted Stock covered thereby and 120 days after the effective date thereof.

In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.

In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.

8. Expenses. All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance and fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses". All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses".

The Company will pay all Registration Expenses in connection with each
registration statement under Sections 4, 5 or 6. All Selling Expenses in
connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.

9. Indemnification and Contribution. (a) In the event of a registration
of any of the Restricted Stock under the Securities Act pursuant to Sections 4,
5 or 6, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise, out of or are based upon any untrue statement or alleged
untrue statement of any, material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or

<PAGE>

supplement thereof, 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, and will reimburse each
such seller, each such underwriter and each such controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that the Company will not be liable in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by any such
seller, any such underwriter or any such controlling person in writing
specifically for use in such registration statement or prospectus.

(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, 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, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, however that the liability of each seller hereunder shall be limited
to the proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of the shares sold by
such seller under such registration statement bears to the total public offering
price of all securities sold thereunder, but not in any event to exceed the
proceeds received by such seller from the sale of Restricted Stock covered by
such registration statement.

(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnifying party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which

<PAGE>

it may have to such indemnified party other than under this Section 9 and shall
only relieve it from any liability which it may have to such indemnified party
under this Section 9 if and to the extent the indemnifying party is prejudiced
by such omission. 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 it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.

(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.

10. Changes in Common Stock, Warrants or Preferred Shares. If, and as
often as, there is any change in the Common Stock, Warrants or the Preferred
Shares by way of a stock split, stock dividend, combination or reclassification,
or through a merger, consolidation,

<PAGE>

reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges granted hereby shall continue with respect to the Common Stock,
Warrants or the Preferred Shares as so changed.

11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:

(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;

(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and

(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.

12. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:

(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or Bylaws of the Company or any
provision of any indenture, agreement or other instrument to which it or any or
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.

(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.

13. Miscellaneous.

(a) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and

<PAGE>

assigns of the parties hereto (including without limitation transferees of any
Preferred Shares, Warrants or Restricted Stock, but excluding transferees of
Keane Common Stock other than members of Keane's immediate family, Keane's
estate and any trust established to benefit a member of Keane's family), whether
so expressed or not, provided, however, that registration rights conferred
herein on the holders of Preferred Shares, Warrants or Restricted Stock shall
only inure to the benefit of a transferee of Preferred Shares, Warrants or
Restricted Stock if (i) there is transferred to such transferee at least 20% of
the total shares of Restricted Stock originally issued pursuant to the Purchase
Agreement to the direct or indirect transferor of such transferee or (ii) such
transferee is a partner, member, shareholder or affiliate of a party hereto.

(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:

if to the Company or any other party hereto, at the address of such
party set forth in the applicable purchase agreement;

if to any subsequent holder of Preferred Shares, Warrants or
Restricted Stock, to it at such address as may have been furnished to
the Company in writing by such holder;

if to Keane, at an address to be furnished by Keane to the Company;

or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares, Warrants
or Restricted Stock) or to the holders of Preferred Shares, Warrants or
Restricted Stock (in the case of the Company) in accordance with the provisions
of this paragraph.

(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of each of the Series A
Preferred Shares, the Series B Preferred Shares and the Common Shares; provided,
however, that no such amendment, modification or waiver may disproportionately
affect the rights of Keane under Section 5 hereof relative to the rights of the
holders of Restricted Stock under that section without the written consent of
Keane.

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

(f) The obligations of the Company to register shares of Restricted
Stock and/or Keane Common Stock under Sections 4, 5 or 6 shall terminate on the
fifteenth anniversary of the date of this Agreement.

<PAGE>

(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 180 days following the effective date of the
registration statement relating to such offering; provided, however, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering, all persons holding in excess of 1% of the
capital stock of the Company on a fully diluted basis and all executive officers
and directors of the Company shall also have agreed not to sell publicly their
Common Stock under the circumstances and pursuant to the terms set forth in this
Section 13(g).

(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 12-month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed.

(i) The Company shall not grant to any third party any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect.

(j) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.

(k) This Agreement, the Warrants, the Series B Purchase Agreement and
the exhibits thereto constitute the entire agreement of the parties with respect
to the subject matter hereof and supersedes all prior agreements and
understandings between them or any of them as to such subject matter, including
the Original Agreement, which is hereby terminated and has no further force or
effect.

12(a)

<PAGE>

Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.

Very truly yours,

U.S. PHYSICIANS, Inc.

By: /s/ Thomas J. Keane
---------------------------------

Title: President
------------------------------

AGREED TO AND ACCEPTED as of
the date first above written.

/s/ Thomas J. Keane
- -------------------
Thomas J. Keane

<PAGE>

PURCHASERS NAMED IN SCHEDULE I:

EDISON VENTURE FUND III, L.P.,

By: Edison Partners III, L.P.,
its General Partner

By: /s/ Gustav H. Koven, III
-------------------------------
General Partner

NEPA VENTURE FUND II, L.P.

By: NEPA II Management Partners, L.P.,
its general partner

By: NEPA II Management Corporation,
its general partner

By: /s/ Fredrick J. Beste, III
-------------------------------
Title: Chief Executive Officer
-----------------------

MAJOR OIL, INC.

By: /s/ John C. Killion, Sr.
-------------------------------
John C. Killion, Sr., President

KEYSTONE VENTURE IV, L.P.,

By: Keystone Venture IV Management Co., L.P.
the general partner of
Keystone Venture IV, L.P.

By: Keystone Venture IV Management Co. Group
the general partner of
Keystone Venture IV Management Co., L.P.

By: /s/ Kerry J. Dale
-------------------------------
Kerry J. Dale
Vice President

<PAGE>

SUBSEQUENT PURCHASERS:

/s/ William J. Barry, M.D.
------------------------------
William J. Barry, M.D.

/s/ Joseph J. Croce
------------------------------
Joseph J. Croce

/s/ Douglas P. Heller
------------------------------
Douglas P. Heller

/s/ Thomas J. Keane
------------------------------
Thomas J. Keane

E.J.K. Real Estate Services Limited

By: /s/ Terence M. Kavanagh
--------------------------
Terence M. Kavanagh
Title: President
-------------------

Glenville Capital Partners, L.P.
By: Glenville Capital Corporation

By: /s/ Milton S. Schneider
--------------------------
Title: President
-------------------

[SIGNATURES CONTINUED ON NEXT PAGE]

<PAGE>

DOMINION FUND IV, A DELAWARE
LIMITED PARTNERSHIP
By Dominion Management IV,
its General Partner

By: /s/ Randolph D. Werner
-------------------------------
Randolph D. Werner,
Member

/s/ Robert W. Muir, Jr.
-------------------------------
Robert W. Muir, Jr.

/s/ Pasquale W. Croce, Jr.
-------------------------------
Pasquale W. Croce, Jr.

Charles Schwab & Co., Inc.
FBO: William J. Barry IRA

By: /s/ Denise Kreimeier
-------------------------------
Denise Kreimeier
Sr. Account Administrator

<PAGE>

SCHEDULE I

Edison Venture Fund III, L.P.

NEPA Venture Fund II, L.P.

Major Oil, Inc.

Keystone Venture IV, L.P.

Joseph J. Croce

Douglas P. Heller

Thomas J. Keane

E.J.K. Real Estate Services Limited

Glenville Capital Partners, L.P.

Dominion Fund IV, a Delaware Limited Partnership

Robert W. Muir, Jr.

Pasquale W. Croce, Jr.

Charles Schwab & Co., Inc.
FBO: William J. Barry IRA

<PAGE>

AGREEMENT AND AMENDMENT TO:

(a) Amended and Restated Registration Rights Agreement
dated December 31, 1996 among U.S. PHYSICIANS, Inc.
(the "Company") and certain of its shareholders (the
"Registration Rights Agreement");

(b) Amended and Restated Shareholders Agreement dated as
of December 31, 1996 among the Company and its
shareholders (the "Shareholders Agreement"); and

(c) Amended and Restated Voting Agreement dated as of
December 31, 1996 among the Company and certain of
its shareholders (the "Voting Agreement").

THIS AGREEMENT AND AMENDMENT made as of February 6, 1997 by and among
the Company and the signatories hereto.

WHEREAS the Company and the other signatories hereto have executed and
delivered one or more of the Registration Rights Agreement, Shareholders
Agreement and Voting Agreement (collectively the "Operative Agreements").

WHEREAS the Company wishes to enter into agreements (the "Dominion
Agreements") pursuant to which Dominion Fund IV, a Delaware Limited Partnership
("Dominion") (i) would acquire Series B Preferred Stock and Warrants (as such
terms are defined in the Registration Rights Agreement) on the same terms as
other purchasers of such securities and become a party to the Operative
Agreements, and (ii) would loan funds to the Company and acquire a warrant to
purchase 266,667 shares of Series B Preferred Stock at an exercise price of
$3.15 per share, subject to anti-dilution adjustments (the "Dominion Warrant").

WHEREAS the parties hereto wish to effect the amendment to the
Operative Agreements set forth below and to reflect the other matters provided
for herein.

NOW, THEREFORE, in consideration of the agreements set forth below and
the parties' desires to further the interests of the Company and its present and
future shareholders, and intending to be legally bound, the parties agree as
follows:

1. The reference to January 15, 1997 in the first paragraph of the
Registration Rights Agreement, in the first recital of the Shareholders
Agreement and in the fifth recital of the Voting Agreement is hereby changed to
February 28, 1997.

2. The definition of Conversion Shares in the Registration Rights
Agreement is hereby amended to include shares of Common Stock of the Company
issued upon exercise of the Dominion Warrant or upon conversion of shares of
Series B Preferred Stock issued upon exercise of the Dominion Warrant.

3. The Registration Rights Agreement, Shareholders Agreement and
Voting Agreement shall remain in full force and effect, except as set forth
herein.

<PAGE>

4. The parties hereto confirm that the issuance of Series B
Preferred Stock, and Warrants on or prior to February 28, 1997 on the same terms
as such securities were issued on December 31, 1996 and the issuance to Dominion
of the Dominion Warrant (and the issuance of securities upon exercise thereof
and upon any conversion of securities so issued) shall not result in any
adjustment to (a) the Conversion Price (as defined in Exhibit A to the Second
Amended and Restated Articles of Incorporation of the Company) of the Series A
Preferred Stock (as defined in the Registration Rights Agreement) or the Series
B Preferred Stock, or (b) (i) the number of shares of common stock of the
Company issuable pursuant to the Warrants or (ii) the exercise price of such
shares. The undersigned consent for all purposes to, and waive any rights
arising out of, including without limitation rights of first refusal under
Section 4 of the Shareholders Agreement, the issuance of such Series B
Preferred, Stock, Warrants and Dominion Warrant (and the issuance (at any time
in accordance with the applicable instruments) of securities upon exercise
thereof and upon any conversion of securities so issued) on or prior to February
28, 1997 on the above-referenced terms.

5. This Agreement and Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.

IN WITNESS WHEREOF, the Company and the undersigned have executed this
Agreement and Amendment as of the day and year first above written.

COMPANY:

U.S. PHYSICIANS, Inc.

By: /s/ Thomas J. Keane
-------------------------------
Title: President
----------------------------

STOCKHOLDERS:

/s/ Thomas J. Keane
-----------------------------------
Thomas J. Keane

/s/ Daniel Promislo
-----------------------------------
Daniel Promislo

/s/ Mark Promislo
-----------------------------------
Mark Promislo

/s/ Jacqueline Promislo
-----------------------------------
Jacqueline Promislo

/s/ Steven Promislo
-----------------------------------
Steven Promislo

-2-

<PAGE>

/s/ William P. Ferretti
-----------------------------------
William P. Ferretti

/s/ Edward R. Miersch
-----------------------------------
Edward R. Miersch

/s/ James M. McCrossin
-----------------------------------
James M. McCrossin

/s/ Noreen E. Burke
-----------------------------------
Noreen E. Burke

SERIES A PURCHASERS:

EDISON VENTURE FUND III, L.P.
By: Edison Partners III, L.P.

By: /s/ Gustav H. Koven, III
-------------------------------
General Partner

NEPA VENTURE FUND II, L.P.

By: NEPA II Management Partners, L.P.,
its general partner

By: NEPA II Management Corporation,
its general partner

By: /s/ Fredrick J. Beste, III
-------------------------------
Title: Chief Executive Officer
----------------------------

MAJOR OIL, INC.

By: /s/ John C Killion, Sr.
-------------------------------
Title: President
----------------------------

-3-

<PAGE>

SERIES B PURCHASERS:

KEYSTONE VENTURE IV, L.P.

By: Keystone Venture IV Management Co., L.P.,
the general partner of
Keystone Venture IV, L.P.

By: Keystone Venture IV Management Co., Group
the general partner of
Keystone Venture IV Management Co., L.P.

By: /s/ Kerry J. Dale
-------------------------------
Kerry J. Dale
Vice President

EDISON VENTURE FUND III, L.P.

By: Edison Partners, III, L.P.
its General Partner

By: /s/ Gustav H. Koven, III
-------------------------------
General Partner

NEPA VENTURE FUND II, L.P.

By: NEPA II Management Partners, L.P.,
its general partner

By: NEPA II Management Corporation,
its general partner

By: /s/ Fredrick J. Beste, III
---------------------------
Title: Chief Executive Officer
----------------------------

SUBSEQUENT PURCHASERS:

/s/ William J. Barry, M.D.
-----------------------------------
William J. Barry, M.D.

/s/ Joseph J. Croce
-----------------------------------
Joseph J. Croce

-4-

<PAGE>

/s/ Douglas P. Heller
-----------------------------------
Douglas P. Heller

/s/ Thomas J. Keane
-----------------------------------
Thomas J. Keane

E.J.K. Real Estate Services Limited

By: /s/ Terence M. Kavanagh
-------------------------------
Terence M. Kavanagh
Title: President
------------------------

Glenville Capital Partners, L.P.
By: Glenville Capital Corporation,

By: /s/ Milton S. Schneider
---------------------------
Title: President
------------------------

[SIGNATURES CONTINUED ON NEXT PAGE]

-5-

<PAGE>

DOMINION FUND IV, A DELAWARE
LIMITED PARTNERSHIP
By Dominion Management IV,
its General Partner

By: /s/ Randolph D. Werner
---------------------------
Randolph D. Werner,
Member

/s/ Robert W. Muir, Jr.
-------------------------------
Robert W. Muir, Jr.

/s/ Pasquale W. Croce, Jr.
-------------------------------
Pasquale W. Croce, Jr.

Charles Schwab & Co., Inc.
FBO: William J. Barry IRA

By: /s/ Denise Kreimeier
-------------------------------
Denise Kreimeier
Sr. Account Administrator

-6-

<PAGE>

AMENDED AND RESTATED MANAGEMENT AND SERVICES AGREEMENT

This AMENDED AND RESTATED MANAGEMENT AND SERVICES AGREEMENT dated as of
January 6, 1997, the ("Agreement") by and between U.S. PHYSICIANS, Inc., a
Pennsylvania corporation ("Manager") and U.S. Medical Services of Pennsylvania,
P.C., a Pennsylvania professional corporation ("P.C.").

BACKGROUND

A. P.C. intends to provide specialty and primary medical care and related
medical services (collectively, "Medical Services") to the general public at
various locations in the Commonwealth of Pennsylvania (the "Sites").

B. For reasons of quality, efficiency and economy, P.C. has determined that
it should obtain the services of another entity to manage the Sites and to
perform certain administrative, billing and marketing services for P.C.

C. P.C. believes that such delegation of the management aspects of its
practice will enable it to better concentrate on the practice of medicine and
therefore improve the Medical Services provided by P.C.

D. P.C. will maintain the sole responsibility of providing Medical Services
at the Sites and for matters involving patient care.

E. Manager desires to assume the management of the business operations of
P.C. and to negotiate agreements with insurers, employers and other purchasers
of health care services for the provision of Medical Services by P.C.

F. Manager will provide financing to P.C. necessary for the operations of
P.C.

G. Manager has developed facilities and management services designed to
make available to qualified physicians the facilities, equipment, supplies,
management services, capital financing, support staff, marketing and other
support services necessary to permit such physicians to provide medical services
on a cost-efficient basis and to enhance the ability of P.C. to enter into
competitive arrangements with insurers, employers and other purchasers of health
care services.

H. P.C. desires that Manager make available to P.C. such financing,
management services and facilities, and agrees hereby to compensate Manager for
such services as described herein.

I. Manager is willing to make such financing, management services and
facilities available to P.C. on the terms and conditions provided in this
Agreement.

<PAGE>

NOW, THEREFORE, in consideration of the foregoing, and of the promises and
mutual covenants contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:

1. Agreement to Manage and Provide Technical and Support Services. P.C.
hereby engages Manager, and Manager accepts such engagement, to manage the Sites
on behalf of P.C. and for its account, to market Medical Services provided
through P.C. to purchasers of health care services and to provide the financing,
services and facilities set forth in this Agreement, on the terms and conditions
set forth herein.

2. Term. The term of this Agreement shall begin as of the date hereof (the
"Commencement Date") and shall end on the fortieth (40th) anniversary of such
date unless sooner terminated in accordance with the provisions of Paragraph 12.
Unless either party elects to terminate this Agreement at the end of the initial
term or any renewal term, by giving written notice to the other party ninety
(90) days before the expiration of the then current term, this Agreement shall
be deemed to have been automatically renewed for an additional term of five (5)
years.

3. Duties and Responsibilities of P.C. P.C. shall be responsible for all
Medical Services at the Sites and shall render such Medical Services to the
public as will maximize the quality and efficiency of the treatment of patients.
P.C. shall be solely responsible for the following items:

(a) Physicians and Other Health Care Providers. P.C. shall hire,
engage, supervise, evaluate and terminate all physicians, nurses, physical
therapists, technicians and other health care providers (collectively,
"Professionals") at the Sites, whether they are employees of P.C. or
independent contractors of P.C., and, subject to the prior written consent
of Manager, establish compensation and benefits for such Professionals.
P.C. shall not increase or decrease the amount of such compensation and/or
benefits without the prior written consent of Manager. P.C. shall be
responsible for the payment of all compensation payable to Professionals,
except to the extent that nurses, physical therapists, technicians and
other health care providers may become employees of Manager pursuant to
Section 4(a)(iv) of this Agreement.

(b) Medical Directors. P.C. shall designate one or more Medical
Directors, each of whom is properly qualified to perform the supervisory,
quality assurance and credentialing (collection and verification of
information) functions necessary for the rendering of appropriate Medical
Services at the Sites.

(c) Quality and Cost-Effectiveness of Medical Services. P.C. shall
monitor the quality of Medical Services practiced by all Professionals at
the Sites, to assure that such care meets currently accepted standards of
medical competence and is in accordance with currently approved methods and
practices in the medical profession and related fields. P.C. shall adopt a
peer review/quality assessment program to monitor and evaluate the quality
and cost-

-2-
<PAGE>

effectiveness of Medical Services provided by Professionals at the Sites,
and shall assure that appropriate Medical Services are rendered in a
cost-effective manner.

(d) Medical Records. P.C. shall maintain the medical records of the
patients of P.C. in accordance with applicable law. Manager may, at its
option, assist in the development of policies and procedures for efficient
maintenance and retrieval of medical records, subject to applicable law.
Confidentiality, and availability of medical records for inspection by
authorized agencies or individuals, shall be maintained in accordance with
applicable state and federal laws.

(e) Medical Fees. For purposes of establishing budgetary assumptions
for the Sites, P.C., after consultation with Manager, shall:

(i) determine a fee schedule or schedules for each Site prior to
the inception of operations at that Site; and

(ii) determine revisions to such fee schedule or schedules not
less than thirty (30) days prior to the effective date of any proposed
amendment to such fee schedule. Manager shall be authorized to
negotiate fees for services with third-party payors on behalf of P.C.

(f) Daily Statements. P.C. shall prepare and submit to Manager, or cause
its physicians and, if applicable, other Professionals, to prepare and submit,
daily statements of professional services rendered and any prescribed related
matters, on such form, with such detail and in such manner as Manager shall from
time to time provide to P.C., in order to permit Manager to cause proper billing
for such services to be rendered.

(g) Protocols. P.C. shall cooperate with Manager to develop utilization
review standards, treatment protocols and similar guidelines, as required, to
establish measures for the delivery of high quality and cost-effective medical
care.

4. Duties and Responsibilities of Manager.

(a) Management Services. Manager shall be solely responsible for the
business operation of the Sites and assumes responsibility for the management of
all non-medical aspects of the Sites, except as otherwise specifically
prohibited by law or limited by this Agreement, and shall provide the following
services:

(i) Manager shall lease, acquire or otherwise procure one or more
Sites in which P.C. shall conduct its practice.

(ii) Manager shall provide all reasonable and necessary medical
equipment, furnishings and furniture required in the day-to-day operation
of the Sites. MANAGER SUPPLIES THE EQUIPMENT AS IS. MANAGER IS NOT A
MANUFACTURER OF, AND IS NOT ENGAGED IN THE SALE OR DISTRIBUTION OF,

-3-
<PAGE>

THE EQUIPMENT. MANAGER IS NOT AN AGENT OF THE MANUFACTURER OR THE SELLER OF
THE EQUIPMENT. MANAGER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, REGARDING THE MERCHANTABILITY, FITNESS, DESIGN OR SUITABILITY FOR
ANY PURPOSE OR ANY CONDITION OF, OR THE QUALITY OR CAPACITY OF, OR THE
MATERIAL OR WORKMANSHIP, IN THE EQUIPMENT.

(iii) Manager shall employ all necessary clerical, secretarial and
bookkeeping personnel reasonably necessary for the conduct of P.C.'s
operations at the Sites. Manager shall determine and cause to be paid the
salaries and fringe benefits of all such personnel.

(iv) Manager shall assist in negotiating employment agreements or
contracts with nursing staff, technicians and other allied and ancillary
health care personnel. All persons whose services are billed to Medicare,
Medicaid or other third-party payors as under the supervision of physicians
shall be employed by P.C.; provided, however, that employment agreements
may be assumed by and assigned to Manager at the request of Manager if and
to the extent applicable law authorizes billings by P.C. for supervised
services rendered by persons not employed by P.C.

(v) Manager shall administer P.C.'s payroll and personnel-related
activities.

(vi) Manager shall supervise all of Manager's employees; provided,
however, that P.C. shall supervise Professionals to the extent necessary to
maintain P.C.'s responsibility for the medical aspects of the practice and
to comply with requirements of applicable law.

(vii) Manager shall, unless prohibited by law, order and procure all
Medical Supplies (as hereinafter defined), office supplies and other
supplies necessary in the operation of the Sites to enable P.C. to deliver
quality Medical Services in a cost-effective manner. The ultimate
oversight, supervision and ownership for all Medical Supplies is and shall
remain the sole responsibility of P.C. "Medical Supplies" shall mean all
drugs, pharmaceuticals, products, substances, items or devices whose
purchase, possession, maintenance, administration, prescription or security
require the authorization or order of a licensed health care provider or
require a permit, registration, certification or other governmental
authorization held by a licensed health care provider as specified under
any applicable federal or state law.

(viii) Manager shall cause to be placed and kept in force all forms of
insurance needed to protect adequately P.C. and itself, in connection with
the operation of the Sites, including, but not limited to, where
appropriate, workers' compensation insurance, public liability insurance,
fire and extended coverage insurance, surety bonding, business interruption
insurance, burglary and theft insurance; provided, however, that P.C. shall
have the exclusive

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responsibility for maintaining malpractice liability insurance for the
Professionals pursuant to Paragraph 6, but which the Manager shall procure
and administer for P.C.

(ix) Manager shall maintain a comprehensive system of office records,
books and accounts reflecting the income and expenses of the Sites, which
books and records may be inspected by P.C. at any reasonable time during
regular business hours. Records shall be maintained for at least four (4)
years from the date of service or from any governmental inquiry related
thereto, and made available upon request to officers, representatives or
agents of the Secretary of Health and Human Services or of the Comptroller
General of the United States General Accounting Officer.

(x) Manager shall prepare and submit to P.C. monthly financial
statements with respect to the operation of the Sites.

(xi) Manager shall provide all janitorial, grounds and maintenance
services for the Sites.

(xii) Manager shall maintain, service and repair all equipment, or use
reasonable efforts to have lessors or contracted service providers perform
such necessary maintenance, service and repair.

(xiii) Manager shall provide printing, stationery, forms, postage,
duplicating, telecopying, photocopying and other support services as are
reasonably necessary and appropriate for the operation of the Sites.

(b) Billing Services. Manager shall provide, or cause to be provided, the
following billing services to P.C.:

(i) a competent management executive for the supervision of the
billing and collection functions of P.C.'s business;

(ii) services with respect to billing of patients, insurance
companies, government entities and third party payors and collecting all
charges made to P.C.'s patients, excluding, however, any obligation to
initiate legal proceedings for collection, although Manager may do so at
its sole and absolute discretion;

(iii) preparation of all necessary medical letters and reports,
insurance forms, governmental agencies' claim forms and workers'
compensation claim forms;

(iv) preparation and mailing of all necessary and required patient
statements and invoices and reasonable follow-up on such preparation and
mailing;

(v) response by telephone or letter with reasonable dispatch and
promptness to any reasonable patient inquiry or request for assistance in
the interpretation of

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insurance policies or reimbursement programs and handling, to the best of
its ability, of any complaint involving professional services or fees; and

(vi) operating procedure manuals for clerical staff.

(c) Marketing Services. Manager, at its sole discretion and with due regard
to the economic costs and anticipated benefits, may provide, or cause to be
provided, the following marketing services to P.C.:

(i) promotion of the Sites' services and facilities by marketing
representatives of Manager through contact with referring physicians and
potential referring physicians;

(ii) preparation and distribution of informational and promotional
materials, including descriptions of services, fee schedules, newsletters,
testimonials and other sales promotional pieces, subject to prior approval
of P.C., which shall be deemed to be given unless Manager receives written
disapproval within three (3) days after P.C. receives the promotional
materials;

(iii) subject to the need of certain third party payors to maintain
some form of exclusivity, promotion of the Sites through contact and
continued liaison with administrative directors of area HMO's, PPO's,
unions and self-insured clients and other third-party payors; and

(iv) conducting open house receptions for new Sites, seminars for
physicians and office staff, speaking engagements for physicians who
request Manager to assist them in organizing such engagements, newspaper
interviews and magazine articles when initiated and requested by an
interviewer or magazine.

(d) Provision of Funds. Manager shall arrange financing for P.C. or, if no
financing can be reasonably arranged, Manager shall advance funds to P.C. in the
event P.C. does not have sufficient cash on hand to pay its expenses as and when
due. Any such advance by Manager shall be repaid to Manager together with
interest at the rate from time to time charged to Manager by its primary lender
(or in the event there is no such lender, at an annual rate equal to the prime
rate announced from time to time in the Wall Street Journal plus 2%) out of
available cash in subsequent months prior to the payment of fees due Manager
pursuant to subparagraph 8(a).

(e) Deposit of Collections. Manager, in the name of P.C., shall deposit in
the appropriate bank accounts ("Bank Accounts") all receipts arising from the
operation of the Site(s) received by Manager on behalf of P.C. and shall use
reasonable diligence to see that disbursements from such accounts are made by
and on behalf of P.C. in such amounts and at such times as may be required by
this Agreement. P.C. shall provide Manager with all

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authorizations necessary to enable Manager to make the deposits and
disbursements required by this subparagraph (e).

(f) Other Services. Any additional services required by P.C. that are not
listed or identified in this Agreement shall be rendered for P.C. only by an
amendment to this Agreement.

5. Relationship of the Parties.

(a) Independent Contractors. P.C. and Manager are independent contractors
and the relationship between them is that of professional corporation and an
independent supplier of non-medical services and facilities. Nothing in this
Agreement shall be construed to create a principal-agent, employer-employee,
master-servant, partnership or joint venture relationship.

(b) P.C. - Patient - Manager Relationships. The professional relationship
between P.C. and its patients shall, at all times during the term of this
Agreement, be solely between P.C., its physicians and other Professionals and
their patients. P.C. shall have complete responsibility for its medical practice
and that of Professional employees or independent contractors. Manager shall not
interfere with the exercise of medical judgment by the physicians and other
Professionals employed by P.C. nor shall Manager interfere with, control,
direct, or supervise P.C., or any physician or other Professional employee or
independent contractor, in connection with the provision of medical or ancillary
services by P.C. In connection with the care and treatment of its patients, P.C.
shall be solely responsible for supervising all personnel performing medical or
ancillary services. To the extent any act or service set forth in this Agreement
required to be performed by Manager is construed by a court of competent
jurisdiction or by the appropriate licensure bureaus or divisions of the
Pennsylvania Department of State to constitute the practice of medicine, the
requirement to perform that act or service by Manager shall be deemed waived and
unenforceable. In addition, if in the opinion of counsel to Manager, any act or
service set forth in this Agreement required to be performed by Manager is
likely to be considered to constitute the practice of medicine, the requirement
to perform that act or service by Manager shall be deemed waived and
unenforceable. All decisions as to which individuals shall utilize the services
of P.C. shall be the sole responsibility of P.C.; provided, however, that
Manager may negotiate contracts with employers, unions, health care insurers,
HMOs, PPOs and other third-party payors to arrange for the provision of Medical
Services by P.C.

6. Malpractice Insurance.

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<PAGE>

and certificates thereof shall be delivered to Manager prior to the inception of
operations of any Site, together with evidence of the payment of the premiums
thereon, and shall be placed with insurance companies authorized and licensed to
issue such policies in the Commonwealth of Pennsylvania at rates deemed
reasonable and appropriate and having reserves in an amount deemed to be
reasonably adequate by P.C. and Manager. P.C. shall use its best efforts to name
Manager as an additional insured party on all malpractice insurance and Manager
may, at its option, participate in the procurement of cost-effective coverage on
behalf of P.C. P.C. shall provide documentation to Manager that all such
insurance is in full force and effect on each subsequent anniversary of the
Commencement Date and not less than ten (10) days prior to the earlier of the
dates upon which P.C. employs or enters into a contract with any Professional to
provide services at a Site.

(b) Loss of Malpractice Insurance of Medicare/Medicaid Provider Services.
P.C. hereby agrees that it will immediately suspend any physician or other
Professional for whom malpractice insurance cannot be reasonably obtained or
whose malpractice insurance is canceled, and such physician or other
Professional shall not be reinstated or permitted to practice at any Site until
such time as the malpractice policy is reinstated. P.C. will notify Manager
within 24 hours of receipt of notice or information that any physician or other
Professional is not in compliance with the provisions of this Agreement
pertaining to malpractice insurance, or has been suspended or terminated from
participation in Medicare or Medicaid. Manager shall have the right to cancel
this Agreement within three (3) days of learning that such physician or other
Professional has not been suspended by P.C. Failure to suspend a physician or
other Professional who is not in compliance with the provisions of this
Agreement pertaining to Medicare/Medicaid participation status, malpractice
insurance, failure to replace such insurance should it be canceled, or failure
to provide such timely notice, shall constitute a breach of this Agreement
pursuant to Paragraph 12.

7. Representations of P.C. P.C. hereby makes the following representations
to Manager, each of which is material and is being relied on by Manager, and
shall be true as of the date hereof and shall survive the date hereof:

(a) Professional Corporation. P.C. is a professional corporation duly
incorporated under the laws of the Commonwealth of Pennsylvania and has the
power and authority to carry on its business as it is contemplated by this
Agreement.

(b) Physicians and Medical Professionals Licensed. Each physician employed
by or under contract with P.C. to provide Medical Services is, and will continue
to be, duly licensed to practice medicine in the Commonwealth of Pennsylvania,
is properly trained, competent and experienced in his or her medical specialty,
and has in force, and will continue to maintain, medical malpractice insurance
pursuant to the provisions of this Agreement. P.C. will assure that all other
Professionals rendering services pursuant to this Agreement shall be duly
licensed and appropriately supervised by P.C. in accordance with applicable laws
and current community standards. P.C. shall enter into a written agreement in
form and substance

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<PAGE>

satisfactory to Manager, with each Professional employed by or under contract
with P.C. to render services hereunder (the "Employment Agreements").

(c) Provider Numbers. P.C. shall maintain provider numbers for Blue Cross,
Blue Shield, Medicare and Medicaid (collectively "Provider Numbers"). To the
extent practicable, group assignment accounts will be established to facilitate
billings.

(d) Information Accurate. Any and all factual information furnished by P.C.
to Manager including, but not limited to, financial statements and fee schedules
of P.C., are true and accurate in every material respect as of the date on which
such information was furnished.

(e) Professional Conduct. P.C. has and will continue to conduct its
professional activities in accordance and compliance with any and all laws,
regulations and ethical and professional standards applicable thereto. P.C. will
assure that all Professionals employed by or under contract with P.C. maintain
appropriate licenses, credentials and privileges in good standing, and have not
been terminated or otherwise precluded from rendering services under Medicare or
Medicaid, other federal or state health care programs, or for other third-party
payors with which Manager may negotiate agreements to provide Medical Services.

8. Compensation.

(a) Payment of Fees. The parties hereto recognize that Manager's expenses,
and the expenses of the Sites, will vary substantially depending on the volume
and type of patient services. The parties further recognize the inherent
uncertainties and the difficulty of predicting monthly expenses, volume of
services, the collection of revenues, the extent of obligations and the risks
that Manager has taken and will take with respect to capital expenditures,
equipment lease obligations and other obligations incurred in connection with
the establishment and furnishing of the Sites, and additionally recognize the
need to provide Manager with sufficient revenues to pay all operating expenses
and to provide Manager with a return on its investment commensurate with the
risks being assumed by Manager. Therefore, the parties agree that P.C. shall pay
to Manager as compensation for all the services rendered by Manager pursuant to
the terms of this Agreement an amount equal to the Gross Collected Revenues
less: (i) the amount of the Permitted Expenses of P.C. and (ii) the amount of
advances repaid to Manager pursuant to subparagraph 8(d). The term "Gross
Collected Revenues" shall mean all billings (including, without limitation,
billings for Medical Services and for the services of other Professionals,
medical supplies, charges for ancillary medical services and facility and
equipment charges) collected by P.C. for services rendered at the Sites. The
term "Permitted Expenses" shall mean: (i) all salaries, bonuses and fringe
benefits required to be paid in accordance with the Employment Agreements or
pursuant to applicable law; (ii) insurance costs; (iii) legal and accounting
fees; (iv) taxes; and (v) other incidental expenses that for purposes of
convenience are paid by P.C. but would otherwise be the obligation of Manager.
Payment for the services provided hereunder shall be made through a daily sweep
by Manager, of the cash contained in the bank accounts of P.C., into bank
accounts of Manager. Manager shall reconcile amounts payable hereunder on a
quarterly basis.

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(b) Application of Revenues. P.C. hereby agrees to the application of the
Gross Collected Revenues to the purposes and priorities specified in this
Agreement.

(c) P.C.'s Expenses. P.C. agrees that its Permitted Expenses shall not
exceed twenty percent (20%) of the Gross Collected Revenues calculated on an
annual basis, without the consent of Manager; provided, however, that P.C. shall
not be subject to any such limit with respect to payment of amounts due under
the Employment Agreements between P.C. and its physician employees.

(d) Grant of Security Interest. As security for the payment by P.C. of the
compensation due to Manager pursuant to this Agreement and for any advances made
by Manager to P.C. pursuant to subparagraph 4(d), P.C. hereby grants Manager a
security interest in all of P.C.'s accounts receivable, cash, bank accounts,
Medical Supplies and proceeds of the foregoing (collectively, the "Secured
Assets"). At the request of Manager, P.C. shall execute and deliver to Manager
any and all documents requested by Manager to evidence or perfect the security
interest granted hereby, including, but not limited to, UCC-1 Financing
Statements. This Agreement shall constitute a security agreement.

(e) Review of Books. Each party shall have the right at least annually to
have a certified public accountant review the other party's books to determine
whether that party has complied with this Agreement.

9. Books, Office Equipment, Etc.

(a) P.C.'s Ownership. All Medical Supplies (as defined in Paragraph
4(a)(vii)) and patient records shall at all times be and remain P.C.'s property;
provided, however, that, upon termination of this Agreement, P.C. shall provide
any successor entity providing services at any Site, upon request by such
successor within ninety (90) days after termination of this Agreement and at the
successor's expense, access to, and copies of, such records relating to Medical
Services performed at such Site by P.C. during the term hereof as such successor
feels are reasonably necessary in order for such successor to provide continuing
Medical Services. Notwithstanding the foregoing, no patient records will be made
available without the written consent of the patient if such is required by law.
Manager shall reimburse P.C. the reasonable cost of making such copies as are
required to comply with this subparagraph 9(a).

(b) Manager's Ownership. All professional instruments, equipment,
computers, computer software programs and other management information systems,
supplies, samples, forms, charts, logs, brochures, building information,
policies and procedures, protocols, outcome studies, contracts or any other
materials or information furnished to P.C. by Manager are and shall remain the
sole property of Manager; if Manager requests the return of such

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<PAGE>

equipment or materials at any time after the term of this Agreement, P.C. shall
immediately deliver the same to Manager.

10. Exclusivity, Non-Competition and Non-Disclosure Agreement.

(a) Exclusivity. P.C. agrees that during the term of this Agreement it
shall provide Medical Services exclusively at Sites managed by Manager pursuant
to this Agreement unless the parties hereto otherwise expressly agree in
writing.

(b) Non-Competition. During the term of this Agreement and for two (2)
years following termination, P.C. shall not:

(i) employ any individual previously working for Manager as its
employee;

(ii) directly or indirectly induce or attempt to influence any
employee of Manager to terminate employment with Manager; or

(iii) engage in, or have any interest in, directly or indirectly (as
proprietor, partner, stockholder, principal, agent, broker, employee,
consultant, or lender) any business or medical facility within the
Restricted Area which is engaged in providing Medical Services such as
those provided at the Sites or providing management services similar to
those provided by Manager. Restricted Area shall mean the area within a six
(6) mile radius of any Site.

(c) Non-disclosure. During the term of this Agreement and at all times
thereafter, neither P.C. nor its shareholders or physicians shall disclose,
communicate or divulge, or use for the direct or indirect benefit of any person,
firm, association or company (except any material referred to in subparagraph
9(a) above) any information regarding the business methods, business policies,
procedures, protocols, techniques, information systems or trade secrets, or
other knowledge or processes of or developed or used by Manager, or any other
confidential information relating to or dealing with the business operations or
activities of Manager (including, but not limited to financial information),
made known to P.C. or its employees or independent contractors or learned or
acquired by P.C., its employees or independent contractors during the term of
this Agreement. In furtherance of the foregoing, P.C. agrees not to disclose,
communicate or divulge to any third party the terms of this Agreement.

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<PAGE>

area as is adjudged to be reasonable. P.C. and Manager acknowledge that, in the
event of a violation of any such restrictions, Manager shall be entitled to
preliminary and permanent injunctive relief as well as an equitable accounting
of all earnings, profits and other benefits arising from such violation, which
rights shall be cumulative and in addition to any other rights or remedies to
which Manager may be entitled. In the event of a violation, the period referred
to in subparagraph 10(b) shall be extended by a period of time equal to that
period beginning with the commencement of any such violation and ending when
such violation shall have been finally terminated in good faith.

(e) Additional Covenants. P.C. shall secure covenants similar to those
specified with respect to P.C. in this Paragraph 10 (subject to geographic
limitations consistent with the Professional's activities for P.C.) from: (i)
each Professional employed by or contracting with P.C., and from (ii) each
shareholder and all future shareholders. Such covenants shall provide that
Manager shall be a third party beneficiary of each such covenant and may enforce
such covenants. P.C. shall provide to Manager proof of compliance with this
subsection upon Manager's request. P.C. agrees that it shall take all actions
necessary to enforce such covenants. P.C. covenants and agrees that it shall
operate in the manner necessary to constitute a "group practice," as such term
is defined in 42 U.S.C. ss. 1395nn(h)(4)(A), and that all referrals within and
among members of the group shall comport with the requirements of 42 U.S.C. ss.
1395 and other applicable laws and implementing regulations.

(f) Survival. The provision of this Paragraph 10 shall survive the
expiration or termination of this Agreement.

11. Power of Attorney. P.C. hereby appoints Manager, for the term hereof
(including all renewal terms) and thereafter until all amounts due to Manager
have been paid, to be its true and lawful attorney-in-fact, for the following
purposes:

(a) to collect accounts receivable owing to P.C. in P.C.'s name and on its
behalf;

(b) to receive payments from Blue Cross, Blue Shield, insurance companies,
health care plans, Medicare, Medicaid and all other third party payors in P.C.'s
name and on its behalf for deposit in the Bank Accounts;

(c) to take possession of, endorse in the name of P.C. (and/or in the name
of an individual Professional) such payment intended for the payment of a
Professional's bills and deposit in the Bank Accounts any notes, checks, money
orders, cash and other instruments received in payment of accounts receivable;

(d) to initiate the institution of legal proceedings in P.C.'s name to
collect any account and monies owed to P.C., to enforce the rights of P.C. under
any contract or in connection with the rendering of any service and to contest
adjustments and decisions by government agencies (or fiscal intermediaries) and
third-party payors;

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(e) to negotiate payments to P.C. under this Agreement to the extent
otherwise permitted by law;

(f) to perfect a security interest in the Secured Assets of P.C.; and

(g) to do any other act, make any payment or execute any document on behalf
of P.C. to cure any default by P.C. of this Agreement; provided, such act by
Manager must comply with any applicable law.

12. Termination and Breach.

(a) General Breach by P.C. In the event that P.C. should be in default in
the performance of any material provision of this Agreement, and such default is
not cured within thirty (30) days after receipt of written notice of such
default from Manager, Manager, at its option, may terminate this Agreement by
delivering written notice to P.C. at any time after expiration of such thirty
(30) day period.

(b) Failure to Maintain Malpractice Insurance or Licenses or Participation
Agreements. If P.C. should materially breach any of its obligations pursuant to
Paragraph 6 or its obligation to maintain, or cause to be maintained, the
medical licenses or participation agreements of all physicians employed by it,
or under contract to it, or to dismiss those who do not maintain their medical
licenses and participation agreements under the same terms and conditions in
Paragraph 6 pertaining to the maintenance of malpractice insurance, and if such
breach is not cured within ten (10) days after receipt by P.C. of written
notification of such breach from Manager, Manager may either cure the breach
itself, where possible, at the expense of P.C., or terminate this Agreement upon
written notice to P.C.

(c) Bankruptcy of Manager. In the event Manager files any voluntary
petition in bankruptcy or any bankruptcy proceeding is filed against Manager
which in either case remains undismissed for a period of 360 days, P.C., at its
option, may terminate this Agreement by delivering written notice to Manager at
any time after such 360 day period and prior to the dismissal of such
proceeding.

(d) Effect of Termination. After the termination of this Agreement, Manager
shall continue to collect the accounts receivable which are on the books of P.C.
as of the date of termination and shall be entitled to receive as its fee for
services rendered prior to termination the amount of the Gross Collected
Revenues with respect to such accounts receivable (whenever collected) less the
amount of then unpaid Permitted Expenses incurred prior to termination.

13. Indemnification.

(a) P.C. P.C. shall indemnify and hold Manager, its officers, directors,
stockholders, employees, agents, parents and subsidiaries harmless from and
against all claims,

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demands, costs, expenses, liabilities and losses (including attorneys' and other
professional fees) caused or asserted to have been caused by or as a result of
the performance of Medical Services or ancillary services or any other acts or
omissions by P.C. and/or its shareholders, agents, employees or subcontractors
(other than Manager).

(b) Manager. Manager shall indemnify and hold P.C., its officers,
directors, shareholders, and employees harmless from and against all claims,
demands, costs, expenses, liabilities and losses (including attorneys' and other
professional fees) which may result against P.C. as a consequence of Manager's
gross negligence or willful misconduct in connection with Manager's performance
of this Agreement.

14. Legislative Limitations. Notwithstanding any other provisions of this
Agreement, if the governmental agencies (or their representatives) that
administer Medicare or Medicaid, or any other payor, or any other federal, state
or local government or agency, passes, issues or promulgates any law, rule,
regulation, standard or interpretation at any time while this Agreement is in
effect which prohibits, restricts, limits or in any way materially changes the
method or amounts of reimbursement or payment for services rendered under this
Agreement, or which otherwise materially affects either party's rights or
obligations hereunder, either party may give the other party notice of intent to
amend this Agreement to the satisfaction of the noticing party, to reflect the
prohibition, restriction, limitation or change, provided, however, that no such
amendment shall alter the basic economic status of the parties pursuant to this
Agreement. If this Agreement is not so amended in writing within sixty (60) days
after such notice is given, the parties agree to submit the issue of such an
amendment to arbitration in accordance with subparagraph 15(k); provided,
however, that if at the election of either party, a formal appeal is filed with
the relevant governmental agency, or a suit is filed in a court of competent
jurisdiction, so as to stay the implementation of any such law, rule,
regulation, standard or interpretation, during the period of such stay, the
right to amend as set forth above shall also be stayed.

15. Miscellaneous.

(a) Indulgences, Etc. The failure or delay on the part of any party to
exercise any right, remedy, power or privilege under this Agreement shall not
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, power or privilege preclude any other or further exercise of the
same or of any other right, remedy, power or privilege, nor shall any waiver of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.

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<PAGE>

(b) Controlling Law. This Agreement and all provisions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.

(i) If to Manager:

U.S. PHYSICIANS, Inc.
220 Commerce Drive, Suite 400
Fort Washington, PA 19034
Attention: President

(ii) If to P.C.:

U.S. Medical Services of Pennsylvania, P.C.
220 Commerce Drive
Fort Washington, PA 19034
Attention: President

In addition, notice by mail should be by air mail if posted outside of the
continental United States.

Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph 15(c).

(d) Binding Nature of Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns. Notwithstanding the
foregoing, P.C. may not assign or transfer its rights or obligations under this
Agreement without the prior written consent of Manager. Manager may assign or
transfer all or any portion of its rights or obligations under this Agreement
without the consent of P.C.

(e) Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

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<PAGE>

(f) Severability and Reformation. The provisions of this Agreement are
independent of and severable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other provision may be invalid or unenforceable in whole or in part. If or
to the extent this Agreement is reasonably deemed to violate applicable law, the
parties agree to negotiate in good faith to amend the Agreement to the extent
possible, consistent with its purposes, to conform to law.

(g) Entire Agreement. This Agreement contains the entire understanding
among the parties with respect to the subject matter hereof, and supersedes all
prior and contemporaneous agreements and understandings, inducements or
conditions, express or implied, oral or written, except as herein contained.
This Agreement may not be modified or amended other than by an agreement in
writing.

(h) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.

(i) Gender, Etc. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.

(j) Number of Days. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that, if the final day of any time period falls on a
Saturday, Sunday or holiday, then the final day shall be deemed to be the next
day which is not a Saturday, Sunday or holiday.

(k) Arbitration. Any dispute (including a claimed breach of the terms
hereof) arising out of or in connection with this Agreement, other than a
claimed breach of Paragraph 10 of this Agreement to which this subparagraph
15(k) shall not be applicable, shall be resolved by arbitration conducted by the
American Arbitration Association in Philadelphia, Pennsylvania, in accordance
with its rules then in existence. The arbitrators shall not contravene or vary
in any respect any of the terms or provisions of this Agreement except as
provided in Paragraph 14. The award of the arbitrators shall be final and
binding upon the parties hereto, their heirs, administrators, executors,
successors and assigns, and judgment upon such award may be entered in any court
having jurisdiction thereof.

(l) Force Majeure. Neither party shall be liable or deemed to be in default
for any delay or failure to perform under this Agreement resulting, directly or
indirectly, from acts of God, civil or military authority, acts of public enemy,
war, accidents, fires, explosions, earthquakes, floods, strikes or other work
interruptions by either party's employees or any other similar cause beyond the
reasonable control of the non-performing party.

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<PAGE>

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
---------------------------
Thomas J. Keane
President

U.S. MEDICAL SERVICES OF
PENNSYLVANIA, P.C.

By: /s/ Thomas J. Keane
---------------------------
Thomas J. Keane
President

-17-

MANAGEMENT AND SERVICES AGREEMENT

This MANAGEMENT AND SERVICES AGREEMENT dated as of February 13, 1997, the
("Agreement") by and between U.S. PHYSICIANS, Inc., a Pennsylvania business
corporation ("Manager") and U.S. Medical Services of New Jersey, P.C., a New
Jersey professional service corporation ("P.C.").

BACKGROUND

D. P.C. will maintain the sole responsibility of providing Medical Services
at the Sites and for matters involving patient care.

F. Manager will provide financing to P.C. necessary for the operations of
P.C.

H. P.C. desires that Manager make available to P.C. such financing,
management services and facilities, and agrees

<PAGE>

hereby to compensate Manager for such services as described herein.

I. Manager is willing to make such financing, management services and
facilities available to P.C. on the terms and conditions provided in this
Agreement.

NOW, THEREFORE, in consideration of the foregoing, and of the promises and
mutual covenants contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:

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<PAGE>

(d) Medical Records. P.C. shall maintain the medical records of the
patients of P.C. in accordance with applicable law. Manager may, at its
option, assist in the development of policies and procedures for efficient
maintenance and retrieval of medical records, subject to applicable law.
Confidentially, and availability of medical records for inspection by
authorized agencies or individuals, shall be maintained in accordance with
applicable state and federal laws.

(e) Medical Fees. For purposes of establishing budgetary assumptions
for the Sites, P.C., after consultation with Manager, shall:

(i) determine a fee schedule or schedules for each Site prior to
the inception of operations at that Site; and

(f) Daily Statements. P.C. shall prepare and submit to Manager, or
cause its physicians and, if applicable, other Professionals, to prepare
and submit, daily statements of professional services rendered and any
prescribed related matters, on such form, with such detail and in such
manner as Manager shall from time to time provide to P.C., in order to
permit Manager to cause proper billing for such services to be rendered.

(g) Protocols. P.C. shall cooperate with Manager to develop
utilization review standards, treatment protocols and

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<PAGE>

similar guidelines, as required, to establish measures for the delivery of
high quality and cost-effective medical care.

4. Duties and Responsibilities of Manager.

(a) Management Services. Manager shall be solely responsible for the
business operation of the Sites and assumes responsibility for the management of
all nonmedical aspects of the Sites, except as otherwise specifically prohibited
by law or limited by this Agreement, and shall provide the following services:

(i) Manager shall lease, acquire or otherwise procure one or more
Sites in which P.C. shall conduct its practice.

(ii) Manager shall provide all reasonable and necessary medical
equipment, furnishings and furniture required in the day to day operation
of the Sites. MANAGER SUPPLIES THE EQUIPMENT AS IS. MANAGER IS NOT A
MANUFACTURER OF, AND IS NOT ENGAGED IN THE SALE OR DISTRIBUTION OF, THE
EQUIPMENT. MANAGER IS NOT AN AGENT OF THE MANUFACTURER OR THE SELLER OF THE
EQUIPMENT. MANAGER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED,
REGARDING THE MERCHANTABILITY, FITNESS, DESIGN OR SUITABILITY FOR ANY
PURPOSE OR ANY CONDITION OF, OR THE QUALITY OR CAPACITY OF, OR THE MATERIAL
OR WORKMANSHIP IN THE EQUIPMENT.

(iv) Manager shall assist in negotiating employment agreements or
contracts with nursing staff, technicians and other allied and ancillary
health care personnel. All persons whose services are billed to Medicare,
Medicaid or other third party payors as under the supervision of physicians
shall be employed by P.C.; provided, however, that employment agreements
may be assumed by and assigned to Manager at the request of Manager if and
to the extent applicable law authorizes billings by P.C. for supervised
services rendered by persons not employed by P.C.

(v) Manager shall administer P.C.'s payroll and personnel related
activities.

-4-
<PAGE>

(x) Manager shall prepare and submit to P.C. monthly financial
statements with respect to the operation of the Sites.

(xi) Manager shall provide all janitorial, grounds and maintenance
services for the Sites.

(xii) Manager shall maintain, service and repair all equipment, or use
reasonable efforts to have lessors or contracted service providers perform
such necessary maintenance, service and repair.

(xiii) Manager shall provide printing, stationery, forms, postage,
duplicating, telecopying,

-5-
<PAGE>

photocopying and other support services as are reasonably necessary and
appropriate for the operation of the Sites.

(b) Billing Services. Manager shall provide, or cause to be provided, the
following billing services to P.C.:

(i) a competent management executive for the supervision of the
billing and collection functions of P.C.'s business;

(iii) preparation of all necessary medical letters and reports,
insurance forms, governmental agencies' claim forms and workers'
compensation claim forms;

(iv) preparation and mailing of all necessary required patient
statements and invoices and reasonable follow up on such preparation and
mailing;

(v) response by telephone or letter with reasonable dispatch and
promptness to any reasonable patient inquiry or request for assistance in
the interpretation of insurance policies or reimbursement programs and
handling, to the best of its ability, of any complaint involving
professional services or fees; and

(vi) operating procedure manuals for clerical staff.

(i) promotion of the Sites' services and facilities by marketing
representatives of Manager through contact with referring physicians and
potential referring physicians;

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<PAGE>

(f) Other Services. Any additional services required by P.C. that are not
listed or identified in this Agreement shall be rendered for P.C. only by an
amendment to this Agreement.

5. Relationship of the Parties.

(a) Independent Contractors. P.C. and Manager are independent contractors
and the relationship between them is that of professional corporation and an
independent supplier of nonmedical services and facilities. Nothing in this
Agreement shall be construed to create a principal-agent, employer-employee,
master-servant, partnership or joint venture relationship.

(b) P.C.-Patient-Manager Relationships. The professional relationship
between P.C. and its patients shall, at

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<PAGE>

all times during the term of this Agreement, be solely between P.C., its
physicians and other Professionals and their patients. P.C. shall have complete
responsibility for its medical practice and that of Professional employees or
independent contractors. Manager shall not interfere with the exercise of
medical judgment by the physicians and other Professionals employed by P.C. nor
shall Manager interfere with, control, direct, or supervise P.C., or any
physician or other Professional employee or independent contractor, in
connection with the provision of medical or ancillary services by P.C. In
connection with the care and treatment of its patients, P.C. shall be solely
responsible for supervising all personnel performing medical or ancillary
services. To the extent any act or service set forth in this Agreement required
to be performed by Manager is construed by a court of competent jurisdiction or
by the appropriate licensure bureaus or divisions of the New Jersey Board of
Medical Examiners to constitute the practice of medicine, the requirement to
perform that act or service by Manager shall be deemed waived and unenforceable.
In addition, if in the opinion of counsel to Manager, any act or service set
forth in this Agreement required to be performed by Manager is likely to be
considered to constitute the practice of medicine, the requirement to perform
that act or service by Manager shall be deemed waived and unenforceable. All
decisions as to which individuals shall utilize the services of P.C. shall be
the sole responsibility of P.C.; provided, however, that Manager may negotiate
contracts with employers, unions, health care insurers, HMOs, PPOs and other
third party payors to arrange for the provision of Medical Services by P.C.

6. Malpractice Insurance.

(a) Minimum Policy. On its own behalf and on behalf of each physician or
other Professional that it employs, and each physician or other Professional
contracting with P.C. for the provision of professional services, P.C. shall
provide and keep in force a malpractice insurance policy or policies of standard
form in the State of New Jersey, with limits mutually acceptable to Manager and
P.C. The policies shall be obtained by P.C. or, as the case may be, by each such
physician or other Professional employed by P.C., or contracting with P.C., and
certificates thereof shall be delivered to Manager prior to the inception of
operations of any Site, together with evidence of the payment of the premiums
thereon, and shall be placed with insurance companies authorized and licensed to
issue such policies in the State of New Jersey at rates deemed reasonable and
appropriate and having reserves in an amount deemed to be reasonably adequate by
P.C. and Manager. P.C. shall use its best efforts to name Manager as an
additional insured party on all malpractice insurance and Manager may, at its
option, participate in the procurement of cost-effective coverage on behalf of
P.C. P.C. shall provide documentation to Manager that

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<PAGE>

all such insurance is in full force and effect on each subsequent anniversary of
the Commencement Date and not less than ten (10) days prior to the earlier of
the dates upon which P.C. employs or enters into a contract with any
Professional to provide services at Site.

(b) Loss of Malpractice Insurance or Medicare/Medicaid Provider Services.
P.C. hereby agrees that it will immediately suspend any physician or other
Professional for whom malpractice insurance cannot be reasonably obtained or
whose malpractice insurance is cancelled, and such physician or other
Professional shall not be reinstated or permitted to practice at any Site until
such time as the malpractice policy is reinstated. P.C. will notify Manager
within 24 hours of receipt of notice or information that any physician or other
Professional is not in compliance with the provisions of this Agreement
pertaining to malpractice insurance, or has been suspended or terminated from
participation in Medicare or Medicaid. Manager shall have the right to cancel
this Agreement within three (3) days of learning that such physician or other
Professional has not been suspended by P.C. Failure to suspend a physician or
other Professional who is not in compliance with the provisions of this
Agreement pertaining to Medicare/Medicaid participation status, malpractice
insurance, failure to replace such insurance should it be cancelled, or failure
to provide such timely notice, shall constitute a breach of this Agreement
pursuant to Paragraph 12.

(a) Professional Corporation. P.C. is a professional corporation duly
incorporated under the laws of the State of New Jersey and has the power and
authority to carry on its business as it is contemplated by this Agreement.

(b) Physicians and Medical Professionals Licensed. Each physician employed
by or under contract with P.C. to provide Medical Services is, and will continue
to be, duly licensed to practice medicine in the State of New Jersey, is
properly trained, competent and experienced in his or her medical specialty, and
has in force, and will continue to maintain, medical malpractice insurance
pursuant to the provisions of this Agreement. P.C. will assure that all other
Professionals rendering services pursuant to this Agreement shall be duly
licensed and appropriately supervised by P.C. in accordance with applicable laws
and current community standards. P.C. shall enter into a written agreement in
form and substance satisfactory to Manager, with each Professional employed by
or under contract with P.C. to render services hereunder (the "Employment
Agreements").

-9-
<PAGE>

(e) Professional Conduct. P.C. has and will continue to conduct its
professional activities in accordance and compliance with any and all laws,
regulations and ethical and professional standards applicable thereto. P.C. will
assure that all Professionals employed by or under contract with P.C. maintain
appropriate licenses, credentials, and privileges in good standing, and have not
been terminated or otherwise precluded from rendering services under Medicare or
Medicaid, other federal or state health care programs, or for other third party
payors with which Manager may negotiate agreements to provide Medical Services.

8. Compensation.

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<PAGE>

Agreements or pursuant to applicable law; (ii) insurance costs; (iii) legal and
accounting fees; (iv) taxes; and (v) other incidental expenses that for purposes
of convenience are paid by P.C. but would otherwise be the obligation of
Manager. Payment for the services provided hereunder shall be made through a
daily sweep of the cash contained in the bank accounts of P.C., into bank
accounts of Manager. Manager shall reconcile amounts payable hereunder on a
quarterly basis.

(b) Application of Revenues. P.C. hereby agrees to the application of the
Gross Collected Revenues to the purposes and priorities specified in this
Agreement.

(d) Grant of Security Interest. As security for the payment by P.C. of the
compensation due to Manager pursuant to this Agreement and for any advances made
by Manager to P.C. pursuant to subparagraph 4(d), P.C. hereby grants Manager a
security interest in all of P.C.'s accounts receivable, cash, bank accounts,
Medical Supplies and proceeds of the foregoing (collectively, the "Secured
Assets"). At the request of Manager, P.C. shall execute and deliver to Manager
any and all documents requested by Manager to evidence or perfect the security
interest granted hereby, including, but not limited to, UCC 1 Financing
Statements. This Agreement shall constitute a security agreement.

9. Books, Office Equipment, Etc.

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<PAGE>

reasonably necessary in order for such successor to provide continuing Medical
Services. Notwithstanding the foregoing, no patient records will be made
available without the written consent of the patient if such is required by law.
Manager shall reimburse P.C. the reasonable cost of making such copies as are
required to comply with this subparagraph 9(a).

10. Exclusivity, Non-Competition and Non-Disclosure Agreement.

(b) Non-Competition. During the term of this Agreement and for two (2)
years following termination, P.C. shall not:

(i) employ any individual previously working for Manager as its
employee;

(ii) directly or indirectly induce or attempt to influence any
employee of Manager to terminate employment with Manager; or

(c) Non-Disclosure. During the term of this Agreement and at all times
thereafter, neither P.C. nor its shareholders or physicians shall disclose,
communicate or divulge, or use for the direct or indirect benefit of any person,
firm, association or company (except any material referred to in

-12-
<PAGE>

subparagraph 9(a) above) any information regarding the business methods,
business policies, procedures, protocols, techniques, information systems or
trade secrets, or other knowledge or processes of or developed or used by
Manager, or any other confidential information relating to or dealing with the
business operations or activities of Manager (including, but not limited to
financial information), made known to P.C. or its employees or independent
contractors or learned or acquired by P.C., its employees or independent
contractors during the term of this Agreement. In furtherance of the foregoing,
P.C. agrees not to disclose, communicate or divulge to any third party the terms
of this Agreement.

(d) Reasonableness of Restrictions. The parties acknowledge that the
restrictions contained in subparagraphs 10(a), 10(b) and 10(c) are reasonable
and necessary to protect the legitimate interests and substantial investment of
Manager and that any violation of these restrictions would result in immediate
irreparable injury to Manager. If the period of time or geographical area
specified in subparagraph 10(b) and 10(c) should be adjudged unreasonable in any
proceeding, then the period of time or geographic area shall be reduced by the
elimination or reduction of such portion thereof so that such restrictions may
be enforced for such time or area as is adjudged to be reasonable. P.C. and
Manager acknowledge that, in the event of a violation of any such restrictions,
Manager shall be entitled to preliminary and permanent injunctive relief as well
as an equitable accounting of all earnings, profits and other benefits arising
from such violation, which rights shall be cumulative and in addition to any
other rights or remedies to which Manager may be entitled. In the event of a
violation, the period referred to in subparagraph 10(b) shall be extended by a
period of time equal to that period beginning with the commencement of any such
violation and ending when such violation shall have been finally terminated in
good faith.

(e) Additional Covenants. P.C. shall secure covenants similar to those
specified with respect to P.C. in this Paragraph 10 (subject to geographic
limitations consistent with the Professional's activities for P.C.) from: (i)
each Professional employed by or contracting with P.C., and from (ii) each
shareholder and all future shareholders. Such covenants shall provide that
Manager shall be a third party beneficiary of each such covenant and may enforce
such covenants. P.C. shall provide to Manager proof of compliance with this
subsection upon Manager's request. P.C. agrees that it shall take all actions
necessary to enforce such covenants. P.C. covenants and agrees that it shall
operate in the manner necessary to constitute a "group practice," as such term
is defined in 42 U.S.C. ss.1395(h)(4)(A), and that all referrals within and
among members of the group shall comport with the requirements of 42 U.S.C.
ss.1395 and other applicable laws and implementing regulations.

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<PAGE>

(f) Survival. The provision of this Paragraph 10 shall survive the
expiration or termination of this Agreement.

(a) to collect accounts receivable owing to P.C. in P.C.'s name and on its
behalf;

(e) to negotiate payments to P.C. under this Agreement to the extent
otherwise permitted by law;

(f) to perfect a security interest in the Secured Assets of P.C.; and

(g) to do any other act, make any payment or execute any document on behalf
of P.C. to cure any default by P.C. of this Agreement; provided, such act by
Manager must comply with any applicable law.

12. Termination and Breach.

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<PAGE>

(b) Failure to Maintain Malpractice Insurance or Licenses or Participation
Agreements. If P.C. should materially breach any of its obligations pursuant to
Paragraph 6 or its obligation to maintain, or cause to be maintained the medical
licenses or participation agreements of all physicians employed by it, or under
contract to it, or to dismiss those who do not maintain their medical licenses
and participation agreements under the same terms and conditions in Paragraph 6
pertaining to the maintenance of malpractice insurance, and if such breach is
not cured within ten (10) days after receipt by P.C. of written notification of
such breach from Manager, Manager may either cure the breach itself, where
possible, at the expense of P.C., or terminate this Agreement upon written
notice to P.C.

13. Indemnification.

(a) P.C. P.C. shall indemnify and hold Manager, its officers, directors,
stockholders, employees, agents, parents and subsidiaries harmless from and
against all claims, demands, costs, expenses, liabilities and losses (including
attorneys' and other professional fees) caused or asserted to have been caused
by or as a result of the performance of Medical Services or ancillary services
or any other acts or omissions by P.C. and/or its shareholders, agents,
employees or subcontractors (other than Manager).

(b) Manager. Manager shall indemnify and hold P.C., its officers,
directors, shareholders and employees harmless from and against all claims,
demands, costs, expenses, liabilities and losses (including attorneys' and other
professional fees) which may result against P.C. as a consequence of Manager's
gross negligence or willful misconduct in connection with Manager's performance
of this Agreement.

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<PAGE>

14. Legislative Limitations. Notwithstanding any other provisions of this
Agreement, if the governmental agencies (or their representatives) that
administer Medicare or Medicaid, or any other payor, or any other federal, state
or local government or agency, passes, issues or promulgates any law, rule,
regulation, standard or interpretation at any time while this Agreement is in
effect which prohibits, restricts, limits or in any way materially changes the
method or amounts of reimbursement or payment for services rendered under this
Agreement, or either party may give the other party notice of intent to amend
this Agreement to the satisfaction of the noticing party, to reflect the
prohibition, restriction, limitation or change, provided, however, that no such
amendment shall alter the basic economic status of the parties pursuant to this
Agreement. If this Agreement is not so amended in writing within sixty (60) days
after such notice is given, the parties agree to submit the issue of such an
amendment to arbitration in accordance with subparagraph 15(k); provided,
however, that if at the election of either party, a formal appeal is filed with
the relevant governmental agency, or a suit is filed in a court of competent
jurisdiction, so as to stay the implementation of any such law, rule,
regulation, standard or interpretation, during the period of such stay, the
right to amend as set forth above shall also be stayed.

15. Miscellaneous.

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<PAGE>

receipt of registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:

i) If to Manager:

U.S. PHYSICIANS, Inc.
220 Commerce Drive, Suite 400
Fort Washington, PA 19034
Attention: President

ii) If to P.C.:

U.S. Medical Services of New Jersey, P.C.
220 Commerce Drive
Fort Washington, PA 19034
Attention: Chairman

In addition, notice by mail should be by air mail if posted outside of the
continental United States.

Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph 15(c).

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<PAGE>

faith to amend the Agreement to the extent possible, consistent with its
purposes, to conform to law.

(h) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only, and form no part of this Agreement and shall not affect its
interpretation.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
----------------------------------
Thomas J. Keane
President

U.S. MEDICAL SERVICES OF
NEW JERSEY, P.C.

By: /s/ Thomas J. Keane
----------------------------------
Thomas J. Keane, Chairman

-18-

MANAGEMENT AND SERVICES AGREEMENT

This MANAGEMENT AND SERVICES AGREEMENT is dated as of November 1, 1997, the
("Agreement") by and between U.S. PHYSICIANS, Inc., a Pennsylvania corporation
("Manager") and U.S. Medical Services of Delaware, P.A., a Delaware professional
corporation ("P.C.").

BACKGROUND

D. P.C. will maintain the sole responsibility of providing Medical Services
at the Sites and for matters involving patient care.

F. Manager will provide financing to P.C. necessary for the operations of
P.C.

H. P.C. desires that Manager make available to P.C. such financing,
management services and facilities, and agrees hereby to compensate Manager for
such services as described herein.

I. Manager is willing to make such financing, management services and
facilities available to P.C. on the terms and conditions provided in this
Agreement.

<PAGE>

NOW, THEREFORE, in consideration of the foregoing, and of the promises
and mutual covenants contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:

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<PAGE>

that appropriate Medical Services are rendered in a cost-effective manner.

(e) Medical Fees. For purposes of establishing budgetary assumptions
for the Sites, P.C., after consultation with Manager, shall:

(i) determine a fee schedule or schedules for each Site prior to
the inception of operations at that Site; and

(f) Daily Statements. P.C. shall prepare and submit to Manager, or
cause its physicians and, if applicable, other Professionals, to prepare
and submit, daily statements of professional services rendered and any
prescribed related matters, on such form, with such detail and in such
manner as Manager shall from time to time provide to P.C., in order to
permit Manager to cause proper billing for such services to be rendered.

(g) Protocols. P.C. shall cooperate with Manager to develop
utilization review standards, treatment protocols and similar guidelines,
as required, to establish measures for the delivery of high quality and
cost-effective medical care.

4. Duties and Responsibilities of Manager.

(i) Manager shall lease, acquire or otherwise procure one or more
Sites in which P.C. shall conduct its practice.

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<PAGE>

THE SELLER OF THE EQUIPMENT. MANAGER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, REGARDING THE MERCHANTABILITY, FITNESS, DESIGN OR
SUITABILITY FOR ANY PURPOSE OR ANY CONDITION OF, OR THE QUALITY OR CAPACITY
OF, OR THE MATERIAL OR WORKMANSHIP, IN THE EQUIPMENT.

(v) Manager shall administer P.C.'s payroll and personnel-related
activities.

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<PAGE>

(x) Manager shall prepare and submit to P.C. monthly financial
statements with respect to the operation of the Sites.

(xi) Manager shall provide all janitorial, grounds and maintenance
services for the Sites.

(xii) Manager shall maintain, service and repair all equipment, or use
reasonable efforts to have lessors or contracted service providers perform
such necessary maintenance, service and repair.

(b) Billing Services. Manager shall provide, or cause to be provided, the
following billing services to P.C.:

(i) a competent management executive for the supervision of the
billing and collection functions of P.C.'s business;

(ii) services with respect to billing of patients, insurance
companies, government entities and third party payors and collecting all
charges made to P.C.'s patients for deposit to a lock box in the name of
and under the control of P.C., excluding, however, any obligation to
initiate legal proceedings for collection, although Manager may do so at
its sole and absolute discretion;

(iii) preparation of all necessary medical letters and reports,
insurance forms, governmental agencies' claim forms and workers'
compensation claim forms;

(iv) preparation and mailing of all necessary and required patient
statements and invoices and reasonable follow-up on such preparation and
mailing;

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<PAGE>

(vi) operating procedure manuals for clerical staff.

(i) promotion of the Sites' services and facilities by marketing
representatives of Manager through contact with referring physicians and
potential referring physicians;

(e) Deposit of Collections. Manager, in the name of P.C., shall deposit in
the appropriate bank accounts of P.C. ("Bank Accounts") all receipts (other than
from Medicare or Medicaid) arising from the operation of the Site(s) received by
Manager on behalf of P.C. and shall use reasonable diligence to see that
disbursements from such accounts are made by and on behalf of P.C. in such
amounts and at such times as may be required by this Agreement. P.C. shall
direct the Medicare and Medicaid programs to deposit payments directly to the
Bank Accounts. P.C. shall provide Manager with all authorizations necessary to
enable Manager to make the deposits and disbursements required by this
subparagraph (e).

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<PAGE>

(f) Other Services. Any additional services required by P.C. that are not
listed or identified in this Agreement shall be rendered for P.C. only by an
amendment to this Agreement.

5. Relationship of the Parties.

(b) P.C. - Patient - Manager Relationships. The professional relationship
between P.C. and its patients shall, at all times during the term of this
Agreement, be solely between P.C., its physicians and other Professionals and
their patients. P.C. shall have complete responsibility for its medical practice
and that of Professional employees or independent contractors. Manager shall not
interfere with the exercise of medical judgment by the physicians and other
Professionals employed by P.C. nor shall Manager interfere with, control,
direct, or supervise P.C., or any physician or other Professional employee or
independent contractor, in connection with the provision of medical or ancillary
services by P.C. In connection with the care and treatment of its patients, P.C.
shall be solely responsible for supervising all personnel performing medical or
ancillary services. To the extent any act or service set forth in this Agreement
required to be performed by Manager is construed by a court of competent
jurisdiction or by the appropriate licensure bureaus or divisions of the
Delaware Department of State to constitute the practice of medicine, the
requirement to perform that act or service by Manager shall be deemed waived and
unenforceable. In addition, if in the opinion of counsel to Manager, any act or
service set forth in this Agreement required to be performed by Manager is
likely to be considered to constitute the practice of medicine, the requirement
to perform that act or service by Manager shall be deemed waived and
unenforceable. All decisions as to which individuals shall utilize the services
of P.C. shall be the sole responsibility of P.C.; provided, however, that
Manager may negotiate contracts with employers, unions, health care insurers,
HMOs, PPOs and other third-party payors to arrange for the provision of Medical
Services by P.C.

6. Malpractice Insurance.

(a) Minimum Policy. On its own behalf and on behalf of each physician or
other Professional its employs, and each physician or other Professional
contracting with P.C. for the provision of professional services, P.C. shall
provide and keep in force a malpractice insurance policy or policies of standard
form in the State of Delaware, with limits mutually acceptable to Manager and
P.C. The policies shall be obtained by P.C. or, as the case may be, by each such
physician or other Professional employed by P.C., or contracting with P.C., and
certificates thereof shall be delivered to Manager prior to the inception of
operations of any Site, together with evidence of the payment of the premiums
thereon, and shall be placed with insurance companies authorized and licensed to
issue such

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<PAGE>

policies in the Commonwealth of Pennsylvania at rates deemed reasonable and
appropriate and having reserves in an amount deemed to be reasonably adequate by
P.C. and Manager. P.C. shall use its best efforts to name Manager as an
additional insured party on all malpractice insurance and Manager may, at its
option, participate in the procurement of cost-effective coverage on behalf of
P.C. P.C. shall provide documentation to Manager that all such insurance is in
full force and effect on each subsequent anniversary of the Commencement Date
and not less than ten (10) days prior to the earlier of the dates upon which
P.C. employs or enters into a contract with any Professional to provide services
at a Site.

(a) Professional Corporation. P.C. is a professional corporation duly
incorporated under the laws of the State of Delaware and has the power and
authority to carry on its business as it is contemplated by this Agreement.

(b) Physicians and Medical Professionals Licensed. Each physician employed
by or under contract with P.C. to provide Medical Services is, and will continue
to be, duly licensed to practice medicine in the State of Delaware, is properly
trained, competent and experienced in his or her medical specialty, and has in
force, and will continue to maintain, medical malpractice insurance pursuant to
the provisions of this Agreement. P.C. will assure that all other Professionals
rendering services pursuant to this Agreement shall be duly licensed and
appropriately supervised by P.C. in accordance with applicable laws and current
community standards. P.C. shall enter into a written agreement in form and
substance satisfactory to Manager, with each Professional employed by or under
contract with P.C. to render services hereunder (the "Employment Agreements").

(c) Provider Numbers. P.C. shall maintain provider numbers for Blue Cross,
Blue Shield, Medicare and Medicaid (collectively "Provider Numbers"). To the
extent

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<PAGE>

practicable, group assignment accounts will be established to facilitate
billings.

8. Compensation.

(a) Payment of Fees. The parties hereto recognize that Manager's expenses,
and the expenses of the Sites, will vary substantially depending on the volume
and type of patient services. The parties further recognize the inherent
uncertainties and the difficulty of predicting monthly expenses, volume of
services, the collection of revenues, the extent of obligations and the risks
that Manager has taken and will take with respect to capital expenditures,
equipment lease obligations and other obligations incurred in connection with
the establishment and furnishing of the Sites, and additionally recognize the
need to provide Manager with sufficient revenues to pay all operating expenses
and to provide Manager with a return on its investment commensurate with the
risks being assumed by Manager. Therefore, the parties agree that P.C. shall pay
to Manager as compensation for all the services rendered by Manager pursuant to
the terms of this Agreement an amount equal to the Gross Collected Revenues
less: (i) the amount of the Permitted Expenses of P.C. and (ii) the amount of
advances repaid to Manager pursuant to subparagraph 8(d). The term "Gross
Collected Revenues" shall mean all billings (including, without limitation,
billings for Medical Services and for the services of other Professionals,
medical supplies, charges for ancillary medical services and facility and
equipment charges) collected by P.C. for services rendered at the Sites. The
term "Permitted Expenses" shall mean: (i) all salaries, bonuses and fringe
benefits required to be paid in accordance with the Employment Agreements or
pursuant to applicable law; (ii) insurance costs; (iii) legal and accounting
fees; (iv) taxes; and (v) other incidental expenses that for purposes of
convenience are paid by P.C. but would otherwise be the obligation of Manager.
Payment for the services provided hereunder shall be made through a daily sweep
pursuant to instructions by P.C., of the cash contained in the bank accounts of
P.C., into bank accounts of Manager. Manager shall reconcile amounts payable
hereunder on a quarterly basis.

(b) Application of Revenues. P.C. hereby agrees to the application of the
Gross Collected Revenues to the purposes and priorities specified in this
Agreement.

-9-

<PAGE>

9. Books, Office Equipment, Etc.

-10-

<PAGE>

10. Exclusivity, Non-Competition and Non-Disclosure Agreement.

(b) Non-Competition. During the term of this Agreement and for two (2)
years following termination, P.C. shall not:

(i) employ any individual previously working for Manager as its
employee;

(ii) directly or indirectly induce or attempt to influence any
employee of Manager to terminate employment with Manager; or

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<PAGE>

benefits arising from such violation, which rights shall be cumulative and in
addition to any other rights or remedies to which Manager may be entitled. In
the event of a violation, the period referred to in subparagraph 10(b) shall be
extended by a period of time equal to that period beginning with the
commencement of any such violation and ending when such violation shall have
been finally terminated in good faith.

(e) Additional Covenants. P.C. shall secure covenants similar to those
specified with respect to P.C. in this Paragraph 10 (subject to geographic
limitations consistent with the Professional's activities for P.C.) from: (i)
each Professional employed by or contracting with P.C., and from (ii) each
shareholder and all future shareholders. Such covenants shall provide that
Manager shall be a third party beneficiary of each such covenant and may enforce
such covenants. P.C. shall provide to Manager proof of compliance with this
subsection upon Manager's request. P.C. agrees that it shall take all actions
necessary to enforce such covenants. P.C. covenants and agrees that it shall
operate in the manner necessary to constitute a "group practice," as such term
is defined in 42 U.S.C. ss.1395nn(h)(4)(A), and that all referrals within and
among members of the group shall comport with the requirements of 42 U.S.C
ss.1395 and other applicable laws and implementing regulations.

(f) Survival. The provision of this Paragraph 10 shall survive the
expiration or termination of this Agreement.

(a) to collect accounts receivable owing to P.C. in P.C.'s name and on its
behalf;

(e) to negotiate payments to P.C. under this Agreement to the extent
otherwise permitted by law;

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<PAGE>

(f) to perfect a security interest in the Secured Assets of P.C.; and

(g) to do any other act, make any payment or execute any document on behalf
of P.C. to cure any default by P.C. of this Agreement; provided, such act by
Manager must comply with any applicable law.

12. Termination and Breach.

13. Indemnification.

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<PAGE>

agents, employees or subcontractors (other than Manager).

15. Miscellaneous.

-14-
<PAGE>

required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received when delivered (personally, by
carrier service such as Federal Express, or by other messenger) or upon actual
receipt of registered or certified mail, postage prepaid, return receipt
requested, addressed as set forth below:

(i) If to Manager:

U.S. PHYSICIANS, Inc.
220 Commerce Drive, Suite 400
Fort Washington, PA 19034
Attention: President

(ii) If to P.C.:

U.S. Medical Services of Delaware, P.A.
220 Commerce Drive
Fort Washington, PA 19034
Attention: Vice President

In addition, notice by mail should be by air mail if posted outside of the
continental United States.

Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this subparagraph 15(c).

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<PAGE>

Agreement to the extent possible, consistent with its purposes, to conform to
law.

(h) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only, form no part of this Agreement and shall not affect its
interpretation.

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

U.S. PHYSICIANS, INC. U.S. MEDICAL SERVICES OF
DELAWARE, P.A.

By: /s/ Thomas J. Keane By: /s/ Thomas J. Keane
---------------------------- -----------------------------
Thomas J. Keane, President Thomas J. Keane, President

-16-

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT is entered into on October 9, 1997 by and between
U.S. PHYSICIANS, Inc. (the "Company"), a Pennsylvania corporation, and Thomas J.
Keane (the "Executive").

W I T N E S S E T H T H A T:

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on October 9, 1997 and
continuing until October 8, 2000 (the "Initial Term"). The Initial Term will be
extended for additional one (1) year terms (the "Additional Term") if neither
party has given the other notice of termination at least ninety (90) days prior
to the end of the Initial or then current Additional Term. The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, that it is a valid agreement binding upon him according to its
terms, and that its execution and performance by him does not violate the terms
of any existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that he knows of no reason why
he is not physically capable of performing his obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Initial Term and any Additional Term,
the Company agrees to employ the Executive to serve as President, Chairman of
the Board, and Chief Executive Officer. The Executive will have such powers and
duties as are commensurate with those positions and as may be assigned to him
from time to time by the Company's Board of Directors (the "Board"). During the
Term, and except for illness or incapacity and vacation periods in accordance
with the Company's regular practice for executives, the Executive shall devote
all of his business time, attention, skill and efforts exclusively to the
business and affairs of the Company and its subsidiaries and affiliates. The
term "affiliates" includes any entity for which the Company is providing
management services pursuant to a management agreement. During the Initial Term
and any Additional Term, the Executive's titles and responsibilities may not be
changed or materially diminished without the written consent of the Executive.

3. Compensation. For all services rendered by the Executive in any capacity
required hereunder during the Term, including, without limitation, services as
an employee, officer, director, or member of any committee of the Company, or
any subsidiary, affiliate or division thereof, the Executive shall be
compensated as follows:

<PAGE>

a. Base Salary. The Company shall pay the Executive a fixed salary of
$157,532 per annum ("Base Salary") which will not be reduced without the written
consent of the Executive. Base Salary shall be payable in accordance with the
customary payroll practices of the Company, but in no event less frequently than
monthly. Executive shall, during the Initial Term and any Additional Term, be
eligible to receive annual increases in Base Salary as may be approved by the
Company's Board of Directors.

b. Bonus. The Executive will be included, in a manner consistent with his
position, in any bonus system, pool or incentive compensation program for senior
executives and/or the Chief Executive Officer, that may be implemented from time
to time by the Board.

c. Additional Benefits. Except as modified by this Agreement, the Executive
shall be entitled to participate in the Company's health insurance plan and such
other benefit plans as are generally made available to the employees of the
Company. The Executive will be provided with term life insurance with a benefit
amount equal to two times his annual Base Salary. The premiums for this policy
will be paid by the Company. Notwithstanding the foregoing, nothing in this
Agreement shall preclude the amendment or termination of the Company's health
insurance plan or any other plan or program, provided that such amendment or
termination is applicable generally to the employees of the Company. The
Executive shall be entitled to be paid for vacation, sick days and personal days
in the amount of twenty-two (22) days per year during the Initial Term and any
Additional Term. Any unused vacation, sick time and personal days may be carried
over into the subsequent year in accordance with Company policy.

4. Business Expenses. The Company shall pay or reimburse the Executive for
all reasonably necessary and usual business expenses incurred by the Executive
in connection with the performance of his duties and obligations under this
Agreement, subject to the Executive's presentation of appropriate vouchers in
accordance with such procedures as the Company may from time to time establish
for its executives, consistent with the need to preserve any deductions to which
the Company may be entitled for federal income tax purposes.

5. Termination of Employment.

a. Termination for Cause. Company may discharge Executive at any time for
"Cause", which shall include any of the following: 1) any act of fraud or
dishonesty, misappropriation, self dealing or personal dishonesty; 2) indictment
of a crime that constitutes a felony; 3) a breach by Executive of any of his
obligations regarding confidential information and non-competition as set forth
in Section 6 of this Agreement; 4) if Executive fails or refuses to perform
material assigned duties; 5) if Executive engages in conduct that causes
material harm or damage to the Company; or 6) any material breach of any
provision in this Agreement. In addition, subject to applicable law, Company may
discharge Executive for "Cause" in the event Executive becomes physically or
mentally disabled and is therefore unable to substantially carry out his duties
for a period of 120 days or more in any twelve (12) month period, provided that
the Executive's Company-sponsored long-term disability insurance program
contains an elimination period of not more than 90 days, or the Company
continues to

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<PAGE>

pay the Executive his regular salary until such time as the Company's long term
disability elimination period has expired. In the event of a discharge for
"Cause", Executive shall be ineligible for any additional salary, severance or
other payments or benefits under this Agreement or otherwise.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an Additional Term, then the Company agrees to
continue Executive's then current base salary for a period of six (6) months or
the remainder of the Initial Term or any Additional Term, whichever is greater,
or until such time as Executive commences other full-time employment.

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to 300% of his then
current Base Salary plus 300% of his annual incentive compensation for the prior
year, and the Executive shall not be entitled to any further payments pursuant
to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for his own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use his reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into his possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of his employment or on demand of the Company, to deliver the same
to the Company.

b. Non-compete. Through the term of this Agreement, and for a period of one
year thereafter the ("Restricted Period"), the Executive shall not in the
Restricted Area (as defined below), without express prior written approval of
the Company's Board of Directors,

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<PAGE>

directly or indirectly, own or hold any proprietary interest in, serve as
Director of, or be employed by or receive remuneration from, a Competitor (as
defined below). The Executive also agrees that, during the Restricted Period, he
will not solicit for the account of any Competitor, any customer or client of
the Business, or, in the event of the Executive's termination of employment, any
entity or individual that was such a customer or client preceding the
Executive's termination of employment. The Executive also agrees, during the
Restricted Period, not to interfere with the relationship between the Business
and their employees by soliciting their employment for any entity other than the
Business or otherwise.

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or any similar right, of any equity
interest in a business, firm or entity, except that the Executive shall be
allowed to own less than 3% of the stock of any publicly-traded company; (ii)
the term "Competitor" means any person or entity which is engaged in, or during
the Restricted Period becomes engaged in any of the following activities: (A)
the business of managing the medical practices of physicians, or (B) any other
business engaged in by the Business; and (iii) the term "Restricted Area" means
the greater of the states of Pennsylvania, New Jersey and Delaware, or any other
area within fifty (50) miles of any city in which the Business engages in any of
the activities listed in the definition of Competitor above or has plans to
conduct such activities (which plans are publicly announced, or are communicated
to Executive, or are demonstrated by discussions, of which the Executive is
aware, with physicians about management of their practices, or which otherwise
become known to Executive).

c. Remedies. The Company's obligation to make payments, deliver shares of
Stock subject to Options (except to the extent then exercisable) or provide for
any benefits under this Agreement shall cease upon a violation of the preceding
provisions of this Section 6. Executive acknowledges that the Company may be
severely and irreparably damaged in the event Executive violates the provisions
of paragraphs 6.a. or 6.b. above, and that the extent of the damage may be
difficult or impossible to determine. Therefore, the Executive agrees that, in
addition to the remedies provided above, the Company shall be entitled to
equitable relief, including a preliminary as well as a permanent injunction
(without the necessity of posting a bond). The Executive's agreement as set
forth in this Section 6 shall (i) continue throughout the duration of the
Executive's employment with the Company; and (ii) survive the Executive's
termination of this Agreement and/or Executive's employment with the Company,
whether or not such termination is voluntary or is the result of termination of
Executive by the Company with or without Cause.

d. Modification of Terms. If any restriction in this Section 6 of the
Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in the applicable jurisdiction, then
Executive agrees that such a restriction may be modified and narrowed, either by
a court or the Company, to the maximum time, geographic, service or other
limitations permitted by applicable law, so as to preserve and protect the
Company's legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in this Agreement.

-4-

<PAGE>

7. Withholding Taxes. The Company may directly or indirectly withhold from
any payments made under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.

8. Consolidation, Merger, or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertakings of the Company
hereunder. Upon such a consolidation, merger or transfer of assets and
assumption, the term "Company" as used herein shall mean such other corporation
and this Agreement shall continue in full force and effect.

9. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered or mailed, postage prepaid, by same day or
overnight mail or overnight courier service (e.g. Federal Express) as follows:

a. To the Company:

U.S. PHYSICIANS, Inc.
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

Thomas J. Keane
704 Lyle Lane
Lower Gwynedd, PA 19002

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited, to the Employee Nondisclosure and
Developments Agreement and the Non-Competition Agreement, each dated as of
February 1, 1995, and sets forth the entire understanding between the parties
with respect to its subject matter and cannot be changed, modified, extended or
terminated except upon written amendment executed by the parties.

11. Binding Agreement. This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their respective
permitted successors, assignees, heirs, beneficiaries and representatives.

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<PAGE>

application and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction.

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when executed shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Martin G. Chilek
-----------------------------------------
Title: Sr. Vice President & Secretary

EXECUTIVE

By: /s/ Thomas J. Keane
-----------------------------------------
Thomas J. Keane

-6-

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into on October
9, 1997, by and between U.S. PHYSICIANS, INC. (the "Company"), a Pennsylvania
corporation, and Martin G. Chilek (the "Executive").

W I T N E S S E T H T H A T :

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on December 19, 1995 and
continuing until December 18, 1998 (the "Initial Term"). The Initial Term will
be extended for additional one-year terms (the "Additional Term") if neither
party has given the other notice of termination at least ninety days prior to
the end of the Initial or then current Additional Term. The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, that it is a valid agreement binding him according to its terms,
and that its execution and performance by him does not violate the terms of any
existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that he knows of no reason why
he is not physically capable of performing his obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Term, the Company agrees to employ the
Executive to serve as Senior Vice President - Administration. The Executive will
have such powers and duties as are commensurate with that position and as may be
assigned to him from time to time by the Company's Board of Directors (the
"Board") or the Company's Chief Executive Officer. During the Term, and except
for illness or incapacity and vacation periods in accordance with the Company's
regular practice for executives, the Executive shall devote all of his business
time, attention, skill and efforts exclusively to the business and affairs of
the Company and its subsidiaries and affiliates. The term "affiliates" includes
any entity for which the Company is providing management services pursuant to a
management agreement.

<PAGE>

a. Base Salary. The Company shall pay the Executive a fixed salary of
$150,000 per annum ("Base Salary"). Base Salary shall be payable in accordance
with the customary payroll practices of the Company, but in no event less
frequently than monthly. Executive shall, during the Initial Term and any
Additional Term, be eligible to receive increases in Base Salary as may be
approved by the Company's Board of Directors and/or Chief Executive Officer.

b. Bonus. The Executive will be included, in a manner consistent with his
position, in any bonus system, pool or incentive compensation program for senior
executives that may be implemented from time to time by the Board.

c. Stock Options. The Company has granted the Executive options ("Options")
to purchase shares of the Company's common stock, par value $.01 per share (the
"Stock") according to the following terms and conditions:

The Company has granted as of December 19, 1995 ("Date of Executive's
Employment"), Options to purchase 103,315 shares of Stock, at a per share price
of $0.49 which represented the fair market value of the Stock on such date.
These Options are "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the extent
possible under applicable law. To the extent that such Options do not qualify as
"incentive stock options," they shall be considered to be "non-qualified stock
options." Such Options were granted under and subject in all respects to the
terms of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") and the Grant Letter executed by the Company and delivered to Executive
(the "Grant Letter"), and provide that one-third of the shares subject to such
Options shall become exercisable upon each of the first three anniversaries of
the Date of Executive's Employment (provided that no fractional shares shall be
paid out at any time), and except in the event of any earlier termination of
employment as described in the Stock Option Plan or the Grant Letter, or as
otherwise provided in this Agreement, the option shall remain exercisable until
ten years from the date of grant.

Upon any consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, the Executive shall have the right to
exercise in full any installments of Stock Options not previously exercised
(whether or not the right to exercise such Stock Options has accrued).

d. Additional Benefits. Except as modified by this Agreement, the Executive
shall be entitled to participate in the Company's health insurance plan and such
other benefit plans as are generally made available to the employees of the
Company. The Executive will be provided with term life insurance with a benefit
amount equal to two times his annual Base Salary. The premiums for this policy
will be paid by the Company. Notwithstanding the foregoing, nothing in this
Agreement shall preclude the

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<PAGE>

amendment or termination of the Company's health insurance plan or any other
plan or program, provided that such amendment or termination is applicable
generally to the employees of the Company. The Executive shall be entitled to be
paid for vacation, sick days and personal days in the amount of twenty-two (22)
days per year during the Initial Term and any Additional Term. Any unused
vacation, sick time or personal days may be carried over into the subsequent
year in accordance with Company policy.

5. Termination of Employment.

a. Termination for Cause. Company may discharge Executive at any time for
"Cause", which shall include any of the following: 1) any act of fraud,
misappropriation, self dealing or personal dishonesty; 2) willful misconduct; 3)
indictment of a crime that constitutes a felony; 4) a breach by Executive of any
of his obligations regarding confidential information and non-competition as set
forth in Section 6 of this Agreement; 5) if Executive fails or refuses to
perform material assigned duties; 6) if Executive engages in conduct that causes
material harm or damage to the Company; 7) any material violation of any Company
policy, that is not cured within ten days after receipt of written notice from
the Company; or 8) any material breach of any provision of this Agreement. In
addition, subject to applicable law, Company may discharge Executive for "Cause"
in the event Executive becomes physically or mentally disabled and is therefore
unable to substantially carry out his duties for a period of 120 days or more in
any twelve month period, provided that the Executive's Company-sponsored
long-term disability insurance program contains an elimination period of not
more than 90 days, or the Company continues to pay the Executive his regular
salary until such time as the Company's long-term disability elimination period
has expired. In the event of a discharge for "Cause", Executive shall be
ineligible for any additional salary, severance or other payments or benefits
under this Agreement or otherwise, and any Options granted to Executive that are
not then exercisable shall terminate, except that if the "Cause" of termination
is disability, the ability to exercise any of the Executive's Options shall be
governed by the Stock Option Plan and the Grant Letter.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an additional term, then the Company agrees to
continue Executive's then current base salary for a period of six months or the
remainder of the Initial Term or any

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<PAGE>

Additional Term, whichever is greater, or until such time as Executive commences
other full-time employment.

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to the greater of : 1)
200% of his then current Base Salary plus 200% of his annual incentive
compensation for the prior year; or 2) 100% of his then current Base Salary plus
100% of his annual incentive compensation for the remainder of the Initial Term
or any Additional Term of this Agreement, and the Executive shall not be
entitled to any further payments pursuant to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for his own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use his reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into his possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of his employment or on demand of the Company, to deliver the same
to the Company.

b. Non-compete. Through the Term of this Agreement, and for a period of one
year thereafter (the "Restricted Period"), the Executive shall not, in the
Restricted Area (as defined below), without express prior written approval of
the Company's Board of Directors, directly or indirectly, own or hold any
proprietary interest in, serve as a Director of, or be employed by or receive
remuneration from, a Competitor (as defined below). The Executive also agrees
that, during the Restricted Period, he will not solicit for the account of any
Competitor, any customer or client of the Business, or, in the event of the
Executive's termination of employment, any entity or individual that was such a
customer or client preceding the Executive's termination of employment. The

-4-

<PAGE>

Executive also agrees, during the Restricted Period, not to interfere with the
relationship between the Business and their employees by soliciting their
employment for any entity other than the Business or otherwise.

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or any similar right of any equity
interest in a business, firm or entity, except that the Executive shall be
allowed to own less than 3% of the stock of any publicly-traded company, (ii)
the term "Competitor" means any person or entity which is engaged in, or during
the Restricted Period becomes engaged in, any of the following activities: (A)
the business of (x) managing the medical practices of physicians, or (y)
providing managed care for patients requiring treatment by physicians with
medical specialties of a type managed by the Company, or (B) any other business
engaged in by the Business; and (iii) the term "Restricted Area" means the
greater of the States of Pennsylvania, New Jersey and Delaware, or any other
area within fifty miles of any city in which the Business engages in any of the
activities listed in the definition of Competitor above or has plans to conduct
such activities (which plans are publicly announced, or are communicated to
Executive, or are demonstrated by discussions, of which the Executive is aware,
with physicians about the management of their practices, or which otherwise
become known to Executive).

d. Modification of Terms. If any restriction in this Section 6 of the
Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in the applicable jurisdiction, then
Executive agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law, so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in this Agreement.

-5-

<PAGE>

7. Withholding Taxes. The Company may directly or indirectly withhold from
any payments made under this Agreement all Federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.

a. To the Company:

U.S. PHYSICIANS, Inc.
Attention: Thomas J. Keane, Chief Executive Officer
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

100 Foxcroft Drive
Doylestown, PA 18901

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited to, an Employment Agreement dated December
4, 1995 and sets forth the entire understanding between the parties with respect
to its subject matter and cannot be changed, modified, extended or terminated
except upon written amendment executed by the parties.

-6-

<PAGE>

application and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction.

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
-------------------------------
Thomas J. Keane, Chairman & CEO

EXECUTIVE

By: /s/ Martin G. Chilek
-------------------------------
Martin G. Chilek

-7-

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into on October
9, 1997, by and between U.S. PHYSICIANS, INC. (the "Company"), a Pennsylvania
corporation, and Edward R. Miersch (the "Executive").

W I T N E S S E T H T H A T :

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on July 1, 1996 and
continuing until June 30, 1999 (the "Initial Term"). The Initial Term will be
extended for additional one-year terms (the "Additional Term") if neither party
has given the other notice of termination at least ninety days prior to the end
of the Initial or then current Additional Term. The Executive hereby represents
and warrants that he has the legal capacity to execute and perform this
Agreement, that it is a valid agreement binding him according to its terms, and
that its execution and performance by him does not violate the terms of any
existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that he knows of no reason why
he is not physically capable of performing his obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Term, the Company agrees to employ the
Executive to serve as Senior Vice President and Chief Operating Officer. The
Executive will have such powers and duties as are commensurate with those
positions and as may be assigned to him from time to time by the Company's Board
of Directors (the "Board") or the Company's Chief Executive Officer. During the
Term, and except for illness or incapacity and vacation periods in accordance
with the Company's regular practice for executives, the Executive shall devote
all of his business time, attention, skill and efforts exclusively to the
business and affairs of the Company and its subsidiaries and affiliates. The
term "affiliates" includes any entity for which the Company is providing
management services pursuant to a management agreement.

<PAGE>

a. Base Salary. The Company shall pay the Executive a fixed salary of
$200,000 per annum ("Base Salary"). Base Salary shall be payable in accordance
with the customary payroll practices of the Company, but in no event less
frequently than monthly. Executive shall, during the Initial Term and any
Additional Term, be eligible to receive increases in Base Salary as may be
approved by the Company's Board of Directors and/or Chief Executive Officer.

The Company has granted as of July 1, 1996 ("Date of Executive's
Employment"), Options to purchase 103,315 shares of Stock, at a per share price
of $0.49 which represented the fair market value of the Stock on such date.
These Options are "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the extent
possible under applicable law. To the extent that such Options do not qualify as
"incentive stock options," they shall be considered to be "non-qualified stock
options." Such Options were granted under and subject in all respects to the
terms of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") and the Grant Letter executed by the Company and delivered to Executive
(the "Grant Letter"), and provide that one-third of the shares subject to such
Option shall become exercisable upon each of the first three anniversaries of
the Date of Executive's Employment (provided that no fractional shares shall be
paid out at any time), and except in the event of any earlier termination of
employment as described in the Stock Option Plan or the Grant Letter, or as
otherwise provided in this Agreement, the option shall remain exercisable until
ten years from the date of grant.

Upon any consolidation, merger or the sale or transfer of substantially all
of the assets of the Company to another corporation in which the Company is not
the surviving entity, the Executive shall have the right to exercise in full
installments of Stock Options not previously exercised (whether or not the right
to exercise such Stock Options has accrued).

-2-

<PAGE>

employees of the Company. The Executive shall be entitled to be paid for
vacation, sick days and personal days in the amount of twenty-two (22) days per
year during the Initial Term and any Additional Term. Any unused vacation, sick
time or personal days may be carried over into the subsequent year in accordance
with Company policy.

5. Termination of Employment.

a. Termination for Cause. Company may discharge Executive at any time for
"Cause", which shall include any of the following: 1) any act of fraud,
misappropriation, self dealing or personal dishonesty; 2) willful misconduct; 3)
indictment of a crime that constitutes a felony; 4) a breach by Executive of any
of his obligations regarding confidential information and non-competition as set
forth in Section 6 of this Agreement, 5) if Executive fails or refuses to
perform material assigned duties; 6) if Executive engages in conduct that causes
material harm or damage to the Company; 7) any material violation of any Company
policy, that is not cured within 10 days after receipt of written notice from
the Company; or 8) any material breach of any provision of this Agreement. In
addition, subject to applicable law, Company may discharge Executive for "Cause"
in the event Executive becomes physically or mentally disabled and is therefore
unable to substantially carry out his duties for a period of 120 days or more in
any twelve month period, provided that the Executive's Company-sponsored
long-term disability insurance program contains an elimination period of not
more than 90 days, or the Company continues to pay the Executive his regular
salary until such time as the Company's long-term disability elimination period
has expired. In the event of a discharge for "Cause", Executive shall be
ineligible for any additional salary, severance or other payments or benefits
under this Agreement or otherwise, and any Options granted to Executive that are
not then exercisable shall terminate, except that if the "Cause" of termination
is disability, the ability to exercise any of the Executive's Options shall be
governed by the Stock Option Plan and the Grant Letter.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an additional term, then the Company agrees to
continue Executive's then current base salary for a period of six months or the
remainder of the Initial Term or any Additional Term, whichever is greater, or
until such time as Executive commences other full-time employment.

-3-

<PAGE>

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to the greater of : 1)
200% of his then current Base Salary plus 200% of his annual incentive
compensation for the prior year; or 2) 100% of his then current Base Salary plus
100% of his annual incentive compensation for the remainder of the Initial Term
or any Additional Term of this Agreement, and the Executive shall not be
entitled to any further payments pursuant to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for his own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use his reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into his possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of his employment or on demand of the Company, to deliver the same
to the Company.

b. Non-compete. Through the Term of this Agreement, and for a period of one
year thereafter (the "Restricted Period"), the Executive shall not, in the
Restricted Area (as defined below), without express prior written approval of
the Company's Board of Directors, directly or indirectly, own or hold any
proprietary interest in, serve as Director of, or be employed by or receive
remuneration from, a Competitor (as defined below). The Executive also agrees
that, during the Restricted Period, he will not solicit for the account of any
Competitor, any customer or client of the Business, or, in the event of the
Executive's termination of employment, any entity or individual that was such a
customer or client preceding the Executive's termination of employment. The
Executive also agrees, during the Restricted Period, not to interfere with the
relationship between the Business and their employees by soliciting their
employment for any entity other than the Business or otherwise.

-4-

<PAGE>

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or any similar right of any equity
interest in a business, firm or entity, except that the Executive shall be
allowed to own less than 3% of the stock of any publicly-traded company, (ii)
the term "Competitor" means any person or entity which is engaged in, or during
the Restricted Period becomes engaged in, any of the following activities: (A)
the business of (x) managing the medical practices of physicians, or (y)
providing managed care for patients requiring treatment by physicians with
medical specialties of a type managed by the Company, or (B) any other business
engaged in by the Business; and (iii) the term "Restricted Area" means the
greater of the States of Pennsylvania, New Jersey and Delaware, or any other
area within fifty miles of any city in which the Business engages in any of the
activities listed in the definition of Competitor above or has plans to conduct
such activities (which plans are publicly announced, or are communicated to
Executive, or are demonstrated by discussions, of which the Executive is aware,
with physicians about the management of their practices, or which otherwise
become known to Executive).

d. Modification of Terms. If any restriction in this Section 6 of the
Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in the applicable jurisdiction, then
Executive agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law, so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in this Agreement.

-5-

<PAGE>

a. To the Company:

U.S. PHYSICIANS, Inc.
Attention: Thomas J. Keane, Chief Executive Officer
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

5 Forest Lane
Springfield, PA 19064

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited to, an Employment Agreement dated May 22,
1996 and sets forth the entire understanding between the parties with respect to
its subject matter and cannot be changed, modified, extended or terminated
except upon written amendment executed by the parties.

12. Severability. If any provision of this Agreement or application thereof
to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application and shall not invalidate or render
unenforceable such provision or application in any other jurisdiction.

-6-

<PAGE>

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
-------------------------------
Thomas J. Keane, Chairman & CEO

EXECUTIVE

By: /s/ Edward R. Miersch
-------------------------------
Edward R. Miersch

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into on October
9, 1997, by and between U.S. PHYSICIANS, INC. (the "Company"), a Pennsylvania
corporation, and Warren D. Barratt (the "Executive").

W I T N E S S E T H T H A T :

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on September 3, 1996 and
continuing until September 2, 1999 (the "Initial Term"). The Initial Term will
be extended for additional one-year terms (the "Additional Term") if neither
party has given the other notice of termination at least ninety days prior to
the end of the Initial or then current Additional Term. The Executive hereby
represents and warrants that he has the legal capacity to execute and perform
this Agreement, that it is a valid agreement binding him according to its terms,
and that its execution and performance by him does not violate the terms of any
existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that he knows of no reason why
he is not physically capable of performing his obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Term, the Company agrees to employ the
Executive to serve as Senior Vice President and Chief Financial Officer. The
Executive will have such powers and duties as are commensurate with those
positions and as may be assigned to him from time to time by the Company's Board
of Directors (the "Board") or the Company's Chief Executive Officer. During the
Term, and except for illness or incapacity and vacation periods in accordance
with the Company's regular practice for executives, the Executive shall devote
all of his business time, attention, skill and efforts exclusively to the
business and affairs of the Company and its subsidiaries and affiliates. The
term "affiliates" includes any entity for which the Company is providing
management services pursuant to a management agreement.

<PAGE>

a. Base Salary. The Company shall pay the Executive a fixed salary of
$125,000 per annum ("Base Salary"). Base Salary shall be payable in accordance
with the customary payroll practices of the Company, but in no event less
frequently than monthly. Executive shall, during the Initial Term and any
Additional Term, be eligible to receive increases in Base Salary as may be
approved by the Company's Board of Directors and/or Chief Executive Officer.

b. Additional Compensation. The Company has paid the Executive as of the
Date of Executive's Employment (as hereinafter defined) $25,000 in cash as
additional compensation. The Company paid the Executive $25,000 in cash in
January 1997, also as additional compensation. The aggregate amount of
additional compensation paid to the Executive pursuant to this paragraph 3.b.
shall be treated as ordinary income and subject to all lawful deductions. The
Executive shall not be entitled to any further payments pursuant to this
paragraph 3.b.

c. Bonus. The Executive will be included, in a manner consistent with his
position, in any bonus system, pool or incentive compensation program for senior
executives that may be implemented from time to time by the Board.

d. Stock Options. The Company has granted the Executive options ("Options")
to purchase shares of the Company's common stock, par value $.01 per share (the
"Stock") according to the following terms and conditions:

The Company has granted as of September 3, 1996 ("Date of Executive's
Employment"), Options to purchase 103,315 shares of Stock, at a per share price
of $1.00 which represented the fair market value of the Stock on such date.
These Options are "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the extent
possible under applicable law. To the extent that such Options do not qualify as
"incentive stock options," they shall be considered to be "non-qualified stock
options." Such Options were granted under and subject in all respects to the
terms of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") and the Grant Letter executed by the Company and delivered to Executive
(the "Grant Letter"), and provide that one-third of the shares subject to such
Options shall become exercisable upon each of the first three anniversaries of
the Date of Executive's Employment (provided that no fractional shares shall be
paid out at any time), and except in the event of any earlier termination of
employment as described in the Stock Option Plan or the Grant Letter, or as
otherwise provided in this Agreement, the option shall remain exercisable until
ten years from the date of grant.

Upon any consolidation, merger or the sale or transfer of substantially all
of the assets of the Company to another corporation in which the Company is not
the surviving entity, the Executive shall have the right to exercise in full any
installments of Stock

-2-

<PAGE>

Options not previously exercised (whether or not the right to exercise such
Stock Options has accrued).

e. Additional Benefits. Except as modified by this Agreement, the Executive
shall be entitled to participate in the Company's health insurance plan and such
other benefit plans as are generally made available to the employees of the
Company. The Executive will be provided with term life insurance with a benefit
amount equal to two times his annual Base Salary. The premiums for this policy
will be paid by the Company. Notwithstanding the foregoing, nothing in this
Agreement shall preclude the amendment or termination of the Company's health
insurance plan or any other plan or program, provided that such amendment or
termination is applicable generally to the employees of the Company. The
Executive shall be entitled to be paid for vacation, sick days and personal days
in the amount of twenty-two (22) days per year during the Initial Term and any
Additional Term. Any unused vacation, sick time or personal days may be carried
over into the subsequent year in accordance with Company policy.

5. Termination of Employment.

-3-

<PAGE>

"Cause" of termination is disability, the ability to exercise any of the
Executive's Options shall be governed by the Stock Option Plan and the Grant
Letter.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an additional term, then the Company agrees to
continue Executive's then current base salary for a period of six months or the
remainder of the Initial Term or any Additional Term, whichever is greater, or
until such time as Executive commences other full-time employment.

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to the greater of : 1)
200% of his then current Base Salary plus 200% of his annual incentive
compensation for the prior year; or 2) 100% of his then current Base Salary plus
100% of his annual incentive compensation for the remainder of the Initial Term
or any Additional Term of this Agreement, and the Executive shall not be
entitled to any further payments pursuant to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for his own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use his reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into his possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of his employment or on demand of the Company, to deliver the same
to the Company.

-4-

<PAGE>

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or similar right of any equity interest
in a business, firm or entity, except that the Executive shall be allowed to own
less than 3% of the stock of any publicly-traded company, (ii) the term
"Competitor" means any person or entity which is engaged in, or during the
Restricted Period becomes engaged in, any of the following activities: (A) the
business of (x) managing the medical practices of physicians, or (y) providing
managed care for patients requiring treatment by physicians with medical
specialties of a type managed by the Company, or (B) any other business engaged
in by the Business; and (iii) the term "Restricted Area" means the greater of
the States of Pennsylvania, New Jersey and Delaware, or any other area within
fifty miles of any city in which the Business engages in any of the activities
listed in the definition of Competitor above or has plans to conduct such
activities (which plans are publicly announced, or are communicated to Executive
or are demonstrated by discussions, of which the Executive is aware, with
physicians about their management practices, or which otherwise become known to
Executive).

-5-

<PAGE>

d. Modification of Terms. If any restriction in this Section 6 of the
Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in the applicable jurisdiction, then
Executive agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law, so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in this Agreement.

a. To the Company:

U.S. PHYSICIANS, Inc.
Attention: Thomas J. Keane, Chief Executive Officer
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

106 Cromwell Drive
Mullica Hill, NJ 08062

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited to, an Employment Agreement dated August
12, 1996 and sets forth the entire understanding between the parties with
respect to its subject

-6-

<PAGE>

matter and cannot be changed, modified, extended or terminated except upon
written amendment executed by the parties.

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
-------------------------------
Thomas J. Keane, Chairman & CEO

EXECUTIVE

By: /s/ Warren D. Barratt
-------------------------------
Warren D. Barratt

-7-

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into on October
9, 1997, by and between U.S. PHYSICIANS, INC. (the "Company"), a Pennsylvania
corporation, and John M. Hogan (the "Executive").

W I T N E S S E T H T H A T :

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on October 3, 1996 and
continuing until October 2, 1999 (the "Initial Term"). The Initial Term will be
extended for additional one-year terms (the "Additional Term") if neither party
has given the other notice of termination at least ninety days prior to the end
of the Initial or then current Additional Term. The Executive hereby represents
and warrants that he has the legal capacity to execute and perform this
Agreement, that it is a valid and binding agreement against him according to its
terms, and that its execution and performance by him does not violate the terms
of any existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that he knows of no reason why
he is not physically capable of performing his obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Term, the Company agrees to employ the
Executive to serve as Vice President and General Counsel. The Executive will
have such powers and duties as are commensurate with that position and as may be
assigned to him from time to time by the Company's Board of Directors (the
"Board") or the Company's Chief Executive Officer. During the Term, and except
for illness or incapacity and vacation periods in accordance with the Company's
regular practice for executives, the Executive shall devote all of his business
time, attention, skill and efforts exclusively to the business and affairs of
the Company and its subsidiaries and affiliates. The term "affiliates" includes
any entity for which the Company is providing management services pursuant to a
management agreement.

<PAGE>

b. Bonus. The Executive will be included, in a manner consistent with his
position, in any bonus system, pool or incentive compensation plan for senior
executives that may be implemented from time to time by the Board.

The Company has granted as of October 3, 1996 ("Date of Executive's
Employment"), Options to purchase 52,500 shares of Stock, at a per share price
of $1.00 which represented the fair market value of the Stock on such date.
These Options are "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the extent
possible under applicable law. To the extent that such Options do not qualify as
"incentive stock options," they shall be considered to be "non-qualified stock
options." Such options were granted under and subject in all respects to the
terms of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") and the Grant Letter executed by the Company and delivered to Executive
(the "Grant Letter"), and provide that one-third of the shares subject to such
Options shall become exercisable upon each of the first three anniversaries of
the Date of Executive's Employment (provided that no fractional shares shall be
paid out at any time), and except in the event of any earlier termination of
employment as described in the Stock Option Plan or the Grant Letter, or as
otherwise provided in this Agreement, the option shall remain exercisable until
ten years from the date of grant.

Upon any consolidation, merger or the sale or transfer of substantially all
of the assets of the Company to another corporation in which the Company is not
the surviving entity, the Executive shall have the right to exercise in full any
installments of Stock Options not previously exercised (whether or not the right
to exercise such Stock Option has accrued).

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<PAGE>

5. Termination of Employment.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an additional term, then the Company agrees to
continue Executive's then current base salary for a period of six months or the
remainder of the Initial Term or any Additional Term, whichever is greater, or
until such time as Executive commences other full-time employment.

-3-

<PAGE>

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to the greater of : 1)
100% of his then current Base Salary plus 100% of his annual incentive
compensation for the prior year; or 2) 100% of his then current Base Salary plus
100% of his annual incentive compensation for the remainder of the Initial Term
or any Additional Term of this Agreement, and the Executive shall not be
entitled to any further payments pursuant to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for her own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use her reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into her possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of her employment or on demand of the Company, to deliver the same
to the Company.

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<PAGE>

between the Business and their employees by soliciting their employment for any
entity other than the Business or otherwise.

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or any similar right of any equity
interest in a business, firm or entity, except that the Executive shall be
allowed to own less than 3% of the stock of any publicly - traded company, (ii)
the term "Competitor" means any person or entity which is engaged in, or during
the Restricted Period becomes engaged in, any of the following activities: (A)
the business of (x) managing the medical practices of physicians, or (y)
providing managed care for patients requiring treatment by physicians with
medical specialties of a type managed by the Company, or (B) any other business
engaged in by the Business; and (iii) the term "Restricted Area" means the
greater of the States of Pennsylvania, New Jersey and Delaware, or any area
within fifty miles of any city in which the Business engages in any of the
activities listed in the definition of Competitor above or has plans to conduct
such activities (which plans are publicly announced, or are communicated to
Executive or are demonstrated by discussions, of which the Executive is aware,
with physicians about the management of their practices, or which otherwise
become known to Executive).

Notwithstanding the above, the Executive shall, at any time after
termination of employment, be permitted to be employed by or received
remuneration from any person or entity that is not primarily in the business
engaged in by Company, if the Executive's employment or remuneration does not
involve the rendering of services relating to any of the activities that would
define a person or entity as a Competitor.

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<PAGE>

maximum time, geographic, service or other limitations permitted by applicable
law, so as to preserve and protect the Company's legitimate business interest,
without negating or impairing any other restrictions or undertaking set forth in
this Agreement.

a. To the Company:

U.S. PHYSICIANS, Inc.
Attention: Thomas J. Keane, Chief Executive Officer
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

531 Carriage House Lane
Harleysville, PA 19438

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited to, an Employment Agreement dated
September 17, 1996 and sets forth the entire understanding between the parties
with respect to its subject matter and cannot be changed, modified, extended or
terminated except upon written amendment executed by the parties.

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<PAGE>

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
-------------------------------
Thomas J. Keane, Chairman & CEO

EXECUTIVE

By: /s/ John M. Hogan
-------------------------------
John M. Hogan

-7-

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is entered into on October
9, 1997, by and between U.S. PHYSICIANS, INC. (the "Company"), a Pennsylvania
corporation, and Linda F. Larson (the "Executive").

W I T N E S S E T H T H A T :

The Company desires to employ the Executive and the Executive desires to
enter into the employ of the Company in such capacity and on the terms and
conditions contained in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties, intending to be legally bound, agree as follows:

1. Employment and Term. The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, upon the terms and conditions
contained in this Agreement for a period commencing on October 7, 1996 and
continuing until October 6, 1999 (the "Initial Term"). The Initial Term will be
extended for additional one-year terms (the "Additional Term") if neither party
has given the other notice of termination at least ninety days prior to the end
of the Initial or then current Additional Term. The Executive hereby represents
and warrants that she has the legal capacity to execute and perform this
Agreement, that it is a valid and binding agreement against her according to its
terms, and that its execution and performance by her does not violate the terms
of any existing agreement or understanding to which the Executive is a party. In
addition, the Executive represents and warrants that she knows of no reason why
she is not physically capable of performing her obligations under this Agreement
in accordance with its terms.

2. Position and Duties. During the Term, the Company agrees to employ the
Executive to serve as Vice President - Management Information Systems. The
Executive will have such powers and duties as are commensurate with that
position and as may be assigned to her from time to time by the Company's Board
of Directors (the "Board") or the Company's Chief Executive Officer. During the
Term, and except for illness or incapacity and vacation periods in accordance
with the Company's regular practice for executives, the Executive shall devote
all of her business time, attention, skill and efforts exclusively to the
business and affairs of the Company and its subsidiaries and affiliates. The
term "affiliates" includes any entity for which the Company is providing
management services pursuant to a management agreement.

<PAGE>

a. Base Salary. The Company shall pay the Executive a fixed salary of
$85,000 per annum ("Base Salary"). Base Salary shall be payable in accordance
with the customary payroll practices of the Company, but in no event less
frequently than monthly. Executive shall, during the Initial Term and any
Additional Term, be eligible to receive increases in Base Salary as may be
approved by the Company's Board of Directors and/or Chief Executive Officer.

b. Bonus. The Executive will be included, in a manner consistent with her
position, in any bonus system, pool or incentive compensation plan for senior
executives that may be implemented from time to time by the Board.

The Company has granted as of October 7, 1996 ("Date of Executive's
Employment"), Options to purchase 50,000 shares of Stock, at a per share price
of $1.00 which represented the fair market value of the Stock on such date.
These Options are "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") to the extent
possible under applicable law. To the extent that such Options do not qualify as
"incentive stock options," they shall be considered to be "non-qualified stock
options." Such Options were granted under and subject in all respects to the
terms of the U.S. PHYSICIANS, Inc. 1995 Stock Option Plan (the "Stock Option
Plan") and the Grant Letter executed by the Company and delivered to Executive
(the "Grant Letter"), and provide that one-third of the shares subject to such
Options shall become exercisable upon each of the first three anniversaries of
the Date of Executive's Employment (provided that no fractional shares shall be
paid out at any time), and except in the event of any earlier termination of
employment as described in the Stock Option Plan or the Grant Letter, or as
otherwise provided in this Agreement, the option shall remain exercisable until
ten years from the date of grant.

Upon any consolidation, merger or the sale or transfer of substantially all
of the assets of the Company to another corporation in which the Company is not
the surviving entity, the Executive shall have the right to exercise in full any
installments of Stock Options not previously exercised (whether or not the right
to exercise such Stock Options has accrued).

d. Additional Benefits. Except as modified by this Agreement, the Executive
shall be entitled to participate in the Company's health insurance plan and such
other benefit plans as are generally made available to the employees of the
Company. The Executive will be provided with term life insurance with a benefit
amount equal to two times her annual Base Salary. The premiums for this policy
will be paid by the Company. Notwithstanding the foregoing, nothing in this
Agreement shall preclude the

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<PAGE>

4. Business Expenses. The Company shall pay or reimburse the Executive for
all reasonably necessary and usual business expenses incurred by the Executive
in connection with the performance of her duties and obligations under this
Agreement, subject to the Executive's presentation of appropriate vouchers in
accordance with such procedures as the Company may from time to time establish
for its executives, consistent with the need to preserve any deductions to which
the Company may be entitled for Federal income tax purposes.

5. Termination of Employment.

a. Termination for Cause. Company may discharge Executive at any time for
"Cause", which shall include any of the following: 1) any act of fraud,
misappropriation, self dealing or personal dishonesty; 2) willful misconduct; 3)
indictment of a crime that constitutes a felony; 4) a breach by Executive of any
of her obligations regarding confidential information and non-competition as set
forth in Section 6 of this Agreement; 5) if Executive fails or refuses to
perform material assigned duties; 6) if Executive engages in conduct that causes
material harm or damage to the Company; 7) any material violation of any Company
policy, that is not cured within ten days after receipt of written notice from
the Company; 8) any material breach of any provision of this Agreement. In
addition, subject to applicable law, Company may discharge Executive for "Cause"
in the event Executive becomes physically or mentally disabled and is therefore
unable to substantially carry out her duties for a period of 120 days or more in
any twelve month period, provided that the Executive's Company-sponsored
long-term disability insurance program contains an elimination period of not
more than 90 days, or the Company continues to pay the Executive her regular
salary until such time as the Company's long-term disability elimination period
has expired. In the event of a discharge for "Cause", Executive shall be
ineligible for any additional salary, severance or other payments or benefits
under this Agreement or otherwise, and any Options granted to Executive that are
not then exercisable shall terminate, except that if the "Cause" of termination
is disability, the ability to exercise any of the Executive's Options shall be
governed by the Stock Option Plan and the Grant Letter.

b. Other Termination. If Executive's employment is terminated for any
reason other than death or for Cause (as defined in paragraph 5.a.) or if the
Company elects not to renew Executive's employment under this Agreement or to
extend this Agreement for an additional term, then the Company agrees to
continue Executive's then current base salary for a period of six months or the
remainder of the Initial Term or any

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<PAGE>

Additional Term, whichever is greater, or until such time as Executive commences
other full-time employment.

c. Termination for Change in Control. If the Executive's employment is
terminated without Cause upon a consolidation, merger or the sale or transfer of
substantially all of the assets of the Company to another corporation in which
the Company is not the surviving entity, then the Executive will be entitled to
receive a lump sum payment upon such termination equal to the greater of: 1)
100% of her then current Base Salary plus 100% of her annual incentive
compensation for the prior year: or 2) 100% of her then current Base Salary plus
100% of her annual incentive compensation for the remainder of the Initial Term
or any Additional Term of this Agreement, and the Executive shall not be
entitled to any further payments pursuant to this Agreement.

6. Other Duties of Executive During and After Term.

a. Confidential Information. The Executive recognizes and acknowledges that
all information pertaining to the affairs, business, clients, or customers of
the Company or any of its subsidiaries or affiliates (any or all of such
entities being hereinafter referred to as the "Business"), as such information
may exist from time to time, other than information that the Company has
previously made publicly available or which is in the public domain, is
confidential information and is a unique and valuable asset of the Business,
access to and knowledge of which are essential to the performance of the
Executive's duties under this Agreement. The Executive shall not divulge to any
person, firm, association, corporation, or governmental agency, any information
concerning the affairs, business, clients or customers of the Business (except
such information as is required by law to be divulged to a government agency or
pursuant to lawful process), or make use of any such information for her own
purposes or for the benefit of any person, firm, association or corporation
(except the Business) and shall use her reasonable best efforts to prevent the
disclosure of any such information by others. All records, memoranda, letters,
books, papers, reports, accountings, experience or other data, and other records
and documents relating to the Business, whether made by the Executive or
otherwise coming into her possession, are confidential information and are,
shall be, and shall remain the property of the Business. No copies thereof shall
be made which are not retained by the Business, and the Executive agrees, on
termination of her employment or on demand of the Company, to deliver the same
to the Company.

b. Non-compete. Through the Term of this Agreement, and for a period of one
year thereafter (the "Restricted Period"), the Executive shall not, in the
Restricted Area (as defined below), without express prior written approval of
the Company's Board of Directors, directly or indirectly, own or hold any
proprietary interest in, serve as a Director of, or be employed by or receive
remuneration from, a Competitor (as defined below). The Executive also agrees
that, during the Restricted Period, she will not solicit for the account of any
Competitor, any customer or client of the Business, or, in the event of the
Executive's termination of employment, any entity or individual that was such a
customer or client preceding the Executive's termination of employment. The

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<PAGE>

For purposes of the preceding paragraph, (i) the term "proprietary
interest" means legal or equitable ownership, whether through stockholdings,
stock options, stock appreciation rights or any similar right of any equity
interest in a business, firm or entity except that the Executive shall be
allowed to own less than 3% of the stock of any publicly-traded company, (ii)
the term "Competitor" means any person or entity which is engaged in, or during
the Restricted Period becomes engaged in any of the following activities: (A)
the business of (x) managing the medical practices of physicians, or (y)
providing managed care for patients requiring treatment by physicians with
medical specialties of a type managed by the Company, or (B) any other business
engaged in by the Business; and (iii) the term "Restricted Area" means the
greater of the States of Pennsylvania, New Jersey and Delaware, or any other
area within fifty miles of any city in which the Business engages in any of the
activities listed in the definition of Competitor above or has plans to conduct
such activities (which plans are publicly announced, or are communicated to
Executive or are demonstrated by discussions, of which the Executive is aware,
with physicians about the management of their practices, or which otherwise
become known to Executive).

c. Remedies. The Company's obligation to make payments, deliver shares of
Stock subject to Options (except to the extent then exercisable) or provide for
any benefits under this Agreement shall cease upon a violation of the preceding
provisions of this Section 6. Executive acknowledges that the Company may be
severely and irreparably damaged in the event Executive violates the provisions
of paragraphs 6.a. or 6.b. above, and that the extent of the damage may be
difficult or impossible to determine. Therefore, the Executive agrees that, in
addition to the remedies provided above, the Company shall be entitled to
equitable relief, including a preliminary as well as a permanent injunction
(without the necessity of posting a bond). The Executive's Agreement as set
forth in this Section 6 shall (i) continue throughout the duration of the
Executive's employment with the Company; and (ii) survive the Executive's
termination of this Agreement and/or Executive's employment with the Company,
whether or not such termination is voluntary or is the result of termination of
Executive by the Company with or without Cause.

d. Modification of Terms. If any restriction in this Section 6 of the
Agreement is adjudicated to exceed the time, geographic, service or other
limitations permitted by applicable law in the applicable jurisdiction, then
Executive agrees that such may be modified and narrowed, either by a court or
the Company, to the maximum time, geographic, service or other limitations
permitted by applicable law, so as to preserve and protect the Company's
legitimate business interest, without negating or impairing any other
restrictions or undertaking set forth in this Agreement.

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<PAGE>

a. To the Company:
U.S. PHYSICIANS, Inc.

Attention: Thomas J. Keane, Chief Executive Officer
220 Commerce Drive
Fort Washington, PA 19034

b. To the Executive:

102 Stewarts Court
Phoenixville, PA 19460

or to such other address as either party shall have previously specified in
writing to the other.

10. Contents of Agreement; Amendment. This Agreement supersedes all prior
agreements between Executive and the Company or any of its subsidiaries and
affiliates including, but not limited to, an Employment Agreement dated
September 20, 1996 and sets forth the entire understanding between the parties
with respect to its subject matter and cannot be changed, modified, extended or
terminated except upon written amendment executed by the parties.

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<PAGE>

application and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction.

13. Governing Law. The validity, interpretation, performance, and
enforcement of this Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has signed this Agreement, all as
of the first date above written.

U.S. PHYSICIANS, INC.

By: /s/ Thomas J. Keane
-------------------------------
Thomas J. Keane, Chairman & CEO

EXECUTIVE

By: /s/ Linda F. Larson
-------------------------------
Linda F. Larson

-7-

AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT

AGREEMENT MADE as of September 10, 1997, by and between U.S. Medical
Services of Pennsylvania, P.C., a Pennsylvania professional corporation
(formerly named "Cancer Physicians, P.C.")(hereinafter called the "Company"),
and James F. Bonner, M.D., (hereinafter called "M.D."). M.D. together with any
other person or entity which hereafter may become a shareholder of the Company
bound by this Agreement, so long as they are shareholders of the Company, are
sometimes hereinafter collectively called the "Shareholders" or individually
called "Shareholder".

BACKGROUND

M.D. owns one (1) share of the Company's Common Stock, par value $ .10 per
share, currently comprising all of the outstanding shares of the Company's
capital stock (hereinafter, together with any other shares of the Company's
capital stock which hereafter may be owned by Shareholders, called the
"Shares").

M.D. and the Company desire to make certain provisions as hereinafter set
forth relating to the rights of the Shareholders to purchase, transfer, encumber
or otherwise acquire or dispose of the Shares which they may own or may
hereafter acquire and the rights of the Company to permit the transfer of or to
issue Shares.

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants, conditions and agreements herein contained, the parties hereto, each
intending to be legally bound hereby, agree as follows:

1. Restrictions on Shareholders. No Shareholder shall sell, assign,
transfer, give, bequeath, devise, donate or otherwise dispose of, or pledge,
deposit or otherwise encumber (each a "Transfer"), in any way or manner
whatsoever, whether voluntary or involuntary, any of the Shares now or hereafter
owned (of record or beneficially) by him except as expressly provided in this
Agreement and in accordance with its terms and conditions. Any purported
Transfer made in violation of this Agreement shall be null and void and of no
force or effect and the purported transferee shall not be entitled to any rights
as a holder of shares in respect of or in connection with the shares purportedly
the subject of the Transfer.

2. Shareholder's Limited Right to Dispose of Shares During His Lifetime. If
any Shareholder shall at any time during his lifetime desire to sell all or any
part of his Shares, such Shareholder (hereinafter sometimes call the "Selling
Shareholder") shall first obtain a written offer from a Qualified Person (as
hereinafter defined) which he desires to accept (hereinafter called the "Offer")
to purchase all, but not less than all, of his Shares for a fixed cash price.
The Offer shall set forth its date, the proposed price per share and the other
terms and conditions upon which the purchase is proposed to be made, as well as
the name and address of the proposed purchaser and evidence that the proposed
purchaser is a Qualified Person. The Selling Shareholder shall transmit copies
of the Offer to the Company within 7 days after his receipt of the Offer.
Transmittal of the Offer by the Selling Shareholder shall constitute an offer to
sell all, but not all less than all, of his Shares to the Company at the price
and upon the terms set forth in Paragraph 7. For a period of 45 days after the
submission of the Offer to the

<PAGE>

Company, the Company shall have the option, exercisable by written notice to the
Selling Shareholder with a copy to each of the other Shareholders, if any, to
accept (or designate one or more Qualified Persons to accept) the Selling
Shareholder's offer as to all or any part of the Selling Shareholder's Shares at
the price and upon the terms set forth in Paragraph 7. If the Company does not
accept (or designate a Qualified Person) to accept the Offer, the Selling
Shareholder shall be free to sell his Shares pursuant to the Offer for a period
of 60 days. If the sale does not occur within such time period, the Selling
Shareholder must again comply with the terms of this paragraph with respect to
any sale of his Shares. "Qualified Person" means a person who meets the
qualifications for holding shares of the Company's common stock set forth in the
Company's Articles of Incorporation.

3. Legal Proceedings Against Shareholders. The parties agree that the
interests of the Company and its Shareholders would be seriously affected by any
sale or disposition of any Shareholder's Shares by any legal or equitable
proceeding against such Shareholder. Accordingly, it is hereby covenanted and
agreed that in the event of a Proceeding (as hereinafter defined) with respect
to any Shareholder, the Company shall have the option to purchase or designate
one or more Qualified Persons to purchase all, but not less than all, of such
Shareholder's Shares in the same manner as if the Company had received an offer
from the Selling Shareholder pursuant to Paragraph 2 on the date that the
Company receives notice of a Proceeding. The price and terms of purchase
pursuant to the exercise of the option contained in this Paragraph 3 shall be
those set forth in Paragraph 7. A "Proceeding" means that (a) any judgment is
obtained in any legal or equitable proceeding against a Shareholder and the sale
of any of such Shareholder's Shares is contemplated or threatened under legal
process as a result of such judgment, or (b) any execution process is issued
against a Shareholder or the Shares of a Shareholder, or (c) any of the Shares
of a Shareholder are attached, or (d) there is instituted by or against a
Shareholder any other form of legal proceeding or process by which the sale or
transfer of any Shares of such Shareholder becomes imminent (i.e. such Shares
may be sold or transferred either voluntarily or involuntarily within 60 days),
or (e) a Shareholder makes an assignment for the benefit of creditors, or (f) a
Shareholder admits such Shareholder's inability to pay such Shareholder's debts
as they mature, or commences a voluntary case or proceeding under any Bankruptcy
Law (as hereinafter defined), or consents to the entry of an order for relief
against such Shareholder in an involuntary case or proceeding under any
Bankruptcy Law, or consents to the appointment of a Custodian (as hereinafter
defined) for such Shareholder or for all or substantially all of such
Shareholder's property, or (g) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law (i) for relief against a Shareholder in an
involuntary case or proceeding, (ii) appointing a Custodian for such Shareholder
or for all or substantially all of such Shareholder's property, or (iii)
ordering the liquidation of the Shareholder and the order or decree remains
unstayed and in effect for 60 days. The term "Bankruptcy Law" means Title 11
U.S. Code or any similar federal or state law for the relief of debtors. The
term "Custodian" means any receiver, trustee, liquidator or similar official
under any Bankruptcy Law.

4. Death or Disability of a Shareholder. Upon the death or disability (as
hereinafter defined) of a Shareholder, the Company (or one or more Qualified
Persons designated by the Company) shall purchase from the disabled Shareholder
or the personal representatives of the deceased Shareholder (as the case may
be), and the disabled Shareholder or the personal representatives of the
deceased Shareholder (as the case may be) shall sell to the

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<PAGE>

Company or such designated Qualified Person(s), all of the deceased or disabled
Shareholder's Shares at the price and upon the terms set forth in Paragraph 7,
and the Company and the surviving Shareholders, if any, shall adopt such
resolutions and take such action as may be required by law or appropriate to
authorize such purchase at such time. The Company shall notify the disabled
Shareholder or the personal representatives of the deceased Shareholder (as the
case may be) within 45 days following the date of death or disability of the
number of Shares that the Company and/or such Qualified Person(s) will purchase
from disabled Shareholder or the personal representatives of the deceased
Shareholder. For purposes of this Agreement, the term "disability" shall mean
the inability of the Shareholder to perform the duties required by the position
pursuant to which the Shareholder qualifies as a Shareholder in accordance with
to the Articles of Incorporation of the Company, due to partial or total
disability or incapacity resulting from a mental or physical illness, injury, or
any other cause for a period of 12 consecutive weeks, or a cumulative period of
14 weeks during any twelve-month period.

5. Disqualification of a Shareholder. Upon the Disqualification (as
hereinafter defined) of a Shareholder, the Company (or one or more Qualified
Persons designated by the Company) shall purchase from such Shareholder
(hereinafter called a "Disqualified Shareholder"), and such Disqualified
Shareholder shall sell to the Company or such Qualified Person(s), all of such
Disqualified Shareholder's Shares at the price and upon the terms set forth in
Paragraph 7, and the Company and the remaining Shareholders, if any, shall adopt
such resolutions and take such action as may be required by law or appropriate
to authorize such purchase at such time. The Company shall notify the
Disqualified Shareholder within 45 days following the Company's actual knowledge
of the Disqualification of the number of Shares that the Company and/or such
Qualified Person(s) will purchase from the Disqualified Shareholder. For
purposes of this Agreement, "Disqualification" shall be deemed to have occurred
at such time as such Shareholder no longer meets the qualifications for holding
Shares pursuant to the Articles of Incorporation of the Company, without regard
to the reasons for, or circumstances surrounding, such Disqualification.

6. Removal at Discretion of Company. At any time and from time to time, in
the sole discretion of the Company, as evidenced by the delivery of written
notice to a Shareholder by the Company, the Company (or one or more Qualified
Persons designated by the Company) shall purchase from such Shareholder, and
such Shareholder shall sell to the Company or such Qualified Person(s), all of
such Shareholder's Shares at the price, and upon the terms, set forth in
Paragraph 7, and the Company and the remaining Shareholders, if any, shall adopt
such resolutions and take such action as may be required by law or appropriate
to authorize such purchase at such time.

7. Purchase Price and Terms; Settlement.

(a) Settlement for the purchase of Shares by the Company or by a Qualified
Person pursuant to Paragraphs 2, 3, 4, 5 or 6 shall be made within thirty (30)
days following the date of the offer made pursuant to Paragraph 2, or the
occurrence of a Proceeding, death, disability or disqualification of the
Shareholder, or the delivery by the Company of written notice pursuant to
Paragraph 6. The purchase price per Share and the terms of payment shall be (i)
in the case of a purchase pursuant to Paragraph 2, the lesser of the price set
forth on the Offer or Book Value per Share (as hereinafter defined), payable in
twenty (20) successive

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<PAGE>

equal quarterly installments of principal commencing on the settlement date,
together with quarterly payments of interest on the unpaid principal balance at
the Interest Rate, or (ii) in the case of a purchase pursuant to Paragraphs 3,
4, 5 or 6, $500 payable on the settlement date.

(b) All settlements for the purchase and sale of Shares shall, unless
otherwise agreed to by all of the purchasers and sellers, be held at the
principal executive offices of the Company during regular business hours. The
precise date and hour of settlement shall be fixed by the purchaser or
purchasers (within the time limits allowed by the provisions of this agreement)
by notice in writing to the seller given at least 5 days in advance of the
settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the President of the Company by five or
more days' written notice to the purchasers and seller.

(c) At settlement, the stock certificate or certificates representing the
Shares being sold shall be delivered by the seller to the purchaser or
purchasers, duly endorsed for transfer or with executed stock powers attached,
with any necessary documentary and transfer tax stamps affixed by the seller.
The seller, if a personal representative of a Shareholder, shall, upon request
of a purchaser, provide prior to the date of settlement evidence reasonably
satisfactory to the purchaser of the seller's legal status as personal
representative of such Shareholder.

(d) Interest payments shall be made on principal payment dates, and shall
be calculated on the declining principal balance based upon a year of 365 days.

(e) Any purchaser may, from time to time, prepay all or a portion of the
unpaid principal balance owing to a seller, without penalty or premium.
Prepayments shall be applied to principal installments in inverse order in which
they are due. Upon any prepayment, the purchaser shall pay accrued interest on
the principal so prepaid to the date of such prepayment.

(f) For purposes of this Agreement, "Interest Rate" with respect to each
interest payment shall mean the minimum rate for payments of interest that is
required pursuant to the Internal Revenue Code of 1986, as amended (the "Code")
(or any successor statute) or regulations thereunder, and/or any provision of an
Act of Congress which does not become part of the Code, in order that (A) there
be adequate stated interest for purposes of Section 1274 of the Code and/or (B)
no part of the principal payments provided hereunder be treated as interest by
virtue of the application of any section of the Code (or any successor statute)
or regulations thereunder, and/or the application of any applicable Act of
Congress which does not become part of the Code; provided, however, that if such
rate exceeds the highest legal rate permitted by applicable law (the "Maximum
Legal Rate") then the Interest Rate shall be reduced to the Maximum Legal Rate.

8. Book Value Defined. The Book Value per Share shall be equal to the book
net worth of the Company (on a consolidated basis with subsidiaries, if any),
less the amount of the liquidation preference of any outstanding preferred stock
of the Company, on the date in question divided by the sum of (i) the number of
shares of Common Stock of the Company

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<PAGE>

outstanding on such date and (ii) the number of shares of Common Stock of the
Company issuable upon exercise of outstanding options, warrants or other
securities convertible into shares of Common Stock of the Company. The Book
Value per Share shall be determined as of the close of the Company's fiscal year
preceding an offer described in Paragraph 2, unless such event occurs more than
one hundred days following the close of such fiscal year, in which case the Book
Value per Share shall be determined as of the end of the fiscal quarter
preceding the date such offer was made. The determination of book net worth
shall be based solely on the Company's regularly prepared financial statements,
which, in the Company's discretion, may be internally generated or prepared by a
management company performing services for the Company.

Notwithstanding the foregoing, in the event that the book net worth of the
Company is decreased by reason of the payment of dividends (other than stock
dividends payable in Shares), redemption payments or other payments made on or
with respect to the Shares or is increased by capital contributions of the
Shareholder whose Shares are to be purchased, subsequent to the date as of which
the Book Value is determined but prior to a settlement pursuant to Paragraph 7,
the Book Value per Share of the Shares as determined pursuant to Paragraph 8
shall be decreased to appropriately reflect such decrease in book net worth, and
the aggregate Book Value per Share of such Shareholder's Shares shall be
increased by the amount of such Shareholder's capital contribution, as though
such decrease or increase occurred on the date as of which the Book Value per
Share is determined pursuant to the provisions hereof.

In the event that the outstanding Shares shall be subdivided into a greater
or combined into a lesser number of Shares, whether by stock dividend, stock
split or combination of Shares, subsequent to the date as of which the Book
Value is determined but prior to a settlement pursuant to Paragraph 7, the Book
Value per Share as determined pursuant to the foregoing provisions of this
Paragraph 8 shall, for purposes of Paragraph 7, be proportionately decreased or
increased, as the case may be, and the number of Shares to be sold shall be
adjusted, so as to appropriately reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or combination.
No such adjustment shall be made, however, by reason of the issuance of Shares
for cash, property or services, by way of stock options, stock warrants,
subscription rights or otherwise.

Any calculation of Book Value per Share, and any adjustments thereto, for
purposes of this Paragraph 8 shall be made by the Company's regularly engaged
independent public accountants based on the financial statements referred to in
the first paragraph of this Paragraph 8. The determination of Book Value per
Share shall be final, binding and conclusive upon all parties, shall be filed
with the Company, and copies thereof shall be given to all sellers and
purchasers as promptly as practicable but in no event later than ten days prior
to the date of settlement referred to in Paragraph 8.

9. Resignation. If a Shareholder is an officer or director of the Company
at the time: (a) the Company exercises its options to purchase any Shares of
such Shareholder pursuant to Paragraph 2, 3 or 6; (b) such Shareholder becomes
disabled; or (c) such Shareholder becomes a Disqualified Shareholder, then such
Shareholder shall immediately resign as an officer or director of the Company.
Such resignation shall be effective at the time the Company exercises the
option, the Shareholder becomes disabled or the Shareholder becomes a

-5-
<PAGE>

Disqualified Shareholder (as applicable) without the need for such Shareholder
tendering a letter of resignation.

10. Copy of Agreement to Be Kept on File. The Company shall keep on file at
its principal executive offices, and will exhibit to any Shareholder or his duly
authorized representative at any and all reasonable times, an executed copy of
this Agreement and all amendments thereto.

11. Stock Certificates to Be Marked with Legend. All certificates
representing Shares now outstanding or hereafter issued by the Company shall be
marked with the following legend:

"This certificate and the shares represented hereby are held
subject to the terms, covenants and conditions of an agreement
dated November 29, 1995 by and among this company and its then
shareholders, as it may be amended from time to time, and neither
this certificate, the shares represented hereby, nor any interest
in this certificate or in such shares may be transferred or
disposed of voluntarily, by operation of law or otherwise, except
in accordance with the terms and provisions thereof. A copy of
said agreement and all amendments thereto is on file and may be
inspected at the principal executive offices of the Company."

The Company shall issue replacement stock certificates without the
foregoing legend to any Shareholder upon request following termination of this
Agreement.

12. Term of Agreement. This Agreement shall terminate on such date as the
Company and its then shareholders agree.

13. Issuance of Shares. Each Shareholder acknowledges that (a) the Board of
Directors may authorize the issuance of capital stock of the Company for any
reason in its sole discretion, including, but not limited to, increasing the
number of shareholders of the Company; (b) such shares of capital stock may be
issued even though the Company does not need additional capital; and, (c) such
issuance(s) may be detrimental to the Shareholders. Each Shareholder hereby
acknowledges that the Company may issue shares of its capital stock to any
Qualified Person designated by the Board of Directors of the Company at a price
and upon terms approved by the Company's Board of Directors, which may be more
advantageous to such Qualified Person than the price and terms set forth in
Paragraph 7.

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<PAGE>

impossible to ascertain, the parties hereto agree that in the event of any
breach or threatened breach of any such covenant or agreement, in addition to
any and all other legal and equitable remedies which may be available, any party
hereto may specifically enforce the terms of this Agreement and may obtain
temporary and/or permanent injunctive relief without the necessity of proving
actual damage by reason of any breach or threatened breach hereof and, to the
extent permissible under the applicable statutes and rules of procedure, a
temporary injunction may be granted immediately upon the commencement of any
such suit and without notice.

15. Subsequent Shareholders to Become Bound. Any person not an original
signatory hereto who becomes a Shareholder shall be bound by all of the terms
and provisions of this Agreement. Before any person not a party to this
Agreement, including any person to whom transfers of Shares may be made
hereunder, may be entitled to be a shareholder of the Company, such person shall
be required first to execute and deliver to the Company an agreement pursuant to
which such person agrees to be bound by all of the terms and conditions of this
Agreement (as it may have then been amended) thereby becoming a Shareholder, and
the failure of any such person so to do shall preclude such person or entity
from becoming a shareholder of the Company.

16. Entire Agreement: Amendment, Modification and Termination. This
Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements (including without limitation the Shareholders'
Agreement dated November 29, 1995, between the Company and the Shareholder) and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may be amended, modified or terminated at any time
or times by the unanimous agreement in writing of the Company and its then
Shareholders.

17. Miscellaneous.

(a) Indulgences, Etc. Neither the failure nor any delay on the part of any
party to exercise any right, remedy, power or privilege under this Agreement
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege preclude any other or further exercise of
the same or of any other right, remedy, power or privilege, nor shall any waiver
of any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver shall be effective unless it is in writing and
is signed by the party asserted to have granted such waiver.

(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.

-7-
<PAGE>

(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by recognized national or regional courier service, or by other
messenger, for delivery to the intended addressee) against receipt or when
deposited in the United States mails, registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below:

(i) If to the Company:

U.S. Medical Services of Pennsylvania, P.C.
220 Commerce Drive
Fort Washington, D.C. 19034

Attention: President

with a copy given in the manner prescribed above, to:

Sandra A. Bloch, Esquire
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103

(ii) If to M.D.

James F.Bonner, M.D.
1375 Cold Springs Road
Newtown Square, PA 19073

(iii) if to any other Shareholder, to the most current residence
address of such shareholder reflected in the books and records of the
Company.

In addition, notice by mail shall be by air mail if posted outside of the
continental United States.

Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.

(d) Binding Nature of Agreement: No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, personal representatives, successors and assigns, except that no party
may assign or transfer its rights or obligations under this Agreement (except as
otherwise provided in this Agreement), without the prior written consent of the
other parties hereto.

(e) Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any

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<PAGE>

party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected hereon as the signatories.

(f) Provisions Separable. The provisions of this Agreement are independent
of and separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.

(g) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.

(h) Gender Etc. Words used herein, regardless of the number and gender
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gender, masculine, feminine or neuter, as the
context indicates is appropriate.

(i) Number of Days. In computing the number of days for purposes of this
Agreement, all days shall be counted, including Saturdays, Sundays and holidays;
provided, however, that if the final day of any time period falls on a Saturday,
Sunday or holiday on which Federal banks are or may elect to be closed, then the
final day shall be deemed to be the next day which is not a Saturday, Sunday or
such holiday.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.

Attest: U.S. MEDICAL SERVICES OF
PENNSYLVANIA, P.C.

By: /s/ Thomas J. Keane
- ----------------------------- -------------------------------
Secretary Thomas J. Keane, President

(Corporate Seal)

Witness:

By: /s/ James F. Bonner
- ----------------------------- -------------------------------
James F. Bonner, M.D.

-9-

AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT

AGREEMENT MADE as of September 10, 1997, by and between U.S. Medical
Services of New Jersey, P.C., a New Jersey professional service corporation
(hereinafter called the "Company"), and James F. Bonner, M.D., (hereinafter
called "M.D."). M.D. together with any other person or entity which hereafter
may become a shareholder of the Company bound by this Agreement, so long as they
are shareholders of the Company, are sometimes hereinafter collectively called
the "Shareholders" or individually called "Shareholder".

BACKGROUND

2. Shareholder's Limited Right to Dispose of Shares During His or Her
Lifetime. If any Shareholder shall at any time during his or her lifetime desire
to sell all or any part of his or her Shares, such Shareholder (hereinafter
sometimes call the "Selling Shareholder") shall first obtain a written offer
from a Qualified Person (as hereinafter defined) which such Shareholder desires
to accept (hereinafter called the "Offer") to purchase all, but not less than
all, of his or her Shares for a fixed cash price. The Offer shall set forth its
date, the proposed price per share and the other terms and conditions upon which
the purchase is proposed to be made, as well as the name and address of the
proposed purchaser and evidence that the proposed purchaser is a Qualified
Person. The Selling Shareholder shall transmit copies of the Offer to the
Company within 7 days after the Selling Shareholder's receipt of the Offer.
Transmittal of the Offer by the Selling Shareholder shall constitute an offer to
sell all, but not all less than all, of his or her Shares to the Company at the
price and upon the terms set forth in Paragraph 7. For a period of 45 days after
the submission of the Offer to the Company, the Company shall have the option,
exercisable by written notice to the Selling Shareholder with a

<PAGE>

copy to each of the other Shareholders, if any, to accept (or designate one or
more Qualified Persons to accept) the Selling Shareholder's offer as to all or
any part of the Selling Shareholder's Shares at the price and upon the terms set
forth in Paragraph 7. If the Company does not accept (or designate a Qualified
Person) to accept the Offer, the Selling Shareholder shall be free to sell such
Shares pursuant to the Offer for a period of 60 days. If the sale does not occur
within such time period, the Selling Shareholder must again comply with the
terms of this paragraph with respect to any sale of Shares. "Qualified Person"
means a person who meets the qualifications for holding shares of the Company's
common stock set forth in the Company's Articles of Incorporation.

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<PAGE>

Shares at the price and upon the terms set forth in Paragraph 7, and the Company
and the surviving Shareholders, if any, shall adopt such resolutions and take
such action as may be required by law or appropriate to authorize such purchase
at such time. The Company shall notify the disabled Shareholder or the personal
representatives of the deceased Shareholder (as the case may be) within 45 days
following the date of death or disability of the number of Shares that the
Company and/or such Qualified Person(s) will purchase from disabled Shareholder
or the personal representatives of the deceased Shareholder. For purposes of
this Agreement, the term "disability" shall mean the inability of the
Shareholder to perform the duties required by the position pursuant to which the
Shareholder qualifies as a Shareholder in accordance with to the Articles of
Incorporation of the Company, due to partial or total disability or incapacity
resulting from a mental or physical illness, injury, or any other cause for a
period of 12 consecutive weeks, or a cumulative period of 14 weeks during any
twelve-month period.

7. Purchase Price and Terms; Settlement.

(a) Settlement for the purchase of Shares by the Company or by a Qualified
Person pursuant to Paragraphs 2, 3, 4, 5 and 6 shall be made within thirty (30)
days following the date of the offer made pursuant to Paragraph 2, or the
occurrence of a Proceeding, death, disability or disqualification of the
Shareholder, or the delivery by the Company of written notice pursuant to
Paragraph 6. The purchase price per Share and the terms of payment shall be (i)
in the case of a purchase pursuant to Paragraph 2, the lesser of the price set
forth on the Offer or Book Value per Share (as hereinafter defined), payable in
twenty (20) successive equal quarterly installments of principal commencing on
the settlement date, together with

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<PAGE>

quarterly payments of interest on the unpaid principal balance at the Interest
Rate, or (ii) in the case of a purchase pursuant to Paragraph 3, 4, 5 or 6, $500
payable on the settlement date.

(b) All settlements for the purchase and sale of Shares shall, unless
otherwise agreed to by all of the purchasers and sellers, be held at the
principal executive offices of the Company during regular business hours. The
precise date and hour of settlement shall be fixed by the purchaser or
purchasers (within the time limits allowed by the provisions of this agreement)
by notice in writing to the seller given at least 5 days in advance of the
settlement date specified. In the event that more than one purchaser is involved
in a settlement and the purchasers cannot agree on a precise time of settlement,
the precise time of settlement (within the time limits allowed by the provisions
of this Agreement) shall be fixed by the Chairman of the Company (or if there is
no Chairman, by any Vice Chairman or Vice President of the Company) by five or
more days' written notice to the purchasers and seller.

(d) Interest payments shall be made on principal payment dates, and shall
be calculated on the declining principal balance based upon a year of 365 days.

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<PAGE>

issuable upon exercise of outstanding options, warrants or other securities
convertible into shares of Common Stock of the Company. The Book Value per Share
shall be determined as of the close of the Company's fiscal year preceding an
offer described in Paragraph 2, unless such event occurs more than one hundred
days following the close of such fiscal year, in which case the Book Value per
Share shall be determined as of the end of the fiscal quarter preceding the date
such offer was made. The determination of book net worth shall be based solely
on the Company's regularly prepared financial statements, which, in the
Company's discretion, may be internally generated or prepared by a management
company performing services for the Company.

Notwithstanding the foregoing, in the event that the book net worth of the
Company is decreased by reason of the payment of dividends (other than stock
dividends payable in Common Stock), redemption payments or other payments made
on or with respect to the Common Stock or is increased by capital contributions
of the Shareholder whose Shares are to be purchased, subsequent to the date as
of which the Book Value is determined but prior to a settlement pursuant to
Paragraph 7, the Book Value per Share of the Shares as determined pursuant to
Paragraph 8 shall, be decreased to appropriately reflect such decrease in book
net worth, and the aggregate Book Value per Share of such Shareholder's Shares
shall be increased by the amount of such Shareholder's capital contribution, as
though such decrease or increase occurred on the date as of which the Book Value
per Share is determined pursuant to the provisions hereof.

In the event that the outstanding Common Stock shall be subdivided into a
greater or combined into a lesser number of shares, whether by stock dividend,
stock split or combination of shares, subsequent to the date as of which the
Book Value is determined but prior to a settlement pursuant to Paragraph 7, the
Book Value per Share as determined pursuant to the foregoing provisions of this
Paragraph 8 shall, for purposes of Paragraph 7, be proportionately decreased or
increased, as the case may be, and the number of Shares to be sold shall be
adjusted, so as to appropriately reflect such subdivision or combination,
effective immediately upon the effectiveness of such subdivision or combination.
No such adjustment shall be made, however, by reason of the issuance of Common
Stock for cash, property or services, by way of stock options, stock warrants,
subscription rights or otherwise.

9. Resignation. If a Shareholder is an officer or director of the Company
at the time: (a) the Company exercises its options to purchase any Shares of
such Shareholder pursuant to Paragraph 2, 3 or 6; (b) such Shareholder becomes
disabled; or (c) such Shareholder becomes a Disqualified Shareholder, then such
Shareholder shall immediately resign as an officer and/or director of the
Company. Such resignation shall be effective at the time the Company exercises
the option, the Shareholder becomes disabled or the Shareholder becomes a
Disqualified Shareholder (as applicable) without the need for such Shareholder
tendering a letter of resignation.

-5-
<PAGE>

10. Copy of Agreement to Be Kept on File. The Company shall keep on file at
its principal executive offices, and will exhibit to any Shareholder or his or
her duly authorized representative at any and all reasonable times, an executed
copy of this Agreement and all amendments thereto.

11. Stock Certificates to Be Marked with Legend. All certificates
representing Shares now outstanding or hereafter issued by the Company shall be
marked with the following legend:

"This certificate and the shares represented hereby are held subject
to the terms, covenants and conditions of an agreement dated December
10, 1996 by and among this company and its then shareholders, as it
may be amended from time to time, and neither this certificate, the
shares represented hereby, nor any interest in this certificate or in
such shares may be transferred or disposed of voluntarily, by
operation of law or otherwise, except in accordance with the terms and
provisions thereof. A copy of said agreement and all amendments
thereto is on file and may be inspected at the principal executive
offices of the Company."

The Company shall issue replacement stock certificates without the
foregoing legend to any Shareholder upon request following termination of this
Agreement.

12. Term of Agreement. This Agreement shall terminate on such date as the
Company and its then shareholders agree.

14. Rights, Obligations and Remedies. The rights and obligations under, and
the remedies to enforce, this Agreement are joint and several as to the Company
and each of its Shareholders with each being completely free to enforce any or
all of the rights or obligations under this Agreement against any of the others
with or without the concurrence or joinder of any of the others. The Shares are
unique, and recognizing that the remedy at law for any breach or threatened
breach by a party hereto of the covenants and agreements set forth in this
Agreement would be inadequate and that any such breach or threatened breach
would cause such immediate and permanent damage as would be irreparable and the
exact amount of which would be impossible to ascertain, the parties hereto agree
that in the event of any breach or threatened breach of any such covenant or
agreement, in addition to any and all other legal and equitable remedies which
may be available, any party hereto may specifically enforce the terms of this
Agreement and may obtain temporary and/or permanent injunctive relief without
the necessity

-6-
<PAGE>

of proving actual damage by reason of any breach or threatened breach hereof
and, to the extent permissible under the applicable statutes and rules of
procedure, a temporary injunction may be granted immediately upon the
commencement of any such suit and without notice.

16. Entire Agreement: Amendment, Modification and Termination. This
Agreement contains the entire understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements (including without limitation the Shareholders'
Agreement dated December 10, 1996, between the Company and the Shareholder) and
understandings, inducements or conditions, express or implied, oral or written,
except as herein contained. The express terms hereof control and supersede any
course of performance and/or usage of the trade inconsistent with any of the
terms hereof. This Agreement may be amended, modified or terminated at any time
or times by the unanimous agreement in writing of the Company and its then
Shareholders.

17. Miscellaneous.

(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the State of New Jersey,
notwithstanding any conflict-of-laws doctrines of such state or any other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.

(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by recognized national or regional courier service, or by other
messenger, for delivery to the intended addressee) against receipt or when
deposited in the United States mails, registered or certified mail, postage
prepaid, return receipt requested, addressed as set forth below:

-7-
<PAGE>

(i) If to the Company:

U.S. Medical Services of New Jersey, P.C.
220 Commerce Drive
Fort Washington, D.C. 19034

Attention: Chairman

with a copy given in the manner prescribed above, to:

Sandra A. Bloch, Esquire
Cozen and O'Connor
The Atrium
1900 Market Street
Philadelphia, PA 19103

(ii) If to M.D.

James F. Bonner, M.D.
1375 Cold Springs Road
Newtown Square, PA 19073

(iii) if to any other Shareholder, to the most current residence
address of such shareholder reflected in the books and records of the
Company.

In addition, notice by mail shall be by air mail if posted outside of the
continental United States.

(f) Provisions Separable. The provisions of this Agreement are independent
of and separable from each other, and no provision shall be affected or rendered

-8-
<PAGE>

invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part.

(g) Paragraph Headings. The paragraph headings in this Agreement are for
convenience only; they form no part of this Agreement and shall not affect its
interpretation.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
on the date first above written.

Attest: U.S. MEDICAL SERVICES OF NEW JERSEY, P.C.

By: /s/ Thomas J. Keane
- ------------------------------ -------------------------------------
Secretary Thomas J. Keane, Chairman

(Corporate Seal)

Witness:

By: /s/ James F. Bonner, M.D.
- ------------------------------ -------------------------------------
James F. Bonner, M.D.

-9-

U.S. MEDICAL SERVICES OF DELAWARE, P.A.
220 Commerce Drive
Ft. Washington, PA 19034

November 3, 1997

John E. Hocutt, Jr., M.D.
20 Carillon Court
Wilmington, DE 19803

Mr. Thomas J. Keane, President
U.S. PHYSICIANS, Inc.
220 Commerce Drive
Fort Washington, PA 19034

Dear Dr. Hocutt and Mr. Keane:

The purpose of this letter is to set forth the terms and conditions under
which Dr. Hocutt, a shareholder (the "Shareholder") of U.S. Medical Services of
Delaware, P.A., a Delaware professional corporation that has filed for authority
to do business and conduct a medical practice in the State of Delaware (the
"P.C."), agrees to restrict the Shareholder's ability to sell, pledge or
otherwise encumber or transfer any of the issued and outstanding shares of the
P.C. (the "Common Stock") during the term of the Management and Services
Agreement between the P.C. and U.S. PHYSICIANS, Inc. ("Manager") of even date
herewith. As you are aware, the P.C. has determined it is in the best interest
of the P.C. for reasons of quality, efficiency and economy to engage Manager to
assume the management of certain administrative and business operations of the
P.C. As consideration for Manager's commitment to expend its valuable resources
and devote its personnel to the P.C., the parties agree it is in the best
interests of the P.C. and Shareholder to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Common Stock or other shares
of the P.C. during the term in which Manager manages the administrative aspects
of the P.C. The terms and conditions of this letter are as follows:

1. (a) Except as otherwise provided herein, the Shareholder shall not,
directly or indirectly, sell, assign, hypothecate, transfer, convey, bequeath,
mortgage, pledge, create a security interest in or lien upon, encumber, give,
place in trust or otherwise dispose of, whether by operation of law or
otherwise, such Shareholder's Common Stock or any interest therein, make any
provision therefor in any instrument or writing, or cause or permit a change in
the legal or beneficial ownership of such Common Stock (each of the foregoing
actions individually and collectively hereinafter referred to as a "Transfer"),
except where a Transfer is expressly required or permitted by this letter.

(b) Any purported Transfer of the Common Stock by the Shareholder in
violation of any of the provisions of this letter shall be null and void and of
no force or effect, and shall not bind or be recognized by the P.C. The P.C.
shall not, at any time,

<PAGE>

permit any Transfer of the Common Stock on its books or records unless such
Transfer is made pursuant to and in accordance with the terms and conditions of
this letter. The Shareholder hereby authorizes the Secretary of the P.C. and
each other officer charged with maintaining the stock transfer records of the
P.C. to refuse to issue a certificate for Common Stock purportedly transferred
or new shares issued in violation of this letter. Additionally, in the event of
any purported Transfer of the Common Stock or issuance of new shares of the P.C.
that does not comply with the provisions of this letter, the purported
transferee shall not be deemed to be a shareholder of the P.C., shall not be
able to exercise any rights of a shareholder of the P.C. and shall not be
entitled to receive a new stock certificate or any dividends or other
distributions, capital or otherwise, on or with respect to such Common Stock or
new shares, as the case may be.

(b) If Shareholder shall at any time during Shareholder's lifetime desire
to sell all or any of Shareholder's Common Stock, Shareholder shall first obtain
a bona fide written offer from a Qualified Person (as hereafter defined), which
Shareholder desires to accept (the "Offer"), to purchase all, but not less than
all, of Shareholder's Common Stock for a fixed cash price. The Offer shall set
forth its date, the proposed price per share, and the other terms and conditions
upon which the purchase is proposed to be made, as well as the name and address
of the prospective purchaser and evidence that the proposed purchaser is a
Qualified Person. "Qualified Person" means a person who meets the qualifications
for holding shares of the P.C.'s Common Stock set forth in the P.C.'s articles
of incorporation. Shareholder shall transmit copies of the Offer to P.C. within
seven days after receipt of the Offer. Transmittal of the Offer by the
Shareholder shall constitute an offer to sell all, but not less than all, of
Shareholder's Common Stock to P.C. at the price and on the terms set forth below
in subparagraph 1(e). For a period of 45 days after receipt of the Offer from
Shareholder, P.C. shall have the option, exercisable by written notice to the
Shareholder and to the other shareholders, if any, to accept (or designate one
or more Qualified Persons to accept) the Shareholder's offer as of all or any
part of the Shareholder's Common Stock, at the price and upon the terms
specified below in subparagraph 1(e). If P.C. does not accept (or designate one
or more Qualified Persons to accept) Shareholder's offer as of all or any part
of Shareholder's Common Stock, Shareholder shall be free to sell Shareholder's
Common Stock pursuant to the Offer for a period of 60 days. If such Common Stock
is not so sold within the aforesaid 60-day period, Shareholder shall not be
permitted to sell such Common Stock without again complying with this paragraph
relating to any sale of Shareholder's Common Stock.

(c) Settlement for the purchase of Common Stock by P.C. or by a Qualified
Person pursuant to the foregoing paragraph shall be made within 30 days
following the date of exercise of P.C.'s option.

(d) The purchase price per share and the terms of payment shall be the
lesser of the price set forth in the Offer or the Book Value per Share (as
defined below), payable in 20 successive quarterly installments of principal
commencing on the settlement date, together with quarterly interest on the
unpaid balance at the Interest

2
<PAGE>

Rate.

(e) All settlements for the purchase and sale of Common Stock shall, unless
otherwise agreed to by all of the purchasers and seller, be held at the
principal executive offices of P.C. during regular business hours. The precise
date and hour of settlement shall be fixed by the purchasers (within the time
limits allowed by the provisions of this Agreement) by notice in writing to the
seller at least five days in advance of the settlement date specified. If more
than one purchaser is involved in a settlement and the purchasers cannot agree
on a precise time of settlement, the precise time of settlement (within the time
limits allowed by the provisions of this Agreement) shall be fixed by the
President of P.C. by five or more days' written notice to the purchasers and
seller.

(f) At settlement, the stock certificate or certificates representing the
Common Stock being sold shall be delivered by Shareholder to the purchaser or
purchasers, duly endorsed for transfer or with executed stock powers attached,
in the case of stock certificates, with any necessary documentary and transfer
tax stamps affixed by seller.

(g) Interest payments shall be made on principal payment dates, and shall
be calculated on the declining principal balance based on a year of 365 days.

(h) Any purchaser may, from time to time, prepay all or a portion of the
unpaid principal balance owing to a seller, without penalty or premium.
Prepayments shall be applied to principal installments in inverse order in which
they are due. Upon any prepayment, the purchaser shall pay accrued interest on
the principal so prepaid to the date of such prepayment.

(i) "Interest Rate" with respect to each interest payment shall mean the
then applicable federal mid-term rate, as promulgated by the Internal Revenue
Service pursuant to Section 1274 of the Internal Revenue Code of 1986, as
amended.

(j) The Book Value per Share shall be equal to the book net worth of P.C.
(on a consolidated basis with subsidiaries, if any), less the amount of the
liquidation preference of any outstanding preferred stock of the Company, on the
date in question divided by the sum of (i) the number of shares of Common Stock
of P.C. outstanding on such date and (ii) the number of shares of Common Stock
of P.C. issuable upon exercise of outstanding options, warrants or other
securities convertible into shares of Common Stock of P.C. The Book Value per
Share shall be determined as of P.C.'s fiscal year preceding the receipt of an
Offer, unless such event occurs more than 100 days following the close of such
fiscal year, in which case the Book Value per Share shall be determined as of
the end of the fiscal quarter preceding the date such Offer was made. The
determination of book net worth shall be based solely on P.C.'s regularly
prepared financial statements, which, in P.C.'s discretion, may be internally
generated or prepared by a management company performing services for P.C.

3
<PAGE>

Notwithstanding the foregoing, if the book net worth of P.C. is decreased
by reason of the payment of dividends (other than stock dividends payable in
Shares), redemption payments or other payments made on or with respect to the
Shares or is increased by capital contributions of the Shareholder whose Shares
are to be purchased, subsequent to the date as of which the Book Value is
determined but prior to settlement for the purchase and sale of the Common Stock
hereunder, the Book Value per Share of the Common Stock shall be decreased to
reflect such decrease in book net worth appropriately, and the aggregate Book
Value per Share of the Shareholder's Common Stock shall be increased by the
amount of such Shareholder's capital contribution, as though such decrease or
increase occurred on the date as of which the Book Value per Share is determined
pursuant to the provisions hereof.

If the outstanding shares of Common Stock of P.C. shall be subdivided into
a greater or combined into a lesser number of shares of Common Stock, whether by
stock dividend, stock split or combination of shares of Common Stock, subsequent
to the date as of which the Book Value is determined but prior to a settlement
for the purchase and sale of the Common Stock hereunder, the Book Value per
Share as determined pursuant to the foregoing provisions shall be
proportionately decreased or increased, as the case may be, and the number of
Shares to be sold shall be adjusted, so as to reflect such subdivision or
combination appropriately. No such adjustment shall be made, however, by reason
of the issuance of shares of Common Stock for cash, property or services, by way
of stock options, stock warrants, subscription rights or otherwise. Any
calculation of Book Value per Share, and any adjustments thereto, for purposes
of hereof shall be made by P.C.'s regularly engaged independent public
accountants based on the financial statements referred to above. The
determination of Book Value per Share shall be final, binding and conclusive
upon all parties, shall be filed with P.C., and copies thereof shall be given to
all sellers and purchasers as promptly as practicable but in no event later than
ten days prior to the date of settlement referred to above.

2. (a) By execution of this letter, the Shareholder hereby agrees that all
of the Common Stock held by the Shareholder shall be deemed to be transferred to
the "Designated Transferee" (as defined in subparagraph 2(c) hereof) without
further action by the Shareholder upon the occurrence of any of the following
events (each a "Transfer Event"), for which the Shareholder shall promptly give
the P.C. and Manager written notice; provided, however, that the required notice
shall be given by the Shareholder's estate, heir or legal representative (the
"Representative") in the event of the Shareholder's death or incapacity that
precludes the Shareholder from providing such notice:

(i) the death of the Shareholder;

(ii) the Shareholder is determined by a court of competent
jurisdiction to be incompetent, or permanently disabled so as to be unable
to render services on behalf of the P.C.;

4
<PAGE>

(iii) the Shareholder becomes disqualified under applicable law to be
a shareholder of the P.C.;

(iv) the Shareholder ceases to be an employee of the P.C. for any
reason;

(v) the filing of any petition for or other document causing or
intended to cause a judicial, administrative, voluntary or involuntary
dissolution of the P.C.;

(vi) at any time and from time to time in the sole discretion of P.C.,
upon notice to Shareholder from P.C.;

(vi) the P.C. modifies, attempts to modify or otherwise alters, any
material contract or agreement to which the P.C. is a party, including but
not limited to the P.C.'s charter, bylaws, the Management Agreement or this
letter, or Shareholder, acting as a director, removes or attempts to remove
any of the officers of P.C., without providing Manager with sixty (60)
days' prior written notice of any such modification or alteration; or

(vii) the P.C. attempts to sell any of its assets not in the ordinary
course of business.

(b) Upon the occurrence of a Transfer Event with respect to the
Shareholder, all of the Common Stock owned by the Shareholder shall be
immediately deemed to be transferred to the Designated Transferee without
further action by the Shareholder subject to the terms set forth below:

(i) The purchase price for the Common Stock transferred to the
Designated Transferee pursuant to this Paragraph 2 shall be ten dollars
($10.00) per share.

(ii) Payment of the purchase price for the Common Stock shall be made
to the Shareholder, or, in the case of a Transfer Event set forth in
subparagraph 2(a)(i) hereof, the Representative of the Shareholder, as the
case may be, in cash or by certified or cashier's check by the Designated
Transferee within thirty (30) days after the Designated Transferee's
appointment in accordance with subparagraph 2(c) hereof.

(iii) Notwithstanding anything to the contrary herein, upon the
occurrence of a Transfer Event, the Common Stock shall be immediately
deemed to be transferred to the Designated Transferee effective upon the
date of such Transfer Event irrespective of the date of payment for such
Common Stock.

Any Transfer Event shall convey to the Designated Transferee all right, title
and interest in and to the Common Stock free and clear of all claims, liens,
security interests, charges, encumbrances or restrictions of any kind
whatsoever.

5
<PAGE>

(c) For purposes of this letter, "Designated Transferee" shall mean any
individual who is appointed to be the Designated Transferee by the P.C. with the
consent of Manager; provided said individual is qualified under Delaware law to
be a shareholder of the P.C.

(d) The P.C. and the Shareholder hereby appoint Manager as the P.C.'s and
the Shareholder's attorney-in-fact, with full authority in the place and stead
of the P.C. and the Shareholder and in the name of the P.C. and the Shareholder
or otherwise, from time to time in Manager's discretion, to take any action and
to execute any instrument which Manager may deem necessary or desirable to
accomplish the purposes of this letter, including, without limitation, to
endorse the Certificate in the name of the Designated Transferee and release the
Certificate to the Secretary of the P.C. for cancellation, registration of
shares represented thereby in the name of the Designated Transferee and the
issuance of a new certificate in the name of the Designated Transferee.

(e) Manager hereby acknowledges receipt of Stock Certificate No. 1 (the
"Certificate") of the P.C. evidencing one hundred (100) shares of the Common
Stock, representing all of the shares of the P.C. issued to the Shareholder,
deposited by the Shareholder upon execution hereof duly endorsed in blank.
Manager agrees to hold such Certificate for the benefit of the Designated
Transferee. Upon the occurrence of a Transfer Event, Manager shall endorse the
Certificate in the name of the Designated Transferee and release the Certificate
to the Secretary of the P.C. for cancellation by the Secretary, registration of
the shares represented thereby in the name of the Designated Transferee on the
books of the P.C., and issuance of a new certificate in the name of the
Designated Transferee. In the event that the P.C. issues additional shares to
any individual, including shares transferred to the Designated Transferee, the
stock certificate(s) evidencing such shares shall be deposited, and may be
endorsed, by Manager as provided in this subparagraph 2(e).

(f) Notwithstanding anything herein to the contrary, release by Manager of
the Certificate to the Secretary of the P.C. shall be contingent on Manager's
prior or concurrent receipt of:

(i) issuance by the P.C. of a new stock certificate evidencing the
Designated Transferee's ownership of the Common Stock in the P.C.; and

(ii) a copy of this letter duly executed by the Designated Transferee
substituting the Designated Transferee for the Shareholder and such other
recipient(s) of the Common Stock, if any, hereunder.

3. (a) Upon the occurrence of a purchase and sale under Paragraph 2, or a
Transfer Event, the Shareholder shall be disqualified as a shareholder of the
P.C., and shall immediately be deemed to have resigned as a director and officer
of the P.C. In furtherance of the foregoing, the Shareholder agrees to provide
to the P.C., upon execution of this letter, a letter of resignation as a
shareholder, officer, employee and/or

6
<PAGE>

director of the P.C., which letter shall be held in escrow by Manager and
effective only upon a purchase and sale under Paragraph 2 or a Transfer Event
unless otherwise waived upon the mutual consent of the P.C. and Manager.

(b) After the occurrence of a purchase and sale under Paragraph 2 or a
Transfer Event, the Shareholder shall neither have nor exercise any right or
privilege as a shareholder of the P.C.'s Common Stock, including any right to
receive any unallocated or undistributed dividend.

4. The parties acknowledge and agree that each Certificate representing
shares of the Common Stock subject to this letter shall contain a notice of the
restrictions on transfer substantially as follows:

"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
OF AN AGREEMENT BY AND AMONG THE SHAREHOLDER NAMED HEREIN, U.S.
MEDICAL SERVICES OF DELAWARE, P.A. AND U.S. PHYSICIANS, INC. DATED
NOVEMBER 3, 1997, (A COPY OF WHICH IS ON FILE WITH U.S. MEDICAL
SERVICES OF DELAWARE, P.A. AND AVAILABLE WITHOUT CHARGE), AND NO
TRANSFER OF THE SHARES REPRESENTED HEREBY OR OF SHARES ISSUED IN
EXCHANGE THEREFOR SHALL BE VALID OR EFFECTIVE UNTIL THE TERMS AND
CONDITIONS OF SUCH AGREEMENT SHALL HAVE BEEN FULFILLED."

All Common Stock which is subject to this letter and which is issued to the
Shareholder after the date of this letter shall bear the same notice and shall
be held by Manager in accordance with subparagraph 2(e) of this letter. In the
event that the P.C. issues a new certificate to any individual, the P.C. shall
place the foregoing notice on each such stock certificate as provided in this
Paragraph 4.

5. (a) The P.C. represents, covenants and warrants to Manager that the
execution of this letter and the performance by the P.C. of its obligation
hereunder, do not, at the date of execution hereof, violate the charter or the
bylaws of the P.C. or violate and/or create a breach or default under any
agreement or undertaking to which the P.C. is a party or otherwise bound.

(b) The Shareholder represents, covenants and warrants to Manager as
follows:

(i) The Shareholder is the legal and beneficial the owner of the
issued and outstanding capital stock of the P.C. represented by the
Certificate, are free and clear of any lien, security interest, option or
other charge or encumbrance; and

7
<PAGE>

(ii) The execution of this letter and the performance by the
Shareholder of the Shareholder's obligations hereunder, do not, at the date
of execution hereof, violate and/or create a breach or default under any
agreement or undertaking to which the Shareholder is a party or otherwise
bound.

6. The P.C. agrees that during the term of the Management Agreement, the
P.C. shall not authorize or issue any additional shares without the written
consent of Manager. The P.C. shall require as a condition for acquiring any
shares of the P.C. that each prospective holder of any of the shares of the
P.C., including the Common Stock, or any rights to acquire any shares of the
P.C., including any holder of any warrant, option or other security convertible
into or exchangeable for Common Stock or other shares of the P.C., execute a
counterpart of this letter acknowledging that the restrictions contained herein
shall apply to such stock or rights to acquire shares in the P.C.

7. The parties acknowledge and agree that this letter shall be effective
upon the effective date of the Management Agreement and shall be co-terminous
therewith.

8. The failure or delay on the part of any party to exercise any right,
remedy, power or privilege under this letter shall not operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or
privilege preclude any other or further exercise of the same or of any other
right, remedy, power or privilege, nor shall any waiver of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.

9. This letter and all provisions relating to its validity, interpretation,
performance and enforcement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.

10. All notices, requests, demands and other communications required or
permitted under this letter shall be in writing and shall be deemed to have been
duly given, made and received when delivered (personally, by carrier service
such as Federal Express, or by other messenger) or upon actual receipt of
registered or certified mail, postage prepaid, return receipt requested,
addressed as set forth below:

(i) If to Shareholder: John E. Hocutt, Jr., M.D.
20 Carillon Court
Wilmington, DE 19803

(ii) If to Manager: U.S. PHYSICIANS, Inc.
220 Commerce Drive
Fort Washington, PA 19034
Attention: President

8
<PAGE>

(iii) If to P.C.: U.S. Medical Services of Delaware, P.A.
c/o U.S. PHYSICIANS, Inc.
220 Commerce Drive, Suite 400
Fort Washington, PA 19034
Attention: President

In addition, notice by mail should be by air if posted outside of the
continental United States. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this Paragraph 10.

11. This letter shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns. Notwithstanding the foregoing, no party may assign or transfer its
rights or obligations under this letter without the prior written consent of the
other parties, except the Manager may assign or transfer all or any portion of
its rights or obligations under this letter without the consent of the
Shareholder or the P.C.

12. This letter may be executed in any number of counterparts, each of
which shall be deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and the same
instrument. This letter shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.

13. The provisions of this letter are independent of and severable from
each other, and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other provision may
be invalid or unenforceable in whole or in part. If or to the extent this letter
is reasonably deemed to violate applicable law, the parties agree to negotiate
in good faith to amend the agreement to the extent possible, consistent with its
purposes, to conform to law.

14. This letter contains the entire understanding among the parties with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements and understandings, inducements or conditions,
express or implied, oral or written, except as herein contained. This letter may
not be modified or amended other than by an agreement in writing executed by two
officers of P.C., and by Shareholder.

15. Any dispute (including a claimed breach of the terms hereof) arising
out of or in connection with this letter shall be resolved by arbitration
conducted by the American Arbitration Association in Philadelphia, Pennsylvania,
in accordance with its rules then in existence. The award of the arbitrators
shall be final and binding upon the parties hereto, their heirs, administrators,
executors, successors and assigns, and judgment upon such award may be entered
in any court having jurisdiction thereof. Nothing in this provision shall
restrict the ability of any party hereto to seek any equitable remedy, including
injunctive relief or specific performance, for damages caused by another party's
breach or attempted breach of this letter in any court of competent
jurisdiction. Any prevailing party

9
<PAGE>

in any arbitration under this letter shall be entitled to recover its reasonable
attorneys' fees and costs from the non-prevailing party(ies), which liability
for such attorneys' fees shall be joint and several.

----------

If you are in agreement with the terms and conditions set forth above,
please sign this letter in the designated space below and return the executed
letter to me at the address set forth above. By signing this letter, each party
intends to be legally bound by the terms of this letter.

Very truly yours,

U.S. Medical Services of Delaware, P.A.

By: /s/ John M. Hogan
------------------------------

Accepted and agreed to this
as of November 3, 1997

By: /s/ John E. Hocutt, Jr.
--------------------------------
John E. Hocutt, Jr., M.D.

Accepted and agreed to
as of November 3, 1997

U.S. PHYSICIANS, Inc.

By: /s/ Thomas J. Keane
--------------------------------
Thomas J. Keane
President

THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH
RESPECT THERETO.

COMMON STOCK PURCHASE WARRANT

Warrant No. W- Number of Shares -

U.S. PHYSICIANS, INC.

Void after December 31, 1999

1. Issuance. This Warrant is issued to ___________ by U.S. PHYSICIANS,
Inc., a Pennsylvania corporation (hereinafter with its successors called the
"Company"). This Warrant is one of a series of Warrants (the "Warrants") being
issued to purchasers of the Company's Series B Convertible Preferred Stock.

2. Purchase Price; Number of Shares. Subject to the terms and conditions
hereinafter set forth, the registered holder of this Warrant (the "Holder"), is
entitled upon surrender of this Warrant with the subscription form annexed
hereto duly executed, at the office of the Company, 220 Commerce Drive, Suite
400, Fort Washington, PA 19034 or such other office as the Company shall notify
the Holder of in writing, to purchase from the Company at a price per share (the
"Purchase Price") of $3.15, up to ______ fully paid and nonassessable shares of
Common Stock, $.01 par value, of the Company (the "Common Stock"). Until such
time as this Warrant is exercised in full or expires, the Purchase Price and the
securities issuable upon exercise of this Warrant are subject to adjustment as
hereinafter provided.

3. Exercisablity. This Warrant will become exercisable upon issuance.

4. Payment of Purchase Price. The Purchase Price may be paid (i) in cash or
by check, (ii) by the surrender by the Holder to the Company of any promissory
notes or

<PAGE>

other obligations issued by the Company, with all such notes and obligations so
surrendered being credited against the Purchase Price in an amount equal to the
principal amount thereof plus accrued interest to the date of surrender, (iii)
through delivery by the Holder to the Company of other securities issued by the
Company, with such securities being credited against the Purchase Price in an
amount equal to the fair market value thereof, as determined in good faith by
the Board of Directors of the Company (the "Board"), or (iv) by any combination
of the foregoing. The Board shall promptly respond in writing to an inquiry by
the Holder as to the fair market value of any securities the Holder may wish to
deliver to the Company pursuant to clause (iii) above.

5. Net Issue Election. The Holder may elect to receive, without the payment
by the Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice annexed hereto duly executed,
at the office of the Company. Thereupon, the Company shall issue to the Holder
such number of fully paid and nonassessable shares of Common Stock as is
computed using the following formula:

X = Y (A-B)
-------
A

where X = the number of shares to be issued to the Holder pursuant
to this Section 5.

Y = the number of shares covered by this Warrant in respect of
which the net issue election is made pursuant to this Section
5.

A = the fair market value of one share of Common Stock, as
determined in good faith by the Board, as at the time the net
issue election is made pursuant to this Section 5.

B = the Purchase Price in effect under this Warrant at the time
the net issue election is made pursuant to this Section 5.

The Board shall promptly respond in writing to an inquiry by the Holder as to
the fair market value of one share of Common Stock.

6. Partial Exercise. This Warrant may be exercised in part, and the Holder
shall be entitled to receive a new warrant, which shall be dated as of the date
of this Warrant, covering the number of shares in respect of which this Warrant
shall not have been exercised.

7. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.

<PAGE>

8. Expiration Date; Automatic Exercise. This Warrant shall expire at the
close of business on December 31, 1999 and shall be void thereafter.
Notwithstanding the foregoing, this Warrant shall automatically be deemed to be
exercised in full pursuant to the provisions of Section 5 hereof, without any
further action on behalf of the Holder, immediately prior to the time this
Warrant would otherwise expire pursuant to the preceding sentence.

9. Reserved Shares; Valid Issuance. The Company covenants that it will at
all times from and after the date hereof reserve and keep available such number
of its authorized shares of Common Stock, free from all preemptive or similar
rights therein, as will be sufficient to permit the exercise of this Warrant in
full. The Company further covenants that such shares as may be issued pursuant
to the exercise of this Warrant will, upon issuance, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.

10. Dividends. If after __________, ____(the "Original Issue Date") the
Company shall subdivide the Common Stock, by split-up or otherwise, or combine
the Common Stock, or issue additional shares of Common Stock in payment of a
stock dividend on the Common Stock, the number of shares issuable on the
exercise of this Warrant shall forthwith be proportionately increased in the
case of a subdivision or stock dividend, or proportionately decreased in the
case of a combination, and the Purchase Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend, or proportionately
increased in the case of a combination.

11. Mergers and Reclassifications. If after the Original Issue Date there
shall be any reclassification, capital reorganization or change of the Common
Stock (other than as a result of a subdivision, combination or stock dividend
provided for in Section 10 hereof), or any consolidation of the Company with, or
merger of the Company into, another corporation or other business organization
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
outstanding Common Stock), or any sale or conveyance to another corporation or
other business organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification, reorganization, change,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall thereafter have the
right to purchase, at a total price not to exceed that payable upon the exercise
of this Warrant in full, the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, reorganization,
change, consolidation, merger, sale or conveyance by a holder of the number of
shares of Common Stock which might have been purchased by the Holder immediately
prior to such reclassification, reorganization, change, consolidation, merger,
sale or conveyance, and in any such case appropriate provisions shall be made
with respect to the rights and interest of the Holder to the end that the
provisions hereof (including without limitation, provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder) shall
thereafter be

<PAGE>

applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof.

12. Adjustments for Issuances Below Purchase Price. In case the Company
shall at any time or from time to time after the Original Issue Date issue or
sell any shares of Common Stock (other than shares issued in transactions to
which Sections 10 or 11 of this Warrant apply) for a consideration per share
less than the Purchase Price in effect for this Warrant immediately prior to the
time of such issue or sale, or pay any dividend or make any other distribution
upon the Common Stock payable in cash, property or securities of the Company
other than Common Stock or in securities of a corporation other than the
Company, then forthwith upon such issue or sale, or upon the payment of such
dividend or the making of such other distribution, as the case may be, the
Purchase Price shall (until another such issue or sale, or dividend or other
distribution) be reduced to a price (calculated to the nearest cent) determined
by dividing (i) an amount equal to the sum of (X) the number of shares of Common
Stock outstanding immediately prior to such issue or sale or the payment of such
dividend or the making of such other distribution, multiplied by the Purchase
Price in effect immediately prior to such event plus (Y) the consideration, if
any, received by the Company upon such issue or sale minus (Z) the amount of
such dividend or other distribution in respect of Common Stock, by (ii) the
total number of shares of Common Stock outstanding immediately after such issue
or sale or dividend or other distribution. Further, the number of shares
purchasable hereunder shall be increased to a number determined by dividing (i)
the number of shares purchasable hereunder immediately prior to such issue or
sale or dividend or other distribution, multiplied by the Purchase Price
hereunder immediately prior to such event, by (ii) the Purchase Price in effect
immediately after the foregoing adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Purchase Price in the case of the issuance from and after December 31, 1996: (i)
of up to an aggregate of 2,500,000 shares (appropriately adjusted to reflect the
occurrence of any event described in Section 10) of Common Stock (directly or
through the grant of options or other convertible securities) to directors,
officers, employees, consultants or affiliated physicians of the Company in
connection with their service to the Company; (ii) of Common Stock made solely
in consideration for the acquisition (whether by merger or otherwise) by the
Company or by an affiliate of the Company of all or substantially all of the
stock or assets of any other entity engaged primarily in the practice of
medicine or other operating business; (iii) in connection with the employment by
the Company or an affiliate of the Company of a physician, provided that the
issuances contemplated by this clause (iii) shall be limited to 600,000 shares
(appropriately adjusted to reflect the occurrence of any event described in
Section 10) of Common Stock in the aggregate; or (iv) of Warrants on or prior to
January 15, 1997 (or the issuance of Common Stock upon the exercise of
Warrants).

For the purpose of this Section 12, the following provisions shall also
be applicable:

A. In case the Company shall in any manner offer any rights to subscribe
for or to purchase shares of Common Stock, or grant any options for the purchase
of shares of

<PAGE>

Common Stock, at a price less than the Purchase Price in effect immediately
prior to the time of the offering of such rights or the granting of such
options, as the case may be, all shares of Common Stock which the holders of
such rights or options shall be entitled to subscribe for or purchase pursuant
to such rights or options shall be deemed to be issued or sold as of the date of
the offering of such rights or the granting of such options, as the case may be,
and the minimum aggregate consideration named in such rights or options for the
Common Stock covered thereby, plus the consideration received by the Company for
such rights or options, shall be deemed to be the consideration actually
received by the Company (as of the date of the offering of such rights or the
granting of such options, as the case may be) for the issue or sale of such
shares.

B. In case the Company shall in any manner issue or sell any shares of
any class or obligations directly or indirectly convertible into or exchangeable
for shares of Common Stock and the price per share for which Common Stock is
deliverable upon such conversion or exchange (determined by dividing (i) the
total minimum amount received or receivable by the Company in consideration of
the issue or sale of such convertible or exchangeable shares or obligations,
plus the total minimum amount of premiums, if any, payable to the Company upon
conversion or exchange, by (ii) the total number of shares of Common Stock
necessary to effect the conversion or exchange of all such convertible or
exchangeable shares or obligations) shall be less than the Purchase Price in
effect immediately prior to the time of such issue or sale, then such issue or
sale shall be deemed to be an issue or sale (as of the date of issue or sale of
such convertible or exchangeable shares or obligations) of the total maximum
number of shares of Common Stock necessary to effect the conversion or exchange
of all such convertible or exchangeable shares or obligations, and the total
minimum amount received or receivable by the Company in consideration of the
issue or sale of such convertible or exchangeable shares or obligations, plus
the total minimum amount of premiums, if any, payable to the Company upon
exchange or conversion, shall be deemed to be the consideration actually
received (as of the date of the issue or sale of such convertible or
exchangeable shares or obligations) for the issue or sale of such Common Stock.

C. In the case of any dividend or other distribution on the Common Stock
of the Company payable in property, securities of the Company other than Common
Stock or securities of a corporation other than the Company, such dividend or
other distribution shall be deemed to have been paid or made at a value equal to
the fair value of the property or securities so distributed. Any dividend or
distribution referred to in this Subsection C shall be deemed to have been paid
or made on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or distribution.

D. In determining the amount of consideration received by the Company
for Common Stock, securities convertible thereinto or exchangeable therefor, or
rights or options for the purchase thereof, no deduction shall be made for
expenses or underwriting discounts or commissions paid by the Company. The Board
shall determine in good faith the fair value of the amount of consideration
other than money received by the Company upon

<PAGE>

the issue by it of any of its securities. The Board shall also determine in good
faith the fair value of any dividend or other distribution made upon Common
Stock payable in property, securities of the Company other than Common Stock or
securities of a corporation other than the Company. The Board shall, in the case
that any Common Stock, securities convertible thereinto or exchangeable
therefor, or rights or options for the purchase thereof are issued with other
stock, securities or assets of the Company, determine in good faith what part of
the consideration received therefor is applicable to the issue of the Common
Stock, securities convertible thereinto or exchangeable therefor, or rights or
options for the purchase thereof.

E. If there shall be any change in (i) the minimum aggregate
consideration named in the rights or options referred to in Subsection A above,
(ii) the consideration received by the Company for such rights or options, (iii)
the price per share for which Common Stock is deliverable upon the conversion or
exchange of the convertible or exchangeable shares or obligations referred to in
Subsection B above, (iv) the number of shares which may be subscribed for or
purchased pursuant to the rights or options referred to in Subsection A above,
or (v) the rate at which the convertible or exchangeable shares or obligations
referred to in Subsection B above are convertible into or exchangeable for
Common Stock, then the Purchase Price in effect at the time of such event shall
be readjusted to the Purchase Price which would have been in effect at such time
had such rights, options, or convertible or exchangeable shares or obligations
still outstanding provided for such changed consideration, price per share,
number of shares, or rate of conversion or exchange, as the case may be, at the
time initially offered, granted, issued or sold, but only if as a result of such
adjustment the Purchase Price then in effect hereunder is thereby reduced.

13. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this Warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this Section 13,
be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next higher number of full shares of Common Stock, issuing a
full share with respect to such fractional share.

14. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall promptly deliver to the Holder a
certificate of a firm of independent public accountants setting forth the
Purchase Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.

15. Notices of Record Date, Etc. In the event of:

A. any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,

<PAGE>

B. any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale or conveyance of all or substantially all of its assets, or

C. any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,

then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is to take place, and the
time, if any is to be fixed, as of which the holders of record in respect of
such event are to be determined. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.

16. Amendment. The terms of this Warrant may be amended, modified or
waived only with the written consent of the Company and the holders of Warrants
representing at least two-thirds of the number of shares of Common Stock then
issuable upon the exercise of the Warrants. No such amendment, modification or
waiver shall be effective as to this Warrant unless the terms of such amendment,
modification or waiver shall apply with the same force and effect to all of the
other Warrants then outstanding.

17. Warrant Register; Transfers, Etc.

A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.

B. Subject to compliance with applicable federal and state securities
laws, this Warrant may be transferred by the Holder with respect to any or all
of the shares purchasable hereunder. Upon surrender of this Warrant to the
Company, together with the assignment hereof properly endorsed, for transfer of
this Warrant as an entirety by the Holder, the Company shall issue a new warrant
of the same denomination to the assignee. Upon surrender of this Warrant to the
Company, together with the assignment hereof properly endorsed, by the Holder
for transfer with respect to a portion of the shares of Common Stock purchasable
hereunder, the Company shall issue a new warrant to the assignee, in such
denomination as shall be requested by the Holder hereof, and shall issue to such
Holder a new warrant covering the number of shares in respect of which this
Warrant shall not have been transferred.

<PAGE>

C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and
denomination and deliver the same (i) in exchange and substitution for and upon
surrender and cancellation of any mutilated Warrant, or (ii) in lieu of any
Warrant lost, stolen or destroyed, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft or destruction of such Warrant
(including a reasonably detailed affidavit with respect to the circumstances of
any loss, theft or destruction) and of indemnity reasonably satisfactory to the
Company, provided, however, that so long as the original holder of this Warrant
is the registered holder of this Warrant, no indemnity shall be required other
than its written agreement to indemnify the Company against any loss arising
from the issuance of such new warrant.

18. No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution, liquidation,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder.

19. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the
Commonwealth of Pennsylvania.

20. Successors and Assigns. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.

21. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in the Commonwealth of Pennsylvania, then
such action may be taken or right may be exercised on the next succeeding day
which is not a Saturday or Sunday or such a legal holiday.

Dated: U.S. PHYSICIANS, Inc.

By:___________________________

<PAGE>

SUBSCRIPTION

To:____________________ Date:_________________________

The undersigned hereby subscribes for __________ shares of Common Stock
covered by this Warrant. The certificate(s) for such shares shall be issued in
the name of the undersigned or as otherwise indicated below:

------------------------------
Signature

------------------------------
Name for Registration

------------------------------
Mailing Address

NET ISSUE ELECTION NOTICE

To:____________________ Date:__________________________

The undersigned hereby elects under Section 5 to surrender the right to
purchase _______ shares of Common Stock pursuant to this Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned or as otherwise indicated below.

------------------------------
Signature

------------------------------
Name for Registration

------------------------------
Mailing Address

ASSIGNMENT

<PAGE>

For value received ____________________________ hereby sells,

assigns and transfers unto ______________________________________

_________________________________________________________________
Please print or typewrite name and address of Assignee

_________________________________________________________________

the within Warrant, and does hereby irrevocably constitute and appoint
_______________________ its attorney to transfer the within Warrant on the books
of the within named Company with full power of substitution on the premises.

Dated:_______________________

In the Presence of:

_____________________________

ASSET PURCHASE AGREEMENT

THIS IS AN AGREEMENT made on the _____ day of __________ , 1997, by and
between U.S. PHYSICIANS, Inc., a Pennsylvania corporation ("USP") and Wende W.
Young, M.D. ("Physician"), an individual who conducts business as a sole
proprietor under the assumed name The Elizabeth Wende Breast Clinic:

BACKGROUND

A. Physician provides mammography services to the general public from her
offices at 1351 Mt. Hope Avenue, Rochester, New York in the business known as
The Elizabeth Wende Breast Clinic (the "Practice").

B. Attached hereto is a nineteen (19) page Rider to Asset Purchase
Agreement (the "Rider") which forms a part of this Agreement.

NOW, THEREFORE, in consideration of the premises and of the mutual
covenants set forth, the parties, intending to be legally bound, agree as
follows:

1. Sale and Purchase of Assets. Upon the terms and subject to the
conditions of this Agreement, Physician agrees to sell, convey, transfer, assign
and deliver to USP and USP agrees to purchase from Physician on the Closing Date
(as defined in the Rider), all of the assets, rights, properties and business
used or useful in The Elizabeth Wende Breast Clinic, except for the Excluded
Assets (all as defined in the Rider), all free and clear of any and all liens,
claims, liabilities, obligations, pledges, encumbrances, charges and
restrictions of every kind, nature and description, except to the extent of any
claims, liabilities and obligations expressly assumed by USP (collectively, the
"Assets").

2. Purchase Price and Payment. The Purchase Price shall consist of, and be
paid as follows:

(a) at Closing (as defined in the Rider) USP shall deliver to
Physician [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT] Dollars
([REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]) (less, if
applicable, the amount referred to in subparagraph 3(c) of the Rider), by
wire transfer in accordance with instructions delivered by Physician to
USP.

(b) at Closing, USP shall deliver to Physician a promissory note in
the principal amount of [REDACTED DUE TO REQUEST FOR CONFIDENTIAL
TREATMENT] Dollars ([REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT])
in the form of Exhibit "A-1" ("Physician Note "A"");

<PAGE>

(c) at Closing, USP shall deliver to Physician a promissory note in
the principal amount of [REDACTED DUE TO REQUEST FOR CONFIDENTIAL
TREATMENT] Dollars ([REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT])
in the form of Exhibit "A-2" ("Note "B") (Note "A" and Note "B" are
collectively referred to as the "Notes"). Note "B" is convertible into
shares of common stock of USP (the "Converted Shares") or cash (which shall
be paid by wire transfer) in the manner set forth in Note "B"; and

(d) within ten (10) days following the date of the closing of the
initial public offering (the "IPO") of the common stock of USP, USP shall
deliver to Physician a stock certificate issued to Physician (the "Common
Shares") representing [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
shares of USP Common Stock; provided, however, in the event the price per
share of the common stock sold in the IPO is less than ten dollars ($10.00)
Physician shall receive an additional number of shares of USP common stock
which shall equal the result of the following: (i) [REDACTED DUE TO REQUEST
FOR CONFIDENTIAL TREATMENT] divided by seventy-five percent (75%) of the
IPO Price, minus (ii) [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
(the "Additional Shares" which together with the Common Shares are
collectively referred to as the "USP Shares"). The USP Shares shall be
subject to the terms of, and the certificates evidencing the USP Shares
(the "Stock Certificates") shall bear the legends set forth in, Paragraph
17 of the Rider.

3. Security. As security for the Notes, USP shall execute and deliver at
Closing an agreement in the form of Exhibit "B" granting a first security
interest in the assets acquired from Physician other than accounts receivable.
The security agreement shall expire upon satisfaction of the Notes.

4. Intentionally Omitted.

5. Financial Statements. The financial statements included as Schedule
"6(b)" are the Schedules "C" to Physician's tax returns for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994 (the Schedule "C" as
of December 31, 1996 is referred to as the "Warranted Balance Sheet" and
December 31, 1996 is referred to as the "Balance Sheet Date"). The financial
statements were prepared by Ronald M. Kane, CPA. Physician shall cooperate fully
with USP and its representatives in connection with any required audit of the
Practice in anticipation of an initial public offering of the common stock of
USP.

6. Assumption of Liabilities. USP agrees to pay certain liabilities of the
Practice which arose prior to the Closing Date and are payable within sixty (60)
days after Closing which do not exceed in the aggregate the amount of prepaid
expenses, deposits and other similar items which relate to a period of time on
or after the Closing Date the benefits of which shall be received by USP, all as
shown on Schedule "2-1."

-2-
<PAGE>

7. Incorporation of Rider. The Rider is incorporated by reference into and
made a part of this Agreement.

8. Address for Notices. Notices shall be addressed to Physician at 1351 Mt.
Hope Avenue, Rochester, New York, 14620 or to such other address(es) as
Physician may designate. Copies of all notices sent to Physician shall also be
sent to Joan M. Roediger, Esquire, Health Care Law Associates, P.C., 140 West
Germantown Pike, Suite 200, Plymouth Meeting, Pennsylvania, 19462 and Sherman
Levey, Esquire, Boylan, Brown, Code, Fowler, Vidgor, Wilson, LLP, 2400 Chase
Square, Rochester, New York 14604.

9. Execution in Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding when
one or more counterparts hereof, individually or taken together, shall bear the
signatures of all of the parties reflected as the signatories.

10. Entire Agreement. This Agreement, including the Rider, Schedules and
Exhibits (which are incorporated in this Agreement by reference) contains the
entire understanding among the parties with respect to its subject matter, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms of this Agreement control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an agreement
in writing signed by all signatories hereto.

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

U.S. PHYSICIANS, INC.

By /s/ John M. Hogan
--------------------------
Vice President

/s/ Wende W. Young, M.D.
--------------------------
Wende W. Young

-3-
<PAGE>

RIDER TO ASSET PURCHASE AGREEMENT

This Rider is attached to an Asset Purchase Agreement and forms a part of
such Agreement. Any term used in this Rider which is defined in the Asset
Purchase Agreement shall have the meaning set forth in the Asset Purchase
Agreement. The term "Agreement" used in this Rider means the Asset Purchase
Agreement, including this Rider.

1. The Assets. The following Assets are being purchased by USP (the
"Assets"):

(i) all of the furniture, fixtures, machinery, equipment and physical
assets of the Practice;

(ii) all of the inventory owned by Physician and used in the Practice;

(iii) all supplies, instruments and equipment owned by Physician and
used in the Practice;

(iv) the rights in, to and under all leases of equipment, furniture,
machinery, supplies, instruments and other items of tangible personal
property to which Physician is a party with respect to the Practice;

(v) all rights in, to and under all contracts, agreements, insurance
policies (other than life and malpractice), and purchase orders of the
Practice listed in Schedules "6(c)", "6(d)-1" and "6(f)" and to the extent
transfers are requested by USP, agreements listed in Schedule "6(g)";

(vi) copies of all books and records of the Practice, including,
without limitation, all credit records, payroll records, computer records,
computer programs, contracts, agreements, operating manuals, schedules of
assets, correspondence, books of account, files, papers, books and all
other public and confidential business records, whether such records are in
hard copy form or electronically or magnetically stored;

(vii) all franchises, licenses, permits, certificates, approvals and
other governmental authorizations, owned or maintained by the Practice to
the extent such franchises, licenses, permits, certificates, approvals and
other governmental approvals are permitted to be transferred;

(viii) all of Physician's right, title and interest in and to all
intellectual property, trademarks, tradenames and telephone numbers used in
connection with the Practice;

(ix) all rights in, to and under all representations, warranties,
covenants and guarantees made or provided by third parties to or for the
benefit of Physician in connection with the Practice with respect to the
Assets;

(x) all of the Practice's prepaid expenses, prepaid insurance,
deposits and other similar items relating to the Assets;

(xi) all accounts receivable of the Practice;

(xii) all cash of the Practice, which in the aggregate shall not be
less than $10,000 and all cash equivalents of the Practice;

(xiii) all goodwill of the Practice relating or attributable to or
arising from the Assets;

(xiv) to the extent transferable, all of the Practice's drugs,
pharmaceuticals, products, substances, items or devices whose purchase,
possession, maintenance, administration, prescription or security requires

<PAGE>

the authorization or order of a licensed health care provider or requires a
permit, registration, certification or any other governmental authorization
held by a licensed health care provider as specified under any federal or
state law, or both;

(xv) all of the Practice's records of identity, diagnosis, evaluation
or treatment of patients; and

(xvi) all investments of the Practice as of the Closing Date.

2. Excluded Assets. USP shall not acquire and Physician shall retain all
life insurance policies, malpractice insurance policies, provider numbers,
automobiles, other personal items set forth on Schedule "2" and contracts and
agreements not specifically agreed to be assumed by USP. Within seventy-five
(75) days after the Closing Date, USP shall pay to Physician the amount, if any,
by which the prepaid expenses, deposits and other similar items which relate to
a period of time on or after the Closing Date the benefit of which shall be
received by USP, all as shown on Schedule "2-1" exceeds the liabilities paid by
USP pursuant to Paragraph 6 of the Asset Purchase Agreement.

3. Purchase Price.

(a) Purchase Price. The maximum purchase price for the Assets shall be
as set forth in the Asset Purchase Agreement, subject to adjustment as
provided in subparagraph (c) below.

(b) Payment of Purchase Price. The Purchase Price payable by USP shall
be paid as set forth in the Asset Purchase Agreement.

(c) Adjustment to Purchase Price. If Physician or any of the
professionals employed by Physician has a claims made malpractice insurance
policy, the Purchase Price shall be reduced by an amount equal to the
premium of a "tail" malpractice insurance policy naming Physician and one
or more affiliates of USP as a named insured in an amount and from an
insurance company acceptable to USP. If applicable, promptly after Closing
USP shall pay such amount to the insurance company to purchase the "tail"
insurance policy.

(d) Allocation of Purchase Price. The Purchase Price and assumption of
liabilities shall be allocated among the assets acquired by USP as set
forth on Exhibit "D." Following Closing, USP shall provide Physician with a
copy of a Form 8594 which has been completed by USP consistent with the
methodology set forth on Exhibit "D." USP and Physician agree to file all
tax returns consistent with the allocations on the Form 8594 provided by
USP.

4. Intentionally Omitted.

5. Assumption of Liabilities. USP hereby assumes and shall hereafter
satisfy, discharge, perform and fulfill as they become due the obligations and
liabilities of Physician that relate to periods, events or circumstances
occurring on or after the Closing Date in, to and under the agreements set forth
on Schedules "6(c)", "6(d)-1" and "6(f)." Except for the foregoing, USP is not
assuming or discharging any debts, obligations, liabilities or commitments of,
or claims against, Physician, whether accrued now or hereafter, whether fixed or
contingent, or whether known or unknown, or any claims asserted against the
Assets relating to any events prior to the Closing Date, including, without
limitation, (i) any and all taxes payable by Physician with respect to income
received, (ii) taxes imposed on Physician in connection with the transfer of the
Assets contemplated hereby, (iii) all federal, state and local taxes, levies and
similar charges owed by Physician relating to periods prior to the Closing Date,
including, but not limited to, payroll taxes and (iv) any and all liabilities or
claims relating to or arising from providing professional medical services or
failing to provide professional medical services, prior to the Closing Date.

-2-

<PAGE>

6. Representations, Warranties and Agreements of Physician. As material
inducement to USP to enter into this Agreement and to close hereunder, Physician
makes the following representations, warranties and agreements to and with USP:

(a) Sole Proprietorship. Physician operates the Practice as a sole
proprietorship and no person or entity, other than Physician, has an
interest in the Practice.

(b) Financial Statements. The Financial Statements of the Practice
identified in the Asset Purchase Agreement as constituting Schedule "6(b)"
were compiled by certified public accountants identified in the Asset
Purchase Agreement in accordance with the cash method of accounting using
principles and practices consistently applied throughout the periods
reported upon and consistent with past periods, and fairly and accurately
present the financial position of the Practice as at the dates of such
Balance Sheets, and the results of the operations of the Practice for the
periods reported upon.

(c) Real Estate. Neither the Practice nor Physician in connection with
the Practice has any fee interest in any real estate. The Practice leases,
as tenant, the premises described on Schedule "6(c)" as being so leased.
All of the buildings, fixtures and improvements leased by the Practice or
Physician, and, to Physician's knowledge, all heating and air conditioning
equipment, plumbing, electrical and other mechanical facilities which are
part of, or located in, such buildings or improvements, are in good
operating condition and repair, and do not require any repairs other than
as required under the Practice's or Physician's current lease arrangement.

(d) Personal Property. Except as shown on Schedule "6(d)", (i)
Physician or the Practice has good, valid and marketable title to all
personal property, tangible and intangible, reflected on the Warranted
Balance Sheet, and to all other personal property owned by Physician which
is used in the Practice free and clear of all, liens, mortgages, pledges,
security interests, restrictions, prior assignments, encumbrances and
claims of every kind or character, and (ii) all equipment, furniture and
fixtures, and other tangible personal property of Physician which is used
in the Practice is in good operating condition and repair, normal wear and
tear excepted, and does not require any repairs other than normal routine
maintenance to maintain such property in good operating condition and
repair. Physician is the owner of all the personal property now located in
or upon the premises occupied by the Practice and of all personal property
which it uses in the operation of its business, except as shown on Schedule
"6(d)-1," which lists all such property leased, the name and address of the
lessor, and the date, term and financial information of the lease. To the
knowledge of Physician, all of Physician's inventory of materials, supplies
and medical assets, is usable in the ordinary course of business and is
free from known material defects. No claim has been asserted against
Physician involving any conflict or claim of conflict of the Practice's
trade names or trademarks with the tradenames, trademarks or corporate
names of others and Physician has no knowledge of any basis for any such
claim or conflict. Physician is the sole and exclusive owner of her trade
names and trademarks and has the sole and exclusive right to use such trade
names and trademarks. To the best knowledge of Physician, no process or
procedure used by Physician infringes upon any patent, patent application,
trade secret, trademark or trade name of any other party.

(e) Insurance. The Practice and/or Physician maintains insurance
policies relating to the Practice bearing the numbers, for the terms, with
the companies, in the amounts, providing the general coverage, and with the
premiums set forth on Schedule "6(e)". All of such policies are in full
force and effect and neither the Practice nor Physician is in default of
any material provision thereof. Neither the Practice nor Physician has
received any notice from any issuer of any such policies of its intention
to cancel or refusal to renew any policy issued by it. Neither the Practice
nor Physician has had any casualty loss or, to their knowledge, occurrence
that may give rise to any claim not covered by insurance, and neither the
Practice nor Physician is aware of any occurrence that may give rise to any
such uncovered claim. A claim is deemed to be uncovered if it involves a
deductible in excess of $1,000. All claims against Physician or any
professional who is employed by Physician covered by insurance have been
reported to the applicable insurance carrier on a timely basis.

(f) Contracts, Leases, Agreements and Other Commitments. Physician is
not a party to or bound by any written, oral or implied contract,
agreement, lease, power of attorney, guaranty, surety arrangement, or other

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commitment relating to the Practice, including but not limited to any
contract or agreement for the purchase or sale of inventory or equipment or
for the rendition of services, except for the following (which are
collectively called the "Listed Agreements"):

(i) The leases and agreements described on Schedules "6(c),"
"6(d)," "6(d)-1" and "6(g)"; and

(ii) The agreements listed on Schedule "6(f)".

True, correct and complete copies of all of the Listed Agreements
(including all amendments thereto) have been delivered to USP.

All of the Listed Agreements are valid, binding and enforceable
against the respective parties thereto in accordance with their respective
terms. Except as shown on Schedule "6(f)", Physician and to the knowledge of
Physician all other parties to all of the Listed Agreements have performed all
obligations required to be performed to date under such agreements and none of
Physician or any such other party is in default or in arrears under the terms
thereof, and no condition exists or event has occurred which, with the giving of
notice or lapse of time or both, would constitute a default thereunder. Except
as described on Schedule "6(f)," the consummation of this Agreement will not
result in an impairment or termination of any of Physician's rights under any
Listed Agreement. None of the terms or provisions of any Listed Agreement
materially adversely affects the business, prospects, conditions, affairs or
operations of the Practice or any of its respective properties or assets.

(g) Labor, Employment Contracts, and Employee Benefit Programs.
Without limiting the generality of subparagraph 6(f), Physician is not a
party to any collective bargaining agreement or employment agreement
(except as set forth in Schedule "6(g)"), and Physician is not a party to
any pending or threatened labor dispute. Physician has performed all her
obligations pursuant to the agreements set forth in Schedule "6(g)" and at
the request of USP or its affiliated designee all such agreements are
transferable to USP or its affiliated designee, as such parties may
determine, and no notices or consents are necessary to such transfer,
except as set forth in Schedule "6(g)." Physician has complied in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, ("ERISA") and all applicable
Federal, state and local laws relating to the employment of labor,
including but not limited to the provisions thereof relative to wages,
hours, collective bargaining, contributions to pension or benefit plans,
and payment of Social Security taxes and Physician is not liable for any
arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing. No "reportable event" (as that term is defined in Section
4043 of ERISA or regulations thereunder) has occurred and is continuing
with respect to any employee benefit plan of Physician, and the present
value of all benefits vested under all of Physician's "employee pension
benefit plans" (as that term is defined in Section 3 of ERISA) do not
exceed the value of the assets of such plans allocable to such vested
benefits. None of such plans nor any trusts created thereunder have
incurred any "accumulated funding deficiency", as such term is defined in
Section 302 of ERISA since the effective date of Section 302. Physician
currently or during the past five (5) years has not had any written or oral
retirement, pension, profit sharing, stock option, bonus, hospitalization,
vacation or other employee benefit plan, practice, agreement or
understanding, except as set forth in Schedule "6(g)-1". All employees of
Physician are paid salaries in accordance with the schedules set forth on
Schedule "6(g)-2", which also shows their job titles, hours of employment
and all accrued vacation or compensation in lieu of vacation payable to
each employee. There is no employee of Physician whose employment is not
terminable at will, except as shown in Schedule "6(g)-3."

(h) Litigation. Except for the matters set forth on Schedule "6(h)",
neither Physician nor any professional employed by Physician during the
past five years has been or is currently a party to or to her knowledge
threatened with any suit, action, arbitration, administrative or other
proceeding, or governmental investigation relating to their practice of
medicine at the Practice. Each claim against Physician or any professional
employed by Physician shown on Schedule "6(h)" has been reported to the
applicable insurance carrier on a timely basis, and such insurer has
accepted coverage with respect to each such claim. There is no judgment,
decree, award or order outstanding against

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Physician nor does Physician contemplate the institution of any suit,
action, arbitration, administrative or other proceeding based upon actions
or events the operative facts of which arose prior to the Closing Date.

(i) Conflicting Interests. No director, officer or employee of
Physician and none of Physician or any relative or any affiliate of any of
the foregoing has any pecuniary interest in any supplier of Physician or in
any other business enterprise with which Physician conducts business or
with which Physician is in competition, except as set forth on Schedule
"6(i)." Notwithstanding the foregoing, this section does not apply to any
investment interest held by Physician or any relative of Physician in any
publicly traded company provided such interest of Physician and relatives
do not exceed five percent (5%) of the outstanding equity of any such
company.

(j) Compliance with Law and Regulations. Each of the Practice and
Physician is in compliance and has at all times during the past five (5)
years complied in all material respects with all requirements of law,
Federal, state and local, and all requirements of all governmental bodies
or agencies having jurisdiction over Physician or the Practice, the conduct
of the Practice, the use of the properties and assets of Physician relating
to the Practice or of the Practice, and all premises occupied by the
Practice (including, without limitation, Medicare and environmental
requirements), and, without limiting the foregoing, Physician has paid all
monies and obtained all licenses, permits, certificates, and authorizations
needed or required for the conduct of the Practice and the use of the
Practice's properties and the premises occupied by the Practice. Physician
has properly filed all reports and other documents required to be filed
with any Federal, state and local government or subdivision or agency
thereof. Physician has not received any notice, not heretofore complied
with, from any Federal, state or municipal authority or any insurance or
inspection body that any of the Practice's properties, facilities,
equipment, or business procedures or practices, fails to comply with, or is
subject to any liability or potential liability under, any applicable law,
ordinance, regulation, environmental, building or zoning law, or
requirement of any public authority or body. Notwithstanding the foregoing,
there shall be no breach of the foregoing representations and warranties in
this subparagraph 6(j) unless the breach had or will have a material
adverse effect on Physician, the Practice, USP or any affiliate of USP. All
licenses, permits, orders and approvals issued by any governmental body or
agency currently in effect and pertaining to the property, assets or
business of Physician used in the Practice are listed on Schedule "6(j)."

(k) Agreement Not in Breach of Other Instruments Affecting Physician;
Governmental Consent. The execution and delivery of this Agreement, the
consummation of the transaction provided for herein, and the fulfillment of
the terms hereof (i) will not result in the imposition of any lien,
security interest or encumbrance, or in the breach of any of the terms and
provisions of, or result in a termination or modification of, or constitute
a default under, or conflict with, or cause any acceleration of any
obligation of Physician under, or permit any other party to modify or
terminate, any agreement or other instrument by which Physician is bound,
any judgment, decree, order, or award of any court, governmental body, or
arbitrator, or any applicable law, rule or regulation and (ii) do not
require the consent of any governmental authority.

(l) Filing of Tax Returns. Physician has filed all Federal, state and
local tax returns required to be filed in accordance with provisions of law
pertaining thereto and has paid all taxes and assessments (including,
without limitation of the foregoing, income, withholding, excise,
unemployment, Social Security, occupation, transfer, franchise, property,
sales and use taxes and all penalties and interest in respect thereof)
required to have been paid to date. Concurrent with the execution hereof,
Physician has delivered to USP true, correct and complete copies of all
Federal and State income tax returns, including all amendments thereto,
filed by Physician with respect to the last three (3) years.

(m) Actions Since Balance Sheet Date. Since the Balance Sheet Date,
Physician:

(i) has not taken any action outside of the ordinary and usual
course of business;

(ii) has paid all of debts and obligations of the Practice as
they became due; and

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(iii) has used her best efforts to preserve her business
organization intact, to keep available the services of her employees,
and to preserve her relationships with her patients, suppliers,
customers and others with whom she deals.

(n) Accounts Receivable. All accounts receivable are based on actual
and bona fide services rendered or the sale or rental of equipment,
merchandise and supplies by the Practice in the ordinary course of
business. Physician has delivered or caused to be delivered to all third
party payors all requested supporting claim documents with respect to each
account receivable and all information set forth in the bill and supporting
claim documents are true, complete and correct in all material respects.

(o) No Material Adverse Change. Since the Balance Sheet Date, there
has not been and there is not threatened any material adverse change in the
financial condition, business, prospects or affairs of the Practice other
than such matters which affect the health care industry generally or any
material physical damage or loss to any of its properties or assets or to
the premises occupied by it (whether or not such damage or loss is covered
by insurance).

(p) Statements and Other Documents Not Misleading. Neither this
Agreement, including all Schedules, nor the closing documents, nor any
other financial statement, document or other instrument heretofore or
hereafter furnished by Physician to USP in connection with the transactions
contemplated hereby contains or will contain any untrue statement of any
material fact or omits or will omit to state any material fact required to
be stated in order to make such statement, document or other instrument not
misleading. There is no fact known to Physician, other than such matters
which affect the healthcare industry generally, which materially adversely
affects the business, prospects, financial condition or affairs of the
Practice or any of its properties or assets which has not been set forth in
this Agreement, the Schedules or the other documents furnished to USP on or
prior to the date hereof in connection with the transactions contemplated
hereby.

(q) Other Matters. With respect to Physician, none of the following
events has occurred during the past three years:

(i) loss, suspension, revocation or non-renewal of either (A)
Physician's license to practice medicine in any state, or (B)
Physician's DEA registration and/or authorization to prescribe
controlled substances or narcotics;

(ii) exclusion or suspension from participation in the Medicare
or Medicaid programs or imposition of Civil Monetary Penalty sanction
for violation of Medicare or Medicaid laws, rules or regulations
(excluding recoupments, recoveries or adjustments which are not Civil
Monetary Penalties);

(iii) adverse action affecting the scope of Physician's license
to practice medicine or Physician's right to treat patients covered by
workers' compensation or other state regulated programs;

(iv) Physician becoming ineligible for professional liability
insurance, or the cost of such insurance becoming 50% or more
expensive for Physician relative to the average physician providing
comparable services in a comparable geographic area due to Physician's
malpractice claim history;

(v) suspension, revocation or restriction of Physician's
privileges at a hospital for reasons relating to clinical competency
or conduct, or surrender of Physician's privileges at a hospital under
threat of disciplinary action relating to clinical competency or
conduct;

(vi) Physician becoming an Impaired Professional (defined as (A)
having an addictive disease which could impair Physician's ability to
perform Physician's duties; (B) having diverted a controlled
substance; or (C) being incompetent to practice medicine at a level
that meets the minimum requirements of licensure); or

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<PAGE>

(vii) Physician's indictment for any felony, whether or not
related to rendering medical services.

(r) Valid and Binding Agreement. This Agreement constitutes the valid
and binding obligation of Physician, and is enforceable against Physician
in accordance with its terms.

7. Intentionally Omitted.

8. Representations and Warranties of USP. As material inducement to
Physician to enter into this Agreement, USP makes the following representations
and warranties to Physician:

(a) Corporate Status and Authority. USP is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania, and has the corporate power to acquire the
Assets to be acquired hereunder. The execution, delivery and performance of
this Agreement by USP have been duly authorized by all necessary corporate
action on the part of USP, and this Agreement constitutes the valid and
binding obligation of USP, enforceable against it in accordance with its
terms.

(b) USP Shares. The USP Shares, when issued and delivered pursuant to
this Agreement, will be validly issued, fully paid and non-assessable.

(c) Agreement Not in Breach of Other Instruments. The execution and
delivery of this Agreement, the consummation of the transactions provided
for herein, and the fulfillment of the terms hereof by USP, will not result
in the breach of any of the terms and provisions of, or constitute a
default under, or conflict with, or cause any acceleration of any
obligation of USP under, any agreement, indenture or other instrument to
which USP is bound, USP's Articles of Incorporation or By-laws, any
judgment, decree, or order, or award of any court, governmental body, or
arbitrator, or any applicable law, rule, or regulation.

(d) Statements and Other Documents Not Misleading. Neither this
Agreement, nor the closing documents, nor any other financial statement,
document or other instrument heretofore or hereafter furnished by USP to
Physician in connection with the transactions contemplated hereby contains
or will contain any untrue statement of any material fact or omits or will
omit to state any material fact required to be stated in order to make such
statement, document or other instrument not misleading. There is no fact
known to USP other than matters that affect the health care industry
generally, which materially adversely affects the business, prospects,
financial condition or affairs of USP in connection with the transactions
contemplated hereby.

9. Certain New Office Space. On or before February 1, 1998, Physician shall
notify USP in writing whether she has committed to purchase land located at
____________________ on which she will cause to be built an office building
containing approximately 25,000 square feet of office space to be rented to USP
pursuant to a mutually agreed upon lease which shall provide among other things
that its term shall end when the employment agreements between Stamatia and
Destounis and Susan Roux and an affiliate of USP terminate, that USP shall have
the option of reducing the space leased if the employment agreement of either of
the foregoing two physicians terminate and that the rent shall be [REDACTED DUE
TO REQUEST FOR CONFIDENTIAL TREATMENT] per month. In the event Physician gives
the notice that she has committed to develop the building she agrees that the
building will be ready for occupancy on or about June 1, 1999. If Physician does
not commit to purchase the land and develop the building on or before February
1, 1998, USP shall have no obligation to lease space in the building if
Physician builds the building.

10. Continuation and Survival of Representations and Warranties. All
representations and warranties made in this Agreement shall continue to be true
and correct at and as of the Closing Date and at all times between the signing
of this Agreement and the Closing Date, as if made at each of such times;
provided, however, that at Closing Physician may deliver to USP modifications of
Schedule "6(f)" arising from changes thereto arising in the ordinary course of
business since the date hereof, provided further that none of such changes are
materially adverse to the business or financial condition of the Practice and do
not arise from any occurrence or circumstance which would

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<PAGE>

constitute a violation of Paragraph 12. If any party shall learn of a
representation or warranty being or becoming untrue at or prior to Closing, such
party shall promptly notify all of the other parties. All such representations
and warranties shall survive the consummation of the transactions provided for
in this Agreement for a period of two (2) years. No such representation or
warranty shall be deemed to have been waived, affected or impaired by any
investigations made by any party to this Agreement.

11. USP's Inspection Rights. Physician shall give to USP and its designated
employees or representatives full access during normal business hours to all of
the properties and assets of Physician (in connection with the Practice) and to
all of Physician's (in connection with the Practice) documents, books and
records relating to its current and past operations and business, and permit
them to make copies thereof and also permit such employees or representatives to
interview and question Physician's employees. USP and its affiliates will not
reveal any confidential data and/or information supplied by Physician except to
its management, counsel, accountants, insurance representatives, investment
bankers and like agents who will agree to hold such information strictly
confidential, for purposes relating to the evaluation and consummation of the
transactions contemplated by this Agreement; provided, however, that USP may
include any such data and/or information to the extent necessary in connection
with any public or private offering of its securities provided that USP prior to
including such data and/or information provides Physician with an opportunity to
review all relevant portions of documents containing such data or information.
In the event the transactions contemplated by this Agreement are not
consummated, such data and information will not be used by USP, its affiliates
or its management, counsel, accountants, insurance representatives, investment
bankers and like agents, except as provided in the preceding sentence and all
originals and copies of such information will be returned to Physician.
Notwithstanding the foregoing, neither USP nor any affiliate of USP shall have
access to any records of Physician if such access would violate any applicable
law or regulation.

12. Conduct of the Business of the Practice Pending Closing. Between the
date hereof and the Closing hereunder, Physician will:

(a) Not take or suffer or permit any action which would render untrue
any of the representations or warranties of Physician and not omit to take
any action, the omission of which would render untrue any such
representation or warranty.

(b) Conduct her business in a good and diligent manner in the ordinary
and usual course.

(c) Not enter into any contract, agreement, commitment or arrangement
with any party, other than contracts for the rendition of service and
contracts for the purchase of materials and supplies in the ordinary and
usual course of business, and not amend, modify or terminate any Listed
Agreement without the prior written consent of USP.

(d) Use her best efforts to preserve the Practice's business
organizations intact, to keep available the services of her employees, and
to preserve her relationships with patients, suppliers and others with whom
the Practice deals.

(e) Not reveal, orally or in writing, to any party, other than USP,
any affiliate of USP or USP's or its affiliate's authorized agents, any of
the business procedures and practices followed by her in the conduct of the
Practice or any technology used in the Practice.

(f) Maintain in full force and effect all of the insurance policies
listed on Schedule "6(e)" and make no change in any insurance coverage
without the prior written consent of USP. If Physician has an occurrence
basis malpractice insurance policy, Physician shall provide USP with
evidence that the malpractice insurance carrier has agreed to give USP at
least fifteen (15) days written notice before any termination, cancellation
or modification of such insurance policy.

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<PAGE>

(g) Keep the premises occupied by the Practice and all of its
equipment and other tangible personal property in good order and repair and
perform all necessary repairs and maintenance.

(h) Continue to maintain all of the Practice's usual business books
and records in accordance with its past practices.

(i) Not increase the compensation or rate of compensation payable to
any of the Practice's employees except in the ordinary course of business
and consistent with past practices, provided all such permitted increases
to any one employee shall not exceed $1,000 without the prior consent of
USP.

(j) Comply with all provisions of any Listed Agreement applicable to
her and all applicable laws, rules and regulations.

(k) Terminate all employment agreements between Physician and any
professional effective upon the Closing.

(l) Collect and bill accounts receivable in accordance with past
practices and not take any actions to accelerate the collection of accounts
receivable.

13. Conditions Precedent to USP's Obligation to Close. The following shall
be conditions precedent to the obligation of USP to close hereunder, any of
which may be waived in whole or part by USP:

(a) Each of the representations and warranties of Physician contained
in this Agreement is now, and, except as to those expressly limited to the
date hereof, at all times after the date of this Agreement to and including
the time of Closing shall be, true and correct, subject to the provisions
of Paragraph 10 hereof.

(b) Each of the agreements, covenants and undertakings of Physician
contained in this Agreement, except for those calling for performance after
Closing, will have been fully performed and complied with at or before
Closing.

(c) No litigation, governmental action or other proceedings seeking to
restrain or prohibit the transactions contemplated by this Agreement, or
involving or potentially involving a liability, obligation or loss on the
part of Physician or the Practice of twenty five thousand dollars ($25,000)
or more (whether or not covered by insurance), or which by reason of the
nature of the relief sought might have a material adverse effect on the
Practice, shall be threatened in good faith or commenced against Physician
with respect to any matter, or against USP, any affiliate of USP or any
other person with respect to the consummation of the transactions provided
for herein.

(d) All actions, proceedings, instruments and documents required to
perform this Agreement or incident thereto, and all other legal matters,
shall have been approved by counsel for USP, it being understood that such
approval shall not be unreasonably withheld.

(e) All documents required to be delivered by Physician at or prior to
Closing shall have been delivered or shall be tendered at the time and
place of Closing.

14. Conditions Precedent to Physician's Obligation to Close. The following
shall be conditions precedent to the obligation of Physician to close hereunder,
any of which may be waived by Physician:

(a) Each of the representations and warranties of USP contained in
this Agreement is now, and at all times after the date of this Agreement to
and including the time of Closing shall be, true and correct.

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<PAGE>

(b) Each of the agreements, covenants, and undertakings of USP
contained in this Agreement, except for those calling for performance after
Closing, will have been fully performed and complied with at or before
Closing.

(c) No litigation, governmental action or other proceedings shall be
threatened in good faith or commenced against Physician with respect to the
consummation of the transaction provided for herein. Further, no
litigation, governmental action or other proceedings shall be threatened in
good faith or commenced against USP which by reason of the nature of the
relief sought would likely have a material adverse effect on USP or any
affiliate of USP or any other person with respect to the consummation of
the transactions provided herein.

(d) All actions, proceedings, instruments and documents required to
perform this Agreement or incident thereto, and all other legal matters,
shall have been approved by counsel for Physician, it being understood that
such approval shall not be unreasonably withheld.

(e) All documents and instruments required to be delivered by USP at
or prior to Closing shall have been delivered or shall be tendered at the
time and place of Closing.

15. Closing.

(a) Closing Date. The signing of this Agreement shall take place on
September 30, 1997 and the Closing of the transaction provided for in this
Agreement (herein sometimes called the "Closing") shall be governed by an
escrow agreement dated the date hereof between the parties. The date and
time of Closing is sometimes herein called the "Closing Date."

(b) Deliveries by Physician at Closing. At Closing, Physician will
deliver or cause to be delivered to USP the following:

(i) such bills of sale, endorsements, certificates of title,
assignments and other instruments of transfer and conveyance as shall
be effective to vest title in the Assets in USP;

(ii) the certificate of Physician, dated as of the Closing Date,
confirming (A) the truth and correctness of all of the representations
and warranties of Physician contained herein as of the Closing Date
and as of all times between the date hereof and the Closing Date,
subject to the provisions of Paragraph 10 hereof and (B) that all
agreements and covenants of Physician specified herein have been
complied with;

(iii) the original copy (other than tax returns) of each document
listed on the Schedules;

(iv) employment agreements in the form set forth on Exhibit "C,"
with the salaries and other details of employment specific to
Physician and each other physician who currently works for Physician
executed by the appropriate party thereto (the "Employment
Agreements");

(v) a copy of Physician's malpractice insurance policy;

(vi) if not delivered previously, the evidence required by
subparagraph 12(f) relating to occurrence basis malpractice insurance;
and

(vii) all consents of third parties necessary for the transfer of
the Assets as required by USP.

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<PAGE>

(i) the amounts referred to in subparagraph 2(a) of the Asset
Purchase Agreement by wire transfer from USP;

(ii) the Notes referred to in subparagraphs 2(b) and 2(c) of the
Asset Purchase Agreement;

(iii) the Certificate of the President or a Vice-President of
USP, dated the Closing Date, confirming (A) the truth and correctness
of all of the representations and warranties of USP contained herein
as of the Closing Date and as of all times between the date hereof and
the Closing Date and (B) that all agreements and covenants of USP
specified herein have been complied with;

(iv) the Certificate of the Secretary or an Assistant Secretary
of USP, dated the Closing Date, that the necessary corporate action by
the Board of Directors of USP has been taken to authorize the
consummation by USP of the transactions provided for herein;

(v) the security agreement referred to in Paragraph 3 of the
Asset Purchase Agreement;

(vi) the Employment Agreements executed by USP; and

(vii) a copy of Physician's and all other physicians', who
currently work for Physician, malpractice insurance policy effective
as of the Closing Date.

(d) Post-Closing. Within five (5) business days after the Closing
Date, Physician shall deliver to USP a detailed aged accounts receivable
schedule dated as of the Closing Date, showing the name and address of each
payor, the date and amount of each invoice, the name and insurance policy
number, if any, of each patient and such other information as USP may
request.

16. Indemnification of USP and Its Affiliates.

(a) Basic Provision. Physician ("Physician Indemnitors") hereby
indemnifies and agrees to hold harmless USP, the affiliates of USP and
their respective successors and assigns (in this Paragraph 16 sometimes
collectively referred to as the "USP Indemnitees"), from, against and in
respect of the amount of any and all Deficiencies (as defined below).

(b) Definition of "Deficiencies". As used in this Paragraph 16,
"Deficiencies" means any and all loss or damage resulting from:

(i) any misrepresentation, breach of warranty, or any
non-fulfillment of any warranty, representation, covenant or agreement
on the part of Physician contained herein or any certificate delivered
at Closing;

(ii) any claim, debt, liability or obligation or any alleged
claim, debt, liability or obligation of Physician to any party,
incurred prior to Closing hereunder or arising from any matter or
thing occurring prior to Closing hereunder, including but not limited
to claims made by governmental authorities for taxes or otherwise,
except for liabilities expressly assumed by USP pursuant to this
Agreement; and

(iii) any and all acts, suits, proceedings, demands, assessments,
judgments, attorneys' and other professional fees, costs and expenses
incident to any of the foregoing.

(i) In the event that any claim shall be asserted by any party
against one or more of the USP Indemnitees which, if sustained, would
result in a Deficiency, the applicable USP Indemnitees, within a
reasonable

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time after learning of such claim, shall notify the Physician
Indemnitors of such claim, and shall extend to the Physician
Indemnitors a reasonable opportunity to defend against such claim, at
the Physician Indemnitors' sole expense and through legal counsel
acceptable to the applicable USP Indemnitees, provided that the
Physician Indemnitors proceed in good faith, expeditiously and
diligently. No determination shall be made pursuant to subparagraph
(ii) below while such defense is still being made until the earlier of
(A) the resolution of said claim by the Physician Indemnitors with the
claimant, or (B) the termination of the defense by the Physician
Indemnitors against such claim or the failure of the Physician
Indemnitors to prosecute such defense in good faith in an expeditious
and diligent manner. The applicable USP Indemnitees shall be entitled
to rely upon the opinion of its counsel as to the occurrence of either
of said events. The applicable USP Indemnitees shall, at their option
and expense, have the right to participate in any defense undertaken
by Physician Indemnitors with legal counsel of their own selection. No
settlement or compromise of any claim which may result in a Deficiency
may be made by Physician Indemnitors without the prior written consent
of the applicable USP Indemnitees unless (y) prior to such settlement
or compromise Physician Indemnitors acknowledge in writing their
obligation to pay in full the amount of the settlement or compromise
and all associated expenses and (z) the applicable USP Indemnitees are
furnished with security reasonably satisfactory to the applicable USP
Indemnitees that Physician Indemnitors will in fact pay such amount
and expenses.

(ii) In the event that the applicable USP Indemnitees assert the
existence of any Deficiency, the applicable USP Indemnitees shall give
written notice to the Physician Indemnitors of the nature and amount
of the Deficiency asserted. If the Physician Indemnitors, within a
period of fifteen (15) days after the giving of the applicable USP
Indemnitees' notice, shall not give written notice to the applicable
USP Indemnitees announcing their intent to contest such assertion of
the applicable USP Indemnitees (such notice by the Physician
Indemnitors being called the "contest notice"), such assertion of the
applicable USP Indemnitees shall be deemed accepted and the amount of
the Deficiency shall be deemed established. In the event, however,
that a contest notice is given to the applicable USP Indemnitees
within said fifteen-day period, then the contested assertion of a
Deficiency shall be settled by arbitration to be held in Philadelphia,
Pennsylvania in accordance with the rules of the American Arbitration
Association then obtaining. The costs of the arbitrators and the
arbitration shall be borne 50% by the Physician Indemnitors and 50% by
the applicable USP Indemnitees. The determination of the arbitrator(s)
shall be delivered in writing to the Physician Indemnitors and the
applicable USP Indemnitees and shall be final, binding and conclusive
upon all of the parties hereto, and the amount of the Deficiency, if
any, determined to exist, shall be deemed established.

(iii) The applicable USP Indemnitees and the Physician
Indemnitors may agree in writing, at any time, as to the existence and
amount of a Deficiency, and, upon the execution of such agreement such
Deficiency shall be deemed established.

(d) Payment of Deficiencies. The Physician Indemnitors hereby agree to
pay the amount of established Deficiencies to the applicable USP
Indemnitees within thirty (30) days after the establishment thereof in
cash. Any amounts not paid by Physician Indemnitors when due under this
subparagraph shall bear interest from the due date thereof until the date
paid at a rate equal to the lesser of (i) 10% per annum or (ii) the highest
rate permitted by applicable law. USP or an affiliate of USP may, in its
sole discretion and upon thirty (30) days notice, offset any amounts due to
it, or any other Indemnitee, against the Notes or any obligation it owes to
any Physician.

(e) Limitation of Indemnification. Notwithstanding the other
provisions of this Paragraph 16, the Physician Indemnitors shall not have
any liability to USP Indemnitees pursuant to subparagraph 16(b)(i) unless
and until the aggregate of all established Deficiencies pursuant to such
subparagraph exceeds $50,000 (the "Threshold Amount"). If the established
Deficiencies pursuant to subparagraph 16(b)(i) exceed the Threshold Amount,
the Physician Indemnitors shall be liable only for the amount of
established Deficiencies pursuant to subparagraphs 16(b)(i) and any
Deficiencies pursuant to subparagraph 16(b)(ii) which are not known to
Physician prior to Closing in excess of the Threshold Amount.

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16A. Indemnification of Physician.

(a) Basic Provision. USP (in this Paragraph 16A referred to as the
"USP Indemnitor") hereby indemnifies and agrees to hold harmless Physician
and her successors and assigns (in this Paragraph 16A sometimes
collectively referred to as the "Physician Indemnitee") from and against
and in respect of the amount of any and all Deficiencies (as defined
below).

(b) Definition of "Deficiencies". As used in this Paragraph 16A,
"Deficiencies" means any and all loss or damage resulting from:

(i) any misrepresentation, breach of warranty or any
non-fulfillment of any warranty, representation, covenant or agreement
on the part of USP contained herein;

(ii) any claim, debt, liability or obligation or any alleged
claim, debt, liability or obligation of USP to any party relating to
the period commencing on or after the Closing hereunder or arising
from any matter or thing occurring on or after the Closing hereunder,
including, but not limited to, claims made by governmental authorities
for taxes or otherwise; and

(iii) any and all acts, suits, proceedings, demands, assessments,
judgments, attorneys' and other professional fees, costs and expenses
incident to any of the foregoing.

(i) In the event that any claim shall be asserted by any party
against the Physician Indemnitee which, if sustained, would result in
a Deficiency, the applicable Physician Indemnitee, within a reasonable
time after learning of such claim, shall notify the USP Indemnitor of
such claim, and shall extend to the USP Indemnitor a reasonable
opportunity to defend against such claim, at the USP Indemnitor's sole
expense and through legal counsel acceptable to the applicable
Physician Indemnitee, provided that the USP Indemnitor proceed in good
faith, expeditiously and diligently. No determination shall be made
pursuant to subparagraph (ii) below while such defense is still being
made until the earlier of (A) the resolution of said claim by the USP
Indemnitor with the claimant or (B) the termination of the defense by
the USP Indemnitor against such claim or the failure of the USP
Indemnitor to prosecute such defense in good faith in an expeditious
and diligent manner. The applicable Physician Indemnitee shall be
entitled to rely upon the opinion of its counsel as to the occurrence
of either of said events. The applicable Physician Indemnitee shall,
at her option and expense, have the right to participate in any
defense undertaken by USP Indemnitor with legal counsel of her own
selection. No settlement or compromise of any claim which may result
in a Deficiency may be made by USP Indemnitor without the prior
written consent of the Physician Indemnitee unless (y) prior to such
settlement or compromise USP Indemnitor acknowledges in writing its
obligation to pay in full the amount of the settlement or compromise
and all associated expenses and (z) Physician Indemnitee is furnished
with security reasonably satisfactory to Physician Indemnitee that USP
Indemnitor will in fact pay such amount and expenses.

(ii) In the event that the Physician Indemnitee asserts the
existence of any Deficiency, Physician Indemnitee shall give written
notice to the USP Indemnitor of the nature and amount of the
Deficiency asserted. If the USP Indemnitor, within a period of fifteen
(15) days after the giving of the Physician Indemnitee's notice, shall
not give written notice to the Physician Indemnitee announcing its
intent to contest such assertion of the Physician Indemnitee (such
notice by the USP Indemnitor being called the "Contest Notice"), such
assertion of the Physician Indemnitee shall be deemed accepted and the
amount of the Deficiency shall be deemed established. In the event,
however, that a Contest Notice is given to Physician Indemnitee within
said fifteen day period, then the contested assertion of a Deficiency
shall be settled by arbitration to be held in Philadelphia,
Pennsylvania in accordance with the rules of the American Arbitration
Association then pertaining. The costs of the arbitrators and the
arbitration shall be borne 50% by the USP Indemnitor and 50% by the
Physician Indemnitee. The determination of the arbitrator(s) shall be
delivered in writing to the USP Indemnitor and the Physician
Indemnitee and shall be final, binding and conclusive upon all of the
parties hereto, and the amount of the Deficiency, if any, determined
to exist, shall be deemed established.

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<PAGE>

(iii) Physician Indemnitee and the USP Indemnitor may agree in
writing at any time as to the existence and amount of a Deficiency,
and, upon the execution of such agreement such Deficiency shall be
deemed established.

(d) Payment of Deficiencies. The USP Indemnitor hereby agrees to pay
the amount of established Deficiencies to the applicable Physician
Indemnitee within thirty (30) days after the establishment thereof in cash.
Any amounts not paid by USP Indemnitor when due under this subparagraph
shall bear interest from the due date thereof until the date paid at a rate
equal to the lesser of (i) 10% per annum or (ii) the highest rate permitted
by applicable law.

17. Restrictions on Securities; Securities Laws Compliance Procedures.

(a) Restrictions on USP Shares and Converted Shares. The USP Shares
and the Converted Shares may not be sold, assigned, pledged or otherwise
transferred (any sale, assignment, pledge or transfer is hereinafter
referred to as a "transfer") by Physician except in accordance with the
provisions of this Paragraph 17. None of the USP Shares may be transferred
prior to the second anniversary of Closing. Twenty-five percent (25%) of
the USP Shares shall become transferable on each of the second and third
anniversaries of Closing and the remaining fifty percent (50%) of the USP
Shares shall become transferrable on the fourth anniversary of Closing.
Notwithstanding the foregoing, (i) at any time after the IPO, Physician may
transfer USP Shares by gift to her spouse or any of her lineal descendants,
a trust for the benefit of any of the foregoing or a charitable
organization at any time, provided that the donee agrees to be bound by the
restrictions contained herein, and (ii) in the event Physician owes USP or
any of its affiliates amounts pursuant to Paragraph 16 which exceeds the
unpaid principal amount of the Notes, such number of USP Shares owned by
Physician as is necessary to result in proceeds of such sale being equal to
the amount due USP or its affiliate shall become transferable on the date
the amount is due, subject to applicable restrictions contained in
securities laws and provided arrangements satisfactory to USP are made to
ensure that the proceeds of any such sale are paid directly to USP or its
affiliates, as applicable. The Stock Certificates shall bear legends that
USP deems necessary or appropriate to reflect the foregoing restrictions
and restrictions relating to applicable securities laws. USP shall give its
transfer agent applicable stop transfer instructions. Physician shall have
the power to vote the USP Shares and receive any dividends or distribution
thereon even though the USP Shares are not yet transferrable, provided that
any dividends or distributions received in common stock of USP shall be
subject to the same restrictions as the USP Shares to which they relate are
subject.

(b) Knowledge Respecting USP. Physician represents and acknowledges
that (i) she knows, or has had the opportunity to acquire, all information
concerning the business, affairs, financial condition and prospects of USP
which she deems relevant to make a fully informed decision regarding the
consummation of the transactions contemplated hereby, (ii) she has been
supplied by USP with, and has reviewed materials described by USP as, the
Private Placement Memorandum, and (iii) the information contained in the
Accredited Investor and Suitability Information Questionnaire previously
delivered by Physician to USP is true and correct. Without limiting the
foregoing, Physician understands and acknowledges that neither USP nor
anyone acting on its behalf has made any representations or warranties
other than those contained herein respecting USP or the future conduct of
USP's business, and Physician has not relied upon any representations or
warranties other than those contained herein in the belief that they were
made on behalf of USP.

(c) Status of the Notes and Shares. Physician agrees, acknowledges and
confirms that it and she have been advised and understand as follows:

(i) Physician is acquiring the Notes, the USP Shares and the
Converted Shares for investment and without a view to any distribution
or resale thereof, other than a distribution or resale which, in the
opinion of counsel, which opinion is satisfactory to USP, may be made
without violating the registration provisions of the Securities Act of
1933, as amended (the "1933 Act"), the Pennsylvania Securities Act of
1972, as amended (the "1972 Act") or any other applicable state
securities laws. Neither the Notes nor the USP Shares have been, and
the Converted Shares will not be, registered under the 1933 Act, the
1972 Act or the laws of any other state and therefore,

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<PAGE>

in addition to the limitations on transfer of the USP Shares set forth
in subparagraph 17(a), the Notes, the USP Shares and the Converted
Shares must be held indefinitely unless registered under such acts or
an exemption from registration is available. USP is under no
obligation to register the Notes, the USP Shares or the Converted
Shares under the 1933 Act, the 1972 Act or the laws of any other state
or to take any action which would make available an exemption from
such registration.

(ii) The Notes may only be transferred as specified in the Notes.

18. Third Party Consents. To the extent the requisite consent of any third
party to the assignment of any contract which USP or its designee has agreed to
assume hereunder has not been obtained prior to the Closing Date, the Closing
shall nevertheless take place if USP determines in its sole and reasonable
discretion that any such contract is not material, but Physician shall not be
deemed to have assigned the contract to which such consent relates nor shall USP
or its designee (as applicable) be deemed to have assumed the same unless and
until such consent shall have been granted. If, at a date subsequent to the
Closing Date, any previously unobtained consent shall be obtained, Physician
shall be deemed to have assigned to USP or its designee (as applicable) the
contract to which such consent relates and USP or its designee (as applicable)
shall be deemed to have assumed the same as of the Closing Date, provided USP or
its designee (as applicable) shall have continuously received the benefit of
such contract from and after the Closing Date. If any such consent is not
obtained or if an attempt to assignment would be ineffective or would impair any
of the rights of Physician so that USP or its designee (as applicable) would not
receive the benefits of the contract to which the same relates, then Physician
agrees to use its best efforts and to cooperate fully with USP or its designee
(as applicable) in order continuously to obtain for USP or its designee (as
applicable) the benefits of such contract from and after the Closing Date. To
the extent that USP or its designee does not receive the benefits of such
contracts, Physician shall indemnify USP or its designee (as applicable) and
hold it harmless of and from all loss of value, liability, costs and expenses as
a result of the failure to obtain such consent and receive such benefits.

19. Further Assurances. USP and Physician agree to execute and deliver all
such other instruments and take all such other action as any party may
reasonably request from time to time, before or after Closing and without
payment of further consideration, in order to effectuate the transactions
provided for herein. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement,
including, without limitation, the preparation of financial statements. Without
limiting the foregoing, Physician agrees to endorse and deliver any and all
checks to USP which she receives in payment of any account receivable purchased
by USP. Physician hereby authorizes any employee of USP to endorse on behalf of
Physician any checks to USP which USP receives which are payable to Physician
and which are in payment of any account receivable purchased by USP. Physician
shall take any and all actions reasonably requested by USP to assist USP in
obtaining the proceeds of the accounts receivable, including, but not limited
to, giving change of address notices to payors.

20. Restrictive Covenants.

(a) Duration and Extent of Restriction. Physician shall not, directly
or indirectly, for a period of five (5) years following the Closing (the
"Time Restriction"):

(i) induce any existing or former patient of the Practice or any
affiliate of USP to terminate his or her relationship with such
affiliate; provided, however, that Physician shall not be prohibited
from treating an individual who has independently determined to
terminate his/her relationship with such affiliate except in the
circumstances otherwise prohibited under this Paragraph 20;

(ii) induce or attempt to influence any employee, independent
contractor and/or consultant of USP or such affiliate to terminate his
or her relationship with USP or such affiliate;

(iii) induce or attempt to influence any hospital, healthcare
facility, professional or other person or entity that has a referring
relationship with the Practice or any affiliate of USP, or any HMO or
other health

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<PAGE>

care insurer that has an arrangement for the provision of health care
services with USP or any affiliate of USP to terminate or not to renew
such relationship with USP or such affiliate; or

(iv) render professional or other services at, on behalf of, or
have any interest in, directly or indirectly (as principal, partner,
stockholder, proprietor, agent, broker, employee, consultant, lender
or otherwise), any business or facility where mammography or
diagnostic services are rendered or conducted (including a private
physician's office) or which engages in the management of physician
offices that provide mammography or diagnostic services within the
Restricted Area. The Restricted Area shall mean the area within a
fifty (50) mile radius of any site at which Physician has, within one
year prior to the Closing hereunder or on the last day of Physician's
employment by any affiliate of USP, regularly rendered services.
Nothing in the foregoing subparagraph 20(a)(iv) shall be deemed,
however, to prevent Physician from being an employee of any affiliate
of USP or owning securities of USP or not more than 5% of the equity
securities of any publicly traded company.

(b) Remedies for Breach. Physician acknowledges that the restrictions
contained in subparagraph 20(a) above in view of the medical and business
practices of USP and its affiliates are reasonable and necessary in order
to protect the legitimate interests of USP and its affiliates, and that any
violation thereof would result in irreparable injury to USP and its
affiliates. Physician therefore acknowledges and agrees that, in the event
of any violation thereof, USP and/or its affiliates shall be authorized and
entitled to obtain, from any court of competent jurisdiction, preliminary
and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising out of such
violation, which rights and remedies shall be cumulative and in addition to
any other rights or remedies to which USP and/or its affiliates may be
entitled.

(c) Judicial Modifications. If the period of time or the area
specified in subparagraph 20(a) above should be adjudged unreasonable in
any proceeding, then the period of time shall be reduced by such number of
months or the area shall be reduced by the elimination of such portion
thereof or both so that such restrictions may be enforced in such area and
for such time as is adjudged to be reasonable.

(d) Extension of Restriction. In the event of any breach or violation
of the restriction contained in subparagraph 20(a) above, the period
therein specified shall abate during the time of any violation thereof and
that portion remaining at the time of commencement of any violation shall
not begin to run until such violation has been fully and finally cured.

(e) Exception to Restrictions. The restrictions contained in this
Paragraph 20 shall not apply in the event the restrictive covenant
contained in Physician's Employment Agreement with an affiliate of USP is
not applicable or if USP defaults under the Notes, and Physician gives
notice to USP during such default that the restrictions shall no longer
apply, in which case USP shall not be obligated to make any further payment
under the Notes and Physician shall return the Notes to USP marked
"Cancelled."

21. IPO Repurchase.

(a) The provisions of this Paragraph 21 are referred to collectively
as the "IPO Repurchase."

(b) If USP fails to close an initial public offering of the Common
Stock of USP (the "IPO"), in which USP shall have received proceeds (prior
to underwriters' discounts, fees and expenses) of at least $30,000,000 (the
"Contingency") on or before January 15, 1998 (the "Contingency Date"),
Physician shall have a right to repurchase the Assets as described herein,
such right to be exercisable in the manner described in this Paragraph 21.
Notwithstanding anything to the contrary contained herein, if the
Contingency is met by USP, Physician shall not have any repurchase rights
under this Paragraph 21, notwithstanding any prior delivery of an IPO
Repurchase Notice.

(c) During the period beginning on January 16, 1998 and ending on
January 31, 1998 (the "Exercise Period"), Physician may give written notice
to USP (the "IPO Repurchase Notice") that she desires to repurchase the
Assets 30 days after the date of delivery of the IPO Repurchase Notice (the
"IPO Termination Date").

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<PAGE>

If the IPO Repurchase Notice is given, Physician shall deliver to USP the
Deliverables (as defined below) no later than the IPO Termination Date.

(d) Except as provided in subparagraph 21(h), Deliverables means the
Notes and the Common Shares and does not include any amounts paid to
Physician by USP at Closing pursuant to Paragraph 2(a) of the Asset
Purchase Agreement or the amount of any prepaid expenses paid pursuant to
Paragraph 2 of this Rider. The Deliverables shall be delivered to USP on or
before the IPO Termination Date. The portion of the Deliverables
represented by the Common Shares shall be paid by the return to USP of all
Common Shares beneficially owned by Physician (which shall equal the number
of Common Shares issued to Physician by USP hereunder) together with
executed stock powers with signature guarantee. Upon delivery of the
Deliverables, all amounts of principal and interest due on the Notes shall
no longer remain due, and the Notes will be delivered to USP on or before
the IPO Termination Date and marked "Satisfied and Cancelled."

(e) In the event Physician has given the IPO Repurchase Notice, USP
shall, on the IPO Termination Date, (i) convey to Physician such of the
office and medical equipment and furniture and fixtures of the Practice
that is then owned by USP (which shall be the same in all material respects
as the equipment, furniture and fixtures of the Practice purchased by USP
pursuant to this Agreement and the then existing accounts receivable of the
Practice) and (ii) pay up to $10,000 of documented legal, accounting and/or
consulting fees incurred by Physician in connection with the IPO
Repurchase. USP shall assign to Physician the real estate lease for the
office used by the Practice, provided Physician obtains, prior to the IPO
Termination Date any necessary consents, and the landlord executes and
delivers to USP a full release of USP for the period after the IPO
Termination Date, or USP receives an agreement of suretyship from
Physician.

(f) Upon the fulfillment by Physician of her obligations under this
Paragraph 21, as of the IPO Termination Date all obligations arising on or
after the IPO Termination Date under this Agreement or any other agreement
between Physician and any affiliate of USP, including, without limitation,
all restrictive covenants contained in any such agreement and any
employment agreement between any physician previously employed by Physician
and an affiliate of USP shall be null and void.

(g) Notwithstanding anything to the contrary contained herein, USP
shall have the right to extend the Contingency Date to March 31, 1998. Such
right shall be exercisable at any time on or before January 15, 1998, by
delivery by USP to Physician of cash in the amount of $187,500, in
prepayment of the principal amounts due under the Note "B" issued pursuant
to the Asset Purchase Agreement. Upon any such prepayment, (i) the Exercise
Period under subparagraph 21(c) hereof shall become the period beginning on
April 1, 1998 and ending on April 15, 1998, (ii) the Deliverables shall be
deemed to mean the Notes, the Common Shares, and all amounts paid to
Physician under the Notes, through prepayment or otherwise, through the IPO
Termination Date, and (iii) all other terms and conditions of this
Paragraph 21 shall remain the same.

(h) Notwithstanding anything to the contrary contained herein, USP
shall have the right to further extend the Contingency Date to May 14,
1998. Such right shall be exercisable anytime on or before March 31, 1998,
by delivery by USP to Physician of cash in the amount of $95,000, in
prepayment of the principal amounts due under the Note "B" issued pursuant
to the Asset Purchase Agreement. Upon any such prepayment, (i) the Exercise
Period under subparagraph 21(c) hereof shall become the period beginning on
May 15, 1998 and ending on May 31, 1998; (ii) the Deliverables shall be
deemed to mean the Notes, the Common Shares and all amounts, other than the
payment referenced in this subparagraph 21(h), paid to Physician under the
Notes, through prepayment or otherwise, through the IPO Termination Date;
and (iii) all other terms and conditions of this Paragraph 21 shall remain
the same.

(i) In the event USP closes an IPO on or before the Contingency Date,
but fails to make an offer to acquire the assets of Mt. Hope Publishing
Co., Inc. for [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT] (which
shall be payable as follows: [REDACTED DUE TO REQUEST FOR CONFIDENTIAL

TREATMENT] at Closing, [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
by note in the form of Note "A" and [REDACTED DUE TO REQUEST FOR
CONFIDENTIAL TREATMENT] shares of common stock of USP, with such number of
shares adjusted in a manner similar to that set forth in Paragraph 2(d) of
the Asset Purchase Agreement) within twenty (20) days after the date of the
closing of the IPO which

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<PAGE>

offer shall be subject to the same documentation as this Asset Purchase
Agreement with appropriate changes as to the seller, economic terms and
type of business, then Physician shall have the right to repurchase the
Assets as described in this Paragraph 21, except the Exercise Period shall
be deemed to commence on the twenty-first day after the closing of the IPO
and shall end thirty days thereafter and the Deliverables shall include in
addition to the items set forth in subparagraph 21(d), all payments made by
USP pursuant to the Notes. The portion of the Deliverables represented by
the payments made by USP pursuant to the Notes shall be paid to USP by
certified check. USP agrees that in the event USP fails to make the offer
to acquire the assets of Mt. Hope Publishing Co., Inc. pursuant to the
first sentence of this subparagraph and Physician exercises her right to
repurchase the Assets contained in this subparagraph, USP shall pay
Physician liquidated damages of [REDACTED DUE TO REQUEST FOR CONFIDENTIAL
TREATMENT] at the time the Deliverables are delivered to USP. Upon delivery
of the Deliverables and payment of the liquidated damages, no party hereto
shall have any liability to the others hereunder.

22. Indemnity Against Brokerage Commissions. USP and its affiliates hereby
represent and warrant that there is no corporation, firm or person entitled to
receive from it any brokerage commission or finder's fee in connection with this
Agreement or the transactions provided for herein, and hereby indemnifies and
agrees to save Physician harmless from and against any claim for brokerage
commission or finder's fee based on any retention or alleged retention of a
broker or finder by it. Physician hereby indemnifies and agrees to save USP and
its affiliates harmless from and against any claim for any brokerage commissions
or finder's fee based upon Physician's or any of her affiliate's retention of a
broker or finder in connection with this Agreement or the transactions provided
for herein.

23. Miscellaneous.

(a) Indulgences, Etc. Neither the failure nor any delay on the part of
any party hereto to exercise any right, remedy, power or privilege
(singularly or collectively, a "Right") under this Agreement shall operate
as a waiver thereof, nor shall any single or partial exercise of any Right,
preclude any other or further exercise of the same or of any other Right,
nor shall any waiver of any Right with respect to any occurrence be
construed as a waiver of such Right with respect to any other occurrence.

(b) Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including without
limitation, provisions concerning limitations of actions), shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, other than conflicting choice-of-law provisions, and
without the aid of any canon, custom, or rule of law requiring construction
against the drafting party.

(c) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other
messenger) or three (3) business days after deposit in the United States
mails, registered or certified mail, postage prepaid, return receipt
requested, addressed to USP at 220 Commerce Drive, Ft. Washington, PA
19034, Attn: President (with a copy to Cozen and O'Connor, 1900 Market
Street, Philadelphia, Pennsylvania, 19103, Attn: Sandra A. Bloch) and to
Physician as set forth in the Asset Purchase Agreement. In addition, notice
by mail shall be by airmail if posted outside of the continental United
States. Any party may alter the address to which communications or copies
are to be sent by giving notice of such change of address in conformity
with the provision of this paragraph for the giving of notice.

(d) Schedules and Exhibits. All Schedules and Exhibits referred to in
this Agreement are hereby incorporated by reference into, and made a part
of, this Agreement.

(e) Binding Nature of Agreement; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
heirs, personal representatives, successors and assigns, except that
Physician may not assign or transfer their rights or obligations under this
Agreement without the prior written consent of USP.

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<PAGE>

(f) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.

(g) Knowledge of Physician. For purposes of this Agreement, the phrase
"to the knowledge of Physician" or the like shall refer to the knowledge,
after due investigation, of Physician, including consultation with the
business manager of the Practice, if any and the office manager of the
Practice, if any.

(h) Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not
affect its interpretation.

(i) Gender, Etc. Words used, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context requires.

(j) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period falls
on a Saturday, Sunday or holiday on which federal banks are or may elect to
be closed, then the final day shall be deemed to be the next day which is
not a Saturday, Sunday or such holiday.

(k) Certain Employee Matters. USP agrees that it shall not terminate
or alter the terms of Theresa Wade's, Nancy Wayne's or Andrea S. Taylor's
employment without first obtaining Physician's advance consent. Promptly
after Closing, USP shall increase the salaries paid to the non-physician
employees of Physician in an aggregate amount of $277,000, which amount
shall be allocated to the employees as directed by Physician.

IN WITNESS WHEREOF, the parties hereto have executed this Rider to Asset
Purchase Agreement as of the date first written above.

U.S. PHYSICIANS, INC.

By: /s/ John M. Hogan
------------------------------------

/s/ Wende W. Young, M.D.
---------------------------------------
Wende W. Young, M.D.

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<PAGE>

EXHIBITS

A-1. Note "A"

A-2. Note "B"

B. Security Agreement

C. Employment Agreement

D. Allocation of Purchase Price

SCHEDULES

2 Personal Items which are a part of Excluded Assets
2-1 Prepaid Expenses, etc. relating to post-Closing
6(b) Financial Statements
6(c) Leased Real Estate
6(d) Personal Property Liens and Conditions
6(d)-1 Personal Property Leases
6(e) Insurance
6(f) Contracts, etc.
6(g) Labor and Employee Matters
6(g)-1 Benefit Plans
6(g)-2 Salaries
6(g)-3 Employees whose employment is not "at-will"
6(h) Litigation
6(i) Conflicting Interests
6(j) Licenses, Permits, etc.
6(l) Tax Returns

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EXHIBIT "D"

Purchase price and assumption of liabilities shall be allocated at the
date of closing as follows:

Cash and Marketable Securities $0
Accounts Receivable $600,000
All Other Tangible Assets Tax depreciated value
All Liabilities $0
Goodwill Amount remaining after allocating to all
other assets and liabilities.

EMPLOYMENT AGREEMENT

THIS IS AN AGREEMENT, made on the _______ day of _____________, 1997, by
and between U.S. Medical Services of New York, P.C. (the "P.C."), and Wende W.
Young, M.D., an individual (the "Physician").

B A C K G R O U N D

A. P.C. wishes to employ Physician and Physician wishes to enter into
the employ of P.C. on the terms and conditions contained in this Agreement.

B. Attached hereto is a nine (9) page Rider to Employment Agreement
(the "Rider") which forms a part of this Agreement.

NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement and intending to be legally bound, P.C. and
Physician agree as follows:

1. Employment. P.C. employs Physician and Physician accepts employment
by P.C. for the period and upon the terms and conditions contained in this
Agreement.

2. Duties and Responsibilities. As discussed more fully in the Rider,
Physician shall serve P.C. generally as a physician specializing in the
practice of mammography and diagnostics and shall have such authority and
such medical and administrative responsibilities as P.C. reasonably may
determine from time to time.

3. Compensation.

(a) As compensation for all the services rendered by Physician to
P.C., P.C. shall pay Physician, all other Practice Physicians, nurse
practitioners, physician assistants and all other professional medical
personnel who are entitled to reimbursement from third parties for services
provided in their name and other practice employees designated by Physician
in the aggregate, [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]
percent of the "Net Revenue of the Practice," as that term is defined on
Exhibit "A" ("Base Salary"). The amount paid to each of the foregoing
persons shall be initially determined by Physician and ______________ (the
"Determining Physicians") and they shall give P.C. notice of such
determination on or before the date hereof. The Determining Physicians
shall be able to change the amount paid to the foregoing persons no more
frequently than quarterly by giving written notice to P.C. of such
change(s) signed by all the Determining Physicians then employed by P.C. at
least thirty (30) days prior to the effective date of the desired
change(s); provided, however, that no such change shall be in violation of
any applicable law or regulation or contractual obligation of P.C. The Base
Salary will be paid in the manner provided below. Notwithstanding the
foregoing, during the Initial Period (as defined below), in lieu of the
foregoing, Physician shall receive

<PAGE>

as an advance $_____ per month [[REDACTED DUE TO REQUEST FOR CONFIDENTIAL
TREATMENT] for the entire group. Please tell us how it will be allocated]
(the "Advance").

(b) Within 30 days after the end of each calendar quarter (the
"Determination Period") during the term of this Agreement (a "quarter")
commencing with the end of the Initial Period, P.C. shall determine: (i)
the Net Revenue of the Practice for the Initial Period or the quarter then
ended, whichever is applicable; (ii) the amount Physician was entitled to
receive as Base Salary during the Initial Period or such quarter, whichever
is applicable (the "Current Base Salary"); and (iii) the difference, if
any, between the amount paid to Physician during the Initial Period or such
quarter and the amount that Physician was entitled to receive during the
Initial Period or such quarter (the "Difference").

(c) If the Difference is a positive number (i.e., the amount to which
Physician was entitled with respect to the applicable quarter exceeds the
amount paid), P.C. shall pay Physician the amount of the Difference within
15 days after the end of the Determination Period. If the Difference is a
negative number, P.C. shall proportionately reduce the next payments due
Physician during the remainder of the then current quarter by the amount of
the Difference.

(d) In addition to and before any adjustments that result from a
negative Difference, each quarter after the Initial Period P.C. shall
adjust the amount payable to Physician so that it equals 90% of the most
recently determined Current Base Salary. Notwithstanding anything in this
Agreement to the contrary, the Current Base Salary in the quarter following
the Initial Period shall be based only upon the immediately preceding
calendar quarter and not upon the entire Initial Period. If the amount of
the Current Base Salary is not determined for any quarter until one or more
payments have been made to Physician in such quarter the remaining payments
of Current Base Salary will be adjusted proportionately.

(e) The Initial Period means the time beginning with the date of this
Agreement and ending on the last day of the calendar quarter which is
closest to, but not more than, six months following the date of this
Agreement. For example, if the date of this Agreement is February 20, the
Initial Period would end on June 30 and if the date of this Agreement is
October 2, the Initial Period would end on March 30.

(f) The Advance during the time when it is applicable or 90% of the
Current Base Salary, as it is determined or adjusted from time to time,
shall be paid in equal installments pursuant to P.C.'s customary payroll
payment procedure then in effect, but not less frequently than monthly.

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<PAGE>

4. Vacation. Physician shall be entitled to nine (9) weeks vacation per
year.

5. Identification of Hospital. The hospital referred to in subparagraph
10(a)(v) of the Rider is Strong Memorial Hospital of the University of
Rochester.

6. Bonus Pool. On each anniversary of the date hereof during Physician's
employment hereunder, P.C. shall establish a bonus pool of [REDACTED DUE TO
REQUEST FOR CONFIDENTIAL TREATMENT] which shall be distributable to the
non-physician employees who perform services at the location at which Physician
primarily renders her services in accordance with directions received by P.C.
from Physician at least ten (10) days prior to the date of distribution.

7. Controlling Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of New York, and without the aid of
any canon, custom or rule of law requiring construction against the draftsman.

8. Incorporation of Rider. The Rider is incorporated by reference into and
made a part of this Agreement.

10. Entire Agreement. This Agreement, including the Rider, Schedules and
Exhibits (which are incorporated in this Agreement by reference), contains the
entire understanding among the parties with respect to its subject matter, and
supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms of this Agreement control and supersede any course
of performance and/or usage of the trade inconsistent with any of the terms
hereof. This Agreement may not be modified or amended other than by an agreement
in writing, signed by all signatories hereto.

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<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.

U.S. MEDICAL SERVICES OF
NEW YORK, P.C.

By: /s/ Wende M. Young, M.D.
--------------------------------
Vice President

/s/ Wende W. Young, M.D.
-----------------------------------
Wende W. Young

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<PAGE>

EXHIBIT "A"

Net Revenue of the Practice means the sum of (a) cash receipts received by
P.C. resulting from payments by or on behalf of patients who received services,
on or after the date hereof, rendered by Wende Young, M.D., Stamatia Destounis,
M.D., Susan Roux, M.D., Patricia DiNitto, M.D., Ermelinda Bonaccio, M.D. any
additional physicians or any replacement physicians (collectively, the "Practice
Physicians") plus (b) cash receipts received by P.C. resulting from payments by
or on behalf of patients who received services on or after the date hereof
rendered by any nurse practitioner, physician assistant or other professional
medical personnel who is entitled to reimbursement from third parties for
services provided in his/her name, plus (c) cash receipts received by P.C. on
account of invoices billed by P.C. for services, on or after the date hereof,
rendered by personnel other than the Practice Physicians but under the
supervision of the Practice Physicians ("Ancillary Services") from the locations
in which the Practice Physicians primarily provide their services (the
"Locations") so long as the services relate to the detection and treatment of
breast disease, plus (d) revenues received by P.C. from the lecturing activities
of Stamatia Destounis, M.D. and Susan Roux, M.D., plus (e) cash receipts
received by P.C. on account of clinical trials or drug studies conducted at the
Locations, plus (f) cash receipts received by P.C. on account of invoices billed
by P.C. for Ancillary Services, from the Locations, on account of the use of
existing equipment or technology of the Practice, or any replacement thereto,
for the treatment of diseases or illnesses other than those of the breast, plus
(g) the dollar amount of capitation payments received by P.C. (without deduction
of any administrative fee or other charge, except any amount withheld by P.C. to
cover the costs of out-of-area care under a capitation contract, with any unused
portion of such withhold to be distributed to the Designated Physicians (as
defined below) pursuant to the methods described below) that are attributed to
the Practice Physicians, for any period beginning on or after the date hereof,
pursuant to the following formula: With respect to each payor who makes
capitated payments to P.C. in return for the agreement of P.C. to provide or
arrange for the provision of designated covered services to the members of the
payor plan, P.C. shall, during the first 12 months of each such agreement,
determine those physician employees of P.C. who are providers of the designated
covered services in the service area covered by such agreement (the "Designated
Physicians"), determine, pursuant to actuarial analysis, the amount of such
capitation payments that will be allocated to the Designated Physicians in the
aggregate, and allocate such capitated payments to the net revenue of the
Designated Physicians, on a Per Member Per Month basis, based upon the number of
members of the applicable plan assigned to the Practice from the entire pool of
members covered under such plan, which assignment shall be made based upon the
zip codes of the members of such plan. For each 12-month period after the first
12

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<PAGE>

months of each capitated agreement, P.C. shall allocate capitated payments to
the Designated Physicians in the aggregate on the basis described herein, or on
a basis that adjusts for P.C. experience concerning resource utilization,
quality management criteria, plan cost effectiveness and other reasonable
criteria. The parties hereto will mutually agree as to the Practice Physician
compensation arrangement with respect to any future Ancillary Services, not
described above, prior to the implementation of any such Ancillary Service in
the Practice.

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<PAGE>

RIDER TO EMPLOYMENT AGREEMENT

This Rider is attached to an Employment Agreement and forms a part of such
Agreement. Any term used in this Rider which is defined in the Employment
Agreement shall have the meaning set forth in the Employment Agreement. The term
"Agreement" used in this Rider means the Employment Agreement, including this
Rider.

1. Employment. The engagement of Physician as an employee of P.C. is set
forth in the Employment Agreement.

2. Duties and Responsibilities.

(a) Physician shall discharge the following responsibilities:
consultant treatment of patients in accordance with general professional
standards; assisting the completion of the medical charts and records with
the detail then required by P.C. in a legible form and/or any other form of
transmission but in any event in a timely manner; consultation of clinical
and diagnostic testing services; participation in occasional continuing
education programs in order to maintain competency; performance and
maintenance of necessary or appropriate administrative duties, including
but not limited to training office personnel and Practice Physicians,
preparation of reports, claims, correspondence and records relating to all
professional services rendered under this Agreement; and teaching, public
speaking engagements and writing. Physician shall perform any other duties
reasonably requested by P.C., including but not limited to any duties and
responsibilities of P.C. set forth in any agreement between P.C. and any
insurer, HMO or other third party relating to the provision of medical
services of the type practiced by Physician.

(b) Throughout the term of this Agreement, Physician shall devote
Physician's entire working time, energy, skill and best efforts to the
performance of Physician's duties hereunder in a manner which will
faithfully and diligently further the business and interests of P.C.
Physician represents that Schedule "A" attached hereto sets forth certain
information concerning the hours, call obligations and related matters of
Physician's current practice. P.C. and Physician agree that Physician will
generally work and be available to work similar hours for P.C., but
Physician understands that circumstances and scheduling problems, as well
as professional duties and emergencies will require Physician to work
additional hours or different days from time to time if P.C.'s practice so
requires.

3. Term. This Agreement shall be for a term of seven years commencing on
the date of this Agreement, unless sooner terminated as hereinafter provided.
Unless either party elects to terminate this Agreement at the end of the
original or any renewal term by giving the other party notice of such election
at least ninety (90) days before the expiration of the then current term, or as
otherwise provided in this Agreement, this Agreement shall be deemed to have
been renewed for additional one (1) year terms commencing on the day following
the day the then current term expires.

4. Compensation.

(a) For all the services rendered by Physician to P.C., P.C. shall pay
Physician the amounts set forth in the Employment Agreement.

(b) P.C. will pay all state license fees reasonably necessary or
appropriate.

(c) Throughout the term of this Agreement and as long as they are kept
in force by P.C., Physician shall be entitled to participate in and receive
the benefits of any health insurance, profit sharing or retirement plans
made available to other similarly situated employees of P.C.

(d) Physician shall be entitled to such number of weeks of vacation
during each year of the term of this Agreement as is set forth in the
Employment Agreement. Any vacation not used in any year shall be forfeited
and shall not be carried over into any other year. Vacation time shall be
earned ratably during each year.

(e) P.C. shall, in its discretion, either pay the premiums for or
provide professional liability insurance for Physician complying with the
______________________ or any successor statute. If on the date hereof,
Physician has claims made basis professional liability insurance, Physician
shall pay for and purchase (or cause to be purchased) a "tail" insurance
policy insuring Physician for malpractice that may be alleged to have
occurred during any period Physician had claims made professional liability
insurance in an amount acceptable to P.C. If on the date

<PAGE>

hereof Physician has occurrence basis professional liability insurance or
Physician has claims made basis professional liability insurance and has
purchased (or caused to be purchased) a "tail" pursuant to the preceding
sentence and, in either case, P.C. provides professional liability
insurance for Physician on a claims made basis during the term of this
Agreement, then, on the earlier of the date P.C. ceases to provide claims
made professional liability insurance for Physician or the date of
termination of this Agreement, P.C. shall purchase a "tail" insurance
policy insuring Physician for malpractice that may be alleged to have
occurred during the term of such claims made insurance policy in an amount
in effect immediately prior to the termination of such policy.

(f) All amounts payable under this Agreement shall be subject to
withholding of applicable federal, state and local taxes and all other
taxes, if any, required to be withheld.

5. Expenses. Subject to the prior written approval of the President or
Executive Vice President of P.C. (with respect to items (i) through (iv)),
Physician shall be entitled to reimbursement (up to a maximum of $5,000 annually
for the aggregate of items (i) through (vi) below) upon receipt of vouchers for:
(i) travel, meals, lodging and other expenses reasonably incurred to attend
professional meetings and educational programs annually, (ii) continuing medical
education, (iii) dues and fees for professional association membership, (iv)
subscriptions for professional publications, (v) automobile mileage incurred in
connection with Physician's services hereunder in accordance with the
regulations of the Internal Revenue Service and (vi) business entertainment.

6. Fees.

(a) P.C. shall arrange for all billing and collection functions for
all professional services rendered by Physician in a timely, efficient and
accurate manner. Physician shall take all steps reasonably requested by
P.C. to assist in the billing and collection of funds due for such
professional services, including the establishment of an "assignment
account" for purposes of Medicare, Blue Shield and any other third party
billing.

(b) Except as provided in the succeeding sentence, Physician agrees to
turn over to P.C. any and all fees paid or assigned to Physician for all
professional services (including, but not limited to, research grants,
medical director fees, fees related to clinical and/or pharmaceutical
trials and expert witness or other legal/medical fees) which Physician
performs during the term of this Agreement, including any third party fee
assignments from any insurer, intermediary or other party. Physician may
retain any and all book royalties and lecture fees.

7. Disability.

(a) If Physician becomes unable to perform Physician's essential
duties hereunder, with or without reasonable accommodations, due to partial
or total disability or incapacity resulting from a mental or physical
illness or any similar cause ("Disabled"), P.C. will continue the payment
of Physician's base salary at its then current rate for a period of ninety
(90) days following the date Physician is first unable to perform
Physician's duties due to being Disabled. Thereafter, P.C. shall have no
obligation for base salary or other compensation payments to Physician
during the continuance of such disability or incapacity.

(b) If Physician is Disabled for a cumulative period of 180 days
during any twelve month period, P.C. shall have the right to terminate this
Agreement thereafter, in which event P.C. shall have no further obligations
or liabilities hereunder after the date of such termination.

8. Death. If Physician dies, this Agreement shall terminate on the date of
death and P.C. shall have no further obligations or liabilities hereunder after
the date of such termination.

9. Intentionally Omitted.

10. Discharge. P.C. may, in its sole discretion, discharge Physician
immediately, without prior notice, upon any of the following:

(a) Professional Matters:

(i) loss, suspension, revocation or non-renewal of either (A)
Physician's license to practice

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<PAGE>

medicine in any state in which Physician is licensed on the date of
this Agreement or becomes licensed after such date, or (B) Physician's
DEA registration and/or authorization to prescribe controlled
substances or narcotics;

(iii) adverse action affecting the scope of Physician's license
to practice medicine or Physician's right to treat patients covered by
workers' compensation or other state regulated programs;

(iv) if Physician becomes ineligible for professional liability
insurance, or the cost of such insurance becomes 50% or more expensive
for Physician relative to the average physician providing comparable
services in a comparable geographic area due to Physician's
malpractice claim history and P.C.'s quality assurance committee has
recommended that Physician's employment be terminated after Physician
has had the opportunity to appear before it;

(v) suspension, revocation, or restriction of Physician's
privileges at a hospital set forth in the Employment Agreement (the
"Hospital") for reasons relating to clinical competency or conduct, or
surrender of Physician's privileges at the Hospital under threat of
disciplinary action relating to clinical competency or conduct,
provided that such privileges are not fully reinstated within sixty
(60) days after suspension, revocation, restriction or surrender, or
failure to renew or non-renewal of staff privileges at the Hospital or
any other hospital or health care facility without P.C.'s written
consent;

(vi) any allegation that Physician engaged in improper conduct or
breach of medical ethics in connection with rendering medical services
which, after investigation by P.C., P.C. believes has reasonable merit
and as a result of which P.C.'s quality assurance committee has
recommended that Physician's employment be terminated; or

(vii) if Physician becomes an Impaired Professional (defined as
(a) having an addictive disease which, in P.C.'s reasonable judgment,
could impair Physician's ability to perform Physician's duties
hereunder and for which Physician is not pursuing appropriate
treatment; (b) having diverted a controlled substance; or (c) being
incompetent to practice medicine at a level that meets the minimum
requirements of licensure).

(b) General Matters:

(i) Physician's indictment for any felony, whether or not related
to rendering medical services;

(ii) any material violation by Physician of the terms and
conditions of this Agreement which has not been cured within thirty
(30) days after receipt of written notice from P.C. specifying with
particularity the alleged violation;

(iii) any material violation by Physician of the policies of P.C.
which has not been cured within thirty (30) days after receipt of
written notice from P.C. specifying with particularity the alleged
violation; or

(iv) any act of theft, conversion or embezzlement or attempt to
do any of the foregoing or any solicitation or acceptance of any
kickback or bribe by Physician related to Physician's duties to P.C.
which enriches or is intended to enrich Physician or Physician's
designee whether or not such enrichment results in monetary loss to
P.C.

Physician shall give P.C. written notice of any of the events listed
in (a)(i) through (vii) or (b)(i) above within two (2) business days after the
occurrence of such event. Upon the termination of this Agreement pursuant to
this section, P.C. shall have no further obligations or liabilities hereunder.

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<PAGE>

11. Liquidated Damages.

(a) Physician acknowledges and agrees that:

(i) P.C. and its affiliates have made a substantial investment to
establish the office in which Physician will practice; and

(ii) P.C. and its affiliates will incur substantial loss and
damages if Physician fails to fulfill Physician's obligations to
remain employed by P.C. pursuant to the terms of this Agreement,
including, but not limited to, a loss of much or most of the
investment to establish the office in which Physician will practice,
an adverse effect on the strategic location (both geographic and in
the nature of the practice) of P.C.'s network of physicians, a loss of
referral sources, professional credibility and continuity to P.C., and
an adverse impact on the ability of P.C. to establish and/or carry out
contracts for the delivery of medical services.

(b) Due to the difficulty of measuring the loss and damages to P.C.
and its affiliates referred to in subparagraph 11(a) above, Physician
agrees that in the event Physician voluntarily terminates this Agreement
other than pursuant to Paragraph 17 or if P.C. terminates this Agreement
for cause (pursuant to Paragraph 9 or 10 of this Rider) (a "Termination
Event"), Physician shall pay P.C. as liquidated damages an amount equal to:
two times the Agreed Amount (as defined below) if the Termination Event
occurs on or prior to the second anniversary of the date of this Agreement;
one and one-half times the Agreed Amount if the Termination Event occurs
after the second anniversary, but on or prior to the third anniversary of
the date of this Agreement; the Agreed Amount if the Termination Event
occurs after the third anniversary, but on or prior to the fifth
anniversary of the date of this Agreement; or, one-half of the Agreed
Amount if the Termination Event occurs after the fifth anniversary, but
prior to the seventh anniversary of the date of this Agreement. As used
herein, the Agreed Amount means [REDACTED DUE TO REQUEST FOR CONFIDENTIAL
TREATMENT] Dollars [REDACTED DUE TO REQUEST FOR CONFIDENTIAL TREATMENT]. If
Physician has been employed hereunder for a period of less than one year as
of the Termination Event, then the Agreed Amount shall be determined by
annualizing the dollar amount of Physician's salary, bonus and pension
contributions hereunder during the period of employment.

(c) P.C. and Physician agree that the foregoing payments constitute a
reasonable forecast of the amount necessary to compensate P.C. and its
affiliates for the harm they will suffer by reason of Physician's failure
to remain employed by P.C. for the full term of this Agreement.

(d) Physician shall make payment to P.C. of the amount due pursuant to
this paragraph within ninety (90) days of the Termination Event in cash. If
the payment is not made when due, P.C. or any affiliate of P.C., in its
sole discretion, may, in addition to its other remedies available at law
and/or equity, offset such amount against any amount payable by P.C. or
such affiliate to Physician or an affiliate of Physician. Any amounts not
paid when due shall bear interest at the per annum rate equal to the lesser
of (y) 10% per annum or (z) the highest rate permitted by applicable law.

(e) The obligation to pay liquidated damages pursuant to this
Paragraph 11 is independent of, and in no way removes, modifies or affects,
the restrictions contained in Paragraph 13.

(f) The provisions of this Paragraph 11 shall not be applicable in the
event Physician's employment terminates due to death or disability or P.C.
and Physician mutually agree to terminate Physician's employment.

12. P.C. Property. All patient information, charts, records, personnel and
other policies manuals, data processing reports, service area analyses,
invoices, price lists or information, treatment protocols, outcome studies,
computer software, information reporting forms or systems, or any other
materials or data of any kind furnished to Physician by P.C., an affiliate of
P.C. or any management company that provides, directly or indirectly,
substantial management services to P.C. ("Manager") or developed by Physician on
behalf of P.C. or at P.C.'s direction or for P.C.'s use or otherwise in
connection with Physician's employment hereunder, are and shall remain the sole
and confidential property of P.C. or such affiliate or Manager as the case may
be. If P.C., an affiliate of P.C. or a Manager requests the return of such
materials at any time during or at or after the termination of Physician's
employment, Physician shall immediately deliver the same to P.C., such affiliate
or Manager, as the case may be. Notwithstanding the foregoing, Physician shall
have access to and may make copies of all patient-related information which is
not confidential or which P.C. is not prohibited from disclosing for the limited
purposes described below following the

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<PAGE>

termination of Physician's employment for the limited purpose of writing,
teaching and lecturing. Physician shall further have access to all information
in the event of any litigation, investigation, action, claim or inquiry
involving Physician.

13. Noncompetition, Trade Secrets, Etc.

(a) Physician shall not, directly or indirectly, during the term of
this Agreement and for a period of two years after its termination for any
reason whatsoever (the "Time Restriction"):

(i) induce any existing or former patient of P.C. to terminate
his or her relationship with P.C.; provided, however, that Physician
shall not be prohibited from treating an individual who has
independently determined to terminate his or her relationship with
P.C. except in the circumstances otherwise prohibited under this
Paragraph 13;

(ii) induce or attempt to influence any employee, independent
contractor or consultant of P.C. to terminate his or her relationship
with P.C.;

(iii) induce or attempt to influence any hospital, healthcare
facility, professional or other person or entity that has a referring
relationship with P.C., or any HMO or other health care insurer that
has an arrangement for the provision of health care services with
P.C., an affiliate of P.C. or a Manager, to terminate or not to renew
such relationship; or

(iv) render professional medical services at, on behalf of or
have any interest in, directly or indirectly (as proprietor, partner,
stockholder, principal, agent, broker, employee, consultant, or
lender), any business or facility where radiology and/or mammography
services are rendered (including a private physician's office) within
the Restricted Area. The Restricted Area shall mean the area within a
fifty (50) mile radius of any site at which Physician has, at any time
during the term of this Agreement, regularly rendered services.
Nothing in the foregoing subparagraph 13(a)(iv) shall be deemed,
however, to prevent Physician from owning securities of any Manager.

All of the restrictive covenants contained in this subparagraph
13(a) will be terminated except for subparagraph 13(a)(iii) if the
following conditions have been, and in the case of clause (z), below,
continue to be, satisfied:

(x) Physician has not terminated Physician's employment with P.C.
prior to the end of the term of this Agreement other than pursuant to
subparagraph 17(b) or been discharged by P.C. for cause (pursuant to
Paragraph 9 or 10 of this Rider); and either

(y) during the Time Restriction Physician does not engage in the
practice of radiology and/or mammography in the Restricted Area unless
(I) the resulting practice is independent and not owned, part of or
managed, directly or indirectly, by a physician practice management
entity, an HMO or other third party insurer, a hospital or hospital
system, physician/hospital organization, any other integrated medical
delivery system or any comparable or similar entity; and (II) the
resulting practice does not employ, engage as an independent
contractor or have as a shareholder, partner or member more than one
physician with whom Physician was not engaged in the practice of
medicine in the same entity on the day immediately prior to the date
of this Agreement; or

(z) Physician engages in writing, teaching, lecturing or academic
research during the Restricted Period. Notwithstanding the foregoing,
academic research may not include the receipt of revenue by Physician
or any academic or research institution on account of her treating or
seeing patients.

(b) During the term of this Agreement and at all times thereafter,
Physician shall not use for Physician's personal benefit, or disclose,
communicate or divulge to, or use for the direct or indirect benefit of any
person, firm, association or company other than P.C., any information
regarding the business methods, business policies, information reporting
forms or systems, management information systems, computer software
programs, procedures, techniques, research or development projects or
results, outcome studies, trade secrets, fee schedules or practices or
other knowledge or processes of, or developed by or on behalf of, P.C., an
affiliate of P.C. or a Manager, or any names and addresses of patients,
customers or clients or any data on or relating to past, present or
prospective

-5-

<PAGE>

patients, customers or clients or any other confidential information,
including, without limitation, information relating to agreements with
health care insurers, HMOs and third party payors, relating to or dealing
with the business operations or activities of P.C., an affiliate of P.C. or
a Manager made known to Physician or learned or acquired by Physician while
in the employ of P.C. except that Physician may use generic patient data as
to which none of P.C., Manager or any affiliate of either of them claims
any copyright or other intellectual property right, for the limited purpose
of writing, teaching or lecturing.

(c) Any and all writings, inventions, clinical research activities,
improvements, processes, computer software programs, procedures and/or
techniques which Physician may make, conceive, discover or develop, either
solely or jointly with any other person or persons, at any time while
Physician is employed by P.C., whether during working hours or at any other
time and whether at the request or upon the suggestion of P.C. or
otherwise, which relate to or are useful in connection with any business
now or hereafter carried on or contemplated by P.C., including developments
or expansions of its present fields of operations, shall be the sole and
exclusive property of P.C. or Mt. Hope Publishing Co., Inc., as determined
by P.C. Physician shall make full disclosure to P.C. of all such writings,
inventions, clinical research activities, improvements, processes,
procedures and techniques, and shall use reasonable efforts, at P.C.'s sole
cost and expense, to do everything necessary or desirable to vest the
absolute title thereto in P.C. Physician shall not submit any article,
study or other writing to any person for publication or otherwise or
conduct any clinical research activities without the prior consultation
with the President or Executive Vice President of P.C. Physician shall
write and prepare all specifications and procedures regarding such
inventions, improvements, processes, procedures and techniques and
otherwise aid and assist P.C. so that P.C. can prepare and present
applications for copyright or letters patent therefor and can secure such
copyright or letters patent wherever possible, as well as reissues,
renewals, and extensions thereof, and can obtain the record title to such
copyright or patents so that P.C. shall be the sole and absolute owner
thereof in all countries in which it may desire to have copyright or patent
protection. Physician shall not be entitled to any additional or special
compensation or reimbursement regarding any and all such writings,
inventions, improvements, processes, procedures and techniques and any
amounts received by Physician from third parties shall be remitted to P.C.
promptly.

(d) Physician acknowledges that each affiliate of P.C. and each
Manager is a third party beneficiary of the provisions of the foregoing
subparagraphs (a), (b) and (c) and that the restrictions contained in such
subparagraphs, in view of the medical and business practices of P.C., its
affiliates and Manager are reasonable and necessary in order to protect the
legitimate interests of P.C., its affiliates and Manager, and that any
violation thereof would result in irreparable injuries to P.C., its
affiliates and Manager. Physician therefore acknowledges and agrees that in
the event of Physician's violation of any of these restrictions, P.C.
and/or each affiliate of P.C. and each Manager shall be authorized and
entitled to obtain, from any court of competent jurisdiction, preliminary
and permanent injunctive relief as well as damages and an equitable
accounting of all earnings, profits and other benefits arising from such
violation, which rights and remedies shall be cumulative and in addition to
any other rights or remedies to which P.C., its affiliates and Manager may
be entitled.

(e) If the period of time or the area specified in subparagraph (a)
should be adjudged unreasonable in any proceeding, then the period of time
shall be reduced by such number of months or the area shall be reduced by
the elimination of such portion thereof or both so that such restrictions
may be enforced in such area and for such time as is adjudged to be
reasonable.

(f) In the event of any breach or violation of the restriction
contained in subparagraph (a) above, the period therein specified shall
abate during the time of any violation thereof and that portion remaining
at the time of commencement of any violation shall not begin to run until
such violation has been fully and finally cured.

14. Prior Agreements. Physician represents to P.C. that (a) there are no
restrictions, agreements or understandings whatsoever to which Physician is a
party which would prevent or make unlawful Physician's execution of this
Agreement or Physician's employment hereunder, (b) Physician's execution of this
Agreement and Physician's employment hereunder shall not constitute a breach of
any contract, agreement or understanding, oral or written, to which Physician is
a party or by which Physician is bound and (c) Physician is free and able to
execute this Agreement and to enter into employment by P.C.

-6-

<PAGE>

15. Representations and Warranties of P.C. As material inducement to
Physician to enter into this Agreement, P.C. makes the following representations
and warranties to Physician:

(a) Corporate Status and Authority. P.C. is a professional corporation
duly organized, validly existing and in good standing under the laws of the
state of its incorporation and has the power and authority to conduct
business in the State of New York. The execution, delivery and performance
of this Agreement by P.C. have been duly authorized by all necessary
corporate action on the part of P.C. and this Agreement constitutes the
valid and binding obligations of P.C. enforceable against it in accordance
with its terms.

(b) Agreement Not In Breach of Other Instruments. The execution and
delivery of this Agreement, the consummation of the transaction provided
for herein and the fulfillment of the terms hereof by P.C. will not result
in the breach of any of the terms and provisions of, or constitute a
default under, or conflict with, or cause any acceleration of any
obligations of P.C. under, any agreement, indenture or other instrument to
which P.C. is bound, P.C.'s Articles of Incorporation or By-Laws, any
judgment, decree or order or award of any court, governmental body or
arbitrator, or any applicable law, rule or regulation.

16. Change of Law. In the case of any change in law, including, without
limitation, the promulgation of new regulations under, or interpretation by a
court or governmental agency, authority or body of, existing law, that, in the
reasonable judgment of P.C., necessitates an amendment to this Agreement
(including, without limitation, the Exhibit hereto), the parties shall use their
good faith efforts to amend the terms of this Agreement to preserve to the
maximum extent the terms of this Agreement.

17. Termination by Physician.

(a) Retirement. At any time after 54 months after the date hereof,
Physician may give P.C. written notice that Physician desires to terminate
her employment hereunder on a date set forth in such notice, which date
shall be at least six (6) months after the date of the notice provided that
in addition to the restrictions contained in Paragraph 13, Physician shall
not practice medicine within the State of New York from the date of
retirement to the ninth anniversary of the date hereof. Notwithstanding the
foregoing, academic research, speaking engagements and writing articles or
books shall not be considered the practice of medicine provided such
activities do not involve the treatment of patients.

(b) Other Termination Rights. Physician may, in her sole discretion,
terminate her employment pursuant to this Agreement: (i) during the
continuation of a material violation by P.C. of this Agreement after the
expiration of the Notice Period, as defined below; (ii) during the
continuation of a material breach by U.S. Physicians, Inc. of the Asset
Purchase Agreement dated September 30, 1997 by and between U.S. Physicians,
Inc. and the Physician (the "Asset Agreement") after the expiration of the
Notice Period; or (iii) in the event Physician repurchases the assets sold
to U.S. Physicians, Inc. pursuant to Paragraph 21 of the Rider to Asset
Agreement. The Notice Period shall mean the thirty (30) days after receipt
by P.C. and U.S. Physicians Inc. of written notice from Physician
specifying with particularity the violation or breach, as applicable.

18. Miscellaneous.

(a) Indulgences. Etc. Neither the failure nor any delay on the part of
either party to exercise any right, remedy, power or privilege (singularly
or collectively, a "Right") under this Agreement shall operate as a waiver
of a Right, nor shall any single or partial exercise of any Right preclude
any other or further exercise of the same or of any other Right, nor shall
any waiver of any Right with respect to any occurrence be construed as a
waiver of such Right with respect to any other occurrence. No waiver shall
be effective unless it is in writing and is signed by the party asserted to
have granted such waiver and in the case of P.C. the signature must be of
an Approved Officer, as defined in subparagraph 18(c).

-7-
<PAGE>

(b) Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly given, made and received only when delivered
(personally, by courier service such as Federal Express, or by other
messenger) or three (3) business days after deposited in the United States
mails, registered or certified mail, postage prepaid, return receipt
requested, addressed to Physician 1351 Mt. Hope Avenue, Rochester, New York
with a copy of all such notices to Joan M. Roediger, Esquire, c/o Health
Care Law Associates, P.C., 140 West Germantown Pike, Suite 200, Plymouth
Meeting, Pennsylvania, 19462 and Sherman Levey, Esquire, Boylan, Brown,
Code, Fowler, Vidgor, Wilson, LLP, 2400 Chase Square, Rochester, New York
14604 and to P.C. at 220 Commerce Road, Ft. Washington, PA 19034. In
addition, notice by mail shall be by air mail if posted outside of the
continental United States. Any party may alter the address to which
communications or copies are to be sent by giving notice of such change of
address in conformity with the provisions of this paragraph for the giving
of notice.

(c) Binding Nature of Agreement. This Agreement shall be binding upon
and inure to the benefit of P.C. and its successors and assigns and shall
be binding upon Physician, and Physician's heirs and legal representatives.
Each affiliate of P.C. and each Manager shall be a third party beneficiary
of the provisions of Paragraphs 11, 12 and 13. This Agreement may not be
amended other than in writing signed by Physician and an officer of P.C.
who neither then practices nor in the past has practiced medicine in the
same office as Physician (an "Approved Officer"). Any agreement or
arrangement between P.C. and Physician relating to compensation, terms of
employment or similar items shall be deemed an amendment to this Agreement,
regardless of whether it states it is an amendment.

(d) Provisions Separable. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that
for any reason any other or others of them may be invalid or unenforceable
in whole or in part.

(e) Paragraph Headings. The paragraph headings in this Agreement are
for convenience only; they form no part of this Agreement and shall not
affect its interpretation.

(f) Gender, Etc. Words used, regardless of the number and gender
specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context indicates is appropriate.

(g) Number of Days. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period
(other than the termination of the term of this Agreement) falls on a
Saturday, Sunday or holiday on which Federal banks are or may elect to be
closed, then the final day shall be deemed to be the next day which is not
a Saturday, Sunday or such holiday.

-8-
<PAGE>

IN WITNESS WHEREOF, the parties have caused this Rider to Employment
Agreement to be executed and delivered as of the date first written above.

U.S. MEDICAL SERVICES OF NEW YORK, P.C.

By: /s/ Wende W. Young, M.D.
-----------------------------------

/s/ Wende W. Young, M.D.
--------------------------------------
Wende W. Young, M.D.

-9-

EXHIBIT 11

U.S. PHYSICIANS, INC. AND SUBSIDIARIES
PRO FORMA NET LOSS PER COMMON SHARE CALCULATION

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Pro forma net loss per common share:
Net loss ...................................................... $ $
========== ==========
Weighted average number of shares issued and
outstanding...................................................
Incremental number of shares related to convertible preferred
stock, common stock issuances and common stock options
and warrants granted within twelve months of the
initial public offering
--Convertible preferred stock................................
--Common stock...............................................
--Common stock options and warrants..........................
Dilutive effect of common stock options and warrants...........
Preferred stock converted into common stock upon
consummation of the initial public offering...................
---------- ----------
Shares used in computing pro forma net loss per common share...
========== ==========
Pro forma net loss per common shares .......................... $ $
========== ==========

</TABLE>

Exhibit 21
Subsidiaries of the Company

The subsidiaries of U.S. PHYSICIANS, Inc. are:

Network Medical, Inc.
RRI Corp.
Bryn Mawr Urology Associates, Inc.
Neurological Regional Associates, Inc.
Vermeire Orthopaedic Surgeons, Inc.
South Shore Orthopedics, Inc.
Orthopaedic & Sports Medicine Specialists of the Main Line, Inc.
Orthopaedic Surgery & Sports Medicine, Inc.
Family Care of Lancaster, Inc.
Alan I. Snyder, M.D. Associates, Inc.
Valley Forge Facial Plastic Surgery/Ear, Nose & Throat Associates, Inc.
Orthopedic Associates of Lancaster, Inc.
Cesare, Metzger, Coyle & Henzes, Inc.
Steel Valley Orthopedic Association, Inc.
Main Line Joint Replacement, Inc.
Lehigh Valley Orthopedics, Inc.

EXHIBIT 23.1

Consent of Independent Public Accountants

As independent public accountants, we hereby consent to the use of our reports
and to all reference to our Firm included in or made a part of this
Registration Statement.

Arthur Andersen LLP

Philadelphia, Pa.,
November 12, 1997

<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US

<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 2,066 2,048
<SECURITIES> 0 0
<RECEIVABLES> 0 123
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,114 2,998
<PP&E> 260 958
<DEPRECIATION> 8 62
<TOTAL-ASSETS> 2,632 39,794
<CURRENT-LIABILITIES> 1,417 10,088
<BONDS> 172 16,813
4,087 5,966
0 0
<COMMON> 39 39
<OTHER-SE> (3,392) (4,840)
<TOTAL-LIABILITY-AND-EQUITY> 2,632 39,794
<SALES> 0 47
<TOTAL-REVENUES> 70 1,121
<CGS> 0 297
<TOTAL-COSTS> 2,301 2,030
<OTHER-EXPENSES> 529 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (24) 334
<INCOME-PRETAX> (2,736) (1,540)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,736) (1,540)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,736) (1,540)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>