PHYSICIAN HEALTH CORP, S-1/A, 1998-01-28

PHYSICIAN HEALTH CORP
S-1/A, 1998-01-28
SPECIALTY OUTPATIENT FACILITIES, NEC

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 1998
REGISTRATION NO. 333-40073

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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PHYSICIAN HEALTH CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8099 58-2199947
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

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PHYSICIAN HEALTH CORPORATION
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

SARAH C. GARVIN
ONE LAKESIDE COMMONS
990 HAMMOND DRIVE, SUITE 300
ATLANTA, GEORGIA 30328
(770) 673-1964
(NAME AND ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)

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COPIES TO:
JAMES S. RYAN, III J. VAUGHAN CURTIS
JACKSON WALKER L.L.P. DOUGLAS B. CHAPPELL
901 MAIN STREET ALSTON & BIRD LLP
SUITE 6000 ONE ATLANTIC CENTER
DALLAS, TEXAS 75287 1201 WEST PEACHTREE
(214) 953-6000 STREET ATLANTA, GEORGIA
30309
(404) 881-7000

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

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

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

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<PAGE>

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

SUBJECT TO COMPLETION, DATED JANUARY 28, 1998

PHC
PHYSICIAN HEALTH CORPORATION

3,000,000 SHARES

COMMON STOCK

All of the shares of Common Stock offered hereby are being sold by Physician
Health Corporation (the "Company" or "PHC"). Prior to this offering (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
$13.50 and $15.50 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the initial public offering price. The Company
has applied to have the Common Stock approved for quotation on the Nasdaq
National Market under the symbol "PHCO."

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

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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.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
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<S> <C> <C> <C>
Per Share.............. $ $ $
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Total(2)............... $ $ $
</TABLE>
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(1) Before deducting expenses payable by the Company estimated at $2,500,000.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 450,000 shares of Common Stock, solely to cover over-
allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $ , $ , and $ , respectively.

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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
through the offices of BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1998.

BANCAMERICA ROBERTSON STEPHENS

NATIONSBANC MONTGOMERY SECURITIES LLC

A.G. EDWARDS & SONS, INC.

THE ROBINSON-HUMPHREY COMPANY

The date of this Prospectus is , 1998

<PAGE>

[LOGO OF PHYSICIAN HEALTH CORPORATION APPEARS HERE]

[Map and explanatory legend showing locations of PHC Practices and Payor
Contracting Activities, and numbers of physicians, contracts and covered lives]

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."

2
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY,
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE AN OFFER OR
SOLICITATION WOULD BE 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 THE DATE HEREOF.

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, 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.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Balance Sheet........................................ 21
Selected Consolidated Financial Data..................................... 26
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 35
Management............................................................... 53
Certain Transactions..................................................... 61
Description of Capital Stock............................................. 64
Principal Stockholders................................................... 68
Shares Eligible for Future Sale.......................................... 70
Underwriting............................................................. 72
Legal Matters............................................................ 73
Experts.................................................................. 73
Additional Information................................................... 74
Index to Financial Statements............................................ F-1
Appendix A............................................................... A-1
</TABLE>

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The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements examined by its
independent public accountants. The Company also intends to furnish such other
reports as it may determine or as may be required by applicable law.

3
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. See "Risk Factors" for information that should be
carefully considered by prospective investors. Unless otherwise indicated, all
information in this Prospectus assumes: (i) a 0.314-for-1 stock split with
respect to the Common Stock and Non-Voting Common Stock (the "Reverse Stock
Split") prior to consummation of the Offering; (ii) no exercise of the
Underwriter's over-allotment option; and (iii) conversion of all of the issued
and outstanding shares of the Company's Class A Stock (Series 1 and Series 2),
Series B Redeemable Convertible Preferred Stock, Series B Non-Voting Redeemable
Convertible Preferred Stock and Prime Common Stock into 3,685,889 shares of
Common Stock and 288,193 shares of Non-Voting Common Stock upon consummation of
the Offering.

THE COMPANY

Networks"). The PHC Networks and Affiliated Networks included approximately
3,300 physicians and 2.3 million covered lives under 29 managed care contracts
including specialty capitated and global risk contracts. As of December 31,
1997, the Company was a party to practice management agreements with 25
physician practices ("Managed Practices") that employed 122 physicians
("Managed Physicians"). In addition, the Company directly owned and operated
nine physician practices ("Owned Practices") through which it directly employed
50 physicians ("Employed Physicians"). Managed Practices and Owned Practices
are collectively referred to as "PHC Practices," and Managed Physicians and
Employed Physicians are collectively referred to as "PHC Physicians." As of
December 31, 1997, there were an aggregate of 34 PHC Practices and 172 PHC
Physicians. As of December 31, 1997, the Company also had interests in two
businesses delivering ancillary health care services.

The Company's objective is to continue building comprehensive and integrated
networks of physicians in selected regional markets in order to: (i) establish
a significant market presence enabling it to negotiate favorable payor
contracts and (ii) provide a broad range of physicians and ancillary health
care services to payors. To achieve these objectives, the Company seeks to: (a)
leverage contracting expertise to enhance its strategic position in its
markets; (b) selectively acquire key practices to strengthen market presence;
(c) provide management expertise and capital for development of ancillary
health care services; (d) negotiate and administer beneficial payor contracts;
and (e) utilize information technology to improve practice performance and meet
payor requirements. The Company believes that the expertise of its management
team in network development, payor contracting and ancillary health care
services, as well as PHC's flexible approach to entering new markets and
structuring its operations, differentiate PHC from traditional physician
practice management companies ("PPMs") and enhance its ability to attract
physicians and to negotiate favorable payor contracts. PHC's acquisition of key
practices is a part of its overall strategy of strengthening its networks and
market presence and enhancing the Company's ability to contract with managed
care payors and providers.

4
<PAGE>

business, ancillary health care services business and contracting business
constituted approximately 77%, 0%, and 23% of the Company's total revenues,
respectively. On a pro forma basis for the nine months ended September 30, 1997
giving effect to acquisitions consummated during 1997 as if they had occurred
as of January 1, 1997, revenues from the Company's practice management
business, ancillary health care services business and contracting business
constituted approximately 93%, 2%, and 5% of the Company's pro forma total
revenues, respectively.

The Company commenced operations in 1994 as a wholly-owned subsidiary (the
"Predecessor") of Surgical Health Corporation. PHC was incorporated in Delaware
in August 1995 and acquired the Predecessor in November 1995. Prior to the
acquisition of the first PHC Practice in November 1996, the Company principally
engaged in network development and administration, payor contracting, practice
administration, and development activities related to potential acquisitions.
The Predecessor principally engaged in network development and administration,
payor contracting and practice administration and derived its revenues from
these activities.

During October and November 1997, the Company acquired 17 Managed Practices
with 83 Managed Physicians, four Owned Practices with 37 Employed Physicians, a
sleep laboratory and a 51% interest in an ambulatory surgery center. The
approximate aggregate consideration paid in connection with these acquisitions
consisted of $27.2 million in stock value, $1.2 million in promissory notes and
$9.3 million in cash. If these acquisitions had been consummated as of January
1, 1996, the Company would have had pro forma revenues of approximately $83.8
million for the year ended December 31, 1996 and approximately $71.3 million
for the nine months ended September 30, 1997.

The Company's current regional markets are centered in Atlanta, Georgia;
Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis, Tennessee; Orlando,
Florida; and St. Louis, Missouri. The Company will continue to evaluate
expansion into additional regional markets. The principal executive offices of
the Company are located at One Lakeside Commons, Suite 300, 990 Hammond Drive,
Atlanta, Georgia 30328 and its telephone number is (770) 673-1964.

THE OFFERING

<TABLE>
<C> <S>
Common Stock offered hereby........................ 3,000,000 shares
Common Stock to be outstanding after the Offering.. 10,390,405 shares(1)
Use of proceeds.................................... To repay certain
indebtedness and for
working capital and
general corporate
purposes, including future
acquisitions of physician
practices, acquisitions
and development of
ancillary health care
services, and development
of physician networks and
payor contracts. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. PHCO
</TABLE>
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(1) Includes 288,193 shares of Non-Voting Common that will be immediately
convertible into Common Stock. Excludes: (i) an aggregate of 1,076,571
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $3.10 per share; (ii) an aggregate of
1,664,263 shares of Common Stock issuable upon exercise of options
outstanding at a weighted average exercise price of $13.41 per share under
the Company's Amended and Restated 1995 Stock Option Plan (the "1995 Stock
Option Plan"); (iii) 1,475,737 shares of Common Stock reserved for issuance
under the 1995 Stock Option Plan following consummation of the Offering;
and (iv) 666,044 shares of Common Stock issuable upon conversion of certain
interests in subsidiaries of PHC. See "Management--1995 Stock Option Plan."

<PAGE>

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

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------ ----------------------------------------------------
PERIOD FROM
PERIOD FROM INCEPTION NINE MONTHS
JANUARY 1, (AUGUST 29, YEAR ENDED ENDED
YEAR ENDED 1995 TO 1995) TO DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, ------------ -----------------
1994 1995(1) 1995(1) 1996 1996 1997
------------ ----------- ------------ ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenue................................ $812 $1,949 $ 456 $ 4,036 $ 2,720 $ 15,991
Operating expenses:
Salaries and benefits..................... 531 1,533 662 2,915 2,123 4,880
Contract and professional services........ 38 125 70 194 370 746
Provision for bad debts................... -- -- 40 660 104 938
General and administrative................ 225 463 131 2,748 1,242 11,876
Depreciation and amortization............. 58 106 14 161 81 732
Write down of assets(2)................... -- -- -- 195 -- 715
Purchased research and development(3)..... -- -- -- -- -- 13,252
---- ------ ------ ------- ------- --------
Total operating expenses.................. 851 2,227 917 6,873 3,920 33,139
---- ------ ------ ------- ------- --------
Income (loss) from operations.............. (39) (278) (461) (2,837) (1,200) (17,148)
Interest expense, net...................... 24 86 7 30 9 1,767
---- ------ ------ ------- ------- --------
Income (loss) before minority interest and
income taxes.............................. (63) (364) (468) (2,867) (1,209) (18,915)
Minority interest.......................... -- -- (1) -- -- (2,081)
---- ------ ------ ------- ------- --------
Income (loss) before income taxes.......... (63) (364) (467) (2,867) (1,209) (16,834)
Income tax expense......................... -- -- -- 17 -- 14
---- ------ ------ ------- ------- --------
Net income (loss).......................... $(63) $ (364) (467) $(2,884) $(1,209) $(16,848)
==== ====== ====== ======= ======= ========
Net income (loss) per share................ N/A N/A $(0.50) $ (1.34) $ (0.56) $ (5.82)
==== ====== ====== ======= ======= ========
Weighted average outstanding shares........ N/A N/A 941 2,156 2,143 2,894
- --------------------------------------------------
==== ====== ====== ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $(5,226) $ 1,613 $ 18,568
Total assets.............................. 41,733 100,502 117,457
Long-term debt............................ 14,435 29,288 8,288
Total stockholders' equity (deficit)...... (9,344) 45,800 83,755
</TABLE>
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(1) The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August
1995 and acquired the Predecessor in November 1995.

(2) The $195,000 charge in 1996 is related to the write off of operating assets
related to certain contracts that were entered into by the Predecessor and
did not conform to the Company's business plan. The $715,000 charge in 1997
is related to the write off of deferred financing fees related to a credit
arrangement with NationsCredit Commercial Corporation ("NationsCredit")
that was terminated and the write off of operating assets related to
contracts that were entered into by the Predecessor and did not conform to
the Company's business plan.

(3) The $13.3 million charge in 1997 is related to the write off of certain
purchased research and development in association with the Arlington Cancer
Center acquisition.

(4) The pro forma Balance Sheet Data give effect to the asset acquisitions as
if each had occurred on September 30, 1997. See "Unaudited Pro Forma
Combined Balance Sheet."

(5) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered
hereby and the application of the estimated net proceeds therefrom. See
"Use of Proceeds."

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 its
business before purchasing any of the shares of the Common Stock offered
hereby. This Prospectus contains forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those discussed
in the forward-looking statements as a result of certain factors, including
those set forth below and elsewhere in this Prospectus.

LIMITED OPERATING HISTORY; LOSSES

The Company's predecessor commenced operations in 1994 and the Company
acquired its first physician practice in November 1996. To date, the Company
has not achieved profitability. For the years ended December 31, 1995 and 1996
and the nine months ended September 30, 1997, the Company incurred net losses
of approximately $831,000, $2.9 million and $16.8 million, respectively. There
can be no assurance that the Company will be able to generate sufficient
revenue to achieve profitability on a quarterly or annual basis or to sustain
or increase its revenue growth or profitability in future periods. See
"Selected Consolidated Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

RISKS RELATED TO GROWTH STRATEGY; INTEGRATION AND MANAGEMENT OF OPERATIONS

The Company intends to pursue growth primarily through the acquisition of
physician practices, growth of PHC Practices, the acquisition and development
of ancillary health care services, and the development of physician networks
and managed care contracts. As of December 31, 1997, the Company had acquired
34 PHC Practices, 25 of which are Managed Practices and nine of which are
Owned Practices, had interests in two businesses delivering ancillary health
care services and was providing services to 22 Affiliated Networks and two PHC
Networks. There can be no assurance that the Company will be able to: (i)
identify appropriate acquisition candidates; (ii) acquire and profitably
provide management services to additional practices; (iii) integrate such
practices successfully; (iv) develop or acquire, and operate profitably,
ancillary health care services; (v) affiliate with or develop physician
networks; and (vi) negotiate and administer additional managed care contracts.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview" and "Business--Strategy."

A significant part of the Company's growth has been and continues to be
generated by practice acquisitions. PHC's physician practice and ancillary
health care services acquisitions have all occurred since November 1996. Since
October 1, 1997, the Company has acquired 21 PHC Practices, 17 of which were
Managed Practices and four of which were Owned Practices, and two businesses
providing ancillary health care services. The Company's acquisition strategy
focuses on increasing the Company's presence in selected regional markets,
thereby enhancing the Company's ability to integrate practice management,
ancillary health care services, network development and administration, and
payor contracting in its markets. Prior to their acquisition by the Company,
two practices in Orlando, Florida, Internal Medicine Specialists, Inc. ("IMS")
and Primary Care Specialists, Inc. ("PCS"), one practice in St. Louis,
Missouri, Metropolitan Plastic and Reconstructive Surgery, Ltd. ("Metropolitan
Plastic"), and an ambulatory surgery center in Orlando, Florida were managed
by persons affiliated with the Company. The remaining practices and sleep
center acquired by the Company were, at the time of the acquisitions, managed
by persons unaffiliated with the Company. The principal benefits that PHC
hopes to derive from its acquisitions are increased revenues and profitability
as well as network stability. If PHC is to realize the anticipated benefits of
its acquisitions, the operations of the acquired practices must be efficiently
integrated and, where appropriate, combined. The process of integrating
management services, administrative organizations, facilities, management
information systems and other aspects of operations, while managing a larger
and geographically expanded entity, presents a significant management
challenge. In particular, the Company must implement an integrated financial
management system that includes financial controls and the ability to
coordinate disparate financial systems. In addition, the Company must
coordinate geographically separated organizations and integrate personnel with
dissimilar business backgrounds. The dedication of management resources to
such integration efforts may detract management attention from acquisition and

7
<PAGE>

development efforts or from the day-to-day operations of the Company. The
Company first began integrating practice operations immediately following its
first practice acquisition in November 1996 and has continued to focus on
integrating practice operations as additional practices were acquired during
1997. There can be no assurance that the integration process will be
successful, that there will not be substantial costs associated with such
activities or that such integration efforts will not have a material adverse
effect on the Company's business, financial condition or results of
operations.

DEPENDENCE ON THE PHC PRACTICES AND PRACTICE MANAGEMENT AGREEMENTS

The Company's revenues are dependent on its affiliation with, and the
success of, PHC Practices and PHC Physicians, and on PHC's long-term
management contracts (the "Practice Management Agreements") with the Managed
Practices. A substantial portion of the Company's total revenues are derived
from management fees payable to the Company under the Practice Management
Agreements and patient service revenues generated by Owned Practices. The
management fees generally consist of combinations of the following: (i)
percentages of the earnings of the Managed Practices; (ii) operating and non-
operating expenses of the Managed Practices paid by the Company pursuant to
the Practice Management Agreements; and (iii) certain negotiated performance
and other adjustments. Certain of the PHC Practices in Florida and Missouri
are Owned Practices, where PHC employs physicians under long-term employment
agreements, and earns patient services revenues. PHC's management fees and
patient services revenue are dependent on the productivity of the PHC
Physicians. Some of the PHC Practices derive a significant portion of their
revenues from a limited number of physicians. Although the Practice Management
Agreements are generally for terms of 40 years and generally may be terminated
only for cause, and the employment agreements pursuant to which the Company
directly employs physicians in states in which it is permitted to do so (the
"Direct Employment Agreements") also may be terminated by the Employed
Physicians under limited circumstances, any termination or significant
deterioration of the Company's relationship with any of the PHC Practices or
PHC Physicians could have a material adverse effect upon the Company's
business, financial condition or results of operations. There can be no
assurance that the Company or the PHC Practices will maintain cooperative
relationships with key physicians. In addition, such physicians could retire,
become disabled or otherwise become unable or unwilling to continue generating
revenues at their current level or practicing medicine with such PHC Practice.
The loss by a PHC Practice of one or more key physicians could have a material
adverse effect on the revenue of such PHC Practice and on the Company.
Additionally, although each Managed Practice and the PHC Physicians are
subject to noncompete agreements, there can be no assurance that the
noncompete agreements can be enforced. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Overview" and
"Business--Contractual Agreements with PHC Practices."

CONCENTRATION OF REVENUE

On a pro forma basis for the year ended December 31, 1996 and for the nine-
month period ended September 30, 1997 giving effect to acquisitions
consummated during 1997 as if they had occurred as of January 1, 1996, 24% and
13%, respectively, of the Company's net revenues were derived from Metroplex
Hematology/Oncology Associates, L.L.P. (the "Arlington Cancer Center") in
Dallas/Fort Worth, Texas, and 54% and 39%, respectively, of the Company's net
revenues were derived from a total of six PHC Practices including the
Arlington Cancer Center. In addition, most of the PHC Practices operate within
a limited geographic area, and a deterioration of economic or other conditions
within such area could have a material adverse effect on the PHC Practice and,
in turn, the Company and its business, financial condition or results of
operations.

In connection with a practice management agreement with the Arlington Cancer
Center, the Company is entitled to a management fee equal to 12% of the
practice's net revenues, plus 55% of the practice's net income after physician
compensation. Pursuant to a management services agreement with Southern
Dependacare, Inc. and its affiliates ("Southern Dependacare"), the Company is
entitled to a fee equal to the sum of: (i) 20% of the practice's income from
its Mississippi operations before physician compensation; (ii) 20% of the
practice's income from its Virginia operations before physician compensation;
and (iii) a flat fee related to its Illinois operations, which currently is
$1.6 million per year. In connection with employment agreements between 12
physicians and IMS, a practice owned by the Company, the Company is entitled
to fees during the first

8
<PAGE>

five years aggregating $595,000 a year plus 15% of the income attributable to
each physician in excess of a calculated amount, and during the remainder of
each agreement a fee equal to 15% of the income attributable to each
physician. Pursuant to three management services agreements assumed by the
Company in connection with its acquisition of MidSouth Practice Management,
Inc. ("MidSouth"), a physician practice management company, the Company is
entitled to management fees equal to 12% of the income from three practices.
Pursuant to a management services agreement with P.S.A. Medical Group, Inc., a
corporation formed by the former shareholders of Parkcrest Surgical
Associates, Inc. ("Parkcrest"), the Company is entitled to a management fee
equal to a percentage of physician income attributed to each of the 14
physicians affiliated with the practice. In connection with a management
services agreement with GCGA Physicians, Inc., a corporation formed by the
former shareholders of Greater Cincinnati Gastroenterology Associates, Inc.
("Greater Cincinnati Gastro"), the Company is entitled to: (i) a management
fee equal to 20% of the practice's income before physician compensation up to
a predetermined cap; (ii) a practice development fee equal to the product of
20% of the amount by which adjusted net income exceeds a predetermined amount
multiplied by five; and (iii) a managed care development fee equal to 0.5% of
the collected revenue of the practice generated from contracts with new
managed care payors. The Company's management fee also generally includes all
direct operating expenses incurred in connection with the management of each
practice not owned by the Company.

DIRECT CAPITATION AND OTHER RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS

Under some managed care contracts, Affiliated Networks receive a
predetermined payment per covered member per month in exchange for providing a
potentially unlimited quantity of specified services to covered members. Such
contracts transfer much of the economic risk of providing care from the payor
to the providers, who are compensated out of a finite pool of available funds.
To the extent that covered members require more frequent or extensive care
than is anticipated, increased claims by providers for such funds may result
in reduced reimbursement to network providers. Reductions in reimbursement to
providers could adversely affect on the providers' willingness to provide
services to the Affiliated Networks or the Affiliated Networks' relationships
with contracted payors. For the nine months ending September 30, 1997, giving
effect to the acquisitions consummated during 1997 as if they had occurred as
of January 1, 1997, the Company received 23% on a historical basis, and 5% on
a pro forma basis, of its revenues from the administration of managed care
agreements for Affiliated Networks. Physician dissatisfaction or defection
from the Affiliated Networks, whether due to reduced reimbursement or
otherwise, or payor contract termination could have a material adverse effect
on the Company's business, financial condition or results of operations.

In some cases, the Company enters into capitated or financial risk-sharing
managed care contracts directly with a payor. In these cases, the Company
receives the managed care payments and retains financial risk for the
provision of medical care, including responsibility for paying contracted
providers for medical services. For the nine months ending September 30, 1997,
giving effect to acquisitions consummated during 1997 as if they had occurred
as of January 1, 1997, the Company received 10% on a historical basis, and 2%
on a pro forma basis of its total revenues from direct capitated contracts
with managed care payors. If the Company underestimates the amount of services
that will be required, it would experience reduced profitability or operating
losses, which may not be recoverable through reductions in reimbursements to
providers. Certain PHC Practices have also directly entered into capitated or
financial risk-sharing managed care contracts with payors. In the case of
Owned Practices, the Company is directly at risk for excess utilization of
medical services. In the case of Managed Practices, to the extent that
management fees are calculated as a percentage of practice income, excess
utilization would result in reduced management fees.

As an increasing percentage of individuals participate in managed care
plans, the Company believes that its success will be, in part, dependent on
its ability to obtain, retain and successfully manage favorable capitated or
financial risk-sharing contracts with HMOs, employer groups, other private
third-party payors and Medicare and Medicaid. There can be no assurance that
the Company will be able to establish or maintain satisfactory relationships
with third-party payors on terms acceptable to the Company and contracted
providers. Many payors already have existing provider structures in place and
may not desire the services of the Company or the PHC Networks, and payors may
also elect to contract directly with providers on a fee-for-service, capitated
or other basis. In addition, many managed care contracts are terminable upon
short notice.

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INTENSE COMPETITION

The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for payor contracts. The Company itself faces
intense competition to acquire or provide management services to physician
practices; to acquire or develop and operate ancillary health care services;
and to provide management services, including payor contracting services, to
physician networks. A number of hospitals, clinics, health care companies,
HMOs, insurance companies and physician practice management companies, both
publicly and privately held, some of which have established operating
histories and greater resources than the Company, engage in activities similar
to those of the Company. There can be no assurance that the Company will be
able to compete effectively with its competitors, that additional competitors
will not enter its markets, or that the Company will be able to acquire or
manage physician practices, acquire or develop ancillary health care services,
affiliate with or develop networks, or negotiate payor contracts on terms
beneficial to the Company. Any such failure could have a material adverse
effect on the Company's business, financial condition or results of
operations.

INSURANCE COVERAGE; PROFESSIONAL LIABILITY CLAIMS

All of the PHC Physicians, PHC Practices, PHC Networks, Affiliated Networks
and the Company are involved in the delivery of health care services and,
therefore, are exposed to the risk of professional or other liability claims.
Claims of this nature, if successful, could result in substantial damage
awards which may exceed the limits of any applicable insurance coverage.
Insurance against losses related to claims of this type can be expensive and
varies widely in costs and coverage. Liability claims successfully asserted
against a PHC Physician, PHC Practice, PHC Network, Affiliated Network or the
Company could have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business--Corporate
Liability and Insurance."

NEED FOR ADDITIONAL FINANCINGS

The Company's plans to acquire and expand practices and to acquire and
develop ancillary health care services require substantial capital resources.
The Company expects that its capital needs over the next several years will
exceed capital generated from operations. In the past, the Company has funded
acquisitions of physician practices through the issuance of debt and equity
securities to sellers, the sale of equity to venture capital and other
investors and the incurrence of indebtedness. Management believes that the
Company will incur indebtedness and issue, from time to time, additional debt
or equity securities in connection with its future acquisition and development
activities, including acquisitions of physician practices, and to raise
working capital. There can be no assurance that sufficient financing will be
available on terms satisfactory to the Company. The inability to obtain
additional financing could have a material adverse effect on the Company's
business, financial condition or results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

INTEGRATION OF MANAGEMENT INFORMATION SYSTEMS; RELIANCE ON THIRD-PARTY VENDOR

The Company's success is dependent in part on its access to sophisticated
information systems and its ability to integrate these systems into the
existing operational, financial and clinical information systems of the PHC
Practices, PHC Networks and Affiliated Networks. Management information
systems are critical to negotiating, pricing and managing payor contracts.
These systems help PHC and the PHC Practices, PHC Networks and Affiliated
Networks realize operating efficiencies and enable them to capture, maintain,
monitor and analyze cost, quality and utilization data. In addition, PHC
Practices utilize different billing and collection systems requiring the
Company to collect manually and assimilate financial and operating data. 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

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replacements as the Company expands or if new technologies become available.
Such modifications, improvements or replacements may require substantial
expenditures and may require interruptions in operations during
implementation. The failure to implement successfully and maintain
operational, financial and clinical information systems could have a material
adverse effect on the Company's business, financial condition or results of
operations.

PHC's current clinical information system requires software and support from
one third-party vendor to process submitted claims. Termination by such vendor
of its relationship with PHC, or a default in the performance of such vendor's
contractual obligations to PHC, could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that such vendor's systems or support could be replaced by the
Company in a reasonable time or at a reasonable cost.

RISK RELATED TO INTANGIBLE ASSETS

As a result of the Company's various acquisition transactions, the Company
has recorded approximately $59.6 million in intangible assets, net of
accumulated amortization, on a pro forma basis as of September 30, 1997 giving
effect to acquisitions consummated after September 30, 1997 as if they had
occurred as of September 30, 1997. Substantially all of such intangible assets
are being amortized over 25-year periods. The Company expects the amount
allocable to intangible assets on its balance sheet to increase in the future
in connection with additional acquisition 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 regularly evaluates whether events and circumstances have occurred
indicating that any portion of the remaining balance of amounts 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 1
of Notes to Consolidated Financial Statements.

GOVERNMENT REGULATION

General; Federal and State Regulation

The health care industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly in the future. The Company believes that health care regulations
will continue to change. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment
changes. While the Company believes it will be able to structure its
agreements and operations in accordance with applicable law, there can be no
assurance that its business or such agreements or operations will not be
successfully challenged.

Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other managed care organizations ("MCOs") with which
the Company, PHC Physicians, PHC Practices, PHC Networks and Affiliated
Networks may have contracts. Many states require regulatory approval,
including certificates of need, before establishing or expanding certain types
of health care facilities, offering certain services or making expenditures in
excess of statutory thresholds for health care equipment, facilities or
programs. In connection with the expansion of existing operations and the
entry into new markets, the Company, PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks may become subject to compliance with
additional regulation.

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<PAGE>

activities include: (i) federal legislation requiring a health plan to
continue coverage for individuals who are no longer eligible for group health
benefits and prohibiting the use of "pre-existing condition" exclusions that
limit the scope of coverage; (ii) a Health Care Financing Administration
("HCFA") policy prohibiting restrictions by Medicare HMOs on physicians
recommending to patients other health plans and treatment options; and
(iii) regulations imposing restrictions on physician incentive provisions in
physician provider agreements. There can be no assurance that such
legislation, programs and other regulatory changes will not have a material
adverse effect on the Company's business, financial condition or results of
operations.

The ability of the Company to operate profitably will depend in part upon
the ability of the Company, PHC Physicians, PHC Practices, PHC Networks and
Affiliated Networks to obtain and maintain all necessary licenses,
certificates of need and other approvals and to operate in compliance with
applicable health care regulations.

Fee-Splitting; Corporate Practice of Medicine

The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. The Company's
business operations have not been the subject of judicial or regulatory
interpretation; thus, there can be no assurance that review of the Company's
business by courts or regulatory authorities will not result in determinations
that could adversely affect the operations of the Company or that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or their expansion. In addition, the regulatory framework
of certain jurisdictions may limit the Company's expansion into such
jurisdictions if the Company is unable to modify its operational structure to
conform with such regulatory framework.

In particular, at least one Texas court has held that control by a
management company over certain medical related business aspects of a medical
practice effectively is the prohibited corporate practice of medicine by the
management company. PHC has structured the management services agreement
related to the Managed Practice located in Texas to comply with Texas law,
although no assurance can be given that a party could not successfully assert
that such management services agreement violates Texas law. Illinois courts
have indicated that employment of physicians by for-profit corporations that
are not hospitals violates Illinois law related to the corporate practice of
medicine and that management fees based on a percentage of revenue or income
violate Illinois' prohibitions on fee-splitting. Accordingly, in Illinois PHC
does not employ physicians and the management fee charged under its Practice
Management Agreement is a flat fee. The Florida Board of Medicine recently
entered a final order in a case titled In Re: The Petition For Declaratory
Statement of Magan L. Bakarania, M.D. stating that a management fee based on a
specified percentage of net income without direct relation to the services
provided violates Florida law related to fee-splitting. That case has been
stayed pending appeal. The Company cannot predict the ultimate outcome of this
case. If the Florida Board of Medicine order is affirmed by a Florida court,
the Company will seek to restructure certain of the practice management
agreements to which it is a party in Florida, although there can be no
assurance that the Company will be successful in doing so. Three of the four
agreements that the Company may seek to restructure in Florida require the
parties to negotiate in good faith to reform the agreements to comply with
applicable law and for the matter to be referred to arbitration in the event
that agreement with respect to restructured terms cannot be reached. If
necessary, the Company also intends to negotiate with the fourth practice to
reform the agreements to comply with applicable law, although neither the
Company nor the practice is contractually required to do so. These four
Florida practices were acquired by the Company in November 1997. Accordingly,
the Company derived no revenues from these practices during the nine months
ended September 30, 1997. On a pro forma basis giving effect to acquisitions
consummated during 1997 as if they had occurred as of January 1, 1997, the
Company derived less than 3.7% of its revenues from these practices during the
nine months ended September 30, 1997.

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<PAGE>

modification, which could have a material adverse effect on the Company's
business, financial condition and results of operations. There can be no
assurance that regulatory authorities or other parties will not assert that
the Company or a Managed Practice is engaged in the corporate practice of
medicine in such states or that the management fees paid to the Company by the
Managed Practices constitute unlawful fee-splitting or the corporate practice
of medicine. If such a claim were asserted successfully, the Company could be
subject to civil and criminal penalties, Managed Physicians could have
restrictions imposed upon their licenses to practice medicine and the Company
or the Managed Practices could be required to restructure their contractual
arrangements. Such results or the inability of the Company or the Managed
Practices to restructure their relationships to comply with such prohibitions
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulation."

Changes in Payment for Medical Services

The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has implemented,
through the Medicare program, the resource-based relative value scale
("RBRVS") payment methodology for physician services. The RBRVS is a fee
schedule that, except for certain geographical and other adjustments, pays
similarly situated physicians the same amount for the same services. The RBRVS
is adjusted each year and is subject to increases or decreases at the
discretion of Congress. To date, the implementation of RBRVS has reduced
payment rates for certain of the procedures historically performed by PHC
Physicians. There can be no assurance that any reduced operating margins could
be recouped by the Company through cost reductions, increased volume,
introduction of additional procedures or otherwise.

Rates paid by nongovernmental insurers, including those that provide
Medicare supplemental insurance, are based on established physician,
ambulatory surgery center and hospital charges, and are generally higher than
Medicare payment rates. A change in the makeup of the patient mix of the
medical practices under Company management that results in a decrease in
patients covered by private insurance or a shift by private payors to RBRVS or
similar payment structures could adversely affect the Company's business,
financial condition or results of operations.

Medicare and Medicaid Fraud and Abuse

Federal law prohibits the offer, payment, solicitation or receipt of any
form of remuneration in return for, or in order to induce: (i) the referral of
a person; (ii) the furnishing or arranging for the furnishing of items or
services reimbursable under Medicare or Medicaid programs; or (iii) the
purchase, lease or order or arranging or recommending purchasing, leasing or
ordering of any item or service reimbursable under Medicare or Medicaid (the
"Anti-Kickback Law"). Pursuant to the Anti-Kickback Law, the federal
government has announced a policy of increased scrutiny of joint ventures and
other transactions among health care providers in an effort to reduce
potential fraud and abuse relating to Medicare costs. The applicability of
these provisions to many business transactions in the health care industry has
not yet been subject to judicial and regulatory interpretation. Noncompliance
with the Anti-Kickback Law can result in exclusion from Medicare and Medicaid
programs and civil and criminal penalties. The PHC Practices collectively
derived approximately 30% of their revenues on a pro forma basis for the nine
months ended September 30, 1997 from Medicare or Medicaid payments.

Significant prohibitions against physician referrals have been enacted by
Congress. These prohibitions, commonly known as "Stark II," amended prior
physician self-referral legislation known as "Stark I" by substantially
enlarging the field of physician-owned or physician-interested entities to
which the referral prohibitions apply. Stark II prohibits a physician from
referring Medicare or Medicaid patients to an entity providing "designated
health services" in which the physician has an ownership or investment
interest, or with which the physician has entered into a compensation
arrangement, unless a statutory exemption applies. The designated health
services include, for example, prosthetic devices, clinical laboratory
services, radiology (such as ultrasound, MRI and CT), home health, physical
and occupational therapy, prescription drugs and inpatient and outpatient
hospital services. The penalties for violating Stark II include a prohibition
on payment by these government programs and civil penalties of as much as
$15,000 for each referral violation and $100,000 for participation in a
"circumvention scheme." To the extent that the Company or any PHC Practice is
deemed to be subject to the prohibitions contained in Stark II, the Company
believes its activities fall within the permissible activities defined in
Stark II, including, but not limited to, the provision of in-office ancillary
services.

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<PAGE>

The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in
a position to make or receive referrals of patients for services reimbursed
under the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore,
would not constitute unlawful remuneration under Anti-Kickback Law and
regulations. For these reasons, the Company does not believe that fees payable
to it would be viewed as remuneration for referring or influencing referrals
of patients or services covered by such programs as prohibited by statute. If
the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral
laws.

In certain jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with
respect to such practices, the Company is a provider of services and would be
capable of receiving referrals from other physicians affiliated with PHC in
those markets. In these circumstances, PHC Practices either will not accept
referrals involving designated health services from other physicians
affiliated with PHC or will form group practices comprised of PHC Practices in
that market.

In addition, the Company also believes that the methods used to acquire the
assets of existing practices do not violate anti-kickback and anti-referral
laws and regulations. Specifically, the Company believes the consideration
paid by the Company to physicians to acquire assets in their practices is
consistent with fair market value in arm's-length transactions and not
intended to induce the referral of patients. Should this or any other Company
practice be deemed to constitute an arrangement designed to induce the
referral of Medicare or Medicaid patients, then such could be viewed as
possibly violating anti-kickback and anti-referral laws and regulations. A
determination of liability under any such laws could have a material adverse
effect on the Company's business, financial condition or results of
operations.

Antitrust Issues

Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti-competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that violate the antitrust laws.
Collaboration regarding the pricing of services, market allocation and certain
other types of joint action, however, may be permissible in the context of an
integrated joint venture if those activities are ancillary to otherwise
legitimate purposes of the joint venture. The federal antitrust agencies, the
Federal Trade Commission and the United States Department of Justice, have
established "antitrust safety zones" for physician networks that meet certain
criteria. The antitrust safety zones are for networks in which providers share
substantial financial risk (e.g., capitation or substantial withholding) or
are engaged in designing or implementing clinical pathways with a view to
improving medical outcomes, and in which the providers constitute less than
specified percentages (20% for exclusive networks and 30% for non-exclusive
networks) of total providers in a specialty or subspecialty in the market.
Conduct outside the safety zones is not necessarily unlawful, but antitrust
regulatory authorities will give greater scrutiny to the potential impact on
overall competition. State antitrust agencies may or may not rely on antitrust
analysis similar to that of the federal agencies.

The two PHC Networks are non-exclusive networks that operate in the greater
Atlanta and greater Orlando metropolitan areas, respectively. Except for one
fee-for-service contract in Orlando, all of their contracts are capitated or
global risk contracts in which the providers share substantial financial risk.
The Atlanta PHC Network is comprised of primary care physicians constituting
less than 30% of the market practitioners of family/general, internal and
pediatric medicine. The Company believes that the Atlanta PHC Network is
within the antitrust safety zone for non-exclusive networks. The Orlando PHC
Network is a multi-specialty network including physicians of many specialties.
The Company believes that physician representation in the Orlando PHC Network
may exceed the non-exclusive safety zone in several non-primary care
specialties. The antitrust agencies emphasize, however, that even if a
physician network does not come within a safety zone, it is not necessarily
unlawful under the antitrust laws. For the following reasons, the Company
believes that its activities

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in the greater Orlando metropolitan area are pro-competitive and have the
potential to benefit purchasers of the physician services offered by its
providers. First, physician participation in the network is non-exclusive, and
physician members do in fact contract with other networks and health plans.
Second, physician members share inherent substantial financial risk by
providing services for global risk contracts and have the incentive to provide
high quality, cost-effective care in an environment of increasing managed care
penetration. Third, there are competing physician networks in the greater
Orlando area. Fourth, the specialties in which the Orlando PHC Network may
exceed the safety zone are generally ones characterized by a limited number of
practices and physicians within the market.

Insurance Regulatory Risks

An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer self-funded plans, health
plans and other MCOs for the provision of health care services to the
subscribers or beneficiaries of the health plans operated by such parties.
Under some of these contracts, the Company receives capitated payments on
behalf of a network and reimburses participating physicians on a fee-for-
service basis. Under the laws of some states, this contracting arrangement
could be determined to involve an insurance risk. Therefore, to the extent the
Company is deemed to be in the business of insurance in a particular state,
the Company, PHC Physicians and PHC Networks could be subject to insurance
regulatory scrutiny; regulators could require restructuring of a specific
arrangement; and the Company's operations could be restricted, its expansion
limited, or certain of its operations prohibited.

Medicare Developments

The recently adopted Balanced Budget Act of 1997 ("BBA") enacted a Medicare
Plus/Medicare Choice Program for Medicare enrollees. The program would broaden
the coverage options available to Medicare recipients, would authorize broader
use of medical savings accounts, and would allow physicians and patients to
contract for health care services at rates beyond what is paid by Medicare.
Such changes potentially could increase the services utilized by Medicare
recipients. In addition, the BBA allows provider-sponsored organizations
("PSOs") to contract directly with Medicare, instead of contracting through an
HMO. If the PHC Practices, PHC Networks and Affiliated Networks participate in
such PSOs, they could increase the percentage of Medicare-related business,
which would also increase the exposure for losses if Medicare revenues fall
short of the cost of services actually utilized by Medicare beneficiaries. If
PHC does not participate in such PSOs, whether by choice or because it does
not obtain a required license to act as a PSO, PHC's ability to participate in
Medicare programs could be limited. The BBA also amends the fraud and abuse
laws to require permanent exclusion from Medicare of anyone convicted of three
Medicare program-related crimes and to impose new civil monetary penalties to
anyone contracting with an excluded health care provider. These changes
increase the regulatory and other risks encountered by the Company. See "--
Direct Capitation and Other Risks Associated With Managed Care Contracts." On
January 9, 1998, the Health Care Financing Administration ("HCFA") published a
Notice of Proposed Rulemaking implementing Stark II. The proposed regulations,
when they become final, will reduce some of the uncertainty surrounding HCFA's
interpretation of Stark II and will assist the Company in better structuring
its operations to comply with the law. In some cases, however, the strict
nature of the new rules will make compliance more onerous, and achieving such
compliance may have a material adverse effect on the Company's business in
certain markets.

Legislative Developments

In addition, proposed legislation regarding health care reform has been
introduced before many state legislatures. Any such reform at the federal or
state level could significantly alter patient-provider relationships. State
and federal agency rule-making addressing these issues is also expected. No
predictions can be made as to whether future health care reform legislation,
similar legislation or rule-making will be enacted or, if enacted, its effect
on the Company. Any federal or state legislation prohibiting investment
interests in, or contracting with, the Company by health care providers for
which there is no statutory exception would have a material adverse effect on
the Company's business, financial condition or results of operations.

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DEPENDENCE ON KEY PERSONNEL

The development of the Company's business and its operations have been
materially dependent upon the active participation of the Company's executive
officers and key employees. The loss of the services of one or more of these
persons could have a material adverse effect on the business, financial
condition or results of operations of the Company. The Company maintains a key
person life insurance policy in the amount of $3.0 million on the life of its
Chief Executive Officer and President, Sarah C. Garvin. See "Management."

CONTROL BY EXISTING STOCKHOLDERS

Upon completion of this Offering, the officers and directors of the Company,
together with their affiliates, will own beneficially approximately 22.9% of
the outstanding shares of Common Stock (22.0% if the Underwriters' over-
allotment option is exercised in full). Such persons acting together could
have a significant influence on matters requiring stockholder approval,
including the election of directors, mergers and other extraordinary corporate
events. See "Management" and "Principal Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE

The market price of the Common Stock of the Company could be adversely
affected by the sale of substantial amounts of the Common Stock in the public
market following the Offering. The shares being sold in the Offering will be
freely tradable unless acquired by affiliates of the Company. Certain
stockholders of the Company hold, in the aggregate, 7,102,212 shares of Common
Stock and 288,193 shares of Non-Voting Common Stock, none of which were
acquired in transactions registered under the Securities Act. Accordingly,
such shares may not be sold except in transactions registered under the
Securities Act or pursuant to an exemption from registration. The Company and
its directors and executive officers and stockholders holding substantially
all of the shares of Common Stock have agreed not to offer or sell any shares
of Common Stock for a period of 180 days (the "180-Day Lockup Period")
following the date of this Prospectus without the prior written consent of
BancAmerica Robertson Stephens, except that the Company may, subject to
certain conditions, issue Common Stock in connection with acquisitions and
with awards under the 1995 Stock Option Plan. After the expiration of the 180-
Day Lockup Period, such shares may be sold in accordance with Rule 144 under
the Securities Act, subject to the applicable volume limitations, holding
period and other requirements of Rule 144.

The Company intends to register an additional 1,500,000 shares of its Common
Stock under the Securities Act subsequent to completion of the Offering for
use by the Company as all or a portion of the consideration to be paid in
future acquisitions. Those shares, if issued, will be freely tradable by
nonaffiliates after their issuance, unless the resale thereof is contractually
restricted, and resales of any such shares during the 180-Day Lockup Period
would require the prior written consent of BancAmerica Robertson Stephens.

The Company anticipates that, prior to the consummation of the Offering, the
Company will have outstanding under the 1995 Stock Option Plan options to
purchase approximately 1,664,263 shares of Common Stock. The Company intends
to register the shares issuable upon exercise of options granted under the
1995 Stock Option Plan. See "Management--1995 Stock Option Plan" and "Shares
Eligible for Future Sale."

NO PRIOR MARKET; POSSIBLE 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,
if a trading market does develop, that it will continue after the Offering.
The initial public offering price of the Common Stock will be determined
through negotiations between the Company and the Underwriters and may not be
indicative of the price at which the Common Stock will trade after the
Offering. See "Underwriting" for a description of the factors to be considered
in determining the initial public offering price. The securities markets have,
from time to time, experienced significant price and volume fluctuations that
may be unrelated to the operating performance of particular companies. These
fluctuations often substantially affect the market price of a company's stock.
The market prices for securities of health care practice management companies
have been and continue to be particularly volatile. The market price of the
Common

16
<PAGE>

Stock could be subject to significant fluctuations in response to numerous
factors, including variations in financial results or announcements of
material events by the Company or its competitors. Regulatory changes,
developments in the health care industry or changes in general conditions in
the economy or the financial markets could also adversely affect the market
price of the Common Stock.

POTENTIAL ANTI-TAKEOVER EFFECTS OF CHARTER AND BYLAW PROVISIONS; POSSIBLE
ISSUANCES OF PREFERRED STOCK

Certain provisions of the Company's Certificate of Incorporation and Bylaws
and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company or
limit the price that certain investors may be willing to pay in the future for
shares of the Common Stock. The Certificate of Incorporation also permits the
Board of Directors to determine the rights, preferences and restrictions of
unissued series of the Company's authorized Preferred Stock and to fix the
number of shares and the designation of and to nominate directors, to submit
proposals to be considered at stockholders' meetings and to adopt amendments
to the Bylaws. Such provisions of the Certificate of Incorporation and Bylaws:
(i) divide the Company's Board of Directors into three classes, each of which
will serve for different three-year periods and (ii) restrict the right of
stockholders to call a special meeting of stockholders. The Company also is
subject to Section 203 of the Delaware General Corporation Law ("DGCL"),
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business acquisitions with an "interested
stockholder" for a period of three years following the date such stockholder
became an interested stockholder. See "Description of Capital Stock."

RISKS ASSOCIATED WITH UNSPECIFIED USE OF PROCEEDS

A significant portion of the net proceeds of the Offering will be available
for working capital and general corporate purposes, including the acquisition
of physician practices, the acquisition and development of ancillary health
care services and development of physician networks and payor contracts. The
Company's management, subject to approval by the Board of Directors, will have
broad discretion with respect to the use of such proceeds of the Offering. See
"Use of Proceeds."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of shares of Common Stock offered hereby will experience
immediate and substantial dilution in the pro forma net tangible book value of
their shares in the amount of $12.18 per share. In the event the Company
issues additional Common Stock in the future, including shares that may be
issued in connection with future acquisitions, purchasers of Common Stock in
the Offering may experience further dilution in the net tangible book value
per share of Common Stock. See "Dilution."

ABSENCE OF DIVIDENDS

The Company has never paid any cash dividends and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. See "Dividend
Policy."

17
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting the underwriting discounts and commissions and
estimated Offering expenses) are estimated to be approximately $38.0 million
(approximately $44.0 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $14.50 per
share (the midpoint of the estimated initial public offering price range). Of
such net proceeds: (i) approximately $21.0 million will be used to repay
certain of the Company's indebtedness immediately following the Offering; (ii)
$6.2 million will be used to repay certain indebtedness of the Company in
April 1998; (iii) $300,000 will be used to pay accrued but unpaid dividends on
the Class A Stock; and (iv) the remainder will be available for working
capital and general corporate purposes, including the acquisition of physician
practices, the acquisition and development of ancillary health care services
and the development of physician networks and payor contracts. The Company has
no present agreements for the acquisition of physician practices or ancillary
health care services. Pending such uses, the net proceeds will be invested in
short-term, interest bearing, investment grade securities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

The indebtedness to be retired with the proceeds of the Offering is
comprised of approximately $12.0 million outstanding under the Company's
senior credit facility (the "Senior Debt") and approximately $9.0 million in
senior subordinated debt (the "Subordinated Debt"). The Company is required to
retire the Subordinated Debt with the proceeds of this Offering. The Company
is required to use net proceeds to the Company from this Offering in excess of
$40 million to retire the Senior Debt. The Senior Debt was incurred in
November and December 1997 to finance acquisitions, pay transaction expenses
and for general corporate purposes, bears interest at a floating rate equal
to, at the Company's option, prime plus 1.75% or LIBOR (the London InterBank
Offered Rate) plus 3.0%, and is payable in quarterly installments until
maturity in April 2002.

The Subordinated Debt bears interest at the rate of 12.0% per annum and is
payable in full in November 2004. The proceeds of the Subordinated Debt, which
were obtained by the Company in November 1997, were used by the Company to
refinance certain prior acquisitions, finance acquisitions and pay transaction
costs. In April 1998, the Company also will use the proceeds of the Offering
to retire a $6.2 million unsecured non-interest bearing note that matures at
that time and constituted a portion of the consideration paid in the
acquisition of the Arlington Cancer Center. The proceeds of the Senior Debt
and Subordinated Debt were used to finance the acquisitions of Louisville
Cardiology Medical Group, PSC, Physicians Strategic Alliance, Inc., Southern
Dependacare, Healthcare Strategic Initiatives LLP, Pulmonary Sleep
Consultants, Inc., Diagnostic Internists, Inc., Parkcrest, IMS, PCS, Larach,
Williamson & Ferrara, Inc., MidSouth, National Sleep Dynamics, Inc., Home Care
for Sleep Disorders, Inc., Greater Cincinnati Gastro, Northside Ob-Gyn, P.C.
and Eagles Landing Ob-Gyn Associates, P.C.

DIVIDEND POLICY

It is the Company's current intention to retain earnings for the foreseeable
future to support operations and finance expansion. The payment of any future
dividends will be at the discretion of the Company's Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, cash flow from operations, capital requirements, expansion plans,
the income tax laws then in effect, the requirements of Delaware law and
restrictions that may be imposed in the Company's future financing
arrangements. In addition, the Company's senior credit facility prohibits the
payment of dividends.

18
<PAGE>

CAPITALIZATION

The following table sets forth the short-term debt and the capitalization of
the Company: (i) at September 30, 1997; (ii) on a pro forma basis to reflect
the acquisitions of PHC Practices since September 30, 1997 and the conversion
of the Company's Prime Common Stock, Class A Stock (Series 1 and Series 2),
Series B Redeemable Convertible Preferred Stock (the "Series B Voting
Preferred Stock") and Series B Non-Voting Redeemable Convertible Preferred
Stock (the "Series B Non-Voting Preferred Stock"); and (iii) on a pro forma
basis as adjusted to give effect to the receipt and application of the net
proceeds of the Offering. See "Use of Proceeds." The Series B Voting Preferred
Stock and the Series B Non-Voting Preferred Stock are collectively referred to
as the "Series B Preferred Stock." This table should be read in conjunction
with "Unaudited Pro Forma Combined Balance Sheet," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company and Notes thereto included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(3)......................... $13,071 $14,197 $14,197
======= ======= =======
Long-term debt, net of current portion..... 14,435 29,288 8,288
Redeemable Preferred Stock:
Class A Stock, par value $0.01 per share,
500,000 shares authorized; 200,000 shares
issued and outstanding (actual); and no
shares issued and outstanding (pro forma
and pro forma as adjusted)................ 2,772 -- --
Series B Redeemable Convertible Preferred
Stock, par value $0.01 per share,
15,000,000 shares authorized; 3,824,493
shares issued and outstanding (actual);
and no shares issued and outstanding (pro
forma and pro forma as adjusted).......... 13,675 -- --
Stockholders' equity (deficit):
Preferred Stock, par value $0.01 per
share, 18,000,000 shares authorized;
none issued (actual, pro forma and pro
forma as adjusted)...................... -- -- --
Common Stock, par value $0.0025 per
share, 140,000,000 shares authorized;
1,414,244 shares issued and outstanding
(actual); and shares issued and
7,381,433 outstanding (pro forma) and
10,381,433 shares issued and outstanding
(pro forma as adjusted)(4).............. 4 18 26
Prime Common Stock, par value $0.0025 per
share, 20,000,000 shares authorized;
4,039,666 shares issued and outstanding
(actual); and no shares issued and
outstanding (pro forma and pro forma as
adjusted)............................... 10 -- --
Additional paid-in capital................. 11,284 66,424 104,371
Accumulated deficit........................ (20,199) (20,199) (20,199)
Notes receivable from stockholder.......... (443) (443) (443)
------- ------- -------
Total stockholders' equity (deficit)....... (9,344) 45,800 83,755
------- ------- -------
Total capitalization....................... $21,538 $75,088 $92,043
======= ======= =======
</TABLE>
- --------
(1) Gives effect to acquisitions of PHC Practices since September 30, 1997 and
the mandatory conversion of the Prime Common Stock, the Class A Stock and
the Series B Preferred Stock, upon completion of the Offering.
(2) Gives effect to completion of the Offering and the receipt and application
of the net proceeds therefrom. See "Use of Proceeds."
(3) Short-term debt includes current maturities of long-term debt. See Note 4
to Notes to Consolidated Financial Statements for a description of the
Company's indebtedness.

(4) Excludes: (i) an aggregate of 502,498 (actual) and 1,076,571 (pro forma)
shares of Common Stock issuable upon exercise of warrants outstanding at a
weighted average exercise price of $1.20 (actual) and $3.10 (pro forma)
per share; (ii) an aggregate of 1,035,407 (actual) and 1,664,263 (pro
forma) shares of Common Stock issuable upon exercise of stock options
outstanding at a weighted average exercise price of $11.33 (actual) and
$13.41 (pro forma) per share under the Company's Amended and Restated 1995
Stock Option Plan (the "1995 Stock Option"); (iii) 1,038,517 (actual) and
1,475,737 (pro forma) shares of Common Stock reserved for issuance under
the 1995 Stock Option Plan following consummation of the Offering; and
(iv) 666,044 shares of Common Stock issuable upon conversion of certain
interests in subsidiaries of PHC. See "Management--1995 Stock Option
Plan."

19
<PAGE>

DILUTION

The net tangible book value (deficit) of the Company as of September 30,
1997 was approximately $(29.0) million, or approximately $(10.82) per share.
The pro forma net tangible book value of the Company as of September 30, 1997
was approximately $(13.8) million, or approximately $(1.88) per share. Pro
forma net tangible book value (deficit) per share is determined by dividing
the net tangible book value of the Company (tangible assets less total
liabilities) by the number of shares of Common Stock outstanding, giving pro
forma effect to the conversion of all outstanding shares of Prime Common
Stock, Class A Stock, Series B Preferred Stock into 3,685,889 shares of Common
Stock and 288,193 shares of Non-Voting Common Stock. After giving effect to
the sale by the Company of 3,000,000 shares of Common Stock offered at a price
of $14.50 per share (the midpoint of the estimated initial public offering
price range) and the application of the estimated net proceeds therefrom as
set forth under "Use of Proceeds," the pro forma net tangible book value of
the Company as of September 30, 1997 would have been $2.32 per share. This
represents an immediate increase in the net tangible book value of
approximately $38.0 million, or approximately $4.20 per share to existing
stockholders and an immediate dilution to new investors purchasing Common
Stock in the Offering of approximately $12.18 per share. The following table
illustrates the per share dilution to new investors purchasing Common Stock in
the Offering:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......... $14.50
Historical net tangible book value (deficit)........... $(10.82)
Increase per share attributable to the additional asset
acquisitions and conversion of shares into Common
Stock................................................. 8.94
Increase per share attributable to the Offering........ 4.20
-------
Pro forma net tangible book value per share after the
Offering.............................................. 2.32
------
Dilution per share to initial public offering investors.. $12.18
======
</TABLE>

The following table sets forth, on a pro forma basis to give effect to the
Offering as of September 30, 1997, the number of shares of Common Stock and
Non-Voting Common Stock purchased from the Company, the total consideration to
the Company and the average price per share paid to the Company by existing
stockholders and the new investors purchasing shares from the Company in the
Offering (before deducting underwriting discounts and commissions and
estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 7,381,433 71.1% $ 58,690,951 57.4% $ 7.95
New investors........... 3,000,000 28.9 43,500,000 42.6 14.50
---------- ----- ------------ -----
Total................. 10,381,433 100.0% $102,190,951 100.0%
========== ===== ============ =====
</TABLE>

All of the calculations above exclude: (i) an aggregate of shares 1,076,571
of Common Stock issuable upon exercise of warrants outstanding at a weighted
average exercise price of $3.10 per share; (ii) an aggregate of 1,664,263
shares of Common Stock issuable upon exercise of stock options outstanding at
a weighted average exercise price of $13.41 per share under the Company's
Amended and Restated 1995 Stock Option Plan (the "1995 Stock Option"); (iii)
1,475,737 shares of Common Stock reserved for future issuance under the 1995
Stock Option Plan following consummation of the Offering and (iv) 664,044
shares of Common Stock issuable upon conversion of certain interests in
subsidiaries of PHC. See "Management--1995 Stock Option Plan."

20
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

The accompanying unaudited pro forma balance sheet gives effect to the
following pro forma adjustments (collectively, the "Transactions"): (i) the
asset acquisitions of the PHC Practices at fair market value and related
purchase accounting adjustments; (ii) the entering into of a $62.5 million
credit agreement with a syndicate of banks led by Banque Paribas; (iii) the
entering into of a $15.0 million subordinated credit agreement with an
affiliate of Banque Paribas; (iv) the issuance of equity securities to an
affiliate of Banque Paribas; and (v) the consummation of the Offering.

The asset acquisitions of physician practices have been accounted for under
the purchase method of accounting, and pro forma adjustments include: (i) the
payment of cash and the issuance of Common Stock and notes to the former
practice owners; and (ii) the allocation of purchase price in excess of net
assets to intangibles.

The accompanying unaudited pro forma combined balance sheet gives effect to
the Transactions occurring after September 30, 1997 as if they had occurred on
September 30, 1997.

The unaudited pro forma combined balance sheet is not necessarily indicative
of the Company's financial condition if the Transactions had occurred as of
September 30, 1997. See "Risk Factors."

The unaudited pro forma combined balance sheet should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the historical financial statements and notes of the
Company, Arlington Cancer Center, Greater Cincinnati Gastro, IMS, Parkcrest,
and Southern Dependacare, all of which are included elsewhere in this
Prospectus.

21
<PAGE>

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)

<TABLE>
<CAPTION>
PHYSICIAN GREATER OTHER PRO FORMA
HEALTH CINCINNATI ACQUIRED PRO FORMA PRO FORMA COMBINED
CORPORATION GASTRO IMS PARKCREST ENTITIES(3) COMBINED ADJUSTMENTS(4) COMBINED ADJUSTMENTS(5)
----------- ---------- ------ --------- ----------- -------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 5,219 $ 311 $ 337 $ 3 $ 2,391 $ 8,261 $ 18,400 (e) $ 7,204 $16,955 (h)
(17,300)(e)
(2,157)(a)
Accounts
receivable,
net............ 8,113 1,266 989 1,662 8,150 20,180 (2,086)(a) 18,094 --
Inventory....... 430 -- -- -- 24 454 52 (a) 506 --
Prepaid expenses
and other
current
assets......... 1,207 23 41 208 279 1,758 (535)(a) 1,223 --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total current 14,969 1,600 1,367 1,873 10,844 30,653 (3,626) 27,027 16,955
assets.........
Property and
equipment, net.. 6,499 112 219 561 2,452 9,843 590 (a) 10,433 --
Intangible 19,676 -- -- -- 8,183 27,859 (8,183)(b) 59,642 --
assets, net.....
39,966 (b)
Other long-term 589 -- 37 156 378 1,160 (560)(a) 3,400 --
assets..........
2,800 (e)
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total assets.... $41,733 $1,712 $1,623 $2,590 $21,857 $69,515 $ 30,987 $100,502 $16,955
======== ====== ====== ====== ======= ======= ======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ 1,844 $ 179 $ 67 $ 689 $ 2,834 $ 5,613 $ (511)(a) $ 5,102 $ --
payable........
Accrued 5,280 639 378 721 478 7,496 (1,381)(a) 6,115 --
expenses.......
Current portion
of long-term
debt........... 13,071 -- 730 63 2,014 15,878 (1,681)(a) 14,197 --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total current
liabilities.... 20,195 818 1,175 1,473 5,326 28,987 (3,573) 25,414 --
Long-term debt.. 30,882 -- 38 205 3,927 35,052 11,470 (c) 29,288 (21,000)(h)
1,700 (c)
(900)(f)
(18,034)(g)
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
liabilities and
redeemable
preferred
stock.......... 51,077 818 1,213 1,678 9,253 64,039 (9,337) 54,702 (21,000)
Stockholders' eq-
uity:
Preferred
Stock.......... -- -- -- -- 2,505 2,505 (2,505)(d) -- --
Common Stock.... 14 3 3 1 96 117 (102)(d) 18 8 (h)
3 (g)
Additional paid-
in-capital..... 10,841 7 (18) 53 6,508 17,391 27,459 (d) 65,981 37,947 (h)
2,200 (e)
900 (f)
18,031 (g)
Retained
earnings
(deficit)...... (20,199) 884 425 858 3,495 (14,537) (5,662)(d) (20,199) --
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
stockholders'
equity
(deficit)...... (9,344) 894 410 912 12,604 5,476 40,324 45,800 37,955
-------- ------ ------ ------ ------- ------- -------- -------- -------
Total
liabilities and
stockholders'
equity......... $ 41,733 $1,712 $1,623 $2,590 $21,857 $69,515 $ 30,987 $100,502 $16,955
======== ====== ====== ====== ======= ======= ======== ======== =======
<CAPTION>
ADJUSTED
PRO FORMA
COMBINED
----------
<S> <C>
ASSETS
Current assets:
Cash and cash
equivalents.... $ 24,159
Accounts 18,094
receivable,
net............
Inventory....... 506
Prepaid expenses
and other
current
assets......... 1,223
----------
Total current 43,982
assets.........
Property and
equipment, net.. 10,433
Intangible 59,642
assets, net.....
Other long-term 3,400
assets..........
----------
Total assets.... $117,457
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabili-
ties:
Accounts $ 5,102
payable........
Accrued 6,115
expenses.......
Current portion
of long-term
debt........... 14,197
----------
Total current
liabilities.... 25,414
Long-term debt.. 8,288
----------
Total
liabilities and
redeemable
preferred
stock.......... 33,702
Stockholders' eq-
uity:
Preferred
Stock.......... --
Common Stock.... 26
Additional paid-
in-capital..... 103,928
Retained
earnings
(deficit)...... (20,199)
----------
Total
stockholders'
equity
(deficit)...... 83,755
----------
Total
liabilities and
stockholders'
equity......... $117,457
==========
</TABLE>

See Notes to Unaudited Pro Forma Combined Balance Sheet.

22
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET

1. BACKGROUND

Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 24 physician networks, one of which is
owned by the Company, one of which is a nonprofit corporation of which the
Company is the sole member (together, the "PHC Networks") and the remainder of
which are independent entities that receive services from the Company (the
"Affiliated Networks"). The PHC Networks and Affiliated Networks included
approximately 3,300 physicians and 2.3 million covered lives under 29 managed
care contracts including specialty capitated and global risk contracts. As of
December 31, 1997, the Company was a party to practice management agreements
with 25 physician practices ("Managed Practices") that employed 122 physicians
("Managed Physicians"). In addition, the Company directly owned and operated
nine physician practices ("Owned Practices") through which it directly
employed 50 physicians ("Employed Physicians"). Managed Practices and Owned
Practices are collectively referred to as "PHC Practices," and Managed
Physicians and Employed Physicians are collectively referred to as "PHC
Physicians." As of December 31, 1997, there were an aggregate of 34 PHC
Practices and 172 PHC Physicians. As of December 31, 1997, the Company had an
interest in a wholly-owned sleep laboratory located in Atlanta, Georgia and a
51% interest in an ambulatory surgery center located in Orlando, Florida.

2. HISTORICAL BALANCE SHEET

The historical balance sheet represents the financial position of the
Company and physician practices and was derived from the respective financial
statements where indicated. The audited historical financial statements
included elsewhere in this Prospectus have been included in accordance with
applicable Securities and Exchange Commission rules and regulations. The
Company will continue to have a December 31 year end.

3. PHYSICIAN PRACTICE ASSET ACQUISITIONS

The Company has acquired substantially all of the net assets of the
physician practices. See "Business-- Operations." These asset acquisitions
will be accounted for using the purchase method of accounting.

The Company had acquired 12 physician practices through asset acquisitions
as of September 30, 1997. See Note 2 to the Notes to the Consolidated
Financial Statements of the Company.

The following practices are directly owned by the Company:

<TABLE>
<CAPTION>
ORLANDO, FLORIDA ST. LOUIS, MISSOURI
------------------------------------------- -------------------------------------------
<C> <S>
Internal Medicine Specialists (IMS) Eye Care Services of Missouri, Inc. (Jones
Eye Center)
Larach, Williamson & Ferrara, Inc. (Larach) G.H. Kursar Eye Care Services, Inc.
(Kursar)
Primary Care Specialists, Inc. (PCS) InternaCare, Inc.
PHC--West Plains, Inc. (Ream Optometry
Ltd.) Surgical Group South
Tri County Eye Center, Inc.
</TABLE>

23
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET--(CONTINUED)

The following table sets forth the estimated consideration paid and to be
paid for the asset acquisitions occurring after September 30, 1997 (in
thousands), subject to certain purchase price adjustments and final purchase
price allocations.

<TABLE>
<CAPTION>
STOCK TOTAL
CASH NOTES VALUE CONSIDERATION
------ ------ ------- -------------
<S> <C> <C> <C> <C>
Atlanta practices........................... $1,575 $ 497 $ 1,990 $ 4,062
Greater Cincinnati Gastro................... 4,468 -- 4,876 9,344
MidSouth.................................... -- -- 4,278 4,278
IMS......................................... -- -- 3,928 3,928
Other Orlando practices..................... 1,755 -- 3,643 5,398
Parkcrest................................... -- -- 5,669 5,669
Other St. Louis practices................... 1,471 667 2,861 4,999
------ ------ ------- -------
Total..................................... $9,269 $1,164 $27,245 $37,678
====== ====== ======= =======
</TABLE>

The holders of most shares of PHC stock issued as consideration in the asset
acquisitions since mid-October 1997 have contractually agreed with the Company
not to offer, sell, or otherwise dispose of any of those shares for a holding
period ranging from 14 months to 42 months after the respective asset
acquisitions. The fair value of these shares reflects this restriction.

The estimated total purchase price (based on the fair value of the shares to
be issued) of the asset acquisitions since September 30, 1997 is allocated as
follows (in thousands):

<TABLE>
<S> <C>
Adjusted net assets from the asset acquisitions, at book value..... $ 7,088
Intangibles, primarily service agreements.......................... 30,590
-------
Total purchase price............................................. $37,678
=======
</TABLE>

Based on management's preliminary analysis, it is anticipated that the
historical carrying value of the acquisitions' assets and liabilities will
approximate fair value. Management of the Company has not identified any other
material tangible or identifiable intangible assets of the acquisitions to
which a portion of the purchase price could reasonably be allocated. This
preliminary allocation is not expected to differ materially from the final
allocation.

The following is a summary of the adjustments reflected in the Unaudited Pro
Forma Combined Balance Sheet giving effect to the completion of the asset
acquisitions of the PHC Practices. The Company has not acquired equity
interests in most of the PHC Practices, but has acquired substantially all of
the non-medical assets of the PHC Practices and, in most cases, will have a
40-year Practice Management Agreement with each practice.

4. PRO FORMA BALANCE SHEET ADJUSTMENTS

(a) Reflects the adjusted net assets acquired, at fair-market value, from
the asset acquisitions since September 30, 1997. See Note 3.

(b) Reflects the adjusted intangible amount associated with the asset
acquisitions since September 30, 1997. The ending intangibles amount of
$59.6 million as of September 30, 1997 also includes estimated
capitalized costs associated with the asset acquisitions of $1.2
million.

(d) Reflects the adjusted total stockholders' equity associated with the
asset acquisitions since September 30, 1997. See Note 3.

24
<PAGE>

NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET--(CONTINUED)

The Company has entered into an agreement with Banque Paribas for a $20.0
million term loan facility, a $32.5 million acquisition line facility, a $10.0
million working capital revolving loan facility, and an approximately $15.0
million subordinated debt loan facility. All the facilities will bear interest
at a floating rate of prime plus 1.75% or, at the Company's option, LIBOR plus
3.0%, with the exception of the subordinated debt which bears interest at
12.0%. Additionally, an affiliate of Banque Paribas purchased approximately
553,683 shares of Series B Voting Preferred Stock of the Company for
approximately $2.2 million. In connection with this investment and the
subordinated debt, the Company issued Banque Paribas affiliates warrants
exercisable for 376,800 shares of Non-Voting Common Stock and 58,090 shares of
Common Stock. If the Company completes an initial public offering by February
28, 1998 or April 27, 1998, respectively, the Banque Paribas affiliates will
forfeit warrants exercisable for 226,080 or 188,400 shares of Non-Voting
Common Stock, respectively, retaining warrants exercisable for 150,720 or
188,400 shares of Non-Voting Common Stock, respectively as well as retaining
the warrants exercisable for 58,090 shares of Common Stock.

The Company used $12.0 million of the $20.0 million term loan and $9.0
million of the subordinated debt to pay or refinance the cash component of the
acquisitions consummated since September 30, 1997 and to pay transaction
costs. See Note 3. The remaining $8 million under the term loan and $6 million
under the subordinated loan is available only to pay certain other outstanding
indebtedness of the Company. Approximately $2.1 million of the acquisition
line facility has been drawn to pay the cash component of acquisition
consummated following September 30, 1997, and the remaining $30.4 million is
available for future acquisitions. The $2.2 million equity infusion will be
used for general corporate purposes, including working capital.

The following pro forma adjustments are made to reflect properly the Banque
Paribas agreements (in thousands):

(e)
<TABLE>
<S> <C>
Gross proceeds of initial borrowings and equity infusion.......... $21,200
Less:
Commitment fee.................................................. 2,200
Estimated legal costs........................................... 600
Cash portion of acquisitions.................................... 17,300
-------
Net proceeds...................................................... $ 1,100
=======
</TABLE>

(f) The Company has allocated $900,000 as the fair market value of the
warrants issued in connection with the subordinated debt described
above.

(g) Reflects the conversion of Class A Stock, Series B Preferred Stock and
Prime Common Stock into Common Stock, all of which are subject to
mandatory conversion upon consummation of the Offering.

5. POST COMBINATION ADJUSTMENTS

(h) The proceeds from the issuance of 3.0 million shares of the Company's
Common Stock, net of estimated offering costs (based on an assumed
initial public offering price of $14.50 per share) will be applied as
follows (in thousands).

<TABLE>
<S> <C>
Gross proceeds of the Offering.................................... $43,500
Less:
Underwriting discount........................................... (3,045)
Estimated expenses.............................................. (2,500)
Payment of certain debt obligations............................. (21,000)
-------
Net cash received in Offering..................................... $16,955
=======
</TABLE>

Estimated expenses primarily consist of accounting fees, legal fees,
and printing expenses.

25
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

The following table sets forth selected consolidated financial data of the
Company. The selected consolidated financial data for the period from
inception to December 31, 1995, the year ended December 31, 1996 and the nine
month period ended September 30, 1997 are derived from the audited
consolidated financial statements of the Company, and the selected
consolidated financial data for the year ended December 31, 1994 and for the
period from January 1, 1995 to October 31, 1995 are derived from the audited
financial statements of the Predecessor. The selected consolidated financial
data for the nine month period ended September 30, 1996 are derived from the
unaudited financial statements of the Company. As a result of acquisitions
occurring in 1997, the Company's historical financial statements are not
representative of the financial results expected for future periods. This
information should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and the Notes thereto included elsewhere in
the Prospectus.

<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------ --------------------------------------------
PERIOD FROM
PERIOD FROM INCEPTION
JANUARY 1, (AUGUST 29, NINE MONTHS ENDED
YEAR ENDED 1995 TO 1995) TO YEAR ENDED SEPTEMBER 30,
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, ------------------
1994(1) 1995(1) 1995(1) 1996 1996 1997
------------ ----------- ------------ ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net revenues............ $812 $1,949 $ 456 $ 4,036 $ 2,720 $ 15,991
Operating expenses:
Salaries and benefits.. 531 1,533 662 2,915 2,123 4,880
Contract and profes-
sional services....... 38 125 70 194 370 746
Provision for bad
debts................. -- -- 40 660 104 938
General and administra-
tive.................. 225 463 131 2,748 1,242 11,875
Depreciation and amor-
tization.............. 58 106 14 161 81 732
Write down of as-
sets(2)............... -- -- -- 195 -- 715
Purchased research and
development(3)........ -- -- -- -- -- 13,252
---- ------ ------ ------- ------- ---------
Total operating ex-
penses................ 851 2,227 917 6,873 3,920 33,139
---- ------ ------ ------- ------- ---------
Income (loss) from oper-
ations................. (39) (278) (461) (2,837) (1,200) (14,148)
Interest expense, net... 24 86 7 30 9 1,767
---- ------ ------ ------- ------- ---------
Loss before minority
interest and income
taxes.................. (63) (364) (468) (2,867) (1,209) (18,915)
Minority interest....... -- -- (1) -- -- (2,081)
---- ------ ------ ------- ------- ---------
Loss before income tax-
es..................... (63) (364) (467) (2,867) (1,209) (16,834)
Income tax expense...... -- -- -- 17 -- 14
---- ------ ------ ------- ------- ---------
Net loss................ $(63) $ (364) (467) $(2,884) $(1,209) $(16,848)
==== ====== ====== ======= ======= =========
Net loss per share...... N/A N/A $(0.50) $ (1.34) $ (0.56) $ (5.82)
---- ------ ------ ------- ------- ---------
Weighted average shares
outstanding............ N/A N/A 941 2,156 2,143 2,894
==== ====== ====== ======= ======= =========

DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------ ------- ------------------
BALANCE SHEET DATA:
Working capital................................... $2,415 $ 146 $(5,226)
Total assets...................................... 4,870 4,143 41,733
Long-term debt.................................... 10 500 14,435
Total shareholders' equity (deficit).............. 1,292 (405) (9,344)
</TABLE>
- --------
(1) The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August
1995 and acquired the Predecessor in November 1995.
(2) The $195,000 charge in 1996 is related to the write off of operating
assets related to certain contracts that were entered into by the
Predecessor and did not conform to the Company's business plan. The
$715,000 charge in 1997 is related to the write off of deferred financing
fees related to a credit arrangement with NationsCredit Commercial
Corporation that was terminated and the write off of operating assets
related to certain contracts that were entered into by the Predecessor and
did not conform to the Company's business plan.
(3) The $13.3 million charge in 1997 is related to the write off of certain
purchased research and development expenses in association with the
Arlington Cancer Center acquisition.

26
<PAGE>

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

The following discussion and analysis contains certain forward-looking
statements relating to future events or the future financial performance of
the Company. Such statements are only predictions and the actual events or
results may differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in "Risk Factors," as well as
those discussed elsewhere in this Prospectus. As a result of the substantial
number of recent acquisitions, the historical results set forth in this
discussion and analysis are not indicative of trends with respect to any
actual or projected future financial performance of the Company. This
discussion and analysis should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the Financial Statements and related
Notes thereto included elsewhere in this Prospectus.

OVERVIEW

Physician Health Corporation is a physician management company focusing on
the value-added integration of practice management, ancillary health care
services, network development and administration, and payor contracting in
selected markets. As of December 31, 1997, the Company provided payor contract
administration and related services to 22 Affiliated Networks and two PHC
Networks. The PHC Networks and Affiliated Networks included approximately
3,300 physicians and had approximately 2.3 million covered lives under 29
managed care contracts including specialty capitated and global risk
contracts. As of December 31, 1997, the Company was a party to Practice
Management Agreements with 25 Managed Practices that employed 122 Managed
Physicians through practice management agreements. The Company directly owned
and operated nine Owned Practices through which it directly employed 50
Employed Physicians. As of December 31, 1997, there were an aggregate of 34
PHC Practices and 172 PHC Physicians. As of December 31, 1997, the Company
owned a sleep laboratory located Atlanta, Georgia and had a 51% interest in an
ambulatory surgery center located in Orlando, Florida.

The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August 1995
and acquired the Predecessor in November 1995. The Company's current regional
markets are centered in Atlanta, Georgia; Cincinnati, Ohio; Dallas/Ft. Worth,
Texas; Memphis, Tennessee; Orlando, Florida; and St. Louis, Missouri. The
Company also provides services in Alabama, Arizona, Illinois, Kentucky,
Mississippi and Virginia.

The Company derives its revenues from five primary sources: (i) management
fees from management of Managed Practices; (ii) patient service revenues
generated by Owned Practices; (iii) reimbursements of operating expenses paid
by PHC on behalf of the Managed Practices; (iv) management fees from
management of Affiliated Networks and administering managed care contracts;
and (v) revenues from the operation of ancillary health care services. The
practice management fees payable to PHC by the Managed Practices vary based on
the nature and amount of services provided. The practice management fees are
payable monthly and generally consist of percentages of revenues or the income
of the Managed Practices. For the nine months ended September 30, 1997
revenues from the Company's practice management business, ancillary health
care services business and contracting business constituted approximately 77%,
0%, and 23% of the Company's total revenues, respectively. On a pro forma
basis for the nine months ended September 30, 1997 giving effect to
acquisitions consummated during 1997 as if they had occurred as of January 1,
1997, revenues from the Company's practice management business, ancillary
health care services business and contracting business constituted
approximately 93%, 2%, and 5% of the Company's total revenues, respectively.
The recent increases in practice management revenues as a percentage of total
revenues reflects the effect of the Company's consummation of a number of
practice acquisitions during 1997. These acquisitions represent implementation
of a portion of the Company's overall strategy of building comprehensive and
integrated networks of phsycians in selected regional markets. PHC anticipates
that consummation of these acquisitions will enhance PHC's ability to increase
revenues from contracting activities and operation of ancillary services. See
"Business--Strategy."

<PAGE>

Management fees payable to the Company under the Practice Management
Agreements are determined in arm's-length negotiations based on the nature and
amount of services provided. Such fees generally consist of combinations of
the following: (i) percentages (generally ranging from 10% to 25%) of the
earnings of the Managed Practices; (ii) operating and non-operating expenses
of the Managed Practices paid by the Company pursuant to the Practice
Management Agreements; and (iii) certain negotiated performance and other
adjustments. In negotiating performance and other adjustments, the principal
factor considered by the Company and the Managed Practice is the potential for
growth in the revenue or profitability of the Managed Practice and whether
adjustments to the base fee are appropriate as any such growth occurs. In the
case of the Arlington Cancer Center, the Company's management fee is 12% of
revenues plus 55% of the practice's income after physician compensation. In
Illinois where fees based on percentages of revenues or income are not
permissible, PHC charges a flat fee. In many instances, for the first five
years of the term of a Practice Management Agreement the service fee is the
greater of the fee determined by the applicable formula or a fixed minimum
amount. The base minimum amounts typically are determined by multiplying the
percentage of earnings that has been agreed upon as the base management fee by
the historical earnings of the Managed Practice for a recent period. Base
minimum management fees range from $10,000 to $1.8 million annually. Payment
of this minimum fee is, in many instances, guaranteed by the physicians and
the practice. For a description of the terms of the Practice Management
Agreements and Direct Employment Agreements, see "Business--Contractual
Agreements with PHC Practices."

Operating expenses include the expenses incurred by the Company in
fulfilling its obligations under the Practice Management Agreements. These
expenses are the same as the operating costs and expenses that would have been
incurred by the Managed Practices, including salaries, employee benefits,
medical supplies, building rent, equipment leases, malpractice insurance
premiums, management information systems, and other expenses related to
practice operations. In addition to the practice expenses discussed above, the
Company also incurs personnel and administrative expenses in connection with
maintaining a corporate office that provides management, administrative,
marketing and acquisition services to the PHC Practices, organizes networks
and negotiates and administers payor contracts, and manages and develops
ancillary health care services. The Company can only indirectly manage the
profitability of the Managed Practices. To the extent that a Managed Practice,
with the assistance of the Company pursuant to the Practice Management
Agreement, increases its revenues or decreases its operating expenses, the
practice management fee payable to the Company may increase.

The Company earns management fees from management of networks and managed
care contracts under agreements between the Company and the PHC Networks or
Affiliated Networks. These agreements generally provide that the Company is
entitled to receive a percentage of the payments made by payors to the
network, ranging from 4.5% to 10.0%. The agreements with the networks
generally have terms of from one to five years, with provisions for automatic
renewal at the end of the term. See "Business--Operations."

In some cases, the Company enters into capitated or financial risk-sharing
managed care contracts directly with the payors. In these cases, the Company
receives the managed care payments and retains financial risk for care,
including responsibility for paying contracted providers for medical services.
To the extent that the cost of services falls below expectations, the Company
retains a larger portion of the managed dollar. Excess services, on the other
hand, would result in reduced profitability or operating losses to the
Company. See "Business--Operations."

The structure of the financial interest held by the Company in ancillary
health care services delivered by the Company or the PHC Practices will differ
based on the Company's evaluation of the requirements of state laws
prohibiting the corporate practice of medicine, as well as federal and state
anti-kickback and self-referral laws. Where legally permissible, the Company
may own all or part of an ancillary health care service provider. In other
instances the Company may manage the delivery of ancillary health care
services through a PHC Practice in exchange for a management fee. Currently,
the Company has an interest in a wholly-owned sleep laboratory located in
Atlanta, Georgia and a 51% partnership interest in an ambulatory surgery
center located in Orlando, Florida. The Company derives revenue from the sleep
laboratory through the conduct of sleep studies and the sale of durable
medical equipment related to sleep disorders. Revenues from the ambulatory
surgery center are

28
<PAGE>

derived from facility fees charged by the center. The Company also manages
this ambulatory surgery center for a fee of 6% of the center's revenues. The
Company has options, commencing in June 1998, to purchase a 51% interest in
two other ambulatory surgery centers located in Orlando, Florida.

Since November 1996, the Company has acquired 34 PHC Practices, of which 25
are Managed Practices and nine are Owned Practices. One hundred seventy-two
PHC Physicians are affiliated with the 34 PHC Practices. Aggregate
consideration paid in connection with these acquisitions was approximately
$88.5 million, consisting of approximately $29.2 million in cash,
approximately $14.8 million in promissory notes, approximately $44.6 million
in Company stock and 20% interests in three Company subsidiaries that are
convertible into a total of approximately 693,000 shares of Common Stock. In
connection with these acquisitions, PHC has recognized or will recognize
approximately $63.6 million in intangibles.

On June 16, 1997, the Company acquired substantially all of the assets of
the Arlington Cancer Center for approximately $11.8 million in cash, $12.6
million in promissory notes and a 20% membership interest in MHOA Texas I,
LLC, the subsidiary of the Company that purchased such assets and manages the
Arlington Cancer Center. On September 12, 1997, the Company acquired
substantially all of the assets of Southern Dependacare for approximately $4.5
million in cash, $1.8 million in promissory notes and 540,000 shares of Prime
Common Stock. On November 10, 1997, pursuant to an Agreement and Plan of
Merger, a wholly-owned subsidiary of the Company was merged with and into
Greater Cincinnati Gastro, all of the shares of capital stock of Greater
Cincinnati Gastro were converted into the right to receive, in the aggregate,
approximately $3.5 million in cash and approximately 410,000 shares of Common
Stock, and Greater Cincinnati Gastro became a wholly-owned subsidiary of the
Company. On November 12, 1997 pursuant to an Agreement and Plan of Merger,
Parkcrest was merged with and into a wholly-owned subsidiary of the Company,
all of the outstanding shares of capital stock of Parkcrest were converted
into the right to receive, in the aggregate, $348,148 in cash and
approximately 406,400 shares of Common Stock, and Parkcrest became a wholly-
owned subsidiary of the Company. On November 12, 1997, pursuant to an
Agreement and Plan of Merger, a wholly-owned subsidiary of the Company was
merged with and into IMS, all of the outstanding capital stock of IMS
converted into the right to receive, in the aggregate, approximately $3.7
million in cash and 351,867 shares of Common Stock, and IMS became a wholly-
owned subsidiary of the Company. On November 12, 1997, pursuant to an
Agreement and Plan of Merger, MidSouth merged with and into a wholly-owned
subsidiary of the Company, all of the outstanding shares of capital stock of
MidSouth were converted into the right to receive, in the aggregate,
approximately $2.5 million in cash and 272,521 shares of Common Stock and
MidSouth became a wholly-owned subsidiary of the Company.

RESULTS OF OPERATIONS

As a result of the Company's recent acquisitions and limited period of
affiliation with PHC Practices, the Company believes that the period-to-period
comparisons and percentage relationships within the periods set forth below
are not meaningful. The Company acquired its first PHC Practice in November
1996. The Company acquired 11 additional PHC Practices during the first nine
months of 1997. Changes in results of operations for the year ended December
31, 1996 as compared to the year ended December 31, 1995 and for the nine
months ended September 30, 1997 as compared to the nine months ended September
30, 1996 were caused primarily by the acquisitions of those PHC Practices.

<PAGE>

The following table shows the percentage of net revenue represented by
various expense categories reflected in the Company's Consolidated Statements
of Operations:

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
--------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ -----------------
1994 1995 1996 1996 1997
---- ---- ---- ------ -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues....................... 100% 100% 100% 100% 100%
Operating expenses:
Salaries and benefits............ 65 91 72 78 31
Contract and professional servic-
es.............................. 5 8 5 14 5
Provision for bad debts.......... -- 2 16 4 6
General and administrative....... 28 25 68 45 74
Depreciation and amortization.... 7 5 4 3 4
Write down of assets............. -- -- 5 -- 4
Purchased research and develop-
ment............................ -- -- -- -- 83
--- --- --- ------ -------
Total operating expenses....... 105 131 170 144 207
--- --- --- ------ -------
Loss from operations............... (5%) (31%) (70%) (44%) (107%)
</TABLE>

Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996

Net revenue increased to $15.9 million for the nine months ended September
30, 1997 from $2.7 million for the same period in 1996, an increase of $13.3
million or 488%. This increase was primarily due to approximately $11.6
million in additional revenues from the 12 PHC Practices acquired since
November 1996. This additional revenue was comprised of approximately $1.8 in
management fee revenue, approximately $1.9 in net patient revenues related to
employed physicians, and approximately $7.9 million in reimbursement of
clinical operating expenses. The remaining increase of approximately $1.5
million was due primarily to the start-up of global risk contracting in
September 1996, increased capitation contract revenues and revenues generated
by five new employee physicians in the Orlando market. Net revenue for the
nine months ended September 30, 1997 and the nine months ended September 30,
1996 consisted of the following: management fee revenue including
reimbursement of clinical operating expenses was 64% of net revenue in 1997
versus 49% in 1996; contracting revenue was 22% of net revenue in 1997 versus
38% in 1996; and net patient revenue related to employed physicians was 14% of
net revenue versus 15% in 1996.

Salaries and benefits increased to $4.9 million for the nine months ended
September 30, 1997 from $2.1 million for the same period in 1996, an increase
of $2.8 million or 130%. The addition of staff related to the acquisitions of
12 PHC Practices constituted approximately $4.0 million of this increase.
Approximately $370,000 of this increase related to the addition of five
physician employees in the Orlando market. Additional amounts of approximately
$376,000 related to the addition of staff in support of growth in revenues. As
a percentage of net revenues, salaries and benefits expense decreased to 31%
for the nine months ended September 30, 1997 from 78% for the same period in
1996.

Contract and professional services expense increased to $746,000 for the
nine months ended September 30, 1997 from $370,000 for the same period in
1996, an increase of $376,000 or 102%. This increase was primarily due to the
acquisitions of six PHC Practices as well as increased legal fees associated
with new capitated contracts. As a percentage of net revenues, contract and
professional services expense decreased to 5% for the nine months ended
September 30, 1997 from 14% for the same period in 1996.

Provision for bad debts increased to $938,000 for the nine months ended
September 30, 1997 from $104,000 for the same period in 1996, an increase of
$834,000 or 797%. This increase primarily related to reserves

30
<PAGE>

established based on historical collection experience for accounts receivable
generated by PHC Practices. As a percentage of net revenues, provision for bad
debts increased to 6% for the nine months ended September 30, 1997 from 4% for
the same period in 1996.

General and administrative expenses increased to $11.9 million for the nine
months ended September 30, 1997 from $1.2 for the same period in 1996, an
increase of $10.7 million or 857%. This increase was due to the asset
acquisitions of PHC Practices, the addition of four physician employees in the
Orlando market, as well as other increases in staffing levels. As a percentage
of net revenues, general and administrative expenses increased to 74% for the
nine months ended September 30, 1997 from 45% for the same period in 1996.

Depreciation and amortization expense increased to $732,000 for the nine
months ended September 30, 1997 from $81,000 for the same period in 1996, an
increase of $651,000 or 804%. This increase was directly related to fixed
assets and goodwill acquired in the acquisitions of six PHC Practices. As a
percentage of net revenues, depreciation and amortization expense increased to
4% for the nine months ended September 30, 1997 from 3% for the same period in
1996.

The write down of assets for the nine months ended September 30, 1997
relates to the expense of certain loan issuance costs related to a terminated
credit arrangement.

Purchased research and development expense for the nine months ended
September 30, 1997 relates to a non-recurring expense of writing off an
intangible asset of a PHC Practice acquired in June 1997 based on management's
assessment that such asset had no future alternative benefit for the Company.

Interest expense increased to $1.8 million for the nine months ended
September 30, 1997 from $1,000 for the same period in 1996. The increase was
due to the debt incurred in connection with asset acquisitions and working
capital borrowings.

As a result of the foregoing, net loss increased to $16.8 million for the
nine months ended September 30, 1997 from $1.2 million for the same period in
1996.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

On November 3, 1995, the Company acquired the Predecessor by merger. Prior
to such acquisition, the Company did not have significant operations. The
Predecessor commenced operations in 1994. The operations for 1995 for the
Predecessor and the Company have been combined for presentation purposes. The
combined presentation is not in accordance with generally accepted accounting
principles.

Net revenue increased to $4.0 million in 1996 from $2.4 million in 1995, an
increase of $1.6 million or 66%. This increase was due primarily to an
increase in single specialty contracting as well as the commencement of global
risk contracting in September 1996. Additionally, a portion of the increase
relates to the acquisition of Metropolitan Plastic & Reconstructive Surgery,
Ltd. ("Metropolitan Plastic") in November 1996.

Salaries and benefits increased to $2.9 million in 1996 from $2.2 million in
1995, an increase of $0.7 million or 32%. This increase was due to additional
staffing added to support the growth in revenues as well as the hiring of
employees of Metropolitan Plastic in November 1996. As a percentage of net
revenues, salaries and benefits expenses decreased to 72% for 1996 compared to
91% for 1995.

Contract and professional services expense was $194,000 in 1996 compared to
$195,000 in 1995. As a percentage of net revenues, contract and professional
services expense decreased to 5% in 1996 from 8% in 1995.

Provision for bad debts increased to $660,000 in 1996 from $40,000 in 1995,
an increase of $620,000 or 1550%. This amount primarily related to reserves
established for contracts that were entered into by the predecessor and did
not conform to the Company's business plan.

General and administrative expenses increased to $2.7 million in 1996 from
$594,000 in 1995 an increase of $2.1 million or 355%. This increase was
related to increased staffing levels for anticipated growth in 1997 as well as
the acquisition of Metropolitan Plastic. As a percentage of net revenues,
general and administrative expenses increased to 68% for 1996 compared to 25%
for 1995.

31
<PAGE>

Depreciation and amortization expenses increased to $161,000 in 1996 from
$120,000 in 1995, an increase of $41,000 or 34%. This increase was directly
related to fixed assets and goodwill acquired in connection with an
acquisition of Metropolitan Plastic. As a percentage of net revenues,
depreciation and amortization expenses decreased to 4% for 1996 from 5% in
1995.

The write down of assets in 1996 relates to the write off of operating
assets related to certain terminated physician arrangements.

Interest expense decreased to $30,000 in 1996 from $93,000 in 1995, a
decrease of $63,000. The decrease was due to the reduction of certain above-
market rate debt.

As a result of the foregoing, net loss increased to $2.9 million in 1996
from $831,000 in 1995.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

Net revenue increased to $2.4 million in 1995 from $812,000 in 1994, an
increase of $1.6 million or 197%. The increase was due to an increase in the
number of payor contracts administered in 1995.

Salaries and benefits increased to $2.2 million in 1995 from $531,000 in
1994, an increase of $1.7 million or 314%. The increase was due to an increase
in the number of employees to administer payor contracts. As a percentage of
revenues, salary and benefits expenses increased to 91% in 1995 from 65% in
1994.

Contract and professional services expense increased to $195,000 in 1995
from $37,000 in 1994, an increase of $158,000 or 427%. As a percentage of
revenues, contract and professional services expense increased to 8% in 1995
from 5% in 1994.

Provision for bad debts increased to $40,000 in 1995 from $0 in 1994.

General and administrative expenses increased to $594,000 in 1995 from
$225,000 in 1994, an increase of $369,000 or 164%. As a percentage of
revenues, general and administrative expenses decreased to 25% in 1995 from
28% in 1994.

Depreciation and amortization expenses increased to $120,000 in 1995 from
$58,000 in 1994, an increase of $62,000 or 107%. As a percentage of revenues,
depreciation and amortization expenses decreased to 5% in 1995 from 7% in
1994.

Interest expense increased to $93,000 in 1995 from $24,000 in 1994, an
increase of $69,000 or 288%. The increase was due to the acquisition debt
incurred to purchase the Predecessor.

As a result of the foregoing, net loss increased to $831,000 in 1995 from
$63,000 in 1994.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1997, working capital was $(5.2) million, a decrease of
$5.4 million during the first nine months of 1997, and cash and cash
equivalents were $5.2 million. At September 30, 1997, net accounts receivable
increased to approximately $8.1 million compared to approximately $465,000 at
December 31, 1996. The increase is attributable to growth in revenues and
acquired assets due to the acquisition of PHC Practices.

Capital expenditures during the first nine months of 1997 totaled
approximately $341,000. The Company is committed to make specified levels of
capital expenditures under certain of its Practice Management Agreements.

During June 1997, the Company completed a private placement of its Series B
Preferred Stock (the "Series B Offering"). Pursuant to the Series B Offering,
the Company received net proceeds of approximately

32
<PAGE>

$9.8 million at the initial closing in June 1997 (substantially all of which
was used in connection with the acquisition of the assets of the Arlington
Cancer Center by the Company). At the second closing in July 1997,
approximately $5.5 million was deposited into an escrow account which was
accessed by the Company in connection with its acquisition of practices
meeting certain agreed upon criteria. Although the Company expects to retire
approximately $6.2 million in indebtedness incurred in connection with the
Arlington Cancer Center acquisition with the proceeds of the Offering, the
Company has the ability instead to require the holders of its Series B
Preferred Stock to purchase shares of Common Stock at $12.74 per share
sufficient to retire this indebtedness in April 1998, pursuant to an equity
call agreement.

In October 1997, the Company entered into a credit agreement with a group of
banks led by Banque Paribas (the "Bank Group") under which agreement, as
amended and restated in December 1997, the Bank Group agreed to provide the
Company with up to $62.5 million in senior debt (the "Senior Facility"). The
Senior Facility is comprised of a term loan in an amount up to $20.0 million
(the "Term Loan"), a revolving loan in an amount up to $10.0 million (the
"Revolving Loan") and an acquisition loan in an amount up to $32.5 million
(the "Acquisition Loan"). The Senior Facility is secured by substantially all
of the Company's assets. At December 31, 1997, approximately $12.0 million was
outstanding under the Term Loan, approximately $1.5 million was outstanding
under the Revolving Loan and approximately $1.1 million was outstanding under
the Acquisition Loan. In connection with the Senior Facility, the Company sold
to Paribas Principal Incorporated ("PPI"), an affiliate of Banque Paribas, for
approximately $2.2 million, 553,683 shares of Series B Preferred Stock and
warrants exercisable for 58,090 shares of Common Stock at a nominal exercise
price. Further, in October 1997, the Company obtained from Paribas Capital
Funding LLC ("PCF"), an affiliate of Banque Paribas, a senior subordinated
loan (the "Subordinated Loan") in the amount of $15.0 million (of which $9.0
million was advanced), and sold to PCF warrants exercisable for 376,800 shares
of the Company's Non-Voting Common Stock. If the Company completes an initial
public offering by February 27, 1998 or April 27, 1998, respectively, PCF will
forfeit warrants exercisable for 226,080 or 188,400 shares of Non-Voting
Common Stock, respectively, retaining warrants exercisable for 150,720 or
188,400 shares of Non-Voting Common Stock, respectively. The Company will
repay the Subordinated Debt with the net proceeds of the Offering and will use
$12.0 million of such net proceeds to repay indebtedness under the Term Loan.
Commitments under the Term Loan will be extinguished upon repayment. Following
such required repayments, such financing must be paid down with excess cash
flow. Following repayment of the indebtedness, neither the Bank Group nor the
Company's subordinated lenders will have any obligation to advance additional
funds to the Company.

The Company historically has funded its acquisitions and operations through
cash flow from operations, borrowings and sales of equity securities. In
addition to the proceeds from the offering, funds available under its bank
borrowings, cash reserves and cash flow from operations, the Company expects
to incur, from time to time, short-term and long-term bank indebtedness and to
issue equity and debt securities, the availability and terms of which will
depend upon market and other conditions, to meet the Company's current planned
acquisition, capital expenditure and working capital needs for the next 12
months and to provide the funds necessary for the continued pursuit of the
Company's long-term expansion strategy. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.

RECENT PRONOUNCEMENTS

New Accounting Pronouncements

33
<PAGE>

periods ending December 31, 1997. As of September 30, 1997, the disclosure
requirements of SFAS No. 128 would not require a different presentation of
earnings per share than currently presented due to the antidilutive effect of
all common stock equivalents.

In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information About Capital Structure." SFAS No. 129
requires companies to disclose descriptive information about an entity's
capital structure. It also requires disclosure of information about the
liquidation preference of preferred stock and redeemable stock. SFAS No. 129
is effective for the Company's fiscal year ending December 31, 1998. The
Company does not expect that SFAS No. 129 will require significant revision of
prior disclosures.

In June 1997, the Financial Accounting Standards Board issued Statement No.
130, "Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity from period to period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt SFAS No. 130 for fiscal 1998. Management does not expect SFAS No. 130 to
have a significant impact on the Company's financial statements.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS
No. 131 requires that an enterprise disclose certain information about
operating segments. SFAS No. 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS No. 131 will require significant revision of prior disclosures.

The Emerging Issues Task Force of the FASB has recently issued its Consensus
Opinion 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific matters
pertaining to the physician practice management industry. EITF 97-2 would be
effective for the Company for its year ending December 31, 1998. EITF 97-2
addresses the ability of physician practice management companies to
consolidate the results of physician practices with which it has an existing
contractual relationship. The Company is still in the process of analyzing the
effect on all of its contractual relationships, but currently believes that
certain contracts would meet the criteria of EITF 97-2 for consolidating their
results of operations, which would require the Company to restate its
financial statements to reflect such consolidation. EITF 97-2 also has
addressed the accounting method for future combinations with individual
physician practices. The Company believes that, based upon the criteria set
forth in EITF 97-2, virtually all of its future acquisitions of individual
physician practices will continue to be accounted for under the purchase
method of accounting.

34
<PAGE>

BUSINESS

OVERVIEW

The Company's objective is to continue building comprehensive and integrated
networks of physicians in selected regional markets in order to: (i) establish
a significant market presence enabling it to negotiate favorable payor
contracts and (ii) provide a broad range of physicians and ancillary health
care services to payors. To achieve these objectives, the Company seeks to:
(a) leverage contracting expertise to enhance its strategic position in its
markets; (b) selectively acquire key practices to strengthen market presence;
(c) provide management expertise and capital for development of ancillary
health care services; (d) negotiate and administer beneficial payor contracts;
and (e) utilize information technology to improve practice performance and
meet payor requirements. The Company believes that the expertise of its
management team in network development, payor contracting and ancillary health
care services, as well as PHC's flexible approach to entering new markets and
structuring its operations, differentiates it from traditional physician
practice management companies ("PPMs") and enhance its ability to attract
physicians and to negotiate favorable payor contracts. PHC's acquisition of
key practices is a part of its overall strategy of strengthening its networks
and market presence and enhancing the Company's ability to contract with
managed care payors and providers.

The Company commenced operations in 1994 as a wholly-owned subsidiary of
Surgical Health Corporation. PHC was incorporated in Delaware in August 1995
and acquired the Predecessor in November 1995. Prior to the acquisition of the
first PHC Practice in November 1996, the Company principally engaged in
network development and administration, payor contracting, practice
administration, and development activities related to potential acquisitions.
The Predecessor principally engaged in network development and administration,
payor contracting, and practice administration and derived its revenues from
these activities. The Company's current regional markets are centered in
Atlanta, Georgia; Cincinnati, Ohio; Dallas/Ft. Worth, Texas; Memphis,
Tennessee; Orlando, Florida; and St. Louis, Missouri. The Company also
provides services in Alabama, Arizona, Illinois, Kentucky, Mississippi and
Virginia.

INDUSTRY BACKGROUND

The Health Care Financing Administration has estimated that national health
care spending increased to approximately $1.0 trillion, or approximately 14%
of GDP, in 1995 from $247 billion, or approximately 9% of GDP, in 1980. HCFA
projects that annual health care spending will increase at a compounded annual
growth rate of over 8% to $1.5 trillion and approximately 16% of the GDP by
the year 2000. HCFA also has estimated that approximately $200 billion, or
approximately 20%, of total health care expenditures, in 1995 were directly
attributable to physician services, and an additional amount of approximately
$515 billion or 52% of such expenditures were under physician direction.

As a result of escalating health care expenditures, governmental and other
payors have adopted cost containment initiatives in an effort to control
spending. These initiatives have resulted in a shift from traditional fee-for-
service provider reimbursement to an evolving array of managed care
arrangements, varying from discounted fee-for-service to fully capitated plans
in which providers assume the financial risks related to service

35
<PAGE>

utilization for a defined group of covered members and services. The industry
has also experienced a decrease in inpatient occupancies as payors have
implemented incentives for providing care in a more cost-effective setting,
which is often an outpatient surgery center, in-office laboratory or similar
outpatient location.

Cost-containment initiatives, including reduced reimbursement, have hindered
physician practice profitability while demands for increased clinical
documentation, cost, quality and utilization data have increased physicians'
administrative duties. Small and mid-sized practices generally do not have the
market presence, expertise or sophisticated cost accounting and quality
management systems required, and may not have the time necessary, to evaluate
and enter into informed capitated risk-sharing arrangements or to continue
practicing profitably under reduced reimbursement. In addition, these
practices often lack the capital required to purchase new medical equipment
and information systems to enhance the efficiency and quality of their
practices. As a result, individual physicians and small group practices are
increasingly consolidating, either by affiliating with larger group practices
and PPMs or by forming networks or independent practice associations. By
consolidating into larger organizations, physicians can achieve lower
administrative costs, gain leverage in negotiating with managed care
organizations and position themselves to attract needed capital resources.

Although the larger organizations resulting from these consolidations have
often improved practice profitability through reductions in overhead and
centralization of certain administrative functions, the Company believes that
many such organizations lack the expertise and market presence to negotiate
successful managed care contracts. In addition, the Company believes that many
PPMs do not offer opportunities for practices and physicians to integrate
complementary ancillary health care services and share in the resulting
income.

THE PHC PHILOSOPHY

The Company seeks to affiliate with physicians who are leaders in the
delivery of medical care and who apply sound business principles to the
operation of their practices. The Company believes that physicians are best
qualified to develop appropriate treatment protocols, and as a result, the
Company provides PHC Physicians, PHC Networks and Affiliated Networks with the
resources necessary to enhance their decision making. The Company also
believes that health care is essentially a regional or local business.
Therefore, PHC aims to integrate practice management, ancillary health care
services, network development and administration and payor contracting at a
regional level. Through such integration and by supporting physicians with
strong, experienced local management teams, the Company believes it provides
physicians with the tools necessary to compete in a changing and increasingly
competitive health care environment.

STRATEGY

Leverage Contracting Expertise to Enhance its Strategic Position in its
Markets. The Company enters markets both by providing network development and
contracting services and, in certain cases, by acquiring practices that the
Company believes can serve as foundations for future networks. As it enters
markets, the Company seeks to form comprehensive provider panels and provide
managed care contracting services to physician practices and networks in order
to gain negotiating leverage with payors and to achieve economies of scale.
The Company believes its network development and contracting services model
enables it to establish a significant market platform with less initial
management time and capital than PPM models based solely on acquisitions. In
addition, the Company believes its network development and contracting
expertise enhances its credibility with market participants and enables it to
identify new markets in which managed care contracting is likely to grow and
the key practices in these markets. Where appropriate, the Company enters a
new market through selective acquisitions of such key practices.

Selectively Acquire Key Practices to Strengthen Market Presence. The Company
selectively acquires key physician practices from its networks and from the
suburban and rural communities surrounding these markets to solidify its
market position, to strengthen its existing networks and to establish,
organize and support new networks. Through network development and contracting
services, the Company establishes relationships with

36
<PAGE>

physicians and identifies leading physicians and practices who apply sound
business principles and are attractive to patients and payors. By acquiring
physician practices from within its networks or existing markets, the Company
believes it makes informed decisions about practice acquisitions and the
allocation of capital resources. The Company also may acquire non-network
practices that it believes will serve as foundations for building new
networks. PHC's acquisition of key practices is a part of its overall strategy
of strengthening its networks and market presence and enhancing the Company's
ability to contract with managed care payors and providers.

Provide Management Expertise and Capital for Development of Ancillary Health
Care Services. The Company intends to acquire and develop ancillary health
care services in order to improve the revenues and operating margins of the
Company and the PHC Practices. The Company believes that the availability of
ancillary health care services provides physicians with scheduling flexibility
and greater practice efficiency. Additionally, ancillary health care services
provided in an outpatient setting are attractive to payors because they
generally are less expensive than similar inpatient services. By providing
ancillary health care services, the Company also increases its flexibility in
negotiating global risk contracts. The Company's management team has
experience in the successful development of outpatient surgery centers and
other ancillary health care services.

Negotiate and Administer Beneficial Payor Contracts. The Company focuses on
negotiating and administering payor contracts on behalf of the PHC Practices,
Affiliated Networks and PHC Networks. The Company believes that its
contracting expertise helps it develop and improve relationships with
physicians and payors, and that its contracting services can result in
increased revenues and profits for PHC, the PHC Physicians, PHC Practices, PHC
Networks and Affiliated Networks. The Company believes that its strategy of
providing network development and administration services and specialty and
other contracting services also enables it to establish: (i) a strong market
position; (ii) stable networks of high quality providers; (iii) strong payor
relationships; (iv) integration of ancillary health care services; and (v)
access to cost, quality and utilization data, all of which are essential to
entering into profitable partial and global risk contracts.

Utilize Information Technology to Improve Practice Performance and Meet
Payor Requirements. The Company intends to provide its physicians access to
information and technologies that will enhance their ability to deliver care
more efficiently and profitably in a managed care environment. The Company's
clinical information system collects network data that enable it to price and
manage specialty capitation contracts as well as partial and global risk
contracts. The system also provides a broad range of statistical data to
support utilization analysis, to identify physician outliers and to develop
practice protocols. With the data it collects, the Company can also meet
various requirements of payors, including supplying information to support
accreditation of providers and networks by health care industry organizations
such as the National Committee for Quality Assurance ("NCQA") and the
Utilization Review Accreditation Committee ("URAC").

OPERATIONS

PHC acquires and manages practices, acquires or develops and manages
ancillary health care services, develops and administers networks, and
negotiates and administers payor contracts in its selected markets. In
choosing new markets, the Company analyzes the population, demographics,
market potential, competitive environment, supply of physicians, needs of
managed care plans or other large payors and general economic conditions. The
Company seeks markets in which it believes it can achieve a significant market
share and, in particular, in which there is evidence of risk shifting from
payors to providers. PHC enters new markets where it has identified an
opportunity or where payors or providers have requested its services.

The Company's revenues for the nine months ended September 30, 1997 were
derived from the following sources: (i) management revenue, including
reimbursement of clinical operating expense, constituted approximately 64% of
net revenue; (ii) contracting revenue constituted approximately 22% of net
revenue; and (iii) net patient revenue related to Employed Physicians
constituted approximately 14% of net revenue. During the nine months ended
September 30, 1997, the PHC Practices derived approximately 30% of their
revenues from Medicare and Medicaid, calculated on a pro forma basis giving
effect to the acquisitions consummated during 1997 as if they had occurred on
January 1, 1997.

<PAGE>

The following table sets forth certain information regarding the PHC
Networks, Affiliated Networks, PHC Physicians and the managed care contracts
administered by the Company as of December 31, 1997. Markets identified as
integrated regional markets are those in which the Company has affiliated with
a network and has acquired selected PHC Practices affiliated with the
contracting networks. Developing regional markets are those in which the
Company owns or manages one or more PHC Practices but does not yet manage a
corresponding network. Contracting markets are those in which PHC is
administering active managed care contracts and has not yet determined whether
to seek physician practice acquisitions. For additional detailed information
regarding individual networks and practices see Appendix A.

<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF APPROXIMATE
NUMBER OF NUMBER OF NUMBER OF MANAGED NUMBER OF
NETWORK PHC PHC PHC PHYSICIAN CARE COVERED
REGIONAL MARKET PHYSICIANS(1) NETWORK SPECIALTIES(2) PRACTICES(3) PHYSICIANS(3) SPECIALTIES CONTRACTS LIVES
- ----------------- ------------- ------------------------ ------------ ------------- --------------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEGRATED
REGIONAL MARKETS
Atlanta, GA..... 1,200 Primary Care; Multi- 4 18 Primary Care; 14 1,375,000
Specialty; Neuroscience; OB/Gyn
OB/Gyn;
Orthopaedics; Urology
Dallas/Fort 130 Gastroenterology; 1 10 Oncology 4 400,000
Worth, TX...... Mental Health;
Oncology;
Urology
Memphis, TN..... 800 Primary Care/Multi- 3 32 Family Practice -- --
Specialty
Orlando, FL..... 550 Primary Care/Multi- 7 52 Primary Care; 4 85,000
Specialty; OB/Gyn; Allergy; Colorectal;
Ophthalmology Gastroenterology;
Nephrology; OB/Gyn;
Orthopaedics; Surgery
St. Louis, MO... 260 Primary Care/ 17 41 Primary Care; -- --
Multi-Specialty Multi-Specialty
Surgery; Cardiology;
Ophthalmology;
Optometry;
Orthopaedics;
Pulmonary
Payson, AZ...... 25 Primary Care/Multi- 1 3 Primary Care 1 60
Specialty; Nephrology
DEVELOPING
REGIONAL MARKET
Cincinnati, OH.. -- -- -- 12 Cardiology; -- --
Gastroenterology
CONTRACTING MARKETS
Birmingham, AL.. 250 Cardiology; Cardiac -- -- -- 5 400,000
Surgery;
Gastroenterology;
Orthopaedics;
Urology
Chattanooga, TN 45 Multi-Specialty Surgery -- -- -- 1 30,000
...............
Houston, TX..... 60 Gastroenterology -- -- -- -- --

OTHER
Outreach
Oncology
Practices
(IL, MS, VA)... n/a n/a 1 4 Oncology n/a n/a
----- --- --- --- ---------
TOTALS: 3,320 34 172 29 2,290,060
</TABLE>
- -------

(1) Approximately 500 physicians of varied specialties in the Orlando market
and 130 primary care physicians in the Atlanta market provide services
through PHC Networks. All other network physicians provide services
through Affiliated Networks.

(2) The number of networks in a market corresponds to the number of
specialties listed. There are a total of 24 networks. There is one PHC
Network in each of the Atlanta and Orlando markets. The remaining networks
are Affiliated Networks.

(3) Three Orlando practices (with 41 Employed Physicians) and six St. Louis
practices (with 9 Employed Physicians) are Owned Pratices. The remaining
25 practices are Managed Practices with a total of 122 Managed Physicians.

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<PAGE>

Practice Acquisition and Management

A part of the Company's strategy is to acquire leading medical practices in
markets in which the Company believes it can establish a significant market
presence and in which it provides significant contracting services and has
significant local management relationships. The Company selectively acquires
key physician practices from its networks and from the suburban and rural
communities surrounding these markets in order to solidify its market position
and strengthen its networks. Additionally, in markets where the Company has
identified an attractive opportunity, the Company will acquire selected
physician practices. PHC's acquisition of key practices is a part of its
overall strategy of strengthening its networks and market presence and
enhancing the Company's ability to contract with managed care providers.

The Company seeks to acquire practices of physicians who: (i) are viewed by
the Company as important to the long-term success of its networks; (ii) apply
sound business principles in the operation of their practices and are high
growth oriented; (iii) have reputations in the market as leaders in the
delivery of medical care; and (iv) embrace new medical technologies and
procedures. As part of this process, the Company often targets a particular
type of practice or specialty that the Company believes contains physician
leaders in the specific market.

The Company believes that the following characteristics differentiate it
from other alternatives available to physicians and physician networks and
position it to succeed in acquiring physicians and practices: (i) its
contracting expertise; (ii) the quality, experience and credibility of its
local management teams and its knowledge of the markets in which it operates;
(iii) its ancillary health care services expertise; (iv) its governance
structure, which fosters physician autonomy while promoting physician
participation; and (v) its flexible approach to entering new markets and
structuring its operations.

Acquisition Process. The Company's business development team identifies,
pursues and negotiates practice acquisitions. After identifying a practice or
physician, the Company meets with the physicians to determine whether they
meet the Company's criteria and have an interest in affiliating with PHC. The
Company's business, financial and legal due diligence includes site visits,
analysis of financial and other data and analysis of the group's operations,
leadership, clinical practices and commitment to long-term growth.
Additionally, the Company reviews the medical professionals' training,
licensure and experience and the practice's Medicare and Medicaid compliance,
billing practices and operating history. Upon successful completion of due
diligence, the Company structures and negotiates the acquisition terms,
including the type and amount of consideration as well as noncompete
agreements. The consideration paid in the Company's acquisitions is designed
to align its interests with those of the physicians and includes a combination
of Company stock, cash and, sometimes, notes. The consideration for each
practice varies on a case-by-case basis, depending on a variety of factors
including historical operating results, the future prospects of the practice
and the ability of the practice to complement the services offered by other
PHC Practices. When the Company acquires the non-medical assets of a physician
practice that it will not directly own, it generally purchases all of the
tangible and intangible assets of the practice with the exception of patient
medical records and real estate. Patient medical records are retained by the
selling practice or a new entity formed by the practice's physicians, and the
practice or new entity enters into a Practice Management Agreement in
connection with the acquisition. When the Company acquires a physician
practice that the Company will own, the Company generally purchases all of the
tangible and intangible assets of the practice, including medical records, and
employs the practice's physicians.

Practice Management Services. Pursuant to its Practice Management
Agreements, the Company provides a range of services including among other
things: (i) acting as manager and administrator of non-medical services
relating to the operation of the Managed Practice; (ii) billing patients,
insurance companies and other third-party payors and collecting the fees for
professional medical services and other services rendered and products sold by
the Managed Practice; (iii) providing, as necessary or requested, clerical,
accounting, purchasing, payroll, legal, bookkeeping and computer services and
personnel, information management, preparation of certain tax returns,
printing, postage and duplication services and medical transcribing services;
(iv) supervising and maintaining

39
<PAGE>

custody of substantially all files and records; (v) providing facilities for
the Managed Practice; (vi) preparing, in consultation with a joint policy
board and the Managed Practice, all capital expenditure and operating budgets;
(vii) ordering and purchasing inventory and supplies as reasonably requested
by the Managed Practice; and (viii) providing financial and business
assistance in the negotiation, establishment, supervision and maintenance of
contracts and relationships with managed care and similar payors. Management
fees payable to the Company under the Practice Management Agreement are
determined in arm's-length negotiations based on the nature and amount of
services provided. Many of the Company's services are designed to reduce the
amount of time physicians must spend on administrative matters, thereby
enabling the physicians to focus on the delivery of health care. The Company
also assists in the development of ancillary health care services by
conducting feasibility studies and providing project development services and
capital resources.

The Company employs most of the PHC Practices' non-physician personnel.
These non-physician personnel, along with additional personnel at the local
management level, manage the day-to-day non-medical operations of each of the
Managed Practices, including, among other things, secretarial, bookkeeping,
scheduling and other business services. In Florida, Missouri and other states
that permit the corporate practice of medicine, the Company may employ
physicians as well as non-physician personnel. The Employed Physicians in the
Owned Practices continue to control the medical aspects of the practice and
have input with respect to strategic planning and budgeting. PHC has direct
responsibility for all non-medical aspects of the operation of the Owned
Practices.

Ancillary Health Care Services

In evaluating a market, the Company analyzes opportunities to develop or
acquire ancillary health care services. Where appropriate, PHC intends to
acquire and to develop ancillary health care services to complement its local
PHC Practices, PHC Networks and Affiliated Networks. Ancillary health care
services include those that are: (i) part of a practice such as a single-
purpose, office-based surgery suite; (ii) connected with a group practice,
which may consist of several otherwise independent practices, such as a
birthing center; or (iii) affiliated with a coherent specialty network such as
a lithotripter with a urologist network or a sleep lab with a network of
otolaryngology (ENT) physicians. The Company encourages physician
participation in these ancillary health care services, either through an
ownership interest in a joint venture established to own and operate a
facility or through clinical participation. The Company believes that
ancillary health care services provide physicians with scheduling flexibility
and greater practice efficiency. Additionally, ancillary health care services
provided in an outpatient setting are attractive to payors because they
generally are less expensive than similar inpatient services. By providing
ancillary health care services, the Company also increases its flexibility in
negotiating global risk contracts. The Company's management team has
experience in the successful development of outpatient surgery centers and
other ancillary health care services.

The structure of the financial interest held by the Company in ancillary
services delivered by the Company or the PHC Practices will differ based on
the Company's evaluation of the requirements of state laws prohibiting the
corporate practice of medicine, as well as federal and state anti-kickback and
self-referral laws. Where legally permissible, the Company may own all or part
of an ancillary health care service provider. In other instances the Company
may manage the delivery of ancillary health care services through a PHC
Practice in exchange for a management fee. The Company encourages physician
participation in existing ancillary health care services by providing the
physicians with convenient, well-managed facilities that enhance physicians'
ability to optimize use of time. In addition, the Company may offer physicians
the opportunity to purchase interests in a joint venture or other entity that
owns the ancillary health care facility.

Currently, the Company owns a sleep laboratory located in Atlanta, Georgia
and has a 51% partnership interest in an ambulatory surgery center located in
Orlando, Florida that was purchased from physicians practicing in the Orlando,
Florida area. Those physicians own the remaining 49% interest in the
ambulatory surgery center. The Company derives revenue from the sleep
laboratory through the conduct of sleep studies and the sale of durable
medical equipment related to sleep disorders. Revenues from the ambulatory
surgery center are derived from facility fees charged by the center. The
Company also manages this ambulatory surgery center for a fee of 6% of the
revenues of the ambulatory surgery center. The Company has options, commencing
in June 1998, to purchase a 51% interest in two other ambulatory surgery
centers located in Orlando, Florida.

40
<PAGE>

Network Services

Network Formation and Development. In forming networks, the Company focuses
on developing networks of sufficient size and specialties to respond
successfully to payors' geographic, service and utilization management needs.
The Company contacts physicians that it believes offer the medical expertise
and quality of care that are attractive to payors. In both network formation
and network development, the Company assists physicians in determining the
number and types of specialists, subspecialists and hospitals required for a
network to be attractive to payors and to meet the needs of a particular
payor's contract. The Company then aids in selecting and credentialing the
panel of physicians. After the panel of physicians is selected, the Company
assists in forming protocol, finance, utilization, credentialing and quality
assurance (peer review) committees composed of network physicians. In
addition, the Company assists physicians in developing or revising protocols,
although physicians in each network retain ultimate responsibility for
selecting and adopting appropriate protocols for their market. In the PHC
Network model, network physicians contract directly with the PHC Network to
provide medical services. The physicians do not contract among themselves,
except where they may have formed their own group practices. In the PHC
Network model, each physician must elect to participate in any new managed
care agreement, although the Company is attempting to shift its model to one
in which the network is permitted to commit its providers to providing
services under managed care contracts. For the Affiliated Networks, the
Company contracts with the network to provide services to the network. No
contracts are executed between the Company and the Affiliated Network
physicians.

Network Services Agreements. The Company provides a variety of services to
physician networks under its network services agreements. Networks can elect
to receive all or only a selection of the available services, which include
network formation and development, contract marketing, negotiation and
pricing, contract administration and other custom services, as further
described below. Some networks request the Company's assistance with the
earliest stages of building the network and others already have executed
managed care agreements prior to hiring the Company for administrative and
claims processing services. Fees paid to the Company under the network
services agreements are generally structured as a percentage of payments made
by the payor to the network. The precise percentage depends on the nature and
extent of services provided, and currently ranges from 4.5% to 10.0%. For
capitated and other financial risk-sharing contracts that are directly held by
the Company, the service fee is in addition to amounts that may be earned by
the Company through management of utilization resulting in an excess of
payments from the payor over provider claims. PHC has not generally paid any
consideration to networks to induce them to enter into network service
agreements with PHC. In one case, however, PHC granted a fully developed
multi-specialty network a warrant to purchase 31,400 shares of Common Stock at
an exercise price of $12.74 per share.

Contract Marketing, Negotiation and Pricing. An integral element of the
Company's network services is its contracting expertise. The Company also can
provide marketing services such as conducting payor surveys to determine payor
interest in managed care contracting in the market, preparing descriptive
materials and marketing the networks to payors. Once interest is established,
the Company's contracting team, on behalf of the network, works closely with
physicians to prepare contract proposals, analyze contract pricing and
negotiate with payors. The Company has developed a database of managed care
cost and utilization information collected from its networks that it can
utilize to predict the type and quantity of services that will be required by
many different types of contracts. Based upon this information, the Company is
able to formulate different service offerings and pricing models for use in
contract negotiations.

Contract Administration Services. After a network executes a contract, the
Company implements and administers the contract on behalf of the network and
serves as the interface between the network physicians and the payor. The
Company prepares an administrative manual for each managed care contract for
use by the providers, provides claims processing and utilization reporting
services, administers and distributes funds, and assists in designing
compensation methods and schedules for the network providers consistent with
the managed care environment. Claims processing services generally include
verification of claim eligibility, matching claims to pre-certification
approvals, reviewing claims for completeness, providing coordination of
benefits services, submitting claims to payors, acting as an interface among
the network, providers and payors with respect to

41
<PAGE>

claims issues, maintaining an accounting of amounts due from and paid by
payors, calculating amounts due to providers, preparing explanations of
benefits ("EOBs") and, if requested by the network, distributing EOBs and
payments to network participants.

The Company believes that managed care contracts are most successful when
the economic interests of the providers and payors are aligned. Therefore, the
Company works with both the network and the payor to develop payment
structures and protocols that encourage optimization of facility usage through
the use of the most appropriate type of facility for each procedure, often
reducing overall facility costs. The Company's standard form of reports
relating to incidence rates, utilization, flow of funds and treatment outcomes
are included in most packages, with custom reports available for an additional
fee. Such information is used by both the network and the payors in developing
or refining protocols, identifying physician outliers, ensuring that standards
of care are met, determining cost-effective treatment plans and meeting NCQA
and Health Employer Data Information System requirements. Additional custom
services may include conducting adverse outcome and patient and provider
satisfaction surveys, as well as conducting site surveys, record reviews and
education and consulting services to meet NCQA level compliance. The Company
is URAC certified, which enables the Company to manage the pre-admission
certification process for major procedures and hospital stays under the
supervision of the network's physician medical director.

Managed Care Contracts. As of December 31, 1997, the Company administered 29
managed care contracts on behalf of physician networks. All of the 26
capitated and other financial risk-sharing contracts managed by the Company
for Affiliated Networks were directly between the Affiliated Network and the
payor. Under this structure, the affiliated network and the providers directly
benefit if decreased utilization of medical services results in a surplus of
funds available to pay providers, and have the risk that increased utilization
will result in funding deficiencies that could result in decreased
reimbursement to the providers. Payments by payors under the managed care
agreements are made either directly to the network, or to the Company on
behalf of the network, and the Company is paid its percentage management fee
out of such funds. The percentage management fee, which is determined based on
negotiations and the amount of services requested, ranges from 4.5% to 10%. As
of December 31, 1997, the Company, through a 51% owned subsidiary, directly
held three global risk contracts for which services are provided largely by
agreement with the non-profit PHC Network. The PHC Network providers are paid
by the Company on a fee-for-service basis. Thus, the Company both receives the
financial benefit of decreased utilization and takes the primary risk of
increased utilization. In these three cases, the Company both manages the
contract on its own behalf from a risk perspective and provides administrative
services to the network for claims processing, utilization reporting and other
services (see "--Contract Administration Services").

The Company is experienced in negotiating and implementing a variety of
managed care contracts, including single- and multi-specialty capitated
contracts, partial risk contracts and global risk contracts. Single-specialty
capitated contracts are contracts that carve out treatment by physicians of a
single medical specialty. Multi-specialty capitated contracts usually involve
a range of specialists required to provide a defined spectrum of care. The
network is usually paid on a capitated per member per month basis for both
single- and multi- specialty capitated contracts, and in some cases the
contracts also have a facility/total cost share component. Partial risk
contracts are contracts for most professional services of most physician
specialties to be rendered to the plan members but do not include the
provision of facility-based care. If the network lacks specialties it must
expand or subcontract with a single- or multi-specialty network to provide
such services. Global risk contracts are contracts for all professional,
technical and facilities services, supporting a spectrum of health care needs
for plan members. The network may be paid on either a capitated per member per
month basis or on a percentage of premium basis for both partial risk and
global risk contracts and the contracts have a facility/total cost share
component.

In addition to the types of managed care contracts discussed above, the
Company administered one disease state management contract covering 60 lives
and two access fee contracts as of December 31, 1997. Disease state management
contracts are contracts for professional services and facilities necessary to
provide the full spectrum of services required to treat a chronic disease. The
network is paid either on a capitated per member per month basis or on a case
rate basis. Access fee contracts are contracts pursuant to which the Company
makes available physicians in

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one of its networks to a payor on a fee-for-service basis. A physician
invoices the payor if and when services are provided. The Company receives a
percentage of the physician's reimbursement as an access fee.

The Company began administering its first specialty capitated contract in
June 1994 and its first global risk contract in September 1996. Company
employees have expertise in managed care contracting. The Company's Executive
Vice President of Networking and Contracting has been negotiating and managing
capitated and risk-sharing managed care contracts since 1982. The Company's
Senior Vice President of Specialty Contracting has negotiated and managed at
least 50 single specialty capitated contracts since 1990 with the assistance
of one of the contracting division's vice presidents, who specializes in
utilization data management and reporting. Additional team members include a
divisional Vice President with ten years of managed care experience, including
network and contract administration, operations and claims and a recently
hired divisional Assistant Vice President with four years of experience in
network management and managed care contract administration, including
management of at least five global contracts. As of December 31, 1997, the
Company had 29 managed care contracts with approximately 2.3 million covered
lives. For the nine months ended September 30, 1997, the Company received 10%
on a historical basis, and 2% on a pro forma basis after giving effect to the
acquisitions consummated during 1997 as if they had occurred on January 1,
1997, of its total revenues from direct contracts with managed care payors.

MANAGEMENT INFORMATION SYSTEMS

Upon the acquisition of a practice, the Company maintains the clinical
medical records and financial systems in place at the PHC Practice. Clinical
and financial data collected at the practice are sent to the Company's
corporate headquarters on a monthly basis through network interfaces,
electronic data interchange or manually. The Company intends to maintain local
systems in an effort to minimize the disruption that can occur when local
systems are replaced with corporate-mandated systems. The Company uses its
management information systems to generate information that will assist the
PHC Practices in the maintenance and selection of appropriate practice
protocols, and in the management of quality improvement procedures and
utilization. The Company currently collects cost and utilization data from the
PHC Networks and Affiliated Networks for managed care contract pricing and
administration, and intends to collect such data at the PHC Practices. The
Company intends also to use this information to improve operating efficiency
and to encourage the development and implementation of best clinical
practices.

GOVERNANCE AND QUALITY ASSURANCE

The Company's current governance structure promotes physician participation
in the management of the Company. Certain physicians who are or have been
associated with PHC Practices serve on the Board of Directors. Each PHC
Practice has a Joint Policy Board whose membership includes physician
representatives from the Company and the PHC Practice. The Joint Policy Boards
have responsibilities that include developing long-term strategic objectives,
developing practice expansion and payor contracting guidelines, promoting
practice efficiencies, recommending significant capital expenditures and
facilitating communication and information exchange between the Company and
each of the PHC Practices.

The Company has established a Compliance Committee of the Board of Directors
that consists of physician and management members of the Board. The Compliance
Committee is responsible for approving the Company's health care compliance
objectives and developing and implementing the Company's health care
compliance programs at the practice and Company level. To facilitate this
process, the Company is establishing compliance committees at the PHC Practice
level comprised of representatives of the PHC Practice and the Company to
oversee development and implementation of compliance programs at the PHC
Practice level. Through counsel, the Company has retained outside consultants
to assist with practice and Company assessments that will assist the
Compliance Committee of the Board of Directors, the local compliance
committees and management in developing the Company's compliance programs.

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CONTRACTUAL AGREEMENTS WITH PHC PRACTICES

The Company's practice acquisition structure is designed to align the
interests of the Company with those of PHC Physicians. When a physician group
has agreed to enter into a practice management or employment relationship with
the Company, the Company purchases the group's operating assets typically in
exchange for a combination of Company stock, cash and notes. The Company
intends to continue to use Common Stock as a significant portion of its
consideration in future practice acquisitions. Typically, upon the acquisition
of a Managed Practice, the Company enters into a Practice Management Agreement
with a professional corporation or other entity that will employ the
physicians associated with the Managed Practice.

The following summary is intended to be a brief summary of the typical terms
of Practice Management Agreements, Physician Employment Agreements and Direct
Employment Agreements to which the Company or a PHC Practice is a party and
intends to enter in the future. The actual terms of these agreements vary on a
case by case basis, depending on the negotiations with the individual
practices and physicians.

Service Fees. Management fees payable to the Company under the Practice
Management Agreements are determined in arm's-length negotiations and based on
the nature and amount of services provided. Such fees generally consist of
combinations of the following: (i) percentages (generally ranging from 10% to
25%) of the earnings of the Managed Practices; (ii) operating and non-
operating expenses of the Managed Practices paid by the Company pursuant to
the Practice Management Agreements; and (iii) certain negotiated performance
and other adjustments. In the case of the Arlington Cancer Center, the
Company's management fee is 12% of the practice's revenues plus 55% of the
practice's income after physician compensation. Some of these services result
in operating expenses that are directly reimbursed to the Company. In
Illinois, where fees based on percentages of revenue or income are not
permissible, the Company charges a flat management fee. In many instances, for
the first five years of the Practice Management Agreement the service fee is
the greater of the fee determined by the applicable formula or a fixed minimum
amount. This minimum fee ranges from $10,000 to $1.8 million annually, and in
most instances, payment of such minimum is guaranteed by the physicians and
the practice for five years.

Services Provided. Pursuant to the various Practice Management Agreements,
the Company provides a range of services in consultation with the Managed
Practice including, among other things: (i) acting as manager and
administrator of non-medical services relating to the operation of the Managed
Practice; (ii) billing patients, insurance companies and other third-party
payors and collecting the fees for professional medical services and other
services and products rendered or sold by the Managed Practice; (iii)
providing, as necessary or requested, clerical, accounting, purchasing,
payroll, legal, bookkeeping and computer services and personnel, information
management, preparation of certain tax returns, printing, postage and
duplication services and medical transcribing services; (iv) supervising and
maintaining custody of substantially all files and records; (v) providing
facilities for the Managed Practice; (vi) preparing, in consultation with the
Joint Policy Board and the Managed Practice, all capital expenditure and
operating budgets; (vii) ordering and purchasing inventory and supplies as
reasonably requested by the Managed Practice; and (viii) providing financial
and business assistance in the negotiation, establishment, supervision and
maintenance of contracts and relationships with managed care and other payors.

Managed Practice Responsibilities. Under the Practice Management Agreements,
the Managed Practices retain the responsibility for, among other things: (i)
hiring and compensating physician employees and other medical professionals;
(ii) ensuring that physicians and other medical professionals have the
required licenses, credentials, approvals and other certifications needed to
perform their duties; and (iii) complying with certain federal and state laws
and regulations applicable to the practice of medicine. In addition, the
Managed Practices retain exclusive control of all aspects of the practice of
medicine and the delivery of medical services.

Term and Termination. The Practice Management Agreements are generally for
initial terms of 40 years. Practice Management Agreements may be terminated by
either party if the other party: (i) files a petition in bankruptcy or other
similar events occur or (ii) defaults in the performance of a material
financial obligation, which default continues for a specified term after
notice. In addition, certain Practice Management Agreements

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may also be terminated by the Company if the Managed Practice or a Managed
Physician engages in conduct or is formally accused of conduct for which the
Managed Physician's license to practice medicine reasonably would be expected
to be subject to revocation or suspension or is otherwise disciplined by any
licensing, regulatory or professional entity or institution, the result of any
of which does or reasonably would be expected to materially adversely affect
the Managed Practice. Certain Managed Practices may terminate their respective
Practice Management Agreements, subject to repurchase of their respective
practice assets, after the expiration of 66 months from the dates of such
agreements, for the original purchase price (including goodwill) with
appropriate adjustments.

Breach. The Company includes in all standard Practice Management Agreements
breach provisions that it believes to be stronger than those used by other
PPMs. The Company believes that these provisions discourage frivolous claims
that the Company has breached its obligations as a means of causing the
Practice Management Agreement to terminate early. In the event of a non-
financial breach by either party to the Practice Management Agreement, the
non-breaching party typically must, prior to termination, submit to an
arbitrator the question of whether: (i) a material breach has occurred and, if
so, (ii) the amount of lost income, exclusive of punitive or consequential
damages (the "Lost Income Amount"), suffered by the non-breaching party as the
result of the breach. Typically, the non-breaching party may terminate the
Practice Management Agreement only if the arbitrator determines a Lost Income
Amount and the breaching party fails to pay the Lost Income Amount within a
specified time following determination of the Lost Income Amount. Generally,
upon termination of the Practice Management Agreement, the Managed Practice is
required to repurchase the assets used in the operation of the Managed
Practice, including assets such as goodwill.

Physician Employment Agreements. The Practice Management Agreements require
the Managed Practice to enforce restrictive covenants contained in the
employment agreements (the "Physician Employment Agreements") between the
Managed Practice and the physicians associated with the Managed Practice.
Typically, the Physician Employment Agreements provide for an initial term of
five years, require the Managed Practice to compensate the Managed Physician
on the basis negotiated between the Managed Practice and the Managed Physician
and require that the physician not compete with the Managed Practice or the
Company within a specified geographic area during the term of the Physician
Employment Agreement and for a period of up to two years thereafter. In
addition, certain Physician Employment Agreements provide that if such
physician's employment is terminated during the initial five-year term for any
reason other than the physician's death or disability or the occurrence of
certain events outside the physician's control, the physician will be required
to pay liquidated damages to the Managed Practice which the Managed Practice
in turn is obligated to remit to the Company. In most instances, the Company
is named as a third-party beneficiary of the Physician Employment Agreements,
with the right to enforce provisions of the Physician Employment Agreements.
Managed Physicians assign their revenues to the Managed Practices, which in
turn assign all non-governmental revenues to PHC.

Owned Practices; Direct Employment. In states that permit such structures,
the Company directly employs physicians associated with the Owned Practice
pursuant to employment agreements (the "Direct Employment Agreements").
Florida and Missouri are currently the only states in which PHC does business
that permit such employment arrangements. Employed Physician compensation is
generally a combination of salary and bonus that is frequently adjusted based
on the net profits generated by the physician. Revenues generated by the
Employed Physicians are the property of the Owned Practices, which are
subsidiaries of PHC. The physicians continue to control the medical aspects of
the practice and have input with respect to budgeting and strategic planning
for the Owned Practice. The Company has direct responsibility for all non-
medical aspects of the operation of the Owned Practices. Typically, the
Company is entitled to terminate the Direct Employment Agreement for cause as
defined in the relevant agreement. In addition, the Company may terminate the
Direct Employment Agreement if the physician materially breaches the Direct
Employment Agreement (as determined by an arbitrator) and either: (i) fails to
pay the Lost Income Amount suffered by PHC (as determined by an arbitrator) as
a result of the breach or (ii) continues to breach the Direct Employment
Agreement, despite having paid the Lost Income Amount.

Under a Direct Employment Agreement, the physician may voluntarily terminate
the physician's employment thereunder, at any time during the five-year term,
by delivering to the Company written notice of

<PAGE>

such intention not less than one year prior to the effective date of
termination. The physician may also terminate the Direct Employment Agreement
if: (i) the Company materially breaches, and does not cure within the
specified period, any of its financial obligations under the Direct Employment
Agreement or (ii) upon the occurrence of an event of bankruptcy by PHC.
Additionally, the physician, in conjunction with the other physicians who sold
the practice to PHC, may terminate the Direct Employment Agreement if the
Company materially breaches a non-financial obligation (as determined by an
arbitrator) and either: (a) fails to pay the Lost Income Amount suffered by
the physician (as determined by an arbitrator) as a result of the breach or
(b) continues to breach the Direct Employment Agreement, despite having paid
the Lost Income Amount. However, if the physician terminates the physician's
employment for any reason, other than upon scheduled retirement, death or
disability, or if the Company terminates the physician's employment for cause
within the first five years, then the physician is required to pay to the
Company liquidated damages. Two Owned Practices in the Orlando area may be
repurchased by their former physician shareholders in the event all such
physicians' employment agreements simultaneously terminate as a result of a
material breach by the Company. The Company believes that these limitations on
the physician's ability to terminate his or her Direct Employment Agreement
discourage frivolous claims that the Company has breached its obligations
thereunder as a means of causing the early termination of a Direct Employment
Agreement.

Restrictive Covenants. The Direct Employment Agreements include several
restrictive covenants, including a covenant not to compete which prohibits the
physician from practicing the same type of medicine the physician practices
for the Company for two years following the date of cessation of employment by
PHC within a specified radius of the medical offices of the Company in which
the physician practiced. The Direct Employment Agreements also generally
include restrictions on the physician's right to solicit employees or patients
of the Company for a period of two years following the termination of
physician's employment with the Company. Certain physicians in the Orlando
area have the option of returning a portion of the acquisition consideration
in lieu of refraining from competition with the Company upon the expiration of
their Direct Employment Agreements. Finally, the Direct Employment Agreements
typically prohibit the disclosure of trade secrets and other confidential
information regarding the Company. The Practice Management Agreements require
the Managed Practices, and in many cases permit PHC, to enforce restrictive
covenants contained in the Physician Employment Agreements.

COMPETITION

The Company, PHC Physicians, PHC Networks and Affiliated Networks face
intense competition in all aspects of their businesses. The Company believes
that changes in governmental and private reimbursement policies, among other
factors, have resulted in increased competition among providers of medical
services and among networks for managed care contracts. The Company itself
faces intense competition to acquire or provide management services to
physician practices; to acquire or develop and operate ancillary health care
service facilities; and to provide management services, including contracting
services, to physician networks. A number of hospitals, clinics, health care
companies, HMOs, insurance companies and physician practice management
companies, both publicly and privately held, some of which have established
operating histories and greater resources that the Company, engage in
activities similar to those of the Company. There can be no assurance that the
Company will be able to compete effectively with its competitors, that
additional competitors will not enter the market, or that the Company will be
able to acquire or manage physician practices, acquire or develop ancillary
health care services, affiliate with or develop networks, or negotiate payor
contracts on terms beneficial to the Company. Any such failure could have a
material adverse effect on the Company's business, financial condition or
results of operations.

GOVERNMENT REGULATION

General

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care regulations will continue to change. The Company expects to modify its
agreements and operations from time to time as the business and regulatory
environment changes. While the Company believes it will be able to structure
its agreements and operations in accordance with applicable law, there can be
no assurance that its business or such agreements or operations will not be
successfully challenged.

Every state imposes licensing requirements on individual physicians and on
facilities and services operated by physicians. In addition, federal and state
laws regulate HMOs and other MCOs with which the Company, PHC Physicians, PHC
Practices, PHC Networks and Affiliated Networks may have contracts. Many
states require regulatory approval, including certificates of need, before
establishing or expanding certain types of health care facilities, offering
certain services or making expenditures in excess of statutory thresholds for
health care equipment, facilities or programs. In connection with the
expansion of existing operations and the entry into new markets, the Company,
PHC Physicians, PHC Practices, PHC Networks and Affiliated Networks may become
subject to compliance with additional regulation.

The United States Congress and many state legislatures routinely consider
proposals to reform or modify the health care system, including measures that
would control health care spending, convert all or a portion of government
reimbursement programs to managed care arrangements, and balance the federal
budget by reducing spending for Medicare and state health programs. These
measures can affect a health care company's cost of doing business and
contractual relationships. For example, recent developments that affect the
Company's activities include: (i) federal legislation requiring a health plan
to continue coverage for individuals who are no longer eligible for group
health benefits and prohibiting the use of "pre-existing condition" exclusions
that limit the scope of coverage; (ii) a HCFA policy prohibiting restrictions
by Medicare HMOs on physicians recommending to patients other health plans and
treatment options; and (iii) regulations imposing restrictions on physician
incentive provisions in physician provider agreements. There can be no
assurance that such legislation, programs and other regulatory changes will
not have a material adverse effect on the Company's business, financial
condition or results of operations.

The ability of the Company to operate profitably will depend in part upon
the ability of the Company, PHC Physicians, PHC Practices, PHC Networks and
Affiliated Networks obtaining and maintaining all necessary licenses,
certificates of need and other approvals and to operate in compliance with
applicable health care regulations.

Fee-Splitting; Corporate Practice of Medicine

The laws of many states prohibit physicians from splitting fees with non-
physicians (or other physicians) and prohibit non-physician entities from
practicing medicine. These laws vary from state to state and are enforced by
the courts and by regulatory authorities with broad discretion. Although the
Company believes its operations are in material compliance with existing
applicable laws, the Company's business operations have not been the subject
of judicial or regulatory interpretation; thus, there can be no assurance that
review of the Company's business by courts or regulatory authorities will not
result in determinations that could adversely affect the operations of the
Company or that the health care regulatory environment will not change so as
to restrict the Company's existing operations or their expansion. In addition,
the regulatory framework of certain jurisdictions may limit the Company's
expansion into such jurisdictions if the Company is unable to modify its
operational structure to conform with such regulatory framework.

In particular, at least one Texas court has taken the position that control
by a management company over certain medical related business aspects of a
medical practice effectively is the prohibited corporate practice of medicine
by the management company. PHC has structured the management services
agreement related to the Managed Practice located in Texas to comply with
Texas law, although no assurance can be provided that a party could not
successfully assert that management services agreement violates Texas law.
Illinois courts have indicated that employment of physicians by for profit
corporations that are not hospitals violates Illinois law related to the
corporate practice of medicine and that management fees based on a percentage
of revenue or income violate Illinois' prohibitions on fee-splitting.
Accordingly, in Illinois PHC does not employ physicians

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and the management fee charged under its practice management agreement is a
flat fee. The Florida Board of Medicine recently entered a final order in a
case titled In Re: The Petition For Declaratory Statement of Magan L.
Bakarania, M.D., supported by a prior Florida Board of Medicine Order, stating
that a management fee based on a specified percentage of net income without
direct relation to the services provided violates Florida law related to fee-
splitting. That case has been stayed pending appeal. The Company cannot
predict the ultimate outcome of this case. If the Florida Board of Medicine
order is affirmed by the Florida Court, the Company will seek to restructure
certain of the practice management agreements to which it is a party in
Florida, although there can be no assurance that the Company will be
successful in doing so. Three of the four agreements that the Company may seek
to restructure in Florida require the parties to negotiate in good faith to
reform the agreements to comply with applicable law and for the matter to be
referred to arbitration in the event that agreement with respect to
restructured terms cannot be reached. If necessary, the Company also intends
to negotiate with the fourth practice to reform the agreements to comply with
applicable law, although neither the Company nor the practice is contractually
required to do so. These four Florida practices were acquired by the Company
in November 1997. Accordingly, the Company derived no revenues from these
practices during the nine months ended September 30, 1997. On a pro forma
basis giving effect to acquisitions consummated during 1997 as if they had
occurred as of January 1, 1997, the Company derived less than 3.7% of its
revenue from these practices during the nine months ended September 30, 1997.

Except as indicated in this Prospectus, the Company is not aware of
significant litigation related to the corporate practice of medicine or state
laws prohibiting or limiting fee-splitting that the Company anticipates will
materially affect its business. A determination in any state that the Company
is engaged in the corporate practice of medicine or any unlawful fee-splitting
arrangement could render any Practice Management Agreement between the Company
and a Managed Practice located in such state unenforceable or subject to
modification, which could have a material adverse effect on the Company. There
can be no assurance that regulatory authorities or other parties will not
assert that the Company or a Managed Practice is engaged in the corporate
practice of medicine in such states or that the management fees paid to the
Company by the Managed Practices constitute unlawful fee-splitting or the
corporate practice of medicine. If such a claim were asserted successfully,
the Company could be subject to civil and criminal penalties, Managed
Physicians could have restrictions imposed upon their licenses to practice
medicine, and the Company or the Managed Practices could be required to
restructure their contractual arrangements. Such results or the inability of
the Company or the Managed Practices to restructure their relationships to
comply with such prohibitions could have a material adverse effect on the
Company's financial condition and results of operations. See "Business--
Government Regulation."

Changes in Payment for Medical Services

The Company believes that trends in cost containment in the health care
industry will continue to result in a reduction from historical levels in per-
patient revenue for PHC Practices. The federal government has implemented,
through the Medicare program, the RBRVS payment methodology for physician
services. The RBRVS is a fee schedule that, except for certain geographical
and other adjustments, pays similarly situated physicians the same amount for
the same services. The RBRVS is adjusted each year and is subject to increases
or decreases at the discretion of Congress. To date, the implementation of
RBRVS has reduced payment rates for certain of the procedures historically
performed by PHC Physicians. There can be no assurance that any reduced
operating margins could be recouped by the Company through cost reductions,
increased volume, introduction of additional procedures or otherwise.

<PAGE>

Medicare and Medicaid Fraud and Abuse

The Anti-Kickback Law prohibits the offer, payment, solicitation or receipt
of any form of remuneration in return for, or in order to induce: (i) the
referral of a person; (ii) the furnishing or arranging for the furnishing of
items or services reimbursable under Medicare or Medicaid programs; or (iii)
the purchase, lease or order or arranging or recommending purchasing, leasing
or ordering of any item or service reimbursable under Medicare or Medicaid.
Pursuant to the Anti-Kickback Law, the federal government has announced a
policy of increased scrutiny of joint ventures and other transactions among
health care providers in an effort to reduce potential fraud and abuse
relating to Medicare costs. The applicability of these provisions to many
business transactions in the health care industry has not yet been subject to
judicial and regulatory interpretation. Noncompliance with the Anti-Kickback
Law can result in exclusion from Medicare and Medicaid programs and civil and
criminal penalties. The PHC Practices collectively derive approximately 30% of
their revenues on a pro forma basis for the nine months ended September 30,
1997 from Medicare or Medicaid payments.

The Company believes that although it will receive service fees under its
agreements for management and administrative services, it is not generally in
a position to make or receive referrals of patients or services reimbursed
under the Medicare or Medicaid programs. Such service fees are intended by the
Company to be consistent with fair market value in arm's-length transactions
for the nature and amount of management services rendered and, therefore,
would not constitute unlawful remuneration under Anti-Kickback Law and
regulations. For these reasons, the Company does not believe that fees payable
to it would be viewed as remuneration for referring or influencing referrals
of patients or services covered by such programs as prohibited by statute. If
the Company is deemed to be in a position to make, influence or receive
referrals from or to physicians, the operations of the Company could be
subject to scrutiny under federal and state anti-kickback and anti-referral
laws.

In some jurisdictions that do not prohibit the corporate practice of
medicine, the Company owns practices and employs physicians. Thus, with
respect to such practices, the Company is a provider of services and would be
capable of receiving referrals from other physicians affiliated with PHC in
those markets. In these circumstances, PHC Practices either will not accept
referrals involving designated health services from other physicians
affiliated with PHC or will form group practices comprised of PHC Practices in
that market.

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Antitrust Issues

Federal and state antitrust statutes prohibit conduct such as price fixing,
market allocation and other anti- competitive activities by groups of
competitors. The federal and state antitrust enforcement agencies have not
hesitated to bring civil and criminal enforcement actions against the joint
activities of physician organizations that allegedly violate the antitrust
laws. Collaboration regarding the pricing of services, market allocation and
certain other types of joint action, however, may be permissible in the
context of an integrated joint venture if those activities are ancillary to
the otherwise legitimate purposes of the joint venture. The federal antitrust
enforcement agencies, the FTC and the DOJ, have established "antitrust safety
zones" for physician networks that meet certain criteria. To the extent
physician providers in a network constitute less than 20% of the total
physicians in a specialty or sub-specialty which compete in the market and
such providers are either integrated in terms of sharing substantial financial
risk in their joint activities or are engaged in designing or implementing
clinical pathways with a view to improving medical outcomes, the network
should fall within one of the DOJ/FTC antitrust safety zones. To the extent
that the physician network is non-exclusive, i. e., physicians may provide
services outside the confines of the network, individually or as part of other
groups or networks, the federal antitrust enforcement authorities have
indicated that they will not challenge joint pricing or market allocation
actions of an integrated network of up to 30% of the physicians in a
particular specialty or sub-specialty. Conduct outside the antitrust safety
zones is not necessarily unlawful, but greater scrutiny will be given to the
potential impact on overall competition by regulatory authorities. State
antitrust agencies may or may not rely on antitrust analysis similar to that
of the federal agencies.

While the federal antitrust enforcement authorities generally view
"substantial risk" as capitation or substantial withholding with respect to
the specific contracts or negotiations by the physician network, the antitrust
enforcement agencies have indicated that networks engaging in other forms of
financial risk-sharing may also be considered "integrated joint ventures" for
purposes of antitrust analysis. As yet, it is unclear whether the agencies or
the courts will consider arrangements in which providers have an investment
risk with actual capital contributed to the entity to be sufficient financial
integration. Nevertheless, to the extent that the physician members will be at
financial risk in terms of compensation under proposed joint contracting under
capitation or substantial withhold arrangements, the agencies have indicated
that these forms of risk-sharing are sufficient to show the existence of an
integrated joint venture. In addition, demonstration of actual "clinical
integration" by a physician network is sufficient to avoid per se violations,
according to the FTC and the DOJ.

The two PHC Networks are non-exclusive networks that operate in the greater
Atlanta and greater Orlando metropolitan areas, respectively. As of December
31, 1997, except for one fee-for-service contract in Orlando, all of their
contracts are capitated or global risk contracts in which the providers share
substantial financial risk. The Atlanta PHC Network is comprised of primary
care physicians constituting less than 30% of the market practitioners of
family/general, internal and pediatric medicine. The Company believes that the
Atlanta PHC Network is within the antitrust safety zone for non-exclusive
networks. The Orlando PHC Network is a multi-specialty network including
physicians of many specialties. The Company believes that physician
representation in the Orlando PHC Network may exceed the non-exclusive safety
zone in several non-primary care specialties. The antitrust agencies
emphasize, however, that even if a physician network does not come within a
safety zone, it is not necessarily unlawful under the antitrust laws. For the
following reasons, the Company believes that its activities in the greater
Orlando metropolitan areas are pro-competitive and have the potential to
benefit purchasers of the physician services offered by its providers. First,
physician participation in the network is non-exclusive, and physician members
do in fact contract with other networks and health plans. Second, physician
members share inherent substantial financial risk by providing services for
global risk contracts and have the incentive to provide high quality, cost-
effective care in an environment of increasing managed care penetration.
Third, there are competing physician networks in the greater Orlando area.
Fourth, the specialties with respect to which the Orlando PHC Network may
exceed the safety zone are generally ones characterized by a limited number of
practices and physicians within the market.

Insurance Regulatory Risks

An important element of the Company's business and strategy includes acting
as an agent for PHC Physicians, PHC Networks and Affiliated Networks to
negotiate with insurance companies, HMOs, employer

50
<PAGE>

self-funded plans, health plans and other MCOs for the provision of health
care services to the subscribers or beneficiaries of the health plans operated
by such parties. Under some of these contracts, the Company receives
capitation payments on behalf of a network and reimburses participating
physicians on a fee-for-service basis. Under the laws of some states, this
contracting arrangement could be determined to involve an insurance risk.
Therefore, to the extent the Company is deemed to be in the business of
insurance in a particular state, the Company, PHC Physicians and PHC Networks
could be subject to insurance regulatory scrutiny; regulators could require
restructuring of a specific arrangement; and the Company's operations could be
restricted, its expansion limited, or certain of its operations prohibited.

Medicare Developments

The recently adopted Balanced Budget Act of 1997 (the "BBA") enacted a
Medicare Plus/Medicare Choice Program for Medicare enrollees. The program
would broaden the coverage options available to Medicare recipients, would
authorize broader use of medical savings accounts, and would allow physicians
and patients to contract for health care services at rates beyond what is paid
by Medicare. Such changes potentially could increase the services utilized by
Medicare recipients. In addition, the BBA allows provider sponsored
organizations ("PSOs") to contract directly with Medicare, instead of
contracting through an HMO. If the PHC Practices, PHC Networks and Affiliated
Networks participate in such PSOs, they could increase the percentage of
Medicare-related business, which would also increase the exposure for losses
if Medicare revenues fall short of the cost of services actually utilized by
Medicare beneficiaries. If PHC does not participate in such PSOs, whether by
choice or because it does not obtain a required license to act as a PSO, PHC's
ability to participate in Medicare programs could be limited. The BBA also
amends the fraud and abuse laws to require permanent exclusion from Medicare
of anyone convicted of three Medicare program-related crimes and to impose new
civil monetary penalties to anyone contracting with an excluded health care
provider. These changes increase the regulatory and other risks encountered by
the Company. See "Risk Factors--Direct Capitation; Risks Associated With
Managed Care Contracts." On January 9, 1998, HCFA published a Notice of
Proposed Rulemaking implementing Stark II. The proposed regulations, when they
become final, will reduce some of the uncertainty surrounding HCFA's
interpretation of Stark II and will assist the Company in better structuring
its operations to comply with the law. In some cases, however, the strict
nature of the new rules will make compliance more onerous, and achieving such
compliance may have a material adverse effect on the Company's business in
certain markets.

Legislative Developments

EMPLOYEES

As of December 31, 1997 the Company had approximately 477 employees, of
which approximately 52 were employed at the corporate or regional
administrative offices.

PROPERTIES

The Company leases office space and practice facilities for the PHC
Practices. The Company also leases its headquarters under lease agreements for
approximately 8,849 square feet expiring in March 31, 1999 and approximately
6,500 square expiring in January, 2000.

51
<PAGE>

LEGAL PROCEEDINGS

Certain PHC Physicians and PHC Practices are named defendants in malpractice
cases. By virtue of acquisition of certain of these practices by merger or
stock purchase transactions, certain Company subsidiaries are or are expected
to be defendants in these cases. Although there can be no assurance regarding
the eventual outcome of any particular malpractice case, the Company believes
that it has commercially reasonable malpractice insurance and limits in place
with respect to these subsidiaries. PHC, the parent company, is not a party to
any claims, suits or complaints relating to services and products provided by
the Company, the PHC Physicians or PHC Practices or the networks. There can be
no assurance, however, that such claims will not be asserted against the
Company in the future or that the Company will not become subject to certain
claims as the result of successor liability in connection with the acquisition
of any practice or network.

CORPORATE LIABILITY AND INSURANCE

The provision of medical services entails an inherent risk of professional
malpractice and other similar claims. The Company does not influence or
control the practice of medicine by physicians or the compliance with certain
regulatory and other requirements directly applicable to physicians and
physician groups. There can be no assurance that claims, suits or complaints
relating to services and products provided by physicians or networks will not
be asserted against the Company in the future. The Company currently maintains
insurance coverage that it believes will be adequate both as to risks and
amounts. Such insurance currently extends to professional liability claims
that may be asserted against PHC Physicians or against employees of the
Company that work locally at the PHC Practices or at the networks. In
addition, pursuant to the network service agreements and Practice Management
Agreements, the physicians and networks are required to maintain comprehensive
professional liability insurance. The availability and cost of such insurance
has been affected by various factors, many of which are beyond the control of
the Company, the physicians and the networks. The cost of such insurance to
the Company, PHC Physicians and PHC Networks may have a material adverse
effect on the Company's business, financial condition or results of
operations. In addition, successful malpractice or other claims asserted
against PHC Physicians, PHC Networks or the Company that exceed applicable
policy limits could have a material adverse effect on the Company's business,
financial condition or results of operations.

52
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS, FOUNDERS AND KEY EMPLOYEES OF THE COMPANY

The following table sets forth certain information concerning the executive
officers, directors, founders and key employees of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -------------------------------------------------------------
<S> <C> <C>
Sarah C. 51 Founder, Chairman of the Board, President and Chief
Garvin(1)(2)(3)........ Executive Officer
Thomas M. 54
Rodgers(1)(2)(3)....... Director, Chief Financial Officer, Secretary and Treasurer
J. Michael Ribaudo, 55
M.D.(1)................ Director, President/Ancillary Division
Richard Sanchez, M.D., 50 Executive Vice President/Network Development and
M.P.H.................. Contracting
James G. Burkhart, 33
C.P.A.................. Senior Vice President/Operations and Finance
Josh J. Coughlin........ 34 Senior Vice President/Corporate Development
Howard E. Fagin, Ph.D... 54 Founder, Senior Vice President/Specialty Contracting
Shamus M. Holt.......... 44 Founder, Chief Operating Officer/Orlando Operations
Lane Hooton............. 48 President/Arlington Cancer Center Operations
Julie Rawls Moore, 46
M.S.N.................. Founder, Senior Vice President/Strategic Planning
H. Thomas Scott, 37
C.P.A.................. Founder, Senior Vice President/Atlanta Operations
Murali 40
Anantharaman(1)(4)..... Director
Michael F. 44
Cronin(1)(2)(4)........ Director
Alfred DiStefano, 50 Director, Chief Executive Officer/Arlington Cancer
M.D.(3)................ Center Operations
Carl J. Schramm, Ph.D., 51
J.D.................... Director; Employee/Contracting Division
William C. Stewart, 36
M.D.................... Chief Executive Officer/Memphis Operations, Director Designee
</TABLE>
- --------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3)Member of the Compliance Committee.
(4) Member of the Audit Committee.

Sarah C. Garvin is a founder of the Company and has served as President,
Chief Executive Officer and Chairman of the Board since its organization in
October 1995. She also served as President and a Director of the Company's
predecessor, a subsidiary of Surgical Health Corporation, from 1993 until its
purchase in a management buyout by Ms. Garvin and others (the "Founders") in
1995. Ms. Garvin was a co-founder and served as Senior Vice
President/Corporate Development of Surgical Health Corporation from 1991 to
1993. Prior to joining Surgical Health Corporation, Ms. Garvin served in
executive positions with HEALTHSOUTH Corporation and Medical Care
International.

Thomas M. Rodgers has been the Company's Chief Financial Officer since
November 1996 and has served as a Director of the Company since June 1997.
From August 1995 until January 1997, Mr. Rodgers provided financial consulting
services to the Company. In January 1997, Mr. Rodgers became a Company
employee and ceased providing consulting services to the Company. Mr. Rodgers
has served since 1980 as Chairman of Continental Film Laboratories, Inc., a
privately-held movie film processing company with approximately 30 employees.
From January 1993 to December 1995, Mr. Rodgers served as Chairman of Private
Biologicals Corp., a privately-held company.

J. Michael Ribaudo, M.D., has served as a Director and executive officer of
the Company since December 1996. He is currently President of the Company's
Ancillary Division. Dr. Ribaudo has served as President of

53
<PAGE>

Metropolitan Plastic since 1980 and is a board certified, practicing plastic
and reconstructive surgeon. He founded Ballas Outpatient Surgery Center in St.
Louis, Missouri and was its Chairman of the Board and Chief Executive Officer
when it merged with Surgical Health Corporation in 1992. He was President of
SHC Midwest and Senior Vice President of Surgical Health Corporation when it
was acquired by HEALTHSOUTH Corporation in 1995. Dr. Ribaudo served as
Executive Vice President of HEALTHSOUTH Surgery Centers from 1995 to 1996 and
currently provides consulting services to that company. He is also a Director
of Flow International, Inc. a publicly-traded machine tool technology company.

Richard Sanchez, M.D., M.P.H. joined the Company in August 1997 as its
Executive Vice President/Network Development and Contracting. From December
1996 until August 1997, Dr. Sanchez served as Chief Executive Officer of New
York Doctors MSO, Inc., a medical services organization. He was a Senior Vice
President at Blue Cross of New York from 1995 until 1996, where he developed
and filed its first Medicare risk product. From 1992 to 1995, he was a Vice
President at FHP California Inc., a HMO with over two million members, where
he was responsible for network development, quality assurance and other
aspects of health care contracting. Dr. Sanchez was the Health Commissioner of
San Francisco from 1985 until 1991. He is a board certified pediatrician and a
fellow of the American Academy of Pediatrics. Dr. Sanchez earned an M.P.H. at
the University of California at Berkeley.

James G. Burkhart, C.P.A. joined the Company as its Senior Vice
President/Operations and Finance in October 1997. From June 1996 to September
1997, he served as Vice President of Operations/Finance of GranCare, Inc., a
health care company with over $1 billion in annual revenue. Mr. Burkhart was
the Senior Vice President of Finance of Community Care of America from 1995 to
1996 and the Executive Vice President and Chief Financial Officer of
Nationwide Care, Inc. from 1993 to 1995, which are long-term health care
companies with annual revenues exceeding $150 million and $125 million,
respectively. Mr. Burkhart served as a manager at Ernst & Young LLP from 1987
to 1993.

Josh J. Coughlin joined the Company in September 1997 as its Senior Vice
President/Corporate Development. Prior to joining the Company, Mr. Coughlin
was an officer of Preferred Oncology Networks of America, Inc., serving as
Vice President/Corporate Development from January 1996 and Chief Financial
Officer from July 1996. He served as Senior Executive Director of Planning and
Development for Magellan Health Services, Inc. from 1993 to 1995. Mr. Coughlin
was a consultant with Towers Perrin from 1990 to 1993 specializing in health
care delivery systems and managed care companies. Mr. Coughlin received his
M.B.A. from the University of Chicago.

Howard E. Fagin, Ph.D. is a Founder and currently serves as Senior Vice
President/Specialty Contracting. Dr. Fagin has been President of Fagin
Advisory Services, Inc. since 1972, providing consulting services to physician
practices and other health care organizations. Dr. Fagin holds an M.S. in
Public Health, an M.S. in Industrial and Systems Engineering and a Ph.D. in
Health Economics from the University of Oklahoma.

Shamus M. Holt is a Founder and has served the Company since 1995 as Chief
Operating Officer of the Company's Orlando operations. Mr. Holt served as
Administrator of PCS from 1988 until 1995 and has served as Administrator of
IMS since 1988, both of which became Owned Practices in November 1997. Mr.
Holt received his M.B.A. from the University of Central Florida.

Lane Hooton became President of the Company's Arlington Cancer Center
operations in June 1997 when the Company purchased the Arlington Cancer Center
assets. Mr. Hooton has served as the Chief Executive Officer of the Arlington
Cancer Center since 1994. He was a Regional Sales Manager for Signature Health
Care, a home health care organization, from 1993 to 1994. From 1991 to 1993,
Mr. Hooton served as Vice President of Alternate Sites of Curaflex Infusion
Services, where he was responsible for the operation and development of
clinics, infusion suites and ambulatory care centers. Mr. Hooton is a
registered pharmacist.

Julie Rawls Moore, M.S.N. is a Founder and has served the Company in a
variety of roles since 1994, most recently as Senior Vice President/Strategic
Planning. Ms. Moore was Vice President of Development of Surgical

54
<PAGE>

Health Corporation from 1993 to 1994, focusing on the development of surgery
centers. Ms. Moore was with Ernst & Young LLP from 1987 to 1993, most recently
as Senior Manager for Physician Services. Before joining Ernst & Young LLP,
she spent three years as a Regional Vice President in Marketing and Physician
Services developing related physician services and facilities for American
Medical International, Inc., a company that owned and operated for-profit
hospitals.

H. Thomas Scott, C.P.A. is a Founder and has served the Company and its
predecessor in a variety of roles since 1994, including as a Director,
Controller, Senior Vice President/Finance and most recently as Senior Vice
President of its Atlanta operations. From 1991 to 1994, Mr. Scott served as
Controller for Heritage Surgical Corporation, an ambulatory surgery center
company.

Murali Anantharaman has been a Director of the Company since December 1995.
He has been a partner in EGL Holdings, Inc., an Atlanta-based venture capital
and investment banking firm ("EGL Holdings"), since May 1987. Mr. Anantharaman
also serves as a Director of Simione Central Holdings, Inc., a publicly-held
health care information services company. Mr. Anantharaman received his M.B.A.
from Harvard University.

Michael F. Cronin has served as a Director of the Company since June 1997.
He has been a general partner of Weston Presidio Capital, a venture capital
company with over $300 million under management, since 1991. Mr. Cronin
received his M.B.A. from Harvard University.

Alfred DiStefano, M.D. has been a Director of the Company and Chief
Executive Officer of the Arlington Cancer Center division since June 1997. He
has been a practicing medical oncologist with the Arlington Cancer Center
since 1980 and is its Managing Partner.

Carl J. Schramm, Ph.D., J.D. has served as a Director of the Company since
March 1996, served as its Executive Vice President/Global Contracting from
1996 until February 1997, and continues to serve as an employee of the
Company's contracting division. Since 1995, Dr. Schramm has served as the
President of Greenspring Advisors, Inc. a health care information systems
consulting company. From 1993 to 1995 he was an Executive Vice President of
Fortis, Inc. and President of its subsidiary, Time Insurance Co. Dr. Schramm
served as President and Chief Executive Officer of Health Insurance
Association of America from 1987 to 1992. He currently serves on the board of
HCIA, Inc., a publicly-held health care data services company of which he was
a founder.

William C. Stewart, M.D. joined the Company in November 1997 as its Chief
Executive Officer/Memphis Operations. Dr. Stewart has consented to serve as a
Director of the Company upon consummation of the Offering. Dr. Stewart is a
founder and Director of MidSouth Practice Management, Inc., which was acquired
by the Company in November 1997. Since 1995, Dr. Stewart has been the
Chairman, Chief Executive Officer and Medical Director of MidSouth Health
Plan, Inc., the first physician-owned HMO in Tennessee. He also currently
serves as Chief of Staff of Baptist Memorial Hospital in Memphis and was the
Deputy Chief of Staff during 1996. Dr. Stewart was President of Baptist
Rehabilitation Hospital during the 1994 and 1995 calendar years and from 1993
through 1995 he served as Assistant Medical Director. Dr. Stewart is board
certified in internal medicine. He was a founder of Internal Medicine
Associates of Cordova, P.C., and continues to practice part-time in Memphis
with Foundation Medical Group, PLLC, a practice of ten board certified
internists.

BOARD OF DIRECTORS

Upon consummation of the Offering, the Board of Directors of the Company
shall consist of seven members divided into three classes with two directors
in two classes and three directors in one class. Each class shall serve for a
term of three years. At each annual meeting of stockholders, directors will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring that year.

In connection with its acquisition of MidSouth Practice Management, Inc.,
the Company has agreed to use its best efforts to cause Dr. Stewart to be
elected to the Board of Directors. In addition, the Company has agreed that at
such time as annual revenues generated by PHC Practices in the Cincinnati
market equal or exceed $75

55
<PAGE>

million and there are more than 100 PHC Physicians practicing with the PHC
Practices in Cincinnati, it will use its best efforts to nominate and to cause
a PHC Physician from Cincinnati to be elected to the Board of Directors.

BOARD COMMITTEES

The Company maintains an Executive Committee, a Compensation Committee, an
Audit Committee and a Compliance Committee. These committees have the
following functions:

The Executive Committee has broad authority to take certain actions on
behalf of the Board of Directors between meetings of the Board of Directors.
This committee currently consists of Ms. Garvin, Mr. Rodgers, Dr. Ribaudo, Mr.
Anantharaman and Mr. Cronin.

The Compensation Committee reviews and approves the salaries, bonuses and
other compensation and benefits of executive officers and advises management
regarding benefits and other terms and conditions of compensation. Ms. Garvin,
Mr. Rodgers and Mr. Cronin currently serve on this committee.

The Audit Committee makes recommendations to the Board of Directors with
respect to the appointment of independent auditors, reviews significant audit
and accounting policies and practices, meets with the Company's independent
public accountants concerning, among other things, the scope of audits and
reports, and reviews the performance of the overall accounting and financial
controls of the Company. This committee currently consists of Mr. Anantharaman
and Mr. Cronin.

The Compliance Committee establishes and communicates to the Company's
officers, employees and agents and to the PHC Practices and PHC Physicians
certain guidelines with regard to compliance with the Company's mission, legal
and regulatory matters (including Medicare/Medicaid compliance) and other
Company policies. The Compliance Committee consults with and advises the Board
of Directors and the executive officers in charge of compliance, as
appropriate, regarding operational compliance with the established guidelines
and procedures for reporting and investigating instances of noncompliance.
This committee has three voting members, Ms. Garvin, Mr. Rodgers and Dr.
DiStefano. Advisory members include Ms. Moore, Stephen R. Mintz, M.D. and
Daniel M. Epstein, M.D.

The Company intends to establish a committee of non-employee directors to
administer the Company's stock option plans on consummation of the Offering.

BOARD OF DIRECTOR COMPENSATION

The Company's Bylaws provide that Directors of the Company may be paid their
expenses of attending Board of Director and Committee meetings and may also be
paid a fixed sum for attendance at such meetings or a retainer for service as
a director. Currently, directors are only reimbursed for expenses and do not
receive any compensation for serving as a director or attending meetings.
Directors are also eligible for discretionary option grants under the 1995
Stock Option Plan. On March 7, 1996, Carl Schramm and Jack Keane (who served
on the Board of Directors from March 1996 to June 1997) were granted options
to purchase 94,200 shares of the Common Stock, at an exercise price of $3.18
per share, for services rendered and to be rendered to the Company. Of each of
their grants, 23,550 options vested immediately, 17,663 vested on March 7,
1997 and 17,662 will vest on each of March 7, 1998, March 7, 1999 and March 7,
2000. No other compensation was received by any director in 1997 for his or
her service as a director.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. Delaware law
enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Certificate of Incorporation limits the
liability of directors of the Company to the Company or its stockholders to
the fullest extent permitted by Delaware law. Specifically, directors of the
Company will not personally be liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in the DGCL.

56
<PAGE>

The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefitted the Company and its
stockholders. The Company's Bylaws provide indemnification to the Company's
officers and directors and certain other persons with respect to certain
matters.

1995 STOCK OPTION PLAN

In October, 1995, the Board of Directors adopted, and the stockholders of
the Company approved, the 1995 Stock Option Plan. The purpose of the 1995
Stock Option Plan is to provide directors, key employees and certain advisors
with additional incentives by increasing their proprietary interest in the
Company. The aggregate amount of Common Stock with respect to which options
may be granted may not exceed 2,198,000 shares prior to consummation of the
Offering and 3,140,000 shares thereafter.

The 1995 Stock Option Plan provides for the grant of incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and nonqualified stock options (collectively "Awards").
The 1995 Stock Option Plan will be administered by a committee of non-employee
director upon consummation of the Offering. The committee will have, subject
to the terms of the 1995 Stock Option Plan, the sole authority to grant Awards
under the 1995 Stock Option Plan, to construe and interpret the 1995 Stock
Option Plan, and to make all other determinations and take any and all actions
necessary or advisable for the administration of the 1995 Stock Option Plan.

All of the Company's key employees, non-employee directors and advisors are
eligible to receive Awards under the 1995 Stock Option Plan, but only
employees of the Company are eligible to receive ISOs. Options will be
exercisable during the period specified in each option agreement and will
generally become exercisable in installments pursuant to a vesting schedule
designated by the Committee. In the discretion of the Committee, option
agreements may provide that options will become immediately exercisable in the
event of a "change in control" (as defined in the 1995 Stock Option Plan) of
the Company. A "change of control" is deemed to have occurred if the Company
is a party to merger, share exchange or other business combination pursuant to
which the Company does not remain independent or if substantially all of the
assets of the Company are sold or otherwise transferred. No option will remain
exercisable later than ten years after the date of grant (or five years from
the date of grant in the case of ISOs granted to holders of more than 10% of
the voting capital stock of the Company).

The exercise price for ISOs granted under the 1995 Stock Option Plan may be
no less than the fair market value of the Common Stock on the date of grant
(or 110% in the case of ISOs granted to employees owning more than 10% of the
voting capital stock).

401(K) PLAN

Effective January 1996, the Company adopted the Physician Health Corporation
401(k) Plan (the "Savings Plan"). The Savings Plan is intended to provide PHC
employees with retirement benefits. The Savings Plan is intended to constitute
a qualified cash or deferred profit sharing plan within the meaning of
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986.

All employees of the Company are eligible to participate in the Savings Plan
who have reached the age of 21 years and have completed six months of service
with the Company as of any January 1 or July 1. The Savings Plan is
administered by the Board of Directors, which has full power to administer and
interpret the Savings Plan. The assets of the Savings Plan are held by a trust
administered by a trustee pursuant to a trust agreement.

Eligible employees may contribute a portion of their annual compensation, in
the form of payroll deductions, up to the legal maximum established by the
Internal Revenue Service for each plan year. The

57
<PAGE>

Company may make profit sharing contributions, employee matching contributions
and other additional employer contributions of any amount at the Company's
sole discretion. Employee contributions are fully vested immediately. Company
contributions are vested over the first five years of employment. No Company
contributions have been made.

SUMMARY COMPENSATION TABLE

The following table sets forth a summary of the compensation paid by PHC for
services rendered in all capacities to PHC during 1997 to each executive
officer whose total annual salary and bonus exceeded $100,000 in 1997 (the
"Named Executive Officers"):

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------- ----------------------- -------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION RESTRICTED OPTIONS LTIP COMPENSATION
NAME AND PRINCIPAL POSITION ($) ($) ($) STOCK AWARDS (#) PAYOUTS ($)
- --------------------------- -------- ----- ------------ ------------ ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... $136,667 -- -- -- -- -- --
Chairman of the Board,
Chief Executive Officer
and President
Thomas M. Rodgers....... 135,000 -- -- -- 90,478(1) $710,000(2)
Chief Financial Officer
and Treasurer
J. Michael Ribaudo, 100,000 -- -- -- 39,250(3) 600,000(4)
M.D....................
President of Ancillary
Division
</TABLE>
- --------
(1) Includes both options to purchase Common Stock and Prime Common Stock,
with the Prime Common Stock being adjusted to reflect its conversion into
Common Stock upon completion of the Offering and to give effect to the
0.314 for one stock split for the Common Stock.
(2) Amount paid in settlement of fees owed to Mr. Rodgers pursuant to a
consulting agreement between Mr. Rodgers and the Company that was entered
into before Mr. Rodgers became an employee of the Company. See "--
Compensation Committee Interlocks and Insider Participation."
(3) Options granted to Dr. Ribaudo pursuant to a settlement agreement. See
"Certain Transactions."
(4) Amount paid to Dr. Ribaudo pursuant to an Undertakings Agreement. See
"Certain Transactions."

Ms. Garvin currently is receiving an annual salary of $210,000 (to be
increased to $270,000 upon consummation of the Offering). Mr. Rodgers, Dr. J.
Michael Ribaudo, and Dr. Richard Sanchez, who became an employee of the
Company in August 1997, currently are receiving annual salaries of $205,000
(to be increased to $260,000 upon consummation of the Offering), $100,000 (to
be increased to $250,000 upon consummation of the Offering), and $200,000,
respectively. Certain other arrangements with Ms. Garvin, Mr. Rodgers and
Dr. Ribaudo are described in "Certain Transactions."

OPTION GRANTS DURING 1997

The following table sets forth information relating to options granted to
Named Executive Officers in 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (2)
------------------------------------------------- ------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(1) (PER SHARE) DATE 0% 5% 10%
---- ----------- -------------- ----------- ---------- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... -- -- -- -- -- -- --
Thomas M. Rodgers....... 2,401(3) * $0.04(3) 6/16/97 $7,562 $12,371 $19,749
11,775(3) * 3.50(3) 6/16/97 -- 19,834 56,015
76,302 2.9% 12.74 6/16/97 -- 611,286 1,549,118
J. Michael Ribaudo,
M.D.................... 39,250 1.5% 12.74 12/31/97 -- 314,447 796,871
</TABLE>
- --------
* less than 1%
(1) The Company has included both Prime Common Stock and Common Stock options
in the total options granted to employees in fiscal year 1997 on an as-
converted-to-Common-Stock (one-for-one) basis

58
<PAGE>

(2) This column shows the hypothetical gains or "option spreads" of the
options based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock
appreciation rates of 5% and 10% over the terms of the options. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise of the option or the sale of the underlying
shares, or reflect nontransferability, vesting or termination provisions.
The actual gains, if any, on the exercises of stock options will depend on
the future performance of the Common Stock, among other things.
(3) These options to purchase Prime Common Stock were exercised on June 16,
1997. The number of securities underlying options granted and exercise
price per share have been adjusted for presentation to reflect the Reverse
Split.

AGGREGATE OPTION EXERCISES DURING 1997 AND YEAR-END OPTION VALUES

The following table sets forth information relating to options granted to
Named Executive Officers in 1997:

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-
OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1997 (#) DECEMBER 31, 1997 ($)(1)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sarah C. Garvin......... -- -- -- -- -- --
Thomas M. Rodgers....... 124,076 $7,562 -- 76,302 -- $172,530
J. Michael Ribaudo,
M.D.................... -- -- 94,200 102,050 $213,000 230,750
</TABLE>
- --------
(1) Computed based on the difference between the per share exercise price and
mid-point of the assumed range ($15.00 per share).

EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

The Company is party to Employment Agreements (collectively, the "Employment
Agreements") with each of Ms. Garvin, Mr. Rodgers and Dr. Ribaudo. Each of the
Employment Agreements provides for a specified base salary subject to annual
adjustment by the Board of Directors or the Compensation Committee of the
Board of Directors. Currently, the salaries payable under the Employment
Agreements are $210,000 for Ms. Garvin (subject to increase to $270,000 upon
consummation of the Offering), $205,000 for Mr. Rodgers (subject to increase
to $260,000 upon consummation of the Offering) and $200,000 for Dr. Ribaudo
(subject to increase to $250,000 upon consummation of the Offering). In the
event that the Employment Agreements are terminated by the Company for cause
(as defined in the Employment Agreements) or by the employee without cause,
the employee is not entitled to severance pay. In the event that the Company
terminates the employee's employment by the Company without cause, the
employee is entitled to severance pay equal to 12 months' salary.

If the employee's employment with the Company is terminated following a
change in control of the Company (as defined in the Employment Agreement): (i)
by the Company without cause or (ii) by the employee because she or he is
required to relocate, her or his salary is reduced from the amount in effect
immediately prior to the change in control, her or his title is reduced or her
or his duties and responsibilities are substantially diminished, then the
employee is entitled to severance pay equal to 36 months' salary.

The Company and its Founders are parties to a Restated and Amended
Stockholder Agreement dated November 1, 1996, as amended in February 1997 (the
"Stockholder Agreement"). For each Founder 94,200 shares of Common Stock
("Founder Stock") are subject to the Stockholder Agreement. Pursuant to the
Stockholder Agreement, 58,876 shares of Founder Stock have vested, and
17,662.50 shares of the remaining shares will vest on each of January 1, 1999
and January 1, 2000 if the Founder remains a full-time employee of the Company
until the applicable vesting date; provided, however, that, with respect to
11,775 shares that would otherwise vest on January 1, 2000, the Company shall
have met certain performance criteria by December 31, 1998. The Stockholder
Agreement provides that all shares of Founder Stock will vest immediately upon
the merger, consolidation or sale of the Company with or to any other entity
if the Company is not the surviving entity, or upon the sale of substantially
all of the Company's assets.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1997, the Board of Directors established a compensation committee
composed of Ms. Garvin and Messrs. Cronin and Rodgers. Prior to establishment
of the Compensation Committee, compensation for the Company's

59
<PAGE>

executive officers was determined by the entire Board of Directors. Mr.
Rodgers participated in deliberations of the Board of Directors concerning
executive officer compensation prior to his election to the Board of Directors
in June 1997.

On May 1, 1997, Ms. Garvin loaned the principal amount of $250,000 to the
Company. On May 1, 1997, Thomas M. Rodgers, Jr. Defined Benefit Keogh Plan
11/15/82 also loaned the principal amount of $50,000 to the Company. Both
notes bear simple interest on principal at 12% per year, require payment of a
1% origination fee upon retirement of the Notes and provide for payment on
demand after the earlier of closing of a venture capital investment by Weston
Presidio Capital or May 1, 1998. Such venture capital investment closed on
June 16, 1997 but neither Ms. Garvin nor Mr. Rodgers has demanded payment of
these notes.

The Company and its Founders, including Ms. Garvin, are parties to a
Restated and Amended Stockholder Agreement dated November 1, 1996, as amended
in February 1997 (the "Stockholder Agreement"). For each Founder 94,200 shares
of Common Stock ("Founder Stock") are subject to the Stockholder Agreement.
Pursuant to the Stockholder Agreement, 58,816 shares of Founder Stock have
vested, and 17,662.50 shares of the remaining shares will vest on each of
January 1, 1999 and January 1, 2000 if the Founder remains a full-time
employee of the Company until the applicable vesting date; provided, however,
that, with respect to 11,775 shares that would otherwise vest on January 1,
2000, the Company shall have met certain performance criteria by December 31,
1998. The Stockholder Agreement provides that all shares of Founder Stock will
vest immediately upon the merger, consolidation or sale of the Company with or
to any other entity if the Company is not the surviving entity, or upon the
sale of substantially all of the Company's assets.

Prior to becoming an employee in January 1997, Mr. Rodgers provided
financial consulting services to the Company. His compensation for these
services was to be primarily based on the Company's successful capital raising
activities. In June, 1997, Mr. Rodgers and the Company agreed to terminate
this compensation agreement and to settle all fees earned and expected to be
earned for his financial consulting services. Accordingly, Mr. Rodgers was
granted an option to purchase 7,648 shares of Prime Common Stock at $0.011 per
share, an option to purchase 37,500 shares of Prime Common Stock at an
exercise price of $1.10 per share and an option to purchase 76,302 shares of
Common Stock (vesting over four years) at $12.74 per share. In addition, the
settlement provided for the full vesting of previously granted options to
purchase 350,000 shares of Prime Common Stock at $1.15 per share. Mr. Rodgers
was also granted piggyback registration rights with respect to the 350,000
shares and 76,302 shares. Upon consummation of the Offering and giving effect
to the reverse Stock Split, each share of Prime Common Stock will convert into
0.314 share of Common Stock. As cash consideration, Mr. Rodgers has received
$810,000. As provided in his original consulting agreement, the Company has
agreed to pay Mr. Rodgers an amount equal to the difference between the state
and federal taxes he will owe resulting from the exercise of the option to
purchase 350,000 shares and the state and federal taxes that he would have
paid had the options received incentive stock option treatment.

Also as part of this settlement, the Company loaned Mr. Rodgers
approximately $442,000 to exercise his options for 37,500 and 350,000 shares
of Prime Common Stock. The loans are non-recourse but are secured by the stock
purchased with the proceeds of the loan. The loans bear simple interest at a
rate of 6.80% per year. At December 31, 1997, the aggregate amount outstanding
under the loan including accrued interest was approximately $459,000, which
was the largest aggregate amount outstanding under the loan during 1997. The
notes are payable at the earlier of the sale of such stock or June 16, 2007.
Interest on these notes will be reimbursed to Mr. Rodgers by the Company (and
grossed up based on applicable tax rates to Mr. Rodgers).

Mr. Cronin is a General Partner of Weston Presidio Capital, which manages
venture capital funds including Weston Presidio Capital II, L.P. ("Weston
II"). On June 16, 1997, the Company entered into a Series B Securities
Purchase Agreement among the Company, Weston II, Asset Management plc, on
behalf of Rowan Nominees Limited ("Mercury") Mercury, NatWest Ventures
Investments Ltd ("NatWest") and certain other investors. Pursuant to the
Series B Securities Purchase Agreement, in June 1997 the Company sold
2,447,772 shares of Series B Stock for an aggregate purchase price of
$9,791,088, of which 1,529,958 shares were purchased by Weston II for an
aggregate purchase price of $6,119,832, 305,938 shares were purchased by
Mercury for an aggregate purchase price of $1,223,752 and 152,969 shares were
purchased by NatWest for an aggregate purchase price of $611,876. Upon
consummation of the Offering, each share of Series B Voting Preferred Stock
will be converted into .314 share of Common Stock and the holder of such
converted stock may

60
<PAGE>

be entitled to an extraordinary dividend per share equal to the amount by
which $13.54 exceeds the initial offering price per share of Common Stock. See
"Description of Capital Stock-Authorized Capital Stock." As part of that
transaction, Weston II was granted a warrant to purchase 160,135 shares of
Common Stock for an aggregate purchase price of $5,100, Mercury was granted a
warrant to purchase 32,021 shares of Common Stock for an aggregate purchase
price of $1,020 and NatWest was granted a warrant to purchase 16,010 shares of
Common Stock for an aggregate purchase price of $510. All such warrants have
an exercise price of $0.03 per share. The proceeds of the Series B Securities
Purchase Agreement were used to fund the acquisition of certain PHC Practices.
Pursuant to an Equity Call Agreement entered into on June 16, 1997 (the
"Equity Call Agreement") the Company has the ability to require the holder of
its Series B Preferred Stock to purchase shares of Common Stock at $12.74 per
share sufficient to retire a $6.2 million note payable by the Company on
April 1, 1998 in connection with the purchase of the Arlington Cancer Center.
Weston II, Mercury and NatWest are obligated to purchase, at the request of
the Company, 170,336, 34,067 and 17,033 shares of Common Stock, respectively,
pursuant to such arrangement. The Series B Securities Purchase Agreement and
the Equity Call Agreement have been amended to include subsequent purchasers
of Series B Preferred Stock. Upon such further investment, Weston II, Mercury
and NatWest would receive additional warrants to purchase 17,033, 3,406 and
1,703 shares of Common Stock, respectively, at an exercise price of $0.03 per
share. In connection with the Series B Securities Purchase Agreement, Weston
II, Mercury, NatWest, EGL Holdings, Ms. Garvin, Mr. Rodgers, Mr. Holt, Ms.
Moore, Dr. Fagin, Mr. Scott, Dr. Ribaudo and certain other investors entered
into a Second Amended and Restated Stockholders' Agreement, which granted
Weston II, Mercury, NatWest and EGL Holdings co-sale rights and certain other
voting agreements all of which expire upon consummation of the Offering. The
Second Amended and Restated Stockholders' Agreement was amended on October 27,
1997 to include Paribas Principal, Inc. and Paribas Capital Funding L.L.C. The
Second Amended and Restated Stockholders' Agreement will terminate upon
consummation of the Offering.

In September 1997, the Company borrowed $3.0 million from Southwest Bank
(the "Southwest Loan") to help finance the acquisition of Southern
Dependacare. The Company executed a demand note in connection with this loan,
payment of which was guaranteed by certain holders of the Series B Preferred
Stock (including without limitation Weston II, Mercury and NatWest). In
exchange for the guaranty, the Company issued to the guarantors warrants to
purchase a total of 26,840 shares of Common Stock at an exercise price of
$12.74 per share. The Southwest Loan was paid in full in November 1997 using
proceeds from the Banque Paribas financing.

CERTAIN TRANSACTIONS

Mr. Anantharaman is an executive officer and an owner of EGL Holdings. EGL
Holdings from time to time represents Mercury and NatWest, in venture capital
investments. Pursuant to a Stock and Warrant Purchase Agreement dated December
29, 1995, a group of investors led by EGL Holdings, including Mercury and
NatWest, made a $3.0 million investment in the Company through the Class A
Stock. In connection with the Stock and Warrant Purchase Agreement, the
Company issued 95,700 shares of Series 1 Class A Stock and contingent warrants
to purchase up to 95,700 shares of Series 1 Class A Stock to NatWest for an
aggregate purchase price of $1,435,500 and 95,700 shares of Series 2 Class A
Stock and contingent warrants to purchase up to 95,700 shares of Class A Stock
to Mercury Asset for an aggregate purchase price of $1,435,500. The contingent
warrants are exercisable upon a redemption of the Class A Stock by the Company
at an exercise price of $15.00 per share. The Company also issued to EGL
Holdings warrants to purchase up to 59,660 shares of Common Stock at an
exercise price of $0.03 per share. In connection with this transaction, Ms.
Garvin, Dr. Fagin, Ms. Moore, Mr. Scott and Mr. Holt each executed a Non-
Competition and Non-Disclosure Agreement. The Company also agreed to engage
EGL Holdings to act as an advisor to the Company, at a fee of $6,000 per month
plus reimbursement of reasonable expenses, from January 1, 1996 until such
time as there are no longer any shares of the Company's Class A Stock
outstanding. The Company paid EGL Holdings approximately $73,000 during 1997
pursuant to this agreement. Upon consummation of the Offering and after giving
effect to the Reverse Split, each share of Class A Stock will be converted
into 3.01 shares of Common Stock. Mercury and NatWest are also parties to the
Series B Securities Purchase Agreement and the Equity Call Agreement.

61
<PAGE>

Dr. DiStefano is the managing partner of the Arlington Cancer Center.
Pursuant to an Asset Purchase and Contribution Agreement, dated June 16, 1997,
among the Company, the Arlington Cancer Center, the individual physicians
named therein (the "Arlington Physicians"), each of the Arlington Physicians
wholly-owned professional associations (the "Physician Professional
Associations") and MHOA Texas I, L.L.C., a subsidiary of the Company ("MHOA
Texas"), (the "Arlington Purchase Agreement"), the Arlington Cancer Center
sold substantially all of its assets to MHOA Texas for an aggregate purchase
price of $24.5 million, of which $11.8 million was paid in cash, $6.2 million
was paid in the form of a promissory note and $6.5 million was paid in the
form of a subordinated promissory note. It is anticipated that the $6.2
million note will be repaid from the proceeds of this Offering. In addition to
the cash consideration, the Physician Professional Associations received in
the aggregate a 20% interest in MHOA Texas. Pursuant to an exchange rights
agreement, after June 16, 1998 and prior to the first anniversary of the
consummation of the Offering, the Physician Professional Associations may
elect to exchange their interest for an aggregate of 480,420 shares of Common
Stock by providing notice to the Company. The $6.2 million promissory note is
non-interest bearing and the entire principal balance is due on April 1, 1998.
The subordinated promissory note is non-interest bearing and is payable in
four annual installments beginning on April 1, 1999. Through his interest in
the Arlington Cancer Center, Dr. DiStefano has a 4.6% interest in MHOA Texas.
Pursuant to the Arlington Purchase Agreement, the Company also agreed to
appoint Dr. DiStefano to the Board of Directors of the Company. The Company,
MHOA Texas and the Arlington Cancer Center have entered into a management
services agreement with a term of 40 years pursuant to which MHOA Texas
provides physician practice management services to the Arlington Cancer Center
for an annual fee equal 12% of the Arlington Cancer Center's net practice
revenue, an additional 55% of the practice pre-tax income and the
reimbursement of certain interest and depreciation expenses. Physicians'
salaries and operating expenses, including the reimbursable interest and
depreciation expenses, are paid before PHC's management fees are paid. The
annual management fee accrues each year whether or not there are sufficient
practice revenues remaining that year after payment of physician salaries and
operational expenses.

In connection with the purchase of the Arlington Cancer Center assets, MHOA
Texas obtained $8.0 million term debt financing from DVI Financial Services,
Inc. through six separate loans, and $5.0 million revolving credit facility
from DVI Business Credit Corporation. The interest rate on the DVI Financial
Services, Inc. loans is 12.25% simple interest and the loans mature in August,
2002. The interest rate on the DVI Business Credit Corporation facility loan
is 2.5% above the variable rate set by Bank of America, NT&SA in San
Francisco, California and that facility may be terminated by the Company in
August, 1999. The Company agreed to act as guarantor in connection with the
debt financing. The Company issued to DVI Financial Services, Inc. warrants to
purchase up to 15,700 shares of Common Stock at an exercise price of $15.92
per share in consideration of making the loans.

In November 1996, Metropolitan Plastic, of which Dr. Ribaudo is the sole
shareholder, sold substantially all of its assets to the Company in exchange
for: (i) $500,000 payable in the form of a convertible promissory note (the
"Convertible Note"); (ii) 125,000 shares of Prime Common Stock; and (iii) the
assumption of certain liabilities in the amount of $20,718. The promissory
note bore interest at a rate of 5% per annum and would have matured on
November 26, 1999. Prior to maturity but after an initial public offering by
the Company, the promissory note was convertible in $100,000 increments by the
holder into Common Stock at a price of $4.00 per share. The Company reimbursed
Dr. Ribaudo for approximately $32,000 in legal fees incurred by him in
connection with this transaction. Contemporaneously with the purchase of
substantially all of the assets of Metropolitan Plastic: (a) the Company
entered into an Undertaking Agreement with Dr. Ribaudo and Metropolitan
Plastic (the "Ribaudo Undertaking Agreement"); and (b) Metropolitan Plastic
entered into a Practice Management Agreement with the Company with a term of
40 years. Pursuant to the Practice Management Agreement, the Company agreed to
provide practice management and development services to Metropolitan Plastic
for an annual base fee of $100,000 plus 20% of the net practice revenue of the
practice less its operating expenses in excess of $550,000 per year during the
first five years of the agreement, and 20% of the net practice revenue of the
practice less operational expenses during the remainder of the agreement. In
addition, Metropolitan Plastic agreed to pay to the Company a development fee
equal to 7% of the revenues generated by new practice physicians recruited by
the Company.

<PAGE>

Pursuant to the Ribaudo Undertaking Agreement the Company agreed to: (i)
employ Dr. Ribaudo on an at-will basis at an annual salary of $100,000 and to
increase his salary to $250,000 after the completion of an initial public
offering of Common Stock; (ii) appoint Dr. Ribaudo to the Board of Directors
of the Company; (iii) sell to him 31,400 shares of Common Stock at $12.74 per
share (which he has purchased); and (iv) provide him with a quarterly "draw."
Under the draw arrangement, for any month in which Dr. Ribaudo received less
than $29,167 in revenue from his medical practice, he was advanced the
deficiency from the Company. The advance was subject to offset, less certain
amounts Dr. Ribaudo could earn for certain services rendered to PHC, against
amounts due to Dr. Ribaudo or Metropolitan Plastic. Dr. Ribaudo was paid
approximately $248,000 pursuant to this arrangement for the twelve months
ended December 31, 1997. The Ribaudo Undertaking Agreement also granted Dr.
Ribaudo: (a) an option to purchase 94,200 shares of Common Stock at $12.74 per
share, vesting over a period of four years (with accelerated vesting if PHC
completes a single sale of securities resulting in a change of control of the
Company); and (b) options to purchase 47,100 shares of Common Stock at $12.74
per share, 31,400 of which are vested, with options to purchase 7,850 shares
of Common Stock vesting on each of December 31, 1998 and 1999. In addition,
the Ribaudo Undertaking Agreement originally provided that Dr. Ribaudo would
be paid $600,000 upon the Company's achievement of $1.5 million in projected
annual practice revenue from Missouri and central and southern Illinois.

Effective December 31, 1997, Dr. Ribaudo and Company entered into a
settlement agreement (the "Settlement Agreement") pursuant to which: (i) the
draw arrangement was terminated, (ii) Dr. Ribaudo forgave the approximately
$528,000 owed by PHC under the Convertible Note; (iii) PHC forgave all amounts
owed to PHC under the draw arrangement as well a $30,000 loan made by PHC to
Dr. Ribaudo; (iv) the Company paid Dr. Ribaudo the $600,000 referred to in the
Ribaudo Undertaking Agreement in recognition of his substantial role in PHC's
1997 acquisition program as a whole; (v) the Company granted Dr. Ribaudo
options to purchase 47,100 shares of Common Stock at an exercise price of
$12.74 per share and (vi) the Company and Dr. Ribaudo agreed that the Practice
Management Agreement between Metropolitan Plastic and the Company would
terminate on the earlier to occur of June 30, 1998 and the date that Dr.
Ribaudo ceases to practice medicine. In addition, the Company agreed to
reimburse Dr. Ribaudo for: (a) reasonable moving expenses related to the
relocation of his residence from St. Louis to Atlanta; (b) malpractice premium
expense; (c) legal fees up to $5,000 incurred by him in connection with
negotiation of the Settlement Agreement; (d) rental expense for an apartment
in Atlanta for a period of up to 12 months; and (e) annual continuing medical
education expense up to $5,000 per year.

See also "Management--Compensation Committee Interlocks and Insider
Participation."

COMPANY POLICY

It is anticipated that future transactions with affiliates of the Company
will be minimal, will be approved by a majority of the disinterested members
of the Board of Directors and will be made on terms no less favorable to the
Company than could be obtained from unaffiliated third parties. The Company
does not intend to incur any further indebtedness to, or make any loans to,
any of its executive officers, directors or other affiliates.

<PAGE>

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED CAPITAL STOCK

Upon completion of the Offering, the Company's authorized capital stock will
consist of 100,000,000 shares of Voting Common Stock, par value $0.0025 per
share (the "Common Stock"), 40,000,000 shares of Non-Voting Common Stock, par
value $0.0025 per share (the "Non-Voting Common Stock") and 18,000,000 shares
of Preferred Stock, par value $0.01 per share (the "Preferred Stock"). At
December 31, 1997 there were: (i) 500,000 shares of Class A Stock authorized
and 200,000 shares of Class A Stock outstanding; (ii) 9,000,000 shares of
Series B Voting Preferred Stock authorized and 3,460,362 shares of Series B
Voting Preferred Stock outstanding; (iii) 6,000,000 shares of Series B Non-
Voting Preferred Stock authorized and 917,814 shares of Series B Non-Voting
Preferred Stock outstanding; (iv) 20,000,000 shares of Prime Common Stock
authorized and 6,358,140 shares of Prime Common Stock outstanding; (v)
40,000,000 shares of Non-Voting Common Stock authorized, none of which are
outstanding; and (vi) 100,000,000 shares of Common Stock authorized and
2,710,702 shares of Common Stock outstanding. All of the currently outstanding
shares of Common Stock, Non-Voting Common Stock, Prime Common Stock, Class A
Stock, Series B Voting Preferred Stock and Series B Non-Voting Preferred Stock
are validly issued, fully paid and nonassessable under the Delaware General
Corporation Law (the "DGCL"). As of December 31, 1997, the Company had
approximately 202 stockholders of record.

Upon the consummation of the Offering: (i) each share of Class A Stock will
convert into 3.01 shares of Common Stock; (ii) each share of Prime Common
Stock and Series B Voting Preferred Stock will convert into 0.314 of a share
of Common Stock; and (iii) each share of Series B Non-Voting Preferred Stock
will convert into 0.314 of a share of Non-Voting Common Stock. If the initial
Offering price is less than $13.54 per share of Common Stock, the Company will
be required to accrue an extraordinary dividend payable with respect to each
share of Series B Preferred Stock equal to $13.54 per share less the initial
public offering price per share of Common Stock multiplied by the number of
shares of Common Stock into which such share of Series B Preferred Stock is
converted upon consummation of the Offering. Accordingly, assuming an initial
public offering price of at least $13.50 per share (which is the low point of
the initial public offering price range) such dividend would be approximately
$175,000. If payable, the extraordinary dividend would be due one year after
the consummation of the Offering and could be paid either in cash or in Common
Stock. The requirement to pay such dividend would be terminated if, at any
time during the one-year period after consummation of the Offering, the
average price of the Common Stock on the Nasdaq National Market is greater
than $22.29 per share for any 20 consecutive trading days.

The following summary describes the capital stock of the Company to be
authorized on completion of the Offering. This summary describes the material
elements of the Company's Fourth Amended and Restated Certificate of
Incorporation (the "Certificate") as it relates to the Company's capital stock
but is subject to, and qualified in its entirety by, the provisions of the
Certificate and by the provisions of applicable law, including the DGCL.

COMMON STOCK AND NON-VOTING COMMON STOCK

Voting Rights

Each holder of Common Stock is entitled to one vote per share in the
election of directors and for all other purposes. The holders of Non-Voting
Common Stock do not have voting rights unless otherwise required by law or by
the Certificate. Except as otherwise provided, there are no cumulative voting
or preemptive rights applicable to any shares of the Company's stock.

Dividends and Other Distributions

All shares of Common Stock and Non-Voting Common Stock are entitled to
participate pro rata in distributions and in such dividends as may be declared
by the Board of Directors of the Company out of funds legally available
therefor, subject to any preferential dividend rights of outstanding shares of
Preferred Stock.

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<PAGE>

Subject to the prior rights of creditors, all shares of Common Stock and
Non-Voting Common Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company, or upon the
sale of substantially all of the assets of the Company or upon a merger of the
Company in which the Company is not the surviving entity (each a "Distribution
Event") to participate ratably, share and share alike, in the distribution of
all the remaining assets of the Company after distribution in full of
preferential amounts, if any, to be distributed to holders of Preferred Stock.

Conversion Rights

At the option of Regulated Stockholders (as defined below), each share of
Common Stock and Non-Voting Common Stock is convertible into one share of Non-
Voting Common Stock or Common Stock, as the case may be, at any time and from
time to time, upon delivery to the Company of a certificate signed on behalf
of the holder seeking such conversion. The Company will not convert, redeem,
purchase, acquire or take any other action affecting the outstanding shares of
Common Stock or Non-Voting Common Stock if such action would, with respect to:
(i) any legal entity that is subject to Regulation Y of the Board of Governors
of the Federal Reserve System (12 C.F.R. Part 225) (a "Regulated Stockholder")
or (ii) any affiliate of any such Regulated Stockholder, increase the
percentage of outstanding voting securities owned or controlled by such
Regulated Stockholder to more than 4.9% or increase the percentage of the
total equity or the value of all of the capital stock of the Company owned or
controlled by such Regulated Stockholder to more than 24.9% unless the Company
gives written notice of such action to each Regulated Stockholder or
affiliate. The terms of the Common Stock and Non-Voting Common Stock are the
same with the exception of voting rights. The Company may not redeem or take
any other action affecting outstanding shares of Common Stock or Non-Voting
Common Stock, if after giving effect to such redemption a Regulated
Stockholder would own more than 4.9% of any class of voting securities of the
Company, 24.9% of the total equity of the Company or more than 24.9% of the
total capital stock of the Company. The rights, preferences and privileges of
holders of Common Stock are subject to, and may be adversely affected by, the
rights of any shares of Preferred Stock that may be issued by the Company from
time to time.

PREFERRED STOCK

The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions of the
Certificate of Incorporation and limitations prescribed by law, the Board of
Directors is expressly authorized to adopt resolutions to issue the shares, to
fix the number of shares and to change the number of shares constituting any
series and to provide for or change the voting powers, designations,
preferences and relative, participating, optional, exchange or other special
rights, qualifications, limitations or restrictions thereof, including
dividend rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, in each case without any further
action or vote by the holders of Common Stock.

Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For example, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then-market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or
the rules of any market on which the Company's securities are traded.

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<PAGE>

STATUTORY BUSINESS COMBINATION PROVISION

The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined) with a Delaware
corporation for three years following the date such person became an
interested stockholder unless: (i) before such person became an interested
stockholder, the board of directors of the corporation approved the
transaction in which the interested stockholder became an interested
stockholder or approved the business combination; (ii) upon consummation of
the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
right to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business
combination was approved by the board of directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of 66 2/3% of the outstanding voting stock of the corporation not owned by the
interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became
an interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.

OTHER MATTERS

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of a director's fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the liability of directors of the Company to the
Company or its stockholders to the fullest extent permitted by Delaware law.
Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director,
except for liability for unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL.

The Bylaws provide that stockholders may act only at an annual or special
meeting of stockholders and may not act by written consent. The Bylaws provide
that special meetings of the stockholders can be called only by the Chairman
of the Board, the Chief Executive Officer, the President or the Board of
Directors.

The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered terms. As a
result, it is currently contemplated that approximately one-third of the
Company's Board of Directors will be elected each year. The classified board
provision could prevent a party who acquires control of a majority of the
outstanding voting stock of the Company from obtaining control of the Board of
Directors until the second annual stockholders meeting following the date the
acquiror obtains the controlling interest.

66
<PAGE>

The Certificate of Incorporation provides that the number of directors shall
be as determined by the Board of Directors from time to time, but shall be at
least one and not more than nineteen. It also provides that directors may be
removed only for cause, and then only by the affirmative vote of the holders
of at least a majority of all outstanding voting stock entitled to vote. This
provision, in conjunction with the provision of the Bylaws authorizing the
Board of Directors to fill vacant directorships, will prevent stockholders
from removing incumbent directors without cause and filling the resulting
vacancies with their own nominees.

STOCKHOLDER PROPOSALS

The Company's Bylaws contain provisions: (i) requiring that advance notice
be delivered to the Company of any business to be brought by a stockholder
before an annual meeting of stockholders and (ii) establishing certain
procedures to be followed by stockholders in nominating persons for election
to the Board of Directors. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder: (a) in the event of business to be brought by a stockholder
before an annual meeting, not less than 90 days prior to the anniversary date
of the immediately preceding annual meeting of stockholders (with certain
exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (b) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, (i) with respect to an election to be held at the annual meeting
of stockholders, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders (with certain exceptions
if the date of the annual meeting is different by more than specified amounts
from the anniversary date), and (ii) with respect to an election to be held at
a special meeting of stockholders for the election of directors, not later
than the close of business on the 10th day following the day on which notice
of the date of the special meeting was mailed to stockholders or public
disclosure of the date of the special meeting was made, whichever first
occurs. Such notice must set forth specific information regarding such
stockholder and such business or director nominee, as described in the
Company's Bylaws. The foregoing summary is qualified in its entirety by
reference to the Company's Bylaws, which are included as an exhibit to the
Registration Statement of which this Prospectus is a part.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.

67
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information, on a pro forma basis as
of December 31, 1997 to reflect the mandatory conversion to Common Stock of
certain classes of the Company's capital stock and other convertible
securities upon completion of the Offering, and after giving effect to the
completion of the Offering and such mandatory conversion, with respect to the
beneficial ownership of the Company's voting capital stock of: (i) each person
known by the Company to be a beneficial owner of more than 5% of any class of
the Company's voting capital stock; (ii) each executive officer and director
or director nominee of the Company; and (iii) all directors, director nominees
and executive officers of the Company as a group. Except as otherwise
indicated below, the persons named in the table have advised the Company that
they have sole voting and investment power with respect to the shares of
capital stock shown as beneficially owned by them. Unless otherwise indicated,
each person or group has sole voting and investment power with respect to all
such shares. Unless otherwise indicated, the number of shares and percentage
of ownership of Common Stock for each of the named stockholders, directors,
director nominee and executive officers assumes that shares of Common Stock
that the stockholders, directors, director nominee and executive officers may
acquire within 60 days are outstanding.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
-----------------------
SHARES PRO FORMA
BENEFICIALLY PRIOR TO AFTER
NAME OWNED(1) OFFERING(1) OFFERING(2)
- ---- ------------ ----------- -----------
<S> <C> <C> <C>
Murali Anantharaman(3)................... 892,108 13.7% 12.0%
EGL Holdings, Inc.(4).................... 860,708 13.2 11.6
Weston Presidio Capital II, L.P.(5)...... 649,998 9.9 8.7
Michael F. Cronin(6)..................... 649,998 9.9 8.7
Mercury Asset Management plc, on behalf
of Rowan Nominees Limited(7)............ 420,188 6.5 5.7
Sarah C. Garvin.......................... 408,200 6.4 5.6
Banque Paribas(8)........................ 382,528 5.8 5.1
NatWest Ventures Investments Ltd.(9)..... 354,937 5.5 4.8
Thomas M. Rodgers, Jr.(10)............... 205,716 3.2 2.8
J. Michael Ribaudo, M.D.(11)............. 164,850 2.5 2.2
Alfred DiStefano, M.D.................... -- * *
Richard Sanchez, M.D..................... -- * *
Carl J. Schramm, Ph.D.(12)............... 56,912 * *
All directors, director nominees and
executive officers as a group
(8 persons)(13)......................... 2,377,785 34.9 30.7
</TABLE>
- --------
* Less than 1%.
(1) Calculated on a pro forma basis to show the effect of mandatory
conversion to Common Stock of certain classes of the Company's capital
stock and other securities upon completion of the Offering and the
Reverse Split, for a total of 6,387,621 shares of Common Stock
outstanding.
(2) Gives effect to the issuance of shares of Common Stock offered hereby.
(3) Includes: (i) 59,660 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 384,542 shares of Common
Stock held by Mercury; (iii) 35,644 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 336,510 shares
of Common Stock held by NatWest; (v) 18,426 shares of Common Stock into
which warrants held by NatWest are currently exercisable; (vi) 25,923
shares of Common Stock held by certain individual investors; and
(vii) 31,400 shares held by David Ellis, a colleague of Mr. Anantharaman.
Mercury, NatWest and the certain individual investors have granted EGL
Holdings full power to vote and exercise all owner rights, powers and
privileges with respect to their shares. Although as a Partner of EGL
Holdings and otherwise,

68
<PAGE>

Mr. Anantharaman is likely to exercise voting rights with respect to all
of the forgoing shares, he denies all but an insignificant, economic
interest in these shares except to the extent of his interest in the
59,660 shares issuable to EGL Holdings proportionate to his ownership
interest in EGL Holdings. Beneficial ownership of these shares, except
those held by Mr. Ellis, are also attributed to EGL Holdings and, as
applicable, to Mercury or NatWest. Mr. Anantharaman's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 300, Atlanta, Georgia
30328.
(4) Includes: (i) 59,660 shares of Common Stock into which a warrant held by
EGL Holdings is currently exercisable; (ii) 384,542 shares of Common
Stock held by Mercury; (iii) 35,644 shares of Common Stock into which
warrants held by Mercury are currently exercisable; (iv) 336,510 shares
of Common Stock held by NatWest; (v) 18,426 shares of Common Stock into
which warrants held by NatWest are currently exercisable; and (vi) 25,923
shares of Common Stock held by certain individual investors. Other than
the 59,660 shares into which its warrant is currently exercisable, EGL
Holdings denies any economic interest in these shares. Beneficial
ownership of these shares is also attributed to Mr. Anantharaman and, as
appropriate, to Mercury or NatWest. EGL Holding's business address is
6600 Peachtree Dunwoody Road, 300 Embassy Row, Suite 630, Atlanta,
Georgia 30328.
(5) Includes 169,591 shares of Common Stock into which warrants held by
Weston II are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Cronin. The business address of Weston II is
One Federal Street, 21st Floor, Boston Massachusetts 02110.
(6) Includes: (i) 480,406 shares of Common Stock held by Weston II and (ii)
169,591 shares of Common Stock into which warrants held by Weston II are
currently exercisable. Beneficial ownership of these shares is also
attributed to Weston II. Mr. Cronin's address is One Federal Street, 21st
Floor, Boston, Massachusetts 02110.
(7) Includes 35,644 shares of Common Stock into which warrants held by
Mercury are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(8) Includes: (i) 173,856 shares of Common Stock held by Paribas Principal,
Inc. ("PPI"); (ii) 57,952 shares of Common Stock into which a warrant
held by PPI is currently exercisable; and (iii) 150,720 shares of Common
Stock into which a warrant held by Paribas Capital Funding, Inc. ("PCF")
is currently indirectly exercisable. PPI and PCF are affiliates of Banque
Paribas.
(9) Includes 18,426 shares of Common Stock into which warrants held by
NatWest are currently exercisable. Beneficial ownership of these shares
is also attributed to Mr. Anantharaman and to EGL Holdings.
(10) Includes 40,820 shares of Common Stock held in a Keogh account for Mr.
Rodger's benefit. Mr. Rodgers denies the right to vote these shares.
(11) Includes: 94,200 shares of Common Stock that may be acquired on the
exercise of vested options.
(12) Includes 41,212 shares of Common Stock that may be acquired upon the
exercise of vested options.

(13) See Notes 3 (Mr. Anantharaman), 6 (Mr. Cronin), 10 (Mr. Rodgers), 11 (Dr.
Ribaudo) and 12 (Dr. Schramm). None of the directors or executive
officers owns any shares of the Non-Voting Common Stock.

69
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have 10,390,405 shares
of Common Stock outstanding (10,840,405 if the Underwriters' over-allotment
option is exercised in full) of which 3,000,000 shares sold in the Offering
(3,450,000 if the Underwriters' over-allotment option is exercised in full)
will be freely tradable without restriction or further registration under the
Securities Act unless purchased by "affiliates" of the Company (as defined in
the Securities Act). The remaining 7,102,212 shares of Common Stock and
288,193 shares of Non-Voting Common Stock are deemed "restricted securities"
under Rule 144 in that they were originally issued and sold by the Company in
private transactions in reliance upon exemptions under the Securities Act, and
may be publicly sold only if registered under the Securities Act or sold in
accordance with an applicable exemption from registration, such as those
provided by Rule 144 promulgated under the Securities Act as described below.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of restricted
securities from the issuer or from an affiliate of the issuer, the acquiror or
subsequent holder would be entitled to sell within any three-month period a
number of those shares that does not exceed the greater of one percent of the
number of shares of such class of stock then outstanding or the average weekly
trading volume of the shares of such class of stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about the issuer. In addition, if a period of at least two years has elapsed
since the later of the date of acquisition of restricted securities from the
issuer or from any affiliate of the issuer, and the acquiror or subsequent
holder thereof has not been an affiliate of the issuer at any time during the
90 days preceding a sale, such person would be entitled to sell such
restricted securities under Rule 144(k) without regard to the volume
limitations and manner of sale and notice requirements described above. Rule
144 does not require the same person to have held the securities for the
applicable periods. The foregoing summary of Rule 144 is not intended to be a
complete description thereof. The Commission has proposed certain amendments
to Rule 144 that would, among other things, eliminate the manner of sale
requirements and revise the notice provisions of that rule. The SEC has also
solicited comments on other possible changes to Rule 144, including possible
revisions to the one- and two-year holding periods and the volume limitations
referred to above.

As of December 31, 1997, options to purchase an aggregate of 1,664,263
shares of Common Stock were outstanding under the 1995 Stock Option Plan. See
"Management--1995 Stock Option Plan." In general, pursuant to Rule 701 under
the Securities Act, any employee, officer or director of, or consultant to,
the Company who purchased his or her shares pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701,
which permit non-affiliates to sell such shares without compliance with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permit affiliates to sell such shares without compliance with
the holding period provisions of Rule 144, in each case commencing 90 days
after the date of this Prospectus. In addition, the Company intends to file a
registration statement covering the 1,475,737 shares issuable upon exercise of
stock options that may be granted in the future under the 1995 Stock Option
Plan, in which case such shares of Common Stock generally will be freely
tradable by non-affiliates in the public market without restriction under the
Securities Act.

The Company, its executive officers and directors, and stockholders holding
substantially all of the shares of Common Stock have agreed not to offer,
sell, contract to sell, grant any option or other right for the sale of, or
otherwise dispose of any shares of Common Stock or any securities,
indebtedness or other rights exercisable for or convertible or exchangeable
into Common Stock owned or acquired in the future in any manner prior to the
expiration (the "180-Day Lockup Period") without the prior written consent of
BancAmerica Robertson Stephens, except that the Company may, subject to
certain conditions, issue Common Stock in connection with acquisitions and may
grant Awards (or Common Stock upon exercise of Awards) under the 1995 Stock
Option Plan. These restrictions will be applicable to any shares acquired by
any of those persons in the Offering or otherwise during the 180-Day Lockup
Period. Approximately 2,624,000 shares of Common Stock issued by the

70
<PAGE>

Company in October and November, 1997 were issued subject to agreements in
which the persons who received the shares of Common Stock in connection with
acquisitions agreed not to transfer the shares for periods ranging from 14 to
42 months following consummation of the Offering.

Prior to the Offering, there has been no established public market for the
Common Stock. No prediction can be made of the effect, if any, that sales of
shares under Rule 144, or otherwise, or the availability of shares for sale
will have on the market price of the Common Stock prevailing from time to time
after the Offering. The Company is unable to estimate the number of shares
that may be sold in the public market under Rule 144, or otherwise, because
such amount will depend on the trading volume in, and market price for, the
Common Stock and other factors. Upon completion of the Offering, the holders
of 1,503,071 shares of Common Stock will be entitled to demand registration
rights with respect to such shares, and the holders of 4,393,802 shares of
Common Stock will be entitled to piggyback registration rights. Nevertheless,
sales of substantial amounts of shares in the public market, or the perception
that such sales could occur, could adversely affect the market price of the
Common Stock of the Company. See "Underwriting."

71
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date of this Prospectus (the "Underwriting Agreement"),
the underwriters named below (the "Underwriters"), for whom BancAmerica
Robertson Stephens, NationsBanc Montgomery Securities LLC, A.G. Edwards &
Sons, Inc., and The Robinson-Humphrey Company, LLC are acting as
representatives (the "Representatives"), have severally agreed to purchase,
and the Company has agreed to sell, the respective number of shares of Common
Stock set forth opposite the name of each such Underwriter below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
BancAmerica Robertson Stephens.....................................
NationsBanc Montgomery Securities LLC..............................
A.G. Edwards & Sons, Inc. .........................................
The Robinson-Humphrey Company, LLC.................................
---------
Total............................................................ 3,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock are subject to certain conditions, and
that, if any of the foregoing shares of Common Stock are purchased by the
Underwriters pursuant to the Underwriting Agreement, then all the shares of
Common Stock agreed to be purchased by the Underwriters pursuant to the
Underwriting Agreement must be so purchased.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock in part directly to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such public offering price less a selling concession not in
excess of $ per share, of which $ may be reallowed to other dealers.
After the consummation of this Offering, the public offering price, the
concession to selected dealers and the reallowance may be changed by the
Underwriters. No such reductions 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 the Underwriters an option to purchase up to 450,000
additional shares of Common Stock at the initial public offering price less
the underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time until 30 days after the date of the Underwriting
Agreement. To the extent that the option is exercised, each Underwriter will
be committed, subject to certain conditions, to purchase a number of
additional shares of Common Stock proportionate to such Underwriter's initial
commitment as indicated in the preceding table.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.

The Company, its executive officers and directors and stockholders holding
substantially all of the shares of Common Stock have agreed not to, directly
or indirectly, offer for sale, sell, contract to sell, grant any option or
other right for the sale of, or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any shares of
Common Stock or any securities, indebtedness or other rights exercisable for
or convertible or exchangeable into shares of Common Stock prior to the
expiration of 180 days after the date of this Prospectus, without the prior
written consent of BancAmerica Robertson Stephens, except that the Company
may, subject to certain conditions, issue shares of Common Stock in connection
with acquisitions and grant Awards (or issue shares of Common Stock upon
exercise of Awards) under the 1995 Stock Option Plan. For information
respecting additional restrictions on sales by the Company's executive
officers, directors and current stockholders, see "Shares Eligible for Future
Sale."

72
<PAGE>

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.

Prior to the Offering, there has been no public market for the Company's
securities. The initial public offering price of the Common Stock will be
determined by negotiation among the Company and the Representatives. Among the
factors to be considered in such negotiations will be prevailing market
conditions, the results of operations of the Company in recent periods, market
valuations of publicly traded companies that the Company and the
Representatives believe to be comparable to the Company, estimates of the
business potential of the Company, the present state of the Company's
development, the current state of the industry and the economy as a whole, and
other factors deemed relevant.

The Company has applied to have the Common Stock approved for quotation on
the Nasdaq Stock Markets National Market under the symbol "PHCO." There can be
no assurance, however, that an active or orderly trading market will develop
for the Common Stock or that the Common Stock will trade in the public markets
subsequent to the offering at or above the initial public offering price.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales of shares of Common Stock offered hereby to accounts
over which they exercise discretionary authority.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Jackson Walker L.L.P., Dallas, Texas. Certain legal
matters in connection with the sale of the Common Stock offered hereby will be
passed upon for the Underwriters by Alston & Bird LLP, Atlanta, Georgia.

EXPERTS

The audited financial statements of the Company, Greater Cincinnati
Gastroenterology Associates, Inc., Internal Medicine Specialists, Inc.,
Parkcrest Surgical Associates, Inc., and Southern Dependacare, Inc. included
in this Prospectus and elsewhere in the registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.

The financial statements of Metroplex Hematology/Oncology Associates, L.L.P.
at December 31, 1996 and 1995, and for each of the three years in the period
ended December 31, 1996, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

73
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all exhibits, schedules and amendments relating thereto,
the "Registration Statement") with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all the information contained in the Registration Statement, certain portions
of which have been omitted in accordance with the rules and regulations of the
Commission. For further information with respect to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement
including the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement accurately describes the material
provisions of such document and are qualified in their entirety by reference
to such exhibits for complete statements of their provisions. All of these
documents may be inspected without charge at the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies can also be obtained from the Commission at prescribed rates.
The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.

74
<PAGE>

INDEX TO HISTORICAL FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Physician Health Corporation ("PHC" or the "Company")
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-5
Consolidated Statements of Stockholders' Equity.......................... F-7
Consolidated Statements of Cash Flows.................................... F-9
Notes to Consolidated Financial Statements............................... F-11

The historical financial statements of certain physician practices are
included in this Prospectus since each practice will contribute a significant
management fee to the Company. The operating results of these physician
practices should not be considered indicative of the Company's future
operating results.

Metroplex Hematology / Oncology Associates, L.L.P.
(d/b/a) Arlington Cancer Center
Report of Independent Auditors........................................... F-23
Balance Sheets........................................................... F-24
Statements of Income and Changes in Partners' Capital.................... F-25
Statements of Cash Flows................................................. F-26
Notes to Financial Statements............................................ F-27
Greater Cincinnati Gastroenterology Associates, Inc.
Report of Independent Public Accountants................................. F-32
Balance Sheets........................................................... F-33
Statements of Operations................................................. F-34
Statements of Owners' Equity............................................. F-35
Statements of Cash Flows................................................. F-36
Notes to Financial Statements............................................ F-37
Internal Medicine Specialists, Inc.
Report of Independent Public Accountants................................. F-41
Balance Sheets........................................................... F-42
Statements of Operations................................................. F-43
Statements of Owners' Equity............................................. F-44
Statements of Cash Flows................................................. F-45
Notes to Financial Statements............................................ F-46
Parkcrest Surgical Associates, Inc.
Report of Independent Public Accountants................................. F-50
Balance Sheets........................................................... F-51
Statements of Operations................................................. F-52
Statements of Owners' Equity............................................. F-53
Statements of Cash Flows................................................. F-54
Notes to Financial Statements............................................ F-55
Southern Dependacare, Inc.
Report of Independent Public Accountants................................. F-60
Balance Sheets........................................................... F-61
Statements of Operations................................................. F-62
Statements of Owners' Equity............................................. F-63
Statements of Cash Flows................................................. F-64
Notes to Financial Statements............................................ F-65
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Physician Health Corporation
and Subsidiaries:

We have audited the accompanying consolidated balance sheets of PHYSICIAN
HEALTH CORPORATION (a Delaware corporation) AND SUBSIDIARIES (Successor
Company) as of December 31, 1995 and 1996 and September 30, 1997, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the period from inception (August 29, 1995) through
December 31, 1995, the year ended December 31, 1996, and the nine months ended
September 30, 1997. We have also audited for Physician Health Corporation and
Subsidiaries (Predecessor Company) the accompanying consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the year ended
December 31, 1994 and the period from January 1, 1995 to October 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

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 Physician Health
Corporation and Subsidiaries (Successor Company) as of December 31, 1995 and
1996 and September 30, 1997, and the results of their operations and their
cash flows for the period from inception (August 29, 1995) through December
31, 1995, the year ended December 31, 1996, and the nine months ended
September 30, 1997 and for the Predecessor Company for the year ended December
31, 1994 and the period from January 1, 1995 to October 31, 1995 in conformity
with generally accepted accounting principles.

/s/ ARTHUR ANDERSEN LLP

Atlanta, Georgia

December 15, 1997 (except
with respect to the matter in
the last paragraph of Note 10
as to which the date is
January 26, 1998)

F-2
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $3,011,757 $1,160,910 $ 5,218,651
Accounts receivable, less allowance for
bad debts of $55,170, $463,970, and
$833,912 at December 31, 1995 and 1996
and September 30, 1997, respectively.... 400,479 465,089 8,112,843
Inventory................................ -- -- 430,616
Prepaid expenses and other current
assets.................................. 121,463 124,800 1,206,955
---------- ---------- -----------
Total current assets................... 3,533,699 1,750,799 14,969,065
Property and equipment, net................ 149,820 867,260 6,499,503
Intangible assets, net of accumulated
amortization of $7,936, $54,142, and
$298,295 at December 31, 1995 and 1996 and
September 30, 1997, respectively.......... 1,054,567 1,524,604 19,675,945
Other long term assets..................... 131,455 -- 588,961
---------- ---------- -----------
Total assets........................... $4,869,541 $4,142,663 $41,733,474
========== ========== ===========
</TABLE>

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

F-3
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- SEPTEMBER 30,
1995 1996 1997
---------- ---------- -------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................... $ 77,131 $ 606,531 $ 1,844,450
Accrued expenses........................... 673,735 922,353 5,280,185
Current portion of long-term debt.......... 368,237 75,808 13,070,895
---------- ---------- -----------
Total current liabilities................ 1,119,103 1,604,692 20,195,530
---------- ---------- -----------
Long-term debt............................... 10,358 500,000 14,434,603
---------- ---------- -----------
Commitments and contingencies (Notes 8 and 9)
Class A redeemable preferred stock, $.01 par
value; 500,000 shares authorized, 200,000
issued, and outstanding (redemption or
liquidation preference aggregating
$3,000,000, plus accrued dividends or
guaranteed return).......................... 2,447,836 2,442,712 2,772,204
---------- ---------- -----------
Series B redeemable convertible preferred
stock, $.01 par value; 15,000,000 shares
authorized, 3,824,493 issued and outstanding
at September 30, 1997....................... -- -- 13,675,368
---------- ---------- -----------
Stockholders, equity (deficit):
Common stock, $0.0025 par value;
140,000,000 shares authorized, 1,051,900,
1,196,340, and 1,414,244 shares issued and
outstanding at December 31, 1995 and 1996
and September 30, 1997, respectively...... 2,630 2,991 3,536
Prime common stock, $0.0025 par value;
20,000,000 shares authorized, 125,000 and
4,039,666 shares issued and outstanding at
December 31, 1996 and September 30, 1997,
respectively.............................. -- 313 10,100
Additional paid-in capital................. 1,756,562 2,942,529 11,284,743
Accumulated deficit........................ (466,948) (3,350,574) (20,198,860)
Notes receivable .......................... -- -- (443,750)
---------- ---------- -----------
Total stockholders' equity (deficit)..... 1,292,244 (404,741) (9,344,231)
---------- ---------- -----------
Total liabilities and stockholders'
equity (deficit)........................ $4,869,541 $4,142,663 $41,733,474
========== ========== ===========
</TABLE>

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

F-4
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION NINE-MONTH PERIOD
(AUGUST 29, 1995) YEAR ENDED ENDED SEPTEMBER 30,
THROUGH DECEMBER 31, --------------------------
DECEMBER 31, 1995 1996 1996 1997
----------------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient service
revenue................ $ -- $ 23,412 $ -- $ 2,510,529
Management fees......... 30,181 1,215,098 955,456 9,511,279
Other revenue........... 426,125 2,797,454 1,764,886 3,968,803
---------- ----------- ------------ ------------
Net revenue............ $ 456,306 $ 4,035,964 $ 2,720,342 $ 15,990,611
---------- ----------- ------------ ------------
Operating expenses:
Salaries and
benefits............. 662,287 2,915,041 2,123,523 4,880,327
Contract and
professional
services............. 69,830 193,561 369,745 746,304
Medical supplies and
other................ -- -- 32,916 5,487,850
Provision for bad
debts................ 40,170 660,159 104,560 938,383
General and
administrative....... 131,009 2,748,330 1,208,095 6,387,126
Depreciation and
amortization......... 13,577 161,236 80,884 731,892
Write down of assets.. -- 195,236 -- 714,665
Purchased research and
development.......... -- -- -- 13,251,860
---------- ----------- ------------ ------------
Total operating
expenses........... 916,873 6,873,563 3,919,724 33,138,407
---------- ----------- ------------ ------------
Loss from operations.... (460,567) (2,837,599) (1,199,382) (17,147,796)
Interest expense, net... 7,178 29,527 9,662 1,767,745
---------- ----------- ------------ ------------
Loss before minority
interest and income
taxes.................. (467,745) (2,867,126) (1,209,044) (18,915,541)
Minority interest in net
loss of subsidiary..... (797) -- -- (2,080,975)
---------- ----------- ------------ ------------
Loss before income
taxes.................. (466,948) (2,867,126) (1,209,044) (16,834,566)
Income tax expense...... -- 16,500 -- 13,720
---------- ----------- ------------ ------------
Net loss................ $ (466,948) $(2,883,626) $ (1,209,044) $(16,848,286)
========== =========== ============ ============
Loss per share.......... $ (0.50) $ (1.34) $ (0.56) $ (5.82)
========== =========== ============ ============
Weighted average shares
outstanding............ 941,050 2,156,068 2,143,035 2,893,999
========== =========== ============ ============
</TABLE>

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

F-5
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1, 1995 TO
1994 OCTOBER 31, 1995
------------ ------------------
<S> <C> <C>
Net revenue..................................... $ 812,144 $1,949,421
--------- ----------
Operating expenses:
Salaries and benefits......................... 530,952 1,532,624
Contract and professional services............ 37,514 124,524
General and administrative.................... 224,673 463,478
Depreciation and amortization................. 58,266 106,584
--------- ----------
Total operating expenses.................... 851,405 2,227,210
--------- ----------
Loss from operations............................ (39,261) (277,789)
Interest expense, net........................... 24,033 86,487
--------- ----------
Loss before income taxes........................ (63,294) (364,276)
Income tax expense.............................. -- --
--------- ----------
Net loss........................................ $ (63,294) $ (364,276)
========= ==========
</TABLE>

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

F-6
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(SUCCESSOR COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK PRIME COMMON STOCK
--------------------------- ----------------------------
ADDITIONAL ADDITIONAL STOCKHOLDERS'
PAID-IN PAID-IN ACCUMULATED NOTES EQUITY
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE (DEFICIT)
--------- ------ ---------- --------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, August
29, 1995 (period
of inception).... -- $ -- $ -- -- $ -- $ -- $ -- $ -- $ --
Issuance of
common stock,
net of issuance
costs of
$38,453......... 1,051,900 2,630 1,364,542 -- -- -- -- -- 1,367,172
Issuance of
options and
warrants to
purchase common
stock........... -- -- 392,020 -- -- -- -- -- 392,020
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ -- -- -- -- -- -- -- -- --
Accretion of
preferred
stock........... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (466,948) -- (466,948)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance, December
31, 1995......... 1,051,900 2,630 1,756,562 -- -- -- (466,948) -- 1,292,244
Issuance of
common stock,
net of issuance
costs of
$43,065......... 144,440 1,150 1,185,967 -- -- -- -- -- 1,076,935
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... -- -- -- 125,000 313 109,393 -- -- 109,706
Issuance cost
adjustment...... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (2,883,626) -- (2,883,626)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance, December
31, 1996......... 1,196,340 2,991 2,833,136 125,000 313 109,393 (3,350,574) -- (404,741)
Issuance of
common stock,
net of issuance
costs of
$5,836.......... 217,904 545 2,770,909 -- -- -- -- -- 2,771,454
Issuance of
warrants to
purchase common
stock........... -- -- 1,717,106 -- -- -- -- -- 1,717,106
Issuance of
prime common
stock........... -- -- -- 3,914,666 9,787 3,854,199 -- (443,750) 3,420,236
Issuance of
preferred stock,
net of issuance
costs of
$638,282........ -- -- -- -- -- -- -- -- --
Dividends
accrued and
unpaid.......... -- -- -- -- -- -- -- -- --
Accretion of
preferred stock
for redemption.. -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- (16,848,286) -- (16,848,286)
--------- ------ ---------- --------- ------- ---------- ------------ --------- -----------
Balance,
September 30,
1997............. 1,414,244 $3,536 $7,321,151 4,039,666 $10,100 $3,963,592 $(20,198,860) $(443,750) $(9,344,231)
========= ====== ========== ========= ======= ========== ============ ========= ===========
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------
CLASS A SERIES B
------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Balance, August
29, 1995 (period
of inception).... -- $ -- -- $ --
Issuance of
common stock,
net of issuance
costs of
$38,453......... -- -- -- --
Issuance of
options and
warrants to
purchase common
stock........... -- -- -- --
Issuance of
preferred stock,
net of issuance
costs of
$267,472........ 200,000 2,447,528 -- --
Accretion of
preferred
stock........... -- 308 -- --
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance, December
31, 1995......... 200,000 2,447,836 -- --
Issuance of
common stock,
net of issuance
costs of
$43,065......... -- -- -- --
Issuance of
prime common
stock, net of
issuance costs
of $15,294...... -- -- -- --
Issuance cost
adjustment...... -- (5,124) -- --
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance, December
31, 1996......... 200,000 2,442,712 -- --
Issuance of
common stock,
net of issuance
costs of
$5,836.......... -- -- -- --
Issuance of
warrants to
purchase common
stock........... -- -- -- --
Issuance of
prime common
stock........... -- -- -- --
Issuance of
preferred stock,
net of issuance
costs of
$638,282........ -- -- 3,824,493 12,897,920
Dividends
accrued and
unpaid.......... -- 225,000 -- 673,116
Accretion of
preferred stock
for redemption.. -- 104,492 -- 104,332
Net loss........ -- -- -- --
------- ----------- --------- -----------
Balance,
September 30,
1997............. 200,000 $2,772,204 3,824,493 $13,675,368
======= =========== ========= ===========
</TABLE>

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

F-7
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK
------------------------
ADDITIONAL STOCKHOLDER'S
PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, Period of
inception................. -- $ -- $ -- $ -- $ --
Issuance of common
stock................... 1,000 10 490 -- 500
Net loss................. -- -- -- (63,294) (63,294)
----- ---- ---- --------- ---------
Balance, December 31,
1994...................... 1,000 10 490 (63,294) (62,794)
Net loss................. -- -- -- (364,276) (364,276)
----- ---- ---- --------- ---------
Balance, October 31, 1995.. 1,000 $10 $490 $(427,570) $(427,070)
===== ==== ==== ========= =========
</TABLE>

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

F-8
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

(SUCCESSOR COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM NINE-MONTH PERIOD
INCEPTION YEAR ENDED ENDED SEPTEMBER 30,
(AUGUST 29, 1995 DECEMBER 31, -------------------------
TO DECEMBER 31, 1995) 1996 1996 1997
--------------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Operating activities:
Net loss.............. $ (466,948) $(2,883,626) $(1,209,044) $(16,848,286)
Adjustments to recon-
cile net loss to net
cash provided by
(used in) operating
activities:
Depreciation,
amortization, and
accretion of
preferred stock...... 13,577 161,236 85,448 1,838,832
Compensation expense.. 300,000 -- -- --
Write-down of assets.. -- 195,236 -- 714,665
Purchased research and
development.......... -- -- -- 13,251,860
Loss on disposal of
fixed assets......... -- -- -- 17,645
Minority interest in
net loss of
subsidiary........... (797) -- (1,091) (2,080,975)
Changes in operating
assets and
liabilities:
Accounts receivable,
net................. 38,182 (64,611) (122,729) (4,337,310)
Due from related
physicians and
physician
organizations....... (221,800) 221,800 -- --
Prepaid expenses and
other assets........ 180,104 (93,682) (63,534) (1,981,142)
Accounts payable and
accrued expenses.... 219,745 660,986 (250,336) 3,650,555
----------- ----------- ----------- ------------
Net cash provided by
(used in) operating
activities......... 62,063 (1,802,661) (1,561,286) (5,774,156)
----------- ----------- ----------- ------------
Investing activities:
Purchases of busi-
nesses and related
intangibles.......... (1,325,787) (127,345) -- (19,488,272)
Purchases of property
and equipment........ (9,834) (342,008) (278,245) (341,213)
----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (1,335,621) (469,353) (278,245) (19,829,485)
----------- ----------- ----------- ------------
Financing activities:
Proceeds from issuance
of redeemable
preferred stock, net
of issuance costs.... 2,554,528 -- -- 12,897,964
Proceeds from issuance
of common stock, net
of issuance costs.... 1,067,172 1,061,641 683,076 1,398,451
Proceeds from issuance
of stock purchase
warrants............. 285,020 -- -- 1,717,106
Payments for loan
issuance costs for
credit facility...... -- (277,099) -- --
Proceeds from issuance
of long-term debt.... 378,595 -- -- 13,658,237
Repayment of notes
payable.............. -- (363,375) (367,020) (10,376)
----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 4,285,315 421,167 316,056 29,661,382
----------- ----------- ----------- ------------
Net change in cash and
cash equivalents...... 3,011,757 (1,850,847) (1,523,475) 4,057,741
Cash and cash
equivalents at
beginning of period... -- 3,011,757 3,011,757 1,160,910
----------- ----------- ----------- ------------
Cash and cash
equivalents at end of
period................ $ 3,011,757 $ 1,160,910 $ 1,488,282 $ 5,218,651
=========== =========== =========== ============
Supplemental
disclosures of cash
flow information:
Cash paid for
interest............. $ 6,870 $ 15,872 $ 6,412 $ 261,075
=========== =========== =========== ============
Cash paid for income
taxes................ $ -- $ 16,500 $ -- $ 13,720
=========== =========== =========== ============
Supplemental
disclosures of noncash
financing and
investing activity:
Carrying value of debt
issued in connection
with purchases of
businesses (Note 2).. $ -- $ -- $ -- $ 13,177,186
=========== =========== =========== ============
Common stock issued in
connection with
purchases of
businesses (Note 2).. $ -- $ -- $ -- $ 6,707,349
----------- ----------- ----------- ------------
Preferred stock
subscriptions issued
(Note 6)............. $ -- $ -- $ -- $ 6,210,000
=========== =========== =========== ============
</TABLE>

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

F-9
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES
(PREDECESSOR COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED JANUARY 1, 1995
DECEMBER 31, TO
1994 OCTOBER 31, 1995
------------ ----------------
<S> <C> <C>
Operating activities:
Net loss....................................... $ (63,294) $(364,276)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 58,266 106,584
Changes in operating assets and liabilities:
Accounts receivable, net................... (160,949) (310,138)
Prepaid expenses and other assets.......... (657,683) (133,495)
Accounts payable and accrued expenses...... 208,281 175,943
--------- ---------
Net cash used in operating activities.... (615,379) (525,382)
--------- ---------
Investing activities:
Purchases of property and equipment............ (77,589) (104,841)
--------- ---------
Net cash used in investing activities.... (77,589) (104,841)
--------- ---------
Financing activities:
Proceeds from issuance of common stock......... 500 --
Borrowings under line of credit--parent compa-
ny............................................ 756,756 565,935
--------- ---------
Net cash provided by financing activi-
ties.................................... 757,256 565,935
--------- ---------
Net change in cash and cash equivalents.......... 64,288 (64,288)
Cash and cash equivalents at beginning of peri-
od.............................................. -- 64,288
--------- ---------
Cash and cash equivalents at end of period....... $ 64,288 $ --
========= =========
Supplemental disclosures of cash flow informa-
tion:
Cash paid for interest......................... $ 24,033 $ 86,487
========= =========
Cash paid for income taxes..................... $ -- $ --
========= =========
</TABLE>

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

F-10
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

PHC Merger Corporation (the "Company") was incorporated on August 29, 1995
as a Delaware corporation. On November 3, 1995, the Company acquired, in a
transaction accounted for as a purchase, all of the outstanding common stock
of Physician Health Corporation (the "Predecessor Company"), a wholly owned
subsidiary of Surgical Health Corporation, which was a wholly owned subsidiary
of HealthSouth Corporation. The purchase price was approximately $1,325,000.
The Predecessor Company commenced operations during 1994. Upon completion of
the merger, the Company changed its name to Physician Health Corporation (the
"Successor Company"). The Company is a physician management company focusing
on the integration of managed care contracting, network development and
administration, physician practice management and ancillary health care
services development in selected markets. The Company provides these services
to independent physician networks and Company sponsored physician networks and
to physicians who affiliate with the Company through practice management or
employment agreements. The Company currently provides services described above
in the following geographical markets: Virginia, Georgia, Texas, Alabama,
Tennessee, Florida, Missouri, and Arizona.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly owned and greater than 50%-owned subsidiaries. Significant
intercompany accounts and transactions have been eliminated in consolidation.

Minority Interests

Minority interests represents the minority shareholders' proportionate share
of the equity of three of the Company's subsidiaries. The Company owns 80% of
the capital stock of two of these subsidiaries with 20% owned by minority
interests. These two subsidiaries were acquired in 1997. The Company owns 51%
of another subsidiary with 49% owned by minority interests.

As of December 31, 1995 and 1996 and September 30, 1997, the minority
interests are recorded at zero as cumulative losses applicable to minority
interests exceeded the minority interests in the subsidiaries' capital. For
the period ended December 31, 1995, the year ended December 31, 1996, and the
nine months ended September 30, 1997, the minority interests' net loss was
recorded at $797, $0, and $2,080,975, respectively, and $20,100, $268,824, and
$451,963, respectively, of the net loss was absorbed by the Company.

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.

Net Loss Per Common and Common Equivalent Share

Net loss per common and common equivalent share is computed using the
weighted average number of shares of common stock and dilutive common stock
equivalent shares ("CSEs") from stock options using the treasury stock method.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins,
common stock and CSEs issued at prices below the expected public offering
price during the 12-month period

F-11
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

prior to filing of the registration statement in connection with the Company's
planned Offering have been included in the calculation as if they were
outstanding for all periods presented prior to the Offering, regardless of
whether they are dilutive.

New Accounting Pronouncements

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share." SFAS No. 128 is designed to improve the
earnings per share information provided in the financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of earnings per share data.
SFAS No. 128 is effective for periods ending after December 15, 1997,
including interim periods. The Company will adopt SFAS No. 128 for the fiscal
and interim periods ending December 31, 1997. As of September 30, 1997, the
disclosure requirements of SFAS No. 128 would not require a different
presentation of earnings per share than currently presented due to the
antidilutive effect of all common stock equivalents.

The Emerging Issues Task Force of the FASB has recently issued its Consensus
Opinion 97-2 ("EITF 97-2"). EITF 97-2 addresses certain specific matters
pertaining to the physician practice management industry. EITF 97-2 would be
effective for the Company for its year ending December 31, 1998. EITF 97-2
addresses the ability of physician practice management companies to
consolidate the results of physician practices with which it has an existing
contractual relationship. The Company is still in the process of analyzing the
effect on all of its contractual relationships, but currently believes that
certain contracts would meet the criteria of EITF 97-2 for consolidating their
results of operations, which would require the Company to restate its
financial statements to reflect such consolidation. EITF 97-2 also has
addressed the accounting method for future combinations with individual
physician practices. The Company believes that, based upon the criteria, set
forth in EITF 97-2, that virtually all of its future acquisitions of
individual physician practices will continue to be accounted for under the
purchase method of accounting.

Interim Unaudited Financial Information

The financial statements for the nine months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full year.

F-12
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Prior Year Reclassifications

Certain prior year and period amounts have been reclassified to conform with
the current year presentation.

Cash Equivalents

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

Revenue

The Company primarily generates management fee revenues from contracts for
providing management services to physician practices, for organizing and
managing capitated network contracts, and for providing administrative
services such as accounting, billing, and collections. The Company also
generates net patient revenues through employed physicians.

Revenue is recognized as services are performed. The Company had two
practices that represented 35% of total revenues for the year ended December
31, 1996 and three practices that represented 73% of total revenues for the
nine months ended September 30, 1997.

Net patient revenues are recorded based on standard charges applicable to
all patients. Under Medicare, Medicaid, and other reimbursement programs, each
practice is reimbursed for services rendered to covered program patients as
determined by reimbursement formulas. The differences between established
billing rates and the amounts reimbursable by the programs and patient
payments are recorded as contractual adjustments and deducted from revenues.

Accounts Receivable and Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts equal to the
estimated losses expected to be incurred in the collection of accounts
receivable.

Capitated Contracts

The Company establishes accruals for its capitated contracts reimbursements
based upon historical trends. Any contracts that would have a realized loss
would be immediately accrued for and the loss would be charged to operations.

Industry Risks

The health care industry is subject to numerous laws and regulations at all
levels of government. These laws and regulations include, but are not
necessarily limited to, matters such as licensure, accreditation, government
health care program participation requirements, reimbursement for patient
services, and Medicare and Medicaid fraud and abuse. Recently, government
activity has increased with respect to investigations and allegations
concerning possible violations of fraud and abuse statutes and regulations by
health care providers. Violations of these laws could result in significant
fines and penalties as well as significant payments for services previously
billed. The Company is subject to similar regulatory reviews. A determination
of liability under any such laws could have a material effect on the Company's
financial position, results of operations, changes in stockholders' equity,
and cash flows.

Property and Equipment

Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the assets, which are
as follows:

<TABLE>
<S> <C>
Equipment............................................... Five years
Furniture and fixtures.................................. Five to seven years
Leasehold improvements.................................. Ten years
</TABLE>

F-13
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Additions that extend the lives of the assets are capitalized, while repairs
and maintenance costs are expensed as incurred. When property and equipment is
retired, the cost of the property and equipment and the related accumulated
depreciation or amortization are removed from the balance sheet and any
resulting gain or loss is recorded.

Intangible Assets

The Company's acquisitions involve the purchase of tangible and intangible
assets and the assumption of certain liabilities of the affiliated physician
groups. The Company allocates the purchase price to the tangible assets
acquired and liabilities assumed based on estimated fair market values. In
connection with each acquisition, the Company enters into long-term service
agreements with the affiliated physician groups. The service agreements are
for terms of 40 years and cannot be terminated by either party without cause,
primarily bankruptcy or material default. The service agreement intangible is
being amortized using a straight-line method over an average life of 25 years.

In connection with the allocation of the purchase price to identifiable
intangible assets, the Company analyzes the nature of each group with which a
service agreement is entered into, including the number of physicians in each
group, number of service sites, ability to recruit additional physicians, the
group's relative market position, the length of time the group has been in
existence, and the term and enforceability of the service agreement.

The physician groups continually recruit physicians and, as appropriate and
necessary, add qualified physicians to the group. This manner of operations
allows the physician group to perpetuate itself as individual physicians
retire or are otherwise replaced. Therefore, the Company believes that the
physician groups with which it has service agreements are entities with
indeterminable life.

Income Taxes

The Company is a corporation subject to federal and state income taxes.
Income taxes have been provided using the liability method in accordance with
the Statement of financial accounting standards ("SFAS") No. 109, "Accounting
for Income Taxes."

Impairment of Long-Lived Assets

On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Under SFAS No. 121, intangibles are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may
not be recoverable. If this review indicates that the carrying amount of the
asset may not be recoverable, as determined based on the undiscounted cash
flows of the operations acquired over the remaining amortization period, the
carrying value of the asset is reduced to fair value. Among the factors that
the Company will continually evaluate are unfavorable changes in each
physician group's relative market share and local market competitive
environment, current period and forecasted operations, cash flow levels of the
physician group, and its impact on the management fee earned by the Company,
and legal factors governing the practice of medicine. In 1996, the Company
wrote off certain fixed assets for $195,236. In 1997, the Company wrote off
certain fixed assets and intangible assets for $714,665.

2. ACQUISITIONS

During the year ended December 31, 1996, the Company purchased the assets of
one physician practice ("Metropoliton Plastic & Reconstructive Surgery"). The
Company issued a note in the amount of $500,000 and issued 125,000 shares of
the Company's prime stock.

F-14
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During the nine months ended September 30, 1997, the Company acquired
certain assets and assumed certain liabilities of eleven physician practices
located in Texas, Missouri, Georgia, Illinois and Arizona. These practices
were:

Surgical Group South Ream Optometry
Eye Medical and Surgical Tri-County Eye Center
The Heart Health Center Atlanta Center for Medicine
Jones Eye Center Southern Dependacare
Arlington Cancer Center Surgical Associates
Payson Family Care

Total tangible assets acquired were $9,188,823 and total liabilities assumed
were $2,000,762. To consummate these eleven 1997 acquisitions and reflect
entry into related practice management agreements, the Company paid
$18,325,928 in cash, issued debt in the aggregate amount of $13,177,187, and
issued 2,833,613 and 97,407 shares of the Company's prime and common stock
respectively. In addition, consideration was given in the form of a 20%
interest in two newly formed subsidiaries. These 20% minority interests in the
subsidiaries are convertible into an aggregate of 2,080,975 shares of common
stock in the Company. The aggregate value of common and prime stock issued was
$6,155,553. As a result of these acquisitions, the Company recorded
intangibles of approximately $17,000,000 (after purchased research and
development), which are being amortized over 25 years. These acquisitions were
accounted for as purchase transactions, and the acquired net assets and post
acquisition operating results are included in the September 30, 1997
consolidated financial statements.

In connection with the acquisition of a physician practice during the nine
months ended September 30, 1997, the Company allocated $13,251,860 to
purchased research and development. Based on management's assessment of no
alternative future benefit to the Company, this amount was charged against
operations on the date of the acquisition.

3. PROPERTY AND EQUIPMENT

As of December 31, 1995 and 1996 and September 30, 1997 property and
equipment are comprised of the following:

<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ----------
<S> <C> <C> <C>
Equipment................................... $115,934 $362,824 $4,267,440
Furniture................................... 27,795 134,391 822,276
Leasehold improvements...................... 11,732 471,885 1,954,644
Construction in progress.................... -- -- 24,333
-------- --------- ----------
155,461 969,100 7,068,693
Less accumulated depreciation............... (5,641) (101,840) (569,190)
-------- --------- ----------
Net property and equipment.................. $149,820 $867,260 $6,499,503
======== ========= ==========
</TABLE>

During the period of inception (August 29, 1995) to December 31, 1995, the
year ended December 31, 1996, and the nine months ended September 30, 1997,
the Company recorded $5,641, $106,796, and $484,292 in depreciation expense,
respectively.

F-15

<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. LONG-TERM DEBT

At December 31, 1995 and 1996 and September 30, 1997, long-term debt
consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
--------- -------- -------------
<S> <C> <C> <C>
Convertible subordinated note to
Metropolitan Plastic and Reconstructive
Surgery, Ltd.; principal and interest at
5% per annum due on demand or on November
26, 1999; note is convertible into common
stock 90 days immediately following the
effective date of a registration statement
under the Securities Act of 1933.......... $ -- $500,000 $ 500,000
Equipment note............................. -- 75,808 75,808
Promissory notes payable to stockholders of
the Company; interest and principal due on
demand.................................... -- -- 300,000
Promissory notes payable to officers and
stockholders; bearing interest at 12%..... 363,375 -- --
Secured promissory note to DVI Business
Credit Corporation; interest on unpaid
principal balance due monthly at the
publicly announced rate by Bank of America
plus 2 1/2% per annum; all unpaid
principal and interest due on July 1,
1999; secured by eligible accounts
receivable of the Company................. -- -- 2,236,186
Noninterest-bearing promissory note for
$6,210,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 6.75%;
principal and interest due on April 1,
1998; .................................... -- -- 5,986,678
Noninterest-bearing promissory note for
$6,460,000 to Metroplex
Hematology/Oncology Associates, LLP; im-
puted semiannual interest rate of 7.36%
principal and interest due in four annual
installments, with final payment on April
1, 2002................................... -- -- 5,182,134
Secured promissory notes to DVI Financial
Services, Inc.; interest payable monthly
at 12.25% per annum; principal and
interest due on July 1, 2003; secured by
certain equipment of the Company.......... -- -- 8,000,000
Note payable to Southwest Bank; bearing
interest at an initial rate of prime
subject to change to prime plus 3%;
interest beginning October 10, 1997 and
payable monthly subsequent to initial
payment; principal due on demand or
January 10, 1998.......................... -- -- 3,000,000
Promissory notes payable to stockholders;
bearing interest at rates ranging from 7
to 8%, principal and interest due on
periods ranging from January 1, 1998
through September 12, 2000................ -- -- 2,194,692
Other...................................... 15,220 -- 30,000
--------- -------- -----------
Total Debt................................. 378,595 575,808 27,505,498
Less current maturities.................... (368,237) (75,808) (13,070,895)
--------- -------- -----------
Long-term debt............................. $ 10,358 $500,000 $14,434,603
========= ======== ===========
</TABLE>

On December 31, 1996, the Company entered into a credit agreement with
Nations Credit for working capital and acquisition financing. No draws were
made on the credit arrangement during the nine months ended September 30,
1997, and the credit arrangement was terminated. In connection with the
termination of the credit agreement, the Company wrote off $691,191 of the
remaining unamortized loan issuance costs during the nine months ended
September 30, 1997.

F-16
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Repayment of long-term debt as of September 30, 1997 is as follows:

<TABLE>
<S> <C>
December 31:
Three-months ended 1997....................................... $ 3,352,421
Year ended 1998............................................... 10,296,950
Year ended 1999............................................... 3,070,888
Year ended 2000............................................... 3,520,261
Year ended 2001............................................... 2,888,438
Thereafter.................................................... 4,376,540
-----------
Total $27,505,498
===========
</TABLE>

5. RELATED-PARTY TRANSACTIONS

At December 31, 1995, the Company had outstanding notes payable to officers
and shareholders totaling $363,375. The notes bear interest at 12%. The
proceeds from these notes were used to repay a portion of the line of credit
to Surgical Health Corporation. The notes payable were paid in full in January
1996. Interest paid to related parties was $5,874.

The Company had an intercompany line of credit with Surgical Health
Corporation prior to November 3, 1995 totaling $1,342,893. This line of credit
was paid in full on November 3, 1995, with the proceeds from the issuance of
shares of common stock and related party loans.

The Company maintains management services agreements to provide services to
and receive compensation from physicians that own stock in the Company or the
Company's subsidiaries and physicians that are on the Company's board of
directors. At September 30, 1997, the Company maintains eight management
service contracts that were initiated in connection with asset purchases in
which the Company issued common stock as consideration (Note 2). For the year
ended December 31, 1996 and the nine months ended September 30, 1997, the
Company recognized total management service fees from the contracts of
approximately $62,000 and $9,500,000, respectively. The Company also recorded
capitated contract fees of $140,000 between two of its subsidiaries, however,
the amounts were eliminated in consolidation.

The Company pays monthly consulting fees to affiliated investors and members
of the board for consulting services received. For the nine months ended
September 30, 1997, the Company paid approximately $1,410,000 in consulting
fees to affiliates.

At September 30, 1997, the Company has fourteen promissory notes due to
shareholders of the Company. The total amount due to shareholders is
$2,524,692.

In connection with the exercise of stock options during 1997, the Company
received a note in the amount of $443,750 from a stockholder of the Company.

6. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)

Class A Redeemable Convertible Preferred Stock

During 1995, 200,000 shares of class A redeemable convertible preferred
stock were issued to certain investors of the Company. At any time prior to
December 29, 2005, each share of preferred stock is convertible into 3.01
common shares, as adjusted.

The conversion rate of the Class A stock shall be adjusted in the event that
the Company: (1) has a liquidity event, as defined, on or prior to December
31, 1997, (2) attains certain levels of profitability, (3) issues common

F-17
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

stock, options, or preferred stock at a price less than the conversion rate
then in effect, (4) declares a stock dividend, (5) declares a stock split, or
(6) is recapitalized. Automatic conversion will occur upon the closing of a
liquidity event (including an initial public offering).

The holders of Class A stock are entitled to dividends on a converted basis,
if declared by the Company's board of directors, at a per share amount, if
any, of any dividend declared for the common stock during the period. In
addition, the stockholders are entitled to receive cumulative dividends of
$1.50 per share (subject to adjustment for any stock splits) per annum. Such
dividends began accruing on December 31, 1996 and are payable annually
beginning in 1998. Dividends have been accrued as of September 30, 1997.

The Class A holders have a liquidation preference of $15 per share plus 12%
per annum from the date of purchase. The 12% compounded annual rate of return
shall be in lieu of, not in addition to, the dividends paid or payable by the
Company. The Class A stock is senior to the common stock with respect to
liquidation and dividends.

After December 31, 2000, each share of Class A stock is redeemable at the
request of the holder. The redemption price is equal to the greater of $15 per
share plus any declared and unpaid dividends or the fair market value of the
Class A stock at the time of redemption. The Class A stock is required to be
redeemed, at the holders request if the principals, as defined, sell 20% or
more of the outstanding shares of capital stock of the Company, become
insolvent, have a breach of warranty under the purchase agreement, or have an
acceleration of debt in excess of $500,000 in the aggregate. No shares have
been redeemed as of September 30, 1997. At September 30, 1997, the Company
recorded accretion of preferred stock of $104,492. Accretion is being
calculated on a straight-line basis, which approximates the interest method.

Series B Redeemable Convertible Preferred Stock

The Company is authorized to issue 15,000,000 shares of Series B Redeemable
Convertible Preferred Stock at $.01 par value in one or more series. This type
of stock has been issued pursuant to several securities purchase agreements
among the Company, and certain other investors. Holders of Series B
Convertible Preferred Preferred Stock are generally entitled to (1) accrue a
dividend in an amount equal to 20% per annum, compounded annually, on $4,
beginning on the later of the original issue date or the date on which the
purchase price for such shares was first released from the applicable purchase
price escrow (holders will also receive a special contingent dividend upon the
consummation of a Liquidity Event), (2) liquidation preference over holders of
common and prime stock in the amount of $4 per share plus accrued and unpaid
dividends, and (3) vote as a single class with the holders of common stock
based on the number of shares of common stock into which the Series B
preferred stock may be converted. All regular dividends are forgiven upon the
occurrence of a Liquidity Event.

Under mandatory redemption, Series B Redeemable Convertible Preferred Stock
is redeemable at a price equal to $4 per share, as adjusted, plus accrued and
unpaid dividends. Mandatory redemption will commence in 2003.

Each share of Series B Redeemable Convertible Preferred Stock is convertible
at the option of the holder at any time into the number of shares of the
common stock of the Company obtained by dividing $4 by the then effective
conversion price of the Series B Redeemable Convertible Preferred Stock.
Provided that a liquidity event has not occurred prior to May 1, 2002, the
conversion price will be $4 per share, and after May 1, 2002, the conversion
price will be $3 per share. Automatic conversion will occur upon the closing
of a liquidity event (including an initial public offering).

The conversion rate of the Series B Redeemable Convertible Preferred Stock
shall be adjusted in the event (1) the Company issues additional shares of
common stock at a price that is less than the applicable conversion price in
effect on the date of, and immediately prior to, such issue, (2) stock is
issued as a dividend, (3) stock is subdivided or diluted, or (4) the
outstanding shares of common stock are combined or consolidated into a lesser
number of shares of common stock.

F-18
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During the nine-month period ended September 30, 1997, the Company issued
3,824,493 shares of Series B Redeemable Convertible Preferred Stock to venture
capitalists in order to receive funding for current and future acquisitions.
The Company has recorded a subscription receivable of $6,210,000 (that has
been offset against the Series B Redeemable Convertible Preferred Stock) in
relation to the issuance of an additional 1,552,501 shares that will be
released to the venture capitalists upon payment of the subscription
receivable. At September 30, 1997, the Company recorded accretion of preferred
stock of $104,332.

Common Stock

On October 6, 1995, 706,500 shares of common stock were issued to certain
employees at a price of $.0025 per share. Through a private placement offering
which closed on November 3, 1995, an additional 345,400 shares of common stock
were issued at a price of $3.18 per share. The Company expensed $300,000 for
compensation related to those transactions.

On February 26, 1996, the Company sold 113,040 shares of common stock at
$6.37 per share and issued a warrant to acquire an additional 83,524 shares at
$.01 per share on or before January 31, 2001. On November 26, 1996, the
Company sold 31,400 shares at $12.74 per share to a related party with whom
the Company has a management agreement.

During the nine-month period ended September 30, 1997, the Company issued
217,904 shares to various shareholders for cash of $2,611,464 and for the
final settlement to NationsCredit in the amount of $160,000 in connection with
the termination of the credit agreement.

Prime Common Stock

The Company has been authorized to issue 20 million shares of prime common
stock with a par value of $.0025 per share. Holders of prime common stock are
entitled to the following: (1) to vote one-tenth of one share with respect to
any matters voted upon by the stockholders of the Company, (2) the right to
receive dividends when declared by the Board of Directors of the Company,
provided that the per share amount is at least equal to the per share amount
declared for common stockholders, and (3) the right to receive a pro rata
share of distributions upon a "distribution event" by the Company after
payment of outstanding debt and other obligations, subject to the preferences
of Class A, Class B, and common stockholders. The fair market value of prime
common stock is determined periodically by outside appraisers. Outstanding
shares of prime common stock will convert to common stock, on a 0.314 to 1
basis, as adjusted, upon the Company's completion of a public offering in
which the sale of common stock results in net proceeds of $20 million or more.

On November 26, 1996, the Company issued 125,000 shares of prime common
stock at $1 per share in connection with the acquisition of the assets of
Metropolitan Plastic and Reconstructive Surgery, Ltd.

F-19
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During the nine months ended September 30, 1997, the Company issued
3,385,518 shares of prime common stock in connection with the purchase of nine
physician practices (Note 2). The Company also issued 166,152 shares related
to exercise of stock options. The consideration for this exercise was in the
form of cash and issuance of notes receivable.

Employee Stock Option Plans and Investor Warrants

The Company has nonqualified and incentive stock option plans to provide key
employees and directors and consultants of the Company with an increased
incentive to work for the success of the Company. The Company also issues
investor warrants to investors of the Company. The option price for all stock
options and warrants is usually the market value at the date of grants and
thus, the plans are generally noncompensatory. The options and warrants
generally expire five to ten years after the dates of their respective grants.

The Company accounts for the stock options and warrants under APB Opinion
No. 25, which requires compensation costs to be recognized only when the
option price differs from the market price at the grant date. FASB Statement
No. 123 allows a company to follow APB Opinion No. 25 with an additional
disclosure that shows what the Company's pro forma net loss would have been
using the compensation model under FASB Statement No. 123. The pro forma loss
for the year ended December 31, 1996 and the nine-month period ended June 30,
1997 was $3,605,446 and $17,235,754, respectively. The Company used the
minimum value method to estimate the fair values of options and warrants for
the pro forma determination. For purposes of the minimum value method, the
Company used U.S. Treasury strip rates for its risk-free rates, assumed no
volatility or future dividends, and assumed the expected lives of the options
and warrants through the applicable expiration dates.

The Company reserved a total of approximately 9,000,000 shares of common
stock for issuance to holders of employee stock options and investor warrants.

Stock option activity (adjusting prime stock options for their common stock
conversion) from inception date, August 29, 1995 to September 30, 1997 is
summarized as follows:

<TABLE>
<CAPTION>
NUMBER
OF OPTION
SHARES PRICE
-------- -------------
<S> <C> <C>
Outstanding at August 29, 1995....................... 0 $0
Granted............................................ 58,090 $ 0.64-$ 3.18
-------- -------------
Outstanding at December 31, 1995..................... 58,090 $ 0.64-$ 3.18
Granted............................................ 574,777 $ 3.18-$12.74
-------- -------------
Outstanding at December 31, 1996..................... 632,867 $ 0.64-$12.74
Granted............................................ 515,210 $ 0.04-$17.52
Exercised ......................................... (166,152) $ 0.04-$3.66
Canceled........................................... (31,400) $12.74
--------
Outstanding at September 30, 1997.................... 950,525 $ 1.59-$17.52
========
Exercisable at September 30, 1997.................... 99,773
========
</TABLE>

During the nine months ended September 30, 1997, the Company issued
1,374,831 warrants to investors of the Company and 566,000 warrants were
canceled. Total outstanding warrants at December 31, 1996 and September 30,
1997 is 756,000 and 1,564,831, respectively. An additional 155,249 warrants
will be released to the venture capitalists upon payment of the $6,210,000
subscription receivable.

F-20

<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

7. INCOME TAXES

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and unused tax operating loss carryforwards.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows at December
31, 1995 and 1996 and September 30, 1997:

<TABLE>
<CAPTION>
1995 1996 1997
-------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Net operating losses................... $ 20,418 $ 1,196,565 $ 7,768,932
Other, net............................. 38,535 (50,069) (199,464)
-------- ----------- -----------
Total net deferred tax assets........ 58,953 1,146,496 7,569,468
Valuation allowance...................... (58,953) (1,146,496) (7,569,468)
-------- ----------- -----------
Net deferred tax assets.................. $ -- $ -- $ --
======== =========== ===========
</TABLE>

Based on uncertainties associated with the future realization of the
deferred tax assets, the Company established a valuation allowance of $58,953
and $1,146,496, at December 31, 1995 and 1996 and $6,377,142 at September 30,
1997, respectively.

A reconciliation from the statutory federal income tax rate to the income
tax expense is as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMPANY SUCCESSOR COMPANY
------------------------ ------------------------------------------
JANUARY 1, AUGUST 29, 1995 NINE MONTH
YEAR ENDED 1995 TO TO YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1995 1996 1997
------------ ----------- --------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Federal tax at statutory
rate................... $(21,520) $(123,854) $(56,762) $(974,823) $(5,723,752)
State income taxes, net
of federal tax
benefit................ (2,532) (14,571) (6,678) (114,685) (673,383)
Other................... -- -- 4,487 18,415 (12,117)
Change in valuation
allowance.............. 24,052 138,425 58,953 1,087,593 6,422,972
-------- --------- -------- --------- -----------
Income tax expense...... $ -- $ -- $ -- $ 16,500 $ 13,720
======== ========= ======== ========= ===========
</TABLE>

At September 30, 1997, the Company had net operating loss carryforwards of
approximately $20,000,000 which will begin to expire in the year 2010.

8. CONTINGENCIES

The Company and its affiliated physician groups are insured with respect to
medical malpractice risks on a claims-made basis. In the opinion of
management, the amount of potential liability with respect to these claims
will not materially affect the Company's financial position or results of
operations.

Under the terms of a management service agreement to provide medical service
to a managed care organization in Central Florida, the Company, through a 51%-
owned subsidiary, is required to place $250,000 in escrow after a minimum
number of members are assigned to the Company for medical care. The escrow
fund is to be used to fund quarterly losses, if any, for the provision of
medical care. The Company currently has $50,000

F-21
<PAGE>

PHYSICIAN HEALTH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

in escrow, as the minimum number of participants has not been obtained. Losses
beyond the amount placed in escrow are the responsibility of the managed care
organization. If a quarterly profit exists for two consecutive quarterly
periods, any amounts remaining in escrow are paid to the Company. The
agreement does not require amounts withdrawn from escrow to be replenished.

9. COMMITMENTS

The Company leases office space and certain equipment under operating lease
agreements which expire at various years through 2002. Operating leases may be
renewed for periods ranging from three to five years. At September 30, 1997,
minimum annual rental commitments under capital leases and noncancellable
operating leases with terms in excess of one year are as follows:

<TABLE>
<S> <C>
1997 (October 1997 to December 1997).......................... $ 706,066
1998.......................................................... 2,676,991
1999.......................................................... 2,103,024
2000.......................................................... 1,857,186
2001 and thereafter........................................... 3,406,988
-----------
Total....................................................... $10,750,255
===========
</TABLE>

Rent expense related to operating leases amounted to $43,490, $192,676,
$37,662, $447,794, and $860,115 for the year ended December 31, 1994, for the
period from January 1, 1995 to October 31, 1995, the period from inception
(August 29, 1995) to December 31, 1995, the year ended December 31, 1996, and
the nine months ended September 30, 1997, respectively.

10. SUBSEQUENT EVENTS

Since September 30, 1997, the Company purchased 21 physician practices
located in Atlanta, Cincinnati, Memphis, Orlando, and St. Louis. The total
purchase price for the acquisitions was approximately $42 million, which was
paid for through the issuance of common stock, debt, and payment of cash. The
practices will be accounted for as asset acquisitions by the Company under the
purchase method of accounting.

Subsequent to September 30, 1997, the Company entered into a line of credit
with a bank for a maximum amount of $62,500,000 to fund the acquisitions noted
above.

The board of directors has approved a .314 to 1 reverse stock split. This
reverse stock split has received shareholder approval. Accordingly, the
financial statements reflect the reverse stock split as if it had occurred at
the beginning of each period presented.

F-22
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Partners
Metroplex Hematology/Oncology Associates, L.L.P.

We have audited the accompanying balance sheets of Metroplex
Hematology/Oncology Associates, L.L.P. (the Partnership) as of December 31,
1995 and 1996, and the related statements of income and changes in partners'
capital and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership'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 Metroplex
Hematology/Oncology Associates, L.L.P. at 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.

ERNST & YOUNG LLP

Dallas, Texas
April 9, 1997

F-23
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MAY 31,
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 159,468 $ 32,721 $ --
Accounts receivable, net of allowance for
doubtful accounts and contractual ad-
justments of $1,602,512 in 1995 and
$2,242,429 in 1996...................... 3,446,421 5,205,867 5,761,766
Due from related party................... 79,855 101,574 119,674
Prepaid expenses and other............... 359,207 592,814 395,185
----------- ----------- ----------
Total current assets................... 4,044,951 5,932,976 6,276,625
PROPERTY AND EQUIPMENT, NET................ 4,266,967 3,449,698 3,431,516
OTHER ASSETS............................... 218,875 10,000 19,244
----------- ----------- ----------
Total assets........................... $ 8,530,793 $ 9,392,674 $9,727,385
=========== =========== ==========
LIABILITIES AND PARTNER'S CAPITAL
CURRENT LIABILITIES:
Accounts payable......................... $ 640,987 $ 1,206,294 $1,211,525
Accrued expenses:
Professional liability................. 469,470 344,250 344,250
Group health........................... 226,529 225,729 225,727
Other.................................. 290,204 486,605 406,159
Patient refunds payable.................. 401,674 628,289 612,304
Current portion of obligation to former
partner................................. 110,916 110,916 110,916
Current portion of long-term debt........ 1,088,546 1,007,366 950,358
----------- ----------- ----------
Total current liabilities.............. 3,228,326 4,009,449 3,613,984
LONG-TERM DEBT, LESS CURRENT PORTION....... 1,972,896 966,063 1,097,400
LONG-TERM OBLIGATION TO FORMER PARTNER,
LESS CURRENT PORTION...................... 250,691 139,764 93,545
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.......................... 3,078,880 4,277,398 4,675,201
----------- ----------- ----------
Total liabilities and partners' capi-
tal................................... $ 8,530,793 $ 9,392,674 $9,727,385
=========== =========== ==========
</TABLE>

See accompanying notes.

F-24
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER
STATEMENTS OF INCOME AND CHANGES IN PARTNERS' CAPITAL

<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31 MAY 31,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Medical fees.......... $19,955,090 $21,100,040 $23,296,897 $9,621,097 $9,832,048
Interest income and
other................ 205,402 184,698 141,858 14,619 13,564
----------- ----------- ----------- ---------- ----------
Total revenues...... 20,160,492 21,284,738 23,438,755 9,635,716 9,845,612
EXPENSES:
Salaries and bene-
fits................. 7,529,827 7,883,595 8,283,100 3,706,359 3,748,022
Medical supplies and
drugs................ 4,811,065 5,114,932 5,905,328 2,148,469 2,727,741
Rent.................. 1,255,144 1,305,057 1,361,150 538,372 561,211
Occupancy............. 682,101 1,082,205 1,203,625 300,981 288,897
Provision for doubtful
accounts............. 260,742 225,070 380,030 109,805 173,569
Purchased services.... 500,410 401,482 627,406 188,902 317,562
Depreciation and
amortization......... 606,239 1,096,267 1,008,758 414,066 316,234
Interest.............. 168,236 276,977 209,914 102,429 63,461
Other................. 1,693,887 2,097,854 1,810,926 778,125 751,172
----------- ----------- ----------- ---------- ----------
Total expenses...... 17,507,651 19,483,439 20,790,237 8,287,508 8,947,809
----------- ----------- ----------- ---------- ----------
NET INCOME.............. 2,652,841 1,801,299 2,648,518 1,348,208 897,803
PARTNERS' CAPITAL AT
BEGINNING OF PERIOD.... 1,993,591 2,727,581 3,078,880 3,078,880 4,277,398
DISTRIBUTIONS TO PART-
NERS................... (1,918,851) (1,450,000) (1,450,000) (600,000) (500,000)
----------- ----------- ----------- ---------- ----------
PARTNERS' CAPITAL AT END
OF PERIOD.............. $ 2,727,581 $ 3,078,880 $ 4,277,398 $3,827,088 $4,675,201
=========== =========== =========== ========== ==========
Pro forma net income:
(Note 11)
Net income............ $ 2,648,518 $ 897,803
Pro forma income
taxes................ (1,032,922) (350,143)
----------- ----------
Pro forma net income.... $ 1,615,596 $ 547,660
=========== ==========
</TABLE>

See accompanying notes.

F-25
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FIVE MONTHS ENDED
YEAR ENDED DECEMBER 31 MAY 31,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............ $ 2,652,841 $ 1,801,299 $ 2,648,518 $ 1,348,208 $ 897,803
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization....... 606,239 1,096,267 1,008,758 414,066 316,234
Changes in operating
assets and
liabilities:
Accounts
receivable, net.. (195,845) (715,196) (1,759,446) (588,455) (555,899)
Prepaid expenses,
due from related
party, and other
assets........... (536,106) 149,331 (46,451) (117,933) 170,285
Accounts payable,
accrued
liabilities and
patient refunds
payable.......... 236,196 302,917 862,303 (61,993) (91,200)
----------- ----------- ----------- ----------- ---------
Net cash
provided by
operating
activities..... 2,763,325 2,634,618 2,713,682 993,893 737,223
INVESTING ACTIVITIES
Capital expenditures.. (3,109,601) (1,050,346) (191,489) (35,511) (298,053)
----------- ----------- ----------- ----------- ---------
Net cash used in
investing
activities..... (3,109,601) (1,050,346) (191,489) (35,511) (298,053)
FINANCING ACTIVITIES
Proceeds from notes
payable.............. 2,186,855 660,353 -- 360,000 74,329
Payments on notes
payable.............. (600,899) (990,315) (1,088,013) (831,630) --
Distributions to
partners............. (1,918,851) (1,450,000) (1,450,000) (600,000) (500,000)
Obligation to former
partner.............. 472,000 (110,393) (110,927) (46,220) (46,220)
----------- ----------- ----------- ----------- ---------
Net cash
provided by
(used in)
financing
activities..... 139,105 (1,890,355) (2,648,940) (1,117,850) (471,891)
----------- ----------- ----------- ----------- ---------
Net decrease in cash
and cash
equivalents.......... (207,171) (306,083) (126,747) (159,468) (32,721)
Cash and cash
equivalents at
beginning of period.. 672,722 465,551 159,468 159,468 32,721
----------- ----------- ----------- ----------- ---------
Cash and cash
equivalents at end of
period............... $ 465,551 $ 159,468 $ 32,721 $ -- $ --
=========== =========== =========== =========== =========
</TABLE>

See accompanying notes.

F-26
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES L.L.P.

DBA ARLINGTON CANCER CENTER

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1994, 1995 AND 1996

(INFORMATION AS OF MAY 31, 1997 AND FOR THE FIVE MONTHS ENDED MAY 31, 1996 AND
1997 IS UNAUDITED).

1. ORGANIZATION

Metroplex Hematology/Oncology Associates, L.L.P. (the Partnership) is a
Texas limited liability partnership formed in January 1980. The Partnership
operates and manages a medical practice in Arlington, Texas, specializing in
internal medicine, hematology, oncology, diagnostic radiology and
radiotherapy, and provides related laboratory and clinical services.

The Partnership has a term until December 31, 2050 or until a terminating
event (as defined) occurs. The formation as a limited liability partnership
during 1994 allows for a limitation to the partners on their exposure to
professional liability claims.

2. ACCOUNTING POLICIES

Partnership Basis of Presentation

The financial statements include only those assets, liabilities and results
of operations that relate to the business of the Partnership. The statements
do not include assets, liabilities or results of operations attributable to
the partners' individual activities.

Income Taxes

Income taxes are an obligation of the partners and, accordingly, are not
provided for in the financial statements. The partners include their
proportionate shares of Partnership net income or loss in their individual
income tax returns.

Property and Equipment

Property and equipment are recorded at cost. Depreciation and amortization
of assets owned or under capital leases are computed using straight-line and
accelerated methods over estimated useful lives ranging from 5 to 31 years.

Cash and Cash Equivalents

Cash equivalents are highly liquid money market instruments with original
maturities of less than 90 days.

Concentration of Credit Risk

Cash and cash equivalents used in operations consist primarily of cash in
financial institutions in checking and money market accounts and investments
in short-term money market mutual funds.

Concentration of credit risk relating to accounts receivable is limited to
some extent by the diversity and number of patients and payors. The
Partnership performs ongoing credit evaluations of its payors and maintains
allowances for potential credit losses.

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 amounts reported in the financial statements and

F-27
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

related notes. Actual results could differ from these estimates and
assumptions. The primary areas of estimation affecting the accompanying
financial statements include the determination of the allowance for doubtful
accounts, contractual adjustments and the liability for medical malpractice
risks.

Health Insurance Program Reimbursement

The Partnership operates and manages a medical practice in Arlington, Texas.
Revenues from the Medicare and Medicaid programs combined accounted for
approximately 22% of the Partnership's net medical fees for the years ended
December 31, 1995 and 1996. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. The Partnership
believes that it is in compliance with all applicable laws and regulations and
is not aware of any pending or threatened investigations involving allegations
of potential wrongdoing. While no such regulatory inquires have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs.

Revenue Recognition

Patient revenues are recognized net of contractual adjustments related to
third-party payors and the Medicare and Medicaid programs. The amount paid by
the third-party payors is dependent upon the benefit included in the patient's
policy or amounts contractually established between the Partnership and the
third-party payors.

Interim Unaudited Financial Information

The financial statements as of May 31, 1997 and for the five months ended
May 31, 1996 and 1997 are unaudited; however, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the unaudited financial statements for these
interim periods have been included. The results of interim periods are not
necessarily indicative of the results to be obtained for a full year.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Furniture and fixtures.............................. $ 1,298,966 $ 1,314,003
Leasehold improvements.............................. 1,328,889 1,356,895
Computer equipment.................................. 910,757 965,988
Medical equipment................................... 9,757,840 9,812,402
Automobiles......................................... 145,908 184,561
----------- -----------
13,442,360 13,633,849
Less accumulated depreciation and amortization...... 9,175,393 10,184,151
----------- -----------
$ 4,266,967 $ 3,449,698
=========== ===========
</TABLE>

F-28
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

4. LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Note payable to a financial institution, secured by
medical equipment, bearing interest at 2.5% over
the U.S. Treasury rate (7.97% at December 31,
1996), payable in monthly installments to November
1999............................................... $ 755,534 $ 583,937
Notes payable to a bank secured by accounts receiv-
able and medical equipment, bearing interest at
prime (8.25% at December 31, 1996), payable in
monthly installments of $48,000 plus interest to
December 1998...................................... 1,664,609 1,078,109
Note payable to a bank, secured by medical
equipment, bearing interest at prime (8.25% at
December 31, 1996), payable in monthly installments
of $15,000 plus interest to January 1998........... $ 360,000 $ 195,000
Note payable to a bank, secured by medical
equipment, bearing interest at prime (8.25% at
December 31, 1996), payable in monthly installments
of $5,516 plus interest to September 1998.......... 189,583 116,383
Notes payable to partners, unsecured................ 91,716 --
---------- ----------
3,061,442 1,973,429
Less current portion of long-term debt.............. 1,088,546 1,007,366
---------- ----------
$1,972,896 $ 966,063
========== ==========
</TABLE>

The Partnership maintains a $250,000 revolving line of credit. There were no
borrowings outstanding at December 31, 1995 or 1996. Additionally, the note
agreements contain certain restrictive covenants that require the Partnership
to maintain minimum net worth, as defined in the note agreements, of
$1,500,000.

The Partnership's debt approximates fair value based on current incremental
borrowing rates for similar types of borrowing arrangements.

Maturities of long-term debt for the three years succeeding December 31,
1996, are as follows:

<TABLE>
<S> <C>
1997.............................................................. $1,007,366
1998.............................................................. 767,767
1999.............................................................. 198,296
Thereafter........................................................ --
----------
$1,973,429
==========
</TABLE>

All property and equipment and accounts receivable at December 31, 1995 and
1996 have been pledged as security under long-term debt and capital lease
obligations.

The Partnership is contingently liable for certain debt of a related
partnership (see Note 7).

Cash paid for interest was approximately $166,000 in 1994, $276,000 in 1995
and $214,000 in 1996.

F-29
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. OPERATING LEASES

The Partnership leases office space and equipment under operating leases
expiring at various dates through 2004. Some of the office space lease
agreements include an escalation clause based on increases in the U.S.
Consumer Price Index (CPI). Such possible increases are not considered in
computing future minimum lease payments.

Future minimum annual rental payments under noncancelable operating leases
are as follows at December 31, 1996:

<TABLE>
<S> <C>
1997.............................................................. $1,357,624
1998.............................................................. 1,283,955
1999.............................................................. 1,124,959
2000.............................................................. 1,085,436
2001.............................................................. 1,056,000
Thereafter........................................................ 3,168,000
----------
$9,075,974
==========
</TABLE>
6. RELATED PARTY TRANSACTIONS

The partners, individually, have invested in certain ventures outside of the
Partnership and are guarantors of the debt of such ventures.

The partners are also partners of R-M Medical Plaza I, L.P. (RM-I) and
certain partners are partners of R-M Medical Plaza II, L.P. (RM-II), which are
real estate partnerships whose sole purpose is to purchase and operate medical
office buildings. Included in rent expense is rent of $1,056,000 for 1995 and
1996 related to RM-I and $185,000 for 1995 and $202,000 for 1996 relating to
RM-II.

During the year, the Partnership advanced funds on behalf of RM-II. Amounts
owed the Partnership by RM-II were approximately $80,000 as of December 31,
1995 and $102,000 as of December 31, 1996.

7. COMMITMENTS AND CONTINGENCIES

The partnership agreement provides that partners terminating after December
31, 1995 with ten or more years of service to the Partnership will receive an
additional payment. The additional payment is determined by multiplying the
partner's interest in the Partnership by the profits of the Partnership for
the fiscal year preceding the terminating event and this amount is payable
over 60 months. At December 31, 1996, two of the seven partners were eligible
for this additional payment in the amount of $1,447,887. This amount is not
accrued in the financial statements and is unfunded.

During 1994, a partner retired from the practice and the Partnership
obligated itself to pay him $555,000 for consulting services to be performed.
The obligation bears no interest and is payable ratably over the next five
years regardless of when consulting services are requested by the Partnership.
Of the obligation, $304,000 has been paid through December 31, 1996. The
related asset has been amortized in full as of December 31, 1996.

An RM-II loan from a bank is secured by guarantees of certain partners and
of the Partnership who are each jointly and severally liable for the balance
of the loan ($1,791,410 at December 31, 1996). Additionally, the Partnership
has agreed to certain covenants in the loan agreement that, among other
things, require the

F-30
<PAGE>

METROPLEX HEMATOLOGY/ONCOLOGY ASSOCIATES, L.L.P.
DBA ARLINGTON CANCER CENTER

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

maintenance of certain financial ratios, restrict the issuance of new debt,
limit the amount of future investments, and restrict the amount of
distributions to the partners.

8. EMPLOYEE BENEFIT PLAN

The Partnership participates in a defined contribution plan, established in
May 1989. Employees who have completed one year of service and attained the
age of 21 are eligible to participate. Participants contribute a voluntary
amount that is matched by the Partnership at 50% of the employee's
contribution, up to 5% of the employee's salary. Participants are fully vested
in their voluntary contributions. Participants vest in the Partnership's
contributions 20% upon completion of two years of vesting service and 20% for
each of the next four years. The Partnership contributed to the plan
approximately $91,000 in 1995 and $98,000 in 1996, which amounts are included
in salaries and benefits in the accompanying statements of income.

9. LITIGATION

In the ordinary course of business, the partners and or the Partnership are
sometimes named as defendants in various legal proceedings although there are
no current matters pending. The results of litigation cannot be predicted with
certainty; however, the Partnership maintains claims-made insurance coverage
and historically litigation, when it arises, will be adequately covered by
insurance and will not have a material adverse effect on the Partnership's
financial statements.

10. AGREEMENT TO SELL CERTAIN ASSETS

Subsequent to December 31, 1996, the Partnership formally entered into an
agreement to sell certain assets of the Partnership, as well as, an agreement
whereby an independent company will manage the physicians' medical practice.
The agreements are contingent upon the closing of the transaction, which is
expected to include cash, notes and stock in the newly created company. The
Partnership is expected to continue operations after the transaction.

11. PRO FORMA INCOME TAXES (UNAUDITED)

The income taxes on earnings of the partnership is the responsibility of the
partners. The pro forma adjustments reflected on the statements of income
assume this partnership was subject to income taxes. Pro forma income tax
expense has been calculated using statutory federal and state tax rates,
estimated at 39%.

F-31
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Greater Cincinnati Gastroenterology Associates, Inc.:

We have audited the accompanying balance sheet of GREATER CINCINNATI
GASTROENTEROLOGY ASSOCIATES, INC. (an Ohio corporation) as of December 31,
1996 and September 30, 1997 and the related statements of operations, owners'
equity, and cash flows for the year ended December 31, 1996 and the nine
months ended September 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 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 Greater Cincinnati
Gastroenterology Associates, Inc. as of December 31, 1996 and September 30,
1997 and the results of its operations and its cash flows for the year then
ended December 31, 1996 and the nine months ended September 30, 1997 in
conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Cincinnati, Ohio
November 20, 1997

F-32
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,901 $ 310,566
Accounts receivable, less allowance for
uncollectible accounts of $100,000 and $117,000
at December 31, 1996 and September 30, 1997,
respectively..................................... 986,258 1,265,536
Prepaid expenses and other........................ 2,546 23,369
---------- ----------
Total current assets............................ 998,705 1,599,471
Property and equipment, net (Note 3)................ 138,010 111,891
---------- ----------
Total assets.................................... $1,136,715 $1,711,362
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 150,054 $ 178,723
Other accrued liabilities......................... 78,476 208,091
Deferred taxes.................................... 294,907 412,873
---------- ----------
Total current liabilities....................... 523,437 799,687
---------- ----------
Deferred taxes.................................... 16,040 17,857
Commitments and contingencies (Note 6)
Owners' equity (Note 2):
Common stock, no par value; 500 shares authorized,
430 shares issued and outstanding at December 31,
1996 and September 30, 1997...................... 3,225 3,225
Additional paid in capital........................ 7,203 7,203
Retained earnings................................. 586,810 883,390
---------- ----------
Total owners' equity............................ 597,238 893,818
---------- ----------
Total liabilities and owners' equity............ $1,143,439 $1,711,362
========== ==========
</TABLE>

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

F-33
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE-MONTH PERIOD
1996 ENDED SEPTEMBER 30
------------ ----------------------
1996 1997
----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient service revenues............ $6,097,350 $4,560,122 $4,393,872
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits......... 754,139 522,389 604,354
Compensation to owner physicians...... 4,230,815 2,763,334 2,449,314
General and administrative expenses... 1,038,713 791,180 807,732
Bad debt expense...................... 50,055 37,500 38,200
Depreciation.......................... 24,749 23,804 30,139
---------- ---------- ----------
6,098,471 4,138,207 3,929,739
---------- ---------- ----------
(Loss) income from operations........... (1,121) 421,915 464,133
Other income, net....................... 26,055 24,776 14,221
---------- ---------- ----------
Income before income taxes.............. 24,934 446,691 478,354
Provision for income taxes.............. 9,475 169,743 181,774
---------- ---------- ----------
Net income.............................. $ 15,459 $ 276,948 $ 296,580
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-34

<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

STATEMENTS OF OWNERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
------------- ADDITIONALPAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ----------------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1995..................... 430 $3,225 $7,203 $577,351 $587,779
Net income.............. -- -- -- 15,459 15,459
Dividends............... -- -- -- (6,000) (6,000)
--- ------ ------ -------- --------
Balance, December 31,
1996..................... 430 3,225 7,203 586,810 597,238
Net income ............. -- -- -- 296,580 296,580
--- ------ ------ -------- --------
Balance, September 30,
1997 .................... 430 $3,225 $7,203 $883,390 $893,818
=== ====== ====== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-35
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY
ASSOCIATES, INC,

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, --------------------
1996 1996 1997
------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash Flows from operating activities:
Net income................................ $ 15,459 $ 276,948 $296,580
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation............................ 24,749 18,586 30,139
Bad debt expense........................ 50,055 37,500 38,200
Changes in assets and liabilities:
Accounts receivable................... (142,467) (119,747) (311,477)
Prepaid expenses and other............ 9,348 (28,131) (20,823)
Accounts payable...................... (227) (57,015) (28,669)
Accrued liabilities................... 9,807 (74,983) 129,615
Deferred taxes........................ 9,475 169,743 119,783
--------- --------- --------
Total adjustments................... (39,260) (54,047) 14,106
--------- --------- --------
Net cash (used in) provided by
operating activities............... (23,801) 222,901 310,686
Cash flows from investing activities:
Additions to property and equipment, net.. (50,127) (2,689) (10,021)
Cash flows from financing activities:
Dividends paid............................ (6,000) -- --
--------- --------- --------
Net (decrease) increase in cash and cash
equivalent equivalents..................... (79,928) 220,212 300,665
Cash and cash equivalents, beginning of
period..................................... 89,829 89,829 9,901
--------- --------- --------
Cash and cash equivalents, end of period.... $ 9,901 $ 310,041 $310,566
========= ========= ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest.. $ 79 $ 79 $ --
========= ========= ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-36
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 IS UNAUDITED)

1. ORGANIZATION AND OPERATIONS

Greater Cincinnati Gastroenterology Associates, Inc., an Ohio corporation,
(the "Company") was incorporated in 1968. The Company currently employs nine
physicians and over 30 employees. The physicians specialize in the diagnosis
and treatment of diseases of the digestive system. There are currently twelve
office locations throughout the Greater Cincinnati area.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and in checking and money
market accounts.

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 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.

Accounts Receivable

Accounts receivable principally represents receivable from patients and
third-party payers for medical services provided by physician-owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes.

The useful lives of property and equipment are as follows:

<TABLE>
<S> <C>
Equipment................................................. Five years
Furniture and fixtures.................................... Seven years
Leasehold improvements.................................... Life of the lease
</TABLE>

Maintenance and repairs are charged to expense as incurred. The cost of
renewals and betterments is capitalized and depreciated over the applicable
estimated useful lives.

F-37
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Owners' Equity

Owners' equity includes the respective capital stock owned by physician-
owners, additional paid-in capital, and retained earnings of the Company.
Various types of agreements exist among the owners which call for the transfer
of a physician's ownership interest to the continuing owners in the case of
certain events such as the owner's retirement or death.

Net Patient Service Revenues

Patient service revenues are reported at the estimated realizable amounts
from patients, third-party payers (which include managed care providers,
commercial insurance carriers, and health maintenance organizations), and
others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.

Concentration of Credit Risk

The Company extends credit to patients covered by governmental programs such
as Medicare and Medicaid and by private insurers. The Company manages credit
risks with the various public and private insurance providers as appropriate.
Allowances for doubtful accounts have been made for potential losses where
appropriate.

3. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 1996 and September 30, 1997
consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Leasehold improvements............................ $ 17,345 $ 17,345
Equipment......................................... 13,529 13,371
Furniture and fixtures............................ 174,386 183,063
-------- ---------
205,260 213,779
Less accumulated depreciation..................... (67,250) (101,888)
-------- ---------
$138,010 $ 111,891
======== =========
</TABLE>
4. INCOME TAXES

The provision for income taxes are based on net income reported for
financial reporting purposes. Deferred income taxes arise from temporary
differences between financial and income tax reporting of various items
(principally revenue recognition).

The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts receivable, net.......................... $(374,778) $(480,904)
Depreciation...................................... (16,040) (17,857)
Accounts payable.................................. 31,710 47,634
Other accrued liabilities......................... 25,397 20,397
Net operating loss carryforwards.................. 22,764 --
--------- ---------
Net deferred tax liability........................ $(310,947) $(430,730)
========= =========
</TABLE>

F-38
<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

As reported on the balance sheet as of December 31, 1996 and September 30,
1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Current deferred tax liability....................... $(294,907) $(412,873)
Noncurrent deferred tax asset........................ (16,040) (17,857)
--------- ---------
$(310,947) $(430,730)
========= =========
</TABLE>

A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
and the nine months ended September 30, 1997 is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Provision at statutory rate.......................... $8,478 $162,640
State income taxes, net of federal benefit........... 997 19,134
------ --------
Provision for income taxes........................... $9,475 $181,774
====== ========
</TABLE>

5. EMPLOYEE BENEFIT PLAN

The Company sponsors a qualified profit-sharing plan for eligible employees.
Contributions to the plan, which are made at the discretion of the board of
directors, aggregated approximately $248,000 and $229,000 for the year ended
December 31, 1996 and for the nine months ended September 30, 1997.

6. COMMITMENTS AND CONTINGENCIES

Lease Obligations

The Company leases facilities under operating leases which expire at various
dates through 2006. Future minimum lease payments under these operating leases
are as follows:

<TABLE>
<S> <C>
1998 (October 1997 through September 1998)......................... $152,387
1999............................................................... 134,552
2000............................................................... 131,856
2001............................................................... 123,856
2002............................................................... 107,856
Thereafter......................................................... 413,448
</TABLE>

Lease expense for the year ended December 31, 1996 and the nine months ended
September 30, 1997 totaled approximately $152,000 and $123,000, respectively.

Insurance

The Company is insured with respect to medical malpractice risks on a
claims-made basis. Accordingly, coverage relates only to claims made during
the policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.

Employment Agreements

Certain management personnel and physician employees are covered by
employment agreements that may be terminated at any time in accordance with
the terms of the agreement. The agreement also includes terms for professional
conduct, salary, and benefits provisions.

F-39

<PAGE>

GREATER CINCINNATI GASTROENTEROLOGY ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. LEGAL PROCEEDINGS

The Company is subject to legal proceedings and third-party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.

8. RELATED-PARTY TRANSACTIONS

For the year ended December 31, 1996 and the nine months ended September 30,
1997, the Company expensed approximately $150,500 and $118,000, respectively,
in rent and maintenance for one of its locations in Cincinnati which is owned
by certain physician-owners.

The Company provides medical treatment of endoscopic patients for a clinical
research company owned by certain physician-owners. For the year ended
December 31, 1996, and the nine months ended September 30, 1997 the Company
recognized approximately $64,000 and $59,000, respectively, in fee income and
was reimbursed for approximately $208,000 and $142,000, respectively, for
specific operating expenses paid by the Company on behalf of the physician-
owners. These operating expenses primarily were specifically incurred by the
physician-owners with minimal allocation of expenses.

The Company shares certain operating costs with a surgical center owned by
an independent third party. During 1996 and the first nine months of 1997, the
Company was reimbursed approximately $31,000 and $18,800, respectivley, for
such specifically identifiable costs. In addition, certain patients received a
global charge for services performed by the Company and the surgical center.
The global fee is then paid to the Company. In 1996 and the nine months of
1997, the Company paid $27,000 and $2,300, respectively, to the surgical
center for its share of global fees received by the Company.

During the first five months of 1996, the Company leased office space from a
partnership owned by certain physician-owners. The Company expensed
approximately $16,000 in rent for this location for the year ended December
31, 1996.

F-40
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Internal Medicine Specialists, Inc.:

We have audited the accompanying balance sheet of INTERNAL MEDICINE
SPECIALISTS, INC., (a Florida corporation), as of December 31, 1996 and
September 30, 1997 and the related statements of operations, owners' equity,
and cash flows for the year ended December 31, 1996 and the nine months ended
September 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Internal Medicine
Specialists, Inc. as of December 31, 1996 and September 30, 1997 and the
results of its operations and its cash flows for the year ended December 31,
1996 and the nine months ended September 30, 1997 in conformity with generally
accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
November 20, 1997

F-41
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 28,836 $ 336,904
Accounts receivable, less estimated allowances for
uncollectible accounts of $137,920 and $158,305
at December 31, 1996 and September 30, 1997, re-
spectively....................................... 679,160 988,739
Prepayments and other............................. 34,842 41,000
---------- ----------
Total current assets............................ 742,838 1,366,643
Property and equipment, net......................... 248,302 218,844
Deferred taxes...................................... 94,831 37,211
---------- ----------
Total assets.................................... $1,085,971 $1,622,698
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 85,037 $ 67,191
Accrued expenses.................................. 84,552 377,352
Notes payable line of credit...................... 292,646 437,654
Current portion of long term debt................. 19,362 25,864
Deferred taxes.................................... 251,412 266,746
---------- ----------
Total current liabilities....................... 733,009 1,174,807
---------- ----------
Long term debt...................................... 60,932 37,622
---------- ----------
Commitments and contingencies (Note 8)
Owners' equity:
Common stock, $10 par value, 500 shares
authorized, 280 shares issued, and 40 shares held
in treasury at December 31, 1996 and
September 30, 1997............................... 2,800 2,800
Additional paid in capital........................ 3,767 3,767
Retained earnings................................. 307,149 425,388
Treasury stock.................................... (21,686) (21,686)
---------- ----------
Total owners' equity............................ 292,030 410,269
---------- ----------
Total liabilities and owners' equity............ $1,085,971 $1,622,698
========== ==========
</TABLE>

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

F-42
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------- ---
1996 1996 1997
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net patient revenues.................... $6,166,927 $4,721,065 $5,310,453
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits......... 1,901,646 1,378,937 1,592,276
Compensation to owner physicians...... 2,628,951 1,984,685 2,230,343
General and administrative expenses... 1,312,409 1,124,885 1,124,383
Bad debt expense...................... 125,754 94,316 80,385
Depreciation.......................... 68,030 51,024 57,777
---------- ---------- ----------
6,036,790 4,633,847 5,085,164
---------- ---------- ----------
Income from operations.................. 130,137 87,218 225,289
Interest and other expense, net......... 25,953 17,340 34,095
---------- ---------- ----------
Income before income taxes.............. 104,184 69,878 191,194
Provision for income taxes.............. 38,120 25,132 72,955
---------- ---------- ----------
Net income.............................. $ 66,064 $ 44,742 $ 118,239
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-43

<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

STATEMENTS OF OWNERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN --------------- RETAINED
SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS TOTAL
------ ------ ---------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at, December 31,
1995................... 280 $2,800 $3,767 (40) $(21,686) $241,085 $225,966
Net income............ -- -- -- -- -- 66,064 66,064
--- ------ ------ --- -------- -------- --------
Balance at, December 31,
1996................... 280 2,800 3,767 (40) (21,686) 307,149 292,030
Net income............ -- -- -- -- -- 118,239 118,239
--- ------ ------ --- -------- -------- --------
Balance at, September
30, 1997............... 280 $2,800 $3,767 (40) $(21,686) $425,388 $410,269
=== ====== ====== === ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-44
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------
1996 1996 1997
------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 66,064 $ 44,746 $ 118,239
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation........................... 68,030 51,024 57,777
Bad debt expense....................... 125,754 94,316 80,385
Change in assets and liabilities:
Accounts receivable.................. (248,822) (199,327) (389,964)
Prepayments and other................ (8,543) 26,299 (6,185)
Accounts payable and accrued liabili-
ties................................ 42,263 256,277 274,954
Deferred taxes, net.................. 38,120 25,132 72,955
--------- --------- ---------
Total adjustments.................. 16,802 253,724 89,949
--------- --------- ---------
Net cash provided by operating ac-
tivities.......................... 82,866 298,470 208,188
--------- --------- ---------
Cash flows from investing activities:
Purchases of property, plant, and equip-
ment.................................... (124,061) (120,612) (28,320)
--------- --------- ---------
Cash flows from financing activities:
Principal payments of debt............... (165,773) (124,330) (16,808)
Proceeds from line of credit............. 232,434 180,851 145,008
--------- --------- ---------
Net cash provided by financing ac-
tivities.......................... 66,661 56,521 128,200
--------- --------- ---------
Net increase in cash and cash equivalents.. 25,466 234,379 308,068
Cash and cash equivalents at beginning of
period.................................... 3,370 3,370 28,836
--------- --------- ---------
Cash and cash equivalents at end of peri-
od........................................ $ 28,836 $ 237,749 $ 336,904
========= ========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................... $ 25,953 $ 17,340 $ 34,095
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-45
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
(INFORMATION FOR THE NINE MONTHS ENDED JUNE 30, 1996 IS UNAUDITED)

1. ORGANIZATION AND OPERATIONS

Internal Medicine Specialists, Inc. (the "Company") was incorporated in the
state of Florida on October 27, 1971. The Company currently has 14 physicians,
7 nephrologists, and 7 gastroenterologists. The physicians within the group
primarily focus on kidney and stomach surgery. There are currently three
office locations in Orlando and Ocoee, Florida.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information

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 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

Cash and cash equivalents include cash on hand and in checking and money
market accounts.

Accounts Receivable

Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances
and bad debts. Contractual adjustments result from the differences between the
rates charged by the physicians for services performed and the amounts allowed
by the Medicare and Medicaid programs and other public and private insurers.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated service lives of depreciable
assets (five years for equipment, five to seven years for furniture and
fixtures, and ten years for leasehold improvements). Maintenance and repairs
are charged to expense as incurred. The cost of renewals and betterments is
capitalized and depreciated over the applicable estimated useful lives. The
cost and accumulated depreciation of assets sold, retired, or otherwise
disposed of are removed from the accounts, and the related gain or loss is
credited or charged to income.

Owners' Equity

Owners' equity includes the respective capital stock owned by 12 physician-
owners and treasury stock repurchased by the Company from two terminated
physician-owners, recorded at cost. Various types of

F-46
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

agreements exist among the owners which call for the repurchase of a
physician's ownership interest by the Company in the case of certain events,
such as the owner's termination, retirement, or death.

Net Patient Service Revenues

Concentration of Credit Risk

The Company extends credit to patients covered by insurance programs,
including governmental 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 doubtful accounts have
been made for potential losses, where appropriate.

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and September 30, 1997 consisted
of the following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Leasehold improvements............................... $ 111,517 $ 112,744
Equipment............................................ 473,837 498,814
Furniture and fixtures............................... 439,793 441,908
---------- ----------
1,025,147 1,053,466
Less accumulated depreciation........................ (776,845) (834,622)
---------- ----------
$ 248,302 $ 218,844
========== ==========
</TABLE>

4. NOTES PAYABLE--LINES OF CREDIT

The notes payable consist of two lines of credit with a bank. One of the
lines of credit allows total borrowings of up to $200,000 with principal and
interest due monthly at a rate of 8.5%, due on demand or January 3, 1997. The
Company has another line of credit with the same bank that allows maximum
borrowing of up to $300,000 with principal and interest due monthly at a rate
of 8.25%, due on demand or October 4, 1997. Both lines of credit are secured
by certain assets of the Company. As of December 31, 1996 and September 30,
1997, the outstanding balance on the lines of credit was $292,646 and
$437,654, respectively.

F-47
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT

The Company's long-term debt at December 31, 1996 and September 30, 1997 is
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Note payable to a terminated physician-owner of
the Company for stock repurchased by the Company;
principal and interest of 9% per annum due in 84
monthly installments beginning March 1, 1993..... $ 9,562 $ 4,914
Note payable to a terminated physician-owner of
the Company as compensation for past services;
principal and imputed interest of 8.5% payable in
84 monthly installments beginning March 1, 1993.. 40,116 31,682
Note payable to a terminated physician-owner of
the Company as compensation for past services;
principal and 30,616imputed interest of 8.5%
payable in 84 monthly installments beginning
August 1, 1994................................... 30,616 26,890
-------- -------
Total 80,294 63,486
Less current portion.............................. (19,362) (25,864)
-------- -------
Long-term debt.................................... $ 60,932 $37,622
======== =======
</TABLE>

The aggregate maturities of long-term debt at September 30, 1997 are as
follows:

<TABLE>
<S> <C>
1998................................................................. $25,864
1999................................................................. 23,050
2000................................................................. 9,896
2001 and thereafter.................................................. 4,676
-------
$63,486
=======
</TABLE>

6. INCOME TAXES

The provision for income taxes is based on net income reported for financial
reporting purposes. Deferred income taxes arise from temporary differences
between financial and income tax reporting of various items (principally
revenue recognition).

The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Accounts receivable, net........................... $(258,321) $(374,723)
Depreciation....................................... (4,533) 126
Accounts payable................................... 20,006 123,389
Other accrued liabilities.......................... 26,595 20,275
Net operating loss carryforwards................... 72,769 16,810
Other.............................................. (13,097) (15,412)
--------- ---------
Net deferred tax liability......................... $(156,581) $(229,535)
========= =========
</TABLE>

As reported on the balance sheet as of December 31, 1996 and September 30,
1997:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 31,
1996 1997
------------ -------------
<S> <C> <C>
Current deferred tax liability..................... $(251,412) $(266,746)
Noncurrent deferred tax asset...................... 94,831 37,211
--------- ---------
$(156,581) $(229,535)
========= =========
</TABLE>

F-48
<PAGE>

INTERNAL MEDICINE SPECIALISTS, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate for the year ended December 31, 1996
and for the nine months ended September 30, 1997 is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Provision at statutory rate.......................... $35,423 $65,006
State income taxes, net of federal benefit........... 2,697 7,949
------- -------
Provision for income taxes........................... $38,120 $72,955
======= =======
</TABLE>

7. EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution plan under Section 401(k) of the
Internal Revenue Code that covers substantially all employees. The plan is
contributory with respect to employees only. The Company does not contribute
to the plan.

8. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases facilities under operating leases which expire at various
dates through December 2010. Future minimum lease payments under these leases
as of September 30, 1997 are as follows:

<TABLE>
<S> <C>
1998 (October 1, 1997 through December 31, 1998)................... $226,893
1999............................................................... 17,896
2000............................................................... 18,408
2001............................................................... 18,912
2002 & Thereafter.................................................. 52,870
</TABLE>

Rent expense for the year ended December 31, 1996 and the nine months ended
September 30, 1997 was $273,600 and $224,441, respectively.

Insurance

Employment Agreements

Physician-owners of the Company are covered by employment agreements that
may be terminated at any time in accordance with terms of the agreement. The
agreement also includes terms for professional conduct, salary, and benefits
provisions.

9. LEGAL PROCEEDINGS

The Company is subject to legal proceedings and claims which arise in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect
the Company's financial position or results of operations.

10. RELATED-PARTY TRANSACTIONS

As of December 31, 1996 and September 30, 1997, the Company has outstanding
receivables of $8,423 and $90,000, respectively from two physicians of the
Company.

The Company has outstanding notes payable to two terminated physicians of
the Company for consideration of deferred compensation and the repurchase of
common stock. The total outstanding notes payable to these physicians are
$80,294 and $63,486 at December 31, 1996 and September 30, 1997, respectively.

F-49
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Parkcrest Surgical Associates, Inc.:

We have audited the accompanying balance sheet of PARKCREST SURGICAL
ASSOCIATES, INC. (a Missouri corporation) as of March 31, 1997 and September
30, 1997 and the related statements of operations, owners' equity, and cash
flows for the year ended March 31, 1997 and the six months ended September 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parkcrest Surgical
Associates, Inc. as of March 31, 1997 and the results of its operations and
its cash flows for the year ended March 31, 1997 and the six months ended
September 30, 1997 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

St. Louis, Missouri
December 9, 1997

F-50
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 76,263 $ 2,973
Accounts receivable, less estimated allowances for
uncollectible accounts of $299,077 and $302,195 as
of March 31, 1997 and September 30, 1997,
respectively...................................... 1,644,928 1,662,075
Receivable from physicians......................... 53,394 28,393
Prepaid expenses and other......................... 264,228 179,697
---------- ----------
Total current assets............................. 2,038,813 1,873,138
Property and equipment, net (Note 3)................. 521,470 561,571
Deferred Taxes....................................... 48,115 141,320
Other noncurrent assets.............................. 15,518 13,651
---------- ----------
Total assets..................................... $2,623,916 $2,589,680
========== ==========
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Note payable line of credit (Note 4)............... $ 200,000 $ 300,000
Current maturities of long term debt (Note 5)...... 153,842 62,613
Accounts payable................................... 232,677 388,525
Accrued liabilities................................ 168,207 109,656
Deferred taxes..................................... 602,419 611,417
---------- ----------
Total current liabilities........................ 1,357,145 1,472,211
---------- ----------
Long term debt (Note 5).............................. 52,992 41,080
---------- ----------
Other long term liabilities.......................... 164,000 164,000
---------- ----------
Commitments and contingencies (Note 8)
Owners' equity:
Common stock, $1 par value; 3,000 shares
authorized, 1,300 shares issued (1,040 shares
outstanding and 260 shares held in treasury)...... 1,300 1,300
Additional paid in capital......................... 67,210 67,210
Retained earnings.................................. 994,971 857,581
Treasury stock, at cost............................ (13,702) (13,702)
---------- ----------
Total owners' equity............................. 1,049,779 912,389
---------- ----------
Total liabilities and owners' equity............. $2,623,916 $2,589,680
========== ==========
</TABLE>

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

F-51
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
MARCH 31, ----------------------
1997 1996 1997
----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient service revenues.............. $10,515,243 $5,182,617 $5,465,726
----------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits........... 2,222,021 945,252 1,180,034
Compensation to owner physicians........ 4,693,182 2,270,598 2,801,529
Bad debt expense........................ 43,887 26,052 30,518
General and administrative expenses..... 3,195,313 1,505,490 1,634,635
Depreciation and amortization........... 48,201 21,695 28,141
----------- ---------- ----------
10,202,604 4,769,087 5,674,857
----------- ---------- ----------
Income (loss) from operations............. 312,639 413,530 (209,131)
Other income (expense), net............... 26,776 39,442 (12,466)
----------- ---------- ----------
Income (loss) before taxes................ 339,415 452,972 (221,597)
Provision (benefit) for income taxes (Note
7)....................................... 128,978 172,125 (84,207)
----------- ---------- ----------
Net income (loss)......................... $ 210,437 $ 280,847 $ (137,390)
=========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-52
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

STATEMENTS OF OWNERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------- PAID IN RETAINED ---------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- --------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1996................... 1,300 $1,300 $67,210 $ 784,534 -- $ -- $ 853,044
Purchase of treasury
stock................ -- -- -- -- (260) (13,702) (13,702)
Net income............ -- -- -- 210,437 -- -- 210,437
----- ------ ------- --------- ---- -------- ----------
Balance, March 31,
1997................... 1,300 1,300 67,210 994,971 (260) (13,702) 1,049,779
Net income............ -- -- -- (137,390) -- -- (137,390)
----- ------ ------- --------- ---- -------- ----------
Balance, September 30,
1997................... 1,300 $1,300 $67,210 $ 857,581 (260) $(13,702) $ 912,389
===== ====== ======= ========= ==== ======== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-53
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX-MONTH PERIOD
YEAR ENDED ENDED SEPTEMBER 30,
MARCH 31, ---------------------
1997 1996 1997
---------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 210,437 $ 280,847 $(137,390)
--------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used for) operating ac-
tivities:
Loss on disposal of fixed assets......... 75,979 -- --
Depreciation and amortization............ 48,201 21,695 28,141
Bad debt expense......................... 43,887 26,052 30,518
(Increase) in accounts receivable........ (285,272) (169,337) (47,665)
(Increase) decrease in receivable from
physicians.............................. (53,394) -- 25,001
Decrease in prepaid expenses and other... 88,164 149,857 84,531
(Increase) decrease in other noncurrent
assets.................................. (1,757) (517) 1,867
Increase in accounts payable............. 169,488 10,053 155,848
Decrease in accrued liabilities.......... (41,239) (81,749) (58,551)
Increase in current taxes payable........ -- 132,358 --
Increase (decrease) in net deferred tax
liabilities............................. 128,978 39,771 (84,207)
--------- --------- ---------
Total adjustments...................... 173,035 128,183 135,483
--------- --------- ---------
Net cash provided by (used in) operat-
ing activities........................ 383,472 409,030 (1,907)
--------- --------- ---------
Cash flows from investing activities:
Purchases of property and equipment........ (259,807) (111,543) (68,242)
Proceeds from sale of fixed assets......... 37,400 -- --
--------- --------- ---------
Net cash used in investing activities.. (222,407) (111,543) (68,242)
--------- --------- ---------
Cash flows from financing activities:
Payments on long-term debt................. (134,402) (9,665) (103,141)
Purchase of treasury stock................. (13,702) -- --
Net proceeds (payments) under line of cred-
it........................................ -- (170,000) 100,000
--------- --------- ---------
Net cash used in financing activities.. (148,104) (179,665) (3,141)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................. 12,961 117,822 (73,290)
Cash and cash equivalents at beginning of
period...................................... 63,302 63,302 76,263
--------- --------- ---------
Cash and cash equivalents at end of period... $ 76,263 $ 181,124 $ 2,973
========= ========= =========
Supplemental disclosure of cash flows
information:
Cash paid during the period for interest... $ 43,038 $ 22,146 $ 17,824
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-54
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 1997 AND SEPTEMBER 30, 1997

(INFORMATION FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1996 IS UNAUDITED)

1. ORGANIZATION AND OPERATIONS

Parkcrest Surgical Associates, Inc. (the "Company") was incorporated in
1969. The Company operates a medical practice at various locations and
provides surgical and other health care services to individuals in the St.
Louis Metropolitan Area. The physicians within the group specialize in general
surgery, spinal surgery, colo-rectal surgery, vascular surgery, sports
medicine, orthopedic surgery, surgical oncology, plastic and reconstructive
surgery, hand surgery, podiatric surgery, and physical medicine and
rehabilitation. There are currently 17 physicians and 5 physician assistants.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information

The financial statements for the six months ended September 30, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full 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 the reported amounts of 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

Cash and cash equivalents include cash on hand and in checking and money
market accounts.

Property and Equipment

Equipment and leasehold improvements are carried at cost, less accumulated
depreciation and amortization computed using straight-line and accelerated
methods. Equipment and furniture and fixtures are depreciated over periods
ranging from 3 to 5 years. Leasehold improvements are amortized over periods
ranging from 3 to 40 years.

Accounts Receivable

Accounts receivable principally represent receivables from patients and
third-party payers for medical services provided by physician owners and
employees. Such amounts are recorded net of estimated contractual allowances.
Contractual adjustments result from the differences between the rates charged
by the physicians for services performed and the amounts allowed by the
Medicare and Medicaid programs and other public and private insurers.

Net Patient Service Revenues

F-55
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

and others for services rendered. Additionally, the Company participates in
agreements with managed care organizations to provide services at negotiated
rates.

Owners' Equity

Owners' equity includes the respective capital stock owned by various
physician-owners and treasury stock repurchased by the Company from terminated
physician-owners, recorded at cost. Various types of agreements exist among
the owners which call for the repurchase of a physician's ownership interest
by the Company in the case of certain events, such as the owner's termination,
retirement, or death.

Concentration of Credit Risk

The Company extends credit to patients covered by insurance programs such as
governmental programs like Medicare and Medicaid and private insurers. 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, where appropriate.

3. PROPERTY AND EQUIPMENT

Equipment and leasehold improvements as of March 31, 1997 and September 30,
1997 consist of the following:

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
---------- -------------
<S> <C> <C>
Medical and laboratory equipment...................... $ 338,324 338,122
Furniture and fixtures................................ 351,737 371,210
Leasehold improvements................................ 367,150 416,121
---------- ---------
1,057,211 1,125,453
Less accumulated depreciation and amortization........ (535,741) (563,882)
---------- ---------
$ 521,470 $ 561,571
========== =========
</TABLE>

Certain leases in which the Company is lessee are considered to be
equivalent to installment purchases for purposes of accounting presentation.
Equipment under capital leases in the amount of $12,805 at March 31, 1997 and
$59,411 at September 30, 1997 is capitalized using interest rates appropriate
at the inception of the related leases.

Depreciation and amortization expense was $48,201 for the year ended March
31, 1997 and $28,141 for the six months ended September 30, 1997.

4. NOTE PAYABLE -- LINE OF CREDIT

The note payable consists of a line of credit with a bank that allows for
borrowings of up to $250,000 at March 31, 1997 and $350,000 at September 30,
1997. The borrowings are secured by accounts receivable, furniture and
equipment and are due on demand or September 30, 1998. Interest on the
borrowings is payable monthly at the prime rate. As of March 31, 1997 and
September 30, 1997, outstanding borrowings were $200,000 and $300,000,
respectively.

F-56
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT

Long-term debt at March 31, 1997 and September 30, 1997 consists of the
following:

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Note payable-bank secured by equipment and personal
guarantees of stockholders and employees, payable in
monthly installments of $16,834 including principal
and interest of 7.5%, with the final installment due
December 1997........................................ $141,409 $44,282
Capitalized lease obligations, secured by equipment,
payable in monthly installments of $1,527 including
principal and interest at 9.858%, with final install-
ment due October 2001................................ 65,425 59,411
-------- -------
206,834 103,693
Less current maturities............................... 153,842 62,613
-------- -------
$ 52,992 $41,080
======== =======
</TABLE>

The scheduled maturities of long-term debt as of September 30, 1997 are as
follows:

<TABLE>
<S> <C>
1998 (October 1997 through September 1998)......................... $ 62,613
1999............................................................... 18,331
2000............................................................... 18,331
2001............................................................... 16,803
--------
116,078
Less amounts representing interest................................. 12,385
--------
$103,693
========
</TABLE>

Interest paid amounted to $43,038 for the year ended March 31, 1997 and
$17,824 for the six months ended September 30, 1997.

6. DEFERRED COMPENSATION PLANS

The Company has a qualified, noncontributory, trusteed pension plan covering
eligible full-time employees. The Company's policy is to contribute into the
Plan at a fixed percentage of salaries.

The Company also has a qualified, noncontributory, trusteed profit sharing
plan covering eligible full-time employees. The plan provides for
contributions by the Company in such amounts as the board of directors may
annually determine.

Contributions to the plans for the year ended March 31, 1997 and the six
months ended September 30, 1997 are as follows:

<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Pension plan......................................... $366,815 $231,938
Profit sharing plan.................................. 283,182 156,777
-------- --------
$649,997 $388,715
======== ========
</TABLE>

F-57
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

7. INCOME TAXES

The following details the temporary differences and carryforwards giving
rise to the deferred tax assets and liabilities at March 31, 1997 and
September 30, 1997:

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Accounts receivable, net.......................... $(625,072) $(632,773)
Depreciation...................................... (22,585) (52,279)
Accounts payable.................................. 38,989 27,819
Other accrued liabilities......................... 117,084 94,835
Net operating loss carryforwards.................. 8,380 131,279
Other............................................. (71,100) (38,978)
--------- ---------
Net deferred tax liability........................ $(554,304) $(470,097)
========= =========
As reported on the balance sheet as of March 31,
1997 and September 30, 1997:
Current deferred tax liability.................. $(602,419) $(611,417)
Noncurrent deferred tax asset................... 48,115 141,320
--------- ---------
$(554,304) $ 470,097
========= =========
</TABLE>

A reconciliation of the provision for income taxes at the federal statutory
rate to the Company's effective tax rate is as follows:

<TABLE>
<CAPTION>
YEAR SIX MONTHS
ENDED ENDED
MARCH 31, SEPTEMBER 30,
1997 1997
--------- -------------
<S> <C> <C>
Provision (benefit) at statutory rate................ $115,401 $(75,343)
State income taxes, net of federal benefit........... 13,577 (8,864)
-------- --------
Provision (benefit) for income taxes................. $128,978 $(84,207)
======== ========
</TABLE>

8. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company is obligated under a long-term lease expiring December 31, 1999
for one office at an annual rental of $280,911. The Company is obligated under
a lease expiring September 30, 2000 for a second office at a base annual
rental of $25,024 to be adjusted each October 1 based on the Consumer Price
Index. The Company rents additional office space at five locations on a month-
to-month basis.

Rent expense for all leases amounted to $375,546 for the year ended March
31, 1997 and $136,673 for the six months ended September 30, 1997.

The approximate future minimum rental commitments required under the
noncancellable operating leases are as follows:

<TABLE>
<S> <C>
1998 (October 1997 through March 1998)............................. $140,456
1999............................................................... 280,911
2000............................................................... 210,684
</TABLE>

F-58
<PAGE>

PARKCREST SURGICAL ASSOCIATES, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Insurance

The Company is insured with respect to medical malpractice risks on a claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.

Employment Agreements

9. LEGAL PROCEEDINGS

The Company is subject to legal proceedings and third party claims which
arise in the ordinary course of business. In the opinion of management, the
amount of potential liability with respect to these actions will not
materially affect the Company's financial position or results of operations.

10. RELATED PARTY TRANSACTIONS

The Company has a receivable due from four physicians totaling $53,394 at
March 31, 1997 and from three physicians totaling $28,393 at September 30,
1997 which will be repaid over the next year.

F-59
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Southern Dependacare, Inc.:

We have audited the accompanying balance sheet of SOUTHERN DEPENDACARE, INC.
(an Alabama corporation) as of December 31, 1996 and August 31, 1997 and the
related statements of operations, owner's equity, and cash flows for the year
ended December 31, 1996 and the eight months ended August 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southern Dependacare, Inc.
as of December 31, 1996 and August 31, 1997 and the results of its operations
and its cash flows for the year ended December 31, 1996 and the eight months
ended August 31, 1997 in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

St. Louis, Missouri
December 5, 1997

F-60
<PAGE>

SOUTHERN DEPENDACARE, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $107,594 $ 117,261
Accounts receivable, less estimated allowances for
uncollectible accounts of $200,000.................. 665,915 1,269,172
-------- ----------
773,509 1,386,433
-------- ----------
Property and equipment, net (Note 3)................... 17,458 14,888
-------- ----------
Total assets....................................... $790,967 $1,401,321
======== ==========
LIABILITIES AND OWNER'S EQUITY
Current liabilities:
Current portion of notes payable (Note 4)............ $ 33,854 $ 78,458
Accounts payable..................................... 103,162 640,153
Accrued compensation to owner........................ 265,759 655,675
Other accrued liabilities............................ 303,067 11,067
-------- ----------
705,842 1,385,353
-------- ----------
Notes payable, long-term (Note 4)...................... 69,157 --
-------- ----------
Commitments and contingencies (Note 6)
Owners' Equity:
Common stock, $1 par value; 10,000 shares authorized;
1,000 shares issued and outstanding................. 1,000 1,000
Additional paid-in capital........................... 14,968 14,968
Retained earnings.................................... -- --
-------- ----------
Total owner's equity............................... 15,968 15,968
-------- ----------
Total liabilities and owner's equity............... $790,967 $1,401,321
======== ==========
</TABLE>

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

F-61
<PAGE>

SOUTHERN DEPENDACARE, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
EIGHT-MONTH PERIOD
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, ----------------------
1996 1996 1997
------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net patient service revenues................ $3,096,194 $1,777,698 $2,803,765
---------- ---------- ----------
Operating expenses:
Salaries, wages, and benefits............. 1,026,917 475,452 630,253
Compensation to owner physician........... 574,042 272,991 316,146
General and administrative expenses....... 1,406,767 972,676 1,812,643
Bad debt expense.......................... 50,000 40,000 35,500
Depreciation and amortization............. 20,091 14,494 6,832
---------- ---------- ----------
3,077,817 1,775,613 2,801,374
---------- ---------- ----------
Income from operations...................... 18,377 2,085 2,391
Interest expense............................ 18,377 2,085 2,391
---------- ---------- ----------
Net income.................................. $ -- $ -- $ --
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-62
<PAGE>

SOUTHERN DEPENDACARE, INC.

STATEMENTS OF OWNER'S EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------- PAID IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
------ ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........... 1,000 $1,000 $14,968 $-- $15,968
Net income......................... -- -- -- -- --
----- ------ ------- ---- -------
Balance, December 31, 1996........... 1,000 1,000 14,968 -- 15,968
Net income......................... -- -- -- -- --
----- ------ ------- ---- -------
Balance, August 31, 1997............. 1,000 $1,000 $14,968 $-- $15,968
===== ====== ======= ==== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-63
<PAGE>

SOUTHERN DEPENDACARE, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
EIGHT-MONTH PERIOD
YEAR ENDED ENDED AUGUST 31,
DECEMBER 31, --------------------
1996 1996 1997
------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ -- $ -- $ --
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 20,091 14,494 6,832
Bad debt expense........................ 50,000 40,000 35,500
Change in assets and liabilities:
Accounts receivable................... 170,144 256,832 (638,757)
Accounts payable...................... 7,483 (35,800) 536,991
Accrued liabilities................... (3,771) (49,182) 97,917
-------- -------- --------
Total adjustments................... 243,947 226,344 38,483
-------- -------- --------
Net cash provided by operating
activities......................... 243,947 226,344 38,483
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment....... (9,815) (5,087) (4,263)
Proceeds from disposals of fixed assets... 109,807 100,807 --
-------- -------- --------
Net cash provided by (used in)
investing activities............... 99,992 9,572 (4,263)
-------- -------- --------
Cash flows from financing activities:
Principal payments on line of credit...... (50,000) (50,000) --
Principal payments on notes payable....... (318,187) (212,125) (24,553)
Borrowings under notes payable............ 115,050 115,050 --
-------- -------- --------
Net cash used in financing
activities......................... (253,137) (147,075) (24,553)
-------- -------- --------
Net increase in cash and cash equivalents... 90,802 174,989 9,667
Cash and cash equivalents at beginning of
period..................................... 16,792 16,792 107,594
-------- -------- --------
Cash and cash equivalents at end of period.. $107,594 $191,781 $117,261
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest.. $ 18,377 $ 2,085 $ 2,391
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-64
<PAGE>

SOUTHERN DEPENDACARE, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 1996 AND AUGUST 31, 1997
(INFORMATION FOR THE EIGHT MONTHS ENDED AUGUST 31, 1996 IS UNAUDITED)

1. THE ORGANIZATION AND OPERATIONS

Southern Dependacare, Inc., an Alabama corporation, (the "Company") was
organized in 1990. The Company currently has 4 physicians, specializing in
oncology and cancer care. There are 3 rural networks of clinics located in
Carbondale, Illinois; Natchez, Mississippi; and Abbington, Virginia.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Unaudited Financial Information

The financial statements for the eight months ended August 31, 1996 are
unaudited; however, in the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary for a fair presentation of
the unaudited financial statements for these interim periods have been
included. The results of interim periods are not necessarily indicative of the
results to be obtained for a full 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 the reported amounts of 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

Cash and cash equivalents include cash on hand and in checking and money
market accounts.

Accounts Receivable

Property and Equipment

Property and equipment are recorded at cost. Depreciation is computed on the
straight-line method over the estimated service lives of depreciable assets
(five to seven years for equipment, and seven years for furniture and
fixtures). Maintenance and repairs are charged to expense as incurred. The
cost of renewals and betterments is capitalized and depreciated over the
applicable estimated useful lives. The cost and accumulated depreciation of
assets sold, retired, or otherwise disposed of are removed from the accounts,
and the related gain or loss is credited or charged to income.

Owner's Equity

Owner's equity includes the respective capital stock, partnership capital
and retained earnings of the Company. The capital stock of the Company is
wholly-owned by one physician.

F-65
<PAGE>

SOUTHERN DEPENDACARE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Net Patient Service Revenues

Concentration of Credit Risk

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 1996 and August 31, 1997 consists of
the following:

<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Equipment............................................... $ 253,023 $257,285
Furniture and fixtures.................................. 20,557 20,557
--------- --------
273,580 277,842
Less accumulated depreciation........................... (256,122) (262,954)
--------- --------
$ 17,458 $ 14,888
========= ========
</TABLE>

4. NOTES PAYABLE

The Company's notes payable at December 31, 1996 and August 31, 1997 are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
1996 1997
------------ ----------
<S> <C> <C>
Note payable to bank, due February 28, 2000, payable
in equal monthly installments at a fixed rate of 8%,
secured by checking account at the bank(1)........... $ 96,188 $78,458
Note payable to bank dated February 4, 1997, payable
in equal monthly installments at a fixed rate of 9%,
secured by property and equipment.................... 6,823 --
-------- -------
103,011 78,458
Less current portion.................................. 33,854 78,458
-------- -------
Notes payable due after one year...................... $ 69,157 $ --
======== =======
</TABLE>
- --------
(1) The outstanding balance of $78,458 was paid in full in September 1997.

During 1996, the Company entered into a line of credit agreement with a
maximum borrowing amount of $500,000 with a local bank. Interest is charged at
a fixed rate of 8.25% based on outstanding borrowings. As of December 31, 1996
and June 30, 1997, there were no borrowings outstanding under this financing
agreement.

F-66
<PAGE>

SOUTHERN DEPENDACARE, INC.

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. INCOME TAXES

The Company has elected to be taxed as an S corporation as permitted by the
Internal Revenue Code. As an S corporation, the Company is not a taxable
entity, and separately stated items of income, loss, deduction, and credit are
passed through to and taken into account by the individual stockholder in
computing the federal and state individual income tax liabilities.

6. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases facilities under operating leases which expire at various
dates through February 2001. Future minimum lease payments under these leases
as of August 31, 1997 are as follows:

Insurance

The Company is insured with respect to medical malpractice risks on claims
made basis. Accordingly, coverage relates only to claims made during the
policy term. Historically, any claims paid have been within the insurance
policy limits. Management is not aware of any claims against it or its
affiliated medical practices which might have a material impact on the
Company's financial position or results of operations.

Employment Agreements

Certain physician employees are covered by employment agreements that vary
in length from two to five years, which include, among other terms, salary and
benefits provisions. Future minimum payments under these agreements as of
August 31, 1997 are approximately:

7. LEGAL PROCEEDINGS

8. SALE OF NET ASSETS

Effective September 1, 1997, the Company completed the sale of certain of
its net assets to Physician Health Corporation ("PHC"). The Company has also
entered into an agreement with PHC to manage the physician's medical practice.

F-67
<PAGE>

APPENDIX A

The following table identifies, as of December 31, 1997, each Affiliated
Network, PHC Network and PHC Practice, as well as the date on which the
Company began providing services to the network or acquired or began managing
the PHC Practice. The table also indicates the number of physicians in each
PHC practice. Those physicians practicing with owned PHC Practices are Company
employees. Physicians practicing with managed PHC Practices under long term
management contracts are not employed by the Company.

<TABLE>
<CAPTION>
NETWORKS (AFFILIATED
UNLESS INDICATED AS PHC) PHC PRACTICES
- ------------------------------- --------------------------------------------------------------
SERVED SPECIALTY OWNED/ SERVED
NAME SINCE NAME (NO. PHYSICIANS) MANAGED SINCE
- ------------------------ ------ ------------------------ ----------------- ----------- ------
<S> <C> <C> <C> <C> <C>
ATLANTA REGIONAL MARKET
Resurgeons and 1-95 Atlanta Center for Internal Medicine Managed 9-97
Affiliated Medicine II, P.C. (8)
Orthopaedists, Inc.
Georgia Multi-Specialty 4-96 NSOB II, P.C. OB/GYN (1) Managed 11-97
Group
Georgia Neuroscience 6-94 SCWH II, P.C. OB/GYN (5) Managed 10-97
Associates
Georgia Urology 8-94 SRL OB-GYN, P.C. OB/GYN (4) Managed 10-97
Associates
OBNet Women's 7-96
HealthCare
Network, LLC
Primary Care 7-96
Specialists of
Georgia, Inc. (a PHC
Network)
DALLAS/FT. WORTH
REGIONAL MARKET
ABS Healthcare Company 3-97 Arlington Cancer Center Oncology (6); Managed 6-97
Arlington Cancer Center 6-97 Radiology (2);
North Texas Urologists 11-94 Radiation
Oncology (2)
Texas G.I. Associates, 11-96
P.C.
MEMPHIS REGIONAL MARKET
MidSouth Physician Bryant Medical Services, Family Practice
12-97 P.C. (5) Managed 11-97
Alliance I.P.A. Foundation Medical Internal Medicine Managed 11-97
Group, PLLC (10)
Memphis Childrens Pediatrics (17) Managed 11-97
Clinic, PLLC
ORLANDO REGIONAL MARKET
AOI Network, Inc. 2-96 Alberto S. Bustamante OB/GYN (1) Managed 11-97
Jr. P.A.
PHC-Physician Network 9-94 Allergy Immunology Allergy (2) Managed 11-97
of Orlando, Specialists, P.A.
Inc. (a PHC Network) Gastroenterology GI (2) Managed 11-97
Associates of Osceola,
P.A.
Mid-Florida Women's Gilmer, Cox and Bott, GI (2); Managed 11-97
Health Services P.A. Orthopaedics (4)
Internal Medicine GI (8); Owned 11-97
Specialists, Inc. Nephrology (7)
Larach, Williamson & Colonrectal Owned 11-97
Ferrara, Inc. Surgery (4)
Primary Care Primary Care (22) Owned 11-97
Specialists, Inc.
ST. LOUIS REGIONAL
MARKET
Bi-State Multispecialty 2-97 GMB Medical Center, Ltd. Opthalmology (1) Managed 10-97
Physicians
Network, L.L.C. D.I. Medical Group, Inc. Internal Medicine Managed 11-97
(3)
Eye Care Services of Opthalmology (1) Owned (80%) 5-97
Missouri, Inc.
G.H. Kursar Eye Care Opthalmology (1) Owned 10-97
Services, Inc.
Hanish Eye Institute Opthalmology (1) Managed 3-97
P.C.
Heart Health Medical Cardiology (5) Managed 4-97
Group, P.C.
InternaCare, Inc. Primary Care (1) Owned 9-97
John W. Daake, Inc. Surgery (3) Owned 1-97
Metropolitan Plastic & Plastic Surgery Managed 10-96
Reconstructive Surgery, (1)
Ltd.
PSA Medical Group, Inc. Surgery (10); Managed 11-97
Orthopaedics (2);
Podiatry (1);
Physiatry (1)
Pulmonary Sleep
Consultants, Inc. Internal Medicine Managed 11-97
(5)
Rames Medical Center, Orthopaedics (1) Managed 11-97
Inc.
Ream Optometry, Ltd. Optometry (2) Owned 8-97
Tri-County Eye Center, Opthalmology (1) Owned 8-97
Inc.
Michael G. Vranich, General Surgery Managed 9-97
D.O., P.C. (1)
</TABLE>

A-1
<PAGE>

A-2
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be paid by the Company (other
than underwriting compensation expected to be incurred) in connection with the
offering described in this Registration Statement. All amounts are estimates,
except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Listing Fee.

<TABLE>
<S> <C>
SEC Registration Fee............................................. $ 20,910
NASD Filing Fee.................................................. 7,400
Nasdaq National Market Listing Fee............................... 43,456
Blue Sky Fees and Expenses....................................... 20,000
Printing Costs................................................... 400,000
Legal Fees and Expenses.......................................... 750,000
Accounting Fees and Expenses..................................... 750,000
Transfer Agent and Registrar Fees and Expenses................... 20,000
Miscellaneous.................................................... 488,234
----------
Total.......................................................... $2,500,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware General Corporation Law

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding
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 action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit 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 except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in

II-1
<PAGE>

which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent, and shall inure to
the benefit of the heirs, executors and administrators of such a person.

Certificate of Incorporation

The Certificate of Incorporation provides that a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided for in Section 174 of the DGCL. If the DGCL is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Company, in addition to the limitation on
personal liability described above, shall be limited to the fullest extent
permitted by the amended DGCL. Further, any

II-2
<PAGE>

repeal or modification of such provision of the Certificate of Incorporation
by the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.

Bylaws

The Bylaws of the Company provide that the Company will indemnify and hold
harmless any director or officer of the Company to the fullest extent
permitted by applicable law, as in effect as of the date of the adoption of
the Bylaws or to such greater extent as applicable law may thereafter permit,
from and against all losses, liabilities, claims, damages, judgments,
penalties, fines, amounts paid in settlement and expenses (including
attorneys' fees) whatsoever arising out of any event or occurrence related to
the fact that such person is or was a director or officer of the Company and
further provide that the Company may, but is not required to, indemnify and
hold harmless any employee or agent of the Company or a director, officer,
employee or agent of any other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise who is or was serving in such
capacity at the written request of the Company; provided, however, that the
Company is only required to indemnify persons serving as directors, officers,
employees or agents of the Company for the expenses incurred in a proceeding
if such person has met the standards of conduct that make it permissible under
the laws of the State of Delaware for the Company to indemnify the claimant
for the amount claimed, but the burden of proving such defense will be on the
Company. The Bylaws further provide that, in the event of any threatened, or
pending action, suit or proceeding in which any of the persons referred to
above is a party or is involved and that may give rise to a right of
indemnification under the Bylaws, following written request by such person,
the Company will promptly pay to such person amounts to cover expenses
reasonably incurred by such person in such proceeding in advance of its final
disposition upon the receipt by the Company of (i) a written undertaking
executed by or on behalf of such person providing that such person will repay
the advance if it is ultimately determined that such person is not entitled to
be indemnified by the Company as provided in the Bylaws and (ii) satisfactory
evidence as to the amount of such expenses.

Underwriting Agreement

The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.

Insurance

The Company intends to maintain liability insurance for the benefit of its
directors and officers.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The Company issued its first securities on October 5, 1995 and has issued
unregistered securities to (a) founders, investors and employees and (b) to
physicians and others in connection with the affiliation transactions with the
medical practices (the "Affiliation Transactions"). Each such issuance was
made in reliance upon the exemption from the registration requirements of the
Securities Act of 1933, as amended, contained in Section 4(2) or Rule 701
promulgated under the Securities Act on the basis that such transactions did
not involve a public offering. The securities issuances below consider the
.314 to 1 reverse stock split for the Common Stock. Prime Stock, Class A
Stock, Series B Stock will be adjusted through their revised conversion rates.

1. On October 5, 1995, the Company issued an aggregate of 706,500 shares of
Common Stock, par value $.0025 per share (the "Common Stock"), to the
following individuals in connection with the organization and initial
capitalization of the Company for an aggregate purchase price of $5,625: Sarah
C. Garvin, H. Thomas Scott, Julie Rawls Moore, Howard E. Fagin and Shamus M.
Holt.

2. Since October 26, 1995, pursuant to the Company's 1995 Amended and
Restated Stock Option Plan, the Company has granted options to purchase up to
an aggregate of 1,659,237 shares of Common Stock to certain Company employees,
physicians and consultants with exercise prices varying between $1.59 and
$31.85.

II-3
<PAGE>

3. On November 3, 1995, the Company issued an aggregate of 345,400 shares of
Common Stock to the following individuals, in connection with a private
placement of stock to raise funds for the acquisition of the Company's
predecessor, for an aggregate purchase price of $1,100,000: Dean G. Anderson,
Don Buswell Charkow, Stephen & Susan Cooper, David Ellis, Howard E. Fagin,
Sarah C. Garvin, Shamus M. Holt, Jack C. Keane, Julie Rawls Moore, NationsBank
of Georgia, Trustee U/A Howard & Mary Morrison for Howard J. Morrison, Paine
Webber FBO Thomas M. Rodgers, Jr., Carl J. Schramm, H. Thomas Scott, Laura
Scott, Larry B. Stanely, sep, City Bank & Trust Company custodian, Robert F.
Stonerock, Jr. and Ira L. Snider.

4. On December 29, 1995, pursuant to a Securities Purchase Agreement and in
connection with a venture capital financing, the Company issued an aggregate
of 104,300 shares of Series 1 Class A Stock, par value $.01 per share (the
"Series 1 Class A Stock"), and 95,700 shares of Series 2 Class A Stock, par
value $.01 per share (the "Series 2 Class A Stock"), to the following
investors for an aggregate purchase price of $3,000,000: Larry Gerdes, William
Eason, Edward H. Bowman, Jr., Martin Lamaison, Orville R. Gordon, Howard F.
Elkins, Richard V. Lawry, Guaranty & Trust Co. c/o David O. Ellis, Kathleen E.
J. Ellis, Jeremy Ellis, Karen Ellis, Gemma Ellis, Rowan Nominees c/o Mercury
Asset Management Ltd., and NatWest Ventures Investments, Ltd. The same
investors were also granted contingent warrants to purchase up to an aggregate
of 200,000 shares of Class A Stock, in the event of a redemption of the
outstanding shares of Class A Stock, at an exercise price of $15.00 per share.
In connection with the Securities Purchase Agreement, the Company also issued
to EGL Holdings, Inc. a warrant to purchase up to an aggregate of 59,660
shares of Common Stock with an exercise price of $.03 per share, for an
aggregate purchase price of $1,900.

5. On December 12, 1995, pursuant to a consulting agreement relating to the
provision of financial consulting services to the Company by Thomas M.
Rodgers, the Company granted to Thomas M. Rodgers an option to purchase an
aggregate of 134,000 shares of Prime Common Stock at an exercise price of
$0.20 per share.

6. On February 26, 1996, the Company issued an aggregate of 113,040 shares
of Common Stock and a warrant to purchase 83,524 shares of Common Stock to
Healthmark Partners, LLC for an aggregate purchase price of $720,000.

7. On November 25, 1996, pursuant to an Undertaking Agreement relating to
the employment of J. Michael Ribaudo, M.D. as an officer of the Company the
Company issued an aggregate of 31,400 shares of Common Stock to J. Michael
Ribaudo for an aggregate purchase price of $400,000 and granted Dr. Ribaudo
options to purchase an aggregate of 141,300 shares of Common Stock at an
exercise price of $12.74 per share.

8. On November 26, 1996, pursuant to an Asset Purchase Agreement, the
Company issued to Metropolitan Plastic and Reconstructive Surgery, Ltd. an
aggregate of 125,000 shares of Prime Common Stock, par value $.0025 per share
(the "Prime Common Stock") and a $500,000 note that is convertible into 39,250
shares of Common Stock, in Metropolitan Plastic and Reconstructive Surgery,
Ltd.

9. On January 27, 1997, the Company issued an aggregate of 15,700 shares of
Common Stock to Sarah C. Garvin for an aggregate purchase price of $200,000.

10. On January 27, 1997, the Company issued an aggregate of 35,717 shares of
Common Stock to following individuals for an aggregate purchase price of
$455,000: Julie Rawls Moore, Peggy S. Block, Doris Boye Mintz, Peter Charman,
Dan Epstein, Henry Harrison Culver Trust, Elizabeth Jenny Culver Trust, Martha
C. Mathews, Churchill Matthews, Jr. and Elizabeth Culver.

11. On January 31, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger John W. Daake, Inc. and all
the capital stock of John W. Daake, Inc. were converted into shares of Prime
Common Stock, the Company issued an aggregate of 151,905 shares of Prime
Common Stock to the following individuals: John W. Daake, M.D., Robert F.
Beckman, M.D. and Kent L. Kossoy, M.D.

II-4
<PAGE>

12. On June 16, 1997, pursuant to an Amended and Restated Letter Agreement,
the Company issued an aggregate of 400,000 shares of Prime Common Stock to the
following individuals at the request of Ira L. Snider in consideration for Dr.
Snider's provision of development services for the Company: Ira L. Snider,
Joan M. Snider Custodian for Elise P. Snider, Joan M. Snider Custodian for
Julie A. Snider and Barry Dewar.

13. On March 5, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger of Eye Medical Surgical Associates,
Inc. and all the capital stock of Eye Medical Surgical Associates, Inc. were
converted into shares of Prime Common Stock, the Company issued an aggregate
of 598,500 shares of Prime Common Stock to Sidney Hanish, M.D.

14. On March 26, 1997, the Company issued an aggregate of 27,632 shares of
Common Stock to the following purchasers for an aggregate purchase price of
$352,000: Health Solutions, Inc. Profit Sharing Plan, Howard Fagin, Trustee
Fagin Advisory Services, Inc. Profit Sharing Plan, Harold A. Fuselier, Jr.,
John Daake, Shamus Holt, Galtney Group, Inc. and Elliot Baker.

15. On April 11, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger The Heart Health Center, P.C. and all
the capital stock of The Heart Health Center, P.C. were converted into shares
of Prime Common Stock, the Company issued an aggregate of 1,048,812 shares of
Prime Common Stock to the following individuals: Allen D. Soffer, M.D.,
Robert G. Kopitsky, M.D., Steven J. Pieper, M.D. and Patricia L. Cole, M.D.

16. On May 7, 1997, pursuant to a consulting agreement, the Company issued
to Thomas M. Rodgers an option to purchase an aggregate of 350,000 shares of
Prime Common Stock at an exercise price of $1.15 per share.

17. On May 14, 1997, the Company issued an aggregate of 5,887 shares of
Common Stock to the following individuals for an aggregate purchase price of
$75,000: Garth F. Fort and Christopher Gilson.

18. On May 20,1997 pursuant to a Contribution Agreement entered into in
connection with the acquisition of an 80% interest in the assets of the
medical practice of Robert M. Jones, M.D. Dr. Jones, was issued an aggregate
of 200 shares of prime common stock, par value $0.01 per share, in a
subsidiary of the Company which are convertible into 173,006 shares of Common
Stock.

19. On May 28, 1997, the Company issued an aggregate of 1,962 shares of
Common Stock to Thomas E. Douglas for an aggregate purchase price of $25,000.

20. On June 16, 1997, pursuant to the terms of a Loan Agreement, the Company
issued a warrant to purchase up to an aggregate of 15,700 shares of Common
Stock, with an exercise price of $15.92 per share to DVI Financial Services,
Inc. for an aggregate purchase price of $500 and in consideration of making
such loans.

21. On June 16, 1997 and July 31, 1997, pursuant to a Securities Purchase
Agreement entered into in connection with a venture capital financing, the
Company issued an aggregate of 2,906,679 shares of Series B Redeemable
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock") and 917,814 shares of Series B Non-Voting Redeemable Convertible
Preferred Stock, par value $.01 per share (the "Series B Non-Voting Preferred
Stock"), to the following investors for an aggregate purchase price of
$13,552,512: Weston Presidio Capital II, L.P., NatWest Ventures Investments,
Ltd., St. Paul Venture Capital IV, LLC, Mercury Asset Management, plc on
behalf of Rowan Nominees, Ltd., Partech U.S. Partners III C.V., U.S. Growth
Fund Partners C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II, LLC,
Almanori Limited, Multinvest Limited, BancBoston Investments, Inc. and
National City Venture Corporation. In connection with the Securities Purchase
Agreement, the Company also issued warrants to the same investors to purchase
up to an aggregate of 304,149 shares of Common Stock and up to 96,064 shares
of Non-Voting Common Stock, par value $.025 per share (the "Non-Voting Common
Stock"), with an exercise price of $.01 per share, for an aggregate purchase
price of $1,269.

II-5
<PAGE>

22. On June 16, 1997, pursuant to a letter agreement terminating and
settling an earlier consulting agreement, the Company granted to Thomas M.
Rodgers an option to purchase an aggregate of 7,648 shares of Prime Common
Stock at an exercise price of $0.011 per share, an option to purchase an
aggregate of 37,500 shares of Prime Common Stock at an exercise price of $1.10
per share and an option to purchase 76,302 shares of Common Stock at an
exercise price of $12.74 per share.

23. On June 16, 1997, the Company issued an aggregate of 529,148 shares of
Prime Common Stock to Thomas M. Rodgers upon exercise of stock options in
exchange for $27,853 in cash and $442,781 in notes.

24. On June 16, 1997, pursuant to the terms of an Asset Purchase and
Contribution Agreement pursuant to which the Company acquired substantially
all of the assets of the Arlington Cancer Center, Metroplex
Hematology/Oncology LLPC received a 20% equity interest in a Company
subsidiary that is exchangeable into 480,420 shares of Common Stock.

25. On July 31, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Ream Optometry, Ltd. and all the
capital stock of Ream Optometry, Ltd. were converted into shares of Prime
Common Stock, the Company issued an aggregate of 206,773 shares of Prime
Common Stock to the following individuals: Ann C. Ream and Scott R. Ream.

26. On August 8, 1997, the Company issued an aggregate of 21,038 shares of
Common Stock to Karel A. Dicke for an aggregate purchase price of $268,000.

27. On August 8, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Tri-County Eye Care Center and all the
capital stock of Tri-County Eye Care Center were converted into shares of
Common Stock, the Company issued 97,407 shares of Common Stock to Howard N.
Short.

28. On August 13, 1997, pursuant to an Amended and Restated Stock Purchase
Agreement pursuant to which the Company acquired all of the outstanding
capital stock of Payson Family Care Associates, Inc., the Company issued an
aggregate of 95,250 shares of Prime Common Stock to the following
individuals: Timothy A. Shaw, Mark Ivey, Jr. and Jim L. Burke.

29. On August 29, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Surgical Associates, Inc. and all the
capital stock of Surgical Associates, Inc. were converted into shares of Prime
Common Stock, the Company issued 200,000 shares of Prime Common Stock to
Michael Vranich.

30. On September 2, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Atlanta Center for Medicine,
Inc. and all the capital stock of Atlanta Center for Medicine, Inc. were
converted into shares of Prime Common Stock, the Company issued an aggregate
of 144,278 shares of Prime Common Stock to the following individuals: Revati
Alturi, M.D., D. Timothy Daughterty, M.D., Shelly Carter Davis, M.D., Alan O.
Feingold, M.D., Robert A. Kirkland, M.D. and Paul H. Krissman, M.D.

31. On September 12, 1997, pursuant to an Asset Purchase Agreement, pursuant
to which the Company acquired substantially all of the assets of Southern
Dependacare, Inc., the Company issued an aggregate of 432,000 shares of Prime
Common Stock to Southern Dependacare, Inc. and issued 108,000 shares of Prime
Common Stock to Donnie E. McDaniel.

32. On September 12, 1997, October 12, 1997 and November 5, 1997, pursuant
to a Warrant and Stock Purchase Commitment the Company issued to the following
investors warrants to purchase up to 26,840 shares of Common Stock with an
exercise price of $.03 per share, in exchange for their Agreement to guaranty
a loan to the Company from Southwest Bank: Weston Presidio Capital II, L.P.,
Mercury Asset Management, plc on behalf of Rowan Nominees, Ltd., Natwest
Ventures Investments, Limited, St. Paul Venture Capital IV, LLC,

II-6
<PAGE>

Banc Boston Investments, Inc., Partech U.S. Partners III C.V., U.S. Growth
Fund Partners, C.V., Axa U.S. Growth Fund LLC, Double Black Diamond II, LLC,
Almanon Limited, Multinvest Limited, and National City Venture Corporation.

33. On September 19, 1997, pursuant to a settlement agreement with
NationsCredit Commercial Corporation ("NationsCredit"), the Company issued
NationsCredit 40,000 shares of Common Stock and paid NationsCredit and its
attorneys $151,300 in outstanding fees related to a loan agreement. Other than
such fees there were no outstanding amounts due under the loan agreement. In
exchange, NationsCredit agreed to terminate the loan agreement and forfeit a
warrant to purchase up to 300,000 shares of Common Stock with an exercise
price of $4.00 per share.

34. On September 30, 1997, pursuant to the terms of an Employment Agreement,
the Company issued an aggregate of 45,000 shares of Prime Common Stock to
William W. Benedict.

35. On October 3, 1997, pursuant to an Agreement and Plan of Merger pursuant
to which the Company acquired by merger Louisville Cardiology, Inc. and all
the capital stock of Louisville Cardiology, Inc. were converted into shares of
Prime Common Stock, the Company issued an aggregate of 750,000 shares of Prime
Common Stock to the following individuals: Rudolph Licandro, M.D. and Michael
J. Imburgia, M.D.

36. On October 14, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger George M. Bohigan, Ltd. and
all the capital stock of George M. Bohigan, Ltd. were converted into shares of
Prime Common Stock, the Company issued 121,238 shares of Prime Common Stock to
George M. Bohigan, M.D.

37. On October 17, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger G.H. Kursar, M.D., Inc. and
all the capital stock of G.H. Kursar, M.D., Inc. were converted into shares of
Common Stock, the Company issued 51,843 shares of Common Stock to G.H. Kursar.

38. On October 21, 1997, the Company issued 314 shares of Common Stock to
Christie Bohigan for an aggregate purchase price of $5,000.

39. On October 27, pursuant to a Credit Agreement and Loan Agreement, the
Company issued 553,683 shares of Series B Voting Preferred Stock to Paribas
Principal Incorporated, Inc. for an aggregate purchase price of $2,214,732.

40. On October 27, 1997, pursuant to a Credit Agreement and Loan Agreement,
the Company issued warrants to purchase up to an aggregate 434,752 shares of
Common Stock with an exercise price of $.03 per share, for an aggregate
purchase price of $13,845.61 to Paribas Capital Funding, LLC and Paribas
Principal Incorporated.

41. On October 29, 1997, the Company issued 83,524 shares of Common Stock to
Healthmark Partners, LLC for an aggregate purchase price of $655 upon the
exercise of warrants with an exercise price of $.0025 per share.

42. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Southern Crescent Women's
Healthcare, Inc. and all of the outstanding capital stock of Southern Crescent
Women's Healthcare, Inc. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 137,375 shares of Common
Stock to W. Darrel Martin, M.D. and Elizabeth W. Killebrew, M.D.

43. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Eagles Landing OB-GYN
Associates, P.C. and all of the outstanding capital stock of Eagles Landing
OB-GYN Associates, P.C. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 97,340 shares of Common Stock
to the following individuals: John P. Schilling, M.D., Shoba C. Rao, M.D. and
Jeffrey D. Lovinger.

44. On November 7, 1997, pursuant to an Agreement and Plan of Reorganization
pursuant to which the Company acquired by merger Northside OB-GYN, Inc. and
all of the outstanding capital stock of Northside OB-

II-7
<PAGE>

GYN, Inc. were converted into the right to receive shares of Common Stock, the
Company issued an aggregate of 25,512 shares of Common Stock to Alan Joffe,
M.D.

45. On November 10, 1997, pursuant to an Asset Purchase Agreement pursuant
to which the Company acquired substantially all of the assets of National
Sleep Dynamics, Inc. and HomeCare for Sleep Disorders, Inc., the Company
issued an aggregate of 35,168 shares of Common Stock Scott Sauerman.

46. On November 12, 1997, the Company granted to Bi-State Network options to
purchase up to an aggregate of 31,400 shares of Common Stock with an exercise
price of $12.74 per share in exchange for entering into a contract
administration agreement with the Company.

47. On November 10, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Internal Medicine
Specialists, Inc. and all of the outstanding capital stock of Internal
Medicine Specialists, Inc. were converted into the right to receive shares of
Common Stock, the Company issued an aggregate of 329,259 shares of Common
Stock to the following individuals: Alex Menendez, C. Raymond Cottrell,
Antonio Caos, Kenneth R. Feuer, Robert T. Baker, Robert F. Stonerock, Thomas
C. Marbury, Timothy L. Prance, Lionel C. Abbott, Mark Williams and Jeffrey M.
Cohen. In connection with the Agreement and Plan of Merger, the Company issued
an aggregate of 22,608 shares of Common Stock to Avanish Aggarwal in
consideration for his execution and performance of an employment agreement
with Internal Medicine Specialists, Inc.

48. On November 10, 1997, pursuant to a Stock Purchase Agreement pursuant to
which the Company acquired all of the outstanding capital stock of Primary
Care Specialists, Inc., the Company issued an aggregate of 85,878 shares of
Common Stock to the following individuals: Don Buswell-Charkow, Thomas
Wentzell, John M. Cappleman, Christopher Edwards and Allen Castello.

49. On November 12, 1997, pursuant to an Agreement and Plan of
Reorganization pursuant to which the Company acquired by merger Greater
Cincinnati Gastroenterology, Inc. and all of the outstanding capital stock of
Greater Cincinnati Gastroenterology, Inc. were converted into the right to
receive shares of Common Stock, the Company issued an aggregate of 409,819
shares of Common Stock to the following individuals: George D. Waissbluth,
Ronald C. Schnieder, Michael A. Safdi, Alan V. Safdi, Michael D. Kreines, Kris
Ramprasad, Kim R. Jurell, David G. Magels, Pradeep K. Bekal and Daniel G.
Walker Trust, u/a/d July 1, 1997 Alan V. Safdi, Trustee.

50. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger LaRach & Williamson, M.D.,
P.A. and all of the outstanding capital stock of LaRach & Williamson, M.D.,
P.A. were converted into the right to receive shares of Common Stock, the
Company issued an aggregate of 123,457 shares of Common Stock to the following
individuals: Sergio W. LaRach, Paul R. Williamson and Andrea Ferrara. In
connection with the Agreement and Plan of Merger, the Company issued an
aggregate of 17,191 shares of Common Stock to Michael F. Trevisani in
consideration for his execution of an employment agreement with LaRach &
Williamson, Inc.

51. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger MidSouth Practice Management,
Inc. and all of the outstanding capital stock of MidSouth Medical Management,
Inc. were converted into the right to receive shares of Common Stock,
warrants, the Company issued an aggregate of 272,521 shares of Common Stock to
the following individuals: A. Cary Cox, Robert A. Frist, Jack D. Furst, R.
Ellis Godshall, Sr., Robert Ellis Godshall, Jr., Douglas J. Marchant, Dale
Menard, Medical Practice Partners, L.P., Herbert L. Thomas, Jr., Robert Bruce
Thompson, Dean Witter Custodian FBO R. Bruce Thompson, Daniel Caldwell,
Memphis Children's Clinic, PLLC , William C. Stewart, Jr., M.D., Beau B.
Pittman, M.D., David B. Wright, M.D., Michael Steffan, M.D., Lynda Freeland,
M.D., Martha N. Taylor, M.D., Ann D. Brown, M.D., Mark Vlasak, M.D. and James
W. Bryant, M.D. In addition, the Company granted to Petra Capital warrants to
purchase up to an aggregate of 35,230 shares of Common Stock with an exercise
price of $.03 per share in exchange for warrants it held to purchase MidSouth
stock and granted to Daniels J.

II-8
<PAGE>

Caldwell, Betty Nichols and William C. Stewart, M.D. options to purchase up to
an aggregate of 56,991 shares of Common Stock at an exercise price of the
greater of $19.90 a share or 125% of any per share initial public offering
price and granted to the preferred shareholders of MidSouth Practice
Management, Inc. and Delta Capital Partners, L.L.C. warrants to purchase up to
an aggregate of 56,991 shares of Common Stock with an exercise price per share
equal to the greater of $31.85 and 125% of the initial public offering price.

52. On November 12, 1997, pursuant to a Stock Purchase Agreement pursuant to
which the Company acquired all of the capital stock of Physician Alliance,
Inc. and its subsidiary, Physicians Strategic Alliance of Orlando, Inc., the
Company issued an aggregate of 88,862 shares of Common Stock to the following
individuals in exchange for each of their interest in Physician Strategic
Alliance, Inc.: Calver Fund, Inc., Jack R. Anderson, Rose Marie Garcia
Anderson, Leslie B. Daniels, The Daniels Family Trust and Gastroenterology
Associates Osceola, P.A. In connection with the Stock Purchase Agreement, the
Company issued to certain of such individuals warrants to purchase up to an
aggregate of 15,700 shares of Common Stock at an exercise price of the greater
of $31.85 a share or 125% of any per share initial public offering price.

53. On November 12, 1997, pursuant to an Interest Purchase Agreement, the
Company issued 78,500 shares of Common Stock to each of the following
individuals in exchange for each of their interests in Persch Family Practice,
L.P.: Hirsch Family, L.P., Michael A. Noble, Ben Tischler, Mark Goran, Monte
Sandler and Michael Gerling.

54. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Pulmonary Sleep Consultants,
Inc. and all of the outstanding capital stock of Pulmonary Sleep Consultants,
Inc. were converted into the right to receive shares of Common Stock, the
Company issued 94,227 shares of Common Stock to Myron Jacobs, M.D.

55. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Diagnostic Internists, Inc.
and all of the outstanding capital stock of Diagnostic Internists, Inc. were
converted into the right to receive shares of Prime Common Stock, the Company
issued 108,000 shares of Prime Common Stock to the following individuals:
James A. Reynolds, M.D., Mark A. Novack, M.D. and Jeffrey Zohner, M.D.

56. On November 12, 1997, pursuant to an Agreement and Plan of Merger
pursuant to which the Company acquired by merger Parkcrest Surgical
Associates, Inc. and all of the outstanding capital stock of Parkcrest
Surgical Associates, Inc. were converted into the right to receive shares of
Prime Common Stock, the Company issued 1,294,236 shares of Prime Common Stock
to the following individuals: Donald R. Bassman, M.D., David A. Caplin, M.D.,
Patricia A. McGuire, M.D., Alan M. Londe, M.D., Charles R. Nathan, M.D.,
Marlys E. Schuh, M.D., Stanley L. London, M.D., Kenneth J. Bennett, M.D.,
James P. Emanuel, M.D., Kurt W. Kaufman, D.P.M., Mark A. Ludwig, M.D., Glen E.
Johnson, M.D., Cesar A. Gomez, M.D., Sondra L. Tate, M.D. and Diane M.
Radford, M.D.

57. On November 12, 1997, pursuant to an Asset Purchase Agreement pursuant
to which the Company acquired substantially all of the assets of used in the
medical practice of Richard Rames, M.D., Richard Rames, M.D. received 200
shares of prime common stock, par value $.01 per share, in a subsidiary of the
Company which are convertible into 40,181 shares of Common Stock of the
Company.

58. On November 12, 1997, the Company issued an aggregate of 56,520 shares
of Common Stock to the following individuals for an aggregate purchase price
of $900,000: R.L. Wolfson, Andrew S. Wolfson, Ethel Wolfson, Erwin Barry
Hyman, Stephen A. Hyman, Martin Isenberg, and Stephen M. Mintz and Doris Boye
Mintz. Each of the foregoing individuals is an accredited investor with an
existing relationship with the Company or with an executive officer of the
Company. Additionally, Steven M. Mintz and Doris Boye-Mintz are officers of
the Company. The purpose of the respective issuances was to raise capital for
the Company.

59. Pursuant to a binding subscription agreement entered into in October
1997, on January 21, 1998 the Company issued 8,972 shares of Common Stock to
Jackie L. Grosklos, M.D. as partial consideration for her execution of a
guaranty of certain management fees to the Company.

II-9
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Fourth Amended and Restated Certificate of Incorporation of Physician
Health Corporation.(1)
3.2 Second Amended and Restated Certificate of Designation, Preferences
and Rights of the Series B Redeemable Convertible Preferred Stock of
Physician Health Corporation.(1)
3.3 Amended and Restated Bylaws of Physician Health Corporation.(1)
4.1 Form of Common Stock Certificate.*
5.1 Opinion of Jackson Walker, L.L.P.*
9.1 Second Amended and Restated Stockholders' Agreement, dated as of June
16, 1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., the Weston Investors, the EGL Investors and other
shareholders added from time to time.(1)
9.2 Amendment and Joinder to Second Amended and Restated Stockholders'
Agreement, dated as of October 27, 1997, among Physician Health
Corporation, Paribas Principal, Inc., Paribas Capital Funding, LLC and
certain other stockholders of Physician Health Corporation.(1)
10.1 Asset Purchase and Contribution Agreement dated June 16, 1997, by and
among Metroplex Hematology/Oncology Associates, L.L.P., the
Shareholders of Metroplex Hematology/Oncology Associates, L.L.P., each
Physician's wholly owned professional association and Physician Health
Corporation.(1)
10.2 Management Services Agreement, by and among Metroplex Hematology/
Oncology Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health
Corporation and the Metroplex Providers.(1)
10.3 Supplemental Agreement by and among Metroplex Hematology/Oncology
Associates, L.L.P., MHOA Texas I, L.L.C., Physician Health Corporation
and the Metroplex Providers.(1)
10.4 Agreement and Plan of Reorganization by and among Physician Health
Corporation, Greater Cincinnati Gastroenterology Associates, Inc. and
the Shareholders of Greater Cincinnati Gastroenterology Associates,
Inc.(1)
10.5 Practice Management Agreement by and among PHC Ohio, Inc. and GCGA
Physicians, Inc.(1)
10.6 Agreement and Plan of Merger by and among Physician Health
Corporation, PHC-Orlando Acquisition Subsidiary II, Inc., Internal
Medicine Specialists, Inc. and the Shareholders of Internal Medicine
Specialists, Inc.(1)
10.7 Form of Employment Agreement by and among Internal Medicine
Specialists, Inc. and each of the Shareholders of Internal Medicine
Specialist, Inc.(1)
10.8 Option Agreement by and among Central Florida Surgical Centers, Inc.,
C. Raymond Cottrell, M.D., Antonio Caos, M.D., Kenneth R. Feuer, M.D.,
Robert T. Baker, M.D. and PHC Holding Corporation.(1)
10.9 Option Agreement by and among Oakwater Surgical Center, Inc., C.
Raymond Cottrell, M.D., Antonio Caos, M.D., Alex Menendez, M.D.,
Kenneth R. Feuer, M.D., Robert T. Baker, M.D. and PHC Holding
Corporation.(1)
10.10 Agreement and Plan of Merger, dated as of September 4, 1997, among
Physician Health Corporation, PHC-Midwest, Inc. and the Shareholders
of Parkcrest Surgical Associates, Inc.(1)
10.11 Practice Management Agreement among Physician Health Corporation, PHC-
Midwest, Inc. and P.S.A. Medical Group, Inc.(1)
</TABLE>

II-10
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.12 Asset Purchase Agreement by and among Physician Health Corporation,
PHC Regional Oncology Care, Inc., Southern Dependacare, Inc. and Jack
G. Hilton, M.D.(1)
10.13 Practice Management Agreement, by and among Physician Health
Corporation, PHC Regional Oncology Care, Inc., PHC Illinois 1, S.C.
and PHC-Mississippi, P.L.L.C.(1)
10.14 Agreement and Plan of Merger by and among Physician Health
Corporation, MidSouth Practice Management, Inc. and PHC Tennessee
Acquisition Subsidiary I, Inc.(1)
10.15 Management Services Agreement, dated as of September 22, 1997, by and
among MidSouth Practice Management, Inc., Foundation Medical Group,
PLLC and the Physicians named therein.(1)
10.16 Management Services Agreement, dated as of September 22, 1997, by and
between Memphis Children's Clinic and the Physicians named therein.(1)
10.17 Management Services Agreement, dated as of November 10, 1997, by and
between MidSouth Management Inc. and Bryant Medical Services, P.C.(1)
10.18 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Foundation
Medical Group, PLLC and the Physicians named therein.(1)
10.19 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Memphis
Children's Clinic, PLLC and the Physicians named therein.(1)
10.20 First Amendment to Management Services Agreement, dated as of November
10, 1997, by and among MidSouth Practice Management, Inc., Bryant
Medical Services, P.C. and James W. Bryant, M.D.(1)
10.21 Physician Health Corporation Amended and Restated 1995 Stock Option
Plan.(1)
10.22 Employment Agreement, dated January 1, 1998, by and between Physician
Health Corporation and Sarah C. Garvin.*
10.23 Employment Agreement, dated January 1, 1998, by and between Physician
Health Corporation and Tom Rodgers.*
10.24 Employment Agreement, dated January 1, 1998, by and between Physician
Health Corporation and J. Michael Ribaudo, M.D.*
10.25 Letter Agreement, dated June 16, 1997, by and between Thomas Rodgers
and Physician Health Corporation.(2)
10.26 General Undertakings Agreement, dated as of October 1996, by and among
Physician Health Corporation, PHC St. Louis Acquisition Subsidiary I,
Inc., Metropolitan Plastic and Reconstructive Surgery, Ltd. and J.
Michael Ribaudo, M.D.(1)
10.27 Amendment to General Undertakings Agreement.(1)
10.28 Settlement Agreement, dated December 31, 1997, by and among Physician
Health Corporation, PHC-St. Louis Acquisition Subsidiary I,
Metropolitan Plastic and Reconstructive Surgery, Ltd. and J. Michael
Ribaudo, M.D.*
10.29 Stock and Warrant Purchase Agreement, dated December 29, 1995, among
Physician Health Corporation, Sarah C. Garvin, Howard E. Fagin, Ph.D.,
H. Thomas Scott, Julie Rawls Moore, Shamus Holt, EGL Holdings, Inc.,
Mercury Asset Management, Plc, NatWest Ventures Investments Limited
and certain individuals and custodians.(1)
10.30 Form of Contingent Share Warrant to Purchase Shares of Class A
Preferred Stock pursuant to the EGL Stock and Warrant Purchase
Agreement.(1)
10.31 Warrant, dated December 29, 1995, issued to EGL Holdings, Inc. to
purchase 190,000 shares of Common Stock.(1)
</TABLE>

II-11
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.32 Securities Purchase Agreement, dated as of June 16, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited and NatWest Ventures Investments Limited.(1)
10.33 Amendment No. 1 to Securities Purchase Agreement, dated as of July 31,
1997, among Physician Health Corporation, Weston Presidio Capital II,
L.P., Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.34 Amendment No. 2 to Securities Purchase Agreement, dated as of October
27,1997, among Physician Health Corporation, Weston Presidio Capital
II, L.P., BancBoston Investments, Inc., Mercury Asset Management, plc,
on behalf of Rowan Nominees Limited, NatWest Ventures Investments
Limited, St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III,
C.V., U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double
Black Diamond II LLC, Almanori Limited, Multinvest Limited, National
City Venture Corporation and Paribas Principal Incorporated.(1)
10.35 Equity Call Agreement, dated as of June 16, 1997, among Physician
Health Corporation, Weston Presidio Capital II, L.P., Metroplex
Hematology/Oncology Associates, L.L.P, BancBoston Investments, Inc.,
Mercury Asset Management, plc, on behalf of Rowan Nominees Limited,
NatWest Ventures Investments Limited.(1)
10.36 Amendment No. 1 to Equity Call Agreement, dated as of July 31, 1997,
among Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology, Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited and National City Venture
Corporation.(1)
10.37 Joinder to Equity Call Agreement, dated as of October 27, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
Metroplex Hematology/Oncology Associates, L.L.P, BancBoston
Investments, Inc., Mercury Asset Management, plc, on behalf of Rowan
Nominees Limited, NatWest Ventures Investments Limited, St. Paul
Venture Capital, IV, LLC, Partech U.S. Partners III, C.V., U.S. Growth
Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black Diamond II
LLC, Almanori Limited, Multinvest Limited, National City Venture
Corporation and Paribas Principal Incorporated.(1)
10.38 Escrow Agreement, dated as of June 16, 1997, among Physician Health
Corporation, Weston Presidio Capital II, L.P., BancBoston Ventures,
Inc., Mercury Asset Management, plc, on behalf of Rowan Nominees
Limited and NatWest Ventures Investments, Limited.(1)
10.39 Amendment No. 1 to Escrow Agreement, dated as of July 31, 1997, among
Physician Health Corporation, Weston Presidio Capital II, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners III, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited and National City
Venture Corporation.(1)
10.40 Amendment No. 2 to Escrow Agreement, dated as of October 27, 1997,
among Physician Health Corporation, Weston Presidio Capital III, L.P.,
BancBoston Investments, Inc., Mercury Asset Management, plc, on behalf
of Rowan Nominees Limited, NatWest Ventures Investments Limited,
St. Paul Venture Capital, IV, LLC, Partech U.S. Partners 111, C.V.,
U.S. Growth Fund Partners, C.V. AXA U.S. Growth Fund LLC, Double Black
Diamond II LLC, Almanori Limited, Multinvest Limited, National City
Venture Corporation and Paribas Principal Incorporated.(1)
</TABLE>

II-12
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.41 Weston Presidio--Form of Common Stock Warrant.(1)
10.42 Credit Agreement, dated as of October 27, 1997, among Physician Health
Corporation, PHC Holding Company, Various Banks and Banque Paribas, as
Agent.(1)
10.43 Securities Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Principal
Incorporated.(1)
10.44 Warrant, dated October 12, 1997, issued by Physician Health
Corporation to Paribas Principal Incorporated.(1)
10.45 Senior Subordinated Loan Agreement, dated as of October 27, 1997,
among Physician Health Corporation, PHC Holding Corporation, the
financial institutions from time to time party thereto and Paribas
Capital Funding, LLC, as Agent.(1)
10.45a Amendment No. 1 to the Senior Subordinated Loan Agreement among
Physician Health Corporation, PHC Holding Corporation, the Lenders
party thereto and Paribas Capital Funding LLC, as Agent.(1)
10.46 Warrant Purchase Agreement dated as of October 27, 1997, by and
between Physician Health Corporation and Paribas Capital Funding,
LLC.(1)
10.47 Warrant Certificate, dated as of October 27, 1997, issued by Physician
Health Corporation to Paribas Capital Funding, LLC.(1)
10.48 Warrant Agreement, dated as of October 27, 1997, by and between
Physical Health Corporation and Paribas Capital Funding, L.L.C.(1)
10.49 Restated and Amended Stockholder Agreement, dated November 1, 1997, by
and among Physician Health Corporation, Sarah, C. Garvin, Howard E.
Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore, and Shamus Holt.(1)
10.50 Amendment to Restated and Amended Stockholder Agreement, dated
February 1997, by and among Physician Health Corporation, Sarah, C.
Garvin, Howard E. Fagin, Ph.D., H. Thomas Scott, Julie Rawls Moore,
and Shamus Holt.(1)
10.51 Non-Competition and Non-Disclosure Form of Agreement executed by each
Founder of Physician Health Corporation.(1)
10.52 Amended and Restated Registration Rights Agreement by and among
Physician Health Corporation and the stockholders named therein.(1)
10.53 Joinder to Amended and Restated Registration Rights Agreement, dated
October 1997, by Thomas M. Rodgers.(1)
10.54 Letter Agreement, dated September 16, 1997, by and between
NationsCredit Settlement Agreement and Physician Health
Corporation.(1)
10.55 Warrant, dated June 16, 1997, issued by Physician Health Corporation
to DVI Financial Services, Inc.(1)
10.56 Loan and Security Agreement No. 1 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.57 Loan and Security Agreement No. 2 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.58 Loan and Security Agreement No. 3 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.59 Loan and Security Agreement No. 4 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.60 Loan and Security Agreement No. 5 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
</TABLE>

II-13
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<C> <S>
10.61 Loan and Security Agreement No. 6 among MHOA Texas I, L.L.C., as
Borrower, Physician Health Corporation, as Guarantor, and DVI
Financial Services, Inc., as Lender, dated June 16, 1997.(1)
10.62 Loan and Security Agreement, dated as of June 16, 1997, among MHOA
Texas I, L.L.C. and DVI Business Credit Corporation.(1)
10.63 Warrant and Preferred Stock Commitment, dated September 12, 1997, by
and among Physician Health Corporation, Weston Presidio Capital II,
L.P. and the holders of Series B Preferred Stock or Common Stock named
therein.(1)
10.64 Warrant, dated September 12, 1997, issued by Physician Health
Corporation to Weston Presidio Capital II, L.P.(1)
21.1 Subsidiaries.(1)
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Ernst & Young LLP.*
24.1 Power of Attorney (contained on the signature page of this
Registration Statement).(1)
27 Financial Data Schedule(1)
99.1 Consent of Director designee William C. Stewart, Jr., M.D.(1)
</TABLE>
- --------

* Filed herewith
(1) Previously filed

(2) To be filed by amendment.

II-14

<PAGE>

(b) Financial Statement Schedules.

All schedules are omitted because they are not applicable or because the
required information is contained in the Financial Statements or Notes
thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes as follows:

(1) To provide to the Underwriters at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to
each purchaser.

(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14,
or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payments
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 Securities Act and will be governed by
the final adjudication of such issue.

(3) That, for the purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in 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.

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

II-15
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, Physician Health
Corporation has duly caused this Amendment No. 2 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Atlanta, State of Georgia, on January 27, 1998.

Physician Health Corporation

/s/ Sarah C. Garvin
By: _________________________________
SARAH C. GARVIN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER

Pursuant to the requirements of the Securities Act, as amended, this
Amendment No. 2 to Registration Statement has been signed by the following
persons in the capacities indicated and on January 27, 1998.

SIGNATURE TITLE

Chairman of the Board, President
/s/ Sarah C. Garvin and Chief Executive Officer
- ------------------------------------- (Principal Executive Officer)
SARAH C. GARVIN

Director, Executive Vice
/s/ Thomas M. Rodgers President, Chief Financial
- ------------------------------------- Officer, Secretary and Treasurer
THOMAS M. RODGERS (Principal Financial and
Accounting Officer)

* Director
- -------------------------------------
MURALI ANANTHARAMAN

* Director
- -------------------------------------
MICHAEL F. CRONIN

* Director, Chief Executive Officer
- ------------------------------------- of Arlington Cancer Center
ALFRED DISTEFANO, M.D. Division

* Director
- -------------------------------------
CARL J. SCHRAMM, PH.D., J.D.

* Director, President of Ancillary
- ------------------------------------- Division
J. MICHAEL RIBAUDO, M.D.

/s/ Sarah C. Garvin
*By: ________________________________
SARAH C. GARVIN
ATTORNEY-IN-FACT PURSUANT TO POWER
OF ATTORNEY GRANTED IN REGISTRATION
STATEMENT (NO. 333-40073) AS FILED
ON NOVEMBER 12, 1997

<PAGE>

INDEX TO EXHIBITS

<PAGE>

* Filed herewith

(1) Previously filed

(2) To be filed by amendment.

<PAGE>

EXHIBIT 1.1

3,000,000 Shares/1/

PHYSICIAN HEALTH CORPORATION

COMMON STOCK

UNDERWRITING AGREEMENT
----------------------

____________, 1998

BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
A.G. EDWARDS & SONS, INC.
THE ROBINSON HUMPHREY COMPANY, LLC
As Representatives of the several Underwriters
c/o BancAmerica Robertson Stephens
555 California Street
Suite 2600
San Francisco, California 94104

Ladies/Gentlemen:

PHYSICIAN HEALTH CORPORATION, a Delaware 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
---------------------
3,000,000 shares of its authorized and unissued Voting Common Stock, par value
$0.0025 per share (the "Firm Shares") to the several Underwriters. The Company
also proposes to grant to the Underwriters an option to purchase up to 450,000
additional shares of the Company's Voting Common Stock, par value $0.0025 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 Voting Common Stock, par value $0.0025 per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby,
including the Shares, are hereinafter referred to as "Voting Common Stock."

2. Representations, Warranties and Agreements of the Company.
---------------------------------------------------------

The Company represents and warrants to and agrees with each Underwriter
that:

(a) A registration statement on Form S-1 (File No. 333-40073) 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)

- -------------
/1/ Plus an option to purchase up to 450,000 additional shares from the
Company to cover over-allotments.
<PAGE>

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 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

-2-
<PAGE>

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 of the representations and
-------- -------
warranties contained in this subparagraph (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 organized
and is validly existing as a corporation or other entity in good standing under
the laws of the jurisdiction of its organization with full power and authority
to own, lease and operate its properties and conduct its business as described
in the Prospectus; except as set forth in the Disclosure Letter attached hereto,
the Company owns all of the outstanding capital stock or other equity interests
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 those listed in the Disclosure Letter attached hereto.

(d) The Company has corporate 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 and contribution hereunder may be
limited by applicable law and except as the enforceability 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; 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

-3-
<PAGE>

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
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) can reasonably be expected to 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 can reasonably be expected to materially and
adversely affect their properties, assets or rights, (ii) can reasonably be
expected to 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 with respect to which a waiver was not
obtained, and after giving effect to the automatic conversion of the Company's
Class A Stock (Series 1 and 2), Series B Redeemable Convertible Preferred Stock,
Series B Non-Voting Redeemable Convertible Preferred Stock and Prime Common
Stock effective upon the consummation of the offering contemplated by the
Registration Statement, 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 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 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 stockholder, 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 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 or in the Disclosure Letter. Except as
disclosed in the Prospectus and the financial statements of the Company, and the
related notes thereto, included in the Prospectus or in the Disclosure Letter,
neither the Company nor any

-4-
<PAGE>

subsidiary has outstanding any options to purchase, or any preemptive rights
that will not terminate upon consummation of the transactions contemplated on
the Closing Date 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 financial statements,
together with the related schedules and notes, for the Company and its
subsidiaries, Greater Cincinnati Gastroenterology Associates, Inc.; Internal
Medicine Specialists, Inc., Parkcrest Surgical Associates, Inc.; and Southern
Dependacare, Inc. for the periods therein stated, which have been 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; Ernst & Young LLP, which has examined the financial
statements, together with the related schedules and notes, for Metroplex
Hematology/Oncology Associates, L.L.P. for the periods therein stated, which
have been 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 financial statements,
together with the related notes and schedules forming part of the Registration
Statement and the Prospectus, fairly present the financial position and the
results of operations of the Company and its subsidiaries and of Metroplex
Hematology/Oncology Associates, L.L.P.; Greater Cincinnati Gastroenterology
Associates, Inc.; Internal Medicine Specialists, Inc., Parkcrest Surgical
Associates, Inc.; and Southern Dependacare, Inc. at the respective dates and for
the respective periods to which they apply; and all audited financial
statements, together with the notes and related schedules, and the unaudited
consolidated financial information of the Company and of Metroplex
Hematology/Oncology Associates, L.L.P.; Greater Cincinnati Gastroenterology
Associates, Inc.; Internal Medicine Specialists, Inc., Parkcrest Surgical
Associates, Inc.; and Southern Dependacare, Inc., 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 Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented 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 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

-5-
<PAGE>

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 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, contractors or customers 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 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.

-6-
<PAGE>

(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 the Company 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 and other than contributions or payments that
can not reasonably be expected to result in a liability of the Company that
would have a material adverse effect on the Company and its subsidiaries
considered as one enterprise.

(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 shares of Voting Common Stock, shares of Non-Voting Common Stock, par value
$0.0025 per share, of the Company (the "Non-Voting Common Stock" and,
collectively with the Voting Common Stock, the "Common Stock"), options or
warrants to purchase any shares of Common Stock or securities convertible into
or exchangeable for 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
securities convertible into or exchangeable for 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

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<PAGE>

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 is not reasonably likely to 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. (S) 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.

(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 executive
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.

(w) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.

(x) The business conducted by the Company and its subsidiaries and the
contractual relationships between (i) the Company or any of its subsidiaries and
the health care payors with which it contracts and (ii) the Company or any of
its subsidiaries and the health care providers with which it contracts, do not
violate any federal or state health care laws and regulations, or any federal or
state patient confidentiality laws and regulations or any federal or state
insurance laws and regulations (including but not limited to those governing
health maintenance organizations and preferred provider organizations) in such
jurisdictions in which the Company and any of its subsidiaries are operating
that are applicable to such business and such relationships, including those
laws governing insurance risk and risk allocation, corporate practice of
medicine, medical practices, professional corporations, fee splitting, fraud and
abuse and self-referral, except for violations that would not have a material
adverse effect on the conditions (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered as
one enterprise and except as disclosed in 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).

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<PAGE>

Delivery of definitive certificates for the Firm Shares to be purchased by
the Underwriters pursuant to this Section 3 shall be made against payment of the
purchase price therefor by the several Underwriters by certified or official
bank check or checks or wire transfer or transfers drawn in same-day funds,
payable to the order of the Company, at the offices of Jackson Walker LLP, 901
Main Street, Suite 6000, Dallas, Texas 75202 (or at such other place as may be
agreed upon among the Representatives and the Company), at 7:00 A.M., San
Francisco time (a) on the third (3rd) full business day following the first day
that Shares are traded, (b) if this Agreement is executed and delivered after
1:30 P.M., San Francisco time, the fourth (4th) full business day following the
day that this Agreement is executed and delivered or (c) 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 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.

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<PAGE>

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; 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 reasonable 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 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.

(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

-10-
<PAGE>

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 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; provided that such information
need not be provided if the Company or any successor to the Company ceases to
file periodic reports under the Securities Exchange Act of 1934, as amended, as
a result of a merger, consolidation, tender offer, going private transaction or
other acquisition or as a result of the dissolution of the Company. 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.

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<PAGE>

(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 reasonable out-of-
pocket expenses (including reasonable 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 (i) the sale of the Firm
Shares and the Option Shares hereunder, (ii) the Company's issuance of options
or Voting Common Stock under the Company's presently authorized Amended and
Restated 1995 Stock Option Plan (the "Option Plan"), (iii) the Company's
issuance of Voting Common Stock in connection with acquisitions consummated by
the Company during the Lock-up Period, and (iv) the Company's issuance of Voting
Common Stock in exchange for interests in Metroplex Hematology/Oncology
Associates, LLP, Eye Care Services of Missouri, Inc. or PHC Acquisition
Subsidiary VII, Inc.; provided that the persons to whom any Voting Common Stock
issued in accordance with clause (iii) or (iv) above agree not to effect the
Disposition of such Voting Common Stock during the Lock-up Period.

(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 Plan or other employee benefit plan.

5. Expenses.
--------

(a) The Company agrees with each Underwriter that:

(i) 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 reasonable 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 its obligations hereunder.

(ii) 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

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<PAGE>

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 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.

(b) In addition to their other obligations under Section 8(b) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof, they will reimburse the Company 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
Underwriters' obligation to reimburse the Company 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 Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company 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 Sections 5(a)(ii) and 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 Sections 5(a)(ii) and 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 2:00 P.M., San Francisco 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.

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<PAGE>

(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.

(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 [list subsidiaries];

(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
authorized 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;

(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, except as set forth in the
Disclosure Letter attached to this Agreement, 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

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<PAGE>

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; and, assuming due authorization,
execution and delivery by you and if this Agreement were governed by
the internal substantive laws of the State of Texas (without giving
effect to any conflicts of laws principles), this Agreement is a valid
and binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be limited
by applicable law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles;

(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 Delaware law;

(xii) The description in the Registration Statement and the
Prospectus of the charter and bylaws of the Company and of statutes
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 (a) result in any violation of the
Company's charter or bylaws or (b) 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

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<PAGE>

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 significant subsidiaries is presently (a) in material violation
of its respective charter or bylaws, or (b) 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;

(xix) As of the Closing Date, the business conducted by the
Company and its significant subsidiaries and the material contractual
relationships between (a) the Company or any of its subsidiaries and
the health care payors with which it contracts and (b) the Company or
any of its subsidiaries and the health care providers with which it
contracts do not violate any federal, state or local health care laws
or regulations in the jurisdictions in which the Company or any of its
Subsidiaries is doing business that are applicable to such business
and such relationships, including those laws governing insurance risk,
risk allocation, corporate practice of medicine, professional
corporations, fee splitting, client confidentiality, self-referral and
fraud and abuse; and

(xx) To such counsel's knowledge, the Company and its
Subsidiaries possess all certificates, authorizations, licenses and
permits issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as
described in the Prospectus, except for certificates, authorizations,
licenses and permits the failure to so possess would not singly or in
the aggregate 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. To such counsel's knowledge, neither the Company nor any
of its subsidiaries has received any notice of proceedings relating to
the revocation or modification of any such certificate, authorization,
license or permit, which singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would

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<PAGE>

result in 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.

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 States of Texas and
Delaware 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 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
Alston & Bird LLP, 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 letters from
Arthur Andersen LLP and Ernst & Young 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 that certain letter delivered to you by each of Arthur Andersen LLP
and Ernst & Young LLP concurrently with the execution of this Agreement (each
such letter being, as to the auditing firm delivering the same, 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. Neither such letter
shall 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

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<PAGE>

the public offering of the Shares as contemplated by the Prospectus. Each
Original Letter 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 balance sheets as of December 31, 1996 and related statements of
operations, stockholders' equity, and cash flows for the twelve (12) months
ended December 31, 1996, included in the Registration Statement and the
Prospectus, (iii) set forth their opinion with respect to their examination of
the balance sheets as of September 30, 1997 and related statements of
operations, stockholders equity and cash flows for the nine (9) months ended
September 30, 1997; and (iv) address other matters agreed upon by you and either
Arthur Andersen LLP or Ernst & Young LLP. In addition, you shall have received
from Arthur Andersen LLP and from Ernst & Young LLP (as to Metroplex
Hematology/Oncology Associates, L.L.P.) letters addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the systems of internal accounting controls, to the extent they deemed
necessary in establishing the scope of their examination of the financial
statements as of September 30, 1997 forming part of the Registration Statement
and the Prospectus, 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 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 (a) 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, (b) 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, (c) any obligation, direct or contingent,
that is material to the Company and its subsidiaries considered as one
enterprise,

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<PAGE>

incurred by the Company or its subsidiaries, except obligations
incurred in the ordinary course of business, (d) 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, (e) any dividend or distribution of any
kind declared, paid or made on the capital stock of the Company or any
of its subsidiaries, or (f) 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
Securities 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 including, 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.

(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
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 450,000 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

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<PAGE>

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 certified or official bank check or
checks or wire transfer or transfers drawn in next-day funds, payable to the
order of the Company (and the Company agrees not to deposit any such check in
the bank on which it is drawn, and not to take any other action with the purpose
or effect of receiving immediately available funds, until the business day
following the date of its delivery to the Company). 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 Alston & Bird LLP, 1201
West Peachtree Street, Atlanta, Georgia 30309, 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 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 herein contained, (ii) any untrue statement or alleged untrue
statement of any material fact

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<PAGE>

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 and, provided further, that the indemnity agreement provided
----------------
in this Section 8(a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any losses,
claims, damages, liabilities or actions based upon any untrue statement or
alleged untrue statement of material fact or omission or alleged omission to
state therein a material fact purchased Shares, if a copy of the Prospectus in
which such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.

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 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(c) 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(c) 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

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<PAGE>

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) or 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 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 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 is 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 is 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.

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<PAGE>

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 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 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.

-23-
<PAGE>

11. Effective Date of this Agreement and Termination.
------------------------------------------------

(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., San Francisco 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 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 telecopied (and
confirmed by letter) to you c/o BancAmerica Robertson Stephens, 555 California
Street, Suite 2600, San Francisco, California 94104, telecopier number (415)
781-0278, Attention: General Counsel; if sent to the Company, such notice shall
be mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Physician Health Corporation, One Lakeside Commons, 990
Hammond Drive, Suite 300, Atlanta, Georgia 30328, Attention: Sarah C. Garvin,
Chief Executive Officer, Telecopy: (770) 730-8597.

-24-
<PAGE>

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 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 California.

15. Counterparts. This Agreement may be signed in several counterparts,
------------
each of which will constitute an original.

[the remainder of this page intentionally left blank]

-25-
<PAGE>

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,

PHYSICIAN HEALTH CORPORATION

By
-------------------------------------------
Title:
----------------------------------------

Accepted as of the date first above written:

BANCAMERICA ROBERTSON STEPHENS
NATIONSBANC MONTGOMERY SECURITIES, INC.
A.G. EDWARDS & SONS, INC.
THE ROBINSON HUMPHREY COMPANY, LLC
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.

By: BANCAMERICA ROBERTSON STEPHENS

By:
-----------------------------------------
Authorized Signatory

-26-
<PAGE>

SCHEDULE A

<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
<S> <C>

BancAmerica Robertson Stephens...............................
NationsBanc Montgomery Securities............................
A.G. Edwards & Sons, Inc.....................................
The Robinson Humphrey Company, LLC...........................

Total................................................ 3,000,000

</TABLE>

-27-

<PAGE>

EXHIBIT 4.1

PHC PHYSICIAN HEALTH CORPORATION
NUMBER SHARES

THIS CERTIFICATE IS TRANSFERABLE IN CUSIP 718945 10 8
RIDGEFIELD PARK, NJ OR NEW YORK, NY SEE REVERSE FOR CERTAIN DEFINITIONS

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

This Certifies that

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK
PAR VALUE $.0025 PER SHARE OF
Physician Health Corporation, transferable on the books of the Corporation by
the holder hereof in person or by duly authorized attorney upon the surrender of
this Certificate properly endorsed. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:
PHYSICIAN HEALTH CORPORATION
CORPORATE
SEAL
1995
DELAWARE

/s/ Thomas M. Rodgers /s/ Sarah C. Garvin

Secretary Chairman of the Board, President
and Chief Executive Officer

Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
Transfer Agent
and Registrar
By

Authorized Signature

<PAGE>

PHYSICIAN HEALTH CORPORATION

The Corporation will, upon request and without charge, furnish any
stockholder information as to the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

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

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

UNIF GIFT MIN ACT-- Custodian
-------------- --------------
(Cust) (Minor)
under Uniform Gifts to Minors

Act
-------------------
(State)

Additional abbreviations may also be used though not in the above list.

For Value received, hereby sell, assign and transfer unto
-------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
(NAME AND ADDRESS OF ASSIGNEE SHOULD BE PRINTED OR TYPEWRITTEN)

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

Shares
- ------------------------------------------------------------------------
of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint Attorney
-----------------------------------
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.

Dated
------------------------------

AFFIX MEDALLION SIGNATURE
GUARANTEE IMPRINT BELOW ----------------------------------------

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

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

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

- -------------------------------------------------------------------------------
BANKNOTE CORPORATION OF AMERICA - WALL St - BROWNS SUMMIT - PHYSICIAN HEALTH
CORP. - PROOF #2-712048-942- 12/22/97 - ALW

<PAGE>

January 27, 1998

Physician Health Corporation
One Lakeside Commons, Suite 300
990 Hammond Drive
Atlanta, Georgia 30328

Re: Registration Statement on Form S-1 of Physician Health Corporation
------------------------------------------------------------------

Ladies and Gentlemen:

We are acting as counsel for Physician Health Corporation, Inc., a
Delaware Corporation (the "Company"), in connection with the registration under
the Securities Act of 1933, as amended (the "Act"), of the offering and sale of
up to 3,000,000 shares (and up to an additional 450,000 shares to cover
Underwriters' overallotments) of the Company's Common Stock, par value $0.0025
per share (the "Shares"), which Shares are issuable in connection with the
Company's initial public offering. A Registration Statement (as amended, the
"Registration Statement") on Form S-1 (No. 333-40073) covering the offering and
sale of the Shares was filed with the Securities and Exchange Commission (the
"Commission") on November 12, 1997.

In reaching the conclusions expressed in this opinion, we have examined
and relied upon originals or certified copies of all documents, certificates,
and instruments as we have deemed necessary to the opinions expressed herein. In
making the foregoing examinations, we have assumed the genuineness of all
signatures on original documents, the authenticity of all documents submitted to
us as originals and the conformity to original documents to all copies submitted
to us.

Based solely upon the foregoing, subject to the comments hereinafter
stated, and limited in all respects to the laws of the State of Texas, the
General Corporation Law of the State of Delaware and the federal laws of the
United States of America, it is our opinion that the Shares, when sold in
accordance with the terms of the Underwriting Agreement, the form of which forms
an exhibit to the Registration Statement, will be validly and legally issued,
fully paid and nonassessable.

You should be aware that we are not admitted to practice law in the
State of Delaware. Accordingly, any opinion herein as to the laws of the State
of Delaware is based solely upon the latest generally available compilation of
the statutes and case law of such state.
<PAGE>

Physician Health Corporation
January 27, 1998
Page 2

We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to us under "Legal Matters" in the
prospectus forming part of the Registration Statement. In giving this consent,
we do not admit that we come within the category of persons whose consent is
required under Section 7 of the Act or the rules and regulations of the
Commission promulgated thereunder.

Very truly yours,

/s/ Jackson Walker L.L.P.

<PAGE>

EXHIBIT 10.22

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this "Agreement") is effective as of the 1st day
of January, 1998 (the "Effective Date"), by and between Physician Health
Corporation, Delaware Corporation (the "Company") and Sarah C. Garvin
("Employee").

W I T N E S S E T H:

WHEREAS, Employee is employed as the Chief Executive Officer of the
Company; and

WHEREAS, the Company and Employee wish to document certain terms of the
employment of Employee in such capacity;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I. RESPONSIBILITIES

SECTION 1.1 SCOPE OF EMPLOYMENT. Employee is employed by Company to serve
as Chairman of the Board, Chief Executive Officer and President of the Company
with the powers and responsibilities set forth for such position in the Bylaws
of the Company or as may be designated from time to time by the Board of
Directors (the "Board") of the Company. Employee accepts employment upon the
terms set forth in this Agreement and will perform diligently to the best of her
abilities those duties set forth in the Bylaws or as may be designated from time
to time by the Board of the Company and in this Agreement in a manner that
promotes the interests and goodwill of the Company. Employee will faithfully
devote her best efforts and all her working time to and for the benefit of the
Company; provided, however, that Employee may, at her option, devote reasonable
time and attention to civic, charitable, business or social organizations or
speaking engagements as she deems appropriate.

ARTICLE II. COMPENSATION

SECTION 2.1 GENERAL TERMS. The Company agrees to compensate Employee on a
salary basis at an annual rate of Two Hundred Ten Thousand Dollars ($210,000),
payable in accordance with the Company's ordinary payroll policies and
procedures subject to annual review and adjustment by the Board or the
Compensation Committee thereof. Notwithstanding the foregoing, upon the
consummation of the underwritten initial public offering (the "IPO") of the
Company's common stock, Employee will be compensated at an annual rate of Two
Hundred Seventy Thousand Dollars ($270,000).

SECTION 2.2 REIMBURSEMENT. It is acknowledged by the parties that
Employee, in connection with the services to be performed by her pursuant to the
terms of this Agreement, will be required to make payments for travel,
communications, entertainment of business associates and similar expenses. The
<PAGE>

Company will reimburse Employee for all reasonable documented expenses of types
authorized by the Company and incurred by Employee in the performance of her
duties hereunder. Employee will comply with such budget limitations and
approval and reporting requirements with respect to expenses as the Company may
establish from time to time.

SECTION 2.3 EMPLOYEE BENEFITS. During the term of this Agreement,
Employee shall be entitled to participate in and receive benefits under any and
all employee benefit plans and programs which are from time to time generally
made available to the executive employees of the Company including, without
limitation, health and disability insurance and bonuses.

ARTICLE III.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION

SECTION 3.1 DEFINITIONS. For purposes of this Agreement, "Confidential
Information" is any data or information that is unique to the Company,
proprietary, competitively sensitive, and not generally known by the public,
including, but not limited to, the Company's initial business plan, prospective
customers ("prospective customers" is understood to mean those potential
customers with whom or with which the Company is engaged in active discussion
about a business relationship), training manuals, product development plans,
bidding and pricing procedures, market plans and strategies, business plans and
projections, internal performance statistics, financial data, confidential
personnel information concerning employees of the Company, operational or
administrative plans, policy manuals, terms and conditions of contracts and
agreements, and all similar information related to the business of the Company's
customers or potential customers or suppliers, other than information that is
publicly available. The term "Confidential Information" shall not apply to
information which is (i) already in Employee's possession (unless such
information was obtained by Employee from the Company in the course of
Employee's employment by the Company); (ii) received by Employee from a third
party with no restriction on disclosure or (iii) required to be disclosed by any
applicable law or by an order of a court of competent jurisdiction.

SECTION 3.2 USE AND DISCLOSURE. Employee recognizes and acknowledges that
the Confidential Information constitutes valuable, special and unique assets of
the Company and its affiliates. Except as required to perform Employee's duties
as an employee of the Company, until such time as they cease to be Confidential
Information through no act of Employee in violation of this Agreement, Employee
will not use or disclose any Confidential Information of the Company.

SECTION 3.3 SURRENDER. Upon the request of the Company and, in any event,
upon the termination of this Agreement for any reason, Employee will surrender
to the Company (i) all memoranda, notes, records, drawings, manuals or other
documents pertaining to the Company's business including all copies and/or
reproductions thereof and (ii) all materials involving any Confidential
Information of the Company.

-2-
<PAGE>

ARTICLE IV. NONCOMPETITION

SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until two years after the termination of
Employee's employment hereunder (the "Restricted Period"), Employee will not,
without the prior written consent of the Company, directly or indirectly, within
a fifty (50) mile radius of any Company location at which the Company conducts
its business (i) provide as a manager, employee, officer or consultant any
services of the type included in Employee's employment duties described below
for any medical management services company which develops, owns or manages
physician networks, engages in managed care contracting services or provides
management services to physician practices, or (ii) solicit or attempt to
solicit any employee of the Company either to work for Employee personally or on
behalf of any other person or entity. For purposes of this section, Employee's
employment duties shall consist of acting as Chairman of the Board, Chief
Executive Officer and President. Notwithstanding the foregoing, in the event
that this Agreement is terminated by the Company without cause as provided in
Section 6.1(a) hereof, or by the Company following a Change In Control as
defined in Section 7.2 hereof, the restrictions set forth in this Section 4.1
shall not apply; provided, however, that should the Company terminate this
Agreement following a Change In Control and continue to pay Employee her then
current salary as of the date of termination for a period of two (2) years
following such termination, the restrictions set forth in this Section 4.1 shall
apply for such two (2) year period.

SECTION 4.2 REFORMATION AND SEVERANCE. If a judicial determination is
made that any of the provisions of the above restriction constitutes an
unreasonable or otherwise unenforceable restriction against Employee, it shall
be rendered void only to the extent that such judicial determination finds such
provisions to be unreasonable or otherwise unenforceable. In this regard, the
parties hereby agree that any judicial authority construing this Agreement shall
be empowered to sever any portion of the prohibited business activity from the
coverage of this restriction and to apply the restriction to the remaining
portion of the business activities not so severed by such judicial authority.
Moreover, notwithstanding the fact that any provisions of this restriction are
determined by a court not to be specifically enforceable through injunctive
relief, the Company shall nevertheless be entitled to seek to recover monetary
damages as a result of the breach of such provision by Employee. The time
period during which the restrictions shall apply shall be tolled and suspended
as to Employee for a period equal to the aggregate quantity of time during which
Employee violates such prohibitions in any respect.

ARTICLE V. TERM

This Agreement shall continue in full force and effect commencing on the
Effective Date until either party terminates the Agreement pursuant to the terms
of Article VI hereof.

-3-
<PAGE>

ARTICLE VI. TERMINATION

SECTION 6.1 TERMINATION. Employee's employment hereunder will terminate
upon the occurrence of any of the following events:

(a) By Company Without Cause. The Company may terminate this
Agreement at any time without cause. In the event of the termination of
this Agreement pursuant to this Subsection, Employee's salary shall be paid
at the then current rate, for a period of one year after termination
pursuant to this Subsection. Employee also shall be entitled to receive
expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of her duties prior to termination.

(b) By Employee Without Cause. Employee may terminate this Agreement
at any time without cause. Upon termination of her employment pursuant to
this Subsection, the Company will pay any portion of Employee's salary at
the then current rate and benefits, if any, accrued but unpaid from the
last monthly payment date to the date of termination. Employee shall also
be paid expense reimbursements under Section 2.2 hereof for expenses
incurred in the performance of her duties hereunder prior to termination.

(c) By Company With Cause. This Agreement may be terminated by
Company at any time upon written notice for any of the following reasons:

I. a substantial breach by the Employee of a material provision of
this Agreement, which breach remains uncorrected for more than
thirty (30) days following written notice detailing the specific
provision for which a breach is alleged, and setting forth the
actions, which, when taken, will correct the breach;

II. conviction of the Employee for a felony which in the reasonable
judgment of the Board materially affects Employee's ability to
perform her duties pursuant to this Agreement;

III. commission by Employee of an act of fraud, embezzlement, or
material dishonesty against the Company or its affiliates; or

IV. intentional neglect of or material inattention to Employee's
duties, which neglect or inattention remains uncorrected for more
than thirty (30) days following written notice from the Board
detailing the Board's concern.

Employee will not be entitled to any severance pay or other compensation
upon termination of her employment pursuant to this Subsection except for
any portion of her base salary accrued but unpaid from the last monthly
payment date to the date of termination and expense reimbursements under

-4-
<PAGE>

Section 2.2 hereof for expenses incurred in the performance of her duties
hereunder prior to termination.

(d) Termination on Death. In the event of Employee's death, this
Agreement will be deemed to have terminated on the date of her death. In
the event of her death, the Company will pay to the testamentary trusts
created by Employee's will, or if there are no such trusts, to her estate,
any portion of Employee's salary at the then current rate and benefits, if
any, accrued but unpaid from the last monthly payment date to the date of
termination. Additionally, the Company will pay to such testamentary trusts
or Employee's estate expense reimbursements under Section 2.2 hereof for
expenses incurred in the performance of her duties hereunder prior to her
death.

(e) Termination on Disability. This Agreement will terminate
immediately in the event Employee becomes physically or mentally disabled.
Employee will be deemed disabled if, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from her
duties with the Company on a full-time basis for 120 consecutive business
days. In the event of the termination of this Agreement pursuant to this
Subsection, Employee's salary shall be paid at the then current rate for a
period of three (3) months. Additionally, the Company will pay Employee
expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of her duties hereunder prior to termination.

ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT

SECTION 7.1 TERMINATION PAYMENT. Notwithstanding anything to the contrary
contained in Article VI hereof, if, after a Change In Control (as defined in
Section 7.2 hereof), Employee's employment with the Company terminates pursuant
to Section 6.1(a) of this Agreement following a Change In Control or Employee
terminates this Agreement because she is requested to relocate, her salary is
reduced from the amount in effect immediately prior to the Change in Control,
her title is reduced or her duties and responsibilities are substantially
diminished, the Company will pay Employee a lump sum payment (the "Termination
Payment") in cash equal to three years salary at the then current rate in effect
immediately prior to the Change In Control.

SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof, upon any one of the following events: (i) any
person (within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company
(including its subsidiaries, directors, and executive officers) has become the
beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding Common Stock or equivalent in voting power of any class or classes
of the Company's outstanding securities ordinarily entitled to vote in elections
of directors ("voting securities"); or (ii) shares representing fifty percent
(50%) or more of the combined voting power of the Company's voting securities

-5-
<PAGE>

are purchased pursuant to a tender offer or exchange offer (other than an offer
by the Company or its subsidiaries or affiliates); or (iii) as a result of, or
in connection with, any tender offer or exchange offer, merger or other business
combination, sale of assets, or contested election, or any combination of the
foregoing transactions (a "Transaction"), the persons who were Directors of the
Company before the Transaction shall cease to constitute a majority of the Board
of the Company or of any successor to the Company; or (iv) following the
Effective Date, the Company is merged or consolidated with another corporation
and as a result of such merger or consolidation less than fifty percent (50%) of
the outstanding voting securities of the surviving or resulting corporation
shall then be owned in the aggregate by the former shareholders of the Company,
other than (A) any party to such merger or consolidation, or (B) any affiliates
of any such party; or (v) the Company transfers more than fifty percent (50%) of
its assets, or the last of a series of transfers results in the transfer of more
than fifty percent (50%) of the assets of the Company, to another entity that is
not wholly-owned by the Company. For purposes of this subsection (v), the
determination of what constitutes fifty percent (50%) of the assets of the
Company shall be made by the Board, as constituted immediately prior to the
events that would constitute a Change in Control if fifty percent (50%) of the
Company's assets were transferred in connection with such events, in its sole
discretion. Notwithstanding anything to the contrary contained in this Section
7.2, a Change In Control shall not be deemed to have occurred for the purposes
hereof, upon any of the following events: (1) the consummation of an IPO; or (2)
the conversion of existing classes of Class A Stock and Preferred Stock of the
Company into Common Stock.

SECTION 7.3 NO RIGHT TO CONTINUED EMPLOYMENT. This Article VII will not
give Employee any right of continued employment or any right to compensation or
benefits from the Company except the rights specifically stated herein.

SECTION 7.4 ARBITRATION. Any dispute arising under this Article VII will
be resolved in the manner provided in Article VIII.

ARTICLE VIII. ARBITRATION

SECTION 8.1 SCOPE. The Company and Employee acknowledge and agree that
any claim or controversy arising out of or relating to Section VII of this
Agreement shall be settled by final and binding arbitration in the city in which
the Company's principal executive offices are located in accordance with the
National Rules of the American Arbitration Association for the Resolution of
Employment Disputes in effect on the date of the event giving rise to the claim
or controversy. The Company and Employee further acknowledge and agree that
either party must request arbitration of any claim or controversy within sixty
(60) days of the date of the event giving rise to the claim or controversy by
giving written notice of the party's request for arbitration. Failure to give
notice of any claim or controversy within sixty (60) days of the event giving
rise to the claim or controversy shall constitute waiver of the claim or
controversy.

SECTION 8.2 PROCEDURES. All claims or controversies subject to
arbitration shall be submitted to arbitration within six (6) months from the

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<PAGE>

date that a written notice of request for arbitration is effective. All claims
or controversies shall be resolved by a panel of three (3) arbitrators who are
licensed to practice law in the State of Georgia and who are experienced in the
arbitration of labor and employment disputes. These arbitrators shall be
selected in accordance with the National Rules of the American Arbitration
Association for the Resolution of Employment Disputes in effect at the time the
claim or controversy arises. Either party may request that the arbitration
proceeding be stenographically recorded by a Certified Shorthand Reporter. The
arbitrators shall issue a written decision with respect to all claims or
controversies within thirty (30) days from the date the claims or controversies
are submitted to arbitration. The parties shall be entitled to be represented
by legal counsel at any arbitration proceedings. Employee and the Company
acknowledge and agree that each party will bear fifty percent (50%) of the cost
of the arbitration proceeding, and each party shall be responsible for paying
its own attorneys' fees, if any, unless the arbitrators determine otherwise.

SECTION 8.3 ENFORCEMENT. The Company and Employee acknowledge and agree
that the arbitration provisions in this Agreement may be specifically enforced
by either party, and that submission to arbitration proceedings may be compelled
by any court of competent jurisdiction. The Company and Employee further
acknowledge and agree that the decision of the arbitrators may be specifically
enforced by either party in any court of competent jurisdiction.

SECTION 8.4 LIMITATIONS. Notwithstanding the arbitration provisions set
forth herein, Employee and the Company acknowledge and agree that nothing in
this Agreement shall be construed to require the arbitration of any claim or
controversy arising under Articles III or IV of this Agreement. These
provisions shall be enforceable by any court of competent jurisdiction and shall
not be subject to arbitration. Employee and the Company further acknowledge and
agree that nothing in this Agreement shall be construed to require arbitration
of any claim for workers' compensation or unemployment compensation.

ARTICLE IX. GENERAL TERMS

SECTION 9.1 NOTICES. All notices and other communications hereunder will
be in writing or by written telecommunication, and will be deemed to have been
duly given if delivered personally or if sent by overnight courier or by written
telecommunication, to the relevant address set forth below, or to such other
address as the recipient of such notice or communication will have specified to
the other party hereto in accordance with this Section:

If to the Company to:

Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Daniel Epstein, Senior Vice President
Fax No.: (770) 673-1970

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<PAGE>

with a copy to:

Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attn: James S. Ryan
Fax No.: (214) 953-5822

If to Employee, to:

Sarah C. Garvin
___________________________
___________________________
Fax No.: ___________________

with a copy to:
___________________________
___________________________
___________________________
___________________________
Fax No.: ___________________

SECTION 9.2 WITHHOLDING; NO OFFSET. All payments required to be made by
the Company under this Agreement to Employee will be subject to the withholding
of such amounts, if any, relating to federal, state and local taxes as may be
required by law. No payment under this Agreement will be subject to offset or
reduction attributable to any amount Employee may owe to the Company or any
other person.

SECTION 9.3 ENTIRE AGREEMENT; MODIFICATION. This Agreement and its
Attachments constitute the complete and entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
between the parties. The parties have executed this Agreement based upon the
express terms and provisions set forth herein and have not relied on any
communications or representations, oral or written, which are not set forth in
this Agreement.

SECTION 9.4 AMENDMENT. The covenants or provisions of this Agreement may
not be modified by an subsequent agreement unless the modifying agreement: (i)
is in writing; (ii) contains an express provision referencing this Agreement;
(iii) is signed and executed on behalf of the Company by an officer of the
Company other than Employee; (iv) is approved by resolution of the Board; and
(v) is signed by Employee.

SECTION 9.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.

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<PAGE>

SECTION 9.6 CHOICE OF LAW. This Agreement and the performance hereof will
be construed and governed in accordance with the laws of the State of Georgia,
without regard to its choice of law principles.

SECTION 9.7 ATTORNEY'S FEES. If legal action is commenced by either party
to enforce or defend its rights under this Agreement, the party substantially
obtaining the relief requested in such action shall be entitled to recover its
costs and reasonable attorneys' fees in addition to any other relief granted.

SECTION 9.8 SUCCESSORS AND ASSIGNS. The obligations, duties and
responsibilities of Employee under this Agreement are personal and shall not be
assignable. In the event of Employee's death or disability, this Agreement
shall be enforceable by Employee's estate, executors or legal representatives.

SECTION 9.9 WAIVER OF PROVISIONS. Any waiver of any terms and conditions
hereof must be in writing and signed by the parties hereto. The waiver of any
of the terms and conditions of this Agreement shall not be construed as a waiver
of any subsequent breach of the same or any other terms and conditions hereof.

SECTION 9.10 SEVERABILITY. The provisions of this Agreement shall be
deemed severable, and if any portion shall be held invalid, illegal or
enforceable for any reason, the remainder of this Agreement shall be effective
and binding upon the parties provided that the substance of the economic
relationship created by this Agreement remains materially unchanged.

SECTION 9.11 REMEDIES. The parties hereto acknowledge and agree that upon
any breach by Employee of her obligations under either of Articles III and IV
hereof, the Company will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief. No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.

SECTION 9.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.

[intentionally left blank]

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<PAGE>

IN WITNESS WHEREOF, Company and Employee have caused this Agreement to be
executed on the day and year indicated below to be effective on the day and year
first written above.

EMPLOYEE:

__________________________________________________ ____________________
Sarah C. Garvin Date

COMPANY:

Physician Health Corporation

By: ______________________________________________ _______________________
_________, its ___________ Date

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<PAGE>

EXHIBIT 10.23

EMPLOYMENT AGREEMENT

W I T N E S S E T H:

WHEREAS, Employee is employed as the Executive Vice President, Chief
Financial Officer and Treasurer of the Company; and

WHEREAS, the Company and Employee wish to document certain terms of the
employment of Employee in such capacity;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I. RESPONSIBILITIES

SECTION 1.1 SCOPE OF EMPLOYMENT. Employee is employed by Company to serve
as Executive Vice President, Chief Financial Officer and Treasurer of the
Company with the powers and responsibilities set forth for such position in the
Bylaws of the Company or as may be designated from time to time by the Chief
Executive Officer ("CEO") and Chairman of the Company, Sarah C. Garvin.
Employee accepts employment upon the terms set forth in this Agreement and will
perform diligently to the best of his abilities those duties set forth in the
Bylaws or as may be designated from time to time by the CEO and Chairman of the
Company, Sarah C. Garvin, and in this Agreement in a manner that promotes the
interests and goodwill of the Company. Employee will devote his best efforts and
40 hours per week, exclusive of paid vacation and sick time available to
Employee pursuant to Section 2.3 hereof, to and for the benefit of the Company.
Employee may, at his option, devote reasonable time and attention to civic,
charitable, business or social organizations or speaking engagements as he deems
appropriate and engage in the other activities set forth on Annex I attached
hereto.

ARTICLE II. COMPENSATION

SECTION 2.1 GENERAL TERMS. The Company agrees to compensate Employee on a
salary basis at an annual rate of Two Hundred Five Thousand Dollars ($205,000),
payable in accordance with the Company's ordinary payroll policies and
procedures subject to annual review and adjustment by the Board of Directors of
the Company (the "Board") or the Compensation Committee thereof.
Notwithstanding the foregoing, upon the consummation of the underwritten initial
public offering (the "IPO") of the Company's common stock or in the event that
any class of equity securities of the Company or one of its successors becomes
registered under the Securities Exchange "Act of 1934, as amended (the "Exchange
Act"), Employee will be compensated at an annual rate of Two Hundred Sixty
Thousand Dollars ($260,000).
<PAGE>

SECTION 2.2 REIMBURSEMENT. It is acknowledged by the parties that
Employee, in connection with the services to be performed by him pursuant to the
terms of this Agreement, will be required to make payments for travel,
communications, entertainment of business associates and similar expenses. The
Company will reimburse Employee for all reasonable documented expenses of types
authorized by the Company and incurred by Employee in the performance of his
duties hereunder, including reasonable documented expenses related to providing
puzzles and other appropriate modest gifts to vendors and development prospects.
Employee will comply with such budget limitations and approval and reporting
requirements with respect to expenses as the Company may establish from time to
time. Approval of any reimbursement to Employee by the Company's Chief
Executive Officer shall be conclusive evidence that such reimbursement is
reasonable. Expenses incurred by Employee prior to the date of this Agreement
shall also be subject to the foregoing reimbursement provision.

ARTICLE III.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION

SECTION 3.1 DEFINITIONS. For purposes of this Agreement, "Confidential
Information" is any data or information that is unique to the Company,
proprietary, competitively sensitive, and not generally known inside the
physician practice management industry, including, but not limited to, the
Company's initial business plan, prospective customers ("prospective customers"
is understood to mean those potential customers with whom or with which the
Company is engaged in active discussion about a business relationship), training
manuals, development plans, bidding and pricing procedures, market plans and
strategies, business plans and projections, internal performance statistics,
financial data, confidential personnel information concerning employees of the
Company, operational or administrative plans, policy manuals, terms and
conditions of contracts and agreements, and all similar information related to
the business of the Company's customers or potential customers or suppliers,
other than information that is publicly available. The term "Confidential
Information" shall not apply to information which is (i) already in Employee's
possession (unless such information was obtained by Employee from the Company in
the course of Employee's employment by the Company), including knowledge derived
by Employee related to the study of the physician practice management industry
conducted by Employee prior to his initial engagement by the Company; (ii)
received by Employee from a third party with no restriction on disclosure; (iii)
required to be disclosed by any applicable law or by an order of a court of
competent jurisdiction or (iv) contained in documents or other information that
is generally available to the public and filed by the Company with any
governmental agency or entity.

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<PAGE>

The Company specifically acknowledges that Employee may be required to disclose
Confidential Information to prospective acquisition targets and to financing
sources in the performance of his duties hereunder and that such disclosure
shall not constitute a violation of the terms of this Agreement.

ARTICLE IV. NONCOMPETITION

SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until two years after the termination of
Employee's employment hereunder (the "Restricted Period"), Employee will not,
without the prior written consent of the Company, directly or indirectly, within
a fifty (50) mile radius of any Company location at which the Company conducts
its business (i) provide as a manager, employee, officer or consultant any
services of the type included in Employee's employment duties described below
for any medical management services company which develops, owns or manages
physician networks, engages in managed care contracting services or provides
management services to physician practices, or (ii) solicit or attempt to
solicit any employee of the Company either to work for Employee personally or on
behalf of any other person or entity. For purposes of this section, Employee's
employment duties shall consist of acting as Chief Financial Officer and
Treasurer. Notwithstanding the foregoing, in the event that this Agreement is
terminated by the Company without cause as provided in Section 6.1(a) hereof, or
by the Company following a Change In Control as defined in Section 7.2 hereof,
the restrictions set forth in this Section 4.1 shall not apply; provided,
however, that should the Company terminate this Agreement following a Change In
Control and continue to pay Employee his then current salary as of the date of
termination for a period of two (2) years following such termination on a timely
basis, the restrictions set forth in this Section 4.1 shall apply for such two
(2) year period. The foregoing restrictions shall not apply to Employee's
dealings with business identified in annexes to the April 1996 letter agreement
between Employee and the Company.

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<PAGE>

relief, the Company shall nevertheless be entitled to seek to recover monetary
damages as a result of the breach of such provision by Employee. The time
period during which the restrictions shall apply shall be tolled and suspended
as to Employee for a period equal to the aggregate quantity of time during which
Employee violates such prohibitions in any material respect; provided that the
Company is able to demonstrate that it has been damaged by any such violation by
a loss of income experienced by the Company as the result of such violation.

ARTICLE V. TERM

This Agreement shall continue in full force and effect commencing on the
Effective Date until either party terminates the Agreement pursuant to the terms
of Article VI hereof.

ARTICLE VI. TERMINATION

SECTION 6.1 TERMINATION. Employee's employment hereunder will terminate
upon the occurrence of any of the following events:

(b) By Employee Without Cause. Employee may terminate this Agreement
at any time without cause. Upon termination of his employment pursuant to
this Subsection, the Company will pay any portion of Employee's salary at
the then current rate and benefits, if any, accrued but unpaid from the
last monthly payment date to the date of termination. Employee shall also
be paid expense reimbursements under Section 2.2 hereof for expenses
incurred in the performance of his duties hereunder prior to termination.

(c) By Company With Cause. This Agreement may be terminated by
Company acting through its Chief Executive Officer at any time upon written
notice for any of the following reasons:

II. conviction of the Employee for a felony which in the reasonable
judgment of the CEO materially affects Employee's ability to
perform his duties pursuant to this Agreement;

-4-
<PAGE>

III. commission by Employee of an act of fraud, embezzlement, or
material dishonesty against the Company or its affiliates as
determined by the Company's Chief Executive Officer based on
information she deems reasonable and adequate; or

Employee will not be entitled to any severance pay or other compensation
upon termination of his employment pursuant to this Subsection except for
any portion of his base salary accrued but unpaid from the last monthly
payment date to the date of termination and expense reimbursements under
Section 2.2 hereof for expenses incurred in the performance of his duties
hereunder prior to termination.

Prior to any termination for cause based on allegations of improper payment
or reimbursement of business or personal expenses, Employee will be given
written notice of the expenses at issue and the opportunity to pay to the
Company such expenses during the ten (10) day period following the delivery
of the notice. In the event that the payment is made during the ten (10)
day period, the Employee will not be terminated. If at the time of
Employees termination for cause Sarah C. Garvin is not the Company's
Chairman of the Board or Chief Executive Officer or in the event that
during the 30 day period following the date of Employee's termination for
cause Sarah C. Garvin is removed as the Company's Chairman of the Board or
Chief Executive Officer, any determination made under subparagraph III
above must be confirmed by arbitration in accordance with the "Expedited
Procedures" set forth in the Commercial Arbitration Rules of the American
Arbitration Association as then in effect (the "Rules"). The arbitration
shall be held in such place in the metropolitan Atlanta, Georgia area as
may be specified by the arbitrator, and shall be conducted in accordance
with the Rules and (regardless of any other choice of law provision in this
agreement) the United States Arbitration Act (9 U.S.C. (S)(S)1-16) to the
extent not inconsistent with this Agreement. The decision of the
arbitrator will be final and binding upon the parties. The determination
of which party (or combination of them) will bear the costs and expenses of
the arbitration proceeding shall be determined by the arbitrator. The
arbitrator will have the discretionary authority to award to a party part
of the reasonable attorney's fees expense of a party. The Company and
Employee further acknowledge and agree that either party must request
arbitration of any claim or controversy within sixty (60) days of the date
of the event giving rise to the claim or controversy by giving written
notice of the party's request for arbitration. Failure to give notice of
any claim or controversy within sixty (60) days of the event giving rise to
the claim or controversy shall constitute waiver of the claim or
controversy.

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<PAGE>

created by Employee's will, or if there are no such trusts, to his estate,
any portion of Employee's salary at the then current rate and benefits, if
any, accrued but unpaid from the last monthly payment date to the date of
termination. Additionally, the Company will pay to such testamentary trusts
or Employee's estate expense reimbursements under Section 2.2 hereof for
expenses incurred in the performance of his duties hereunder prior to his
death.

(e) Termination on Disability. This Agreement will terminate
immediately in the event Employee becomes physically or mentally disabled.
Employee will be deemed disabled if, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from his
duties with the Company on a full-time basis for 120 consecutive business
days. In the event of the termination of this Agreement pursuant to this
Subsection, Employee's salary shall be paid at the then current rate for a
period of three (3) months. Additionally, the Company will pay Employee
expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of his duties hereunder prior to termination.

(f) By Employee on Constructive Termination. Employee shall have the
right to terminate this Agreement in the event that his duties or
responsibilities are substantially diminished or in the event of
irreconcilable policy differences between Employee and the Company's Chief
Executive Officer. In the event of termination of this Agreement pursuant
to this Subsection, Employee's salary shall be paid at the then current
rate, for a period of one year after termination pursuant to this
Subsection. Employee shall also be entitled to receive expense
reimbursements under Section 2.2 hereof for expenses incurred in
performance of his duties prior to termination. Any disputes under this
subparagraph (f) must be submitted to arbitration in accordance with the
"Expedited Procedures" set forth in the Rules. The arbitration shall be
held in such place in the metropolitan Atlanta, Georgia area as may be
specified by the arbitrator, and shall be conducted in accordance with the
Rules and (Regardless of any other choice of law provision in this
agreement) the United States Arbitration Act (9 U.S.C. (S)(S)1-16) to the
extent not inconsistent with this Agreement. The decision of the
arbitrator will be final and binding upon the parties. The determination
of which party (or combination of them) will bear the costs and expenses of
the arbitration proceeding shall be determined by the arbitrator. The
arbitrator will have the discretionary authority to award to a party part
of the reasonable attorney's fees expense of a party. The Company and
Employee further acknowledge and agree that either party must request
arbitration of any claim or controversy within sixty (60) days of the date
of the event giving rise to the claim or controversy by giving written
notice of the party's request for arbitration. Failure to give notice of
any claim or controversy within sixty (60) days of the event giving rise to
the claim or controversy shall constitute waiver of the claim or
controversy.

ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT

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<PAGE>

terminates this Agreement because he is requested to relocate, his salary is
reduced from the amount in effect immediately prior to the Change in Control,
his title is reduced or his duties and responsibilities are substantially
diminished, the Company will pay Employee a lump sum payment (the "Termination
Payment") in cash equal to three years salary at the then current rate in effect
immediately prior to the Change In Control. The Termination Payment shall be
payable on or before the tenth (10th) day following the date of termination of
employment. Late payments of the Termination Payment shall bear interest at the
rate of eight percent (8%) per annum.

SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof, upon any one of the following events: (i) any
person (within the meaning of Sections 13(d) and 14(d) of the Exchange Act),
other than the Company (including its subsidiaries, directors, and executive
officers) has become the beneficial owner, within the meaning of Rule 13d-3
under the Exchange Act, of fifty percent (50%) or more of the combined voting
power of the Company's then outstanding Common Stock or equivalent in voting
power of any class or classes of the Company's outstanding securities ordinarily
entitled to vote in elections of directors ("voting securities"); or (ii) shares
representing fifty percent (50%) or more of the combined voting power of the
Company's voting securities are purchased pursuant to a tender offer or exchange
offer (other than an offer by the Company or its subsidiaries or affiliates); or
(iii) as a result of, or in connection with, any tender offer or exchange offer,
merger or other business combination, sale of assets, or contested election, or
any combination of the foregoing transactions (a "Transaction"), the persons who
were Directors of the Company before the Transaction shall cease to constitute a
majority of the Board of the Company or of any successor to the Company; or (iv)
following the Effective Date, the Company is merged or consolidated with another
corporation and as a result of such merger or consolidation less than fifty
percent (50%) of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former shareholders of
the Company, other than (A) any party to such merger or consolidation, or (B)
any affiliates of any such party; or (v) the Company transfers more than fifty
percent (50%) of its assets, or the last of a series of transfers results in the
transfer of more than fifty percent (50%) of the assets of the Company, to
another entity that is not wholly-owned by the Company; or (vi) Sarah C.
Garvin's employment by the Company as Chief Executive Officer is terminated.
For purposes of subsection (v), the determination of what constitutes fifty
percent (50%) of the assets of the Company shall be made by the Board, as
constituted immediately prior to the events that would constitute a Change in
Control if fifty percent (50%) of the Company's assets were transferred in
connection with such events, in its sole discretion. Notwithstanding anything
to the contrary contained in this Section 7.2, a Change In Control shall not be
deemed to have occurred for the purposes hereof, upon any of the following
events: (1) the consummation of an IPO; or (2) the conversion of existing
classes of Class A Stock and Preferred Stock of the Company into Common Stock.

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<PAGE>

SECTION 7.4 ARBITRATION. Any dispute arising under this Article VII will
be resolved in the manner provided in Article VIII.

ARTICLE VIII. ARBITRATION

SECTION 8.2 PROCEDURES. All claims or controversies subject to
arbitration shall be submitted to arbitration within six (6) months from the
date that a written notice of request for arbitration is effective. All claims
or controversies shall be resolved by a panel of three (3) arbitrators who are
licensed to practice law in the State of Georgia and who are experienced in the
arbitration of labor and employment disputes. These arbitrators shall be
selected in accordance with the National Rules of the American Arbitration
Association for the Resolution of Employment Disputes in effect at the time the
claim or controversy arises. Either party may request that the arbitration
proceeding be stenographically recorded by a Certified Shorthand Reporter. The
arbitrators shall issue a written decision with respect to all claims or
controversies within thirty (30) days from the date the claims or controversies
are submitted to arbitration. The parties shall be entitled to be represented
by legal counsel at any arbitration proceedings. The determination of which
party (or combination of them) will bear the costs and expenses of the
arbitration proceeding will be determined by the arbitrators. The arbitrators
will have the discretionary authority to award to a party part of the reasonable
attorney's fees expense of a party.

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<PAGE>

ARTICLE IX. GENERAL TERMS

If to the Company to:

Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Sarah C. Garvin, President
Fax No.: (770) 673-1970

with a copy to:

Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attn: James S. Ryan, III
Fax No.: (214) 953-5822

If to Employee, to:

Thomas M. Rodgers, Jr.
___________________________
___________________________
Fax No.: ___________________

with a copy to:
___________________________
___________________________
___________________________
___________________________
Fax No.: ___________________

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<PAGE>

SECTION 9.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.

SECTION 9.7 ATTORNEY'S FEES; INTEREST.

(a) If legal action is commenced by either party to enforce or defend
its rights under this Agreement, the party substantially obtaining the
relief requested in such action shall be entitled to recover its costs and
reasonable attorneys' fees in addition to any other relief granted.

(b) In the event that Sarah C. Garvin ceases to serve as Chairman of
the Board or Chief Executive Officer of the Company, the Company fails to
fulfill its obligations to Employee under this Agreement and Employee takes
legal action or submits issues to arbitration to enforce his rights under
this Agreement, the Company will pay any and all legal fees incurred by
Employee in successfully enforcing his rights under this Agreement. Such
fees shall be paid monthly in advance by the Company based on the estimates
of Employee's counsel. Any unused advances shall be returned to the
Company. In the event that a court or arbitration panel determines that
Employee's legal actions were without merit, Employee shall be obligated to
reimburse the Company for all such advances.

(c) Any amounts recovered by Employee as damages resulting from a
breach by the Company of the terms of this Agreement shall bear interest at
the rate of eight percent (8%) per annum from the date that the breach
occurred.

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<PAGE>

SECTION 9.11 REMEDIES. The parties hereto acknowledge and agree that upon
any breach by Employee of his obligations under either of Articles III and IV
hereof, the Company will have no adequate remedy at law, and accordingly will be
entitled to specific performance and other appropriate injunctive and equitable
relief. No remedy set forth in this Agreement or otherwise conferred upon or
reserved to any party shall be considered exclusive of any other remedy
available to any party, but the same shall be distinct, separate and cumulative
and may be exercised from time to time as often as occasion may arise or as may
be deemed expedient.

SECTION 9.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.

[intentionally left blank]

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<PAGE>

IN WITNESS WHEREOF, Company and Employee have caused this Agreement to be
executed on the day and year indicated below to be effective on the day and year
first written above.

EMPLOYEE:

________________________________________________ ______________________
Thomas M. Rodgers, Jr. Date

COMPANY:

Physician Health Corporation

By: ____________________________________________ ________________________
Sarah C. Garvin, President Date

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<PAGE>

EXHIBIT 10.24

EMPLOYMENT AGREEMENT

W I T N E S S E T H:

WHEREAS, Employee is employed as the President of the Ancillary Division of
the Company; and

WHEREAS, the Company and Employee wish to document certain terms of the
employment of Employee in such capacity;

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I. RESPONSIBILITIES

SECTION 1.1 SCOPE OF EMPLOYMENT. Employee is employed by Company to serve
as President of the Ancillary Division of the Company with the powers and
responsibilities set forth for such position in the Bylaws of the Company or as
may be designated from time to time by the Chief Executive Officer ("CEO") or
President of the Company. Employee accepts employment upon the terms set forth
in this Agreement and will perform diligently to the best of his abilities those
duties set forth in the Bylaws or as may be designated from time to time by the
CEO or President of the Company and in this Agreement in a manner that promotes
the interests and goodwill of the Company. Employee will faithfully devote his
best efforts and substantially all his working time to and for the benefit of
the Company; provided, however, that Employee may, at his option, devote
reasonable time and attention to civic, charitable, business or social
organizations or speaking engagements as he deems appropriate.

ARTICLE II. COMPENSATION

SECTION 2.1 GENERAL TERMS. The Company agrees to compensate Employee on a
salary basis at an annual rate of Two Hundred Thousand Dollars ($200,000),
payable in accordance with the Company's ordinary payroll policies and
procedures subject to annual review and adjustment by the Board of Directors of
the Company (the "Board") or the Compensation Committee thereof.
Notwithstanding the foregoing, upon the consummation of the underwritten initial
public offering (the "IPO") of the Company's common stock, Employee will be
compensated at an annual rate of Two Hundred Fifty Thousand Dollars ($250,000).
<PAGE>

ARTICLE III.
NONDISCLOSURE OF CONFIDENTIAL INFORMATION

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<PAGE>

business including all copies and/or reproductions thereof and (ii) all
materials involving any Confidential Information of the Company.

ARTICLE IV. NONCOMPETITION

SECTION 4.1 RESTRICTION. In consideration of the severance provisions
contained herein and the access to the Confidential Information granted to
Employee, Employee hereby agrees that, until two years after the termination of
Employee's employment hereunder (the "Restricted Period"), Employee will not,
without the prior written consent of the Company, directly or indirectly, within
a fifty (50) mile radius of any Company location at which the Company conducts
its business (i) provide as a manager, employee, officer or consultant any
services of the type included in Employee's employment duties described below
for any medical management services company which develops, owns or manages
physician networks, engages in managed care contracting services, the delivery
of ancillary health care services or provides management services to physician
practices, or (ii) solicit or attempt to solicit any employee of the Company
other than Peggy Block either to work for Employee personally or on behalf of
any other person or entity. For purposes of this section, Employee's employment
duties shall consist of acting as President of the Ancillary Division.
Notwithstanding the foregoing, in the event that this Agreement is terminated by
the Company without cause as provided in Section 6.1(a) hereof, or by the
Company following a Change In Control as defined in Section 7.2 hereof, the
restrictions set forth in this Section 4.1 shall not apply; provided, however,
that should the Company terminate this Agreement following a Change In Control
and continue to pay Employee his then current salary as of the date of
termination for a period of two (2) years following such termination, the
restrictions set forth in this Section 4.1 shall apply for such two (2) year
period.

ARTICLE V. TERM

This Agreement shall continue in full force and effect commencing on the
Effective Date until either party terminates the Agreement pursuant to the terms
of Article VI hereof.

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<PAGE>

ARTICLE VI. TERMINATION

SECTION 6.1 TERMINATION. Employee's employment hereunder will terminate
upon the occurrence of any of the following events:

(a) By Company Without Cause. The Company may terminate this
Agreement at any time without cause. In the event of the termination of
this Agreement pursuant to this Subsection, Employee's salary shall be paid
at the then current rate, for a period of one (1) year after termination
pursuant to this Subsection. Employee also shall be entitled to receive
expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of his duties prior to termination.

(c) By Company With Cause. This Agreement may be terminated by
Company at any time upon written notice for any of the following reasons:

II. conviction of the Employee for a felony which in the reasonable
judgment of the CEO materially affects Employee's ability to
perform his duties pursuant to this Agreement;

III. commission by Employee of an act of fraud, embezzlement, or
material dishonesty against the Company or its affiliates; or

-4-
<PAGE>

expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of his duties hereunder prior to termination.

(d) Termination on Death. In the event of Employee's death, this
Agreement will be deemed to have terminated on the date of his death. In
the event of his death, the Company will pay to the testamentary trusts
created by Employee's will, or if there are no such trusts, to his estate,
any portion of Employee's salary at the then current rate and benefits, if
any, accrued but unpaid from the last monthly payment date to the date of
termination. Additionally, the Company will pay to such testamentary trusts
or Employee's estate expense reimbursements under Section 2.2 hereof for
expenses incurred in the performance of his duties hereunder prior to his
death.

(e) Termination on Disability. This Agreement will terminate
immediately in the event Employee becomes physically or mentally disabled.
Employee will be deemed disabled if, as a result of Employee's incapacity
due to physical or mental illness, Employee shall have been absent from his
duties with the Company on a full-time basis for 120 consecutive business
days. In the event of the termination of this Agreement pursuant to this
Subsection, Employee's salary shall be paid at the then current rate for a
period of three (3) months. Additionally, the Company will pay Employee
expense reimbursements under Section 2.2 hereof for expenses incurred in
the performance of his duties hereunder prior to termination.

ARTICLE VII. CHANGE IN CONTROL TERMINATION PAYMENT

SECTION 7.1 TERMINATION PAYMENT. Notwithstanding anything to the contrary
contained in Article VI hereof, if, after a Change In Control (as defined in
Section 7.2 hereof), Employee's employment with the Company terminates pursuant
to Section 6.1(a) of this Agreement following a Change In Control or Employee
terminates this Agreement because he is requested to relocate, his salary is
reduced from the amount in effect immediately prior to the Change in Control,
his title is reduced or his duties and responsibilities are substantially
diminished, the Company will pay Employee a lump sum payment (the "Termination
Payment") in cash equal to three years salary at the then current rate in effect
immediately prior to the Change In Control.

SECTION 7.2 CHANGE IN CONTROL. A Change In Control will be deemed to have
occurred for purposes hereof, upon any one of the following events: (i) any
person (within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other than the Company
(including its subsidiaries, directors, and executive officers) has become the
beneficial owner, within the meaning of Rule 13d-3 under the Exchange Act, of
fifty percent (50%) or more of the combined voting power of the Company's then
outstanding Common Stock or equivalent in voting power of any class or classes
of the Company's outstanding securities ordinarily entitled to vote in elections
of directors ("voting securities"); or (ii) shares representing fifty percent
(50%) or more of the combined voting power of the Company's voting securities
are purchased pursuant to a tender offer or exchange offer (other than an offer
by the Company or its subsidiaries

-5-
<PAGE>

or affiliates); or (iii) as a result of, or in connection with, any tender offer
or exchange offer, merger or other business combination, sale of assets, or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
of any successor to the Company; or (iv) following the Effective Date, the
Company is merged or consolidated with another corporation and as a result of
such merger or consolidation less than fifty percent (50%) of the outstanding
voting securities of the surviving or resulting corporation shall then be owned
in the aggregate by the former shareholders of the Company, other than (A) any
party to such merger or consolidation, or (B) any affiliates of any such party;
or (v) the Company transfers more than fifty percent (50%) of its assets, or the
last of a series of transfers results in the transfer of more than fifty percent
(50%) of the assets of the Company, to another entity that is not wholly-owned
by the Company. For purposes of this subsection (v), the determination of what
constitutes fifty percent (50%) of the assets of the Company shall be made by
the Board, as constituted immediately prior to the events that would constitute
a Change in Control if fifty percent (50%) of the Company's assets were
transferred in connection with such events, in its sole discretion.
Notwithstanding anything to the contrary contained in this Section 7.2, a Change
In Control shall not be deemed to have occurred for the purposes hereof, upon
any of the following events: (1) the consummation of an IPO; or (2) the
conversion of existing classes of Class A Stock and Preferred Stock of the
Company into Common Stock.

SECTION 7.4 ARBITRATION. Any dispute arising under this Article VII will
be resolved in the manner provided in Article VIII.

ARTICLE VIII. ARBITRATION

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<PAGE>

one of whom is licensed to practice law in the State of Georgia and who are
experienced in the arbitration of labor and employment disputes. These
arbitrators shall be selected in accordance with the National Rules of the
American Arbitration Association for the Resolution of Employment Disputes in
effect at the time the claim or controversy arises. Either party may request
that the arbitration proceeding be stenographically recorded by a Certified
Shorthand Reporter. The arbitrators shall issue a written decision with respect
to all claims or controversies within thirty (30) days from the date the claims
or controversies are submitted to arbitration. The parties shall be entitled to
be represented by legal counsel at any arbitration proceedings. Employee and
the Company acknowledge and agree that each party will bear fifty percent (50%)
of the cost of the arbitration proceeding, and each party shall be responsible
for paying its own attorneys' fees, if any, unless the arbitrators determine
otherwise.

ARTICLE IX. GENERAL TERMS

If to the Company to:

Physician Health Corporation
One Lakeside Commons
990 Hammond Drive, Suite 300
Atlanta, Georgia 30328
Attn: Sarah C. Garvin, President
Fax No.: (770) 673-1970

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<PAGE>

with a copy to:

Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, Texas 75202-3797
Attn: James S. Ryan, III
Fax No.: (214) 953-5822

If to Employee, to:

J. Michael Ribaudo, M.D.
450 North New Ballas Road, Suite 250
St. Louis, Missouri 63141
Fax No.: (314) 569-1693

with a copy to:

James L. Fogle
Thompson Coburn
One Mercantile Center
St. Louis, MO 63101
Fax No.: 314-552-7000

SECTION 9.3 ENTIRE AGREEMENT; MODIFICATION. This Agreement and its
Attachments (i) read together with the Letter Agreement of even date herewith
between the Company, Employee, Metropolitan Plastic & Reconstructive Surgery,
Ltd. ("MPRS") and PHC-St. Louis Acquisition Subsidiary I, Inc. ("PHC-Sub") and
that certain General Undertakings Agreement among the Company, Employee, MPRS
and PHC-Sub, as amended (collectively, the "Related Agreements") constitute the
complete and entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements between the parties. The
parties have executed this Agreement based upon the express terms and provisions
set forth herein and have not relied on any communications or representations,
oral or written, which are not set forth in this Agreement.

-8-
<PAGE>

Company by an officer of the Company other than Employee; (iv) is approved by
resolution of the Board; and (v) is signed by Employee.

SECTION 9.5 LEGAL CONSULTATION. Both parties have been accorded a
reasonable opportunity to review this Agreement with legal counsel prior to
executing this Agreement.

SECTION 9.12 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which will be deemed an original, and all of which
together will constitute one and the same instrument.

[intentionally left blank]

-9-
<PAGE>

IN WITNESS WHEREOF, Company and Employee have caused this Agreement to be
executed on the day and year indicated below to be effective on the day and year
first written above.

EMPLOYEE:

/s/ J. Michael Ribaudo
--------------------------------------------- ---------------------------
J. Michael Ribaudo, M.D. Date

COMPANY:

Physician Health Corporation

By: /s/ Sarah C. Garvin
------------------------------------------- ---------------------------
Sarah C. Garvin, President Date

-10-

<PAGE>

PHYSICIAN HEALTH CORPORATION
990 Hammond, Suite 300
Atlanta, Georgia 30328

December 31, 1997

J. Michael Ribaudo, M.D.
Metropolitan Plastic and
Reconstructive Surgery, Ltd.
450 North New Ballas
St. Louis, Missouri 63141

Re: Physician Health Corporation ("PHC").
-------------------------------------

Dear Dr. Ribaudo:

Reference is made to that certain Asset Purchase Agreement ("Purchase
Agreement"), dated as of October 24, 1996, by and among PHC, PHC-St. Louis
Acquisition Subsidiary I, Inc. ("PHC-Sub") and Metropolitan Plastic and
Reconstructive Surgery, Ltd. ("MPRS"), that certain Practice Management
Agreement (the "Management Agreement"), dated as of November 26, 1997, by and
among PHC, PHC-Sub and MPRS and that certain General Undertakings Agreement (the
"Undertakings Agreement"), dated as of October 25, 1996, by and among PHC, PHC-
Sub, MPRS and J. Michael Ribaudo, M.D. ("Ribaudo"), as amended by the Amendment
to the Undertakings Agreement (the "Amendment"), dated November 11, 1997, by and
among PHC, PHC-Sub, MPRS and Ribaudo (collectively, the Purchase Agreement,
Management Agreement, Undertaking Agreement and Amendment are the "MPRS
Agreements"). Capitalized terms not otherwise defined in this agreement (this
"Letter Agreement") shall have the meanings assigned to such terms in the MPRS
Agreements.

In consideration of good and valuable consideration, the receipt and
sufficiency of which is acknowledged by the parties, PHC, PHC-Sub, MPRS and
Ribaudo agree that as of the close of business on December 31, 1997:

1) The Management Agreement is terminated effective on the earlier to
occur of (i) June 30, 1998 and (ii) the date that Ribaudo ceases to
practice medicine through MPRS. The parties acknowledge that
notwithstanding anything to the contrary contained herein or in the
Employment Agreement (hereafter defined) Ribaudo may practice medicine
through MPRS up to one full day a week through June 30, 1998 in order
that Ribaudo may successfully transition his surgical practice. From
and after the date of this Letter Agreement, Ribaudo shall not
directly or indirectly sell his interest in MPRS to any person or
entity not controlled or managed by PHC or PHC-Sub. Notwithstanding
anything to the contrary in this Letter Agreement, (i) from and after
the date of this Letter Agreement, neither Ribaudo nor MPRS shall

<PAGE>

be responsible for payment of a management fee under the Management
Agreement, (ii) Ribaudo and MPRS shall be responsible for the direct
costs of the practice of medicine by Ribaudo from and after the date
of this Letter Agreement, (iii) Ribaudo and MPRS shall be entitled to
fees derived from the practice of medicine by Ribaudo from and after
the date of this Letter Agreement and (iv) neither PHC nor PHC-Sub
shall be responsible for any negative difference between fees derived
from and direct costs associated with the practice of medicine by
Ribaudo from and after the date of this Letter Agreement.

2) Each of PHC, PHC-Sub and MPRS, their respective predecessors,
successors, assigns, agents, and legal representatives forever release
and discharge each other, their employees, affiliates, successors,
assigns, heirs, agents, and legal representatives of and from any and
all claims, demands, controversies, debts, actions, or causes of
action, of whatever nature or character, whether now known or unknown,
related to or in any way arising out of the Management Agreement or
the relationships or transactions giving rise to such. Nothing in
this paragraph releases PHC, PHC-Sub and MPRS from their obligations
under this Letter Agreement;

3) MPRS hereby forgives the PHC $500,000, 5% Convertible Subordinated
Promissory Note Due 1999, dated November 26, 1996, executed by PHC for
the benefit of MPRS (the "Note") and will have no further rights in
connection with the Note, including the right to convert the Note into
shares of PHC Common Stock;

4) PHC hereby forgives any and all loans (including interest accrued
thereon) made to Ribaudo pursuant to Section 9 of the Undertakings
Agreement; [CONFIRM]

5) PHC will grant to Ribaudo non-qualified stock options (the "Options")
to purchase up to 125,000 shares of PHC Common Stock at an exercise
price of $4.00 per share, with 1/3 of such Options vesting each year
after the date of the grant and with such other terms as be shall set
forth in a non-qualified stock option agreement. In the event that
Ribaudo's employment is terminated without cause prior to the complete
vesting of such options, such options will fully vest on the date of
termination of employment;

6) The right granted to Ribaudo, as set forth in the PHC Written Consent
of Directors, dated as of June 16, 1997 (the "Director Consent") and
relating to PHC's grant of options to Ribaudo to purchase up to
300,000 shares of Common Stock pursuant to the Undertakings Agreement,
to elect to receive a cash payment in event the Company is sold
(through a merger, sale of assets or otherwise) at an effective price
of less than $4.00 per share of Common Stock, equal to the product of:
(i) $0.80 multiplied by (ii) the number of options remaining
unexercised at the time of such change of control multiplied by (iii)
the effective price per share of Common Stock received by the holders
of Common Stock in the sale, provided that Ribaudo remains an employee
of the Company and surrenders that portion of such options that remain
unexercised, is hereby terminated;
<PAGE>

7) PHC acknowledges that as of the date of this Letter Agreement, PHC
will have responsibility for the lease obligations (the "Lease
Obligations") related to 450 North New Ballas Road, Suite 250, St.
Louis, Missouri 63141. MPRS and Ribaudo will use their best efforts to
help PHC and PHC-Sub obtain tenants who will assume Lease Obligations;

8) Concurrently with the execution of this agreement, Ribaudo and PHC
shall execute an Employment Agreement in the form attached hereto as
Exhibit A;

9) PHC's obligation to pay Ribaudo's quarterly draw as set forth in
paragraph 5 of the Undertaking Agreement is terminated;

10) PHC hereby forgives Ribaudo for all quarterly draw payments which have
not been repaid and remain outstanding and forever releases and
discharges Ribaudo and MPRS, its employees, affiliates, successors,
assigns, heirs, agents, and legal representatives of and from any and
all claims, demands, controversies, debts, actions, or causes of
action, of whatever nature or character, whether known or unknown,
related to or in any way arising out of any quarterly draw payment
which has not been repaid to PHC as required by paragraph 5 of the
Undertaking Agreement;

11) Section 7 of the Undertakings Agreement is hereby terminated;

12) From and after January 1, 1997, PHC-Sub shall reimburse Ribaudo and
MPRS for malpractice insurance premium costs, including tail
insurance, at levels consistent with those previously maintained by
Ribaudo and MPRS;

13) From and after January 1, 1997, PHC shall for so long as Ribaudo
remains employed by PHC reimburse Ribaudo for up to $5,000 in
documented continuing medical education expense;

14) PHC confirms its agreement to reimburse Ribaudo for 12 months rental
expense for an apartment in Atlanta (start date , 1997) and
----------
to reimburse Ribaudo for reasonable and documented moving expenses
related to the relocation of his personal residence to Atlanta,
Georgia from St. Louis, Missouri; and

15) PHC will reimburse Ribaudo for up to $5,000 in documented legal
expenses incurred by him in connection with the negotiation and
documentation of this Letter Agreement and the other agreements
contemplated hereby.

This Letter Agreement shall be governed and construed under the laws of the
State of Georgia except to the extent the MPRS Agreements and the Note provide
otherwise. If any term, provision, covenant, or condition of this Letter
Agreement is held to be invalid or unenforceable by a court of competent
jurisdiction, it is to that extent deemed omitted and the remainder of this
Letter Agreement shall continue in full force and effect. Furthermore, in lieu
of each illegal, invalid or unenforceable provision of this Letter Agreement,
there shall be added automatically as part of this
<PAGE>

Letter Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.

This Letter Agreement may be executed in any number of counterparts, and
each such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one Letter Agreement.

Please execute this Letter Agreement in the space provided below to
evidence that the above is in accordance with our understanding.

Very truly yours,

Physician Health Corporation

By: /s/ Sarah C. Garvin
--------------------
Sarah C. Garvin
President

AGREED AND ACCEPTED:

/s/ J. Michael Ribaudo
- -----------------------
J. Michael Ribaudo, M.D.

Metropolitan Plastic and Reconstructive Surgery, Ltd.

By: /s/ J. Michael Ribaudo
----------------------
Printed Name: J. Michael Ribaudo
------------------
Title: President
------------------

PHC-St. Louis Acquisitions Subsidiary I

By: /s/ J. Michael Ribaudo
----------------------
Printed Name: J. Michael Ribaudo
------------------
Title: President
------------------

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports (and to all references to our firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP

Atlanta, Georgia

January 27, 1998

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 9, 1997, with respect to the financial
statements of Metroplex Hematology/Oncology Associates, L.L.P., included in
Amendment No. 2 to the Registration Statement (Form S-1 No. 333-40073) and
related Prospectus of Physician Health Corporation for the registration of
shares of its common stock.

/s/ Ernst & Young LLP

Dallas, Texas

January 27, 1998