PROVINCE HEALTHCARE CO, S-1/A, 1997-11-13

PROVINCE HEALTHCARE CO
S-1/A, 1997-11-13
GENERAL MEDICAL & SURGICAL HOSPITALS, NEC

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<PAGE> 1

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

REGISTRATION NO. 333-34421
================================================================================

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

AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PROVINCE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 8062 62-1710772
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>

109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
RICHARD D. GORE
109 WESTPARK DRIVE, SUITE 180
BRENTWOOD, TENNESSEE 37027
TELEPHONE: (615) 370-1377
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:

<TABLE>
<C> <C>
H. KURT VON MOLTKE J. VAUGHAN CURTIS
KIRKLAND & ELLIS ALSTON & BIRD LLP
200 EAST RANDOLPH DRIVE 1201 WEST PEACHTREE STREET
CHICAGO, ILLINOIS 60601 ATLANTA, GEORGIA 30309
(312) 861-2000 (404) 881-7000
</TABLE>

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

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 of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, please 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
under the Securities Act of 1933, please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

================================================================================
<PAGE> 2

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

SUBJECT TO COMPLETION

NOVEMBER 12, 1997

5,700,000 Shares

[PROVINCE HEALTHCARE LOGO]
Common Stock
------------------

All of the shares of Common Stock, par value $0.01 per share (the "Common
Stock") of Province Healthcare Company ("Province" or the "Company"), offered
hereby are being sold by the Company. Prior to this offering there has been no
public market for the Common Stock. It is presently estimated that the initial
public offering price will be between $13.00 and $15.00 per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price. The Common Stock has been
approved for trading on the Nasdaq National Market under the symbol "PRHC,"
subject to notice of issuance.

Upon completion of the offering, officers and directors of the Company and
affiliates of the Company's officers and directors will beneficially own 49.3%
of the Common Stock (46.7% if the Underwriters' over-allotment option is
exercised in full). Accordingly, officers and directors of the Company and
affiliates of the Company's officers and directors acting in concert will
effectively be able to control the election of directors and management and
operations of the Company. See "Risk Factors -- Effective Control by Certain
Stockholders."
------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 11.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================================
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS COMPANY(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(2)......................... $ $ $
===============================================================================================================
</TABLE>

(1) Before deducting expenses of the offering estimated at $1,200,000, payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
855,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent the option is exercised, the Underwriters will offer
the additional shares at the Price to Public shown above. If the option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of the Common Stock will be made at the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about
, 1997.

BT Alex. Brown

BancAmerica Robertson Stephens
Goldman, Sachs & Co.
The Robinson-Humphrey Company

THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3

[PHOTOGRAPHS OF THE COMPANY'S EIGHT HOSPITALS]

THE UNDERWRITERS AND OTHER PERSONS MAY OVER-ALLOT OR EFFECT TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements and the related Notes thereto appearing elsewhere in this
Prospectus.

THE COMPANY

Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services, including skilled
nursing, geriatric psychiatry and rehabilitation. The Company currently owns or
leases eight general acute care hospitals in four states with a total of 570
licensed beds. The Company also provides management services to 50 primarily
non-urban hospitals in 17 states with a total of 3,448 licensed beds. For the
year ended December 31, 1996, and the nine months ended September 30, 1997, the
Company had net operating revenue of $118.1 million and $123.9 million,
respectively.

The Company believes that non-urban markets are attractive to health care
service providers. Because non-urban service areas have smaller populations,
there are generally only one or two hospitals in each non-urban market,
resulting in less competition. The relative dominance of the acute care hospital
in these smaller markets also limits the entry of alternate site providers,
which provide services such as outpatient surgery, rehabilitation or diagnostic
imaging. The demographic characteristics of non-urban markets and the relative
strength of the local hospital also make non-urban markets less attractive to
HMOs and other forms of managed care. In addition, the Company believes that
non-urban communities are generally characterized by a high level of patient and
physician loyalty that fosters cooperative relationships among the local
hospital, physicians and patients. Despite these attractive characteristics,
many not-for-profit and governmental operators of non-urban hospitals are under
pressure due to capital constraints, limited management resources and the
challenges of managing in a complex health care regulatory environment. These
pressures often result in diminished operating and financial performance which
can lead owners to sell or lease their hospitals to companies, like Province,
that have greater financial and management resources.

The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. To achieve this end, the Company
seeks to acquire hospitals which are the primary providers of health care in
their markets and which present the opportunity to increase profitability and
market share. The Company targets acquisition candidates that: (i) have a
minimum service area population of 20,000 with a stable or growing employment
base; (ii) are the sole or primary providers of health care services in the
community; (iii) have annual net patient revenue of at least $12.0 million; and
(iv) have financial performance that will benefit from Province management's
proven operating skills. The Company's goal is to acquire two to four hospitals
each year of the approximately 1,100 non-urban hospitals that fit the Company's
acquisition profile.

Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs, and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system. The
3
<PAGE> 5

Company expects to make capital expenditures and to incur operating costs in
implementing this strategy, which costs management believes will be offset by
increases in market share and profitability resulting from such implementation.

Prior to its 1996 recapitalization and merger with PHC of Delaware, Inc.
("PHC"), the Company operated under the name Brim, Inc. ("Brim"). The current
operations of the Company include certain Brim operations and all of the
operations of PHC. Brim and its predecessors have provided health care services,
including managing and operating non-urban hospitals, since the 1970s. PHC was
founded in February 1996 by Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR
Fund IV") and Martin S. Rash to acquire and operate hospitals in attractive
non-urban markets. In December 1996, Brim was recapitalized (the
"Recapitalization"). Subsequently, the operations of Brim and PHC were combined
in a merger (the "Merger"). In connection with the Recapitalization, Mr. Rash
and Richard D. Gore were elected as the senior management of the Company.

The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community Health Systems, Inc.
("Community"), an acquiror and operator of non-urban hospitals. During Mr.
Rash's tenure, Community acquired many non-urban hospitals and owned or leased
36 hospitals at December 31, 1995. Mr. Gore was previously employed as Vice
President and Controller of Quorum Health Group, Inc., an owner, operator and
manager of acute care hospitals. John M. Rutledge, the Company's Chief Operating
Officer, was previously employed as a Regional Vice President/Group Director at
Community, reporting directly to Mr. Rash. Steven P. Taylor, the Company's
Senior Vice President of Acquisitions and Development, was previously President
of Brim Healthcare, Inc., a subsidiary of the Company.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................ 5,700,000 shares
Common Stock to be outstanding after the
offering......................................... 15,698,314 shares(1)
Use of proceeds.................................... To repay certain indebtedness, to
redeem a portion of the Company's
preferred stock and to repurchase a
portion of the shares of Common Stock
issued upon conversion of preferred
stock. See "Use of Proceeds."
Nasdaq National Market symbol...................... "PRHC"
</TABLE>

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

(1) Gives effect to the conversion of the Company's outstanding Series B Junior
Preferred Stock, no par value (the "Junior Preferred Stock") into 2,451,218
shares of Common Stock and the repurchase of 1,034,414 of such shares of
Common Stock (in each case at an assumed initial public offering price of
$14.00 per share), but does not include 478,118 shares of Common Stock
issuable upon the exercise of outstanding options issued pursuant to the
Company's 1997 Long-Term Equity Incentive Plan at a weighted average
exercise price of $5.40 per share.

4
<PAGE> 6

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- -----------------------------
PRO PRO
FORMA FORMA
1994 1995 1996 1996(1) 1996 1997 1997(1)
-------- -------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net operating revenue.................. $102,067 $101,214 $118,077 $153,136 $87,311 $123,948 $123,948
Operating expenses(2).................. 96,870 98,077 117,097 151,322 80,822 110,484 110,484
Interest expense....................... 760 589 1,842 5,389 573 6,235 3,856
Costs of recapitalization.............. -- -- 11,570 11,570 -- -- --
Loss (gain) on sale of assets.......... (635) (2,814) 442 442 170 (156) (156)
-------- -------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations before provision for
income taxes......................... 5,072 5,362 (12,874) (15,587) 5,746 7,385 9,764
Provision (benefit) for income taxes... 2,097 1,953 (4,273) (5,328) 2,347 2,814 3,740
-------- -------- -------- -------- ------- -------- --------
Income (loss) from continuing
operations........................... 2,975 3,409 (8,601) $(10,259) 3,399 4,571 $ 6,024
======== ========
Income (loss) from discontinued
operations, less applicable income
taxes................................ (157) (264) 6,015 272 --
-------- -------- -------- ------- --------
Net income (loss)...................... $ 2,818 $ 3,145 (2,586) 3,671 4571
======== ========
Preferred stock dividends and
accretion............................ (172) -- (3,708)
-------- ------- --------
Net income (loss) applicable to common
shareholders......................... $ (2,758) $ 3,671 $ 863
======== ======= ========
Pro forma net income (loss) per share
applicable to common
shareholders(1)(3):
Income (loss) from continuing
operations......................... $ (0.99) $ (0.64) $ 0.39 $ 0.10 $ 0.38
======== ========
Income from discontinued operations.. 0.68 0.03 --
-------- ------- --------
Net income (loss) applicable to
common shareholders................ $ (0.31) $ 0.42 $ 0.10
======== ======= ========
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(1)(3)............ 8,844 15,961 8,844 8,844 15,961
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 5,896 $ 5,896
Total assets.............................................. 108,152 108,152
Long-term obligations, less current maturities............ 85,201 48,569
Mandatory redeemable preferred stock...................... 48,232 --
Common stockholders' equity (deficit)..................... (57,730) 30,844
</TABLE>

See accompanying notes on following page.
5
<PAGE> 7

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- -----------------
1994 1995 1996 1996 1997
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
STATISTICAL DATA(5):
Hospitals owned or leased (at end of period).............. 4 4 7 5 8
Licensed beds (at end of period).......................... 294 294 513 371 570
Admissions................................................ 8,868 8,839 10,022 7,385 11,008
Patient days.............................................. 57,161 56,088 59,169 43,428 61,443
Adjusted patient days(6).................................. 91,047 92,085 104,499 76,911 111,455
Average length of stay (days)(7).......................... 6.5 6.4 5.9 5.9 5.6
Gross outpatient service revenue (in thousands)........... $46,312 $51,414 $ 67,967 $49,632 $82,014
Gross outpatient service revenue (% of gross patient
service revenue)........................................ 37.2% 39.1% 43.4% 43.6% 44.9%
EBITDA (in thousands)(8).................................. $ 6,727 $ 4,908 $ 2,885 $ 7,707 $17,155
EBITDA margin(9).......................................... 6.6% 4.8% 2.4% 8.8% 13.8%
</TABLE>

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

(1) Pro forma 1996 and 1997 statements of operations data give effect to: (i)
the operating results of PHC for the period prior to the Merger; (ii) the
operating results of the three hospitals acquired by PHC and Brim in 1996
(the "1996 Acquired Hospitals") for periods prior to their acquisition;
(iii) the conversion of the Junior Preferred Stock and accumulated and
unpaid dividends with an aggregate carrying amount of approximately $33.1
million into 2,451,218 shares of Common Stock in connection with the
offering (the "Preferred Stock Conversion"); and (iv) the sale of the
Common Stock in the offering, and the application of the estimated net
proceeds thereof to the repurchase of the Common Stock issued with respect
to 13,636 of the shares of Junior Preferred Stock converted in the
Preferred Stock Conversion, the redemption of the Company's Series A Senior
Preferred Stock, no par value (the "Senior Preferred Stock") and the
repayment of debt, as described in "Use of Proceeds," as if all such
transactions had been completed as of January 1, 1996 and assuming an
initial public offering price of $14.00 per share. Net income (loss) per
share applicable to common shareholders on the 1996 and 1997 pro forma
amounts are based on the same assumptions outlined above.

(2) Includes an increase in insurance expense of $2.0 million in 1996 for
incurred but not reported claims related to professional liability and
workers' compensation.

(3) Pro forma net income (loss) per share applicable to common shareholders for
the historical year ended December 31, 1996 and the historical nine months
ended September 30, 1996 and 1997 is computed using the weighted average
number of shares of Common Stock outstanding during the period, including
dilutive common equivalent shares from stock options and warrants (using
the treasury stock method). The 7,280,020 common shares issued in the
Recapitalization and the Merger in December 1996 have been included in the
pro forma calculation as if the Recapitalization and the Merger had
occurred as of the first day of 1996.

(4) The pro forma as adjusted balance sheet data as of September 30, 1997 gives
effect to: (i) the conversion from no par value to $0.01 par value Common
Stock in connection with the Reincorporation (as defined below); (ii) the
Preferred Stock Conversion; and (iii) the sale of Common Stock in the
offering and the application of the estimated net proceeds thereof to the
repurchase of Common Stock issued with respect to 13,636 of the shares of
Junior Preferred Stock converted in the Preferred Stock Conversion, the
redemption of Senior Preferred Stock and the repayment of debt, as
described in "Use of Proceeds," as if all such transactions had been
completed as of September 30, 1997 and assuming an initial public offering
price of $14.00 per share.

(5) Excludes Fifth Avenue Hospital in Seattle, Washington, which was sold in
May 1995.
(6) Adjusted patient days have been calculated based on an industry-accepted,
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the number of inpatients and outpatients served.
(7) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.

(8) "EBITDA" is defined to mean earnings before interest, income taxes,
depreciation and amortization, cumulative effect of change in accounting
method, costs of the Recapitalization, loss (gain) on sale of assets, and
income (loss) from discontinued operations, net of taxes. EBITDA also
includes an increase in insurance expense of $2.0 million in 1996 for
incurred but not reported claims related to professional liability and
workers' compensation. The Company has included EBITDA data because such
data are one measure in determining the enterprise value of the Company.
EBITDA is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity.

(9) EBITDA margin represents EBITDA divided by net operating revenue.

6
<PAGE> 8

FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus Summary and under the captions "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," and elsewhere in this Prospectus, constitute
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions, both
nationally and in regions where the Company operates; demographic changes; the
effect of existing or future governmental regulation and federal and state
legislative and enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."

Unless the context otherwise requires, references in this Prospectus to
"Province" or the "Company" shall mean Province Healthcare Company and its
predecessors (including Principal Hospital Company, formerly known as Brim,
Inc.), together with Province Healthcare Company's direct and indirect
subsidiaries. Unless otherwise indicated, all information contained in this
Prospectus: (i) has been adjusted to give effect to the Recapitalization, the
Merger, the 3-for-1 stock split effected in May 1997, and the Reincorporation
(as defined below); and (ii) assumes no exercise of the Underwriters'
over-allotment option.
7
<PAGE> 9

THE COMPANY

Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Brim and its predecessors have
provided health care services, including managing and operating non-urban
hospitals, since the 1970s. PHC was founded in February 1996 by GTCR Fund IV and
Mr. Rash to acquire and operate hospitals in non-urban communities in the United
States. In December 1996, Brim was recapitalized. Following the
Recapitalization, new members of the Board of Directors were elected, and
Messrs. Rash and Gore were elected as Brim's Chief Executive Officer and Chief
Financial Officer, respectively; the operations of Brim and PHC were combined in
the Merger; and the Company operated under the name Principal Hospital Company.

During 1996, prior to the Recapitalization, PHC purchased Memorial Mother
Frances Hospital in Palestine, Texas and leased Starke Memorial Hospital in
Knox, Indiana, and Brim leased Parkview Regional Hospital in Mexia, Texas
(collectively, the "1996 Acquisitions"). In August 1997, the Company leased
Needles Desert Communities Hospital in Needles, California (the "Needles
Acquisition", and, together with the 1996 Acquisitions, the "Acquisitions").

In November 1997, the Company's predecessor, Principal Hospital Company,
will be merged with and into Province Healthcare Company, a Delaware
corporation, to change the name and jurisdiction of incorporation of Principal
Hospital Company and to make certain other changes to the Company's authorized
capitalization (the "Reincorporation").

The Company's principal executive offices are located at 109 Westpark
Drive, Suite 180, Brentwood, Tennessee 37027, and its telephone number is (615)
370-1377.

THE RECAPITALIZATION AND THE MERGER

On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement among GTCR Fund IV, Brim and PHC. Prior to the Recapitalization, Brim
was owned by certain of its officers and employees, and PHC was controlled by
GTCR Fund IV, which owned 82.1% of its common stock. Following the
Recapitalization, GTCR Fund IV controlled both Brim and PHC, and merged a
subsidiary of Brim into PHC. The combination was accounted for as a merger of
businesses under common control.

The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility to, along with the proceeds from
the sale of the new shares, provide financing for the redemption of a portion of
the pre-existing common and preferred stock; this pre-existing common and
preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR Fund IV
controlled the Company and also controlled PHC, a company unrelated to Brim that
GTCR Fund IV founded in February 1996. Since both companies are engaged in the
business of owning, leasing and managing hospitals in non-urban communities,
GTCR Fund IV then merged PHC into Brim so that the two companies would be under
the same corporate structure and management.

As a result of the Recapitalization and the subsequent Merger with PHC, and
immediately thereafter, the Company was controlled by GTCR Fund IV, and the
Common Stock ownership of the Company was as follows: certain
pre-Recapitalization Brim shareholders (the "Continuing Shareholders") -- 10.9%;
GTCR Fund IV -- 61.0%; Leeway & Co. -- 11.5%; Messrs. Rash and Gore -- 15.7%;
and two banks -- 0.9%. After giving effect to: (i) the sale in July 1997 by the
Company of shares of its Junior Preferred Stock and Common Stock; (ii) the
exercise in September 1997 of the warrant held by Leeway & Co.; (iii) the
Preferred Stock Conversion; and

8
<PAGE> 10

(iv) the application of a portion of the proceeds of the offering to repurchase
the Common Stock issued to GTCR Fund IV and Leeway & Co. with respect to 13,636
of their shares of Junior Preferred Stock (in the case of clauses (iii) and (iv)
assuming an initial public offering price of $14.00 per share and as if such
transactions occurred prior to the offering); the Common Stock ownership of the
Company immediately prior to the issuance of shares of Common Stock pursuant to
the offering will be as follows: the Continuing Shareholders -- 10.8%; GTCR Fund
IV -- 59.0%; Leeway & Co. -- 15.3%; Messrs. Rash and Gore -- 13.9%; and two
banks -- 1.0%.

The principal elements of the Recapitalization included the following:

- The outstanding common stock of certain of Brim's shareholders (the
"Redeemed Shareholders") was exchanged for redeemable preferred stock (the
"Redeemable Stock").

- GTCR Fund IV, Messrs. Rash and Gore, and two banks (together with Leeway
& Co., the "Investors") purchased an aggregate of 1,912,124 shares of
Common Stock and 6,805 shares of Junior Preferred Stock, for an aggregate
purchase price of $7.5 million.

- Leeway & Co. purchased 20,000 shares of Senior Preferred Stock, 3,752
shares of Junior Preferred Stock, 833,778 shares of Common Stock and a
warrant to purchase 343,265 shares of Common Stock for an aggregate
purchase price of $24.1 million.

- Through a series of transactions, the Continuing Shareholders received
3,580 shares of Junior Preferred Stock and 795,562 shares of Common Stock
with a value of approximately $4.0 million in exchange for their Brim
common stock.

- Brim repaid its existing debt of $5.4 million and entered into a $100.0
million credit facility with First Union National Bank and certain other
lenders and borrowed $35.0 million under the term loan portion of the
facility and $37.0 million under the revolving credit portion of the
facility.

- Brim redeemed all of the Redeemable Stock for $42.3 million and settled
outstanding stock options for $8.0 million. Brim also redeemed preferred
stock held by General Electric Credit Corporation for $29.9 million.

In connection with the Recapitalization, an aggregate of $11.6 million was
charged to operations, consisting of $8.0 million paid to settle outstanding
stock options, $2.2 million of severance payments and $1.4 million of
transaction-related costs, principally professional fees.

Following the Recapitalization, a subsidiary of Brim was merged into PHC,
and PHC became a subsidiary of Brim. In connection with the Merger, the
stockholders of PHC received an aggregate of 14,403 shares of Junior Preferred
Stock and 3,738,556 shares of Common Stock, and PHC's existing debt of $19.6
million was repaid.

9
<PAGE> 11

RISK FACTORS

In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following information
relating to the Company and the Common Stock before making an investment in the
Common Stock offered hereby.

RISKS OF ACQUISITION STRATEGY

A key element of the Company's growth strategy is expansion through the
acquisition of acute care hospitals in attractive non-urban markets. There can
be no assurance that the Company will be able to acquire hospitals which meet
its target criteria on satisfactory terms, or of the number of such acquisitions
the Company will make during a period of time. Expenses arising from the
Company's efforts to complete acquisitions, increase services offered or
increase its market penetration could have a material adverse effect on the
Company's business, financial condition or results of operations. There can be
no assurance that the Company will be able to implement its growth strategy
successfully or manage its expanded operations effectively and profitably.

The Company faces competition for acquisitions primarily from other
for-profit health care companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.

Hospital acquisitions generally require a longer period to complete than
acquisitions in many other businesses and are subject to additional uncertainty.
In recent years, the legislatures and attorneys general of several states have
shown a heightened level of interest in transactions involving the sale of
hospitals by not-for-profit entities. Although the level of interest varies from
state to state, the trend is to provide for increased governmental review, and
in some cases approval, of transactions in which not-for-profit entities sell a
health care facility. Attorneys general in certain states, including California,
where the Company owns or leases four hospitals, have been especially active in
evaluating these transactions. Although the Company has not yet been adversely
affected as a result of these trends, such increased scrutiny may increase the
difficulty or prevent the completion of transactions with not-for-profit
organizations in certain states in the future, and may affect the Company's
ability to exercise existing purchase options for hospitals, including the
hospitals in Eureka, California (lease expires in December 2000) and Blythe,
California (lease expires in December 2002, subject to a ten-year renewal
option).

EFFECT OF REIMBURSEMENT AND PAYMENT POLICIES; HEALTH CARE REFORM LEGISLATION

The Company's owned and leased hospitals derive a substantial portion of
their revenue from Medicare and Medicaid programs. Such programs are highly
regulated and are subject to frequent and substantial changes. In recent years,
changes in Medicare and Medicaid programs have resulted in limitations on, and
reduced levels of, payment and reimbursement for a substantial portion of
hospital procedures and costs. Congress recently enacted the Balanced Budget Act
of 1997, which establishes a plan to balance the federal budget by fiscal year
2002, and includes significant additional reductions in spending levels for the
Medicare and Medicaid programs.

Federal and state proposals are pending that would impose further
limitations on governmental payments to health care providers such as the
Company and increase co-payments and deductibles. In addition, a number of
states are considering legislation designed to reduce their Medicaid
expenditures and to provide universal coverage and additional care and/or to
impose additional taxes on hospitals to help finance or expand the states'
Medicaid systems. Significant additional reductions in payment levels could have
a material adverse effect on the business, financial condition and results of
operations of the Company.

10
<PAGE> 12

An increasing number of related legislative proposals have been introduced
or proposed in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level.
Among the proposals under consideration or already enacted are price controls on
hospitals, insurance market reforms to increase the availability of group health
insurance coverage to small businesses, and requirements that all businesses
offer health insurance coverage to their employees. While the Company
anticipates that payments to hospitals will be reduced as a result of future
federal and state legislation, it is uncertain at this time what legislation on
health care reform may ultimately be enacted or whether other changes in the
administration or interpretation of governmental health care programs will
occur. There can be no assurance that future health care legislation or other
changes in the administration or interpretation of governmental health care
programs will not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Health Care
Reform, Regulation and Licensing."

HEALTH CARE INDUSTRY INVESTIGATIONS

Significant media and public attention has recently been focused on the
hospital industry due to ongoing investigations reportedly related to certain
referral, cost reporting, and billing practices, laboratory and home health care
services and physician ownership and joint ventures involving hospitals. The
alleged practices have been the subject of federal and state investigations, as
well as other proceedings.

As part of its hospital operations, the Company operates laboratories and
provides some home health care services. The Company also has significant
Medicare and Medicaid billings. The Company monitors its billing practices and
hospital practices to maintain compliance with prevailing industry
interpretations of applicable law, and believes that its current practices are
consistent with current industry practices. These laws are complex and
constantly evolving, however, and there can be no assurance that the government
investigations will not result in interpretations which are inconsistent with
industry practices, including the Company's practices. There can be no assurance
that the Company or other hospital operators will not be the subject of future
investigations or inquiries. The positions taken by authorities in the current
investigations or any future investigations of the Company or other providers
could have a material adverse effect on the Company's business, financial
condition or results of operations. See "-- Health Care Regulation" and
"Business -- Hospital Operations -- Regulatory Compliance Program" and
"-- Health Care Reform, Regulation and Licensing".

DEPENDENCE ON MANAGEMENT

The Company's success is largely dependent on the skills, experience and
efforts of its senior management. The Company's operations are also dependent on
the efforts, ability and experience of key members of its local management
staffs. The loss of services of one or more members of the Company's senior
management or of a significant portion of its local management staff could have
a material adverse effect on the Company's business, financial condition or
results of operations. The Company does not maintain key man life insurance
policies on any of its officers. See "Management."

DEPENDENCE ON PHYSICIANS

The success of the Company's owned and leased hospitals is dependent upon
the number and quality of the physicians on the medical staff of, or who admit
patients to, such facilities, the admissions practices of such physicians and
the maintenance of good relations between the Company and such physicians.
Hospital physicians are generally not employees of the Company and most staff
physicians have admitting privileges at other hospitals. Only a limited number
of physicians are interested in practicing in the non-urban communities in which
the Company's hospitals are located, and the loss of physicians in these
communities, or the inability of the

11
<PAGE> 13

Company to recruit physicians to these communities, could have a material
adverse effect on the Company's business, financial condition and results of
operations. The operations of the Company's hospitals may also be affected by
the shortage of nurses and certain other health care professionals in these
communities. See "Business -- Employees and Medical Staff."

HEALTH CARE REGULATION

The health care industry is subject to extensive federal, state and local
laws and regulations relating to issues such as licensure, conduct of
operations, ownership of facilities, addition of facilities and services, and
prices for services, that are extremely complex and for which, in many
instances, the industry has the benefit of little or no regulatory or judicial
interpretation. In particular, Medicare and Medicaid anti-kickback amendments
codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback
Amendments") prohibit certain business practices and relationships that might
affect the provision and cost of health care services reimbursable under
Medicare and Medicaid, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other
governmental programs. Sanctions for violating the Anti-kickback Amendments
include criminal penalties and civil sanctions, including fines and possible
exclusion from government programs such as Medicare and Medicaid. Pursuant to
the Medicare and Medicaid Patient and Program Protection Act of 1987, the
Department of Health and Human Services ("HHS") has issued regulations that
describe some of the conduct and business relationships permissible under the
Anti-kickback Amendments ("Safe Harbors"). The fact that a given business
arrangement does not fall within a Safe Harbor does not render the arrangement
per se illegal. Business arrangements of health care service providers that fail
to satisfy the applicable Safe Harbor criteria, however, risk increased scrutiny
by enforcement authorities. The "Health Insurance Portability and Accountability
Act of 1996," which became effective January 1, 1997, amends, among other
things, Title XI (42.U.S.C. 1301 et seq.) to broaden the scope of certain fraud
and abuse laws to include all health care services, whether or not they are
reimbursed under a federal program. See " -- Current Publicity."

The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force. The
Company also enters into certain leases with physicians, and is a party to
certain joint ventures with physicians. The Company is also a participant in a
group purchasing joint venture. There can be no assurance that regulatory
authorities who enforce the Anti-kickback Amendments will not determine that the
Company's physician recruiting activities, other physician arrangements or group
purchasing activities violate the Anti-kickback Amendments or other federal
laws. Such a determination could subject the Company to liabilities under the
Social Security Act, including exclusion of the Company from participation in
Medicare and Medicaid. See "Business -- Health Care Reform, Regulation and
Licensing."

In addition, Section 1877 of the Social Security Act (commonly known as the
"Stark Laws"), which restricts referrals by physicians of Medicare and other
government-program patients to providers of a broad range of designated health
services with which they have ownership or certain other financial arrangements,
was amended effective January 1, 1995, to broaden significantly the scope of
prohibited physician referrals under the Medicare and Medicaid programs to
providers with which referring physicians have ownership or certain other
financial arrangements (the "Self-Referral Prohibitions"). Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's participation in and
development of joint ventures and other financial relationships with physicians
and others could be adversely affected by these amendments and similar state
enactments.

Both federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts. One federal initiative,
Operation Restore Trust, is focused on

12
<PAGE> 14

investigating health care providers in the home health and nursing home
industries as well as on medical suppliers to these providers in 17 states,
including California, Texas and Colorado, where the Company provides home health
and nursing home care. The Office of Inspector General and Department of Justice
have from time to time established enforcement initiatives that focus on
specific billing practices or other suspected areas of abuse. Current
initiatives include a focus on hospital billing for outpatient charges
associated with inpatient services, as well as hospital laboratory billing
practices.

Some states require state approval for purchase, construction and expansion
of health care facilities, including findings of need for additional or expanded
health care facilities or services. Certificates of Need ("CONs"), which are
issued by governmental agencies with jurisdiction over health care facilities,
may be required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Following a number of
years of decline, the number of states requiring CONs is on the rise. There can
be no assurances that the Company will be able to obtain required CONs.

The laws, rules and regulations described above are subject to considerable
interpretation. If a determination is made that the Company is in violation of
such laws, rules or regulations, or if further changes in the regulatory
framework occur, any such determination or changes could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Health Care Reform, Regulation and Licensing."

COMPETITION

Competition among hospitals and other health care providers in the United
States has intensified in recent years as hospital occupancy rates have declined
as a result of cost containment pressures, changing technology, changes in
government regulation and reimbursement, changes in practice patterns (e.g.,
shifting from inpatient to outpatient treatments), the impact of managed care
organizations, and other factors. The Company's hospitals face competition from
larger tertiary care centers, outpatient service providers and other local
non-urban hospitals, which provide similar services to those offered by the
Company's hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit corporations supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis. In addition, the Company faces competition for acquisitions
primarily from for-profit hospital management companies as well as
not-for-profit entities. Some of the Company's competitors are larger, may be
more established and may have more capital and other resources than the Company.
See "Business -- Competition."

NEED FOR ADDITIONAL CAPITAL; SUBSTANTIAL INDEBTEDNESS

The Company's acquisition program requires substantial capital resources.
In addition, the operations of its existing hospitals require ongoing capital
expenditures for renovation and expansion and the addition of costly medical
equipment and technology utilized in the hospitals. The Company may incur
indebtedness and may issue, from time to time, debt or equity securities to fund
any such expenditures. There can be no assurance that sufficient financing will
be available on terms satisfactory to the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Business Strategy."

As of September 30, 1997, after giving effect to: (i) the Preferred Stock
Conversion; and (ii) the application of the net proceeds of the offering, the
Company's total long-term debt (excluding current maturities) would be $48.6
million or 61.2% of its total capitalization. The Company has a $100.0 million
line of credit with a group of banks and is in the process of amending the
agreement to increase the line of credit to $200.0 million, contingent upon the
consummation of the offering. See "Capitalization," "Pro Forma Condensed
Consolidated Financial Statements" and

13
<PAGE> 15

"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

The degree to which the Company is leveraged could have important
consequences to holders of the Common Stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or other
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of principal and interest on
its indebtedness, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's borrowings are at variable rates of
interest, which makes the Company vulnerable to increases in interest rates; and
(iv) such indebtedness contains numerous financial and other restrictive
covenants (including restrictions on payments of dividends, incurrences of
indebtedness and sales of assets), the failure to comply with which may result
in an event of default which, if not cured or waived, could cause such
indebtedness to be declared immediately due and payable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."

CONCENTRATION OF HOSPITALS IN CALIFORNIA

Four of the Company's eight owned and leased hospitals are located in
California and, excluding Needles Desert Communities Hospital in Needles,
California which was acquired in August 1997, for the nine months ended
September 30, 1997, 39.9% of the Company's net operating revenue was derived
from its hospitals located in California. Accordingly, the Company may be
particularly sensitive to economic, competitive and regulatory conditions in
California.

California has created a voluntary health insurance purchasing cooperative
that seeks to make health care coverage more affordable for businesses with five
to fifty employees and, effective January 1, 1995, began changing the payment
system for participants in its Medicaid program in certain counties from
fee-for-service arrangements to managed care plans. While none of the Company's
hospitals are located in the counties targeted for conversion to managed care,
if the state is able to implement successfully managed care in these counties,
this initiative could be expanded throughout the state. Reduction in
reimbursement levels in California, including reductions due to the
implementation of managed care, could have a material adverse effect on the
business, financial condition and results of operations of the Company.

California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements will have any material adverse
effect on the Company's operations.

PROFESSIONAL LIABILITY

In recent years, physicians, hospitals and other health care providers have
become subject to an increasing number of lawsuits alleging malpractice, product
liability or related legal theories, many of which involve large claims and
significant defense costs. To cover claims arising out of the operations of
owned, leased and managed hospitals, the Company maintains professional
malpractice liability insurance and general liability insurance in amounts that
management believes to be sufficient for its operations, although some claims
may exceed the scope of the coverage in effect. The cost of malpractice and
other liability insurance has risen significantly during the past few years.
While the Company's professional and other liability insurance has been adequate
in the past to provide for liability claims, there can be no assurance that such
insurance will continue to be available for the Company to maintain adequate
levels of insurance. The Company's management

14
<PAGE> 16

contracts with its managed hospitals generally require the hospital to indemnify
the Company against certain claims and to maintain specified amounts of
insurance, however, there can be no assurance the hospitals will maintain such
insurance or that such indemnities will be available.

EFFECTIVE CONTROL BY CERTAIN STOCKHOLDERS

Upon completion of the offering, the Company's officers and directors and
their affiliates as a group will beneficially own 49.3% of the outstanding
shares of Common Stock, including the 37.7% of the shares of Common Stock which
will be owned by GTCR Fund IV. As a result of such ownership, these
stockholders, if acting together, will effectively have the ability to elect the
Board of Directors and thereby control the affairs and management of the
Company. This may have the effect of delaying, deferring or preventing a change
in control of the Company. See "Principal Stockholders" and "Management."

BENEFITS OF OFFERING TO CERTAIN STOCKHOLDERS

The Company will receive net proceeds of approximately $73.0 million from
the offering (at an assumed public offering price of $14.00 per share) after
deduction of the underwriting discounts and estimated expenses of the offering.
Of this amount, $21.9 million will be used to redeem the Senior Preferred Stock,
including all accrued and unpaid dividends thereon, held by Leeway & Co., $12.1
million will be used to repurchase the Common Stock issued to GTCR Fund IV in
respect of the conversion of 11,363 of its shares of Junior Preferred Stock, and
$2.4 million will be used to repurchase the Common Stock issued to Leeway & Co.
in respect of the conversion of 2,273 of its shares of Junior Preferred Stock.
See "Use of Proceeds" and "Certain Relationships and Related Transactions."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock will be determined
by negotiations between the Company and the Representatives of the Underwriters
and may not be indicative of the market price for shares of the Common Stock
after the offering. See "Underwriting." There can be no assurance that an active
trading market will develop or be maintained or as to the price at which the
Common Stock will trade if and when such a market develops. The Common Stock has
been approved for trading on the Nasdaq National Market, subject to notice of
issuance. The market price of the Common Stock may be subject to significant
fluctuations in response to variations in the Company's operating results and
other factors, including future acquisitions or divestitures of hospitals,
market rates of interest, developments affecting the health care industry
generally, the enactment of health care reform, reductions in payment rates and
changes in governmental regulation. In addition, the stock market in recent
years has experienced price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies, and the
price of the Common Stock could be affected by such fluctuations.

ABSENCE OF DIVIDENDS

The Company does not anticipate paying cash dividends in the foreseeable
future. In addition, the terms of the Company's bank credit agreement prohibit
the payment of cash dividends. Any future indebtedness incurred to refinance the
Company's existing indebtedness or to fund future growth may prohibit or limit
the Company's ability to pay dividends. See "Dividend Policy."

SUBSTANTIAL DILUTION

The assumed initial public offering price of $14.00 per share will exceed
the net tangible book value per share of the Common Stock after the offering by
$12.77 per share. Purchasers of the Common Stock in the offering will experience
immediate and substantial dilution in the amount of

15
<PAGE> 17

$12.77 per share, and present stockholders will experience an immediate and
substantial increase in net tangible book value in the amount of $9.30 per share
of Common Stock. The net tangible book value (deficit) of the Company at
September 30, 1997 was $(69.2 million), or $(8.07) per share of Common Stock.
See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

There will be 15,698,314 shares of Common Stock outstanding upon completion
of the offering (16,553,314 shares if the Underwriters over-allotment option is
exercised in full). All of the 5,700,000 shares offered in the offering will be
eligible for resale in the public market without restriction by persons other
than affiliates of the Company upon completion of the offering. The remaining
9,998,314 shares of Common Stock are "restricted securities" as that term is
defined in Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"). Commencing 90 days after the completion of the offering,
538,494 shares of Common Stock will be eligible for sale in the public market
pursuant to Rule 144. The remaining restricted shares of Common Stock will
become eligible for sale pursuant to Rule 144 thereafter. The Company, its
executive officers and certain directors and substantially all of the current
stockholders have agreed not to sell or otherwise dispose of any of the shares
of Common Stock owned by them in the public market for a period of 180 days
after the date of this Prospectus without the prior written consent of BT Alex.
Brown Incorporated. Sales of substantial amounts of the Company's Common Stock
in the public market, or the perception that such sales could occur, could
adversely affect the prevailing market price for the Common Stock and could
impair the Company's ability to raise additional capital through the sale of
equity securities. See "Description of Capital Stock" and "Shares Eligible for
Future Sale."

In connection with the Recapitalization, the Company entered into a
Registration Agreement (the "Registration Agreement") which provides certain
demand and piggyback registration rights to the Company's current stockholders
who hold an aggregate of 9,998,314 shares of Common Stock, substantially all of
which shares are subject to the 180-day restrictions described above. The
registration rights are subject to certain notice requirements, timing
restrictions and volume limitations which may be imposed by the underwriters of
such offering. See "Shares Eligible for Future Sale -- Registration Agreement."
In addition, the Company expects to register the issuance of up to 1,300,000
shares of Common Stock authorized under its 1997 Long-Term Equity Incentive Plan
following the offering. See "Management -- Long-Term Equity Incentive Plan."

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<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the offering, after deducting
estimated underwriting discounts and offering expenses and assuming an initial
public offering price of $14.00 per share, are estimated to be $73.0 million
($84.1 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, $36.6 million will be used to reduce the outstanding term and
revolving loan balance under the Credit Agreement, dated as of December 17,
1996, among the Company and the lenders named therein (the "Credit Agreement");
$21.9 million will be used to redeem in full the outstanding Senior Preferred
Stock and all accrued and unpaid dividends thereon; and $14.5 million will be
used to repurchase shares of Common Stock issued upon conversion of 13,636 of
the shares of the Junior Preferred Stock held by GTCR Fund IV and Leeway & Co.
See "Certain Relationships and Related Transactions." The Company continuously
seeks out appropriate acquisition candidates and is frequently engaged in
discussions regarding potential acquisitions.

Borrowings under the Credit Agreement bear interest at a floating rate,
which is calculated on the basis of the agent's prime rate, the federal funds
rate or LIBOR, plus, in each case, a margin depending upon the Company's
outstanding indebtedness. As of September 30, 1997, the effective rate was 8.4%.
Borrowings under the revolving loan portion of the Credit Agreement mature on
December 16, 1999 and borrowings under the term loan portion of the Credit
Agreement mature on December 16, 2002. The Credit Agreement was entered into in
connection with the Recapitalization.

The Senior Preferred Stock, which will be redeemed with a portion of the
proceeds of this offering, accrues dividends on a daily basis at a per annum
rate of 11.0% on the sum of the liquidation value plus accumulated and unpaid
dividends thereon ($21.9 million as of the assumed offering date). The Company
would be required to redeem the Senior Preferred Stock in full on December 17,
2005.

The Junior Preferred Stock, which will be converted to shares of Common
Stock in connection with this offering, accrues dividends on a daily basis at a
per annum rate of 8.0% on the sum of the liquidation value plus accumulated and
unpaid dividends thereon ($34.3 million as of the assumed offering date). The
Company would be required to redeem the Junior Preferred Stock in full on
December 17, 2006.

DIVIDEND POLICY

The Company currently intends to retain its earnings for use in its
business and therefore does not anticipate declaring or paying any cash
dividends in the foreseeable future. The Credit Agreement prohibits the payment
of dividends by the Company (other than dividends paid in the Company's stock).
Any future determination to declare or pay cash dividends will be made by the
Board of Directors in light of the Company's earnings, financial position,
capital requirements, credit agreements and such other factors as the Board of
Directors deems relevant at such time. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 6 of Notes to Consolidated Financial Statements.

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<PAGE> 19

CAPITALIZATION

The following table sets forth as of September 30, 1997: (i) the
capitalization of the Company; (ii) the capitalization of the Company on a pro
forma basis; and (iii) the capitalization of the Company on a pro forma as
adjusted basis to reflect the sale of the shares of Common Stock offered hereby
(based on an assumed offering price of $14.00 per share) and the application of
the estimated net proceeds therefrom all as if they occurred on September 30,
1997.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
------- ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents.............................. $ 5,896 $ 5,896 $ 5,896
======= ======= =======
Current maturities of long-term obligations............ $ 1,537 $ 1,537 $ 1,537
======= ======= =======
Long-term obligations, less current maturities(2):..... $85,201 $85,201 $48,569
Mandatory redeemable preferred stock(3):
Series A redeemable senior preferred stock, no par
value, authorized: 25,000 shares; issued and
outstanding: 20,000 shares (net of issuance and
warrant costs of $818,000 and $139,000,
respectively); 20,000 shares pro forma and no
shares pro forma as adjusted...................... 19,043 19,043 --
Series B redeemable junior preferred stock, no par
value, authorized: 50,000 shares; issued and
outstanding: 32,295 shares (net of issuance costs
and discount of $3,106,000); no shares pro forma
and pro forma as adjusted......................... 29,189 -- --
------- ------- -------
Total mandatory redeemable preferred stock........... 48,232 19,043 --
Common stockholders' equity (deficit):
Common stock, no par value, authorized: 20,000,000
shares; issued and outstanding: 8,581,510 shares;
$0.01 par value, authorized: 25,000,000 shares;
issued and outstanding: 11,032,728 shares pro
forma and 15,698,314 shares pro forma as
adjusted(4)....................................... 3,614 110 157
Additional paid-in capital........................... -- 34,715 92,243
Notes receivable for Common Stock.................... (180) (180) (180)
Retained earnings (deficit).......................... (61,164) (61,376) (61,376)
------- ------- -------
Total common stockholders' equity (deficit)....... (57,730) (26,731) 30,844
------- ------- -------
Total capitalization......................... $75,703 $77,513 $79,413
======= ======= =======
</TABLE>

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

(1) Gives effect to: (i) the conversion from no par value to $0.01 par value
Common Stock in connection with the Reincorporation; and (ii) the Preferred
Stock Conversion.

(2) For information regarding the Company's long-term obligations, see Note 6 of
Notes to Consolidated Financial Statements.
(3) For information regarding the Company's mandatory redeemable preferred
stock, see Note 7 of Notes to Consolidated Financial Statements.

(4) Excludes 478,118 shares of Common Stock issuable upon exercise of
outstanding stock options with a weighted average exercise price of $5.40
per share. See "Management -- Long-Term Equity Incentive Plan" and Notes 8
and 17 of Notes to Consolidated Financial Statements.

18
<PAGE> 20

DILUTION

The net tangible book value (deficit) of the Company at September 30, 1997
was $(69.2 million), or $(8.07) per share of Common Stock. Net tangible book
value (deficit) per share of Common Stock represents the amount of total assets
less total liabilities, mandatory redeemable preferred stock, minority interests
and intangible assets, divided by the number of shares of Common Stock
outstanding at September 30, 1997. After giving effect to: (i) the Preferred
Stock Conversion; and (ii) the sale by the Company of the 5,700,000 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$14.00 per share) and the application of the net proceeds as set forth under
"Use of Proceeds," the pro forma net tangible book value of the Company at
September 30, 1997 would have been $19.4 million, or $1.23 per share of Common
Stock. This represents an immediate increase in net tangible book value of $9.30
per common share to existing stockholders and an immediate dilution of $12.77
per common share to investors purchasing Common Stock in the offering, as
illustrated by the following table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $14.00
------
Net tangible book value (deficit) per common share prior
to the offering(1)..................................... $(8.07)
Increase per common share attributable to new investors... 9.30
------
Pro forma net tangible book value per common share after the
offering.................................................. 1.23
------
Dilution per common share to new investors(2)............... $12.77
======
</TABLE>

The following table summarizes certain differences between the existing
stockholders and the new investors with respect to the number of shares of
Common Stock purchased from the Company, the total consideration paid and the
average price per share paid by the existing stockholders and new investors
(based on an assumed initial public offering price of $14.00 per share), in each
case on a pro forma basis after giving effect to: (i) the conversion from no par
value to $0.01 par value Common Stock in connection with the Reincorporation;
(ii) the Preferred Stock Conversion; and (iii) the sale of the shares of Common
Stock in the offering and the application of the estimated net proceeds thereof
to the redemption of Senior Preferred Stock, the repurchase of certain shares of
Common Stock and the repayment of debt, as described in "Use of Proceeds".

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing investors(1)............... 9,998,314 63.7% $ 23,449,253 22.7% $ 2.35
New investors....................... 5,700,000 36.3 79,800,000 77.3 $14.00
---------- ----- ------------ -----
Total..................... 15,698,314 100.0% $103,249,253 100.0%
========== ===== ============ =====
</TABLE>

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

(1) Excludes common shares issuable upon the exercise of outstanding options to
purchase 478,118 shares of Common Stock pursuant to the Company's 1997
Long-Term Equity Incentive Plan at a weighted average exercise price of
$5.40 per share.

(2) Dilution is determined by subtracting pro forma net tangible book value per
common share after giving effect to this offering from the initial public
offering price per share. Dilution to new investors will be $12.16 if the
Underwriters' over-allotment option is exercised in full.

19
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data of the
Company: (i) as of and for each of the five fiscal years ended December 31,
1996, which information has been derived from the audited consolidated financial
statements of the Company; and (ii) as of and for the nine-month periods ended
September 30, 1996 and 1997, which information has been derived from
consolidated financial statements of the Company which are unaudited but which,
in the opinion of management, have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments necessary
(consisting of normal recurring adjustments) for a fair presentation of the
results for such periods. The selected consolidated financial data are qualified
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:(1)
Net operating revenue..................... $69,245 $84,859 $102,067 $101,214 $118,077 $87,311 $123,948
Operating expenses(2)..................... 66,026 81,091 96,870 98,077 117,097 80,822 110,484
Interest expense.......................... 969 896 760 589 1,842 573 6,235
Costs of recapitalization................. -- -- -- -- 11,570 -- --
Loss (gain) on sale of assets............. (7) (10) (635) (2,814) 442 170 (156)
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing operations
before provision for income taxes....... 2,257 2,882 5,072 5,362 (12,874) 5,746 7,385
Provision (benefit) for income taxes...... 1,021 1,731 2,097 1,953 (4,273) 2,347 2,814
------- ------- -------- -------- -------- ------- --------
Income (loss) from continuing
operations.............................. 1,236 1,151 2,975 3,409 (8,601) 3,399 4,571
Income (loss) from discontinued
operations, less applicable
income taxes............................ 496 593 (157) (264) 6,015 272 --
------- ------- -------- -------- -------- ------- --------
Income (loss) before cumulative effect of
change in accounting for income taxes... 1,732 1,744 2,818 3,145 (2,586) 3,671 4,571
Cumulative effect of change in accounting
for income taxes........................ -- 1,141 -- -- -- -- --
------- ------- -------- -------- -------- ------- --------
Net income (loss)......................... $ 1,732 $ 2,885 $ 2,818 $ 3,145 (2,586) 3,671 4,571
======= ======= ======== ========
Preferred stock dividends and accretion... ....... (172) -- (3,708)
-------- ------- --------
Net income (loss) applicable to common
shareholders............................ $ (2,758) $ 3,671 $ 863
======== ======= ========
Pro forma net income (loss) per share
applicable to common shareholders(3):
Income (loss) from continuing
operations.............................. $ (0.99) $ 0.39 $ 0.10
Income from discontinued operations....... 0.68 0.03 --
-------- ------- --------
Net income (loss) applicable to common
shareholders............................ $ (0.31) $ 0.42 $ 0.10
======== ======= ========
Pro forma shares used in computing net
income (loss) per share applicable to
common shareholders(3).................. 8,844 8,844 8,844
Cash dividends declared per common share.. -- -- -- -- -- -- --
</TABLE>

20
<PAGE> 22

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- -------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(1)
Cash and cash equivalents................ $ 538 $ 2,477 $ 1,819 $ 2,287 $ 11,256 $ 3,993 $ 5,896
Total assets............................. 29,512 42,895 46,057 47,075 94,025 55,134 108,152
Long-term obligations, less current
maturities............................. 4,587 8,972 6,892 5,519 76,633 5,686 85,201
Mandatory redeemable preferred stock..... -- 8,816 8,816 8,816 44,150 8,816 48,232
Common stockholders' equity (deficit).... 6,514 9,305 11,640 14,666 (59,246) 17,922 (57,730)
OTHER DATA:(1)
EBITDA(4)................................ $ 4,153 $ 5,078 $ 6,727 $ 4,908 $ 2,885 $ 7,707 $ 17,155
EBITDA margin(5)......................... 6.0% 6.0% 6.6% 4.9% 2.4% 8.8% 13.8%
</TABLE>

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

(1) The Company's financial statements for the periods presented are not
strictly comparable due to the significant effect that acquisitions,
divestitures and the Recapitalization have had on such statements. See Notes
3 and 4 of Notes to Consolidated Financial Statements.

(2) Includes an increase in insurance expense of $2.0 million for incurred but
not reported claims related to professional liability and workers'
compensation.

(3) Pro forma net income (loss) per share applicable to common shareholders is
computed using the weighted average number of shares of Common Stock
outstanding during the period, including dilutive common equivalent shares
from stock options and warrants (using the treasury stock method). The
7,280,020 common shares issued in the Recapitalization and the Merger in
December 1996 have been included in the pro forma calculation as if the
Recapitalization and the Merger had occurred as of the first day of 1996.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other Common Stock issued, and Common Stock options and
warrants granted, by the Company at prices below the initial public offering
price during the twelve-month period prior to the initial public offering
have been included in the calculation as if they were outstanding for the
full fiscal year (using the treasury stock method). Historical net income
(loss) per share has not been presented since the historical capitalization
of the Company is not meaningful due to the significant change in the
capital structure of the Company resulting from the Recapitalization.
Supplemental pro forma net income (loss) per share applicable to common
shareholders as required by Accounting Principles Board Opinion No. 15,
Earnings Per Share, has not been presented as that information is provided
in the pro forma net income (loss) per share applicable to common
shareholders presentation referred to above.

(4) "EBITDA" is defined to mean earnings before interest, income taxes,
depreciation and amortization, cumulative effect of change in accounting
method, costs of Recapitalization, loss (gain) on sale of assets, and income
(loss) from discontinued operations, net of taxes. EBITDA also includes an
increase in insurance expense of $2.0 million in 1996 for incurred but not
reported claims related to professional liability and workers' compensation.
The Company has included EBITDA data because such data are one measure in
determining the enterprise value of the Company. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.

(5) EBITDA margin represents EBITDA divided by net operating revenue.

21
<PAGE> 23

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

On February 1, 1996, the Company acquired Parkview Regional Hospital from
Parkview Regional Hospital, Inc. (a not-for-profit organization). On December
18, 1996, the Company combined with PHC through a merger transaction. PHC
previously had acquired Memorial Mother Frances Hospital from Memorial Hospital
Foundation of Palestine, Inc. on July 26, 1996, and had acquired Starke Memorial
Hospital from Starke County, Indiana, on October 1, 1996.

The following unaudited pro forma condensed consolidated balance sheet as
of September 30, 1997 gives effect to: (i) the conversion from no par value to
$0.01 par value Common Stock in connection with the Reincorporation; (ii) the
Preferred Stock Conversion; and (iii) the sale of the Common Stock in the
offering and the application of the estimated net proceeds thereof to the
repurchase of certain shares of Common Stock, the redemption of Senior Preferred
Stock and the repayment of debt, as described in "Use of Proceeds," as if all
such transactions had been completed as of September 30, 1997 and assuming an
initial public offering price of $14.00 per share.

The unaudited pro forma condensed consolidated statements of operations for
the year ended December 31, 1996 and the nine months ended September 30, 1997,
give effect to: (i) the operating results of PHC for the period prior to the
Merger; (ii) the operating results of the 1996 Acquired Hospitals for periods
prior to their acquisition; (iii) the Preferred Stock Conversion; and (iv) the
sale of the Common Stock in the offering and the application of the estimated
net proceeds thereof to the repurchase of certain shares of Common Stock, the
redemption of Senior Preferred Stock and the repayment of debt, as described in
"Use of Proceeds," as if all such transactions had been completed as of January
1, 1996 and assuming an initial public offering price of $14.00 per share.

The pro forma condensed consolidated financial information presented herein
does not purport to represent what the Company's results of operations or
financial position would have been had such transactions in fact occurred at the
beginning of the periods presented or to project the Company's results of
operations in any future period. The pro forma result of operations, which do
not take into account certain operational changes instituted by the Company upon
acquisition of its hospitals, are not necessarily indicative of the results that
may be expected from such hospitals. The unaudited pro forma condensed
consolidated financial statements should be read in conjunction with the audited
financial statements, including the notes thereto, included elsewhere in this
Prospectus.

22
<PAGE> 24

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1997

(IN THOUSANDS)

<TABLE>
<CAPTION>
PRE-OFFERING PRE-OFFERING OFFERING
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(1) CONSOLIDATED ADJUSTMENTS(2) CONSOLIDATED
---------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........ $ 5,896 $ -- $ 73,014(d)
-- (14,482)(e)
-- (21,900)(f)
$ 5,896 (36,632)(g) $ 5,896
Accounts receivable, less
allowance for doubtful
accounts....................... 29,879 29,879 29,879
Other current assets............. 11,402 11,402 11,402
-------- ------- -------- -------- --------
Total current assets...... 47,177 -- 47,177 -- 47,177
Property, plant and equipment,
net.............................. 45,172 45,172 45,172
Unallocated purchase price......... 5,498 5,498 5,498
Other assets....................... 10,305 10,305 10,305
-------- ------- -------- -------- --------
Total assets.............. $108,152 $ -- $108,152 $ -- $108,152
======== ======= ======== ======== ========

LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................. $ 7,144 $ 7,144 $ 7,144
Accrued salaries and benefits.... 6,448 6,448 6,448
Accrued expenses................. 4,189 4,189 4,189
Current maturities of long-term
obligations.................... 1,537 1,537 1,537
-------- ------- -------- -------- --------
Total current
liabilities............. 19,318 -- 19,318 -- 19,318
Long-term obligations, less current
maturities....................... 85,201 85,201 $(36,632)(g) 48,569
Third-party settlements............ 5,542 5,542 5,542
Other liabilities.................. 7,589 $ 212(a) (1,900)(f)
(2,022)(b) 5,779 3,879
-------- ------- -------- -------- --------
98,332 (1,810) 96,522 (38,532) 57,990
Mandatory redeemable preferred
stock............................
Senior preferred stock......... 19,043 19,043 (19,043)(f) --
Junior preferred stock......... 29,189 (29,189)(b) -- --
-------- ------- -------- -------- --------
48,232 (29,189) 19,043 (19,043) --
Common stockholders' equity
(deficit)
Common stock..................... 3,614 (3,529)(c) 57(d)
25(b) 110 (10)(e)
157
Additional paid-in-capital....... -- 3,529(c) 72,957(d)
31,186(b) (14,472)(e)
34,715 (957)(f) 92,243
Notes receivable for common
stock.......................... (180) (180) (180)
Retained earnings (deficit)...... (61,164) (212)(a) (61,376) (61,376)
-------- ------- -------- -------- --------
(57,730) 30,999 (26,731) 57,575 30,844
-------- ------- -------- -------- --------
$108,152 $ -- $108,152 $ -- $108,152
======== ======= ======== ======== ========
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated balance
sheet.
- ---------------

(1) Reflects the effects of equity transactions occurring prior to or
simultaneously with the closing of the sale of Common Stock in the offering.
(2) Reflects the effects of the sale of the Common Stock in the offering and the
application of the estimated net proceeds thereof.

23
<PAGE> 25

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
(a) Reflects the accrual of $212 of dividends on the Senior Preferred
Stock and Junior Preferred Stock for the period from October 1, 1997
to the anticipated closing date of the offering.
(b) Reflects the conversion of 32,295 shares of Junior Preferred Stock
with a liquidation value of $32,295 net of issuance costs of $1,185
and unamortized discount of $1,921 and estimated accumulated and
unpaid dividends of $2,022 into 2,451,218 shares of Common Stock as
follows (at an assumed offering price of $14.00 per share):
Accumulated and unpaid dividends................... $ (2,022)
Junior Preferred Stock............................. (29,189)
Common Stock....................................... 25
Additional paid-in-capital......................... 31,186
--------
$ --
========
(c) Reflects the reclassification of $3,529 from Common Stock to
additional paid-in-capital upon conversion from no par to $0.01 par
value Common Stock in connection with the Reincorporation.
(d) Reflects the sale of 5,700,000 shares of Common Stock in the offering
at an assumed offering price of $14.00 per share, for net proceeds of
$73,014 as follows:
Common Stock....................................... $ 57
Additional paid-in-capital......................... 72,957
--------
Cash proceeds...................................... $ 73,014
========
(e) Reflects the repurchase of 1,034,414 shares of Common Stock issued
with respect to the conversion of 13,636 of the shares of Junior
Preferred Stock held by GTCR Fund IV and Leeway & Co. using offering
proceeds of $14,482 as follows:
Common Stock....................................... $ (10)
Additional paid-in-capital......................... (14,472)
--------
Cash disbursed..................................... $(14,482)
========
(f) Reflects the redemption of 20,000 shares of Senior Preferred Stock
with a liquidation value of $20,000 net of issuance and warrant costs
of $957 and the payment of estimated accumulated and unpaid dividends
of $1,900 using offering proceeds of $21,900 as follows:
Accumulated and unpaid dividends................... $ (1,900)
Senior Preferred Stock............................. (19,043)
Additional paid-in-capital......................... (957)
--------
Cash disbursed..................................... $(21,900)
========
(g) Reflects the application of the remaining proceeds from the offering
of $36,632 for the repayment of long-term obligations.
</TABLE>

24
<PAGE> 26

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
----------------------------------- ------------------------------------
1996 1996 1996 1996
PRINCIPAL ACQUIRED PRINCIPAL ACQUIRED PRO FORMA
COMPANY HOSPITAL CO. HOSPITALS HOSPITAL CO. HOSPITALS OFFERING CONSOLIDATED
-------- ------------ --------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue.... $118,077 $11,778 $ 23,281 $153,136
Operating expenses....... 117,097 11,592 23,008 $ (375)(b) 151,322
Interest expense......... 1,842 681 3,031 (44)(c) $ (121)(e) 5,389
Costs of
recapitalization....... 11,570 -- 11,570
Loss on sale of assets... 442 -- 442
--------- ------- -------- ---- ------ ------ --------
Loss from continuing
operations before
income taxes........... (12,874) (495) (2,758) 419 121 (15,587)
Income tax benefit....... (4,273) (191) -- (912)(d) 48(d) (5,328)
-------- ------- -------- ---- ------ ------ --------
Loss from continuing
operations............. (8,601) (304) (2,758) 1,331 73 (10,259)
-------- ------- -------- ---- ------ ------ --------
Stock dividends and
accretion.............. (172) (420) -- $420(a) 172(f) --
-------- ------- -------- ---- ------ ------ --------
Loss from continuing
operations applicable
to common shares....... $ (8,773) $ (724) $ (2,758) $420 $1,331 $ 245 $(10,259)
======== ======= ======== ==== ====== ====== ========
Loss per common share:
Primary and fully
diluted.............. $ (0.64)
========
Weighted average shares
used in earnings per
share computation:
Primary and fully
diluted.............. 15,961
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.

25
<PAGE> 27

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997

(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
OFFERING PRO FORMA
HISTORICAL ADJUSTMENTS CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Net operating revenue................................ $123,948 $123,948
Operating expenses................................... 110,484 110,484
Interest expense..................................... 6,235 $(2,379)(e) 3,856
Gain on sale of assets............................... (156) (156)
-------- ------- --------
Income from continuing operations before income
taxes.............................................. 7,385 2,379 9,764
Provision for income taxes........................... 2,814 926(d) 3,740
-------- ------- --------
Income from continuing operations.................... 4,571 1,453 6,024
-------- ------- --------
Preferred stock dividends and accretion.............. (3,708) 3,708(f) --
-------- ------- --------
Income from continuing operations applicable to
common shares...................................... $ 863 $ 5,161 $ 6,024
======== ======= ========
Income per common share:
Primary and fully diluted.......................... $ 0.38
========
Weighted average shares used in earnings per share
computation:
Primary and fully diluted.......................... 15,961
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated statements
of operations.

26
<PAGE> 28

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

(a) Reflects the elimination of the dividends on PHC stock.

(b) Reflects the elimination of the historical depreciation expense of the 1996
Acquired Hospitals and the inclusion of the Company's depreciation expense.

(c) Reflects the elimination of the historical interest expense related to debt
of the 1996 Acquired Hospitals not assumed in the acquisitions, and the
inclusion of the Company's interest expense related to debt used to finance
the acquisitions.

(d) Reflects the inclusion of income tax expense (benefit) based on the combined
federal and state statutory rate of 39% applied to adjusted pre-tax income
or loss.

(e) Reflects the elimination of the interest expense associated with the $36,632
of long-term obligations to be repaid with the net proceeds of the offering.

(f) Reflects the elimination of the dividends and the accretion of issuance
costs on the Senior Preferred Stock to be redeemed with a portion of the
net proceeds of the offering and Junior Preferred Stock to be converted
into Common Stock in connection with the offering.

27
<PAGE> 29

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

The following discussion should be read in conjunction with the Company's
consolidated financial statements and related notes thereto included elsewhere
in this Prospectus.

OVERVIEW

Province Healthcare Company is a health care services company focused on
acquiring and operating hospitals in attractive non-urban markets in the United
States. The Company currently operates eight general acute care hospitals in
four states with a total of 570 licensed beds, and manages 50 hospitals in 17
states with a total of 3,448 licensed beds.

Prior to the Recapitalization and the Merger with PHC, the Company operated
under the name Brim, Inc. The current operations of the Company include certain
Brim operations and all of the operations of PHC. Prior to the Recapitalization,
Brim operated primarily through two divisions: the Health Care Group, which
primarily managed and leased hospitals, and the Senior Living Group, which was
responsible for Brim's assisted living facilities. In February 1996, Brim
acquired Parkview Regional Hospital in Mexia, Texas ("Parkview"). PHC was
founded in February 1996 by GTCR Fund IV and Martin S. Rash to acquire and
operate hospitals in attractive non-urban markets. PHC acquired its first
hospital, Memorial Mother Frances Hospital in Palestine, Texas ("Memorial Mother
Frances"), in July 1996 and acquired another hospital, Starke Memorial Hospital
in Knox, Indiana ("Starke Memorial"), in October 1996. In December 1996, Brim
sold its Senior Living Group and Brim was recapitalized. The operations of Brim
and PHC were subsequently combined in the Merger. See "The Recapitalization and
The Merger."

An integral part of the Company's strategy is to acquire non-urban acute
care hospitals. See "Business -- Business Strategy." Because of the financial
impact of the Company's recent acquisitions and divestitures, it is difficult to
make meaningful comparisons between the Company's financial statements for the
fiscal periods presented. In addition, due to the relatively small number of
owned and leased hospitals, each hospital acquisition can materially affect the
overall operating margin of the Company. Upon the acquisition of a hospital, the
Company typically takes a number of steps to lower operating costs. See
"Business -- Hospital Operations." The impact of such actions may be offset by
cost increases to expand services, strengthen medical staff and improve market
position. The benefits of these investments and of other activities to improve
operating margins generally do not occur immediately. Consequently, the
financial performance of a newly-acquired hospital may adversely affect overall
operating margins in the near term. As the Company makes additional hospital
acquisitions, the Company expects that this effect will be mitigated by the
expanded financial base of existing hospitals and the allocation of corporate
overhead among a larger number of hospitals.

RECAPITALIZATION AND MERGER

The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility which, along with the proceeds
from the sale of the new shares, provided financing for the redemption of a
portion of the pre-existing common and preferred stock; such pre-existing common
and preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR Fund IV
controlled the Company and also controlled PHC, a company unrelated to Brim that
GTCR Fund IV founded in February 1996. Since both companies are engaged in the
business of owning, leasing and managing hospitals in non-urban communities,
GTCR Fund IV then merged PHC with Brim so that the two companies would be under
the same corporate structure and management.

28
<PAGE> 30

Pursuant to the Recapitalization: (i) each of the Investors purchased
shares of the Common Stock and Junior Preferred Stock; (ii) Leeway & Co. also
purchased shares of Senior Preferred Stock and a warrant to purchase additional
shares of Common Stock; (iii) the Company's current Board of Directors and
senior management were elected; (iv) Brim repaid its existing indebtedness and
entered into the Credit Agreement; and (v) the Company redeemed stock held by
the Redeemed Stockholders and settled outstanding Brim stock options. In
connection with the Recapitalization, an aggregate of $11.6 million was charged
to operations, consisting of $8.0 million paid to settle Brim stock options,
$2.2 million of severance payments, and $1.4 million of transaction-related
costs (principally professional fees). See "The Recapitalization and The
Merger."

Following the Recapitalization, a subsidiary of Brim was merged into PHC,
such that PHC became a subsidiary of the Company. Pursuant to the Merger, the
stockholders of PHC received an aggregate of 14,403 shares of Junior Preferred
Stock and 3,738,556 shares of Common Stock, and PHC's existing indebtedness of
$19.6 million was repaid.

ACQUISITIONS AND DIVESTITURES

In February 1995, the Company acquired two senior living residences for
$15.8 million. In September 1995, the Company sold the real property of the two
facilities and leased them back under an operating lease agreement for a minimum
lease term of 15 years. In May 1995, the Company sold Fifth Avenue Hospital,
located in Seattle, Washington, for $6.0 million and recorded a pre-tax gain on
this transaction of $2.5 million.

In February 1996, the Company acquired Parkview by entering into a 15-year
operating lease agreement with two five-year renewal terms, and by purchasing
certain assets and assuming certain liabilities for a purchase price of $1.8
million. In December 1996, the Company sold its senior living business (see
" -- Discontinued Operations") and certain assets related to three medical
office buildings. On December 18, 1996, a subsidiary of the Company was merged
into PHC. In July 1996, PHC purchased certain assets and assumed certain
liabilities of Memorial Mother Frances for a purchase price of $23.2 million in
a transaction resulting in PHC owning 95.0% of the hospital. In October 1996,
PHC acquired Starke Memorial by assuming certain liabilities and entering into a
capital lease agreement, and by purchasing certain net assets for a purchase
price of $7.7 million.

In August 1997, the Company acquired Needles Desert Communities Hospital
("Needles") by assuming certain liabilities and entering into an operating lease
agreement, and by purchasing certain net assets for a purchase price of $2.6
million.

The December 31, 1996 results of operations of the Company include eleven
months of operations for Parkview and 13 days of operations for PHC, Memorial
Mother Frances and Starke Memorial. The September 30, 1996 results include eight
months of operations for Parkview. The September 30, 1997 results include nine
months of operations for all the above entities, plus two months of operations
for Needles.

DISCONTINUED OPERATIONS

During the past three years, the Company discontinued certain operations.
In May 1995, the Company discontinued its business of providing managed care
administration and practice management services to physician groups, reporting
an after-tax loss of $0.7 million on the disposal. In September 1995, the
Company disposed of its stand-alone business of providing surgery on an
outpatient basis for a loss of $0.4 million, net of taxes. In December 1996,
immediately prior to the Recapitalization, the Company sold its senior living
business for a gain of $5.5 million, net of taxes. The net results of operations
of these businesses are included in "Discontinued Operations" in the 1994, 1995
and 1996 consolidated financial statements. See Note 11 of Notes to Consolidated
Financial Statements for further discussion.

29
<PAGE> 31

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, information
expressed as a percentage of net operating revenue. Such information has been
derived from the consolidated statements of operations of the Company included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- --------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net patient service revenue................... 76.5% 75.0% 78.5% 77.9% 86.8%
Management and professional services
revenue..................................... 15.7 19.3 16.0 16.4 9.9
Other revenue................................. 7.8 5.7 5.5 5.7 3.3
----- ----- ----- ----- -----
Net operating revenue......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and benefits................ 52.6 54.6 51.6 49.5 42.0
Purchased services.......................... 16.5 14.2 15.2 14.4 13.9
Supplies.................................... 10.8 10.0 9.9 9.1 9.6
Provision for doubtful accounts............. 5.0 4.5 7.1 5.2 7.1
Other operating expenses.................... 4.8 7.6 9.4 8.5 10.1
Rentals and leases.......................... 3.7 4.1 4.4 4.4 3.4
Depreciation and amortization............... 1.5 1.7 1.6 1.4 3.0
Interest expense............................ 0.7 0.6 1.6 0.7 4.9
Costs of recapitalization................... -- -- 9.8 -- --
Loss (gain) on sale of assets............... (0.6) (2.8) 0.4 0.2 (0.1)
----- ----- ----- ----- -----
Income (loss) from continuing operations
before provision for income taxes........... 5.0% 5.3% (10.9)% 6.6% 6.1%
Income (loss) from continuing operations...... 2.9% 3.4% (7.3)% 3.9% 3.8%
Net income (loss)............................. 2.8% 3.1% (2.2)% 4.2% 3.8%
</TABLE>

Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase due to the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system ("PPS"), based upon the diagnosis of a patient. While
these rates are indexed for inflation annually, the increases have historically
been less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
their standard rates. The trend toward managed care, including health
maintenance organizations, preferred provider organizations and various other
forms of managed care, may affect the hospitals' ability to maintain their
current rate of net revenue growth.

Net operating revenue is comprised of: (i) net patient service revenue from
the Company's owned and leased hospitals; (ii) management and professional
services revenue; and (iii) other revenue.

Net patient service revenue for the owned and leased hospitals is reported
net of contractual adjustments and policy discounts of $52.1 million, $57.4
million and $66.4 million for the years ended December 31, 1994, 1995 and 1996,
respectively; and $52.0 million and $75.2 million for the nine months ended
September 30, 1996 and 1997, respectively. The adjustments principally result
from differences between the hospitals' customary charges and payment rates
under the Medicare and Medicaid programs. Customary charges have generally
increased at a faster rate than the rate of increase for Medicare and Medicaid
payments. Operating expenses of the hospitals primarily consist of salaries and
benefits, purchased services, supplies, provision for doubtful accounts and
other operating expenses (principally consisting of utilities, insurance,
property taxes, travel, freight, postage, telephone, advertising, repairs and
maintenance).

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<PAGE> 32

Management and professional services revenue is comprised of fees from
management and professional consulting services provided to third-party
hospitals pursuant to management contracts and consulting arrangements, plus
reimbursable expenses. Operating expenses for the management and professional
services business primarily consist of salaries and benefits and reimbursable
expenses.

Other revenue includes interest income and other miscellaneous revenue.

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

Net operating revenue was $124.0 million in 1997, compared to $87.3 million
in 1996, an increase of $36.7 million, or 42.0%.

Net patient service revenue totaled $107.5 million in 1997, compared to
$68.0 million in 1996, an increase of $39.5 million, or 58.1%. This increase is
principally the result of the Acquisitions, which account for $36.6 million of
the increase. There was a decrease in revenue at the outpatient surgery center
affiliated with Fifth Avenue Hospital of $2.1 million. These surgery center
operations were sold in 1997 for a gain of $0.2 million. The remaining $5.0
million increase is attributable to increased patient volumes, new patient
services and increased customary charges. On a same hospital basis, net patient
service revenue increased by 4.2% to $70.9 million.

Management and professional services revenue totaled $12.3 million in 1997,
compared to $14.3 million in 1996, a decrease of $2.0 million, or 14.0%,
primarily as a result of a decrease in consulting fees, the completion of
independent consulting engagements and a decrease in reimbursable expenses.
Reimbursable expenses (which are included in operating revenue and operating
expenses at the same amount) are comprised of salaries, employee benefits and
other costs paid by the Company and fully reimbursed by client hospitals.
Reimbursable expenses decreased $1.3 million, or 20.3%, primarily as a result of
a decrease in the number of employees whose salaries were reimbursed.

Other revenue totaled $4.1 million in 1997, compared to $5.0 million in
1996, a decrease of $0.9 million, or 18.0%. This decrease related primarily to a
fee received in 1996 in connection with a failed merger.

Salaries, wages and benefits totaled $52.0 million in 1997, compared to
$43.2 million in 1996, an increase of $8.8 million, or 20.4%. Salaries, wages
and benefits, excluding reimbursable expenses, increased $10.1 million, or
27.0%. The Acquisitions resulted in an increase of $13.2 million. Salaries,
wages and benefits decreased $3.1 million, or 8.4%, on a same hospital basis,
primarily as a result of a reduction in the number of employees.

Purchased services expense totaled $17.3 million in 1997, compared to $12.6
million in 1996, an increase of $4.7 million, or 37.3%. The Acquisitions
resulted in an increase of $4.5 million. Purchased services expense increased
$0.2 million, or 1.6%, on a same hospital basis.

Supplies expense totaled $11.9 million in 1997 compared to $8.0 million in
1996, an increase of $3.9 million, or 48.8%. The Acquisitions resulted in an
increase of $3.7 million. Supplies expense increased $0.2 million, or 2.6%, on a
same hospital basis related to an increase in patient volumes in 1997.

Provision for doubtful accounts totaled $8.8 million in 1997, compared to
$4.5 million in 1996, an increase of $4.3 million, or 95.6%. The Acquisitions
resulted in an increase of $4.0 million. The provision increased $0.3 million,
or 6.7%, on a same hospital basis.

Other operating expenses totaled $12.5 million in 1997, compared to $7.5
million in 1996, an increase of $5.0 million, or 66.7%. The Acquisitions
resulted in an increase of $3.6 million. Other operating expenses increased $1.4
million, or 18.7%, on a same hospital basis related to the increased net patient
services revenue, increased acquisition activity and increased corporate
operations expenses.

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<PAGE> 33

EBITDA totaled $17.2 million in 1997, compared to $7.7 million in 1996, an
increase of $9.5 million, or 123.4%. This increase resulted primarily from the
Merger. EBITDA is defined to mean earnings before interest, income taxes,
depreciation and amortization, cumulative effect of changes in accounting
method, costs of Recapitalization, loss (gain) on sale of assets, and income
(loss) from discontinued operations, net of taxes. EBITDA is one measure in
determining the enterprise value of the Company. EBITDA is not a measure of
financial performance under generally accepted accounting principles and should
not be considered an alternative to net income as a measure of operating
performance or to cash flows from operating activities as a measure of
liquidity.

Rentals and leases totaled $4.3 million in 1997, compared to $3.9 million
in 1996, an increase of $0.4 million, or 10.3%. The Acquisitions resulted in an
increase of $0.5 million. Rentals and leases decreased $0.2 million, or 5.1%, on
a same hospital basis.

Depreciation and amortization totaled $3.7 million in 1997, compared to
$1.2 million in 1996, an increase of $2.5 million, or 208.3%. The Acquisitions
resulted in an increase of $1.9 million. Depreciation and amortization increased
$0.6 million, or 50.0%, related to increases in property, plant and equipment on
a same hospital basis.

Interest expense totaled $6.2 million in 1997, compared to $0.6 million in
1996, an increase of $5.6 million, or 933.3%. This increase resulted primarily
from $72.0 million of new bank debt incurred in connection with the
Recapitalization.

The Company recorded a gain on sale of assets of $0.2 million in 1997,
compared to a loss of $0.2 million in 1996. The gain in 1997 related primarily
to the sale of the remaining assets of Fifth Avenue Hospital. The loss in 1996
related to the sale of assets in the normal course of business.

The net result of the above was that the Company recorded net income from
operations of $4.6 million for the nine months ended September 30, 1997,
compared to $3.7 million in 1996, an increase of $0.9 million, or 24.3%.

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

Net operating revenue was $118.1 million in 1996, compared to $101.2
million in 1995, an increase of $16.9 million, or 16.7%.

Net patient service revenue totaled $92.7 million in 1996, compared to
$75.9 million in 1995, an increase of $16.8 million, or 22.1%. This increase was
principally the result of the Parkview acquisition ($9.4 million in net patient
service revenue) and thirteen days of revenue for Memorial Mother Frances and
Starke Memorial. Net patient service revenue increased $6.2 million, or 8.2%, on
a some hospital basis related to increased patient volumes, new patient services
and increased customary charges on a same hospital basis.

Management and professional services revenue totaled $18.9 million in 1996,
compared to $19.6 million in 1995, a decrease of $0.7 million, or 3.6%. The
decrease is principally the result of a decline in the number of management
contracts, offset partially by price increases, and an increase in reimbursable
expenses. Reimbursed salaries increased $0.4 million, or 4.5%, as a result of an
increase in the number of management contracts which provide for reimbursable
expenses.

Other revenue totaled $6.5 million in 1996, compared to $5.8 million in
1995, an increase of $0.7 million, or 12.1%. This increase is principally
attributable to a $1.0 million fee received in 1996 relating to a failed merger.

Salaries, wages and benefits expenses totaled $61.0 million in 1996,
compared to $55.3 million in 1995, an increase of $5.7 million, or 10.3%.
Salaries, wages and benefits, excluding reimbursable expenses, increased $5.3
million, or 11.0%. The Parkview acquisition and the Merger accounted for $1.8
million and $0.4 million, respectively, of this increase. Salaries, wages and
benefits increased $3.1 million, or 6.7%, on a same hospital basis, primarily as
a result of increases in rates of pay.

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<PAGE> 34

Purchased services expense totaled $17.9 million in 1996, compared to $14.4
million in 1995, an increase of $3.5 million, or 24.3%. The Parkview acquisition
and PHC merger accounted for $1.8 million and $0.1 million, respectively, of
this increase. Purchased services increased $1.6 million, or 11.1%, on a same
hospital basis, primarily as a result of increased professional fees at the
corporate level related to the Recapitalization and Merger.

Supplies expense totaled $11.7 million in 1996, compared to $10.1 million
in 1995, an increase of $1.6 million, or 15.8%. The Parkview acquisition and PHC
merger accounted for $1.1 million and $0.2 million, respectively, of this
increase. Supplies expense increased $0.3 million, or 3.0%, on a same hospital
basis due to increased patient volumes and new patient services.

Provision for doubtful accounts totaled $8.3 million in 1996, compared to
$4.6 million in 1995, an increase of $3.7 million, or 80.4%. The Parkview
acquisition and the Merger accounted for $1.1 million and $0.1 million,
respectively, of this increase. The provision increased $2.5 million, or 54.4%,
on a same hospital basis as a result of an increase in the allowance for
doubtful accounts.

Other operating expenses totaled $11.1 million in 1996, compared to $7.7
million in 1995, an increase of $3.4 million, or 44.2%. The Parkview acquisition
and the Merger accounted for $1.2 million and $0.1 million, respectively, of
this increase. Insurance expense increased $2.0 million due to a provision for
incurred but not reported claims related to professional liability and workers'
compensation insurance. Other operating expenses increased $0.1 million, or
1.3%, on a same hospital basis related to increased costs correlated to
increased net patient service revenue at these hospitals.

EBITDA totaled $2.9 million in 1996, compared to $4.9 million in 1995, a
decrease of $2.0 million, or 40.8%, primarily as a result of increased operating
expenses.

Rentals and leases totaled $5.2 million in 1996, compared to $4.1 million
in 1995, an increase of $1.1 million, or 26.8%. Of this increase, $0.5 million
resulted from the Parkview acquisition. The remaining increase resulted from
scheduled rent increases in the long-term facilities leases at the other
hospitals of $0.2 million, and increases in other lease and rental obligations
of $0.4 million.

Depreciation and amortization totaled $1.9 million in 1996, compared to
$1.8 million in 1995, an increase of $0.1 million, or 5.6%. This increase
resulted from the Parkview acquisition.

Interest expense totaled $1.8 million in 1996, compared to $0.6 million in
1995, an increase of $1.2 million, or 200.0%. This increase resulted primarily
from new borrowings in connection with the Recapitalization of $72.0 million
under the Credit Agreement. The effective interest rate on this debt was 8.8%
during 1996. The remaining increase related to increased interest rates on
variable-rate debt and the balance of $5.3 million was paid in full following
the Merger in December 1996. Interest rates on this debt ranged from 7.0% to
10.0% during 1996. See "-- Liquidity and Capital Resources."

Recapitalization expense totaled $11.6 million in 1996. This expense
consisted of $8.0 million paid to settle options, $2.2 million of severance
payments, and $1.4 million of transaction-related costs (principally
professional fees).

The Company recorded a loss on sale of assets of $0.4 million in 1996,
compared to a gain of $2.8 million in 1995. The 1996 loss resulted from the sale
of certain assets in connection with the Recapitalization. The gain in 1995
resulted from the sale of Fifth Avenue Hospital in May 1995.

The net result of the above was that the Company recorded a loss from
continuing operations before provision for income taxes of $12.9 million in
1996, compared to income from continuing operations of $5.4 million in 1995, a
decrease of $18.3 million, or 338.9%.

33
<PAGE> 35

The Company recognized an income tax benefit of $4.3 million in 1996, as a
result of the $12.9 million loss from continuing operations (33.2% effective
rate), compared to tax expense of $2.0 million in 1995 on income of $5.4 million
(36.4% effective rate). The benefit in 1996 resulted in an increase in deferred
tax assets to a balance of $6.4 million at December 31, 1996. Management
believes it is more likely than not that the deferred tax assets will ultimately
be realized through future taxable income from operations.

Income from discontinued operations, net of income taxes, in 1996 was $0.5
million, compared to $0.8 million in 1995, a decrease of $0.3 million, or 37.5%.
The income is the result of income from the operations of the senior living
business, which was sold in December 1996.

Gain on disposal of discontinued operations, net of income taxes, in 1996
was $5.5 million, compared to a loss of $1.0 million in 1995. The 1996 gain is
related to the sale of the senior living business. The 1995 loss resulted from
the loss on the sale of the Company's managed care business and Fifth Avenue
Hospital.

The net result of the above was that the Company recorded a net loss in
1996 of $2.6 million, compared to net income of $3.1 million in 1995, a decrease
of $5.7 million, or 183.9%. Pro forma net loss per share was $0.31 in 1996. The
loss per share for the year ended December 31, 1996 is computed using the
weighted average number of shares of Common Stock outstanding during the period
of 8,843,734, including dilutive common equivalent shares from stock options and
warrants. The 7,280,020 shares of Common Stock issued pursuant to the
Recapitalization and the Merger have been included in the pro forma calculations
as if such transactions had occurred as of the first day of 1996. All other
Common Stock and common equivalent shares issued by the Company at prices below
the initial public offering price during the twelve-month period prior to the
public offering have been included in the calculation as if they were
outstanding for the full fiscal year (treasury stock method).

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

Net operating revenue was $101.2 million in 1995, compared to $102.1
million in 1994, a decrease of $0.9 million, or less than 1.0%.

Net patient service revenue totaled $75.9 million in 1995, compared to
$78.1 million in 1994, a decrease of $2.2 million, or 2.8%, primarily due to the
sale of Fifth Avenue Hospital in May 1995. On a same hospital basis, net patient
service revenue increased by 1.4% to $74.1 million.

Management and professional services revenue totaled $19.6 million in 1995,
compared to $16.0 million in 1994, an increase of $3.6 million, or 22.5%. This
increase resulted primarily from an increase in consulting fees on special
projects and an increase in reimbursable expenses. Reimbursable expenses
increased $2.0 million, or 29.0%, primarily as a result of the increase in the
number of management contracts and other contracts which provide for
reimbursable expenses.

Other revenue was $5.8 million in 1995, compared to $8.0 million in 1994, a
decrease of $2.2 million, or 27.5%. This decrease was the result of a decrease
in miscellaneous revenues at the hospitals of $0.9 million, primarily as a
result of the sale of Fifth Avenue Hospital ($0.5 million of other revenue) in
May 1995. Another $1.3 million related to decreased revenue at a subsidiary
which invested in outpatient surgery centers, and a decrease in other
miscellaneous revenue.

Salaries, wages and benefits expenses totaled $55.3 million in 1995
compared to $53.7 million in 1994, an increase of $1.6 million, or 3.0%.
Salaries, wages and benefits, excluding reimbursable expenses, increased $0.3
million, or 0.6%, principally as a result of increased rates of pay.

Purchased services expense totaled $14.4 million in 1995, compared to $16.9
million in 1994, a decrease of $2.5 million, or 14.8%. This decrease was
principally the result of the sale of Fifth Avenue Hospital.

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<PAGE> 36

Supplies expense totaled $10.1 million in 1995, compared to $11.0 million
in 1994, a decrease of $0.9 million, or 8.2%. This decrease was principally the
result of decreased patient services revenue as a result of the sale of Fifth
Avenue Hospital.

Provision for doubtful accounts totaled $4.6 million in 1995, compared to
$5.1 million in 1994, a decrease of $0.5 million, or 9.8%. This decrease was the
result of decreased patient service revenue in 1995 and the sale of Fifth Avenue
Hospital.

Other operating expenses totaled $7.7 million in 1995, compared to $4.9
million in 1994, an increase of $2.8 million, or 57.1%. This increase was
principally the result of increased operating expense at the hospitals of $1.8
million, $0.5 million at the management company, and $0.5 million related to
merger activity in 1995.

EBITDA totaled $4.9 million in 1995, compared to $6.7 million in 1994, a
decrease of $1.8 million, or 26.9%. This decrease was primarily due to the net
result of an increase in salaries and benefits, a decrease in purchased
services, a decrease in supplies, and a decrease in provision for doubtful
accounts.

Rentals and leases totaled $4.1 million in 1995, compared to $3.8 million
in 1994, an increase of $0.3 million, or 7.9%. This increase was the result of
scheduled rent increases in the long-term facilities leases at the hospitals of
$0.1 million and increases in other lease and rental obligations of $0.2
million.

Depreciation and amortization totaled $1.8 million in 1995, compared to
$1.5 million in 1994, an increase of $0.3 million, or 20.0%, which was primarily
attributable to increases in property and equipment.

Interest expense totaled $0.6 million in 1995, compared to $0.8 million in
1994, a decrease of $0.2 million, or 25.0%. This decrease resulted primarily
from a decrease in average debt balances.

The Company recorded a gain on sale of assets in 1995 of $2.8 million,
compared to a gain of $0.6 million in 1994. The sale of Fifth Avenue Hospital
resulted in $2.5 million of the gain in 1995.

The Company recorded income from continuing operations, before provision
for income taxes, of $5.4 million in 1995, compared to $5.1 million in 1994, an
increase of $0.3 million, or 5.9%. The Company recorded a provision for income
taxes of $2.0 million in 1995 (36.4% effective rate), compared to $2.1 million
in 1994 (41.3% effective rate). The difference in the effective rates for 1995
and 1994 related principally to the tax effect of the change in the valuation
allowance for deferred tax assets.

Income from discontinued operations, net of income taxes, was $0.8 million
in 1995, compared to a loss of $0.2 million in 1994, which was the result of
operations of the senior living business sold in 1996.

Loss on disposal of discontinued operations, net of income taxes, in 1995
was $1.0 million dollars. The loss resulted from the loss on the sale of the
Company's managed care and outpatient surgery business, which was discontinued
in September 1995.

The net result of the above was that the Company recorded net income of
$3.1 million for the year ended December 31, 1995, compared to net income of
$2.8 million in 1994, an increase of $0.3 million, or 10.7%.

35
<PAGE> 37

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1997, the Company had working capital of $27.8 million,
including cash and cash equivalents of $5.9 million. The ratio of current assets
to current liabilities was 2.4 to 1.0 at September 30, 1997, compared to 2.0 to
1.0 at December 31, 1996.

As with the hospital industry in general, a major component of the
Company's working capital is accounts receivable arising from services provided
to patients of its owned and leased hospitals. Payments on accounts receivable
are made by third-party payors (Medicare, Medicaid, and insurance plans) and
directly by the patients. The Company believes that the average collection
period for its owned and leased hospitals is consistent with the industry
average. Fees for management and professional services are generally paid
monthly.

The Company's cash requirements, excluding acquisitions, have historically
been funded by cash generated from operations. Cash provided by operations was
$2.7 million for the year ended December 31, 1994, $3.7 million for the year
ended December 31, 1995, and $0.3 million for the year ended December 31, 1996.
The decrease in 1996 was primarily due to the net loss of $2.6 million. Cash
provided by (used in) operations was $(2.1 million) for the nine months ended
September 30, 1997 and $8.7 million for the nine months ended September 30,
1996.

Cash (used in) provided by investing activities totaled $(0.7 million),
$(1.5 million), $12.7 million and $(15.3 million) for the years ended December
31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997,
respectively. These amounts related to acquisitions, divestitures of hospitals
and purchases and disposals of property, plant and equipment in each period.

Cash (used in) provided by financing activities totaled $(2.6 million),
$(1.7 million), $(4.0 million) and $12.0 million for the years ended December
31, 1994, 1995 and 1996, and for the nine months ended September 30, 1997,
respectively. The 1996 amount resulted from the proceeds from long-term debt,
net of debt refinancing and recapitalization.

Capital expenditures for owned and leased hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. Management services activities do not require significant capital
expenditures. Capital expenditures for the year ended December 31, 1996 were
$13.2 million, which included $1.4 million in connection with the renovation of
Colorado Plains Medical Center and $0.6 million in connection with the
information system installation at General Hospital. Capital expenditures for
the nine months ended September 30, 1997 were $12.6 million. The Company expects
to make capital expenditures in 1997 of $8.5 million, exclusive of any
acquisitions. Planned capital expenditures for 1997 include $6.5 million of
capital improvements at the Company's owned and leased hospitals, and $2.0
million of capital expenditures for standardizing management information systems
for the owned and leased hospitals and the corporate office.

The Company intends to purchase or lease additional acute care hospitals,
and is actively seeking such acquisitions. There can be no assurance that the
Company will not require additional debt or equity financing for any particular
acquisition, or that any needed financing will be available on favorable terms.

As part of the Recapitalization, the Company entered into a $100.0 million
Credit Agreement in December 1996, with First Union National Bank of North
Carolina, as agent for a syndicated group of lenders. The facility consists of a
revolving credit facility in an amount of up to $65.0 million and a term loan
facility in the amount of $35.0 million. Amounts outstanding under the Credit
Agreement at September 30, 1997 and December 31, 1996 were $81.0 million and
$72.0 million, respectively, of which $35.0 million related to the term loan
portion of the Credit Agreement as of each such date. Borrowings under the
Credit Agreement bear interest, at the Company's option, at the adjusted base
rate or at the adjusted LIBOR rate. Interest ranged from 7.9% to 9.5% during the
nine-month period ended September 30, 1997, and 8.1% to 9.3% during the year
ended December 31, 1996. In March 1997, as required under the Credit Agreement,
the Company entered into an interest rate

36
<PAGE> 38

swap agreement, which effectively converted for a three-year period $35.0
million of floating-rate borrowings to fixed-rate borrowings, with a current
effective rate of 8.4%. The Company pays a commitment fee of one-half of one
percent on the unused portion of the revolving credit facility. The Company may
prepay the principal amount outstanding under the Credit Agreement at any time
before maturity. The revolving credit facility matures on December 16, 1999. The
term loan is payable in quarterly installments ranging from $1.3 million,
commencing in the second quarter of 1998, to $2.3 million in 2002, plus one
payment of $2.0 million in 2002. Borrowings under the revolver for acquisitions
require the consent of the lenders.

The Credit Agreement contains limitations on the Company's ability to incur
additional indebtedness, (including contingent obligations), sell material
assets, retire, redeem or otherwise reacquire its capital stock, acquire the
capital stock or assets of another business, and pay dividends. The Credit
Agreement also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Agreement is secured by substantially all assets of the
Company.

Management is in the process of amending the Credit Agreement to increase
the credit facility to $200.0 million, contingent upon the consummation of the
offering. There can be no assurances that such amendments will be made.

The Company believes that its future cash flow from operations, together
with borrowings available under the Credit Agreement and the net proceeds of the
offering, will be sufficient to fund the Company's operating expenses, capital
expenditures and debt service requirements for the foreseeable future. The
Company will continue to pursue its acquisition strategy and in connection
therewith may pursue additional financings and incur additional indebtedness.

INFLATION

The health care industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along rising costs to the Company in the form of higher
prices. The Company has generally been able to offset increases in operating
costs by increasing charges for services and expanding services. The Company has
also implemented cost control measures to curb increases in operating costs and
expenses. In light of cost containment measures imposed by government agencies
and private insurance companies, the Company is unable to predict its ability to
offset or control future cost increases, or its ability to pass on the increased
costs associated with providing health care services to patients with government
or managed care payors, unless such payors correspondingly increase
reimbursement rates.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards (SFAS) No. 128, Earnings per Share
and SFAS No. 129, Disclosure of Information about Capital Structure. These
statements are effective for periods ending after December 15, 1997.

SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation was modified to treat: (i) the 7,280,020
shares issued in the Recapitalization and the Merger in December 1996 as being
outstanding for the entire period presented; and (ii) to treat all other Common
Stock issued, and Common Stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering as if they were outstanding for the entire
period presented.

37
<PAGE> 39

SFAS No. 129 establishes standards for disclosing information about a
company's capital structure. The adoption of SFAS No. 129 is not expected to
materially alter disclosures presently being provided.

In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
The Statement establishes standards for the reporting and display of
comprehensive income and its components. The Statement requires that all items
that are income be reported in a financial statement that is displayed with the
same prominence as other financial statements. The Statement was only recently
issued, and the Company has not yet determined the impact of adoption on its
disclosure requirements.

In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. The Statement changes the way public
companies report segment information in annual financial statements and also
requires those companies to report selected segment information in interim
financial reports to shareholders. The Statement is effective for financial
statements for fiscal years beginning after December 15, 1997. The Statement was
only recently issued, and the Company has not yet determined the impact of
adoption on its disclosure requirements.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this discussion, including without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects," and words of similar import, constitute forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: general economic and business conditions, both nationally and in
regions where the Company operates; demographic changes; the effect of existing
or future governmental regulation and federal and state legislative and
enforcement initiatives on the Company's business, including the
recently-enacted Balanced Budget Act of 1997; changes in Medicare and Medicaid
reimbursement levels; the Company's ability to implement successfully its
acquisition and development strategy and changes in such strategy; the
availability and terms of financing to fund the expansion of the Company's
business, including the acquisition of additional hospitals; the Company's
ability to attract and retain qualified management personnel and to recruit and
retain physicians and other health care personnel to the non-urban markets it
serves; the effect of managed care initiatives on the non-urban markets served
by the Company's hospitals and the Company's ability to enter into managed care
provider arrangements on acceptable terms; the effect of liability and other
claims asserted against the Company; the effect of competition in the markets
served by the Company's hospitals; and other factors referenced in this
Prospectus. Certain of these factors are discussed in more detail elsewhere in
this Prospectus. Given these uncertainties, prospective investors are cautioned
not to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward-looking statements contained
herein to reflect future events or developments. See "Risk Factors."

38
<PAGE> 40

BUSINESS

OVERVIEW

Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. In developing a platform for
the provision of health care services within target markets, the Company seeks
to acquire hospitals which are the sole or primary providers of health care in
those communities. After acquiring a hospital, the Company seeks to improve the
hospital's operating performance and to broaden the range of services provided
to the community. The Company offers a wide range of inpatient and outpatient
medical services and also provides specialty services including skilled nursing,
geriatric psychiatry and rehabilitation. The Company currently owns or leases
eight general acute care hospitals in four states with a total of 570 licensed
beds. The Company also provides management services to 50 primarily non-urban
hospitals in 17 states with a total of 3,448 licensed beds. For the year ended
December 31, 1996, and the nine months ended September 30, 1997, the Company had
net operating revenue of $118.1 million and $123.9 million, respectively.

Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. Key elements of the Company's operating strategy are to:
(i) expand the breadth of services offered in the community to increase local
market share; (ii) improve hospital operations by implementing appropriate
expense controls, managing staffing levels, reducing supply costs and
renegotiating certain vendor contracts; (iii) recruit additional general
practitioners and specialty physicians to the community; and (iv) form
relationships with local employers and regional tertiary providers to solidify
the position of the Company's hospital as the focal point of the community's
health care delivery system.

Prior to its 1996 Recapitalization and Merger with PHC, the Company
operated under the name Brim, Inc. The current operations of the Company include
certain Brim operations and all of the operations of PHC. Brim and its
predecessors have provided health care services, including managing and
operating non-urban hospitals, since the 1970s. PHC was founded in February 1996
by GTCR Fund IV and Martin S. Rash to acquire and operate hospitals in
attractive non-urban markets. In December 1996, Brim was recapitalized.
Subsequently, the operations of Brim and PHC were combined in the Merger. In
connection with the Recapitalization, Mr. Rash and Richard D. Gore were elected
as the senior management of the Company.

The Company's management team has extensive experience in acquiring and
operating previously under-performing non-urban hospitals. Prior to co-founding
PHC, Mr. Rash was the Chief Operating Officer of Community, an acquiror and
operator of non-urban hospitals. During Mr. Rash's tenure, Community acquired
many non-urban hospitals and owned or leased 36 hospitals at December 31, 1995.
Mr. Gore was previously employed as Vice President and Controller of Quorum
Health Group, Inc., an owner, operator and manager of acute care hospitals. John
M. Rutledge, the Company's Chief Operating Officer, was previously employed as a
Regional Vice President/Group Director at Community, reporting directly to Mr.
Rash. Steven P. Taylor, the Company's Senior Vice President of Acquisitions and
Development, was previously President of Brim Healthcare, Inc., a subsidiary of
the Company.

39
<PAGE> 41

THE NON-URBAN HEALTH CARE MARKET

According to United States Census data, 33.7% of the United States
population lives in counties with populations of less than 150,000. In these
non-urban communities, hospitals are typically the primary source of health
care, and, in many cases, a single hospital is the only provider of acute care
services. As of October 1996, there were approximately 1,500 non-urban hospitals
in the United States, over 1,100 of which were owned by not-for-profit or
governmental entities.

The Company believes that non-urban health care markets are attractive to
health care service providers. Because non-urban service areas have smaller
populations, there are generally only one or two hospitals in each non-urban
market, resulting in less competition. The relative dominance of the acute care
hospital in these smaller markets also limits the entry of alternate site
providers, which provide services such as outpatient surgery, rehabilitation or
diagnostic imaging. The demographic characteristics and the relative strength of
the local hospital also make non-urban markets less attractive to HMOs and other
forms of managed care. In addition, the Company believes that non-urban
communities are generally characterized by a high level of patient and physician
loyalty that fosters cooperative relationships among the local hospital,
physicians and patients.

Although the characteristics of the non-urban health care market present a
number of opportunities, hospitals in such markets have been under considerable
pressure. The not-for-profit and governmental entities that typically own and
operate these hospitals may have limited access to the capital required to keep
pace with advances in medical technology and to make needed capital
improvements. Non-urban hospitals also frequently lack the management resources
necessary to control hospital expenses, recruit physicians and expand health
care services. The increasingly dynamic and complex health care regulatory
environment compounds these pressures. Collectively, these factors frequently
lead to poor operating performance, a decline in the breadth of services
offered, dissatisfaction by community physicians and the perception of subpar
quality of care in the community. As a result, patients migrate to, or are
referred by local physicians to, hospitals in larger urban markets. Patient
migration further increases the financial pressure on non-urban physicians and
hospitals, thereby limiting their ability to address the issues which have led
to these pressures.

As a result of these pressures, not-for-profit and governmental owners of
non-urban hospitals have increasingly sought to sell or lease these hospitals to
companies, like Province, that have the access to capital and management
resources to better serve the community. The Company believes that a significant
opportunity for consolidation exists in the non-urban health care market.

BUSINESS STRATEGY

The Company's objective is to be the leading provider of high quality
health care in selected non-urban markets. The key elements of the Company's
strategy are to:

Acquire Hospitals in Attractive Non-Urban Markets. The Company seeks
to acquire hospitals which are the sole or primary provider of health care
in their markets and which present the opportunity to increase
profitability and local market share. Approximately 1,100 non-urban
hospitals fit the Company's acquisition profile, and the Company's goal is
to acquire two to four such hospitals each year.

Expand Breadth of Services to Increase Local Market Share. The
Company seeks to provide additional health care services and care programs
in response to the needs of the community. These services may include
specialty inpatient services, outpatient services, home health care and
mental health clinics. The Company may also make capital investments in
technology and the physical plant to further improve both the quality of
health care and the reputation of the hospital in the community. By
providing a broader range of services and a more attractive care setting,
the Company believes it can increase health care expenditures captured
locally and limit patient migration to larger urban facilities, thereby
increasing hospital revenue.

40
<PAGE> 42

Improve Hospital Operations. Following the acquisition of a hospital,
the Company augments local management with appropriate operational and
financial managers and installs its standardized information system. The
local management team implements appropriate expense controls, manages
staffing levels according to patient volumes, reduces supply costs by
requiring strict compliance with the Company's national supply arrangements
and renegotiates certain vendor contracts.

Recruit Physicians. The Company believes that recruiting physicians
in local communities is key to increasing the quality and breadth of
health care. The Company works with the local hospital board, management
and medical staff to determine the number and type of additional
physicians needed in the community. The Company's corporate physician
recruiting staff then assists the local management team in identifying and
recruiting specific physicians to the community to meet those needs.

Develop Health Care Networks. The Company plans to form networks to
address local employers' integrated health care needs and to solidify the
position of the Company's hospitals as the focal point of their respective
community's health care delivery system. As part of its efforts to develop
these networks, the Company seeks relationships with regional tertiary care
providers.

ACQUISITION PROGRAM

The Company's goal is to acquire two to four hospitals each year which are
primary providers of health care in attractive non-urban markets and which
present the opportunity to increase the hospitals' profitability and local
market share. The Company acquires hospital operations by purchasing hospitals
or by entering into long-term leases. The Company targets acquisition candidates
that: (i) have a minimum service area population of 20,000 with a stable or
growing employment base; (ii) are the sole or primary providers of health care
services in the community; (iii) have annual net patient revenue of at least
$12.0 million; and (iv) have financial performance that will benefit from
management's proven operating skills. There are approximately 1,100 hospitals in
the United States which meet the Company's target criteria. See "Risk
Factors -- Risks of Acquisition Strategy."

In addition to responding to requests for proposals from entities which are
seeking to sell or lease a hospital, the Company proactively identifies
acquisition targets through three sources. The Company: (i) seeks to acquire
selected hospitals to which it provides contract management services; (ii)
identifies attractive markets and hospitals and initiates meetings with hospital
owners to discuss the benefits to the community of a possible acquisition by the
Company; and (iii) seeks to acquire non-urban hospitals from, or form joint
ventures with, hospital systems comprised of one or more urban tertiary care
hospitals and a number of non-urban hospitals. Such joint ventures allow the
tertiary care hospital to maintain an affiliation to provide tertiary care for
the non-urban hospitals without the management responsibility.

The Company believes that it generally takes six to twelve months between
the hospital owner's decision to accept offers and the consummation of a sale or
lease. After a potential acquisition has been identified, the Company undertakes
a systematic approach to evaluating and closing the transaction. The Company
begins the acquisition process with a thorough due diligence review of the
target hospital. The Company utilizes its dedicated teams of experienced
personnel to conduct a formalized review of all aspects of the target's
operations, including Medicare reimbursement, purchasing, fraud and abuse
compliance, litigation, capital requirements, and environmental issues. During
the course of its due diligence review, the Company prepares an operating plan
for the target hospital, identifies opportunities for operating efficiencies and
physician recruiting needs, and assesses productivity and management information
systems. Throughout the process, the Company works closely with community
decision-makers in order to enhance both the community's understanding of the
Company's philosophy and abilities and the Company's knowledge of the needs of
the community.

41
<PAGE> 43

The competition to acquire non-urban hospitals is intense, and the Company
believes that often the acquiror will be selected for a variety of reasons, not
exclusively on the basis of price. The Company believes it is well positioned to
compete for acquisitions for several reasons. The Company's management team has
extensive experience in acquiring and operating previously under-performing
non-urban hospitals. The Company also benefits from access to capital, strong
financial and operating systems, a national purchasing organization, and
training programs. The Company believes its strategy of increasing the access
to, and the quality of, health care in the communities served by its hospitals
aligns its interests with those of the communities. The Company believes that
this alignment of interests, together with the Company's reputation for
providing market-specific, high quality health care, its focus on physician
recruiting and its proactive approach to identifying acquisition targets, enable
the Company to compete successfully for acquisitions.

During 1996, the Company purchased Memorial Mother Frances in Palestine,
Texas and leased Parkview in Mexia, Texas and Starke Memorial in Knox, Indiana.
In August 1997, the Company leased Needles in Needles, California. The Company
provided management services to Parkview and Needles prior to their respective
acquisitions.

HOSPITAL OPERATIONS

Following the acquisition of a hospital, the Company implements its
systematic policies and procedures to improve the hospital's operating and
financial performance. The Company implements an operating plan designed to
reduce costs by improving operating efficiency and increasing revenue through
the expansion of the breadth of services offered by the hospitals and the
recruitment of physicians to the community. The Company also plans to form
health care networks with employers in the community and regional tertiary care
hospitals. Management believes that the long-term growth potential of a hospital
is dependent on the Company's ability to add appropriate health care services
and effectively recruit physicians.

Each hospital management team is comprised of a chief executive officer,
chief financial officer and chief nursing officer. The Company believes that the
quality of the local management team at each hospital is critical to the
hospital's success, because the management team is responsible for implementing
the elements of the Company's operating plan. The operating plan is developed by
the local management team in conjunction with the Company's senior management
team and sets forth revenue enhancement strategies and specific expense
benchmarks. The Company has implemented a performance-based compensation program
for each local management team based upon the achievement of the goals set forth
in the operating plan. See "Risk Factors -- Dependence on Management."

While the local management team is responsible for the day-to-day
operations of the hospitals, the Company's corporate staff provides support
services to each hospital, including physician recruiting, corporate compliance,
reimbursement advice, standardized information systems, human resources,
accounting, cash management and other finance activities, tax and insurance
support. Financial controls are maintained through utilization of standardized
policies and procedures. The Company promotes communication among its hospitals
so that local expertise and improvements can be shared throughout the Company's
network.

As part of the Company's efforts to improve access to high quality health
care in the communities it serves, the Company adds appropriate services at its
hospitals. Services and care programs added may include specialty inpatient
services, such as cardiology, geriatric psychiatry, skilled nursing,
rehabilitation and subacute care, and outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company may also add home health care services and mental health clinics.
Management believes the establishment of quality emergency room departments and
obstetrics and gynecological services are particularly important, because they
are often the most visible services provided to the community. The Company also
makes capital investments in technology and facilities to increase the quality
and breadth of services

42
<PAGE> 44

available in the communities. By increasing the services provided at the
Company's hospitals and upgrading the technology used in providing such
services, the Company believes that it improves the quality of care and the
hospitals' reputation in each community, which in turn may increase patient
census and revenue.

To achieve the operating efficiencies set forth in the operating plan, the
Company: (i) evaluates existing hospital management; (ii) adjusts staffing
levels according to patient volumes using best demonstrated practices by
department; (iii) capitalizes on purchasing efficiencies and renegotiates
certain vendor contracts; and (iv) installs a standardized management
information system. The Company also enforces strict protocols for compliance
with the Company's supply contracts. All of the Company's owned and leased
hospitals currently purchase supplies and certain equipment pursuant to a
multi-year purchasing arrangement between the Company and a large investor-owned
hospital company. Vendor contracts are also evaluated, and based on cost
comparisons, contracts are either renegotiated or terminated. The Company
prepares for the transition of management information systems to its
standardized system prior to the completion of an acquisition, so that the
newly-acquired hospital can typically begin using the Company's management
information systems immediately following completion of the acquisition.

The Company works with local hospital boards, management and medical staff
to determine the number and type of additional physicians needed in the
community. The Company's corporate staff then assists the local management team
in identifying and recruiting specific physicians to the community to meet those
needs. The majority of physicians who relocate their practices to the
communities served by the Company's hospitals are identified by the Company's
internal physician recruiting staff, which is supplemented by the efforts of
independent recruiting firms. When recruiting a physician to a community, the
Company generally guarantees the physician a minimum level of revenue during a
limited initial period and assists the physician with his or her transition to
the community. The Company requires the physician to repay some or all of the
amounts expended for such assistance in the event the physician leaves the
community within a specified period. The Company prefers not to employ
physicians, and relocating physicians rarely become employees of the Company.
See "Risk Factors -- Dependence on Physicians" and " -- Health Care Regulation."

The Company plans to form networks to address local employers' health care
needs and to solidify the position of the Company's hospitals as the focal point
of their respective community's health care delivery system. As part of its
efforts to develop these networks, the Company also seeks relationships with
regional tertiary care providers.

Owned and Leased Hospitals

The Company currently owns or leases eight general acute care hospitals in
California, Texas, Colorado and Indiana with a total of 570 licensed beds. Six
of the Company's eight hospitals are the only hospital in the town in which they
are located. The owned and leased hospitals represented 79.9% and 88.4% of the
Company's net operating revenues for the year ended December 31, 1996 and the
nine months ended September 30, 1997, respectively. Management believes that the
facilities at its owned and leased hospitals are generally suitable and adequate
for the services offered.

The Company's hospitals offer a wide range of inpatient medical services
such as operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy services and physical therapy. The
Company's hospitals also frequently provide certain specialty services which
include skilled nursing, geriatric psychiatry, rehabilitation and home health
care services. The Company's hospitals do not provide highly specialized
surgical services such as organ transplants and open heart surgery and are not
engaged in extensive medical research or educational programs.

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<PAGE> 45

The following table sets forth certain information with respect to each of
the Company's currently owned and leased hospitals.

<TABLE>
<CAPTION>
LICENSED OWNED/
HOSPITAL BEDS LEASED
- -------- -------- --------
<S> <C> <C>
Colorado Plains Medical Center
Fort Morgan, Colorado..................................... 40 Leased(1)
General Hospital
Eureka, California........................................ 83 Leased(2)
Memorial Mother Frances Hospital
Palestine, Texas.......................................... 97 Owned (3)
Needles Desert Communities Hospital
Needles, California....................................... 53 Leased(4)
Ojai Valley Community Hospital
Ojai, California.......................................... 116(5) Owned
Palo Verde Hospital
Blythe, California........................................ 55 Leased(6)
Parkview Regional Hospital
Mexia, Texas.............................................. 77 Leased(7)
Starke Memorial Hospital
Knox, Indiana............................................. 49 Leased(8)
---
Total............................................. 570
</TABLE>

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

(1) The lease expires in April 2014 and is subject to a five-year renewal term.
The Company has a right of first refusal to purchase the hospital.
(2) The lease expires in December 2000. The Company has the option to purchase
the hospital at any time prior to termination of the lease, subject to
regulatory approval.
(3) The hospital is owned by a partnership of which the Company is the sole
general partner (with a 1.0% general partnership interest) and has a 94.0%
limited partnership interest, subject to an option by the other limited
partner to acquire an additional 5.0% interest.
(4) The lease expires in July 2012, and is subject to three five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(5) Includes a 66-bed skilled nursing facility.
(6) The lease expires in December 2002, and is subject to a ten-year renewal
option. The Company has the option to purchase the hospital at any time
prior to termination of the lease, subject to regulatory approval.
(7) The lease expires in January 2011, and is subject to two five-year renewal
terms. The Company has a right of first refusal to purchase the hospital.
(8) The lease expires in September 2016, and is subject to two ten-year renewal
options. The Company has a right of first refusal to purchase the hospital.

Colorado Plains Medical Center is located approximately 70 miles northeast
of Denver and is the only hospital in town. The hospital is the only rural-based
Level III trauma center in Colorado, and one of only 10 such rural centers in
the United States. Colorado Plains recently completed an $8.5 million expansion
project which included expansion of surgery, recovery, emergency room and
radiology facilities as well as a new entrance. The Company is planning a
renovation of the hospital's obstetrical and medical/surgical units in 1998. The
closest competing hospitals are located approximately 50 miles away. Colorado
Plains is a sole community provider as designated under Medicare and has a
service area population of approximately 43,000.

General Hospital is located approximately 300 miles north of San Francisco.
The hospital also operates a newly-completed ambulatory surgery center located
near the hospital. The Company expects to complete a renovation of General
Hospital's obstetrical unit by December 1997. There is one other hospital in
Eureka, and two small hospitals located 15 and 20 miles away. The nearest
tertiary care hospitals are located approximately 160 miles away. General
Hospital's service area population is approximately 122,000.

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<PAGE> 46

Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
recently added a six-bed inpatient rehabilitation unit and a ten-bed geriatric
psychiatry unit. Memorial Mother Frances has a relationship with a tertiary care
hospital in Tyler. The hospital's primary competitor is also located in
Palestine. The hospital's service area population is approximately 104,000.

Needles Desert Communities Hospital is located approximately 100 miles
south of Las Vegas, Nevada and is the only hospital in town. The hospital's
primary competitor is located approximately 20 miles away. Needles is a sole
community provider as designated under Medicare and has a service area
population of approximately 47,000.

Ojai Valley Community Hospital is located approximately 85 miles northeast
of Los Angeles and is the only hospital in town. Along with its 50-bed acute
care hospital, Ojai Valley has a 66-bed skilled nursing facility. In 1997, Ojai
Valley purchased a home health business and opened a rural health clinic in a
neighboring town. The hospital's primary competitors are located 18 to 20 miles
away, but due to the geography and traffic conditions, such hospitals are 30 to
60 minutes away by car. The hospital's service area population is approximately
30,000.

Palo Verde Hospital is located in southeast California near the Arizona
border. It is 120 miles east of Palm Springs, California and is the only
hospital in town. The hospital's primary competitors are one small hospital
located 45 miles away and two large hospitals located approximately 100 miles
away. Palo Verde is a sole community provider as designated under Medicare and
has a service area population of approximately 20,000 that increases
substantially during the winter months due to a seasonal inflow of residents.

Parkview Regional Hospital is located approximately 40 miles east of Waco,
Texas and is the only hospital in town. The hospital recently completed a $5.7
million expansion and renovation project which included a new emergency room and
new radiology, surgery and inpatient rehabilitation departments. Parkview is
currently completing an outpatient rehabilitation center on the hospital campus.
The hospital's primary competitors are hospitals located 35 to 40 miles away.
The hospital's service area population is approximately 40,000.

Starke Memorial Hospital is located approximately 50 miles from South Bend,
Indiana and is the only hospital in town. The hospital opened a five-bed
geriatric psychiatry unit in April 1997 and is affiliated with a tertiary
hospital in South Bend. Starke Memorial's primary competitors are two large
hospitals, located approximately 30 and 35 miles away. The hospital's service
area population is approximately 25,000.

The Company also owns a 48,000 square foot office building in Portland,
Oregon and leases approximately 8,000 square feet of office space for its
corporate headquarters in Brentwood, Tennessee under a 3-year lease which
expires on December 31, 1999 and contains customary terms and conditions.

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<PAGE> 47

Operating Statistics

The following table sets forth certain operating statistics for the
Company's owned or leased hospitals (excluding Fifth Avenue Hospital in Seattle,
Washington, which was sold in May 1995) for each of the periods presented.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period).................................. 4 4 7 5 8
Licensed beds (at end of period)........... 294 294 513 371 570
Beds in service (at end of period)......... 243 243 395 284 464
Admissions................................. 8,868 8,839 10,022 7,385 11,008
Average length of stay (days)(1)........... 6.5 6.4 5.9 5.9 5.6
Patient days............................... 57,161 56,088 59,169 43,428 61,443
Adjusted patient days(2)................... 91,047 92,085 104,499 74,882 109,866
Occupancy rate (% of licensed beds)(3)..... 53.3 52.3 43.9 42.8 32.1
Occupancy rate (% of beds in service)(4)... 64.4 63.2 60.0 56.0 59.8
Net patient service revenue (in
thousands)............................... $71,335 $71,452 $ 90,333 $65,819 $107,524
Gross outpatient service revenue (in
thousands)............................... $46,312 $51,414 $ 67,967 $49,632 $ 82,014
</TABLE>

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

(1) Average length of stay is calculated based on the number of patient days
divided by the number of admissions.
(2) Adjusted patient days have been calculated based on an industry-accepted
revenue-based formula (multiplying actual patient days by the sum of gross
inpatient revenue and gross outpatient revenue and dividing the result by
gross inpatient revenue for each hospital) to reflect an approximation of
the volume of service provided to inpatients and outpatients by converting
total patient revenues to equivalent patient days.
(3) Percentages are calculated by dividing average daily census by average
licensed beds.
(4) Percentages are calculated by dividing average daily census by average beds
in service.

Sources of Revenue

The Company receives payments for patient care from private insurance
carriers, federal Medicare programs for elderly and disabled patients, HMOs,
preferred provider organizations ("PPOs"), state Medicaid programs, the Civilian
Health and Medical Program of the Uniformed Services ("CHAMPUS"), employers and
patients directly.

The following table sets forth the percentage of the patient days of the
Company's owned and leased hospitals (excluding Fifth Avenue Hospital and the
66-bed skilled nursing facility at Ojai Valley Community Hospital) from various
payors for the periods indicated. The data for the periods presented are not
strictly comparable due to the significant effect that acquisitions have had on
the Company. See "Management's Discussion and Analysis of Results of Operations
and Financial Condition."

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ---------------
1994 1995 1996(1) 1996 1997(1)
----- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Medicare............................................. 49.1% 50.2% 56.9% 56.6% 61.0%
Medicaid............................................. 14.2 16.8 15.4 18.2 14.2
Private and other sources............................ 36.7 33.0 27.7 25.2 24.8
----- ----- ----- ----- -----
Total...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>

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

(1) All percentages in this table exclude Fifth Avenue Hospital and the 66-bed
skilled nursing facility at Ojai Valley Community Hospital. Substantially
all of the revenue at the Ojai Valley skilled nursing facility is provided
by Medicaid. Including the Ojai Valley skilled nursing facility, the
percentage of patient days from Medicare, Medicaid and private and other
sources would have been 50.6%, 23.7% and 25.7%, for the year ended December
31, 1996, and 45.9%, 31.8% and 22.3% for the nine months ended September 30,
1997.

46
<PAGE> 48

Quality Assurance

The Company's hospitals implement quality assurance procedures to ensure a
consistently high level of care. Each hospital has a medical director who
supervises and is responsible for the quality of medical care provided. In
addition, each hospital has a medical advisory committee comprised of physicians
who review the professional credentials of physicians applying for medical staff
privileges at the hospital. Medical advisory committees also review and monitor
surgical outcomes along with procedures performed and the quality of the
logistical, medical and technological support provided to the physician. The
Company surveys all of its patients either during their stay at the hospital or
subsequently by mail to identify potential areas of improvement. All of the
Company's hospitals are accredited by the Joint Commission on Accreditation of
Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.

Regulatory Compliance Program

The Company is developing a corporate-wide compliance program. In June
1997, the Company hired Starley Carr as its Vice President of Corporate
Compliance. Prior to joining the Company, Mr. Carr served with the Federal
Bureau of Investigation, where he investigated various white collar crimes,
including those related to the health care industry. The Company's compliance
program will focus on all areas of regulatory compliance, including physician
recruitment, reimbursement and cost reporting practices, laboratory and home
health care operations. See "Risk Factors -- Health Care Regulation" and
"-- Current Publicity."

MANAGEMENT SERVICES

The Company's management services division provides comprehensive
management services to 50 primarily non-urban hospitals in 17 states with a
total of 3,448 licensed beds. These services are provided under three- to
five-year contracts with the Company. The Company generally provides a chief
executive officer, who is an employee of the Company, and may also provide a
chief financial officer, but it does not typically employ other hospital
personnel. The Company provides a continuum of solutions to the problems faced
by these hospitals through services which may include instituting new financial
and operating systems and various management initiatives, such as establishing a
local or regional provider network to efficiently meet a community's health care
needs. Management believes the Company's contract management business provides a
competitive advantage in identifying and developing relationships with suitable
acquisition candidates and in understanding the local markets in which such
hospitals operate. This division represented 18.4% and 11.1% of net operating
revenue for the year ended December 31, 1996 and the nine months ended September
30, 1997, respectively.

COMPETITION

The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, strength of referral network,
location, and, to a lesser extent, price. With respect to the delivery of
general acute care services, most of the Company's hospitals face less
competition in their immediate patient service areas than would be expected in
larger communities. While the Company's hospitals are generally the primary
provider of health care services in their respective communities, its hospitals
face competition from larger tertiary care centers and, in some cases, other
non-urban hospitals. Some of the hospitals that compete with the Company are
owned by governmental agencies or not-for-profit entities supported by
endowments and charitable contributions, and can finance capital expenditures on
a tax-exempt basis.

The Company faces competition for acquisitions primarily from for-profit
hospital management companies as well as not-for-profit entities. Some of the
Company's competitors have greater financial and other resources than the
Company. Increased competition for the acquisition of non-urban acute care
hospitals could have an adverse impact on the Company's ability to acquire such
hospitals on favorable terms.

47
<PAGE> 49

EMPLOYEES AND MEDICAL STAFF

As of September 30, 1997, the Company had 1,623 "full-time equivalent"
employees, 26 of whom were corporate personnel. The remaining employees, most of
whom are nurses and office personnel, work at the hospitals. None of the
Company's employees is covered by a collective bargaining agreement. The Company
considers relations with its employees to be good.

The Company typically does not employ physicians and, as of September 30,
1997, the Company employed only nine practicing physicians. Certain of the
Company's hospital services, including emergency room coverage, radiology,
pathology and anesthesiology services, are provided through independent
contractor arrangements with physicians.

GOVERNMENT REIMBURSEMENT

Medicare payments for general hospital inpatient care are based on a
prospective payment system ("PPS"). Under the PPS, a hospital receives a fixed
amount for operating costs based on the established fixed payment amount per
discharge for categories of hospital treatment, commonly known as a diagnosis
related group ("DRG"), for each Medicare inpatient. DRG payments do not consider
a specific hospital's costs, but are adjusted for area wage differentials. The
DRG payments do not include reimbursement for capital costs. Psychiatric
services, long-term care, rehabilitation, pediatric services and certain
designated research hospitals, and distinct parts of rehabilitation and
psychiatric units within hospitals, are currently exempt from PPS and are
reimbursed on a cost-based system, subject to specific reimbursement caps (known
as TEFRA limits). For the year ended December 31, 1996, the Company had only one
unit that was reimbursed under this methodology.

For several years, the percentage increases to the DRG rates have been
lower than the percentage increases in the cost of goods and services purchased
by general hospitals. The index used to adjust the DRG rates is based on the
cost of goods and services purchased by hospitals as well as those purchased by
non-hospitals (the "Market Basket"). The historical Market Basket rates of
increase were 2.0%, 1.5% and 2.0% for federal fiscal years 1995, 1996 and 1997,
respectively. The Company anticipates that future legislation may decrease the
future rate of increase for DRG payments, but is unable to predict the amount of
the final reduction. Medicare reimburses general hospitals' capital costs
separately from DRG payments.

Outpatient services provided at general hospitals typically are reimbursed
by Medicare at the lower of customary charges or approximately 90% of actual
cost, subject to additional limits on the reimbursement of certain outpatient
services.

The Company anticipates that future legislation may reduce the aggregate
reimbursement received, but is unable to predict the amount of the final
reduction.

Each state has its own Medicaid program that is funded jointly by the state
and federal government. Federal law governs how each state manages its Medicaid
program, but there is wide latitude for states to customize Medicaid programs to
fit the needs and resources of their citizens. As a result, each state Medicaid
plan has its own payment formula and recipient eligibility criteria. The
Company's current operations are in states that have historically had
well-funded Medicaid programs with adequate payment rates.

The Company owns or leases four hospitals in California. The Medicaid
program in California, known as Medi-Cal, reimburses hospital inpatient cost on
one of three methods: (i) cost-based, subject to various limits known as
MIRL/PIRL limits; (ii) negotiated rate per discharge or per diem for hospitals
under contract; or (iii) managed care initiatives, where payment rates tend to
be capitated and networks must be formed. Three of the Company's four California
hospitals are cost-based for Medi-Cal and the other is paid under the contract
method. None of the cost-based hospitals is currently subject to a MIRL/PIRL
limit, because their cost per discharge has historically been below the limit.
There can be no assurance that this will remain the case in the future. Medi-

48
<PAGE> 50

Cal currently has a managed care initiative that is primarily targeted at urban
areas. The Company does not expect that Medi-Cal will begin rural managed care
contracting in the near future.

Medicare has special payment provisions for "Sole Community Hospitals" or
SCHs. An SCH is generally the only hospital in at least a 35-mile radius.
Colorado Plains, Needles and Palo Verde qualify as SCHs under Medicare
regulations. Special payment provisions related to SCHs include a higher DRG
rate, which is based on a blend of hospital-specific costs and the national DRG
rate; and a 90% payment "floor" for capital costs, thereby guaranteeing the
hospital SCH capital reimbursement equal to 90% of capital cost. In addition,
the CHAMPUS program has special payment provisions for hospitals recognized as
SCHs for Medicare purposes.

The Omnibus Budget Reconciliation Act of 1993 provides for certain budget
targets through federal fiscal year 1997, which, if not met, may result in
adjustments in payment rates. In recent years, changes in Medicare and Medicaid
programs have resulted in limitations on, and reduced levels of, payment and
reimbursement for a substantial portion of hospital procedures and costs.
Congress recently enacted the Balanced Budget Act of 1997, which establishes a
plan to balance the federal budget by fiscal year 2002, and includes significant
additional reductions in spending levels for the Medicare and Medicaid programs.

The Medicare, Medicaid and CHAMPUS programs are subject to statutory and
regulatory changes, administrative rulings, interpretations and determinations,
requirements for utilization review and new governmental funding restrictions,
all of which may materially increase or decrease program payments as well as
affect the cost of providing services and the timing of payment to facilities.
The final determination of amounts earned under the programs often requires many
years, because of audits by the program representatives, providers' rights of
appeal and the application of numerous technical reimbursement provisions.
Management believes that adequate provision has been made for such adjustments.
Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than
ultimately required.

HEALTH CARE REFORM, REGULATION AND LICENSING

Certain Background Information

Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit health care spending, proposals to limit prices and industry
competitive factors are among the many factors which are highly significant to
the health care industry. In addition, the health care industry is governed by a
framework of federal and state laws, rules and regulations that are extremely
complex and for which the industry has the benefit of only limited regulatory or
judicial interpretation. Although the Company believes it is in compliance in
all material respects with such laws, rules and regulations, if a determination
is made that the Company was in violation of such laws, rules or regulations,
its business, financial condition and results of operations could be materially
adversely affected.

There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to providers
such as the Company and proposals to increase co-payments and deductibles from
program and private patients. The Company's facilities also are affected by
controls imposed by government and private payors designed to reduce admissions
and lengths of stay. Such controls, including what is commonly referred to as
"utilization review," have resulted in fewer of certain treatments and
procedures being performed. Utilization review entails the review of the
admission and course of treatment of a patient by a third party. Utilization
review by third-party peer review organizations ("PROs") is required in
connection with the provision of care paid for by Medicare and Medicaid.
Utilization review by third parties is also required under many managed care
arrangements.

49
<PAGE> 51

Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make certain changes to
private health care insurance. Various states have applied, or are considering
applying, for a federal waiver from current Medicaid regulations to allow them
to serve some of their Medicaid participants through managed care providers.
These proposals also may attempt to include coverage for some people who
presently are uninsured, and generally could have the effect of reducing
payments to hospitals, physicians and other providers for the same level of
service provided under Medicaid.

Certificate of Need Requirements

Some states require approval for construction and expansion of health care
facilities, including findings of need for additional or expanded health care
facilities or services. Certificates of Need ("CONs"), which are issued by
governmental agencies with jurisdiction over health care facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. However, Texas and
California, states in which the Company operates six of its eight hospitals, do
not currently require CONs for hospital construction or changes in the mix of
services. The Company is unable to predict whether it will be able to obtain any
CON that may be necessary to accomplish its business objectives in any
jurisdiction where such CONs are required.

Anti-kickback and Self-Referral Regulations

Sections of the Anti-Fraud and Abuse Amendments to the Social Security Act,
commonly known as the "anti-kickback" statute (the "Anti-kickback Amendments"),
prohibit certain business practices and relationships that might affect the
provision and cost of health care services reimbursable under Medicare and
Medicaid, including the payment or receipt of remuneration for the referral of
patients whose care will be paid for by Medicare or other government programs.
Sanctions for violating the Anti-kickback Amendments include criminal penalties
and civil sanctions, including fines and possible exclusion from government
programs such as the Medicare and Medicaid programs. Pursuant to the Medicare
and Medicaid Patient and Program Protection Act of 1987, the U.S. Department of
Health and Human Services has issued regulations that create Safe Harbors under
the Anti-kickback Amendments. A given business arrangement which does not fall
within a Safe Harbor is not per se illegal; however, business arrangements of
health care service providers that fail to satisfy the applicable Safe Harbor
criteria risk increased scrutiny by enforcement authorities. The "Health
Insurance Portability and Accountability Act of 1996," which became effective
January 1, 1997 broadened the scope of certain fraud and abuse laws, such as the
Anti-kickback Amendments, to include all health care services, whether or not
they are reimbursed under a federal program.

The Company provides financial incentives to recruit physicians into the
communities served by its hospitals, including loans and minimum revenue
guarantees. No Safe Harbor for physician recruitment is currently in force.
Although the Company is not subject to the Internal Revenue Service Revenue
Rulings and related authority addressing recruitment activities by tax-exempt
facilities, management believes that such IRS authority tends to set the
industry standard for acceptable recruitment activities. The Company believes
that its recruitment policies are being conducted in accordance with the IRS
authority and industry practice. The Company also enters into certain leases
with physicians and is a party to certain joint ventures with physicians. The
Company also participates in a group purchasing joint venture. The Company
believes that these arrangements do not violate the Anti-kickback Amendments.
There can be no assurance that regulatory authorities who enforce the
Anti-kickback Amendments will not determine that the Company's physician
recruiting activities, other physician arrangements, or group purchasing
activities violate the Anti-kickback Amendments or other federal laws. Such a
determination could subject the Company to liabilities under the Social Security
Act, including exclusion of the Company from participation in Medicare and
Medicaid. See "Business -- Health Care Reform, Regulation and Licensing."

50
<PAGE> 52

The Company's operations necessarily involve financial relationships with
physicians on the medical staff. Such arrangements include professional services
agreements for services at its hospitals and physician recruitment incentives to
encourage physicians to establish private practices in markets served by the
Company's owned or leased hospitals. Although the Company believes that these
arrangements are lawful, no safe harbor provisions apply to physician
recruitment arrangements not involving physician employment. Evolving
interpretations of current, or the adoption of new, federal or state laws or
regulations could affect these arrangements.

There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General ("OIG") of the Department of Health and Human Services
("HHS"), the courts, and Congress of arrangements between health care providers
and potential referral sources to ensure that the arrangements are not designed
as a mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators have also demonstrated a willingness to look behind
the formalities of a business transaction to determine the underlying purpose of
payments between health care providers and potential referral sources.
Enforcement actions have increased, as evidenced by recent highly publicized
enforcement investigations of certain hospital activities. Although, to its
knowledge, the Company is not currently the subject of any investigation which
is likely to have a material adverse effect on its business, financial condition
or results of operations, there can be no assurance that the Company and its
hospitals will not be the subject of investigations or inquiries in the future.
See "Risk Factors--Current Publicity."

In addition, provisions of the Social Security Act restrict referrals by
physicians of Medicare and other government-program patients to providers of a
broad range of designated health services with which they have ownership or
certain other financial arrangements (the "Stark Laws"). A person making a
referral, or seeking payment for services referred, in violation of Stark would
be subject to the following sanctions: (i) civil money penalties of up to
$15,000 for each service; (ii) assessments equal to twice the dollar value for
each service; and/or (iii) exclusion from participation in the Medicare Program
(which can subject the person to exclusion from participation in state health
care programs). Further, if any physician or entity enters into an arrangement
or scheme that the physician or entity knows or should know has the principal
purpose of assuring referrals by the physician to a particular entity, and the
physician directly made referrals to such entity, then such physician or entity
could be subject to a civil money penalty of up to $100,000. Many states have
adopted or are considering similar legislative proposals, some of which extend
beyond the Medicaid program to prohibit the payment or receipt of remuneration
for the referral of patients and physician self-referrals regardless of the
source of the payment for the care. The Company's contracts with physicians on
the medical staff of its hospitals and its participation in and development of
joint ventures and other financial relationships with physicians could be
adversely affected by these amendments and similar state enactments.

The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework or in the
interpretation of these laws, rules and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.

Environmental Regulations

The Company's health care operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws,
rules and regulations. The Company's operations, as well as the Company's
purchases and sales of facilities, are also subject to various other
environmental laws, rules and regulations.

Health Care Facility Licensing Requirements

The Company's health care facilities are subject to extensive federal,
state and local legislation and regulation. In order to maintain their operating
licenses, health care facilities must comply with

51
<PAGE> 53

strict standards concerning medical care, equipment and hygiene. Various
licenses and permits also are required in order to dispense narcotics, operate
pharmacies, handle radioactive materials and operate certain equipment. The
Company's health care facilities hold all required governmental approvals,
licenses and permits. All licenses, provider numbers and other permits or
approvals required to perform the Company's business operations are held by
subsidiaries of the Company. Each of the Company's facilities that is eligible
for accreditation is fully accredited by the Joint Commission on Accreditation
of Health Care Organizations other than Palo Verde, which is currently pursuing
accreditation.

Utilization Review Compliance and Hospital Governance

The Company's health care facilities are subject to and comply with various
forms of utilization review. In addition, under the Medicare prospective payment
system, each state must have a PRO to carry out a federally mandated system of
review of Medicare patient admissions, treatments and discharges in general
hospital. Medical and surgical services and practices are extensively supervised
by committees of staff doctors at each health care facility, are overseen by
each health care facility's local governing board, the primary voting members of
which are physicians and community members, and are reviewed by the Company's
quality assurance personnel. The local governing boards also help maintain
standards for quality care, develop long-range plans, establish, review and
enforce practices and procedures and approve the credentials and disciplining of
medical staff members.

Governmental Developments Regarding Sales of Not-for-Profit Hospitals

In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to state,
the trend is to provide for increased governmental review, and in some cases
approval, of transactions in which not-for-profit corporations sell a health
care facility. Attorneys general in certain states, including California, have
been especially active in evaluating these transactions. Although the Company
has not yet been adversely affected as a result of these trends, such increased
scrutiny may increase the difficulty or prevent the completion of transactions
with not-for-profit organizations in certain states in the future.

California Seismic Standards

California recently adopted a law requiring standards and regulations to be
developed to ensure hospitals meet seismic performance standards. Within three
years after adoption of the standards by the California Building Standards
Commission, owners of subject properties are to evaluate their facilities and
develop a plan and schedule for complying with the standards. To date, the
Commission has adopted evaluation criteria but has not yet adopted the retrofit
standards. Therefore, the Company is unable, at this time, to evaluate its
facilities to determine whether the requirements or the cost of complying with
these requirements will have a material adverse effect on the Company's
business, financial condition or results of operations.

PROFESSIONAL LIABILITY

As part of its business, the Company is subject to claims of liability for
events occurring as part of the ordinary course of hospital operations. To cover
these claims, the Company maintains professional malpractice liability insurance
and general liability insurance in amounts which management believes to be
sufficient for its operations, although some claims may exceed the scope of the
coverage in effect. The Company also maintains umbrella coverage. At various
times in the past, the cost of malpractice and other liability insurance has
risen significantly. Therefore, there can be no assurance that such insurance
will continue to be available at a reasonable price for the Company to maintain
adequate levels of insurance.

52
<PAGE> 54

Through its typical hospital management contract, the Company attempts to
protect itself from such liability by requiring the hospital to maintain certain
specified limits of insurance coverage, including professional liability,
comprehensive general liability, worker's compensation and fidelity insurance,
and by requiring the hospital to name the Company as an additional insured party
on the hospital's professional and comprehensive general liability policies. The
Company's management contracts also usually provide for the indemnification of
the Company by the hospital against claims that arise out of the actions of the
hospital employees, medical staff members and other non-Company personnel.
However, there can be no assurance the hospitals will maintain such insurance or
that such indemnities will be available.

LEGAL PROCEEDINGS

The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, breach of management contracts or for wrongful restriction of or
interference with physician's staff privileges. In certain of these actions,
plaintiffs request punitive or other damages that may not be covered by
insurance. The Company is currently not a party to any proceeding which, in
management's opinion, would have a material adverse effect on the Company's
business, financial condition or results of operations.

53
<PAGE> 55

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the Company's
directors and executive officers as of October 1, 1997.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Martin S. Rash................... 42 President, Chief Executive Officer and Director
Richard D. Gore.................. 45 Executive Vice President and Chief Financial Officer
John M. Rutledge................. 39 Senior Vice President and Chief Operating Officer
Steven P. Taylor................. 45 Senior Vice President of Acquisitions and Development
James O. McKinney................ 43 Senior Vice President of Managed Operations
Howard T. Wall, III.............. 39 Senior Vice President and General Counsel
Brenda B. Rector................. 49 Vice President and Controller
Bruce V. Rauner.................. 41 Chairman of the Board and Director
Joseph P. Nolan.................. 33 Director
A.E. Brim........................ 67 Director
Michael T. Willis................ 53 Director
David L. Steffy.................. 54 Director
</TABLE>

Mr. Rash has served as the President and Chief Executive Officer and as a
director of the Company since the Recapitalization in December 1996. From
February 1996 to December 1996, Mr. Rash served as Chief Executive Officer of
PHC. Mr. Rash was employed by Community Health Systems, Inc., an operator of
non-urban acute care hospitals, from 1986 to February 1996, and served as its
Chief Operating Officer from February 1994 to February 1996.

Mr. Gore has served as Executive Vice President and Chief Financial Officer
of the Company since the Recapitalization in December 1996. From April 1996 to
December 1996, Mr. Gore served as Executive Vice President and Chief Financial
Officer of PHC. Mr. Gore served as Vice President and Controller of Quorum
Health Group, Inc., a hospital management company, from February 1990 to April
1996.

Mr. Rutledge has served as Senior Vice President and Chief Operating
Officer of the Company since December 1996. From 1986 to October 1996, Mr.
Rutledge served in several senior management positions with Community Health
Systems, Inc., most recently serving as a Regional Vice President/Group Director
from 1992 to October 1996.

Mr. Taylor has served as Senior Vice President of Acquisitions and
Development of the Company since the Merger in December 1996. From 1986 to
December 1996, Mr. Taylor served as President of Brim Healthcare, Inc., a
subsidiary of the Company ("Brim Healthcare"). Mr. Taylor is a Fellow of the
American College of Healthcare Executives.

Mr. McKinney has served as Senior Vice President of Managed Operations of
the Company and President of Brim Healthcare since January 1997. From 1994 to
1997, Mr. McKinney served as Senior Vice President of Brim Healthcare. He served
as a Vice President of Brim Healthcare from 1990 to 1994.

Mr. Wall has served as Senior Vice President and General Counsel of the
Company since September 1997. From 1990 to September 1997, Mr. Wall served as a
Partner of Waller Lansden Dorch & Davis, a law firm based in Nashville,
Tennessee, and practiced in the health care group.

Ms. Rector has served as Vice President and Controller of the Company since
the Merger in December 1996. From October 1996 to December 1996, Ms. Rector
served as Vice President and

54
<PAGE> 56

Controller of PHC. From October 1990 to October 1996, Ms. Rector served as a
partner in Ernst & Young LLP's health care industry practice.

Mr. Rauner has served as Chairman of the Board and as a director of the
Company since the Merger in December 1996, and served as a director of PHC from
its inception in February 1996 to December 1996. Mr. Rauner has been a Principal
with Golder, Thoma, Cressey, Rauner, Inc., a venture capital firm and the
general partner of GTCR Fund IV, since 1981. Mr. Rauner is also a director of
Lason, Inc., Polymer Group, Inc., Coinmach Laundry Corporation, Esquire
Communications Ltd. and COREStaff, Inc.

Mr. Nolan has served as a director of the Company since the
Recapitalization in December 1996, and served as a director of PHC from its
inception in February 1996 to December 1996. Mr. Nolan has been a Principal of
Golder, Thoma, Cressey, Rauner, Inc. since July 1996. Mr. Nolan joined Golder,
Thoma, Cressey, Rauner, Inc. in February 1994. From May 1990 to January 1994,
Mr. Nolan served as Vice President Corporate Finance at Dean Witter Reynolds
Inc. Mr. Nolan is also a director of Lason, Inc. and Esquire Communications Ltd.

Mr. Brim formed Brim, Inc. and has served as a director of the Company
since its formation. He has served as Chairman Emeritus since December 1996.
From the Company's formation until December 1996, he served as Chairman and
Chief Executive Officer of the Company.

Mr. Willis has served as a director of the Company since August 1997. Mr.
Willis has served as Chairman of the Board, Chief Executive Officer and
President of COREStaff, Inc., a diversified staffing services company, since
1993. Mr. Willis is also a director of Southwest Bank of Texas.

Mr. Steffy has served as a director of the Company since August 1997. Mr.
Steffy is a founder and director of Intensiva HealthCare Corporation, a
long-term acute care hospital company, Odyessy Healthcare Inc., a hospice health
care company and Arcadian Healthcare Management, an operator of rural healthcare
service networks. From 1985 to 1996, Mr. Steffy was Vice Chairman and Director
of Community Health Systems, Inc., a company he co-founded.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is currently composed of Messrs. Brim, Nolan and
Willis. Mr. Brim served as Chairman and Chief Executive Officer of the Company
until the Merger in December 1996, and he is currently an employee of the
Company. See "--Employment Agreements" for a description of Mr. Brim's
employment agreement. Mr. Nolan is a Principal of Golder, Thoma, Cressey,
Rauner, Inc., which is a party to a professional services agreement with the
Company which will terminate immediately prior to the consummation of the
offering. See "Certain Relationships and Related Transactions."

During 1996, the Board had no separate compensation committee and
compensation of executive officers was determined by the Board.

No executive officer of the Company served as a member of the compensation
committee or as a director of any other entity whose executive officer serves as
a director of the Company.

55
<PAGE> 57

EXECUTIVE COMPENSATION

The following table summarizes the compensation paid by the Company and its
subsidiaries to the Company's chief executive officer and four other most highly
compensated executive officers during the year ended December 31, 1996 (the
"Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
----------------------------- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1)
- --------------------------- ---- --------- -------- ------------
<S> <C> <C> <C> <C>
Martin S. Rash(2)..................................... 1996 229,166 114,583 --
President and Chief Executive Officer
Richard D. Gore(3).................................... 1996 123,958 61,979 --
Executive Vice President and Chief Financial Officer
Steven P. Taylor...................................... 1996 196,027 48,180 6,436
Senior Vice President of Acquisitions and
Development
James O. McKinney..................................... 1996 141,036 20,974 4,760
Senior Vice President of Managed Operations
A.E. Brim............................................. 1996 228,947 53,521 6,111
Former Chief Executive Officer
</TABLE>

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

(1) Reflects Company contributions under a 401(k) plan.
(2) Mr. Rash was compensated at an annual salary of $250,000, and he joined PHC
upon its formation in February 1996 and became the Company's Chief Executive
Officer in December 1996.
(3) Mr. Gore was compensated at an annual salary of $175,000 and he joined PHC
in April 1996 and became the Company's Executive Vice President and Chief
Financial Officer in December 1996.

DIRECTOR COMPENSATION

Directors of the Company who are employees of the Company or its
subsidiaries are not entitled to receive any fees for serving as directors.
Following the consummation of the offering, non-employee directors of the
Company will receive a fee of $1,000 per board meeting attended and will be
reimbursed for out-of-pocket expenses related to the Company's business. In
addition, non-employee directors of the Company will be eligible to participate
in the Company's 1997 Long-Term Equity Incentive Plan.

EMPLOYMENT AGREEMENTS

The Company entered into Senior Management Agreements with Messrs. Rash and
Gore effective as of December 17, 1996. Messrs. Rash and Gore will be the
Company's Chief Executive Officer and Chief Financial Officer, respectively, and
will receive annual base salaries determined by the Company's Board of Directors
(the "Board"). Mr. Rash's annual base salary may not be less than $250,000 and
Mr. Gore's salary may not be less than $175,000. Each will be eligible to
receive a bonus each year of up to 50% of his annual base salary for such year,
based on the achievement of certain operational and financial objectives. Their
employment periods continue until their resignation, disability, or death, or
until the Board determines that termination of their employment is in the best
interests of the Company. In the event Mr. Rash's or Mr. Gore's employment is
terminated by the Company without cause or as a result of death or disability,
the Company has agreed to pay to such executive an amount equal to twice his
annual base salary; provided that such severance payments cease upon acceptance
of employment with an entity which owns and operates rural hospitals. Messrs.
Rash and Gore have agreed not to compete with the Company or solicit Company
employees following the termination of their employment for a period of two
years in the case of Mr. Rash, or one year the case of Mr. Gore.

The Company entered into Employment Agreements with Messrs. Taylor and Brim
effective as of December 17, 1996. Mr. Taylor will serve as a Senior Vice
President of the Company and will

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<PAGE> 58

receive an annual base salary of $176,000. Mr. Brim will receive an annual base
salary of $121,680. The base salaries of Messrs. Taylor and Brim will be
increased in accordance with increases in the salary of similarly situated
executives of the Company. Mr. Taylor is entitled to a bonus each year equal to
50% of his annual base salary contingent upon the Company's achievement of
budget targets. The Company has agreed to pay the interest on a $200,000 loan
made to Mr. Taylor by U.S. Bank of Oregon, provided that such loan must be
repaid no later than the effective date of the Registration Statement of which
this Prospectus is a part. Mr. Brim is entitled to an automobile and expense
allowance and the Company pays certain club dues on his behalf. Each employment
agreement terminates on the earliest to occur of the executive's death,
permanent disability, termination for cause, voluntary termination and December
17, 1999. In the event the employment of Mr. Taylor or Mr. Brim is terminated
without cause, the Company has agreed to pay such executive an amount equal to
his base salary and, in the case of Mr. Taylor, the maximum bonus payment, for
the unexpired portion of the term of such executive's employment. Messrs. Taylor
and Brim have agreed not to compete with the Company or solicit Company
employees during the term of their employment, and have agreed not to disclose
confidential information regarding the Company.

LONG-TERM EQUITY INCENTIVE PLAN

In March 1997 the Board adopted the 1997 Long-Term Equity Incentive Plan,
and in October 1997 the Board and the stockholders approved an increase in the
number of shares available pursuant to the plan (as amended, the "1997 Plan").
The 1997 Plan provides for grants of stock options, stock appreciation rights
("SARs") in tandem with options, restricted stock, performance awards and any
combination of the foregoing to certain directors, officers and key employees of
the Company and its subsidiaries. A total of 1,300,000 shares of Common Stock
will be available for issuance pursuant to the 1997 Plan.

The 1997 Plan will be administered by the Compensation Committee. As grants
to be awarded under the 1997 Plan will be made entirely in the discretion of the
Compensation Committee, the recipients, amounts and values of future benefits to
be received pursuant to the 1997 Plan are not determinable. In March 1997 the
Company granted options to purchase an aggregate of 387,135 shares of Common
Stock, including grants of options to purchase 18,519 shares to Mr. Taylor,
7,408 shares to Mr. McKinney and 9,260 shares to Mr. Brim. All of the options
granted in March 1997 have an exercise price of $3.38 per share, and all of such
options are subject to vesting in five equal annual installments. In September
1997, the Company granted options to purchase an aggregate of 90,983 shares of
Common Stock with an exercise price of $14.00 per share, subject to vesting in
five equal annual installments.

Pursuant to the 1997 Plan, the Compensation committee may award grants of
incentive stock options conforming to the provisions of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code") ("incentive options"),
and other stock options ("non-qualified options"), subject to a maximum award of
155,556 options or SARs to any one grantee in any calendar year. The exercise
price of any option will be determined by the Compensation Committee in its
discretion, provided that the exercise price of an incentive option may not be
less than 100% of the fair market value of a share of Common Stock on the date
of grant of the option, and the exercise price of an incentive option awarded to
a person who owns stock constituting more than 10% of the voting power of the
Company may not be less than 110% of such fair market value on such date.

The term of each option will be established by the Compensation Committee,
subject to a maximum term of ten years from the date of grant in the case of a
non-qualified option or an incentive option and of five years from the date of
grant in the case of an incentive option granted to a person who owns stock
constituting more than 10% of the voting power of the Company. In addition, the
1997 Plan provides that all options generally cease vesting on, and terminate 90
days after, the date on which a grantee ceases to be a director, officer or
employee of the Company or its subsidiaries, although the 1997 Plan allows
certain exceptions depending upon the circumstances of cessation. In the case of
the grantee's death or disability, all of the grantee's options become fully

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<PAGE> 59

vested and exercisable and remain so for one year after the date of death or
disability. In the event of retirement, only the options vested on the date of
retirement remain exercisable, for a period of three years after retirement, so
long as the grantee does not compete with the Company during such period. Upon
termination for cause, all options terminate immediately. In addition,
immediately prior to a change in control of the Company, all options become
fully vested and exercisable.

The Compensation Committee may grant SARs in tandem with stock options to
any optionee pursuant to the 1997 Plan. SARs become exercisable only when, to
the extent and on the conditions that the related options are exercisable, and
they expire at the same time the related options expire. The exercise of an
option results in the immediate forfeiture of any related SAR to the extent the
option is exercised, and the exercise of an SAR results in the immediate
forfeiture of any related option to the extent the SAR is exercised.

Upon exercise of an SAR, the grantee will receive an amount in cash and/or
shares of Common Stock equal to the difference between the fair market value of
a share of Common Stock on the date of exercise and the exercise price of the
option to which it relates, multiplied by the number of shares as to which the
SAR is exercised.

Under the 1997 Plan, the Compensation Committee may award restricted stock
subject to such conditions and restrictions, and for such duration (which shall
be at least six months except as otherwise described below), as it determines in
its discretion. A grantee will be required to pay the Company at least the
aggregate par value of any shares of restricted stock within ten days of the
date of grant, unless such shares are treasury shares. Except as otherwise
provided by the Compensation Committee, all restrictions on a grantee's
restricted stock will lapse immediately prior to a change in control of the
Company or at such time as the grantee ceases to be a director, officer or
employee of the Company and its subsidiaries due to death, disability or
retirement. If a grantee ceases to serve as such a director, office or employee
for any other reason, all his or her restricted stock as to which the applicable
restrictions have not lapsed will be forfeited immediately.

Pursuant to the 1997 Plan, the Compensation Committee may grant performance
awards contingent upon achievement of set goals and objectives with respect to
specified performance criteria. Performance awards may include specific
dollar-value target awards, performance units, the value of which is established
by the Compensation Committee at the time of grant, and/or performance shares,
the value of which is equal to the fair market value of a share of Common Stock
on the date of grant. The value of a performance award may be fixed or fluctuate
on the basis of specified performance criteria. Unless the Compensation
Committee determines otherwise, no award under the 1997 Plan may vest and become
exercisable within six months of the date of grant; provided that all awards
vest immediately prior to a change in control of the Company and in certain
other circumstances upon a participant's termination of employment or
performance of services for the Company as described above. Unless the
Compensation Committee determines otherwise, no award made pursuant to the 1997
Plan will be transferable otherwise than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order, and each award
may be exercised only by the grantee or his or her guardian or legal
representative.

The Board may amend or terminate the 1997 Plan in its discretion, except
that no amendment will become effective without prior approval of the Company's
stockholders if such approval is necessary for continued compliance with the
performance-based compensation exception of Section 162(m) of the Code or any
stock exchange listing requirements. If not previously terminated by the Board,
the 1997 Plan will terminate on March 3, 2007.

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<PAGE> 60

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE

Of the estimated $73.0 million in net proceeds from the offering, $21.9
million will be used to redeem all of the outstanding shares of the Senior
Preferred Stock, which are held by Leeway & Co. In addition, in connection with
the offering, all outstanding shares of Junior Preferred Stock will be converted
into shares of Common Stock based on the liquidation value of the Junior
Preferred Stock and the initial public offering price, and the Company will use
a portion of the proceeds from the offering to repurchase from GTCR Fund IV and
Leeway & Co. the shares of Common Stock which are issued upon conversion of
13,636 of their shares of Junior Preferred Stock for an aggregate purchase price
of $14.5 million (based on an assumed initial offering price of $14.00).
Dividends have accrued daily at a rate of 11.0% per annum on the Senior
Preferred Stock and 8.0% per annum on the Junior Preferred Stock since the date
of issuance.

RECENT STOCK PURCHASES

In connection with the Recapitalization, the stockholders of the Company
entered into a Stockholders Agreement with the Company (the "Stockholders
Agreement"). On July 15, 1997, pursuant to the terms of the Stockholders
Agreement and a Purchase Agreement dated as of July 15, 1997 between the Company
and the Investors, the Company sold 2,733 shares of Junior Preferred Stock and
607,334 shares of Common Stock to GTCR Fund IV; 794 shares of Junior Preferred
Stock and 176,445 shares of Common Stock to Leeway & Co.; 64 shares of Junior
Preferred Stock and 97,112 shares of Common Stock to Mr. Rash; 119 shares of
Junior Preferred Stock and 67,334 shares of Common Stock to Mr. Gore; and 22.5
shares of Junior Preferred Stock and 5,000 shares of Common Stock to each of the
two other Investors for a purchase price of $1,000 per share of Junior Preferred
Stock and $0.45 per share of Common Stock, resulting in an aggregate purchase
price of $4.2 million. Mr. Rash is a Director and executive officer of the
Company, and Mr. Gore is an executive officer of the Company. The two other
Investors are affiliated with banks which are lenders to the Company under its
bank credit facility. In addition, in September 1997, Leeway & Co. exercised its
warrant to purchase 343,265 shares of Common Stock for an aggregate exercise
price of $15,447.

EXECUTIVE NOTES

In connection with the Recapitalization, the Company loaned $112,956 to Mr.
Rash and $67,768 to Mr. Gore pursuant to promissory notes (the "Executive
Notes"). In addition, in connection with the Recapitalization, Mr. Gore borrowed
an additional $211,200 from the Company pursuant to a demand note (the "Demand
Note") which was subsequently repaid. The Company loaned such amounts to Messrs.
Rash and Gore to finance a portion of their purchase of the Company's securities
pursuant to the Recapitalization. The Executive Notes and the Demand Note bear
interest at a rate per annum equal to the lesser of: (i) the rate designated in
The Wall Street Journal as the "prime rate;" and (ii) the highest rate permitted
by applicable law. The principal amount of the Executive Notes and all interest
accrued thereon mature on December 17, 2002. The Executive Notes may be prepaid
in whole or in part at any time.

PROFESSIONAL SERVICES AGREEMENT

The Company has a Professional Services Agreement with Golder, Thoma,
Cressey, Rauner, Inc. pursuant to which Golder, Thoma, Cressey, Rauner, Inc.
provides financial and management consulting services. Under this agreement,
Golder, Thoma, Cressey, Rauner, Inc. receives an annual management fee of
$200,000 and a fee of 1.25% of the amount of debt and equity investments, for
their assistance in obtaining such investments. During 1996 and through
September 30, 1997, the Company had paid or accrued $1.4 million and $149,590,
respectively, in fees under the agreement. The agreement will be terminated
immediately prior to the consummation of the offering, and no

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<PAGE> 61

fee is payable with respect to the issuance of Common Stock in the offering.
Messrs. Rauner and Nolan will continue to serve as directors of the Company,
however, and they will be compensated as non-employee directors. See
"Management -- Director Compensation."

STOCKHOLDERS AGREEMENT AND SENIOR MANAGEMENT AGREEMENTS

In connection with the Recapitalization, and in addition to becoming
parties to the Stockholders Agreement, Messrs. Rash and Gore entered into Senior
Management Agreements with the Company, GTCR Fund IV and Leeway & Co. (as
amended, the "Executive Agreements"). The Executive Agreements provide that a
portion of the Common Stock purchased by each of Messrs. Rash and Gore is
subject to vesting (the "Vesting Shares"). Upon completion of the offering, 50%
of the Vesting Shares will become vested, and the remaining Vesting Shares will
become vested in equal installments on the first three anniversaries of the
completion of the offering. Unvested shares are subject to repurchase by the
Company (or, if the Company does not elect to repurchase such shares, by GTCR
Fund IV) at their original cost upon termination of executive's employment with
the Company for any reason. For purposes of determining earnings per share, 100%
of the Common Stock purchased by Messrs. Rash and Gore is considered
outstanding. The Executive Agreements entitle the Company and GTCR Fund IV to
repurchase from each of Messrs. Rash and Gore upon the termination of his
employment: (i) Junior Preferred Stock and vested Common Stock at a price equal
to fair market value; and (ii) unvested Common Stock at a price equal to
original cost. The Stockholders Agreement entitles the Company and GTCR Fund IV
to repurchase shares of the Common Stock and Junior Preferred Stock from an
employee stockholder upon the termination of such employee's employment by the
Company at a price equal to fair market value. The Stockholders Agreement and
the Executive Agreements also contain restrictions on the transfer of the
Company's securities. Pursuant to the Stockholders Agreement, the stockholders
agree to consent to and participate in any sale of the Company approved by the
Board and by the holders of a majority of the Common Stock. Upon the completion
of the offering, the Stockholders Agreement will be terminated, and the portions
of the Executive Agreements which restrict the transfer of the Company's
securities will be terminated.

REGISTRATION AGREEMENT

At the time of the Recapitalization the Company entered into a Registration
Agreement with its stockholders. See "Shares Eligible for Future
Sale -- Registration Agreement."

SENIOR LIVING DIVESTITURE

Prior to the Recapitalization in December 1996, Brim divested its senior
living business through a series of transactions. In connection therewith, Mr.
Brim and certain other persons who were officers and directors of Brim invested
an aggregate of $5.8 million in the purchasers of Brim's senior living business.
In addition, in connection with the divestiture of the senior living business, a
limited liability company whose members included Mr. Brim, Mr. Taylor and
certain other persons who were officers and directors of Brim at such time
purchased from Brim three medical buildings for a purchase price of $406,500
plus the assumption of approximately $800,000 of indebtedness.

OPTION SETTLEMENTS

In connection with the Recapitalization, all outstanding stock options of
Brim, Inc. were bought out. Pursuant to this option buyout, Messrs. Brim,
McKinney and Taylor received $861,326, $144,498 and $861,326, respectively, in
respect of their Brim, Inc. stock options.

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<PAGE> 62

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 31, 1997 and immediately following
the offering by: (i) each person who is known by the Company to own beneficially
more than five percent of the Common Stock; (ii) each director and Named
Executive Officer of the Company; and (iii) all directors and executive officers
of the Company as a group. To the knowledge of the Company, each of the persons
named in the table has sole voting and investment power as to the shares shown
unless otherwise noted. Unless otherwise noted, the address of each holder of
five percent or more of the Common Stock is the Company's corporate address.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO OFFERING OFFERING(1)
------------------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Golder, Thoma, Cressey, Rauner Fund IV, L.P.(2)...... 5,050,446 58.9% 5,912,791 37.7%
Bruce V. Rauner(2)................................... 5,050,446 58.9 5,912,791 37.7
Joseph P. Nolan(2)................................... 5,050,446 58.9 5,912,791 37.7
Leeway & Co.(3)...................................... 1,353,488 15.8 1,525,557 9.7
Martin S. Rash....................................... 799,217 9.3 828,297 5.3
Richard D. Gore...................................... 507,197 5.9 561,572 3.6
Steven P. Taylor..................................... 149,778 1.7 201,203 1.3
James O. McKinney.................................... 23,112 * 31,047 *
A.E. Brim(4)......................................... 149,778 1.7 201,203 1.3
Howard T. Wall, III.................................. -- -- -- --
Michael T. Willis.................................... -- -- -- --
David L. Steffy...................................... -- -- -- --
All executive officers and directors as a group (12
persons)........................................... 6,679,528 77.8% 7,736,113 49.3%
</TABLE>

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

* Less than 1%.

(1) Gives effect to the Preferred Stock Conversion and the repurchase of Shares
of Common Stock with a portion of the proceeds of the offering, in each case
at an assumed initial public offering price of $14.00 per share.

(2) All of such shares are held of record by GTCR Fund IV. Golder, Thoma,
Cressey, Rauner, Inc. is the general partner of GTCR IV, L.P., which is the
general partner of GTCR Fund IV. Messrs. Rauner and Nolan are Principals of
Golder, Thoma, Cressey, Rauner, Inc., and may be deemed to share the power
to vote and dispose of such shares. The address of GTCR Fund IV is 6100
Sears Tower, Chicago, Illinois 60606. Each of Messrs. Rauner and Nolan
disclaims beneficial ownership of the shares of Common Stock owned by GTCR
Fund IV.
(3) The address of Leeway & Co. is c/o State Street Bank and Trust Company,
Master Trust Division -- Q4W, P.O. Box 1992, Boston, Massachusetts 02101.
(4) All of such shares are held of record by Brim Capital Corporation.

DESCRIPTION OF CAPITAL STOCK

Upon consummation of the Reincorporation, the Company's authorized capital
stock will consist of 25,000,000 shares of Common Stock, par value $0.01 per
share, 25,000 shares of Senior Preferred Stock, 50,000 shares of Junior
Preferred Stock and 100,000 shares of Preferred Stock. At October 31, 1997,
there were 8,581,510 shares of Common Stock, 20,000 shares of Senior Preferred
Stock, 32,295 shares of Junior Preferred Stock and no shares of Preferred Stock
outstanding. Upon completion of the offering and after giving effect to the use
of proceeds therefrom and the Preferred Stock Conversion in connection with the
offering, 15,698,314 shares of Common Stock will be issued and outstanding, and
no shares of Senior Preferred Stock, Junior Preferred Stock or Preferred Stock
will be outstanding. The following summary of certain provisions of the
Company's capital stock describes all material provisions of, but does not
purport to be complete, and is subject to, and qualified in its entirety by, the
Certificate of Incorporation and the Bylaws of the Company that are

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<PAGE> 63

included as exhibits to the Registration Statement of which this Prospectus
forms a part and by the provisions of applicable law.

COMMON STOCK

The issued and outstanding shares of Common Stock are, and the shares of
Common Stock being offered will be upon payment therefor, validly issued, fully
paid and nonassessable. Subject to the prior rights of the holders of any
Preferred Stock, the holders of outstanding shares of Common Stock are entitled
to receive dividends out of assets legally available therefor at such time and
in such amounts as the Board of Directors may from time to time determine. See
"Dividend Policy." The shares of Common Stock are not redeemable or convertible,
and the holders thereof have no preemptive or subscription rights to purchase
any securities of the Company. Upon liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive pro rata the
assets of the Company which are legally available for distribution, after
payment of all debts and other liabilities and subject to the prior rights of
any holders of Preferred Stock then outstanding. Each outstanding share of
Common Stock is entitled to vote on all matters submitted to a vote of
stockholders.

The Common Stock has been approved for trading on the Nasdaq National
Market under the symbol "PRHC," subject to notice of issuance.

PREFERRED STOCK

The Board may, without any further vote or action by the Company's
stockholders, from time to time, direct the issuance of shares of Preferred
Stock in one or more series with such designations, rights, preferences and
limitations as the Board may determine, including the consideration received
therefor. The Board also has the authority to determine the number of shares
comprising each series, dividend rates, redemption provisions, liquidation
preferences, sinking fund provisions, conversion rights and voting rights
without the approval by the holders of Common Stock. Although it is not possible
to state the effect that any issuance of Preferred Stock might have on the
rights of holders of Common Stock, the issuance of Preferred Stock may have one
or more of the following effects: (i) to restrict Common Stock dividends if
Preferred Stock dividends have not been paid; (ii) to dilute the voting power
and equity interest of holders of Common Stock to the extent that any series of
Preferred Stock has voting rights or is convertible into Common Stock; or (iii)
to prevent current holders of Common Stock from participating in the
distribution of the Company's assets upon liquidation until any liquidation
preferences granted to holders of Preferred Stock are satisfied. In addition,
the issuance of Preferred Stock may, under certain circumstances, have the
effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Company's Certificate of Incorporation or any reorganization, consolidation,
merger or other similar transaction involving the Company. As a result, the
issuance of the Preferred Stock may discourage bids for the Common Stock at a
premium over the market price therefor, and could have a materially adverse
effect on the market value of the Common Stock. Upon consummation of the
offering and the redemption in full of the Senior Preferred Stock and conversion
of the Junior Preferred Stock, there will be no shares of Preferred Stock
outstanding. The Board of Directors does not presently intend to issue any
shares of Preferred Stock.

CERTAIN PROVISIONS OF DELAWARE LAW

Following the Reincorporation, the Company will be governed by the
provisions of Section 203 of the Delaware General Corporation Law. In general,
the law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to

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<PAGE> 64

the stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock. The statute could prohibit or delay mergers or
other takeover or change in control attempts with respect to the Company and,
accordingly, may discourage attempts to acquire the Company.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Following the Reincorporation, the Company's Certificate of Incorporation
will limit the liability of directors to the fullest extent permitted by the
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, including gross negligence, except liability for: (i) breach of the
director's duty of loyalty; (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii) the
unlawful payment of a dividend or unlawful stock purchase or redemption; and
(iv) any transaction from which the director derives an improper personal
benefit. This provision of the Company's Certificate of Incorporation has no
effect on the availability of equitable remedies such as injunction or
rescission. Additionally, this provision will not limit liability under state or
federal securities laws. The Certificate of Incorporation also provides that the
Company shall indemnify directors and officers of the Company to the fullest
extent permitted by such law. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors.

CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS AFFECTING CHANGE OF CONTROL

The Company's Certificate of Incorporation and By-laws include certain
restrictions on who may call a special meeting of stockholders and prohibit
certain actions by written consent of the holders of the Common Stock. The
effect of these provisions may be the delaying, deterring or preventing of a
future takeover or change in control of the Company unless such takeover or
change in control is approved by the Board.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Union
National Bank.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have 15,698,314 shares of
Common Stock outstanding (16,553,314 shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 5,700,000 shares of Common
Stock sold in the offering will be tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate"), as that term is defined in Rule 144
under the Securities Act ("Rule 144"), which shares will be subject to the
resale limitations of Rule 144.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least one year has elapsed since
the later of the date the "restricted securities" (as that phrase is defined in
Rule 144) were acquired from the Company and the date they were acquired from an
Affiliate, then the holder of such restricted securities (including an
Affiliate) is entitled to sell a number of shares within any three-month period
that does not exceed the greater of 1% of the then outstanding shares of the
Common Stock (approximately 157,000 shares immediately after this offering) or
the average weekly reported volume of trading of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding such sale. The holder
may only sell such shares through unsolicited brokers' transactions. Sales under
Rule 144 are also subject to certain requirements pertaining to the manner of
such sales, notices of such sales and the availability of current public
information concerning the Company. Affiliates may sell shares not constituting
restricted shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year period. Commencing 90 days after
the

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<PAGE> 65

completion of the offering, 538,494 shares of Common Stock will be eligible for
sale in the public market under Rule 144, subject to the volume limitations and
other requirements described above, without consideration of the contractual
restrictions described below.

Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above. Ninety days after the date of this Prospectus,
no shares of Common Stock will be eligible for sale without restriction under
Rule 144(k).

Notwithstanding the foregoing, the Company, its executive officers and
certain directors, and substantially all of its current stockholders have agreed
that for a period of 180 days after the date of the offering they will not,
without the prior written consent of BT Alex. Brown Incorporated, offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
except pursuant to the Underwriting Agreement. Of the approximately 538,494
shares of Common Stock otherwise eligible for sale as discussed above,
substantially all are subject to such agreements.

Prior to the offering there has been no market for the Common Stock. The
Company can make no predictions as to the effect, if any, that sales of shares
or the availability of shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales of significant amounts of the Common
Stock in the public market, or the perception that such sales may occur, could
adversely affect prevailing market prices. See "Risk Factors -- Shares Eligible
for Future Sale; Registration Rights."

STOCK OPTIONS

At October 31, 1997, options to purchase a total of 478,118 shares of
Common Stock pursuant to the Company's 1997 Plan were outstanding, none of which
were exercisable. Of the shares subject to options, 260,799 are subject to
lock-up agreements. Upon completion of this offering, an additional 821,882
shares of Common Stock will be available for future option grants under the
Company's 1997 Plan. See "Management -- Long-Term Equity Incentive Plan."

REGISTRATION AGREEMENT

In connection with the Recapitalization in December 1996, the stockholders
of the Company at such time (the "Original Stockholders") entered into a
Registration Agreement with the Company (the "Registration Agreement"). The
Registration Agreement provides for certain demand registration rights to the
Original Stockholders, and to subsequent holders of the Common Stock acquired by
the Original Stockholders in connection with the Recapitalization. The demand
registration rights commence from and after the 180th day after the closing of
the Company's initial public offering of its securities. The holders of a
majority of the registrable securities held by the Original Stockholders (and
their permitted transferees) other than Leeway & Co. are entitled to request two
long-form registrations in which the Company pays all registration expenses and
an unlimited number of short-form registrations in which the Company pays all
registration expenses. Such holders are also entitled to request an unlimited
number of long-form registrations in which holders of registrable securities pay
their pro-rata share of registration expenses. The holders of a majority of the
registrable securities held by Leeway & Co. (and their permitted transferees)
are entitled to request one long-form registration in which the Company pays all
registration expenses and an unlimited number of long-form registrations in
which the holders of registrable securities pay their share of registration
expenses. The Company is entitled to postpone a demand registration for up to
one year under certain circumstances, and is not required to effect a demand
registration

64
<PAGE> 66

within one year of a previous registration in which holders of registrable
securities participated without reduction of the number of their included
shares.

The Registration Agreement also provides that, subject to certain
limitations, the Original Stockholders (and their permitted transferees) may
request inclusion of their shares in a registration of securities by the Company
(other than pursuant to the initial public offering of Common Stock or a demand
registration). Expenses incurred in connection with the exercise of such
piggyback registration rights are borne by the Company.

65
<PAGE> 67

UNDERWRITING

Subject to the terms and conditions contained in the Underwriting
Agreement, the Underwriters named below (the "Underwriters") through their
Representatives, BT Alex. Brown Incorporated, BancAmerica Robertson Stephens,
Goldman, Sachs & Co., and The Robinson-Humphrey Company, LLC have severally
agreed to purchase from the Company, the following respective numbers of shares
of Common Stock at the initial public offering price less the underwriting
discounts and commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
BT Alex. Brown Incorporated.................................
BancAmerica Robertson Stephens..............................
Goldman, Sachs & Co.........................................
The Robinson-Humphrey Company, LLC..........................

---------
Total............................................. 5,700,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
of such shares are purchased.

The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Representatives of the Underwriters.

The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 855,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it shown in the above table bears to 5,700,000, and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 5,700,000 shares are being offered.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.

Subject to certain exceptions, the Company has agreed not to issue, offer,
sell, sell short or otherwise dispose of any shares of Common Stock for a period
of 180 days from the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated. In addition, after giving effect to the
Preferred Stock Conversion and the application of the estimated net proceeds
from the sale of Common Stock in the offering to repurchase shares of Common
Stock as described in "Use of Proceeds," stockholders of the Company holding in
the aggregate approximately 9,976,893 shares of Common Stock and options to
purchase 260,799 shares of Common Stock, have agreed not to offer or otherwise
dispose of any such Common Stock for a period of 180 days from the

66
<PAGE> 68

date of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. See "Shares Eligible for Future Sale."

The Representatives have advised the Company that, pursuant to Regulation M
under the Securities Exchange Act of 1934, as amended, certain persons
participating in this offering may engage in transactions, including stabilizing
bids, syndicate covering transactions or the imposition of penalty bids which
may have the effect of stabilizing, maintaining or otherwise affecting 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
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 Underwriters 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.

The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price for the Common Stock will
be determined by negotiations among the Company and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company and the Representatives of the Underwriters believe to be
comparable to the Company, estimates of the business potential of the Company,
the present state of the Company's development and other factors deemed
relevant.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Kirkland & Ellis, a partnership including professional
corporations, Chicago, Illinois. Certain legal matters will be passed upon for
the Underwriters by Alston & Bird LLP, Atlanta, Georgia. Certain matters
relating to health care regulation and other matters will be passed upon by
Waller Lansden Dortch & Davis, A Professional Limited Liability Company,
Nashville, Tennessee.

EXPERTS

The consolidated financial statements and supplemental schedule of Province
Healthcare Company at December 31, 1996, and for the year then ended, and the
consolidated financial statements of Principal Hospital Company for the period
February 2, 1996 to December 18, 1996, appearing in this Registration Statement,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.

The consolidated financial statements and schedule of Province Healthcare
Company (formerly Brim, Inc.) as of December 31, 1995 and for the years ended
December 31, 1994 and 1995 have been included herein and in the registration
statement in reliance upon the reports of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.

67
<PAGE> 69

The consolidated financial statements of Memorial Hospital Foundation for
the years ended May 31, 1994, 1995 and 1996 and for the period June 1, 1996
through July 25, 1996 included in this Prospectus have been audited by Harrell,
Rader, Bonner & Bolton, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.

CHANGE IN ACCOUNTANTS

In connection with the Recapitalization, the Company's board of directors
approved the appointment of Ernst & Young LLP, independent auditors, as
independent accountants for the Company, to replace KPMG Peat Marwick LLP,
independent certified public accountants, whom the Company dismissed on December
18, 1996.

During 1994 and 1995, and the period from January 1, 1996 through December
18, 1996, there were no disagreements with KPMG Peat Marwick LLP on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure nor did KPMG Peat Marwick LLP's reports on the
financial statements for such periods contain an adverse opinion or disclaimer
of opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting.

In connection with the filing of the Company's Registration Statement on
Form S-1, KPMG Peat Marwick LLP was provided with a copy of this disclosure and
was requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of KPMG Peat
Marwick LLP's letter to the Commission is filed as an exhibit to the
Registration Statement on Form S-1.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 pursuant to the Securities
Act with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
items of which are omitted as permitted by the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document filed with the Registration Statement as
exhibits are necessarily summaries of such documents, and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed as an exhibit to the Registration Statement. For further information about
the Company and the securities offered hereby, reference is made to the
Registration Statement and to the consolidated financial statements, schedules
and exhibits filed as a part thereof.

Upon completion of the offering, the Company will be subject to the
information requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof and the reports and other information filed by
the Company with the Commission in accordance with the Exchange Act may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
following regional offices of the Commission: 7 World Trade Center, Suite 1300,
New York, New York 10048; and Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois, 60661-2511. Copies of such materials or
any part thereof may also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy statements and other information.

68
<PAGE> 70

INDEX TO FINANCIAL STATEMENTS

PROVINCE HEALTHCARE COMPANY

<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets at December 31, 1995 and 1996... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996 (Restated)............... F-5
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit) for the Years Ended December 31, 1994,
1995 and 1996 (Restated).................................. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996 (Restated)............... F-7
Notes to Consolidated Financial Statements.................. F-8
Condensed Consolidated Balance Sheet at September 30, 1997
(Unaudited)............................................... F-25
Condensed Consolidated Statements of Income for the Nine
Months Ended September 30, 1996 and 1997 (Unaudited)...... F-26
Condensed Consolidated Statements of Changes in Common
Stockholders' Equity (Deficit) for the Nine Months Ended
September 30, 1997 (Unaudited)............................ F-27
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1996 and 1997 (Unaudited)...... F-28
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-29

PRINCIPAL HOSPITAL COMPANY
Report of Independent Auditors.............................. F-32
Consolidated Statement of Operations for the Period February
2, 1996 to December 18, 1996.............................. F-33
Consolidated Statement of Cash Flows for the Period February
2, 1996 to December 18, 1996.............................. F-34
Notes to Consolidated Financial Statements.................. F-35

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
Independent Auditors' Report................................ F-40
Consolidated Statements of Operations for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-41
Consolidated Statements of Cash Flows for the Years Ended
May 31, 1995 and 1996 and for the period June 1, 1996 to
July 25, 1996............................................. F-42
Notes to the Consolidated Financial Statements.............. F-43
Independent Auditors' Report................................ F-47
Consolidated Statement of Revenues and Expenses for the Year
Ended May 31, 1994........................................ F-48
Consolidated Statement of Cash Flows for the Year Ended May
31, 1994.................................................. F-49
Notes to the Consolidated Financial Statements.............. F-50
</TABLE>

F-1
<PAGE> 71

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Province Healthcare Company

We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until November , 1997) and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in common stockholders' equity (deficit), and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Province Healthcare Company and subsidiaries as of December 31, 1996, and the
consolidated results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.

As discussed more fully in Note 1, the Company has changed its application
of the method of accounting for the merger of a subsidiary of the Company into
Principal Hospital Company and, accordingly, has restated the consolidated
financial statements referred to above to reflect this change.

Ernst & Young LLP

Nashville, Tennessee
April 30, 1997,

except for Note 16, and Notes 1, 2 and 17, as to which the dates are

May 8, 1997 and November , 1997, respectively

The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.

Ernst & Young LLP

Nashville, Tennessee

November 10, 1997

F-2
<PAGE> 72

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Province Healthcare Company

We have audited the accompanying consolidated balance sheet of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in common
stockholders' equity (deficit), and cash flows for the years ended December 31,
1994 and 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Province
Healthcare Company (formerly Brim, Inc.) and subsidiaries as of December 31,
1995, and the results of their operations and their cash flows for the years
ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.

KPMG Peat Marwick LLP

Portland, Oregon
March 8, 1996

F-3
<PAGE> 73

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,287 $ 11,256
Accounts receivable, less allowance for doubtful accounts
of $2,078 in 1995 and $4,477 in 1996................... 18,286 22,829
Inventories............................................... 1,754 2,883
Prepaid expenses and other................................ 6,403 8,355
------- --------
Total current assets.............................. 28,730 45,323
Property, plant and equipment, net.......................... 10,201 35,865
Other assets:
Unallocated purchase price................................ -- 7,265
Investments in other health care-related businesses....... 4,564 423
Other..................................................... 3,580 5,149
------- --------
8,144 12,837
------- --------
$47,075 $ 94,025
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,065 $ 7,915
Accrued salaries and benefits............................. 3,661 7,772
Accrued expenses.......................................... 2,128 5,359
Current maturities of long-term obligations............... 839 1,489
------- --------
Total current liabilities......................... 10,693 22,535
Long-term obligations, less current maturities.............. 5,519 76,633
Third-party settlements..................................... 6,472 6,604
Other liabilities........................................... 909 3,349
------- --------
12,900 86,586
Mandatory redeemable preferred stock........................ 8,816 44,150
Common stockholders' equity (deficit):
Common stock -- no par value; authorized 10,000,000 shares
in 1995 and 20,000,000 in 1996; issued and outstanding
813,529 in 1995 and 7,280,020 in 1996.................. 414 3,033
Notes receivable for common stock......................... -- (391)
Common stock warrant...................................... -- 139
Retained earnings (deficit)............................... 14,252 (62,027)
------- --------
14,666 (59,246)
------- --------
$47,075 $ 94,025
======= ========
</TABLE>

See accompanying notes.

F-4
<PAGE> 74

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- ----------
(RESTATED)
<S> <C> <C> <C>
Revenue:
Net patient service revenue............................... $ 78,109 $ 75,871 $ 92,672
Management and professional services...................... 15,969 19,567 18,937
Other..................................................... 7,989 5,776 6,468
-------- -------- --------
Net operating revenue............................. 102,067 101,214 118,077
-------- -------- --------
Expenses:
Salaries, wages and benefits.............................. 53,659 55,289 60,964
Purchased services........................................ 16,879 14,411 17,929
Supplies.................................................. 11,035 10,143 11,733
Provision for doubtful accounts........................... 5,056 4,601 8,337
Other operating expenses.................................. 4,930 7,729 11,063
Rentals and leases........................................ 3,781 4,133 5,166
Depreciation and amortization............................. 1,530 1,771 1,905
Interest expense.......................................... 760 589 1,842
Costs of recapitalization................................. -- -- 11,570
Loss (gain) on sale of assets............................. (635) (2,814) 442
-------- -------- --------
Total expenses.................................... 96,995 95,852 130,951
-------- -------- --------
Income (loss) from continuing operations before provision
for income taxes.......................................... 5,072 5,362 (12,874)
Provision (benefit) for income taxes........................ 2,097 1,953 (4,273)
-------- -------- --------
Income (loss) from continuing operations.................... 2,975 3,409 (8,601)
Discontinued operations:
(Loss) Income from discontinued operations, less applicable
income taxes.............................................. (157) 783 537
(Loss) gain on disposal of discontinued operations -- to
related parties in 1996, less applicable income taxes..... -- (1,047) 5,478
-------- -------- --------
Total discontinued operations..................... (157) (264) 6,015
-------- -------- --------
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,586)
======== ======== ========
Preferred stock dividends and accretion..................... (172)
--------
Net loss applicable to common and common equivalent shares.. $ (2,758)
========
Pro forma income (loss) per common and common equivalent
share:
Loss from continuing operations........................... $ (0.99)
Income from discontinued operations....................... 0.68
--------
Net loss per common and common equivalent share........... $ (0.31)
========
Pro forma number of common and common equivalent shares..... 8,844
========
</TABLE>

See accompanying notes.

F-5
<PAGE> 75

PROVINCE HEALTHCARE COMPANY

CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES
NO PAR VALUE RECEIVABLE
COMMON STOCK FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ ---------- ------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994...... 837,154 $ 824 $ -- $ -- $ 8,289 $ 9,113
Issuance of stock............. 33,490 546 -- -- -- 546
Retirement of stock........... (52,922) (837) -- -- -- (837)
Net income.................... -- -- -- -- 2,818 2,818
--------- ------ ----- ---- -------- --------
Balance at December 31, 1994.... 817,722 533 -- -- 11,107 11,640
Issuance of stock............. 12,328 245 -- -- -- 245
Retirement of stock........... (16,521) (364) -- -- -- (364)
Net income.................... -- -- -- 3,145 3,145
--------- ------ ----- ---- -------- --------
Balance at December 31, 1995.... 813,529 414 -- -- 14,252 14,666
Recapitalization and merger
transactions............... 6,466,491 2,619 (391) 139 (73,521) (71,154)
Dividends and accretion....... -- -- -- -- (172) (172)
Net loss...................... -- -- -- -- (2,586) (2,586)
--------- ------ ----- ---- -------- --------
Balance at December 31, 1996.... 7,280,020 $3,033 $(391) $139 $(62,027) $(59,246)
========= ====== ===== ==== ======== ========
</TABLE>

See accompanying notes.

F-6
<PAGE> 76

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- -------- ----------
(RESTATED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 2,818 $ 3,145 $ (2,586)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 1,962 2,438 1,905
Other amortization........................................ -- -- 62
Provision for doubtful accounts........................... 5,076 4,734 8,337
Loss (income) from investments............................ 64 (86) 272
Deferred income taxes..................................... 278 (112) (4,628)
Gain on sale of assets.................................... (361) (2,608) (8,519)
Provision for professional liability...................... -- -- 1,700
Changes in operating assets and liabilities, net of effects
from acquisitions and disposals:
Accounts receivable..................................... (9,493) (5,269) (6,268)
Inventories............................................. 124 (140) (48)
Prepaid expenses and other current assets............... (408) 3,178 3,180
Accounts payable and accrued expenses................... 1,044 (1,880) 3,389
Accrued salaries and benefits........................... -- -- 3,334
Third-party settlements................................. 1,693 62 245
Other liabilities....................................... (136) 232 (74)
------- -------- --------
Net cash provided by operating activities................... 2,661 3,694 301
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (5,271) (1,398) (13,151)
Net capital contributions and withdrawals -- investments.... (1,489) (2,063) 1,775
Purchase of acquired companies.............................. (4,364) (15,765) (1,763)
Cash increase due to merger................................. -- -- 2,798
Proceeds from sale of assets................................ 5,688 20,607 21,948
Sale of marketable securities............................... 1,031 -- --
Escrow deposit on facility purchase......................... 3,829 (3,829) --
Other....................................................... (138) 921 1,094
------- -------- --------
Net cash (used in) provided by investing activities......... (714) (1,527) 12,701
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 2,871 39 71,479
Repayments of debt.......................................... (5,185) (1,619) (24,719)
Additions to deferred loan costs............................ -- -- (1,842)
Issuance of common stock.................................... 546 245 --
Repurchase of common stock.................................. (837) (364) --
Recapitalization............................................ -- -- (48,951)
------- -------- --------
Net cash used in financing activities....................... (2,605) (1,699) (4,033)
------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (658) 468 8,969
Cash and cash equivalents at beginning of year.............. 2,477 1,819 2,287
------- -------- --------
Cash and cash equivalents at end of year.................... $ 1,819 $ 2,287 $ 11,256
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 750 $ 1,435 $ 826
======= ======== ========
Income taxes paid during the year........................... $ 1,842 $ 4,183 $ 2,288
======= ======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 4,632 $ 15,784 $ 3,092
Liabilities assumed......................................... (268) (19) (1,329)
------- -------- --------
Cash paid................................................... $ 4,364 $ 15,765 $ 1,763
======= ======== ========
SALE OF ASSETS
Assets sold................................................. $ 5,364 $ 17,791 $ 13,274
Liabilities released........................................ -- 505 155
Debt assumed by purchaser................................... (37) (297) --
Gain on sale of assets...................................... 361 2,608 8,519
------- -------- --------
Cash received............................................... $ 5,688 $ 20,607 $ 21,948
======= ======== ========
MERGER
Assets combined............................................. $ -- $ -- $ 37,059
Liabilities combined........................................ -- -- (26,092)
Common and preferred stock issued........................... -- -- (13,765)
------- -------- --------
Cash increase due to merger................................. $ -- $ -- $ (2,798)
======= ======== ========
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ -- $ -- $ 2,736
======= ======== ========
Noncash issuance of stock in connection with
recapitalization.......................................... $ -- $ -- $ 4,118
======= ======== ========
Dividends and accretion..................................... $ -- $ -- $ 172
======= ======== ========
</TABLE>

See accompanying notes.

F-7
<PAGE> 77

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. RESTATEMENT OF FINANCIAL STATEMENTS

As more fully discussed in Note 3, Brim, Inc. (referred to herein as Brim
or the Company) and Principal Hospital Company (PHC) were both controlled by
Golder, Thoma, Cressey, Rauner Fund IV, L.P. (GTCR). On December 18, 1996, GTCR
merged a subsidiary of Brim, Inc. into PHC. Shortly thereafter, Brim changed its
name to Principal Hospital Company. The combination of Brim and PHC was
accounted for as a merger of businesses under common control and the results of
operations for the previously separate companies were originally combined at
historical cost in a manner similar to pooling of interests accounting. After
further consideration the Company has changed the application of the method of
accounting to include the results of operations for PHC from December 18, 1996
instead of from February 2, 1996, and has restated the consolidated financial
statements for the year ended December 31, 1996. The restatement resulted in a
change in the 1996 net loss from $2,890,000 to $2,586,000, a decrease of
$304,000, and a change in the pro forma net loss per common share from $0.35 to
$0.31, a decrease of $0.04.

2. ORGANIZATION AND ACCOUNTING POLICIES

The Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until November , 1997 at
which time the name was changed to Province Healthcare Company) and its
subsidiaries are engaged in the business of owning, leasing and managing
hospitals in non-urban communities principally in the northwestern and
southwestern United States. As more fully described in Note 3, the Company
consummated a leveraged recapitalization on December 18, 1996.

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and partnerships in which the Company or one of
its subsidiaries is a general partner and has a controlling interest. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

CASH EQUIVALENTS

Cash equivalents include all highly liquid investments with an original
maturity of three months or less when acquired. The Company places its cash in
financial institutions that are federally insured and limits the amount of
credit exposure with any one financial institution.

PATIENT ACCOUNTS RECEIVABLE

The Company's primary concentration of credit risk is patient accounts
receivable, which consist of amounts owed by various governmental agencies,
insurance companies and private patients. The Company manages the receivables by
regularly reviewing its accounts and contracts and by providing appropriate
allowances for uncollectible amounts. Significant concentrations of gross
patient accounts receivable at December 31, 1996, consist of receivables from
Medicare and Medicaid of 29% and 17%, respectively. Concentration of credit risk
relating to accounts receivable is limited to some extent by the diversity and
number of patients and payors and the geographic dispersion of the Company's
operations.

F-8
<PAGE> 78

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INVENTORIES

Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated on the basis of cost. Routine
maintenance and repairs are charged to expense as incurred. Expenditures that
increase values, change capacities or extend useful lives are capitalized.
Depreciation is computed by the straight-line method over the estimated useful
lives of the assets, which range from 3 to 40 years. Amortization of equipment
under capital leases is included in the provision for depreciation.

OTHER ASSETS

Deferred loan costs are included in other noncurrent assets and are
amortized over the term of the related debt by the interest method. At December
31, 1996, deferred loan costs and accumulated amortization were $2,959,000 and
$62,000, respectively.

RISK MANAGEMENT

The Company maintains self-insured medical and dental plans for employees.
Claims are accrued under these plans as the incidents that give rise to them
occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, including claim settlement expenses, in accordance with an average
lag time and past experience. The Company has entered into reinsurance
agreements for certain plans with independent insurance companies to limit its
losses on claims. Under the terms of these agreements, the insurance companies
will reimburse the Company based on the level of reinsurance which ranges from
$30,000 per individual claim up to $1,000,000. These reimbursements are included
in salaries, wages and benefits in the accompanying consolidated statements of
operations.

The Company is insured for professional liability based on a claims-made
policy purchased in the commercial insurance market. The provision for
professional liability and comprehensive general liability claims include
estimates of the ultimate costs for claims incurred but not reported, in
accordance with actuarial projections based on past experience. Management is
aware of no potential professional liability claims whose settlement, if any,
would have a material adverse effect on the Company's consolidated financial
position or results of operations.

OTHER NONCURRENT LIABILITIES

Other noncurrent liabilities consist primarily of insurance liabilities,
including an estimated liability for incurred but not reported professional
liability claims, supplemental deferred compensation liability and minority
interests in net assets of subsidiaries.

PATIENT SERVICE REVENUE

Net patient service revenue is reported at the estimated net realizable
amounts from patients, third-party payors, and others for services rendered,
including estimated retroactive adjustments under reimbursement agreements with
third-party payors. Estimated settlements under third-party reimbursement
agreements are accrued in the period the related services are rendered and
adjusted in future periods as final settlements are determined.

F-9
<PAGE> 79

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Approximately 61%, 61% and 61% (restated) of gross patient service revenue
for the years ended December 31, 1994, 1995 and 1996, is from participation in
the Medicare and state sponsored Medicaid programs.

MANAGEMENT AND PROFESSIONAL SERVICES

Management and professional services is comprised of fees from management
and professional consulting services provided to third-party hospitals pursuant
to management contracts and consulting arrangements. The base fees associated
with the hospital management contracts are determined in the initial year of the
contract on an individual hospital basis. In certain contracts, the Company is
entitled to a yearly bonus based on the performance of the managed hospital. The
management contracts are adjusted yearly based on an agreed upon inflation
indicator. The substantial majority of management and professional services
revenue consists of the management fees earned under the hospital management
contracts and reimbursable expenses. The reimbursable expenses relate to
salaries and benefits of Company employees that serve as executives at the
managed hospitals. The salaries and benefits of these employees are legal
obligations of, and are paid by, the Company and are reimbursed by the managed
hospitals. Fees are recognized as revenue as services are performed.
Reimbursable expenses are included in salaries, wages and benefits in the
accompanying consolidated statements of operations. Management and professional
services revenue, excluding reimbursable expenses, was $9,048,000, $10,652,000
and $9,623,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The Company does not maintain any ownership interest in and does
not have any financial commitments to these managed hospitals. The Company does
not have any guarantees to these hospitals, except for one managed hospital for
which the Company has guaranteed the hospital's long-term debt of $500,000.

STOCK BASED COMPENSATION

The Company, from time to time, grants stock options for a fixed number of
common shares to employees. The Company accounts for stock option grants in
accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and accordingly, recognizes no compensation expense for the stock option grants
when the exercise price of the options equals, or is greater than, the market
price of the underlying stock on the date of grant.

INTEREST RATE SWAP AGREEMENTS

The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense.

PRO FORMA NET (LOSS) INCOME PER SHARE

Pro forma net loss per share for the year ended December 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during the period, including dilutive common equivalent shares from stock
options and warrants (using the treasury stock method). The 7,280,020 common
shares issued in the recapitalization and the merger (see Note 3) in December
1996 have been included in the pro forma calculation as if the recapitalization
and the merger had occurred as of the first day of 1996. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, all other common
stock issued, and common stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering have been included in the calculation as if
they were outstanding for the full fiscal year (using the treasury stock
method).

F-10
<PAGE> 80

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Historical net (loss) income per share has not been presented in these
financial statements, since the historical capitalization of the Company is not
meaningful due to the change in the capital structure of the Company resulting
from the recapitalization (see Note 3).

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

SFAS No. 128 establishes standards for computing and presenting earnings
per share. This Statement simplifies the standards for computing earnings per
share and requires dual presentation of basic and diluted earnings per share on
the face of the statement of operations and requires a reconciliation of the
numerator and denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share computation. The
adoption of SFAS No. 128 would have had no impact on the calculation of earnings
per share assuming the calculation was modified (i) to treat the 7,280,020
shares issued in the recapitalization and the merger in December 1996 as being
outstanding for the entire period presented, and (ii) to treat all other common
stock issued, and common stock options and warrants granted, by the Company at
prices below the initial public offering price during the twelve-month period
prior to the initial public offering as if they were outstanding for the entire
period presented.

RECLASSIFICATIONS

Certain reclassifications have been made in the 1994 and 1995 consolidated
financial statements to conform to the 1996 presentation. These
reclassifications had no effect on the results of operations previously
reported.

3. RECAPITALIZATION

On December 18, 1996, Brim was recapitalized pursuant to an Investment
Agreement dated November 21, 1996, by and between Brim and GTCR and PHC. PHC was
a party to the Investment Agreement as the agreement required the parties to
consummate the merger of a subsidiary of Brim into PHC following the
consummation of the recapitalization as discussed below. Prior to the
recapitalization, Brim was owned by certain of its officers and employees. PHC
was founded in February 1996 by GTCR and Mr. Martin Rash, and was controlled by
GTCR through an 82.1% common stock ownership. Following the recapitalization of
Brim, GTCR controlled both Brim and PHC, and merged a subsidiary of Brim into
PHC as discussed below. The combination of Brim and PHC was accounted for as a
merger of businesses under common control.

The basic elements of the December 1996 recapitalization of the Company
included the following: GTCR Fund IV and other investors purchased new shares of
the Company's common and preferred stock. The Company sold its senior living
business and entered into a new credit facility to, along with the proceeds from
the sale of the new shares, provide financing for the redemption of a portion of
the pre-existing common and preferred stock; this pre-existing common and
preferred stock was redeemed; and certain pre-existing debt was repaid. The
recapitalization was accounted for as such and, accordingly, did not result in a
new basis of accounting. Upon completion of the recapitalization, GTCR
controlled the Company and also controlled PHC. Since both companies are

F-11
<PAGE> 81

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

engaged in the business of owning, leasing and managing hospitals in non-urban
communities, GTCR then merged PHC into Brim so that the two companies would be
under the same corporate structure and management.

The principal elements of the recapitalization included the following:

- Brim sold for cash its two wholly-owned subsidiaries engaged in senior
living activities for a gross sales price of $19.7 million (see Note 11),
and sold for cash certain real estate properties for a price of $406,500
plus assumption of debt of approximately $800,000 (see Note 4).

- GTCR purchased 1,425,333 shares, Mr. Rash purchased 22,889 shares, Mr.
Richard Gore purchased 42,667 shares, two banks purchased 21,333 shares,
and Leeway & Co., a subsidiary of AT&T, purchased 833,778 shares of Brim
newly-designated common stock for cash of approximately $1.1 million.
Messrs. Rash and Gore purchased 399,902 shares of Brim newly-designated
common stock for notes of $179,956.

- Through a series of transactions, Brim pre-transaction shareholders who
were to remain shareholders after the recapitalization received 3,580
shares of newly-designated junior preferred stock and 795,562 shares of
Brim newly-designated common stock with a value of approximately $4.0
million in exchange for their common stock of Brim.

- GTCR purchased 6,414 shares, Mr. Rash purchased 103 shares, Mr. Gore
purchased 192 shares, two banks purchased 96 shares and Leeway & Co.
purchased 3,752 shares of newly-designated redeemable junior preferred
stock for cash of approximately $10.6 million.

- Leeway & Co. purchased 20,000 shares of newly designated redeemable
senior preferred stock and was issued a warrant to purchase 343,265 shares
of newly-designated common stock for total cash consideration of $20.0
million. A value of $139,000 was assigned to the warrant.

- Brim entered into a $100.0 million credit facility with First Union
National Bank and borrowed $35.0 million under the term loan portion of
the facility, and $37.0 million under the $65.0 million revolving credit
portion of the facility.

- The outstanding common stock of all Brim shareholders who were not to
remain as shareholders after the recapitalization was exchanged for
redeemable junior preferred stock. The preferred stock was then redeemed
for cash of approximately $42.3 million, and outstanding stock options
were settled for cash of approximately $8.0 million.

- Brim redeemed pre-existing Series A preferred stock held by General
Electric Credit Corporation for cash of approximately $29.9 million.

- Existing Brim debt of $5.4 million was paid.

- An aggregate of approximately $6.5 million was deposited into escrow
accounts for possible breaches of representations and warranties in
connection with the transactions for sale of the Senior Living
subsidiaries and the stock redemption. Escrow funds not used for
settlement of breaches within 18 months of the recapitalization will be
released to the purchasers of the Senior Living subsidiaries and the
redeemed Brim shareholders.

F-12
<PAGE> 82

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The principal elements of transactions occurring immediately after the
recapitalization included the following:

- A subsidiary of Brim was merged into PHC. In exchange for their shares in
PHC, the PHC shareholders received newly-designated redeemable junior
preferred stock and newly designated common stock as follows: GTCR
received 13,580 and 3,017,779 shares, Mr. Rash received 217 and 429,252
shares, Mr. Gore received 407 and 247,258 shares, and two banks received
199 and 44,267 shares, respectively. The combination of Brim and PHC was
accounted for as a merger of businesses under common control. No goodwill
was recorded related to the acquisition of the PHC minority interest since
the historical cost of PHC's net assets did not differ significantly from
their fair value at the date of the merger.

- Existing PHC debt of $19.6 million was repaid.

- First Additional Investment -- An agreement was entered into granting
GTCR the right to acquire, at its sole discretion, up to 2,733 shares of
the Company's redeemable junior preferred stock at a price of $1,000 per
share, and up to 607,334 shares of the Company's common stock at a price
of $0.45 per share, at any time through December 17, 1999. The agreement
provides that Leeway & Co., Mr. Rash, Mr. Gore, and the two banks are
obligated to purchase redeemable junior preferred stock and common stock
in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)

- Second Additional Investment -- The agreement discussed immediately above
also granted GTCR the right to acquire up to 4,545 shares of the Company's
redeemable junior preferred stock at a price of $1,000 per share, and up
to 1,010,000 shares of the Company's common stock at a price of $0.45 per
share, at any time after the date upon which the investment discussed
above was completed and before December 17, 1998. The agreement also
granted Leeway & Co. the right to acquire senior preferred stock,
redeemable junior preferred stock, common stock, and a common stock
warrant, and granted Mr. Rash and Mr. Gore the right to acquire common
stock, in specified amounts at the same per share prices in the event GTCR
exercises its right to acquire junior preferred and common stock. (See
Note 17.)

- Brim changed its name to Principal Hospital Company.

The common stock ownership subsequent to the recapitalization and the
merger consists of a 10.9% interest held by certain of the pre-recapitalization
Brim shareholders, 61.0% held by GTCR, 11.5% held by Leeway & Co., 15.7% held by
Messrs. Rash and Gore, and 0.9% held by two banks.

The recapitalization resulted in a direct charge to retained earnings in
the amount of $73,521,000, comprised of the following:

<TABLE>
<CAPTION>
<S> <C>
Excess of redemption amount over carrying amount of common
stock redeemed............................................ $52,337,000
Excess of redemption amount over carrying amount of
preferred stock redeemed.................................. 21,037,000
Issuance costs related to the sale of new shares of common
stock..................................................... 147,000
-----------
Total........................................ $73,521,000
===========
</TABLE>

Total financing fees and legal, accounting and other related costs of the
recapitalization amounted to approximately $16,850,000. Costs totaling
$11,570,000 were charged to operations at the date of the recapitalization,
consisting of cash paid to buy-out stock options of $7,995,000, severance costs
of $2,190,000, and transaction-related costs of $1,385,000. Costs of $2,321,000

F-13
<PAGE> 83

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

associated with the sale of common and preferred stock were allocated to
retained earnings (deficit) as to the common stock, and were netted against the
proceeds as to the preferred stock. Financing costs of $2,959,000 associated
with the credit facility with First Union National Bank were recorded as
deferred loan costs.

As part of the recapitalization, the Company approved a plan in December
1996 to terminate approximately 200 corporate and hospital operating personnel.
The Company accrued approximately $2,190,000 of severance liability relating to
these approved terminations as of December 31, 1996 and included these costs in
the costs of the recapitalization in the accompanying consolidated statements of
operations. Subsequent to year-end, the Company terminated approximately 200
employees and paid severance benefits of the full amount of the recorded
severance liability.

4. ACQUISITIONS AND DIVESTITURES

In February 1995, the Company acquired two senior living residences for
approximately $15,800,000. In September 1995, the Company sold the real property
of the two facilities and leased them back under an operating lease agreement
for a minimum lease term of 15 years. The gain on the sale of $138,000 was
deferred to be recognized over the lease term.

In May 1995, the Company sold a hospital facility for approximately
$6,000,000. Cash proceeds from the sale were approximately $5,200,000 and the
Company recorded a gain on this transaction of approximately $2,500,000.

In February 1996, the Company acquired Parkview Regional Hospital by
entering into a 15-year operating lease agreement with two five-year renewal
terms and by purchasing certain assets totaling $3,092,000 and assuming certain
liabilities totaling $1,329,000, for a purchase price of $1,763,000.

In December 1996, the Company sold its senior living business (see Note 11)
and certain assets related to three medical office buildings. The assets related
to three medical office buildings were sold to a limited liability company for
$406,500 plus assumption of debt of approximately $800,000. The accounting basis
for the sale was fair market value and a pre-tax gain of approximately $94,000
was recognized on the sale. The members of the limited liability company were
officers and employees of the Company prior to the recapitalization who
collectively owned 75% of the Company's fully diluted common stock prior to the
recapitalization and less than 10% of the Company's common stock subsequent to
the recapitalization and merger.

In December 1996, a subsidiary of the Company was merged into PHC, as both
entities were under the common control of GTCR (see Note 3). Prior to the
merger, PHC had acquired two hospitals. In July 1996, PHC purchased certain
assets totaling $26,394,000 and assumed certain liabilities totaling $3,211,000
of Memorial Mother Frances Hospital for a purchase price of $23,183,000. In
October 1996, PHC acquired Starke Memorial Hospital by assuming certain
liabilities and entering into a capital lease agreement and by purchasing
certain net assets for a purchase price of $7,742,000. At December 31, 1996, the
Company is waiting for the final appraisal on certain assets acquired from
Starke Memorial Hospital, thereby resulting in the allocation of the purchase
price not being finalized. The Company anticipates this to be completed in the
fourth quarter of 1997. Management does not expect the final allocation of the
purchase price to have a significant impact on the Company's consolidated
financial position or results of operations. Both of these acquisitions were
accounted for using the purchase method of accounting.

The operating results of PHC, Memorial Mother Frances Hospital and Starke
Memorial Hospital have been included in the accompanying consolidated statements
of operations from the date of the merger. Accordingly, the accompanying
consolidated statement of operations for the year ended

F-14
<PAGE> 84

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 1996 includes the results of eleven months of operations for
Parkview and thirteen days of operations for PHC, Memorial Mother Frances and
Starke.

The following pro forma information related to continuing operations
reflects the operations of the entities acquired in 1995 and 1996, and divested
in 1995, as if the respective transactions had occurred as of the first day of
the fiscal year immediately preceding the year of the transactions. The pro
forma results of continuing operations do not purport to represent what the
Company's results of continuing operations would have been had such transactions
in fact occurred at the beginning of the years presented or to project the
Company's results of operations in any future period.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994(1) 1995(2) 1996(3)
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue............................................... $101,976 $151,215 $153,136
Income (loss) from continuing operations.................... 3,363 (704) (10,332)
</TABLE>

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

(1) Excludes the hospital divested in 1995.

(2) Includes Parkview Regional Hospital and PHC hospitals, and excludes the
hospital divested in 1995.

(3) Includes Parkview Regional Hospital and PHC.

The Company has minority interests in various health care related
businesses. These investments are accounted for by the equity method. The
assets, liabilities and results of operations of these businesses are not
material to the consolidated financial statements.

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Land........................................................ $ 823 $ 1,340
Leasehold improvements...................................... 1,315 4,475
Buildings and improvements.................................. 3,300 19,121
Equipment................................................... 8,654 15,217
------- -------
14,092 40,153
Less allowances for depreciation and amortization........... (4,609) (4,818)
------- -------
9,483 35,335
Construction-in-progress (estimated cost to complete at
December 31, 1996 -- $1,427).............................. 718 530
------- -------
$10,201 $35,865
======= =======
</TABLE>

Assets under capital leases were $2,400,000 and $13,385,000 net of
accumulated amortization of $750,000 and $1,462,000 at December 31, 1995 and
1996, respectively.

F-15
<PAGE> 85

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit agreement.................................. $ 400 $37,000
Term loan................................................... -- 35,000
Other debt obligations...................................... 111 87
Mortgage notes paid in full in 1996, interest ranging from
7.5% - 8.0%............................................... 3,401 --
Various notes paid in full in 1996, interest ranging from
7.0% - 10.0%.............................................. 478 --
------ -------
4,390 72,087
Obligations under capital leases (see Note 12).............. 1,968 6,035
------ -------
6,358 78,122
Less current maturities..................................... (839) (1,489)
------ -------
$5,519 $76,633
====== =======
</TABLE>

In connection with the recapitalization (see Note 3), the Company entered
into a $100 million credit facility in December 1996, consisting of a revolving
credit agreement in an amount of up to $65,000,000 and a term loan in the amount
of $35,000,000. There was $37,000,000 of borrowings outstanding under the
revolving credit agreement and $35,000,000 under the term loan at December 31,
1996. Future borrowings under the revolver are limited, in certain instances, to
acquisitions of identified businesses. At December 31, 1996, the Company had
additional borrowing capacity available under the revolver of approximately
$6,250,000.

The loans under the credit agreement bear interest, at the Company's
option, at the adjusted base rate or at the adjusted LIBOR rate. Interest ranged
from 8.09% to 9.25% during 1996. The Company pays a commitment fee of one-half
of one percent on the unused portion of the revolving credit agreement. The
Company may prepay the principal amount outstanding under the revolving credit
agreement at any time before the maturity date of December 16, 1999. The term
loan is payable in quarterly installments ranging from $1,250,000 commencing in
the second quarter of 1998 to $2,250,000 in 2002, plus one payment of $2,000,000
in 2002.

The Company has a standby letter of credit issued and outstanding with the
bank totaling $603,000. Amounts outstanding are applied against the credit
availability under the Company's revolving credit agreement.

In certain circumstances, the Company is required to make mandatory
prepayments of the term loan and revolver to the extent of (i) 100% of net
proceeds from the issuance of equity securities in excess of $25,000,000,
provided however that in connection with a qualified initial public offering of
the Company's common stock, the Company shall only be required to make a
mandatory prepayment in an amount equal to the first $20,000,000 of net cash
proceeds; (ii) 100% of the net proceeds of any debt issued; and (iii) 100% of
net proceeds from asset sales other than sales of obsolete equipment in the
ordinary course of business or insurance proceeds.

The credit facility limits, under certain circumstances, the Company's
ability to incur additional indebtedness, including contingent obligations; sell
material assets; retire, redeem or otherwise reacquire its capital stock;
acquire the capital stock or assets of another business; or pay dividends. The
credit facility also requires the Company to maintain a specified net worth and
meet or exceed

F-16
<PAGE> 86

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certain coverage, leverage, and indebtedness ratios. Indebtedness under the
credit facility is secured by substantially all assets of the Company.

Subsequent to year end, as required by the credit facility, the Company
entered into an interest rate swap agreement, which effectively converted for a
three-year period $35.0 million of floating-rate borrowings to fixed-rate
borrowings. This interest rate swap agreement will be used to manage the
Company's interest rate exposure. The agreement is a contract to periodically
exchange floating interest rate payments for fixed interest rate payments over
the life of the agreement. The Company secured a 8.77% fixed interest rate. The
Company is exposed to credit losses in the event of non-performance by the
counterparty to its financial instruments. The Company anticipates that the
counterparty will be able to fully satisfy its obligations under the contract.

Aggregate maturities of long-term obligations at December 31, 1996,
excluding capital leases, are as follows (in thousands):

<TABLE>
<S> <C>
1997........................................................ $ 47
1998........................................................ 3,790
1999........................................................ 42,750
2000........................................................ 6,750
2001........................................................ 7,750
Thereafter.................................................. 11,000
-------
$72,087
=======
</TABLE>

7. MANDATORY REDEEMABLE PREFERRED STOCK

Redeemable preferred stock consists of the following:

<TABLE>
<CAPTION>
1995 1996
------ -------
(IN THOUSANDS)
<S> <C> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
25,000 in 1996, issued and outstanding no shares in 1995
and 20,000 in 1996, net of issuance costs of $892,000 and
a warrant of $139,000 in 1996............................. $ -- $18,969
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized no shares in 1995 and
50,000 in 1996, issued and outstanding no shares in 1995
and 28,540 shares in 1996, net of issuance costs of
$1,282,000 and discount of $2,077,000 in 1996............. -- 25,181
Redeemable Series A preferred stock, no par value,
authorized, issued and outstanding 96,000 shares in 1995
and no shares in 1996, net of issuance costs of $784,000
in 1995................................................... 8,816 --
------ -------
$8,816 $44,150
====== =======
</TABLE>

As described in Note 3, the Company redeemed all of the existing preferred
stock and issued two new categories of preferred stock as part of the
recapitalization on December 18, 1996.

The issued and outstanding shares of Series A redeemable senior preferred
stock are held by Leeway & Co., who purchased 20,000 shares and a warrant to
purchase 343,265 shares of common stock for $20.0 million in connection with the
recapitalization (see Note 3). Issuance costs totaled $892,000. Series A
redeemable preferred stock pays cumulative preferential dividends which accrue
on a daily basis at the rate of 11% and are payable in cash when and as declared
by the board of directors. The issue is senior to all other classes of equity
and has a liquidation preference equal to

F-17
<PAGE> 87

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the purchase price plus all accrued dividends. The issue requires mandatory
redemption after nine years for par value plus accrued but unpaid dividends. The
Company may redeem part or all of the issue at any time for a liquidation
preference of 105% for years one through five, 103% for year six, and 100%
thereafter. Notwithstanding the foregoing, the redemption price is the stated
value, plus accrued but unpaid dividends, for redemptions in connection with an
initial public offering.

The issued and outstanding Series B redeemable junior preferred stock
consists of 19,994 shares issued to GTCR, 320 shares issued to Mr. Rash, 599
shares issued to Mr. Gore, and 295 shares issued to two banks with a value of
$21,208,000; 3,752 shares purchased by Leeway & Co. for $3,752,000; and 3,580
shares issued to Brim pre-recapitalization shareholders with a value of
$3,580,000. Issuance costs totaled $1,282,000 and discount totaled $2,077,000.
Series B redeemable junior preferred stock pays cumulative preferential
dividends which accrue on a daily basis at the rate of 8% and are payable in
cash when and as declared by the board of directors. The issue is senior to all
other classes of equity other than the senior preferred stock, and has a
liquidation preference equal to the purchase price plus all accrued but unpaid
dividends. The issue requires mandatory redemption after 10 years for the stated
value plus accrued but unpaid dividends.

The preferred stock does not have voting rights, and the Series A senior
preferred stock is fully transferable in whole or in part to other financial
institutions. The purchase agreements for preferred stock restrict the Company's
ability to incur additional indebtedness, and restrict payment of dividends,
redemption of securities, acquisition and merger activity, sale of a majority of
assets, and the creation of unrelated businesses.

8. STOCKHOLDERS' EQUITY AND STOCK OPTIONS

STOCK OPTIONS

In prior years, the Company had granted nonstatutory stock options to
employees under plans existing in those years. The 161,941 stock options
outstanding under these plans were cashed-out for $7,995,000 in connection with
the recapitalization (see Note 3) in December 1996. Details of stock option
activity and pro forma information related to stock options granted in prior
years have not been presented in these financial statements since such
information would not be meaningful due to the change in the capital structure
of the Company resulting from the recapitalization.

At December 31, 1996, the Company did not have a stock option plan in
place, and no stock options were outstanding. Subsequent to year-end, stock
options were granted to certain officers and employees (see Note 17).

WARRANT

In connection with the recapitalization in December 1996, the Company
issued a warrant to purchase 343,265 shares of its common stock. The warrant has
an exercise price of $0.045 per share and has a twelve-year term.

9. PATIENT SERVICE REVENUE

The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:

F-18
<PAGE> 88

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

services, certain outpatient services and medical education costs related
to Medicare beneficiaries are paid based on a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of annual
cost reports by the Company and audits thereof by the Medicare fiscal
intermediary. The Company's classification of patients under the Medicare
program and the appropriateness of their admission are subject to an
independent review. The Company's Medicare cost reports have been audited
by the Medicare fiscal intermediary through December 31, 1993.

- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports by the
Company and audits thereof by Medicaid. The Company's Medicaid cost
reports have been audited by the Medicaid fiscal intermediary through
December 31, 1993.

- Other -- The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance organizations
and preferred provider organizations. The basis for payment to the Company
under these agreements includes prospectively determined rates per
discharge, discounts from established charges, and prospectively
determined daily rates.

Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Adjustments from finalization of prior year cost reports from both Medicare and
Medicaid resulted in an increase in patient service revenue of $788,000 for the
year ended December 31, 1996.

10. INCOME TAXES

The provision for income tax expense (benefit) attributable to income from
continuing operations consists of the following amounts (In thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(RESTATED)
<S> <C> <C> <C>
Current:
Federal............................................. $1,519 $1,580 $ 17
State............................................... 300 334 3
------ ------ -------
1,819 1,914 20
Deferred:
Federal............................................. 238 31 (3,467)
State............................................... 40 8 (826)
------ ------ -------
278 39 (4,293)
------ ------ -------
$2,097 $1,953 $(4,273)
====== ====== =======
</TABLE>

F-19
<PAGE> 89

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The differences between the Company's effective income tax rate of 41.3%,
36.4% and 33.2% from continuing operations for 1994, 1995 and 1996,
respectively, and the statutory federal income tax rate of 34.0% are as follows
(In thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995 1996
------ ------ -------
(RESTATED)
<S> <C> <C> <C>
Statutory federal rate................................ $1,724 $1,823 $(4,377)
State income taxes, net of federal income tax
benefit............................................. 224 226 (543)
Amortization of goodwill.............................. 61 69 16
Change in valuation allowance......................... 54 (141) (1)
Nondeductible merger costs............................ -- -- 298
Other................................................. 34 (24) 334
------ ------ -------
$2,097 $1,953 $(4,273)
====== ====== =======
</TABLE>

The components of the Company's deferred tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable........................ $ 491 $ 544 $3,305
Accrued vacation liability........................... 674 692 710
Accrued liabilities.................................. 187 121 1,924
Other................................................ -- 2 --
------ ------ ------
Net deferred tax assets--current....................... $1,352 $1,359 $5,939
====== ====== ======
Deferred tax assets--noncurrent:
Depreciation of property, plant and equipment........ $ 107 $ 232 $ 464
Net operating losses from separate return
subsidiary........................................ 421 280 278
Accrued liabilities.................................. 204 218 41
Deferred revenue..................................... -- 42 --
------ ------ ------
732 772 783
Less valuation allowance............................... (421) (280) (278)
------ ------ ------
Deferred tax assets -- noncurrent...................... 311 492 505
Deferred tax liabilities -- other...................... -- (76) (41)
------ ------ ------
Net deferred tax assets -- noncurrent.................. $ 311 $ 416 $ 464
====== ====== ======
</TABLE>

In the accompanying consolidated balance sheets, net current deferred tax
assets and net noncurrent deferred tax assets are included in prepaid expenses
and other, and other assets, respectively.

The decrease in the valuation allowance for deferred tax assets for the
years ended December 31, 1994, 1995 and 1996 was $54,000, $141,000 and $2,000,
respectively. The Company had net operating loss carryforwards (NOLs) of
approximately $714,000 at December 31, 1996 related to a subsidiary that has not
been included in the consolidated federal income tax return. These NOLs will
expire beginning in 2009. Due to restrictions on the use of the NOLs under the
Internal Revenue Code, management believes there is a risk they may expire
unused and, accordingly, has established a valuation reserve against the tax
benefit of the NOLs. Management believes it is more likely than not that the
remaining deferred tax assets will ultimately be realized through future taxable
income from operations.

F-20
<PAGE> 90

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Internal Revenue Service is in the process of finalizing its
examination of the Company's federal income tax returns for the 1993 and 1994
years. The examination resulted in temporary differences with a tax effect of
approximately $2,148,000 being reclassified from deferred taxes to currently
payable liabilities in the December 31, 1996 balance sheet. Finalization of the
examination is not expected to have a significant impact on the results of
operations of the Company.

11. DISCONTINUED OPERATIONS

During May 1995, the Company adopted a plan to dispose of its business of
providing managed care administration and organization infrastructure to
physician groups taking health care payment risk. Revenue from this business
segment was $2,169,000 and $1,126,000 for the years ended December 31, 1994 and
1995, respectively. Loss from operations of this business segment was $678,000
and $146,000 for the years ended December 31, 1994 and 1995, respectively, net
of taxes. The loss on the disposal of this business segment was $670,000 net of
taxes.

During September 1995, the Company adopted a plan to dispose of its
stand-alone business of providing surgery on an outpatient basis. Revenue from
this business segment was $91,000 and $155,000 for the years ended December 31,
1994 and 1995, respectively. Loss from operations of this business segment was
$221,000 and $249,000 for the years ended December 31, 1994 and 1995,
respectively, net of taxes. Loss on disposal of this business was $377,000, net
of taxes.

During November 1996, the Company adopted a plan to sell its senior living
business to companies whose shareholders included unrelated third parties and
certain shareholders, officers, and employees of Brim. The sale of the senior
living business was accomplished in the following separate transactions: (i) the
sale of assets used in connection with the senior living business through the
merger of Brim Senior Living, Inc. with a Delaware limited liability company and
(ii) the sale of Meridian Senior Living, Inc. The sale of assets used in
connection with the senior living business was to a limited liability company
for $15 million. The accounting basis for the sale was fair market value and a
pre-tax gain of $11.4 million was recognized on the sale. The limited liability
company was owned 65% by an unrelated third party and 35% by officers and
shareholders of the Company prior to the recapitalization who collectively owned
61% of the Company's fully diluted common stock prior to the recapitalization
and less than 5% of the Company's common stock subsequent to the
recapitalization and merger. The sale of the outstanding common stock of
Meridian Senior Living, Inc., a wholly-owned subsidiary, was to an unrelated
third party for $4.7 million. The accounting basis for the sale was fair market
value and a loss of $2.4 million was recognized on the sale. Subsequent to the
sale to the unrelated third party, certain individuals who were officers and
stockholders of the Company prior to the recapitalization became limited
partners with the unrelated third party and collectively held a 14% limited
partnership interest. These individuals owned approximately 60% of the Company's
fully diluted common stock prior to the recapitalization and less than 5% of the
Company's common stock subsequent to the recapitalization and merger.

The senior living business segment was sold on December 18, 1996. Revenue
from this business segment was $12,478,000, $19,422,000 and $18,598,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. Income from
operations was $742,000, $1,178,000 and $537,000, net of taxes, for the years
ended December 31, 1994, 1995 and 1996, respectively. The gain on the disposal
of this business segment was $5,478,000, net of taxes.

F-21
<PAGE> 91

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For financial reporting purposes, the results of operations and cash flows
of the discontinued businesses are included in the consolidated financial
statements as discontinued operations. The income (loss) from discontinued
operations may be summarized as follows:

<TABLE>
<CAPTION>
1994 1995 1996
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
(Loss) income from discontinued operations........... $(256) $ 1,284 $ 891
Applicable income taxes.............................. (99) 501 354
----- ------- ------
(157) 783 537
(Loss) gain on disposal of discontinued operations... -- (1,715) 8,961
Applicable income taxes.............................. -- (668) 3,483
----- ------- ------
- (1,047) 5,478
----- ------- ------
Total...................................... $(157) $ (264) $6,015
===== ======= ======
</TABLE>

12. LEASES

The Company leases various buildings, office space and equipment. The
leases expire at various times and have various renewal options. These leases
are classified as either capital leases or operating leases based on the terms
of the respective agreements.

Future minimum payments at December 31, 1996, by year and in the aggregate,
under capital leases and noncancellable operating leases with terms of one year
or more consist of the following:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997........................................................ $ 1,830 $ 4,043
1998........................................................ 1,819 3,371
1999........................................................ 1,531 2,666
2000........................................................ 642 2,278
2001........................................................ 663 1,784
Thereafter.................................................. 1,139 5,831
------- -------
Total minimum lease payments................................ 7,624 $19,973
=======
Amount representing interest................................ (1,589)
-------
Present value of net minimum lease payments
(including $1,442 classified as current)........ $ 6,035
=======
</TABLE>

13. CONTINGENCIES

The Company is involved in litigation and regulatory investigations arising
in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without material
adverse effect on the Company's consolidated financial position or results of
operations.

14. RETIREMENT PLANS

The Company sponsors defined contribution employee benefit plans which
cover substantially all employees. Employees may contribute a percentage of
eligible compensation subject to Internal Revenue Service limits. The plans call
for the Company to make matching contributions, based on either a percentage of
employee contributions or a discretionary amount as determined by the

F-22
<PAGE> 92

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company. Contributions by the Company to the plans totaled $355,000, $394,000
and $399,000 (restated) for the years ended December 31, 1994, 1995 and 1996,
respectively.

In January 1995, the Company adopted a nonqualified supplemental deferred
compensation plan for selected management employees. As determined by the Board
of Directors, the Plan provides a benefit of 1% to 3% of the employee's
compensation. The participant's amount is fully vested, except in those
instances where the participant's employment terminates for any reason other
than retirement, death or disability, in which case the participant forfeits a
portion of the employer's contribution depending on length of service. Plan
expense totaled $80,000 and $99,000 for the years ended December 31, 1995 and
1996, respectively.

15. FAIR VALUES OF FINANCIAL INSTRUMENTS

Cash and Cash Equivalents:--The carrying amount reported in the balance
sheet for cash and cash equivalents approximates fair value.

Accounts Receivable and Accounts Payable:--The carrying amount reported in
the balance sheet for accounts receivable and accounts payable approximates fair
value.

Long-Term Debt:--The carrying amount reported in the balance sheet for
long-term obligations approximates fair value. The fair value of the Company's
long-term obligations is estimated using discounted cash flow analyses, based on
the Company's current incremental borrowing rates for similar types of borrowing
arrangements.

16. STOCK SPLIT

On May 8, 1997, the Company declared a three-for-one stock split of the
outstanding common stock and common stock options and warrant to shareholders of
record on May 8, 1997. All post-recapitalization common share and per share
data, included in the accompanying consolidated financial statements and
footnotes thereto, have been restated to reflect this stock split.

17. SUBSEQUENT EVENTS

STOCK OPTIONS

In March 1997, the Company's Board of Directors approved a stock option
plan (the Plan) under which options to purchase common stock may be granted to
officers, employees, and directors. Options are granted at no less than market
price on the date of grant.

Under the Plan, 1,300,000 shares have been reserved for grant. The
Company's Board of Directors approved the issuance of options to acquire 387,135
common shares in March 1997, at an exercise price of $3.375 per share and the
issuance of options to acquire 90,983 common shares in September 1997, at an
exercise price of $14.00 per share. The options granted vest and are exercisable
ratably over a five-year period. Shares available for grant total 821,882.

STOCK SALE

In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization (see Note 3), to make the First Additional
Investment and purchase shares of the Company's redeemable junior preferred
stock at $1,000 per share and common stock at $0.45 per share. GTCR acquired
2,733 shares of redeemable junior preferred stock and 607,334 shares of common
stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr. Gore, and
the two banks were obligated to purchase specified amounts of redeemable junior
preferred stock and common stock at the same per share prices in the event GTCR
exercised its right to acquire redeemable junior preferred stock and common
stock and, accordingly, purchased 1,022 shares of

F-23
<PAGE> 93

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redeemable junior preferred stock and 350,891 shares of common stock. Net
proceeds from the stock sale totaled $4,182,000.

In connection with the anticipated public offering of its common stock, the
rights of GTCR, Leeway & Co., Mr. Rash, and Mr. Gore, to purchase stock of the
Company pursuant to the Second Initial Investment will be terminated with no
purchases being made. (See Note 3.)

NOTES RECEIVABLE FOR COMMON STOCK

In July 1997, the Company was paid $211,200 of the notes receivable for
common stock with a balance of $391,000 at December 31, 1996.

ACQUISITIONS

Effective August 1, 1997, the Company acquired Needles Desert Communities
Hospital by entering into a 15-year lease agreement with three five-year renewal
terms and by purchasing assets totaling $631,000, prepaying rent totaling
$2,052,000, and assuming certain liabilities totaling $121,000 for a purchase
price of $2,562,000.

PUBLIC OFFERING OF COMMON STOCK

On August 27, 1997, the Company filed a Registration Statement under the
Securities Act of 1933 for a public offering of common stock. The net proceeds
from the offering are planned to be used to reduce the balance of the
outstanding term and revolving credit loans, redeem the outstanding balance of
the Series A redeemable senior preferred stock plus accrued dividends, and
repurchase approximately 1,000,000 shares of common stock held by GTCR and
Leeway & Co. In connection with the offering, the Series B redeemable junior
preferred stock will be converted into common stock. The conversion will be
effected at the public offering price of the common stock.

EXERCISE OF WARRANT

On September 12, 1997, Leeway & Co. exercised its warrant to purchase
343,265 shares of the Company's common stock. The warrant had an exercise price
of $0.045 per share, resulting in total proceeds to the Company of $15,447. (See
Note 8.)

REINCORPORATION

On November , 1997, the Company changed its jurisdiction of incorporation
to Delaware, changed its name to Province Healthcare Company, and exchanged 1.35
shares of its no par common stock for each share of its $0.01 par value common
stock. All post-recapitalization common share and per share data, included in
the consolidated financial statements and footnotes thereto, have been restated
to reflect this reincorporation.

F-24
<PAGE> 94

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,896
Accounts receivable, less allowance for doubtful accounts
of $6,260.............................................. 29,879
Inventories............................................... 3,381
Prepaid expenses and other................................ 8,021
--------
Total current assets.............................. 47,177
Property, plant and equipment, net.......................... 45,172
Other assets:
Unallocated purchase price................................ 5,498
Investments in other health care-related businesses....... 538
Other..................................................... 9,767
--------
15,803
--------
$108,152
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,144
Accrued salaries and benefits............................. 6,448
Accrued expenses.......................................... 4,189
Current maturities of long-term obligations............... 1,537
--------
Total current liabilities......................... 19,318
Long-term obligations, less current maturities.............. 85,201
Third-party settlements..................................... 5,542
Other liabilities........................................... 7,589
--------
98,332
Mandatory redeemable preferred stock........................ 48,232
Common stockholders' equity (deficit):
Common stock, no par value, authorized 20,000,000; issued
and outstanding 8,581,510.............................. 3,614
Notes receivable for common stock......................... (180)
Retained deficit.......................................... (61,164)
--------
(57,730)
--------
$108,152
========
</TABLE>

See accompanying notes.

F-25
<PAGE> 95

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................... $68,043 $107,524
Management and professional services...................... 14,306 12,325
Other..................................................... 4,962 4,099
------- --------
Net operating revenue....................................... 87,311 123,948
------- --------
Expenses:
Salaries, wages and benefits.............................. 43,234 52,009
Purchased services........................................ 12,565 17,269
Supplies.................................................. 7,975 11,943
Provision for doubtful accounts........................... 4,507 8,806
Other operating expenses.................................. 7,456 12,515
Rentals and leases........................................ 3,867 4,251
Depreciation and amortization............................. 1,218 3,691
Interest expense.......................................... 573 6,235
Loss (gain) on sale of assets............................. 170 (156)
------- --------
Total expenses.............................................. 81,565 116,563
------- --------
Income from continuing operations before provision for
income taxes.............................................. 5,746 7,385
Provision for income taxes.................................. 2,347 2,814
------- --------
Income from continuing operations........................... 3,399 4,571
Income from discontinued operations, less applicable income
taxes..................................................... 272 --
------- --------
Net income.................................................. $ 3,671 $ 4,571
======= ========
Preferred stock dividends and accretion..................... -- (3,708)
------- --------
Net income applicable to common and common equivalent
shares.................................................... $ 3,671 $ 863
======= ========
Pro forma net income per common and common equivalent share:
Income from continuing operations......................... $ 0.39 $ 0.10
Income from discontinued operations....................... .03 --
------- --------
Net income per common and common equivalent share......... $ 0.42 $ 0.10
======= ========
Pro forma number of common and common equivalent shares..... 8,844 8,844
======= ========
</TABLE>

See accompanying notes.

F-26
<PAGE> 96

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)

<TABLE>
<CAPTION>
NO PAR VALUE NOTES
COMMON STOCK RECEIVABLE FOR COMMON RETAINED
------------------ COMMON STOCK EARNINGS
SHARES AMOUNT STOCK WARRANT (DEFICIT) TOTAL
--------- ------ -------------- ------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996... 7,280,020 $3,033 $(391) $139 $(62,027) $(59,246)
Net income................... -- -- -- -- 4,571 4,571
Issuance of stock............ 1,301,490 581 -- (139) -- 442
Stock note repayment......... -- -- 211 -- -- 211
Dividends and accretion...... -- -- -- -- (3,708) (3,708)
--------- ------ ----- ---- -------- --------
Balance at September 30, 1997.. 8,581,510 $3,614 $(180) $ -- $(61,164) $(57,730)
========= ====== ===== ==== ======== ========
</TABLE>

See accompanying notes.

F-27
<PAGE> 97

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... $ 8,657 $ (2,089)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (4,557) (12,600)
Net capital contributions and withdrawals -- investments.... (1,376) (115)
Purchase of acquired company................................ (1,763) (2,562)
Other....................................................... 735 --
------- --------
Net cash used in investing activities....................... (6,961) (15,277)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 1,896 9,000
Repayments of debt.......................................... (1,729) (1,402)
Issuance of common stock.................................... 9 442
Issuance of preferred stock................................. -- 3,755
Proceeds from common stock note............................. -- 211
Repurchase of common stock.................................. (166) --
------- --------
Net cash provided by financing activities................... 10 12,006
------- --------
Net increase (decrease) in cash and cash equivalents........ 1,706 (5,360)
Cash and cash equivalents at beginning of period............ 2,287 11,256
------- --------
Cash and cash equivalents at end of period.................. $ 3,993 $ 5,896
======= ========
ACQUISITIONS
Fair value of assets acquired............................... $ 3,092 $ 2,683
Liabilities assumed......................................... (1,329) (121)
------- --------
Cash paid................................................... $ 1,763 $ 2,562
======= ========
</TABLE>

See accompanying notes.

F-28
<PAGE> 98

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

SEPTEMBER 30, 1997

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1997,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included herein.

2. PRO FORMA NET INCOME PER SHARE

Pro forma net income per share is computed using the weighted average
number of shares of common stock outstanding during the period, including
dilutive common equivalent shares from stock options and warrants (using the
treasury stock method). The 7,280,020 common shares issued in the
recapitalization and the merger in December 1996 have been included in the pro
forma calculation as if the recapitalization had occurred as of the first day of
1996. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all other common stock issued, and common stock options and warrants
granted, by the Company at prices below the initial public offering price during
the twelve-month period prior to the initial public offering have been included
in the calculation as if they were outstanding for the full fiscal year (using
the treasury stock method).

Historical net income per share has not been presented in these financial
statements for the nine months ended September 30, 1996 since the historical
capitalization of the Company is not meaningful due to the change in the capital
structure of the Company resulting from the recapitalization.

3. ACQUISITIONS

4. CONTINGENCIES

Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Company's
results of operations or financial position.

GENERAL AND PROFESSIONAL LIABILITY RISKS

The reserve for the self-insured portion of general and liability and
professional liability risks is included in "Other liabilities" and is based on
actuarially determined estimates.

F-29
<PAGE> 99

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

LITIGATION

The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.

NET PATIENT SERVICE REVENUE

Final determination of amounts earned under the Medicare and Medicaid
programs often occurs in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.

FINANCIAL INSTRUMENTS

On March 10, 1997, as required by the credit facility, the Company entered
into an interest rate swap agreement, which effectively converted for a
five-year period $35 million of floating rate borrowings to fixed rate
borrowings. Interest rate swap agreements are used on a limited basis to manage
the Company's interest rate exposure. The agreements are contracts to
periodically exchange fixed and floating interest rate payments over the life of
the agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. For the nine months ended September 30, 1997 the Company received a
weighted average rate of 5.69% and paid a weighted average rate of 6.27%.

5. STOCKHOLDERS' EQUITY

STOCK OPTIONS

STOCK SALE

In July 1997, GTCR exercised its right, obtained in December 1996, as a
part of the recapitalization transaction, to make the First Additional
Investment and purchase shares of the Company's redeemable junior preferred
stock at $1,000 per share and common stock at $0.45 per share. GTCR acquired
2,733 shares of redeemable junior preferred stock and 607,334 shares of common
stock thereunder. As discussed in Note 3, Leeway & Co., Mr. Rash, Mr. Gore, and
the two banks were obligated to purchase specified amounts of redeemable junior
preferred stock and common stock at the same per share prices in the event GTCR
exercised its right to acquire redeemable junior preferred stock and common
stock and, accordingly, purchased 1,022 shares of redeemable junior preferred
stock and 350,891 shares of common stock. Net proceeds from the stock sale
totaled $4,182,000.

F-30
<PAGE> 100

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

EXERCISE OF WARRANT

6. SUBSEQUENT EVENTS

PUBLIC OFFERING OF COMMON STOCK

On August 27, 1997, the Company filed a Registration Statement under the
Securities Act of 1933 for a public offering of common stock which is expected
to close in the fourth quarter of 1997. The net proceeds from the offering are
planned to be used to reduce the balance of the outstanding term and revolving
credit loans, redeem the outstanding balance of the Series A redeemable senior
preferred stock plus accrued dividends, and repurchase approximately 1,000,000
shares of common stock held by GTCR and Leeway & Co. In connection with the
offering, the Series B redeemable junior preferred stock will be converted into
common stock. The conversion will be effected at the public offering price of
the common stock.

REINCORPORATION

F-31
<PAGE> 101

REPORT OF INDEPENDENT AUDITORS

Board of Directors

Principal Hospital Company

We have audited the accompanying consolidated statements of operations and
cash flows of Principal Hospital Company and subsidiaries for the period
February 2, 1996 (date of inception) to December 18, 1996 (date of merger with a
subsidiary of Brim, Inc.). 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Principal Hospital Company and subsidiaries for the period
February 2, 1996 to December 18, 1996, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Nashville, Tennessee

April 30, 1997

F-32
<PAGE> 102

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 18, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
Revenue:
Net patient service revenue............................... $11,653
Other..................................................... 125
-------
Net operating revenue....................................... 11,778
-------
Expenses:
Salaries, wages and benefits.............................. 4,740
Purchased services........................................ 1,556
Supplies.................................................. 1,382
Provision for doubtful accounts........................... 1,241
Other operating expenses.................................. 1,699
Rentals and leases........................................ 66
Depreciation and amortization............................. 908
Interest expense.......................................... 681
-------
Total expenses.............................................. 12,273
-------
Loss before income tax benefit.............................. (495)
Income tax benefit.......................................... (191)
-------
Net loss.................................................... (304)
-------
Stock dividends............................................. (420)
-------
Net loss applicable to common and common equivalent
shares.................................................... $ (724)
=======
</TABLE>

See accompanying notes.

F-33
<PAGE> 103

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 18, 1996

(IN THOUSANDS)

<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................. $ (304)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 908
Deferred income taxes.................................. (896)
Provision for doubtful accounts........................ 1,241
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable.................................... (2,874)
Inventories............................................ 91
Prepaid expenses and other current assets.............. (251)
Accounts payable and accrued expenses.................. 2,646
Accrued salaries and benefits.......................... 643
Other assets........................................... 435
Other liabilities...................................... 50
-------
Net cash provided by operating activities................... 1,689
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (829)
Purchase of acquired companies.............................. (23,183)
-------
Net cash used in investing activities....................... (24,012)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 19,300
Payments of capital lease obligations....................... (7,131)
Additions to deferred loan costs............................ (1,117)
Issuance of common stock.................................... 14,069
-------
Net cash provided by financing activities................... 25,121
-------
Cash and cash equivalents at end of period.................. $ 2,798
=======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 624
=======
ACQUISITIONS
Fair value of assets acquired............................... $34,136
Liabilities assumed......................................... 10,953
-------
Cash paid................................................... $23,183
=======
NONCASH TRANSACTION
Stock dividends accrued..................................... $ 420
=======
</TABLE>

See accompanying notes.

F-34
<PAGE> 104

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 18, 1996

1. ORGANIZATION

Principal Hospital Company and Subsidiaries (Company/PHC) was founded on
February 2, 1996 by Golder, Thoma, Cressey, Rauner Fund IV, L.P. (GTCR) and Mr.
Martin Rash. The Company is controlled by GTCR through an 82.1% common stock
ownership. The Company is engaged in the business of owning and leasing
hospitals in non-urban communities. These financial statements represent the
financial statements of the Company from the date of inception to the date of
merger with a subsidiary of Brim, Inc. (see Note 9).

2. ACCOUNTING POLICIES

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

CASH EQUIVALENTS

DEPRECIATION AND AMORTIZATION

Depreciation is computed by the straight-line method over the estimated
useful lives of the assets, which range from 3 to 40 years. Amortization of
equipment under capital leases is included in the provision for depreciation.
Deferred loan costs are amortized over the term of the related debt agreement by
the interest method.

RISK MANAGEMENT

F-35
<PAGE> 105

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

potential professional liability claims whose settlement, if any, would have a
material adverse effect on the Company's results of operations.

PATIENT SERVICE REVENUE

Approximately 63% of gross patient service revenue for the period February
2, 1996 to December 18, 1996, is from participation in the Medicare and state
sponsored Medicaid programs. Laws and regulations governing the Medicare and
Medicaid programs are complex and subject to interpretation. The Company
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 inquiries 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.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

3. ACQUISITIONS

In July 1996, the Company purchased certain assets totaling $26,394,000 and
assumed certain liabilities totaling $3,211,000 of Memorial Mother Frances
Hospital for a purchase price of $23,183,000.

In October 1996, the Company acquired Starke Memorial Hospital by assuming
certain liabilities and entering into a capital lease agreement and by
purchasing certain net assets for a purchase price of $7,742,000. The Company is
waiting for the final appraisal on certain assets acquired, thereby resulting in
the allocation of the purchase price not being finalized. The Company
anticipates this to be completed in the fourth quarter of 1997. Management does
not expect the final allocation of the purchase price to have a significant
impact on the Company's consolidated results of operations.

F-36
<PAGE> 106

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The foregoing acquisitions were accounted for using the purchase method of
accounting. The operating results of the acquired companies have been included
in the accompanying consolidated statement of operations from the respective
dates of acquisition.

The following pro forma information reflects the operations of the entities
acquired in 1996, as if the respective transactions had occurred as of the
inception date of the Company. The pro forma results of operations do not
purport to represent what the Company's results would have been had such
transactions in fact occurred at the inception of the Company.

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 2, 1996 TO
DECEMBER 18, 1996
-------------------
(IN THOUSANDS)
<S> <C>
Total revenue............................................... $30,313
Net loss.................................................... (2,976)
</TABLE>

4. PATIENT SERVICE REVENUE

- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services, certain outpatient services and medical education costs related
to Medicare beneficiaries are paid based on a cost reimbursement
methodology. The Company is reimbursed for cost reimbursable items at a
tentative rate with final settlement determined after submission of
annual cost reports by the Company and audits thereof by the Medicare
fiscal intermediary. The Company's classification of patients under the
Medicare program and the appropriateness of their admission are subject
to an independent review. The Company's Medicare cost reports have been
audited by the Medicare fiscal intermediary through December 31, 1993.

- Other -- The Company also has entered into payment agreements with
certain commercial insurance carriers, health maintenance organizations
and preferred provider organizations. The basis for payment to the
Company under these agreements includes prospectively determined rates
per discharge, discounts from established charges, and prospectively
determined daily rates.

F-37
<PAGE> 107

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INCOME TAXES

The income tax benefit consists of the following amounts:

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 2, 1996 TO
DECEMBER 18, 1996
-------------------
(IN THOUSANDS)
<S> <C>
Current:
Federal............................................... $ 569
State................................................. 136
------
705
Deferred:
Federal............................................... (723)
State................................................. (173)
------
(896)
------
$ (191)
======
</TABLE>

The differences between the income tax benefit calculated using the
Company's effective income tax rate of 38.2% and the statutory federal income
tax rate of 34.0% are as follows:

<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 2, 1996 TO
DECEMBER 18, 1996
-------------------
(IN THOUSANDS)
<S> <C>
Statutory federal rate.................................... $ (169)
State income taxes, net of federal income tax benefit..... (24)
Other..................................................... 2
------
$ (191)
======
</TABLE>

6. LEASES

Future minimum commitments at December 18, 1996, by year and in the
aggregate, under capital leases and noncancellable operating leases with terms
of one year or more consist of the following:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1997........................................................ $ 760 $159
1998........................................................ 756 120
1999........................................................ 524 33
2000........................................................ 102 --
2001........................................................ 100 --
Thereafter.................................................. 1,134 --
------ ----
Total minimum lease payments................................ 3,376 $312
====
Amount representing interest................................ (925)
------
Present value of net minimum lease payments................. $2,451
======
</TABLE>

F-38
<PAGE> 108

PRINCIPAL HOSPITAL COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. RETIREMENT PLANS

8. CONTINGENCIES

9. SUBSEQUENT EVENT

On December 18, 1997, the Company was merged with a subsidiary of Brim,
Inc. In exchange for their shares in PHC, the PHC shareholders received
redeemable junior preferred stock and common stock of Brim, Inc.

F-39
<PAGE> 109

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.

We have audited the accompanying consolidated statements of operations and
cash flows for the years ended May 31, 1995 and 1996 and the period June 1, 1996
to July 25, 1996, of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries. These consolidated financial statements are the responsibility of
the Foundation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Memorial Hospital Foundation -- Palestine, Inc. and
subsidiaries for the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, in conformity with generally accepted accounting
principles.

HARRELL, RADER, BONNER & BOLTON, LLP

Palestine, Texas
July 25, 1997

F-40
<PAGE> 110

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
-------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
Revenue:
Net patient service revenue.................. $27,964,228 $24,882,638 $3,565,113
Other........................................ 610,515 704,921 100,876
----------- ----------- ----------
Total revenue........................ 28,574,743 25,587,559 3,665,989
Expenses:
Salaries, wages and benefits................. 11,885,884 10,579,605 1,439,896
Purchased services........................... 2,351,178 2,642,919 312,960
Supplies..................................... 3,138,923 2,602,732 338,320
Professional services........................ 2,003,004 1,590,450 242,199
Rentals and leases........................... 508,653 531,669 69,252
Depreciation and amortization................ 2,615,183 3,293,552 431,964
Interest expense............................. 1,445,917 1,604,811 227,696
Provision for doubtful accounts.............. 3,677,053 3,410,640 584,387
Litigation settlements....................... 3,784,554 1,737,963 52,671
Other expense................................ 4,523,566 3,785,922 621,554
----------- ----------- ----------
Total expenses....................... 35,933,915 31,780,263 4,320,899
----------- ----------- ----------
Excess of expenses over revenue...... $(7,359,172) $(6,192,704) $ (654,910)
=========== =========== ==========
</TABLE>

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

F-41
<PAGE> 111

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
------------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
----------- ----------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Excess of expenses over revenue..................... $(7,359,172) $(6,192,704) $(654,910)
Adjustments to reconcile excess of expenses over
revenue to net cash provided (used) by operating
activities:
Depreciation and amortization..................... 2,615,183 3,293,552 431,964
Provision for doubtful accounts................... 3,677,053 3,410,640 584,387
Noncash litigation settlement..................... 1,757,157 -- --
Changes in operating assets and liabilities:
Accounts receivable............................. (3,777,174) (1,379,544) (832,103)
Inventories..................................... (20,037) 151,318 24,548
Prepaid expenses and other...................... 29,978 166,558 (178,515)
Accounts payable................................ 1,458,165 128,492 542,093
Accrued salaries and benefits................... 183,309 286,469 92,698
Third party settlements......................... (1,569,855) 1,213,444 384,578
Litigation settlements.......................... 1,975,000 (100,000) --
Other liabilities............................... 134,003 432,508 378,802
----------- ----------- ---------
Net cash provided (used) by operating activities.... (896,390) 1,410,733 773,542
INVESTING ACTIVITIES
Purchases of property, plant and equipment.......... (3,542,689) (430,683) (119,084)
(Purchase) sale of marketable securities............ (323,394) 323,394 --
Increase in other assets............................ (994,300) (124,491) --
Reduction (increase) in cash invested in assets
whose use is limited.............................. 4,829,978 249,302 (216,182)
----------- ----------- ---------
Net cash provided (used) by investing activities.... (30,405) 17,522 (335,266)
FINANCING ACTIVITIES
Proceeds from long-term debt........................ 1,505,435 140,255 --
Principal payments on long-term debt................ (126,752) (388,928) (59,528)
Principal payments on capital leases................ (1,190,028) (1,025,043) (190,198)
Decrease in retainage and construction payable...... (1,544,649) -- --
----------- ----------- ---------
Net cash provided (used) by financing activities.... (1,355,994) (1,273,716) (249,726)
=========== =========== =========
Net increase (decrease) in cash and cash
equivalents....................................... (2,282,789) 154,539 188,550
Cash and cash equivalents at beginning of year...... 2,486,450 203,661 358,200
----------- ----------- ---------
Cash and cash equivalents at end of year............ $ 203,661 $ 358,200 $ 546,750
=========== =========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid during the period................... $ 1,691,602 $ 1,718,399 $ 45,731
=========== =========== =========
NONCASH TRANSACTIONS:
Property, plant and equipment acquired through
capital leases.................................. $ 2,662,290 $ -- $ --
=========== =========== =========
Property, plant and equipment transferred to
Anderson County -- net.......................... $ 1,757,157 $ -- $ --
=========== =========== =========
</TABLE>

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

F-42
<PAGE> 112

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MAY 31, 1995 AND 1996 AND
THE PERIOD JUNE 1, 1996 TO JULY 25, 1996

1. ORGANIZATION

Memorial Hospital Foundation -- Palestine, Inc. (Foundation) is a
not-for-profit corporation which provides hospital and related health care
services to citizens of Anderson County and the immediate surrounding area. The
Foundation has two wholly owned for profit subsidiaries.

In September 1988, the Foundation leased from Anderson County the County's
hospital facilities. The lease term was for fifteen years and provided for the
transfer of all assets and liabilities of the County hospital for a nominal fee.
In July 1994, the Foundation moved from the County facility into a new hospital
facility.

See Note 9, Subsequent Events, for a discussion of the July 1996 sale of
all health care facilities, the return of the County hospital, and termination
of the County lease. The accompanying financial statements reflect the results
of operations and cash flows of the Foundation prior to the July 26, 1996 sale.

2. ACCOUNTING POLICIES

Basis of Consolidation. The consolidated financial statements of the
Foundation include the accounts of Memorial Hospital Foundation -- Palestine,
Inc. and its wholly owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Cash and Cash Equivalents. For purposes of the statement of cash flows,
the Foundation considers certificates of deposit having a maturity of three
months or less to be cash equivalents.

Depreciation and amortization. Depreciation is computed by the
straight-line method over the estimated useful lives of the assets, which range
from 10 to 40 years for buildings and improvements and an average of 10 years
for equipment. Amortization of equipment under capital leases is included in the
provision for depreciation and amortization.

When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation is eliminated from the respective accounts and any
related gain or loss is included in operations.

Compensated absences. In accordance with the Financial Accounting
Standards Board Statement No. 43, Accounting For Compensated Absences, the
Foundation accrues vacations, holidays, sick days and personal days when earned
by the employees.

Risk management. The Foundation is insured for professional liability and
general liability based on a claims-made policy purchased in the commercial
insurance market. The provision for professional liability and comprehensive
general liability claims includes estimates of the ultimate costs for claims
incurred but not reported, in accordance with actuarial projections based on
past experience. Management is aware of no potential liability claims whose
settlement, if any, would have a material adverse effect on the Foundation's
financial position or results of operations.

The Foundation maintains self-insured medical and dental plans for
employees. Claims are accrued under these plans as the incidents that give rise
to them occur. Unpaid claim accruals are based on the estimated ultimate cost of
settlement, in accordance with an average lag time and past

F-43
<PAGE> 113

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

experience. The Foundation has entered into reinsurance agreements with
independent insurance companies to limit its losses on claims.

Patient service revenue. Patient service revenue is reported at the
estimated net realizable amounts from patients, third-party payors, and others
for services rendered, including estimated retroactive adjustments under
reimbursement agreements with third-party payors. Estimated settlements under
third-party reimbursement agreements are accrued in the period the related
services are rendered and adjusted in future periods as final settlements are
determined.

Income taxes. The Foundation is a not-for-profit corporation as described
in Section 501(c)(3) of the Internal Revenue Code and is exempt from Federal
income taxes on related income.

East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income.

3. THIRD-PARTY PAYOR SETTLEMENTS

The Foundation has agreements with third-party payors that provide for
payments to the Foundation at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:

- Medicare -- Inpatient acute care services rendered to Medicare program
beneficiaries are paid at prospectively determined rates per diagnosis.
These rates vary according to a patient classification system that is
based on clinical, diagnostic, and other factors. Inpatient nonacute
services and certain outpatient services are paid based on a cost
reimbursement methodology. The Foundation is reimbursed for cost
reimbursable items at a tentative rate with final settlement determined
after submission of annual cost reports and audits thereof by the
Medicare fiscal intermediary. Classification of patients under the
Medicare program and the appropriateness of their admission are subject
to an independent review. Medicare cost reports have been audited by
the Medicare fiscal intermediary through May 31, 1994.

- Medicaid -- Inpatient and outpatient services rendered to Medicaid
program beneficiaries are reimbursed either under contracted rates or
reimbursed for cost reimbursable items at a tentative rate with final
settlement determined after submission of annual cost reports and
audits thereof by Medicaid. Medicaid cost reports have been audited by
the Medicaid fiscal intermediary through May 31, 1994.

- Other -- The Foundation also has entered into payment agreements with
certain commercial insurance carriers and preferred provider
organizations. The basis for payment under these agreements includes
prospectively determined rates per discharge, discounts from
established charges, and prospectively determined daily rates.

4. RETIREMENT PLAN

The Foundation has a qualified employee retirement savings plan covering
all eligible employees. The Foundation makes "non-elective" contributions equal
to 3% of compensation for eligible participants. In addition, the Foundation
matches 100% of eligible participant contributions up to 3% of compensation.

The Foundation reserves the right to change the amount of the employer
contribution at any time.

F-44
<PAGE> 114

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee retirement plan expense for the years ended May 31, 1995 and 1996
and the period June 1, 1996 to July 25, 1996 was $263,649, $267,482 and $32,206,
respectively.

5. LEASES

The Foundation leases medical office space and equipment under
noncancellable operating leases.

At the date of sale (see Note 9), all capital and operating leases were
either assumed by the purchaser or paid off shortly thereafter.

6. CHARITY CARE

The Foundation provides medically necessary care to all patients who meet
certain criteria under its charity care policy regardless of the patient's
ability to pay. For the years ended May 31, 1995 and 1996 and the period June 1,
1996 to July 25, 1996, the Foundation provided $1,873,991, $1,591,300 and
$298,445, respectively of uncompensated care based on charges foregone.

7. RELATED PARTY TRANSACTIONS

In 1992, ETCHS, Inc., a non-profit corporation, was created and funded by
the Foundation to provide community clinical health services. In 1996, $93,180
of the original funding was returned to the Foundation and ETCHS, Inc. was
liquidated.

In May 1995, the Foundation purchased, for its rural health clinics, the
medical practice of a retiring physician who is a member of the Foundation Board
of Trustees. The purchase price was $275,000.

8. LITIGATION AND CONTINGENCIES

Prior to the sale of the health care facilities (see Note 9), the
Foundation settled several claims as follows:

<TABLE>
<CAPTION>
YEAR ENDED MAY 31, PERIOD
----------------------- JUNE 1, 1996
1995 1996 TO JULY 25, 1996
---------- ---------- ----------------
<S> <C> <C> <C>
Class action relating to termination of a
pension plan in 1988..................... $1,275,000 $ -- $ --
Claims relating to termination of
professional services and other
contracts................................ -- 1,240,000 --
Claim by Anderson County relating to the
lease of the former County hospital
(includes net book value of plant,
property and equipment transferred to the
County).................................. 2,257,157 -- --
Claim challenging the Foundation's tax
exempt status for property taxes......... 252,397 497,963 52,671
---------- ---------- -------
Total............................ $3,784,554 $1,737,963 $52,671
========== ========== =======
</TABLE>

The Foundation is involved in additional litigation and regulatory
investigations arising in the normal course of business. In the opinion of
management, after consultation with legal counsel,

F-45
<PAGE> 115

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

these matters will be resolved without material adverse effect on the
Foundation's consolidated financial position or results of operations.

9. SUBSEQUENT EVENTS

On July 26, 1996, the Foundation completed the sale of all of its health
care facilities, (except its West Oak Plaza medical office building), equipment,
and inventories to Palestine Principal Healthcare Limited Partnership for
$23,183,000, subject to adjustment. In 1997, the final adjustment was made
resulting in a sales price of $22,957,000. In a separate but simultaneous
transaction, the Foundation sold the West Oak Plaza medical office building and
equipment to Mother Frances Regional Healthcare Center for $1,264,000. The
purchasers paid cash or assumed certain Foundation liabilities.

In related transactions, the Foundation (1) paid off all bond indebtedness
at a discount of $758,224 and (2) returned the former County hospital facility
to Anderson County and terminated the County lease.

After July 25, 1996, the Foundation ceased operations as a healthcare
provider and will use proceeds from the sale and from collection of receivables
to liquidate the Foundation's liabilities.

The Foundation has also terminated operations of its subsidiaries.

F-46
<PAGE> 116

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Memorial Hospital Foundation -- Palestine, Inc.

We have audited the accompanying consolidated statement of revenues and
expenses and cash flows for the year ended May 31, 1994 of Memorial Hospital
Foundation -- Palestine, Inc. and subsidiaries. These consolidated financial
statements are the responsibility of the Foundation's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Memorial Hospital Foundation-Palestine, Inc. and subsidiaries
for the year ended May 31, 1994, in conformity with generally accepted
accounting principles.

HARRELL, RADER, BONNER & BOLTON, LLP

Palestine, Texas
August 23, 1994

F-47
<PAGE> 117

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

CONSOLIDATED STATEMENT OF REVENUES AND EXPENSES

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
------------
<S> <C>
GROSS PATIENT REVENUES...................................... $40,539,349
Less provisions for:
Contractual allowance under health insurance programs..... $13,325,275
Uncollectible accounts.................................... 2,976,979
Charity allowances........................................ 1,209,347
-----------
Total revenue deductions.......................... 17,511,601
-----------
Net patient service revenue....................... 23,027,748
OTHER OPERATING REVENUE:
Rent income............................................... 15,934
Insurance sales........................................... 13,111
Other income.............................................. 175,784
-----------
Total other operating revenue..................... 204,829
-----------
Total operating revenue........................... 23,232,577
OPERATING EXPENSES:
Nursing services.......................................... 6,436,401
Other professional services............................... 6,364,052
General services.......................................... 1,742,113
Fiscal and administrative services........................ 6,622,316
Depreciation.............................................. 1,831,069
Rent property expense..................................... 29,158
Insurance sales expense................................... 63,014
-----------
Total operating expenses.......................... 23,088,123
-----------
Excess revenues over expenses from operations..... 144,454
NON OPERATING INCOME........................................ 95,783
-----------
Excess revenues over expenses..................... $ 240,237
===========
</TABLE>

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

F-48
<PAGE> 118

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
MAY 31, 1994
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Excess revenues over expenses............................. $ 240,237
Non-cash expenses:
Depreciation........................................... 1,831,069
Amortization........................................... 9,931
(Increase) Decrease in:
Accounts and notes receivable.......................... 168,173
Inventories............................................ (1,172)
Prepaid expenses....................................... 152,913
Increase (Decrease) in:
Accounts payable....................................... 223,038
Accrued expenses....................................... 227,734
Health insurance programs payable...................... (351,717)
------------
Net Cash provided by Operating Activities......... 2,500,206
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in mutual fund................................. (78,106)
Purchase of property, plant and equipment................. (12,480,673)
Start-up costs for new ventures........................... (186,732)
Increase in deposits...................................... (2,844)
Investment of loan proceeds:
Cash invested in assets whose use is limited........... (6,824,308)
------------
Net Cash used by Investing Activities............. (19,572,663)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowing -- retainage and construction
accounts payable....................................... 1,923,762
Proceeds from issue of long-term debt net of $389,623
discount............................................... 16,020,377
Proceeds from bank loan................................... 734,882
Proceeds from capital leases.............................. 34,766
Payment of bond issue costs............................... (1,077,374)
Principal payments on notes and bank loans................ (119,481)
Principal payments on capital leases...................... (1,166,566)
------------
Net cash provided by financing activities......... 16,350,366
------------
Net decrease in cash.............................. (722,091)
------------
Cash at beginning of period....................... 3,208,541
------------
Cash at end of period............................. $ 2,486,450
============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest............................................... $ 870,523
</TABLE>

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

F-49
<PAGE> 119

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED MAY 31, 1994

SIGNIFICANT ACCOUNTING POLICIES

Organization. Memorial Hospital Foundation -- Palestine, Inc. (Foundation)
is a not-for-profit acute care hospital. The Foundation renders care to patients
primarily from Anderson County and the immediate surrounding area. The
Foundation grants credit to patients who qualify according to the Foundation's
criteria.

On September 21, 1988, Anderson County entered into a 15 year lease
agreement with the Foundation that provided for the Foundation to lease and
operate Anderson County Memorial Hospital (Hospital). The lease was effective as
of September 22, 1988, and provided for the transfer of all Hospital assets and
liabilities to the Foundation in exchange for a nominal fee. The lease also
contains a 10 year renewal option exercisable at the sole discretion of the
Foundation.

The consolidated financial statements of the Foundation include the
accounts of East Texas Medical Management, Inc. and Benefit Solutions, Inc.
Benefit Solutions, Inc. is a wholly owned subsidiary of East Texas Medical
Management, Inc., which is a wholly owned subsidiary of the Foundation. All
significant intercompany transactions and accounts have been eliminated in
consolidation.

Concentrations of credit risk. Financial instruments that potentially
subject the Foundation to concentrations of credit risk consist principally of
temporary cash investments and accounts receivable. The Foundation places its
temporary cash accounts and investments with local financial institutions. As of
May 31, 1994, the Foundation had $1,332,995 on deposit in excess of federally
insured limits. Concentrations of credit risk with respect to accounts
receivable are derived from providing services and granting credit to patients,
substantially all of whom are area residents.

Cash and cash equivalents. For purposes of the statement of cash flows,
the Foundation considers certificates of deposit having a maturity of three
months or less to be cash equivalents.

Allowance for doubtful accounts. The allowance for doubtful accounts and
the corresponding provision for uncollectible accounts charged against earnings
is based on prior years' history and an evaluation of current year receivables.
Recoveries of amounts written off in prior years are shown as a reduction of the
provision for uncollectible accounts in the year of recovery.

Property, plant and equipment. Depreciation on these assets is calculated
using the straight-line method over the estimated useful life of the asset which
ranges from 3 to 50 years. Depreciation expense was $1,831,069 in 1994.

Expenditures for additions, major renewals and betterments are capitalized
and expenditures for maintenance and repairs are charged against income as
incurred.

When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation is eliminated from the respective accounts and any
related gain or loss is included in income.

Amortizable assets. Amortization on deferred costs is calculated using the
straight-line method. Bond issue costs are amortized over 25 years and are being
capitalized during the construction period as part of the cost of constructing a
new primary health care facility. Bond issue cost capitalized during the year
was $34,117.

Start-up costs are generally amortized using the straight-line method over
60 months. Start-up cost expensed in 1994 was $9,931.

F-50
<PAGE> 120

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Compensated absences. In accordance with the Financial Accounting
Standards Board Statement No. 43, Accounting for Compensated Absences, the
Foundation accrues vacations, holidays, sick days and personal days when earned
by the employees.

Medical malpractice. The Foundation is covered for medical malpractice by
a claims-made insurance policy. The potential exists for losses above the limits
established in the policy. However, any potential losses cannot be reasonably
estimated and no provision is made for such loss accruals.

The Foundation intends to maintain its coverage for medical malpractice by
continued renewal of the claims-made policy.

The Foundation has also purchased a tail-coverage policy to cover Anderson
County for any claims made related to incidents occurring prior to the transfer
of the Hospital to the Foundation.

Income taxes. The Foundation is a not-for-profit corporation as described
in Section 501(c)(3) of the Internal Revenue Code and is exempt from Federal
income taxes on related income pursuant to Section 501(a) of the Code. The
Foundation is classified by the Internal Revenue Service as one that is not a
private foundation and qualifies for the charitable contribution deduction under
Section 170(b)(1)(A)(iii) of the Internal Revenue Code.

East Texas Medical Management, Inc. and Benefit Solutions, Inc. are
for-profit corporations and are subject to Federal income taxes on their taxable
income. Provisions are made for deferred income tax as a result of timing
differences between financial and taxable income. There are presently no
differences between financial and taxable income.

RETIREMENT PLAN

On November 1, 1988, the Foundation established a qualified employee
retirement savings plan covering all eligible employees. The Foundation makes
"non-elective" contributions equal to 3% of compensation for eligible
participants. In addition, the Foundation matches 100% of eligible participant
contributions up to 3% of compensation.

The Foundation reserves the right to change the amount of the employer
contribution at any time.

Employee retirement plan expense for the year ended May 31, 1994 was
$292,329.

LEASE COMMITMENTS

Capital leases

The Foundation has entered into agreements to lease certain hospital
equipment. The leases, which expire over the next four years, are noncancelable
and are classified as capital leases.

At May 31, 1994, property recorded under capitalized leases was as follows:

<TABLE>
<S> <C>
Equipment................................................... $4,870,604
Less accumulated amortization............................... 3,198,851
----------
Total property.................................... $1,671,753
==========
</TABLE>

Noncancelable operating lease

The Foundation leases medical office space and equipment and the leases are
classified as noncancelable operating leases.

F-51
<PAGE> 121

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The future minimum lease payments by year and in the aggregate amount under
capitalized leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at May 31, 1994.

<TABLE>
<CAPTION>
NONCANCELABLE
CAPITALIZED OPERATING
LEASES LEASES
----------- -------------
<S> <C> <C>
1995........................................................ $ 914,149 $ 53,342
1996........................................................ 594,198 50,942
1997........................................................ 334,474 50,942
1998........................................................ 4,173 45,718
1999........................................................ 3,825 8,167
Thereafter.................................................. -- --
---------- --------
Total minimum payments due.................................. 1,850,819 209,111
Amounts representing interest............................... 125,873 --
---------- --------
Present value of net minimum lease payments................. $1,724,946 $209,111
========== ========
</TABLE>

Amortization expense and accumulated amortization on capital leases are
included with depreciation expense and accumulated depreciation for the year
ended May 31, 1994.

Certain capital leases provide for purchase options. Generally, purchase
options are at prices representing the expected fair value of the property at
the expiration of the lease term.

CHARITY ALLOWANCE

The Foundation provides health care regardless of ability to pay. Charity
care provided during the year ended May 31, 1994, amounted to $1,209,347.

RELATED PARTY TRANSACTIONS

In May 1992, ETCHS, Inc., a non-profit corporation, was created to provide
community clinical health services on an ability-to-pay basis.

On August 17, 1992, the Foundation purchased a building for $250,000. It is
anticipated the building will be used by ETCHS, Inc. to provide community
clinical health services.

ETCHS, Inc. had not commenced operations as of May 31, 1994.

The Foundation contracts with a corporation, of which a former board member
is a stockholder, to provide holter monitoring services and physician recruiting
services. The Foundation paid $27,125 for holter monitoring services and
$132,850 as reimbursement to the corporation for physician recruitment services
and physician income guarantees, during the former board member's 1994 term.

On June 25, 1993, the Foundation purchased a building for $156,000 from a
board member. The building is rented to physicians for office space.

CONTINGENCIES

In July 1992, three former employees of the Foundation filed a class action
suit alleging that, in 1988, the Foundation wrongfully reclaimed funds
previously contributed to a defined benefit retirement plan (plan) terminated in
1988. The suit asks for actual and punitive damages totaling $11,000,000. On
March 29, 1994, the U.S. District Court in Tyler, Texas granted the plaintiff's
motion for partial summary judgement. The Court ruled the Plan is subject to the
provision of the

F-52
<PAGE> 122

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee Retirement Security Act (ERISA). However, the Court did not address the
issue of damages and the Foundation is appealing the Court's ruling regarding
ERISA. The Foundation believes the suit is without merit and expects to defend
and conclude the action in its favor.

The Foundation is a defendant in a lawsuit filed by one of its patients for
injuries sustained. On April 6, 1994, the jury returned a verdict against the
Foundation and awarded the plaintiffs $5,031,014 in damages, plus interest at
10% per annum. The Foundation is appealing the decision. The Foundation is of
the opinion that the Foundation's insurer is solely responsible for payment of
the damages plus interest. The Foundation's insurer has posted a $5,545,000
bond. Due to the uncertainty of the outcome of the appeals process and the
coverage provided by the Foundation's insurer, the amount of damages plus
interest has not been reflected in the accompanying consolidated financial
statements.

On August 11, 1993, the Anderson County Appraisal Review Board voted to
revoke the tax-exempt status previously granted to the Foundation, effective
January 1, 1993. The amount of tax in controversy is $120,507. The Foundation
filed suit, on August 31, 1993, against the Anderson County Appraisal District
in order to overturn the decision of the District and regain its status as an
entity that is exempt from paying property taxes. The Foundation believes it
meets the legal requirements for property tax exemption and will prevail in the
suit.

The Foundation is a defendant in two lawsuits filed on behalf of former
patients. Outside counsel for the Foundation has advised that at this stage in
the proceedings they cannot offer an opinion as to the probable outcome. The
Foundation believes the suit is without merit and is vigorously defending its
position. Therefore, no contingent liability has been accrued.

F-53
<PAGE> 123

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

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

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
The Company........................... 8
The Recapitalization and the Merger... 8
Risk Factors.......................... 10
Use of Proceeds....................... 17
Dividend Policy....................... 17
Capitalization........................ 18
Dilution.............................. 19
Selected Consolidated Financial
Data................................ 20
Pro Forma Condensed Consolidated
Financial Statements................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 39
Management............................ 54
Certain Relationships and Related
Transactions........................ 59
Principal Stockholders................ 61
Description of Capital Stock.......... 61
Shares Eligible for Future Sale....... 63
Underwriting.......................... 66
Legal Matters......................... 67
Experts............................... 67
Additional Information................ 68
Index to Financial Statements......... F-1
</TABLE>

---------------------
UNTIL , 1997 (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.
======================================================
======================================================
5,700,000 Shares
[PROVINCE HEALTHCARE LOGO]
Common Stock
-------------------
PROSPECTUS
-------------------

BT Alex. Brown

BancAmerica Robertson
Stephens
Goldman, Sachs & Co.

The Robinson-Humphrey
Company
, 1997
======================================================
<PAGE> 124

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 29,796
NASD Filing Fee............................................. 10,333
Nasdaq Original Listing Fee................................. 50,000
Blue Sky Fees and Expenses (including attorneys' fees and
expenses)................................................. 2,000
Printing and Engraving Expenses............................. 325,000
Transfer Agent's Fees and Expenses.......................... 11,500
Accounting Fees and Expenses................................ 410,000
Legal Fees and Expenses..................................... 335,000
Miscellaneous Expenses...................................... 26,371
----------
Total..................................................... $1,200,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Prior to the consummation of the offering, the Company will complete the
Reincorporation. Section 145 of the General Corporation Law of the State of
Delaware ("Section 145") provides that a Delaware corporation may indemnify any
persons who are, or are threatened to be made, parties 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 such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best interests
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe that his conduct was illegal. A Delaware corporation may indemnify
any persons who are, or are threatened to be made, a party to any threatened,
pending or completed action or suit by or in the right of the corporation by
reason of the fact that such person was a director, officer, employee or agent
of such corporation, or is or was serving at the request of such corporation as
a director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit, provided such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the corporation's best
interests except that no indemnification is permitted without judicial approval
if the officer or director is adjudged to be liable to the corporation. Where an
officer or director is successful on the merits or otherwise in the defense of
any action referred to above, the corporation must indemnify him against the
expenses which such officer or director has actually and reasonably incurred.

The Company's Certificate of Incorporation will provide for the
indemnification of directors and officers of the Company to the fullest extent
permitted by Section 145.

In that regard, the Certificate of Incorporation will provide that the
Company shall 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, administrative or investigative (other than action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer or member of

II-1
<PAGE> 125

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 such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such an action or suit except that no such indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the indemnifying corporation unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine that, despite the adjudication of liability but in
consideration of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper.

The Company has in effect insurance policies covering all of the Company's
directors and officers in certain instances where by law they may not be
indemnified by the Company.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In connection with the Recapitalization and the Merger, on December 17,
1996, the Company sold (i) 20,000 shares of its Series A Senior Preferred Stock,
no par value, to Leeway & Co.; (ii) an aggregate of 28,540 shares of its Series
B Junior Preferred Stock, no par value (the "Junior Preferred"), to GTCR Fund
IV, Leeway & Co., certain members of management and certain other investors; and
(iii) an aggregate of 7,280,020 shares of its Common Stock, no par value, to
GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain other investors.
The aggregate purchase price for all such purchases was $31,612,700.

On July 15, 1997, pursuant to the terms of a Stockholders Agreement, dated
as of December 17, 1996 among the Company and its stockholders, the Company sold
an aggregate of 3,755 shares of the Junior Preferred and 958,222 shares of the
Common Stock to GTCR Fund IV, Leeway & Co., Messrs. Rash and Gore and certain
other investors for an aggregate purchase price of $4,181,888.

In addition, on September 12, 1997, Leeway & Co. exercised its warrant to
purchase 343,274 shares of Common Stock for an aggregate exercise price of
$15,447.

All of the sales described above were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2) thereof, as transactions not
involving a public offering.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<S> <C> <S>
**1.1 -- Underwriting Agreement
*2.1 -- Agreement and Plan of Merger, dated as of December 16, 1996,
between Brim, Inc. ("Brim") and Carryco, Inc.
*2.2 -- Plan and Agreement of Merger, dated as of December 17, 1996,
between Brim, Principal Hospital Company ("PHC") and
Principal Merger Company
*2.3 -- Agreement and Plan of Merger dated as of November 27, 1996
between Brim, Brim Senior Living, Inc., Encore Senior
Living, L.L.C. and Lee Zinsli
3.1 -- Amended and Restated Certificate of Incorporation of the
registrant
3.2 -- Amended and Restated By-laws of the registrant
4.1 -- Form of Common Stock Certificate
</TABLE>

II-2
<PAGE> 126

*4.2 -- Securities Purchase Agreement, dated as of December 17,
1996, between Brim and Leeway & Co.
**4.3 -- Form of Series A Senior Preferred Stock Certificate
**4.4 -- Form of Series B Junior Preferred Stock Certificate
*4.5 -- Credit Agreement, dated as of December 17, 1996, among Brim,
First Union National Bank of North Carolina and the other
lenders party thereto
*4.6 -- First Amendment to Credit Agreement and Modification of Loan
Documents, dated March 26, 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement
*4.7 -- Second Amendment to Credit Agreement and Modification of
Loan Documents dated August , 1997, among PHC, First Union
National Bank of North Carolina and the other lenders under
the Credit Agreement.
**5.1 -- Opinion of Kirkland & Ellis with respect to validity of
Common Stock
*10.1 -- Investment Agreement, dated as of November 21, 1996, between
Brim, Golder, Thoma, Cressey, Rauner Fund IV, L.P. ("GTCR")
and PHC
*10.2 -- First Amendment to Investment Agreement, dated as of
December 17, 1996, between Brim, GTCR and PHC
*10.3 -- Form of Investment Agreement Counterpart
*10.4 -- Preferred Stock Purchase Agreement, dated as of November 25,
1996, between Brim and General Electric Capital Corporation
*10.5 -- Employment Agreement, dated as of December 17, 1996, by and
between Steven P. Taylor and Brim
*10.6 -- Employment Agreement, dated as of December 17, 1996, by and
between A.E. Brim and Brim
*10.7 -- Stockholders Agreement, dated as of December 17, 1996, by
and among Brim, GTCR, Leeway & Co., First Union Corporation
of Virginia, AmSouth Bancorporation, Martin S. Rash
("Rash"), Richard D. Gore ("Gore"), PHC and certain other
stockholders
10.8 -- First Amendment to Stockholders Agreement dated as of July
14, 1997 by and among the Company, GTCR Fund IV, Rash, Gore
and certain other stockholders
*10.9 -- Registration Agreement, dated as of December 17, 1996, by
and among Brim, PHC, GTCR, Leeway & Co., First Union
Corporation of America, AmSouth Bancorporation and certain
other stockholders
*10.10 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Rash, GTCR, Leeway & Co. and PHC
10.11 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Rash and GTCR Fund IV
*10.12 -- Senior Management Agreement, dated as of December 17, 1996,
between Brim, Gore, GTCR, Leeway & Co. and PHC
10.13 -- First Amendment to Senior Management Agreement dated as of
July 14, 1997 between the Company, Gore and GTCR Fund IV
*10.14 -- Professional Services Agreement, dated as of December 17,
1996, by and between GTCR, Brim and PHC
*10.15 -- Lease and Security Agreement dated April 11, 1994, as
amended, by and between Nationwide Health Properties, Inc.
and Brim Hospitals, Inc.
*10.16 -- Lease Agreement dated December 16, 1985, as amended, by and
between Union Labor Hospital Association and Brim Hospitals,
Inc.
*10.17 -- Lease Agreement dated October 1, 1996 by and between County
of Starke, State of Indiana, and Principal Knox Company

II-3
<PAGE> 127

<TABLE>
<C> <C> <S>
*10.18 -- Lease Agreement dated December 1, 1992 by and between Palo
Verde Hospital Association and Brim Hospitals, Inc.
*10.19 -- Lease Agreement dated May 15, 1986, as amended, by and
between Fort Morgan Community Hospital Association and Brim
Hospitals, Inc.
*10.20 -- Lease Agreement dated April 24, 1996, as amended, by and
between Parkview Regional Hospital, Inc. and Brim Hospitals,
Inc.
*10.21 -- Lease Agreement and Annex dated June 30, 1997 by and between
The Board of Trustees of Needles Desert Communities Hospital
and Principal-Needles, Inc.
*10.22 -- Stock Purchase and Sale Agreement dated as of November 27,
1996 between Brim, CC-Lantana, Inc. and Lee Zinsli
*10.23 -- Purchase and Sale Agreement dated as of November 25, 1996
between Brim, Brim Senior Living, Inc., Brim Pavilion, Inc.,
and Plaza Enterprises, L.L.C.
*10.24 -- Amended and Restated Limited Partnership Agreement of
Aligned Business Consortium Group, L.P. dated June 1, 1997
*10.25 -- Corporate Purchasing Agreement dated April 21, 1997 between
Aligned Business Consortium Group and PHC
*10.26 -- Principal Hospital Company 1997 Long-Term Equity Incentive
Plan
*10.27 -- Lease Agreement dated December 17, 1996 between Brim and
Encore Senior Living, L.L.C.
10.28 -- First Amendment to Securities Purchase Agreement, dated as
of September 30, 1997, between PHC and Leeway & Co.
10.29 -- Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between the Company, Rash and GTCR Fund
IV.
10.30 -- Second Amendment to Senior Management Agreement, dated as of
October 15, 1997, between the Company, Gore and GTCR Fund
IV.
10.31 -- Second Amendment to Stockholders Agreement, dated as of
September 30, 1997, between the Company, GTCR Fund IV, Rash,
Gore and certain other stockholders.
11.1 -- Computation of Earnings per Share
16.1 -- Letter of KPMG Peat Marwick, LLP regarding change in
certifying accountants.
*21.1 -- Subsidiaries of the registrant
**23.1 -- Consent of Kirkland & Ellis (included in opinion filed as
Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
23.3 -- Consent of KPMG Peat Marwick LLP
23.4 -- Consent of Harrell, Rader, Bonner & Bolton
**23.5 -- Consent of Waller Lansden Dortch & Davis, A Professional
Limited Liability Company
*24.1 -- Power of Attorney (included on signature page)
*27.1 -- Financial Data Schedule
</TABLE>

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

* Previously filed.
** To be filed by Amendment.

(b) Financial Statement Schedules.

Schedule II -- Valuation and Qualifying Accounts.

II-4
<PAGE> 128

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriter
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 every purchaser.

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

The undersigned registrant hereby undertakes that:

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

(2) For the purpose of determining any liability under the Securities
Act, 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-5
<PAGE> 129

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Brentwood, State of Tennessee on November 12, 1997.

PROVINCE HEALTHCARE COMPANY

By: /s/ RICHARD D. GORE
------------------------------------
Richard D. Gore
Executive Vice President and Chief
Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed on November 12, 1997, by the
following persons in the capacities indicated:

<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
* President and Chief Executive Officer, Director
- ---------------------------------------------------
Martin S. Rash

/s/ RICHARD D. GORE Executive Vice President and Chief Financial
- --------------------------------------------------- Officer
Richard D. Gore

* Vice President and Controller (Chief Accounting
- --------------------------------------------------- Officer)
Brenda B. Rector

* Director
- ---------------------------------------------------
Bruce V. Rauner

* Director
- ---------------------------------------------------
Joseph P. Nolan

* Director
- ---------------------------------------------------
A. E. Brim

* Director
- ---------------------------------------------------
Michael T. Willis

* Director
- ---------------------------------------------------
David L. Steffy

*By: /s/ RICHARD D. GORE
----------------------------------------------
Richard D. Gore
Attorney-in-Fact

</TABLE>

II-6
<PAGE> 130

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Province Healthcare Company

We have audited the consolidated financial statements of Province
Healthcare Company (formerly known as Brim, Inc. until January 16, 1997 and as
Principal Hospital Company from January 16, 1997 until November , 1997) and
subsidiaries as of December 31, 1996, and for the year then ended, as restated
to reflect the change in the application of the method of accounting for the
merger of a subsidiary of the Company into Principal Hospital Company, and have
issued our report thereon dated April 30, 1997, except for Note 16, and Notes 1,
2 and 17, as to which the dates are May 8, 1997 and November , 1997,
respectively (included elsewhere in this Registration Statement). Our audit also
included the financial statement schedule as of December 31, 1996 and for the
year then ended, listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Nashville, Tennessee

April 30, 1997, except for Note 16, and Notes 1, 2

and 17, as to which the dates are

May 8, 1997 and November , 1997,

respectively

The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 17 to the consolidated financial
statements.

Ernst & Young LLP

Nashville, Tennessee

November 10, 1997

S-1
<PAGE> 131

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Province Healthcare Company

Under the date of March 8, 1996, we reported on the consolidated balance
sheet as of December 31, 1995 and the consolidated statements of operations,
common stockholders equity (deficit), and cash flows of Province Healthcare
Company (formerly Brim, Inc.) and subsidiaries, as of December 31, 1995, and for
the years ended December 31, 1994 and 1995, which are included in the
prospectus. In connection with our audit of the aforementioned financial
statements, we also audited the related financial statement schedule for the
years ended December 31, 1994 and 1995, listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.

In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

Portland, Oregon
March 8, 1996

S-2
<PAGE> 132

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------- ---------- ------------------------- ------------- ----------
ADDITIONS
-------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Allowance for doubtful
accounts............... $1,679 $5,056 -- $4,507(1) $2,228
Year ended December 31,
1995:
Allowance for doubtful
accounts............... 2,228 4,601 -- 4,751(1) 2,078
Year ended December 31,
1996:
Allowance for doubtful
accounts............... 2,078 8,337 1,339(2) 7,277(1) 4,477
</TABLE>

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

(1) Uncollectible accounts written off, net of recoveries.
(2) Allowances as a result of facility acquisitions.

S-3

<PAGE> 1
Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

PROVINCE HEALTHCARE COMPANY

ARTICLE ONE

The name of the Corporation is Province Healthcare Company.

ARTICLE TWO

The address of the Corporation's registered office in the State of
Delaware is Corporation Service Company. The address of such registered agent is
1013 Centre Road, in the City of Wilmington, County of New Castle, Delaware
19805. The registered office and/or registered agent of the Corporation may be
changed from time to time by action of the board of directors.

ARTICLE THREE

The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "Delaware
General Corporation Law") either alone or with others through wholly or
partially owned subsidiaries, as a partner (limited or general) in any
partnership, as a joint venturer in any joint venture, or otherwise.

ARTICLE FOUR

SECTION 1. The aggregate number of shares of stock which the
Corporation has authority to issue is 25,175,000, consisting of 25,000 shares of
Series A Senior Preferred Stock, no par value (the "Senior Preferred Stock"),
50,000 shares of Series B Junior Preferred Stock, no par value (the "Junior
Preferred Stock"), 100,000 shares of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), and 25,000,000 shares of Common Stock, par value $.01
per share (the "Common Stock"). All of such shares shall be issued as fully paid
and non-assessable shares, and the holder thereof shall not be liable for any
further payments in respect thereof.

SECTION 2. The preferences, limitations, designations and relative
rights of the shares of each class and the qualifications, limitations or
restrictions thereof shall be as follows:

I. SENIOR PREFERRED STOCK

A. Dividends.

1. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted by law, the
Corporation shall pay preferential dividends in cash

<PAGE> 2

to the holders of the Senior Preferred Stock as provided in this Section 2.I.A
of Article Four. Dividends on each share of the Senior Preferred Stock (a
"Senior Preferred Share") shall accrue on a daily basis at the rate of 11% per
annum of the sum of the Liquidation Value thereof plus all accumulated and
unpaid dividends thereon from and including the date of issuance of such Senior
Preferred Share to and including the first to occur of (i) the date on which the
Liquidation Value of such Senior Preferred Share (plus all accrued and unpaid
dividends thereon) is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption price provided for in Section
2.I.D.1. of Article Four is paid in connection with the redemption of such
Senior Preferred Share by the Corporation or (ii) the date on which such share
is otherwise acquired by the Corporation. Such dividends shall accrue whether or
not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends,
and such dividends shall be cumulative such that all accrued and unpaid
dividends shall be fully paid or declared with funds irrevocably set apart for
payment before any dividends, distributions, redemptions or other payments may
be made with respect to any Junior Securities. Following a Public Offering, the
Corporation shall pay all dividends accrued since the date of such Public
Offering in cash to the holders of the Senior Preferred Stock; provided that
such payment is permitted under the Corporation's senior bank credit agreement,
if any. The date on which the Corporation initially issues any Senior Preferred
Share shall be deemed to be its "date of issuance" regardless of the number of
times transfer of such Senior Preferred Share is made on the stock records
maintained by or for the Corporation and regardless of the number of
certificates which may be issued to evidence such Senior Preferred Share. The
holders of the Senior Preferred Stock have certain rights pursuant to the
Stockholders Agreement to acquire additional securities upon certain issuances
of securities by the Corporation.

2. Dividend Reference Dates. To the extent not paid, on the
last day of December, March, June and September of each year, beginning December
31, 1997 (the "Dividend Reference Dates"), all dividends which have accrued on
each Senior Preferred Share outstanding during the quarterly period (or other
period in the case of the initial Dividend Reference Date) ending upon each such
Dividend Reference Date shall be accumulated and shall remain accumulated
dividends with respect to such Senior Preferred Share until paid to the holder
thereof.

3. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Senior Preferred
Stock, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Senior Preferred
Shares held by each such holder.

B. Liquidation.

1. Liquidation Payments. Upon any liquidation, dissolution or
winding up of the Corporation (whether voluntary or involuntary), each holder of
Senior Preferred Stock shall be entitled to be paid, before any distribution or
payment is made upon any Junior Securities, an amount in cash equal to the
aggregate Liquidation Value of all Senior Preferred Shares held by such holder
(plus all accrued and unpaid dividends thereon), and the holders of Senior
Preferred Stock shall not be entitled to any further payment. If upon any such
liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Senior Preferred

<PAGE> 3

Stock are insufficient to permit payment to such holders of the aggregate amount
which they are entitled to be paid under this Section 2.I.B. of Article Four,
then the entire assets available to be distributed to the holders of the Senior
Preferred Stock shall be distributed pro rata among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Senior Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Senior Preferred
Stock, but only to the extent of funds of the Corporation legally available for
the payment of dividends. Not less than 60 days prior to the payment date stated
therein, the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Senior Preferred Stock,
setting forth in reasonable detail the amount of proceeds to be paid with
respect to each Senior Preferred Share, each share of Common Equivalent Stock
and each other equity security of the Corporation in connection with such
liquidation, dissolution or winding up.

2. Distribution Other Than Cash. Whenever the distribution
provided for in this Section 2.I.B. of Article Four shall be payable in property
other than cash, the value of such distribution shall be the fair market value
of such property as determined in good faith by the Board of Directors;
provided, however, that if the holders of a majority of the then outstanding
share of Senior Preferred Stock (the "Contesting Senior Preferred Holders")
notify the Board of Directors within five business days after receiving written
notification of such determination of fair market value that they disagree with
such determination, then the Board of Directors and the Contesting Senior
Preferred Holders shall have 30 days to agree upon a fair market value of the
relevant property. If, by the end of such 30-day period, they are unable to
agree on a fair market value, the fair market value shall be determined by an
appraisal, the cost of which shall be shared equally by the Corporation, on one
hand, and the Contesting Senior Preferred Holders, on the other hand. All
appraisals shall be undertaken by two appraisers, one selected by the
Corporation and one selected by the Contesting Senior Preferred Holders, which
selections must be made within 10 days after the expiration of the 30-day period
described above. If one selecting party fails to timely select its appraiser,
the other selecting party shall select both appraisers. The fair market value
shall be the fair market value arrived at by those appraisers within 60 days
following the appointment of the last appraiser to be appointed. In the event
that the two appraisers cannot agree on such fair market value within such a
period of time, (a) if the appraisers' valuations are within 10% of each other,
the fair market value shall be the average of the two valuations, and (b) if the
differences in the valuations are greater, the appraisers shall elect a third
appraiser who will calculate fair market value independently, and, except as
provided in the next sentence, the fair market value of the property shall in
each case be the average of the two fair market values arrived at by the
appraisers who are closest in amount. If one appraiser's valuation is the
average of the other two valuations, the average valuation shall be the fair
market value. In the event that the two original appraisers cannot agree upon a
third appraiser within 30 days following the end of the 60-day period referred
to above, the third appraiser shall be appointed by the American Arbitration
Association.

C. Priority of Senior Preferred Stock on Dividends and Redemptions. So
long as any Senior Preferred Stock remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of Senior
Preferred Stock, the Corporation shall not, nor shall it permit any Subsidiary
to, redeem, purchase or otherwise acquire directly or indirectly any Junior
Securities, nor shall the Corporation directly or indirectly pay or declare any
dividend or make any

<PAGE> 4

distribution upon any Junior Securities; provided that the Corporation may
repurchase shares of Common Equivalent Stock from stockholders of the
Corporation pursuant to the Stockholders Agreement and pursuant to the Senior
Management Agreements so long as the purchase price thereof is paid solely by
delivery of a promissory note (which promissory note will constitute
subordinated debt under the Corporation's senior bank credit agreement, if any);
and further provided that the Corporation may purchase and redeem such stock
with up to $500,000 in cash in the aggregate so long as no Event of
Noncompliance is in existence at the time of or immediately after such
repurchase or would be caused by such repurchase.

D. Redemptions.

1. Mandatory and Optional Redemption. On the ninth anniversary
of the date of the Securities Purchase Agreement (the "Investment Date"), the
Corporation shall redeem each share of Senior Preferred Stock then outstanding
(the "Mandatory Redemption"). In addition, the Corporation may, at its option,
at any time and from time to time, redeem all or any portion of the shares of
Senior Preferred Stock then outstanding (an "Optional Senior Preferred
Redemption"). Upon the Mandatory Redemption, the Corporation shall pay a price
per share equal to the Liquidation Value thereof (plus all accrued and unpaid
dividends thereon). Upon an Optional Senior Preferred Redemption, the
Corporation shall pay a price per share equal to the Base Amount (as defined
below) (plus all accrued and unpaid dividends thereon). The "Base Amount" shall
mean an amount equal to (x) in the case of an Optional Senior Preferred
Redemption in connection with an initial public offering of the Corporation's
stock, at any time, $1,000, and (y) in the case of all other Option Redemptions,
$1,050 if the redemption occurs before the fifth anniversary of the Investment
Date; $1,030 if the redemption occurs after the fifth anniversary of the
Investment Date but before the sixth anniversary of the Investment Date; and
$1,000 if the redemption occurs after the sixth anniversary of the Investment
Date. No Optional Senior Preferred Redemption may be made for fewer than 1,000
shares (or such lesser number of Senior Preferred Shares then outstanding).

2. Redemption Payments. For each Senior Preferred Share which
is to be redeemed hereunder, the Corporation shall be obligated on the Senior
Preferred Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share) an amount in immediately available funds equal to the redemption
price described in Section 2.I.D.1. of Article Four. If the funds of the
Corporation legally available for redemption of Senior Preferred Shares on any
Senior Preferred Redemption Date are insufficient to redeem the total number of
Senior Preferred Shares to be redeemed on such date, those funds which are
legally available shall be used to redeem the maximum possible number of Senior
Preferred Shares pro rata among the holders of the Senior Preferred Shares to be
redeemed based upon the aggregate redemption price pursuant to Section 2.I.D.1.
of Article Four of such Senior Preferred Shares held by each such holder. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of Senior Preferred Shares, such funds shall immediately be
used to redeem the balance of the Senior Preferred Shares which the Corporation
has become obligated to redeem on any Senior Preferred Redemption Date but which
it has not redeemed.

3. Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any Senior
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be

<PAGE> 5

made. In case fewer than the total number of Senior Preferred Shares represented
by any certificate are redeemed, a new certificate representing the number of
unredeemed Senior Preferred Shares shall be issued to the holder thereof without
cost to such holder within five business days after surrender of the certificate
representing the redeemed Senior Preferred Shares.

4. Determination of the Number of Each Holder's Senior
Preferred Shares to be Redeemed. The number of shares of Senior Preferred Stock
to be redeemed from each holder thereof in any Optional Senior Preferred
Redemption hereunder shall be the number of shares determined by multiplying the
total number of Senior Preferred Shares to be redeemed by a fraction, the
numerator of which shall be the total number of Senior Preferred Shares then
held by such holder and the denominator of which shall be the total number of
Senior Preferred Shares then outstanding.

5. Dividends After Senior Preferred Redemption Date. No Senior
Preferred Share shall be entitled to any dividends accruing after the date on
which the redemption price of such share pursuant to Section 2.I.D.1. of Article
Four is paid to the holder of such share. On such date, all rights of the holder
of such share shall cease, and such share shall no longer be deemed to be issued
and outstanding.

6. Redeemed or Otherwise Acquired Senior Preferred Shares. Any
Senior Preferred Shares which are redeemed or otherwise acquired by the
Corporation shall be canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.

7. Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Senior Preferred Stock, except as expressly authorized herein or as
contemplated by the terms of the Securities Purchase Agreement.

8. Payment of Accrued Dividends. The Corporation may not
redeem any Senior Preferred Stock, unless all dividends accrued on the
outstanding Senior Preferred Stock through the immediately preceding Dividend
Reference Date have been declared and paid in full.

9. Special Redemptions.

a. If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is proposed to occur, the
Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the material terms and date
of consummation thereof to each holder of Senior Preferred Stock, but
in any event such notice shall not be given later than five days after
the occurrence of such Change in Ownership, and the Corporation shall
give each holder of Senior Preferred Stock prompt written notice of any
material change in the terms or timing of such transaction. The holder
or holders of a majority of the Senior Preferred Stock then outstanding
may require the Corporation to redeem all or any portion of the Senior
Preferred Stock owned by such holders at a price per share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) by giving written notice to the Corporation of such election
prior to the later of (i) 21 days after receipt of the Corporation's
notice and (ii) five days prior to the consummation of the Change in
Ownership (the "Senior Preferred Expiration Date"). The Corporation
shall give prompt written notice of any such election to all other
holders of Senior Preferred Stock within five days after the receipt
thereof, and each such holder shall

<PAGE> 6

have until the later of (i) the Senior Preferred Expiration Date or
(ii) ten days after receipt of such second notice to request redemption
hereunder (by giving written notice to the Corporation) of all or any
portion of the Senior Preferred Stock owned by such holder. So long as
any Senior Preferred Stock remains outstanding, the Corporation shall
not, without the prior written consent of a majority of the holders of
the Senior Preferred Stock, redeem any Junior Securities.

Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Senior Preferred Shares
specified therein on the later of (i) the occurrence of the Change in
Ownership or (ii) five days after the Corporation's receipt of such
election(s). If any proposed Change in Ownership does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the
timing of the transaction, any holder of Senior Preferred Stock may
rescind such holder's request for redemption by delivering written
notice thereof to the Corporation prior to the consummation of the
transaction.

b. If a Senior Preferred Fundamental Change is proposed to
occur, the Corporation shall give written notice of such Senior
Preferred Fundamental Change describing in reasonable detail the
material terms and date of consummation thereof to each holder of
Senior Preferred Stock not more than 45 days nor less than 20 days
prior to the consummation of such Senior Preferred Fundamental Change,
and the Corporation shall give each holder of Senior Preferred Stock
prompt written notice of any material change in the terms or timing of
such transaction. The holder or holders of a majority of the Senior
Preferred Shares then outstanding, may require the Corporation to
redeem all or any portion of the Senior Preferred Stock owned by such
holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon) by giving written
notice to the Corporation of such election prior to the later of (i)
ten days prior to the consummation of the Senior Preferred Fundamental
Change or (ii) ten days after receipt of notice from the Corporation.
The Corporation shall give prompt written notice of such election to
all other holders of Senior Preferred Stock (but in any event within
five days prior to the consummation of the Senior Preferred Fundamental
Change), and each such holder shall have until two days after the
receipt of such notice to request redemption (by written notice given
to the Corporation) of all or any portion of the Senior Preferred Stock
owned by such holder.

Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Senior Preferred Shares
specified therein upon the consummation of such Senior Preferred
Fundamental Change. If any proposed Senior Preferred Fundamental Change
does not occur, all requests for redemption in connection therewith
shall be automatically rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of
Senior Preferred Stock may rescind such holder's request for redemption
by delivering written notice thereof to the Corporation prior to the
consummation of the transaction.

The term "Senior Preferred Fundamental Change" means (i) any
sale or transfer of more than 50% of the assets of the Corporation and
its Subsidiaries on a consolidated basis (measured either by book value
in accordance with generally accepted accounting principles

<PAGE> 7

consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors)
in any transaction or series of transactions (other than sales in the
ordinary course of business) and (ii) any merger or consolidation to
which the Corporation is a party, except for a merger in which the
Corporation is the surviving corporation, the terms of the Senior
Preferred Stock are not changed and the Senior Preferred Stock is not
exchanged for cash, securities or other property, and after giving
effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors.

E. Voting and Other Rights.

1. Voting. Except as otherwise provided herein and as
otherwise required by applicable law, the Senior Preferred Stock shall have no
voting rights; provided that each holder of Senior Preferred Stock shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to all stockholders entitled to vote at such meetings.
The number of shares of Senior Preferred Stock entitled to vote on any matter
shall be determined as of the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided for herein or as required by law, the
holders of Senior Preferred Stock shall vote together as a single class on all
matters.

2. Other Rights. In addition to any rights provided by law,
without the written consent of the holders of a majority of shares of Senior
Preferred Stock then outstanding, the Corporation shall not:

a. effect any amendment to, or modification of, the
Corporation's Certificate of Incorporation (including Certificates of
Designation thereunder) or By-laws other than the amendment to be filed
in accordance with Section 8.1 the Securities Purchase Agreement within
thirty days of the date thereof;

b. authorize, issue or sell, or obligate itself to authorize,
issue or sell, any equity securities that are senior to or pari passu
with the Senior Preferred Stock with respect to dividends, liquidation
preferences or redemption rights;

c. reclassify any shares of Senior Preferred Stock, or any
Junior Securities;

d. declare or pay any dividends, return any capital to its
stockholders as such, or make any distribution of assets to its
stockholders as such, except that nothing herein contained shall
prevent the Corporation from (i) declaring or paying any dividends on
the Senior Preferred Stock pursuant to Section 2.I.A. of Article Four;
(ii) declaring or paying any dividend on the Junior Preferred Stock in
accordance with the Certificate of Designation therefor at any time
when no shares of Senior Preferred Stock are outstanding; or (iii)
making the payments contemplated by the Professional Services
Agreement, dated on or about

<PAGE> 8

December 17, 1996 between Brim, Inc. and Golder, Thoma, Cressey,
Rauner, Inc., as such agreement may be amended, supplemented or
modified from time to time;

e. redeem or repurchase or otherwise acquire for value any
shares of its capital stock (or rights, options or warrants to purchase
such shares) or other equity interests, except for (i) the redemption
by the Corporation of the Senior Preferred Stock pursuant to Section
2.I.D. of Article Four and (ii) the repurchase of shares of Common
Equivalent Stock or Junior Preferred Stock from stockholders of the
Corporation pursuant to the Stockholders Agreement and pursuant to the
Senior Management Agreements so long as the purchase price thereof is
paid solely by delivery of a promissory note (which promissory note
will constitute subordinated debt under the Corporation's senior bank
credit agreement, if any); and provided that the Corporation may
purchase and redeem such stock with up to $500,000 in cash in the
aggregate so long as no Event of Noncompliance is in existence at the
time of or immediately after such repurchase or would be caused by such
repurchase.

F. Events of Noncompliance.

1. Definition. An Event of Noncompliance shall have
occurred if:

a. the Corporation fails to make any redemption payment with
respect to the Senior Preferred Stock which it is required to make
hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;

b. the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the
Investment Agreement or the Securities Purchase Agreement;

c. any representation or warranty contained in the Investment
Agreement or required to be furnished to any holder of Senior Preferred
Stock pursuant to the Securities Purchase Agreement or any information
contained in writing required to be furnished by the Corporation or any
Subsidiary to any holder of Senior Preferred Stock, is false or
misleading in any material respect on the date made or furnished;

d. the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its
debts generally as they become due; or an order, judgment or decree is
entered adjudicating the Corporation or any Subsidiary bankrupt or
insolvent; or any order for relief with respect to the Corporation or
any Subsidiary is entered under the Federal Bankruptcy Code; or the
Corporation or any Subsidiary petitions or applies to any tribunal for
the appointment of a custodian, trustee, receiver or liquidator of the
Corporation or any Subsidiary or of any substantial part of the assets
of the Corporation or any Subsidiary, or commences any proceeding
(other than a proceeding for the voluntary liquidation and dissolution
of a Subsidiary) relating to the Corporation or any Subsidiary under
any bankruptcy, reorganization, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction; or any
such petition or application is filed, or any such proceeding is
commenced, against the Corporation or any Subsidiary and either (i) the
Corporation or any such Subsidiary by any act indicates its approval
thereof,

<PAGE> 9

consent thereto or acquiescence therein or (ii) such petition,
application or proceeding is not dismissed within 60 days;

e. a judgment in excess of $500,000 is rendered against the
Corporation or any Subsidiary and, within 60 days after entry thereof,
such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged; or

f. the Corporation or any Subsidiary defaults in the
performance of any obligation or agreement if the effect of such
default is to cause an amount exceeding $500,000 to become due prior to
its stated maturity or to permit the holder or holders of any
obligation to cause an amount exceeding $500,000 to become due prior to
its stated maturity.

2. Consequences of Events of Noncompliance.

a. If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Senior Preferred Stock shall
increase immediately by an increment of 6 percentage point(s).
Thereafter, until such time as no Event of Noncompliance exists, the
dividend rate shall increase automatically at the end of each
succeeding 90-day period by an additional increment of 2 percentage
point(s) (but in no event shall the dividend rate exceed 18%). Any
increase of the dividend rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the date on
which no Event of Noncompliance exists, subject to subsequent increases
pursuant to this paragraph.

b. If an Event of Noncompliance, other than an Event of
Noncompliance of the type described in Section 2.I.F.1.d. of Article
Four, has occurred and is continuing, the holder or holders of a
majority of the Senior Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of
all or any portion of the Senior Preferred Stock owned by such holder
or holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). The Corporation shall
give prompt written notice of such election to the other holders of
Senior Preferred Stock (but in any event within five days after receipt
of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's
Senior Preferred Stock by giving written notice thereof to the
Corporation within seven days after receipt of the Corporation's
notice. The Corporation shall redeem all Senior Preferred Stock as to
which rights under this paragraph have been exercised within 15 days
after receipt of the initial demand for redemption.

c. If an Event of Noncompliance of the type described in
Section 2.I.F.1.d. of Article Four has occurred, all of the Senior
Preferred Stock then outstanding shall be subject to immediate
redemption by the Corporation (without any action on the part of the
holders of the Senior Preferred Stock) at a price per share equal to
the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). The Corporation shall immediately redeem all Senior Preferred
Stock upon the occurrence of such Event of Noncompliance.

d. If any Event of Noncompliance has occurred and is
continuing, the number of directors constituting the Corporation's
Board of Directors shall, at the request of the holders

<PAGE> 10

of a majority of the Senior Preferred Stock then outstanding, be
increased by one member, and the holders of Senior Preferred Stock
shall have the special right, voting separately as a single class (with
each Senior Preferred Share being entitled to one vote) and to the
exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy
of such directorship and to remove any individual elected to such
directorship. The newly created directorship shall constitute a
separate class of directors, and the director elected by the holders of
the Senior Preferred Stock shall be entitled to cast a number of votes
on each matter considered by the Board of Directors (including for
purposes of determining the existence of a quorum) equal to the sum of
the number of votes entitled to be cast by all of the other directors
plus one. The special right of the holders of Senior Preferred Stock to
elect members of the Board of Directors may be exercised at the special
meeting called pursuant to this subparagraph, at any annual or other
special meeting of stockholders and, to the extent and in the manner
permitted by applicable law, pursuant to a written consent in lieu of a
stockholders meeting. Such special right shall continue until such time
as there is no longer any Event of Noncompliance in existence, at which
time such special right shall terminate subject to revesting upon the
occurrence and continuation of any Event of Noncompliance which gives
rise to such special right hereunder.

At any time when such special right has vested in the holders
of Senior Preferred Stock, a proper officer of the Corporation shall,
upon the written request of the holder of at least 10% of the Senior
Preferred Stock then outstanding, addressed to the secretary of the
Corporation, call a special meeting of the holders of Senior Preferred
Stock for the purpose of electing a director pursuant to this
subparagraph. Such meeting shall be held at the earliest legally
permissible date at the principal office of the Corporation, or at such
other place designated by the holders of at least 10% of the Senior
Preferred Stock then outstanding. If such meeting has not been called
by a proper officer of the Corporation within 10 days after personal
service of such written request upon the secretary of the Corporation
or within 20 days after mailing the same to the secretary of the
Corporation at its principal office, then the holders of at least 10%
of the Senior Preferred Stock then outstanding may designate in writing
one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such Person so
designated upon the notice required for annual meetings of stockholders
and shall be held at the Corporation's principal office, or at such
other place designated by the holders of at least 10% of the Senior
Preferred Stock then outstanding. Any holder of Senior Preferred Stock
so designated shall be given access to the stock record books of the
Corporation for the purpose of causing a meeting of stockholders to be
called pursuant to this subparagraph.

At any meeting or at any adjournment thereof at which the
holders of Senior Preferred Stock have the special right to elect
directors, the presence, in person or by proxy, of the holders of a
majority of the Senior Preferred Stock then outstanding shall be
required to constitute a quorum for the election or removal of any
director by the holders of the Senior Preferred Stock exercising such
special right. The vote of a majority of such quorum shall be required
to elect or remove any such director.

Any director so elected by the holders of Senior Preferred
Stock shall continue to serve as a director until the expiration of the
lesser of (i) a period of six months following the date on which there
is not longer any Event of Noncompliance in existence or (ii) the

<PAGE> 11

remaining period of the full term for which such director has been
elected. After the expiration of such six-month period or when the full
term for which such director has been elected ceases (provided that the
special right to elect directors has terminated), as the case may be,
the number of directors constituting the board of directors of the
Corporation shall decrease to such number as constituted the whole
board of directors of the Corporation immediately prior to the
occurrence of the Event or Events of Noncompliance giving rise to the
special right to elect directors.

e. If any Event of Noncompliance exists, each holder of Senior
Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other
rights which such holder may have pursuant to applicable law.

G. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of Senior Preferred Stock. Upon
the surrender of any certificate representing Senior Preferred Stock at such
place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Senior Preferred Shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of Senior Preferred Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Senior
Preferred Stock represented by such new certificate from the date to which
dividends have been fully paid on such Senior Preferred Stock represented by the
surrendered certificate.

H. Replacement. Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Senior Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Senior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.

I. Amendment and Waiver. No amendment, modification or waiver shall be
binding or effective with respect to any provision relating to the rights of the
Senior Preferred Stock hereof without the prior written consent of the holders
of a majority of the Senior Preferred Stock outstanding at the time such action
is taken; provided that no such action shall change (i) the rate at which or the
manner in which dividends on the Senior Preferred Stock accrue or the times at
which such dividends become payable or the amount payable on redemption of the
Senior Preferred Stock or the times at which redemption of Senior Preferred
Stock is to occur or (ii) the percentage required to approve any change
described in clause (i) above, without the prior written consent of the holders
of at least 80% of the Senior Preferred Stock then outstanding; and provided
further that no change

<PAGE> 12

in the terms relating to the rights of the Senior Preferred Stock hereof may be
accomplished by merger or consolidation of the Corporation with another
corporation or entity unless the Corporation has obtained the prior written
consent of the holders of the applicable percentage of the Senior Preferred
Stock then outstanding.

J. Notices. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and shall be delivered by
registered or certified mail, return receipt requested and postage prepaid, or
by reputable overnight courier service, charges prepaid, and shall be deemed to
have been given when so mailed or sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).

K. Adjustment. All numbers and amounts set forth herein which refer to
share prices or amounts shall be appropriately adjusted to reflect stock splits,
stock dividends, combinations of shares and other recapitalizations affecting
the Senior Preferred Stock.

II. SERIES B JUNIOR PREFERRED STOCK

A. Dividends.

1. General Obligation. When and as declared by the
Corporation's Board of Directors and to the extent permitted by law, the
Corporation shall pay preferential dividends in cash to the holders of the
Junior Preferred Stock as provided in this Section 2.II.A. of Article Four.
Dividends on each share of the Junior Preferred Stock (a "Junior Preferred
Share") shall accrue on a daily basis at the rate of 8% per annum of the sum of
the Liquidation Value thereof plus all accumulated and unpaid dividends thereon
from and including the date of issuance of such Junior Preferred Share to and
including the first to occur of (i) the date on which the Liquidation Value of
such Junior Preferred Share (plus all accrued and unpaid dividends thereon) is
paid to the holder thereof in connection with the liquidation of the Corporation
or the redemption of such Junior Preferred Share by the Corporation or (ii) the
date on which such share is otherwise acquired by the Corporation. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends, and such dividends shall be cumulative such that
all accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividends, distributions,
redemptions or other payments may be made with respect to any Series B Junior
Securities. So long as any shares of Senior Preferred Stock are outstanding, the
Corporation shall not pay any dividends to holders of the Junior Preferred Stock
without the written consent of the holders of a majority of shares of the Senior
Preferred Stock then outstanding. The date on which the Corporation initially
issues any Junior Preferred Share shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such Junior Preferred Share is
made on the stock records maintained by or for the Corporation and regardless of
the number of certificates which may be issued to evidence such Junior Preferred
Share. The holders of the Junior Preferred Stock have certain rights pursuant to
the Stockholders Agreement to acquire additional securities upon certain
issuances of securities by the Corporation.

2. Dividend Reference Dates. To the extent not paid, on the
last day of December, March, June and September of each year, beginning December
31, 1997 (the "Dividend

<PAGE> 13

Reference Dates"), all dividends which have accrued on each Junior Preferred
Share outstanding during the quarterly period (or other period in the case of
the initial Dividend Reference Date) ending upon each such Dividend Reference
Date shall be accumulated and shall remain accumulated dividends with respect to
such Junior Preferred Share until paid to the holder thereof.

3. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the Corporation pays less than the
total amount of dividends then accrued with respect to the Junior Preferred
Stock, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate accrued but unpaid dividends on the Junior Preferred
Shares held by each such holder.

B. Liquidation.

1. Liquidation Payments. Upon any liquidation, dissolution or
winding up of the Corporation (whether voluntary or involuntary), each holder of
Junior Preferred Stock shall be entitled to be paid, before any distribution or
payment is made upon any Series B Junior Securities, an amount in cash equal to
the aggregate Liquidation Value of all Junior Preferred Shares held by such
holder (plus all accrued and unpaid dividends thereon), and the holders of
Junior Preferred Stock shall not be entitled to any further payment. If upon any
such liquidation, dissolution or winding up of the Corporation the Corporation's
assets to be distributed among the holders of the Junior Preferred Stock are
insufficient to permit payment to such holders of the aggregate amount which
they are entitled to be paid under this Section 2.II.B. of Article Four, then
the entire assets available to be distributed to the holders of the Junior
Preferred Stock shall be distributed pro rata among such holders based upon the
aggregate Liquidation Value (plus all accrued and unpaid dividends) of the
Junior Preferred Stock held by each such holder. Prior to the liquidation,
dissolution or winding up of the Corporation, the Corporation shall declare for
payment all accrued and unpaid dividends with respect to the Junior Preferred
Stock, but only to the extent of funds of the Corporation legally available for
the payment of dividends. Not less than 60 days prior to the payment date stated
therein, the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Junior Preferred Stock,
setting forth in reasonable detail the amount of proceeds to be paid with
respect to each Junior Preferred Share, each share of Common Equivalent Stock
and each other equity security of the Corporation in connection with such
liquidation, dissolution or winding up.

2. Distribution Other Than Cash. Whenever the distribution
provided for in this Section 2.II.B. of Article Four shall be payable in
property other than cash, the value of such distribution shall be the fair
market value of such property as determined in good faith by the Board of
Directors; provided, however, that if the holders of a majority of the then
outstanding share of Junior Preferred Stock (the "Contesting Junior Preferred
Holders") notify the Board of Directors within five business days after
receiving written notification of such determination of fair market value that
they disagree with such determination, then the Board of Directors and the
Contesting Junior Preferred Holders shall have 30 days to agree upon a fair
market value of the relevant property. If, by the end of such 30-day period,
they are unable to agree on a fair market value, the fair market value shall be
determined by an appraisal, the cost of which shall be shared equally by the
Corporation, on one hand, and the Contesting Junior Preferred Holders, on the
other hand. All appraisals shall be undertaken by two appraisers, one selected
by the Corporation and one selected by the Contesting Junior Preferred Holders,
which selections must be made within 10 days after the

<PAGE> 14

expiration of the 30-day period described above. If one selecting party fails to
timely select its appraiser, the other selecting party shall select both
appraisers. The fair market value shall be the fair market value arrived at by
those appraisers within 60 days following the appointment of the last appraiser
to be appointed. In the event that the two appraisers cannot agree on such fair
market value within such a period of time, (i) if the appraisers' valuations are
within 10% of each other, the fair market value shall be the average of the two
valuations, and (ii) if the differences in the valuations are greater, the
appraisers shall elect a third appraiser who will calculate fair market value
independently, and, except as provided in the next sentence, the fair market
value of the property shall in each case be the average of the two fair market
values arrived at by the appraisers who are closest in amount. If one
appraiser's valuation is the average of the other two valuations, the average
valuation shall be the fair market value. In the event that the two original
appraisers cannot agree upon a third appraiser within 30 days following the end
of the 60-day period referred to above, the third appraiser shall be appointed
by the American Arbitration Association.

C. Priority of Junior Preferred Stock on Dividends and Redemptions. So
long as any Junior Preferred Stock remains outstanding, without the prior
written consent of the holders of a majority of the outstanding shares of Junior
Preferred Stock and the written consent of the holders of a majority of the
outstanding shares of Senior Preferred Stock, the Corporation shall not, nor
shall it permit any Subsidiary to, redeem, purchase or otherwise acquire
directly or indirectly any Series B Junior Securities, nor shall the Corporation
directly or indirectly pay or declare any dividend or make any distribution upon
any Series B Junior Securities; provided that the Corporation may repurchase
shares of Common Equivalent Stock from stockholders of the Corporation pursuant
to the Stockholders Agreement and pursuant to the Senior Management Agreements
so long as the purchase price thereof is paid solely by delivery of a promissory
note (which promissory note will constitute subordinated debt under the
Corporation's senior bank credit agreement, if any); and further provided that
the Corporation may purchase and redeem such stock with up to $500,000 in cash
in the aggregate so long as no Event of Noncompliance is in existence at the
time of or immediately after such repurchase or would be caused by such
repurchase.

D. Redemptions; Conversion.

1. Mandatory and Optional Redemption. On the tenth anniversary
of the date of the Securities Purchase Agreement, the Corporation shall redeem
each share of Junior Preferred Stock then outstanding; provided, however, that
the Corporation shall not redeem any shares of Junior Preferred Stock unless and
until it has redeemed all of the outstanding shares of Senior Preferred Stock.
In addition, the Corporation may, at its option, at any time and from time to
time so long as no shares of Senior Preferred Stock are then outstanding, redeem
all or any portion of the shares of Junior Preferred Stock then outstanding (an
"Optional Junior Preferred Redemption"). Upon any such redemption, the
Corporation shall pay a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon). No Optional Junior Preferred
Redemption may be made for fewer than 1,000 shares (or such lesser number of
Junior Preferred Shares then outstanding).

2. Conversion. Upon the consummation of an initial public
offering of the Corporation's Common Stock on or before December 31, 1997, so
long as no shares of Senior Preferred Stock remain outstanding, each Junior
Preferred Share will be converted into the right to receive a number of shares
of Common Stock equal to the whole number nearest to the quotient of

<PAGE> 15

(x) the sum of the Liquidation Value of such Junior Preferred Share plus all
accrued and unpaid dividends thereon divided by (y) the initial public offering
price per share of Common Stock pursuant to such initial public offering.

3. Redemption Payments. For each Junior Preferred Share which
is to be redeemed hereunder, the Corporation shall be obligated on the Junior
Preferred Redemption Date to pay to the holder thereof (upon surrender by such
holder at the Corporation's principal office of the certificate representing
such share) an amount in immediately available funds equal to the Liquidation
Value of such share (plus all accrued and unpaid dividends thereon). If the
funds of the Corporation legally available for redemption of Junior Preferred
Shares on any Junior Preferred Redemption Date are insufficient to redeem the
total number of Junior Preferred Shares to be redeemed on such date, those funds
which are legally available shall be used to redeem the maximum possible number
of Junior Preferred Shares pro rata among the holders of the Junior Preferred
Shares to be redeemed based upon the aggregate Liquidation Value of such Junior
Preferred Shares held by each such holder (plus all accrued and unpaid dividends
thereon). At any time thereafter when additional funds of the Corporation are
legally available for the redemption of Junior Preferred Shares, such funds
shall immediately be used to redeem the balance of the Junior Preferred Shares
which the Corporation has become obligated to redeem on any Junior Preferred
Redemption Date but which it has not redeemed.

4. Notice of Redemption. Except as otherwise provided herein,
the Corporation shall mail written notice of each redemption of any Junior
Preferred Stock to each record holder thereof not more than 60 nor less than 30
days prior to the date on which such redemption is to be made. In case fewer
than the total number of Junior Preferred Shares represented by any certificate
are redeemed, a new certificate representing the number of unredeemed Junior
Preferred Shares shall be issued to the holder thereof without cost to such
holder within five business days after surrender of the certificate representing
the redeemed Junior Preferred Shares.

5. Determination of the Number of Each Holder's Junior
Preferred Shares to be Redeemed. The number of shares of Junior Preferred Stock
to be redeemed from each holder thereof in any Optional Junior Preferred
Redemption hereunder shall be the number of shares determined by multiplying the
total number of Junior Preferred Shares to be redeemed by a fraction, the
numerator of which shall be the total number of Junior Preferred Shares then
held by such holder and the denominator of which shall be the total number of
Junior Preferred Shares then outstanding.

6. Dividends After Junior Preferred Redemption Date. No Junior
Preferred Share shall be entitled to any dividends accruing after the date on
which the Liquidation Value of such Junior Preferred Share (plus all accrued and
unpaid dividends thereon) is paid to the holder of such Junior Preferred Share.
On such date, all rights of the holder of such Junior Preferred Share shall
cease, and such Junior Preferred Share shall no longer be deemed to be issued
and outstanding.

7. Redeemed or Otherwise Acquired Junior Preferred Shares. Any
Junior Preferred Shares which are redeemed or otherwise acquired by the
Corporation shall be canceled and retired to authorized but unissued shares and
shall not be reissued, sold or transferred.

8. Other Redemptions or Acquisitions. The Corporation shall
not, nor shall it permit any Subsidiary to, redeem or otherwise acquire any
shares of Junior Preferred Stock, except

<PAGE> 16

as expressly authorized herein or as contemplated by the terms of the Senior
Management Agreements, the Stockholders Agreement or the Securities Purchase
Agreement.

9. Payment of Accrued Dividends. The Corporation may not
redeem any Junior Preferred Stock, unless all dividends accrued on the
outstanding Junior Preferred Stock through the immediately preceding Dividend
Reference Date have been declared and paid in full.

10. Special Redemptions.

a. If a Change in Ownership has occurred or the Corporation
obtains knowledge that a Change in Ownership is proposed to occur, the
Corporation shall give prompt written notice of such Change in
Ownership describing in reasonable detail the material terms and date
of consummation thereof to each holder of Junior Preferred Stock, but
in any event such notice shall not be given later than five days after
the occurrence of such Change in Ownership, and the Corporation shall
give each holder of Junior Preferred Stock prompt written notice of any
material change in the terms or timing of such transaction. The holder
or holders of a majority of the Junior Preferred Stock then outstanding
may require the Corporation to redeem all or any portion of the Junior
Preferred Stock owned by such holders at a price per share equal to the
Liquidation Value thereof (plus all accrued and unpaid dividends
thereon) by giving written notice to the Corporation of such election
prior to the later of (i) 21 days after receipt of the Corporation's
notice and (ii) five days prior to the consummation of the Change in
Ownership (the "Junior Preferred Expiration Date") provided that the
Corporation shall redeem the Senior Preferred Stock prior to redeeming
any Junior Preferred Stock. The Corporation shall give prompt written
notice of any such election to all other holders of Junior Preferred
Stock within five days after the receipt thereof, and each such holder
shall have until the later of (i) the Junior Preferred Expiration Date
or (ii) ten days after receipt of such second notice to request
redemption hereunder (by giving written notice to the Corporation) of
all or any portion of the Junior Preferred Stock owned by such holder.

Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Junior Preferred Shares
specified therein on the later of (i) the occurrence of the Change in
Ownership or (ii) five days after the Corporation's receipt of such
election(s). If any proposed Change in Ownership does not occur, all
requests for redemption in connection therewith shall be automatically
rescinded, or if there has been a material change in the terms or the
timing of the transaction, any holder of Junior Preferred Stock may
rescind such holder's request for redemption by delivering written
notice thereof to the Corporation prior to the consummation of the
transaction.

b. If a Junior Preferred Fundamental Change is proposed to
occur, the Corporation shall give written notice of such Junior
Preferred Fundamental Change describing in reasonable detail the
material terms and date of consummation thereof to each holder of
Junior Preferred Stock not more than 45 days nor less than 20 days
prior to the consummation of such Junior Preferred Fundamental Change,
and the Corporation shall give each holder of Junior Preferred Stock
prompt written notice of any material change in the terms or timing of
such transaction. The holder or holders of a majority of the Junior
Preferred Shares then outstanding, may require the Corporation to
redeem all or any portion

<PAGE> 17

of the Junior Preferred Stock owned by such holders at a price per
share equal to the Liquidation Value thereof (plus all accrued and
unpaid dividends thereon) by giving written notice to the Corporation
of such election prior to the later of (i) ten days prior to the
consummation of the Junior Preferred Fundamental Change or (ii) ten
days after receipt of notice from the Corporation. The Corporation
shall give prompt written notice of such election to all other holders
of Junior Preferred Stock (but in any event within five days prior to
the consummation of the Junior Preferred Fundamental Change), and each
such holder shall have until two days after the receipt of such notice
to request redemption (by written notice given to the Corporation) of
all or any portion of the Junior Preferred Stock owned by such holder.

Upon receipt of such election(s), the Corporation shall be
obligated to redeem the aggregate number of Junior Preferred Shares
specified therein upon the consummation of such Junior Preferred
Fundamental Change. If any proposed Junior Preferred Fundamental Change
does not occur, all requests for redemption in connection therewith
shall be automatically rescinded, or if there has been a material
change in the terms or the timing of the transaction, any holder of
Junior Preferred Stock may rescind such holder's request for redemption
by delivering written notice thereof to the Corporation prior to the
consummation of the transaction.

The term "Junior Preferred Fundamental Change" means (i) any
sale or transfer of more than 50% of the assets of the Corporation and
its Subsidiaries on a consolidated basis (measured either by book value
in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the
reasonable good faith judgment of the Corporation's Board of Directors)
in any transaction or series of transactions (other than sales in the
ordinary course of business) and (ii) any merger or consolidation to
which the Corporation is a party, except for a merger in which the
Corporation is the surviving corporation, the terms of the Junior
Preferred Stock are not changed and the Junior Preferred Stock is not
exchanged for cash, securities or other property, and after giving
effect to such merger, the holders of the Corporation's outstanding
capital stock possessing a majority of the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of
Directors immediately prior to the merger shall continue to own the
Corporation's outstanding capital stock possessing the voting power
(under ordinary circumstances) to elect a majority of the Corporation's
Board of Directors.

E. Voting and Other Rights.

1. Voting Rights. Except as otherwise provided herein and as
otherwise required by applicable law, the Junior Preferred Stock shall have no
voting rights; provided that each holder of Junior Preferred Stock shall be
entitled to notice of all stockholders meetings at the same time and in the same
manner as notice is given to all stockholders entitled to vote at such meetings.
The number of shares of Junior Preferred Stock entitled to vote on any matter
shall be determined as of the record date for the determination of shareholders
entitled to vote on such matter or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as otherwise expressly provided for herein or as required by law, the
holders of Junior Preferred Stock shall vote together as a single class on all
matters.

<PAGE> 18

2. Other Rights. In addition to any rights provided by law,
without the written consent of the holders of a majority of shares of Junior
Preferred Stock then outstanding, the Corporation shall not:

a. effect any amendment to, or modification of, the
Corporation's Certificate of Incorporation (including Certificates of
Designation thereunder) or By-laws other than the amendment to the
Certificate of Incorporation to be filed in accordance with Section 8.1
of the Securities Purchase Agreement within 30 days of the date
thereof;

b. authorize, issue or sell, or obligate itself to authorize,
issue or sell, any equity securities that are senior to or pari passu
with the Junior Preferred Stock with respect to dividends, liquidation
preferences or redemption rights;

c. reclassify any shares of Junior Preferred Stock, or any
Series B Junior Securities;

d. declare or pay any dividends, return any capital to its
stockholders as such, or make any distribution of assets to its
stockholders as such, except that nothing herein contained shall
prevent the Corporation from (i) declaring or paying any dividends on
the Senior Preferred Stock in accordance with the Certificate of
Designation therefor; (ii) declaring or paying any dividend on the
Junior Preferred Stock pursuant to Section 2.II.A. of Article Four; or
(iii) making the payments contemplated by the Professional Services
Agreement, dated on or about December 17, 1996 between Brim, Inc. and
Golder, Thoma, Cressey, Rauner, Inc., as such agreement may be amended,
supplemented or modified from time to time;

e. redeem or repurchase or otherwise acquire for value any
shares of its capital stock (or rights, options or warrants to purchase
such shares) or other equity interests, except for (i) the redemption
by the Corporation of the Senior Preferred Stock in accordance with the
terms thereof and (ii) the repurchase of shares of Common Equivalent
Stock or Junior Preferred Stock from stockholders of the Corporation
pursuant to the Stockholders Agreement and pursuant to the Senior
Management Agreements so long as the purchase price thereof is paid
solely by delivery of a promissory note (which promissory note will
constitute subordinated debt under the Corporation's senior bank credit
agreement, if any); and provided that the Corporation may purchase and
redeem such stock with up to $500,000 in cash in the aggregate so long
as no Event of Noncompliance is in existence at the time of or
immediately after such repurchase or would be caused by such
repurchase.

F. Events of Noncompliance.

1. Definition. An Event of Noncompliance shall have
occurred if:

a. the Corporation fails to make any redemption payment with
respect to the Junior Preferred Stock which it is required to make
hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject;

<PAGE> 19

b. the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the
Investment Agreement or the Securities Purchase Agreement;

c. any representation or warranty contained in the Investment
Agreement or required to be furnished to any holder of Junior Preferred
Stock pursuant to the Securities Purchase Agreement or any information
contained in writing required to be furnished by the Corporation or any
Subsidiary to any holder of Junior Preferred Stock, is false or
misleading in any material respect on the date made or furnished;

2. Consequences of Events of Noncompliance.

a. If an Event of Noncompliance has occurred and is
continuing, the dividend rate on the Junior Preferred Stock shall
increase immediately by an increment of 6 percentage point(s).
Thereafter, until such time as no Event of Noncompliance exists, the
dividend rate shall increase automatically at the end of each
succeeding 90-day period by an additional increment of 2 percentage
point(s) (but in no event shall the dividend rate exceed 18%). Any
increase of the dividend rate resulting from the operation of this
subparagraph shall terminate as of the close of business on the date on
which no Event of Noncompliance exists, subject to subsequent increases
pursuant to this paragraph.

<PAGE> 20

b. If an Event of Noncompliance, other than an Event of
Noncompliance of the type described in Section 2.II.F.1.d. of Article
Four, has occurred and is continuing, the holder or holders of a
majority of the Junior Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of
all or any portion of the Junior Preferred Stock owned by such holder
or holders at a price per share equal to the Liquidation Value thereof
(plus all accrued and unpaid dividends thereon), provided that the
Corporation shall redeem all of the outstanding shares of the Senior
Preferred Stock prior to redeeming any Junior Preferred Stock. The
Corporation shall give prompt written notice of such election to the
other holders of Junior Preferred Stock (but in any event within five
days after receipt of the initial demand for redemption), and each such
other holder may demand immediate redemption of all or any portion of
such holder's Junior Preferred Stock by giving written notice thereof
to the Corporation within seven days after receipt of the Corporation's
notice. The Corporation shall redeem all Junior Preferred Stock as to
which rights under this paragraph have been exercised within 15 days
after receipt of the initial demand for redemption.

c. If an Event of Noncompliance of the type described in
Section 2.II.F.1.d. of Article Four has occurred, all of the Junior
Preferred Stock then outstanding shall be subject to immediate
redemption by the Corporation (without any action on the part of the
holders of the Junior Preferred Stock) at a price per share equal to
the Liquidation Value thereof (plus all accrued and unpaid dividends
thereon). The Corporation shall immediately redeem all Junior Preferred
Stock upon the occurrence of such Event of Noncompliance.

d. In the event all of the outstanding Senior Preferred Stock
has been redeemed or repurchased and an Event of Noncompliance has
occurred and is continuing, the number of directors constituting the
Corporation's Board of Directors shall, at the request of the holders
of a majority of the Junior Preferred Stock then outstanding, be
increased by one member, and the holders of Junior Preferred Stock
shall have the special right, voting separately as a single class (with
each Junior Preferred Share being entitled to one vote) and to the
exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy
of such directorship and to remove any individual elected to such
directorship. The newly created directorship shall constitute a
separate class of directors, and the director elected by the holders of
the Junior Preferred Stock shall be entitled to cast a number of votes
on each matter considered by the Board of Directors (including for
purposes of determining the existence of a quorum) equal to the sum of
the number of votes entitled to be cast by all of the other directors
plus one. The special right of the holders of Junior Preferred Stock to
elect members of the Board of Directors may be exercised at the special
meeting called pursuant to this subparagraph, at any annual or other
special meeting of stockholders and, to the extent and in the manner
permitted by applicable law, pursuant to a written consent in lieu of a
stockholders meeting. Such special right shall continue until such time
as there is no longer any Event of Noncompliance in existence, at which
time such special right shall terminate subject to revesting upon the
occurrence and continuation of any Event of Noncompliance which gives
rise to such special right hereunder.

At any time when such special right has vested in the holders
of Junior Preferred Stock, a proper officer of the Corporation shall,
upon the written request of the holder of at

<PAGE> 21

least 10% of the Junior Preferred Stock then outstanding, addressed to
the secretary of the Corporation, call a special meeting of the holders
of Junior Preferred Stock for the purpose of electing a director
pursuant to this subparagraph. Such meeting shall be held at the
earliest legally permissible date at the principal office of the
Corporation, or at such other place designated by the holders of at
least 10% of the Junior Preferred Stock then outstanding. If such
meeting has not been called by a proper officer of the Corporation
within 10 days after personal service of such written request upon the
secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at its principal office, then the
holders of at least 10% of the Junior Preferred Stock then outstanding
may designate in writing one of their number to call such meeting at
the expense of the Corporation, and such meeting may be called by such
Person so designated upon the notice required for annual meetings of
stockholders and shall be held at the Corporation's principal office,
or at such other place designated by the holders of at least 10% of the
Junior Preferred Stock then outstanding. Any holder of Junior Preferred
Stock so designated shall be given access to the stock record books of
the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to this subparagraph.

At any meeting or at any adjournment thereof at which the
holders of Junior Preferred Stock have the special right to elect
directors, the presence, in person or by proxy, of the holders of a
majority of the Junior Preferred Stock then outstanding shall be
required to constitute a quorum for the election or removal of any
director by the holders of the Junior Preferred Stock exercising such
special right. The vote of a majority of such quorum shall be required
to elect or remove any such director.

Any director so elected by the holders of Junior Preferred
Stock shall continue to serve as a director until the expiration of the
lesser of (i) a period of six months following the date on which there
is not longer any Event of Noncompliance in existence or (ii) the
remaining period of the full term for which such director has been
elected. After the expiration of such six-month period or when the full
term for which such director has been elected ceases (provided that the
special right to elect directors has terminated), as the case may be,
the number of directors constituting the board of directors of the
Corporation shall decrease to such number as constituted the whole
board of directors of the Corporation immediately prior to the
occurrence of the Event or Events of Noncompliance giving rise to the
special right to elect directors.

e. If any Event of Noncompliance exists, each holder of Junior
Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other
rights which such holder may have pursuant to applicable law.

G. Registration of Transfer. The Corporation shall keep at its
principal office a register for the registration of Junior Preferred Stock. Upon
the surrender of any certificate representing Junior Preferred Stock at such
place, the Corporation shall, at the request of the record holder of such
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange therefor representing in the aggregate
the number of Junior Preferred Shares represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of Junior Preferred Shares as is requested by the
holder of the surrendered

<PAGE> 22

certificate and shall be substantially identical in form to the surrendered
certificate, and dividends shall accrue on the Junior Preferred Stock
represented by such new certificate from the date to which dividends have been
fully paid on such Junior Preferred Stock represented by the surrendered
certificate.

H. Replacement Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Junior Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of such class
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate, and dividends
shall accrue on the Junior Preferred Stock represented by such new certificate
from the date to which dividends have been fully paid on such lost, stolen,
destroyed or mutilated certificate.

I. Amendment and Waiver. No amendment, modification or waiver shall be
binding or effective with respect to any provision relating to the rights of the
Junior Preferred Stock hereof without the prior written consent of the holders
of a majority of the Junior Preferred Stock outstanding at the time such action
is taken; provided that no such action shall change (i) the rate at which or the
manner in which dividends on the Junior Preferred Stock accrue or the times at
which such dividends become payable or the amount payable on redemption of the
Junior Preferred Stock or the times at which redemption of Junior Preferred
Stock is to occur or (ii) the percentage required to approve any change
described in clause (i) above, without the prior written consent of the holders
of at least 80% of the Junior Preferred Stock then outstanding; and provided
further that no change in the terms relating to the Junior Preferred Stock
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Junior
Preferred Stock then outstanding.

III. PREFERRED STOCK

A. Authorization; Series; Provisions.

<PAGE> 23

1. The Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and the provisions of this Article
Four, to provide for the issuance of shares of the Preferred Stock in series,
and by filing a certificate pursuant to the General Corporation Law of the State
of Delaware, to establish from time to time the number of shares to be included
in each such series and to fix the designations, powers, preferences and rights
of the shares of each such series and the qualifications, limitations or
restrictions thereof.

2. The Preferred Stock may be issued from time to time in one
or more series, the shares of each series to have such powers, designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as are stated and expressed
herein or in a resolution or resolutions providing for the issuance of such
series, adopted by the Board of Directors as hereinafter provided.

3. Authority is hereby expressly granted to the Board of
Directors, subject to the provisions of this Section 2.III.A. of Article Four,
to authorize the issuance of one or more series of Preferred Stock, and with
respect to each such series to fix by resolution or resolutions providing for
the issuance of such series:

a. the maximum number of shares to constitute such series and
the distinctive designation thereof;

b. whether the shares of such series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms
of such voting rights;

c. the dividend rate, if any, on the shares of such series,
the conditions and dates upon which such dividends shall be payable,
the preference or relation which such dividends shall bear to the
dividends payable on any other class or classes or on any other series
of capital stock, and whether such dividends shall be cumulative or
noncumulative;

d. whether the shares of such series shall be subject to
redemption by the Corporation and, if made subject to redemption, the
times, prices and other terms and conditions of such redemption;

e. the rights of the holders of shares of such series upon the
liquidation, dissolution or winding up of the Corporation;

f. whether or not the shares of such series shall be subject
to the operation of a retirement or sinking fund and, if so, the extent
to and manner in which any such retirement or sinking fund shall be
applied to the purchase or redemption of the shares of such series for
retirement or to other corporate purposes and the terms and provisions
relative to the operation thereof;

g. whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, or of any other series of the same class, and if so
convertible or exchangeable, the price or prices or the rate or rates
of conversion or exchange and the method, if any, of adjusting the
same;

<PAGE> 24

h. the limitations and restrictions, if any, to be effective
while any shares of such series are outstanding upon the payment of
dividends or making of other distributions on, and upon the purchase,
redemption or other acquisition by the Corporation of, Common Stock or
any other class or classes of stock of the Corporation ranking junior
to the shares of such series either as to dividends or upon
liquidation;

i. the conditions or restrictions, if any, upon the creation
of indebtedness of the Corporation or upon the issue of any additional
stock (including additional shares of such series or of any other
series or of any other class) ranking on a parity with or prior to the
shares of such series as to dividends or distribution of assets on
liquidation, dissolution or winding up; and

j. any other preference and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof as shall not be inconsistent with this
Section 2.III.A. of Article Four.

B. Series Identical; Rank. All shares of any one series of Preferred
Stock shall be identical with each other in all respects, except that shares of
any one series issued at different times may differ as to the dates from which
dividends, if any, thereon shall be cumulative; and all series shall rank
equally and be identical in all respects, except as permitted by the foregoing
provisions of Section 2.III.A.3. of Article Four; and all shares of Preferred
Stock shall rank senior to the Common Stock both as to dividends and upon
liquidation.

C. Liquidation. In the event of any liquidation, dissolution or winding
up of the Corporation, before any payment or distribution of the assets of the
Corporation (whether capital or surplus) shall be made to or set apart for the
holders of any class or classes of stock of the Corporation ranking junior to
the Preferred Stock upon liquidation, the holders of the shares of the Preferred
Stock shall be entitled to receive payment at the rate fixed herein or in the
resolution or resolutions adopted by the Board of Directors providing for the
issue of such series, plus (if dividends on shares of such series of Preferred
Stock shall be cumulative) an amount equal to all dividends (whether or not
earned or declared) accumulated to the date of final distribution to such
holders; but they shall be entitled to no further payment. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation or proceeds thereof, distributable among the holders of the shares
of the Preferred Stock shall be insufficient to pay in full the preferential
amount aforesaid, then such assets, or the proceeds thereof, shall be
distributed among such holders ratably in accordance with the respective amounts
which would be payable on such shares if all amounts payable thereon were paid
in full.

D. Voting Rights. Except as shall be otherwise stated and expressed
herein or in the resolution or resolutions of the Board of Directors providing
for the issue of any series and except as otherwise required by the laws of the
State of Delaware, the holders of shares of Preferred Stock shall have, with
respect to such shares, no right or power to vote on any question or in any
proceeding or to be represented at, or to receive notice of, any meeting of
stockholders.

E. Reacquired Shares. Shares of any Preferred Stock which shall be
issued and thereafter acquired by the Corporation through purchase, redemption,
exchange, conversion or otherwise shall

<PAGE> 25

return to the status of authorized but unissued Preferred Stock unless otherwise
provided in the resolution or resolutions of the Board of Directors.

F. Increase/Decrease in Authorized Shares of a Series. Unless otherwise
provided in the resolution or resolutions of the Board of Directors providing
for the issuance thereof, the number of authorized shares of stock of any such
series may be increased or decreased (but not below the number of shares thereof
outstanding) by resolution or resolutions of the Board of Directors. In case the
number of shares of any such series of Preferred Stock shall be decreased, the
shares representing such decrease shall, unless otherwise provided in the
resolution or resolutions of the Board of Directors providing for the issuance
thereof, resume the status of authorized but unissued Preferred Stock,
undesignated as to series.

IV. COMMON SECURITIES.

A. Rights Identical. Except as otherwise provided in this Section 2.IV.
of Article Four or as otherwise required by applicable law, all shares of Common
Stock shall be identical in all respects and shall entitle the holders thereof
to the same rights and privileges, subject to the same qualifications,
limitations and restrictions.

B. Voting Rights. Except as otherwise provided in this Section 2.IV. of
Article Four or as otherwise required by applicable law, holders of Common Stock
shall be entitled to one vote per share on all matters to be voted on by the
stockholders of the Corporation.

C. Dividends. Subject to the rights of the Senior Preferred Stock, the
Junior Preferred Stock and each series of the Preferred Stock, dividends may be
declared and paid or set apart for payment upon the Common Stock out of any
assets or funds of the Corporation legally available for the payment of
dividends, and the holders of Common Stock shall be entitled to participate in
such dividends ratably on a per share basis.

D. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Senior Preferred Stock, Junior Preferred Stock and Preferred Stock of each
series shall have been paid in full the amounts to which they respectively shall
be entitled in accordance with Sections 2.I., 2.II. and 2.III. of Article Four,
the terms of any outstanding Senior Preferred Stock, Junior Preferred Stock and
Preferred Stock and applicable law, or an amount sufficient to pay the aggregate
amount to which the holders of the Senior Preferred Stock, Junior Preferred
Stock and Preferred Stock of each series shall be entitled shall have been
deposited with a bank or trust company having capital, surplus and undivided
profits of at least Twenty-Five Million Dollars ($25,000,000) as a trust fund
for the benefit of the holders of such Senior Preferred Stock, Junior Preferred
Stock and Preferred Stock, the remaining net assets of the Corporation shall be
distributed pro rata to the holders of the Common Stock, to the exclusion of the
holders of such Senior Preferred Stock, Junior Preferred Stock and Preferred
Stock.

V. GENERAL PROVISIONS

A. Nonliquidating Events. A consolidation or merger of the Corporation
with or into another corporation or corporations or a sale, whether for cash,
shares of stock, securities or properties, or any combination thereof, of all or
substantially all of the assets of the Corporation shall

<PAGE> 26

not be deemed or construed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of this Article Four.

B. No Preemptive Rights. No holder of Senior Preferred Stock,
Junior Preferred Stock, Preferred Stock or Common Stock of the Corporation shall
be entitled, as such, as a matter of right, to subscribe for or purchase any
part of any new or additional issue of stock of any class or series whatsoever
or of securities convertible into stock of any class whatsoever, whether now or
hereafter authorized and whether issued for cash or other consideration, or by
way of dividend.

C. Definitions.

"Change in Ownership" means any sale, transfer or issuance or
series of sales, transfers and/or issuances of Common Equivalent Stock by the
Corporation or any holders thereof which results in any Person or group of
Persons (as the term "group" is used under the Securities Exchange Act of 1934),
other than the holders of Common Stock as of the date of the Stockholders
Agreement, owning more than 50% of the Common Equivalent Stock outstanding at
the time of such sale, transfer or issuance or series of sales, transfers and/or
issuances.

"Common Equivalent Stock" means, collectively, the
Corporation's Common Stock and any capital stock of any class of the Corporation
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.

"Investment Agreement" means the Investment Agreement, dated
as of November 21, 1996, by and among Brim, Inc. Principal Hospital Company, and
Golder, Thoma, Cressey, Rauner Fund IV, L.P., as such agreement may be amended
from time to time in accordance with its terms.

"Junior Preferred Redemption Date" as to any shares of Junior
Preferred Stock means the date specified in the notice of any redemption at the
Corporation's option or at the holder's option; provided that no such date shall
be a Junior Preferred Redemption Date unless the Liquidation Value of such
Junior Preferred Share (plus all accrued and unpaid dividends thereon and any
required premium with respect thereto) is actually paid in full on such date,
and if not so paid in full, the Junior Preferred Redemption Date shall be the
date on which such amount is fully paid.

"Junior Securities" means any capital stock or other equity
securities of the Corporation, except for the Senior Preferred Stock of the
Corporation.

"Liquidation Value" of any Senior Preferred Share or any
Junior Preferred Share as of any particular date shall be equal to $1,000.

"Person" means an individual, a partnership, a corporation, a
limited liability company, a limited liability, an association, a joint stock
company, a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political subdivision thereof.

<PAGE> 27

"Public Offering" means any offering by the Corporation of its
capital stock or equity securities to the public pursuant to an effective
registration statement under the Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force.

"Securities Purchase Agreement" means the Securities Purchase
Agreement dated on or about December 17, 1996 between Brim, Inc. and
Leeway & Co.

"Senior Management Agreements" means the Senior Management
Agreements dated on or about December 17, 1996 between Brim, Inc. and each of
Martin S. Rash and Richard D. Gore.

"Senior Preferred Redemption Date" as to any share of Senior
Preferred Stock means the date specified in the notice of any redemption at the
Corporation's option or at the holder's option; provided that no such date shall
be a Senior Preferred Redemption Date unless the redemption price provided in
Section 2.I.D.1. of Article Four of such share of Senior Preferred Stock is
actually paid in full on such date, and if not so paid in full, the Senior
Preferred Redemption Date shall be the date on which such amount is fully paid.

"Series B Junior Securities" means any capital stock or other
equity securities of the Corporation, except for the Senior Preferred Stock or
the Junior Preferred Stock of the Corporation.

"Stockholders Agreement" means the Stockholders Agreement
dated on or about December 17, 1996 among Brim, Inc. and the stockholders named
therein.

"Subsidiary" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control the managing general partner of such
limited liability company, partnership, association or other business entity.

ARTICLE FIVE

The Corporation is to have perpetual existence.

ARTICLE SIX

The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, and the directors need not be
elected by ballot unless required by the By-laws of the Corporation. In
furtherance and not in limitation of the powers conferred by statute, the Board

<PAGE> 28

of Directors of the Corporation is expressly authorized to make, alter, amend,
change, add to or repeal the By-laws of the Corporation.

ARTICLE SEVEN

Meetings of stockholders may be held within or outside of the State of
Delaware, as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in the By-laws
of the Corporation. The Board of Directors shall from time to time decide
whether and to what extent and at what times and under what conditions and
requirements the accounts and books of the Corporation, or any of them, except
the stock book, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any books or documents of the
Corporation except as conferred by the laws of the State of Delaware or as
authorized by the Board of Directors.

ARTICLE EIGHT

Subject to the rights of the holders of the Senior Preferred Stock, the
Junior Preferred Stock, and any series of Preferred Stock, from and after the
date on which the Common Stock of the Corporation is registered pursuant to the
Securities Exchange Act of 1934, as amended, (A) any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
an annual or special meeting of stockholders of the Corporation and may not be
effected in lieu thereof by any consent in writing by such stockholders, and (B)
special meetings of stockholders of the Corporation may be called only by the
chairman of the board, the president or the Board of Directors pursuant to a
resolution adopted by the affirmative vote of at least two members then in
office.

ARTICLE NINE

The number of directors which shall constitute the whole board shall be
such as from time to time shall be fixed by resolution adopted by affirmative
vote of a majority of the Board of Directors except that such number shall not
be less than one (1) nor more than nine (9), the exact number to be determined
by resolution adopted by affirmative vote of a majority of the Board of
Directors.

Vacancies and newly created directorships resulting from any increase
in the number of directors may be filled only by the affirmative vote of the
majority of the Board of Directors then in office, although less than quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filing of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto.

<PAGE> 29

Except to the extent prohibited by law, the Board of Directors shall
have the right (which, to the extent exercised, shall be exclusive) to establish
the rights, powers, duties, rules and procedures that from time to time shall
govern the Board of Directors and each of its members, including without
limitation the vote required for any action by the Board of Directors, and that
from time to time shall affect the directors' power to manage the business and
affairs of the Corporation; and no by-law shall be adopted by stockholders which
shall impair or impede the implementation of the foregoing.

ARTICLE TEN

ARTICLE EIGHT, ARTICLE NINE and this ARTICLE TEN of this Restated
Certificate of Incorporation and Sections 2 and 11 of Article II, Sections 2, 3,
4 and 5 of Article III and Article V of the By-laws of the Corporation shall not
be altered, amended or repealed by, and no provision inconsistent therewith
shall be adopted by, the stockholders without the affirmative vote of the
holders of at least 80% of the Common Stock, voting together as a single class.

ARTICLE ELEVEN

To the fullest extent permitted by the Delaware General Corporation Law
as it now exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than permitted prior thereto), no
director of the Corporation shall be liable to the Corporation or its
stockholders for monetary damages arising from a breach of fiduciary duty owed
to the Corporation or its stockholders.

Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.

ARTICLE TWELVE

The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.

ARTICLE THIRTEEN

The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed herein and by the laws
of the State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation.

<PAGE> 1
Exhibit 3.2

AMENDED AND RESTATED BY-LAWS

PROVINCE HEALTHCARE COMPANY

A Delaware Corporation

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the Corporation
in the State of Delaware shall be located at 1013 Centre Road, in the City of
Wilmington, County of New Castle, Delaware 19805. The name of its registered
agent at such address is Corporation Service Company. The registered office
and/or registered agent of the Corporation may be changed from time to time by
action of the board of directors.

Section 2. Other Offices. The Corporation may also have offices at such
other places, both within and outside of the State of Delaware, as the board of
directors may from time to time determine or the business of the Corporation may
require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place and Time of Meetings. An annual meeting of the
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. Unless
otherwise directed by the board of directors, annual meetings of stockholders
shall be held on the third Tuesday in April beginning in 1998, if not a legal
holiday and, if a legal holiday, then on the first preceding regular business
day. At the annual meeting stockholders shall elect directors and transact such
other business as properly may be brought before the meeting pursuant to Article
II, Section 11 hereof.

Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or outside
of the State of Delaware, as shall be stated in a notice of meeting or in a duly
executed waiver of notice thereof. Such meetings may be called at any time by
the chairman of the board, the chief executive officer, the president, or
pursuant to a resolution adopted by the affirmative vote of at least two members
then in office. The only matters

<PAGE> 2

that may be considered at any special meeting of the stockholders are the
matters specified in the notice of the meeting.

Section 3. Place of Meetings. The board of directors may designate any
place, either within or outside of the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
Corporation.

Section 4. Notice. Whenever stockholders are required or permitted to
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than ten (10) nor more than sixty (60) days before the date of the meeting.
All such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the chairman of the board, the president or
the secretary, and if mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, postage prepaid, addressed to the
stockholder at his, her or its address as the same appears on the records of the
Corporation. Attendance of a person at a meeting shall constitute a waiver of
notice of such meeting, except when the person attends for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened.

Section 5. Stockholders List. The officer having charge of the stock
ledger of the Corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.

Section 6. Quorum. The holders of a majority of the outstanding shares
of capital stock entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares present in person
or represented by proxy at the meeting, and entitled to vote at the meeting, may
adjourn the meeting to another time and/or place. When a specified item of
business requires a vote by a class or series (if the Corporation shall then
have outstanding shares of more than one class or series) voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum (as to such class or series) for the transaction of such item of
business.

Section 7. Adjourned Meetings. When a meeting is adjourned to another
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the Corporation may transact

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<PAGE> 3

any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.

Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless (i) by express provisions of an applicable law or of the
certificate of incorporation a different vote is required, in which case such
express provision shall govern and control the decision of such question, or
(ii) the subject matter is the election of directors, in which case Section 2 of
Article III hereof shall govern and control the approval of such subject matter,
or the amendment of any provision listed in Article VIII, in which case Article
VIII hereof shall govern and control the approval of such subject matter.

Section 9. Voting Rights. Except as otherwise provided by the General
Corporation Law of the State of Delaware or by the certificate of incorporation
of the Corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.

Section 10. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him or her by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A duly executed proxy shall
be irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A proxy may be made irrevocable regardless of whether the interest with
which it is coupled is an interest in the stock itself or an interest in the
Corporation generally. Any proxy is suspended when the person executing the
proxy is present at a meeting of stockholders and elects to vote, except that
when such proxy is coupled with an interest and the fact of the interest appears
on the face of the proxy, the agent named in the proxy shall have all voting and
other rights referred to in the proxy, notwithstanding the presence of the
person executing the proxy. At each meeting of the stockholders, and before any
voting commences, all proxies filed at or before the meeting shall be submitted
to and examined by the secretary or a person designated by the secretary, and no
shares may be represented or voted under a proxy that has been found to be
invalid or irregular.

Section 11. Business Brought Before a Meeting. At an annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors, (b)
brought before the meeting by or at the direction of the board of directors, or
(c) otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than sixty (60) days nor more than ninety (90)

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<PAGE> 4

days prior to the meeting; provided, however, that in the event that less than
seventy (70) days' notice or prior public disclosure of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely must be
so received not later than the close of business on the tenth (10) day following
the date on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A stockholder's notice to the secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the stockholder, and
(d) any material interest of the stockholder in such business. Notwithstanding
anything in these by-laws to the contrary, no business shall be conducted at an
annual meeting except in accordance with the procedures set forth in this
Section 11 of Article II. The presiding officer of an annual meeting shall, if
the facts warrant, determine that the business was not properly brought before
the meeting and in accordance with the provisions of this Section 11 of Article
II; and if he should so determine, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.

ARTICLE III

DIRECTORS

Section 1. General Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the board of directors. In
addition to such powers as are herein and in the certificate of incorporation
expressly conferred upon it, the board of directors shall have and may exercise
all the powers of the Corporation, subject to the provisions of the laws of
Delaware, the certificate of incorporation and these by-laws.

Section 2. Number, Election and Term of Office. The number of directors
which shall constitute the board shall initially be six (6), but the number of
directors may be changed and established from time to time by resolution of the
board. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors; provided that, whenever the holders of any class or
series of capital stock of the Corporation are entitled to elect one or more
directors pursuant to the provisions of the certificate of incorporation of the
Corporation (including, but not limited to, for purposes of these by-laws,
pursuant to any duly authorized certificate of designation), such directors
shall be elected by a plurality of the votes of such class or series present in
person or represented by proxy at the meeting and entitled to vote in the
election of such directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.

Section 3. Removal and Resignation. No director may be removed at any
time without cause; provided, however, that if the holders of any class or
series of capital stock are entitled by the provi sions of the Corporation's
certificate of incorporation to elect one or more directors, such director

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<PAGE> 5

or directors so elected may be removed without cause only by the vote of the
holders of a majority of the outstanding shares of that class or series entitled
to vote. Any director may resign at any time upon written notice to the
Corporation.

Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the total number of directors established by the
board pursuant to Section 2 of this Article III may be filled only by the
affirmative vote of the majority of the total number of directors then in
office, though less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy resulting from an increase in the number of directors
shall hold office for a term that shall coincide with the remaining term of the
class of directors to which he is elected. A director elected to fill a vacancy
not resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided. Whenever holders of
any class or classes of stock or series thereof are entitled by the provisions
of the certificate of incorporation to elect one or more directors, vacancies of
directorships pertaining to such class or classes or series may only be filled
by the affirmative vote of the majority of the total number of directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected. If no such directors or director remains, then
the vacancy or vacancies of directorships pertaining to such class or classes or
series shall be filled by the affirmative vote of the majority of the total
number of directors then in office, or by any sole remaining director.

Section 5. Nominations.

(a) Only persons who are nominated in accordance with the
procedures set forth in these by-laws shall be eligible to serve as directors.
Nominations of persons for election to the board of directors of the Corporation
may be made at a meeting of stockholders (i) by or at the direction of the board
of directors or (ii) by any stockholder of the Corporation who was a stockholder
of record at the time of giving of notice provided for in this by-law, who is
entitled to vote for the election of directors at the meeting and who shall have
complied with the notice procedures set forth below in Section 5(b) of this
Article III.

(b) In order for a stockholder to nominate a person for
election to the board of directors of the Corporation at a meeting of
stockholders, such stockholder shall have delivered timely notice of such
stockholder's intent to make such nomination in writing to the secretary of the
Corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation (i) in
the case of an annual meeting, not less than sixty (60) nor more than ninety
(90) days prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
changed by more than thirty (30) days from such anniversary date, notice by the
stockholder to be timely must be so received not later than the close of
business on the tenth (10) day following the earlier of the day on which notice
of the date of the meeting was mailed or public disclosure of the meeting was
made, and (ii) in the case of a special meeting at which directors are to be
elected, not later than the close of business on the tenth (10) day following
the earlier of the day on which notice of the date of the meeting was mailed or
public disclosure of the meeting was made. Such stockholder's notice shall

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<PAGE> 6

set forth (i) as to each person whom the stockholder proposes to nominate for
election as a director at such meeting all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (ii) as to the stockholder giving the notice
(A) the name and address, as they appear on the Corporation's books, of such
stockholder and (B) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and also which are owned of record by
such stockholder; and (iii) as to the beneficial owner, if any, on whose behalf
the nomination is made, (A) the name and address of such person and (B) the
class and number of shares of the Corporation which are beneficially owned by
such person. At the request of the board of directors, any person nominated by
the board of directors for election as a director shall furnish to the secretary
of the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.

(c) No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 5 of Article III. The chairman of the meeting shall, if the facts
warrant, determine that a nomination was not made in accordance with the
procedures prescribed by this Section 5 of Article III, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded. A stockholder seeking to nominate a person to serve as a
director must also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder with
respect to the matters set forth in this Section 5 of Article III.

Section 6. Annual Meetings. The annual meeting of the board of
directors shall be held without other notice than this by-law immediately after,
and at the same place as, the annual meeting of stockholders.

Section 7. Other Meetings and Notice. Regular meetings, other than the
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time to time be determined by resolution of
the board. Special meetings of the board of directors may be called by the
chairman of the board or, upon the written request of at least a majority of the
directors then in office, by the secretary of the Corporation on at least 24
hours notice to each director, either personally, by telephone, by mail, or by
telecopy.

Section 8. Chairman of the Board, Quorum, Required Vote and
Adjournment. The board of directors shall elect, by the affirmative vote of the
majority of the total number of directors then in office, a chairman of the
board, who shall preside at all meetings of the stockholders and board of
directors at which he or she is present. If the chairman of the board is not
present at a meeting of the stockholders or the board of directors, the chief
executive officer (if the chief executive officer is a director and is not also
the chairman of the board) shall preside at such meeting, and, if the chief
executive officer is not present at such meeting, a majority of the directors
present at such meeting shall elect one of their members to so preside. A
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business. Unless by express provision of an
applicable law, the Corporation's certificate of incorporation or these by-laws
a different vote is

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<PAGE> 7

required, the vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.

Section 9. Committees. The board of directors may, by resolution passed
by a majority of the total number of directors then in office, designate one or
more committees, each committee to consist of one or more of the directors of
the Corporation, which to the extent provided in such resolution or these
by-laws shall have, and may exercise, the powers of the board of directors in
the management and affairs of the Corporation, except as otherwise limited by
law. The board of directors may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. Such committee or committees shall have such name
or names as may be determined from time to time by resolution adopted by the
board of directors. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.

Section 10. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. Unless otherwise provided in such a
resolution, in the event that a member and that member's alternate, if
alternates are designated by the board of directors as provided in Section 9 of
this Article III, of such committee is or are absent or disqualified, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in place
of any such absent or disqualified member.

Section 11. Communications Equipment. Members of the board of directors
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
and speak with each other, and participation in the meeting pursuant to this
Section 11 shall constitute presence in person at the meeting.

Section 12. Waiver of Notice and Presumption of Assent. Any member of
the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except when
such member attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened. Such member shall be conclusively presumed to have assented
to any action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless his or her written dissent to such action shall be filed
with the person acting as the secretary of the meeting before the adjournment
thereof or shall be forwarded by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to any member who voted in favor of such action. Any
member of the board of directors or any

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<PAGE> 8

committee thereof may also waive notice of any meeting by providing a written
statement of such waiver.

Section 13. Action by Written Consent. Unless otherwise restricted by
the certificate of incorporation, any action required or permitted to be taken
at any meeting of the board of directors, or of any committee thereof, may be
taken without a meeting if all members of the board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the board or committee.

ARTICLE IV

OFFICERS

Section 1. Number. The officers of the Corporation shall be elected by
the board of directors and shall consist of a chairman of the board, chief
executive officer, president, one or more executive vice-presidents or
vice-presidents, a chief operating officer, a chief financial officer, a
secretary, a treasurer and such other officers and assistant officers as may be
deemed necessary or desirable by the board of directors. Any number of offices
may be held by the same person. In its discretion, the board of directors may
choose not to fill any office for any period as it may deem advisable, except
that the offices of president and secretary shall be filled as expeditiously as
possible.

Section 2. Election and Term of Office. The officers of the Corporation
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as convenient.
Vacancies may be filled or new offices created and filled at any meeting of the
board of directors. Each officer shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.

Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors at its discretion, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.

Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors.

Section 5. Compensation. Compensation of all officers shall be fixed by
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the Corporation.

Section 6. Chairman of the Board. The chairman of the board shall
preside at all meetings of the board of directors and stockholders and shall
have such other powers and perform such other duties as may be prescribed by the
board of directors or provided in these by-laws. The chairman of the board is
authorized to execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and

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<PAGE> 9

executed and except where the signing and execution thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
Corporation. Whenever the president is unable to serve, by reason of sickness,
absence or otherwise, the chairman of the board shall perform all the duties and
responsibilities and exercise all the powers of the president.

Section 7. Chief Executive Officer. The chief executive officer shall
have the powers and perform the duties incident to that position. Subject to the
powers of the board of directors, he or she shall be in the general and active
charge of the entire business and affairs of the Corporation, and shall be its
chief policy-making officer. The chief executive officer is authorized to
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the Corporation. The chief executive officer shall, in the absence or disability
of the chairman of the board, act with all of the powers, perform all duties and
be subject to all the restrictions of the chairman of the board. The chief
executive officer shall have such other powers and perform such other duties as
may be prescribed by the chairman of the board or the board of directors or as
may be provided in these by-laws.

Section 8. The President. The president of the Corporation shall,
subject to the powers of the board of directors, the chairman of the board and
the chief executive officer, shall have general charge of the business, affairs
and property of the Corporation, and control over its officers, agents and
employees; and shall see that all orders and resolutions of the board of
directors and the chief executive officer are carried into effect. The president
shall, in the absence or disability of the chief executive officer, act with all
of the powers and be subject to all the restrictions of the chief executive
officer. The president is authorized to execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the Corporation. The
president shall have such other powers and perform such other duties as may be
prescribed by the chairman of the board, the chief executive officer or the
board of directors or as may be provided in these by-laws.

Section 9. Chief Operating Officer. The chief operating officer of the
Corporation, subject to the powers of the board of directors, the chairman of
the board and the chief executive officer, shall have general and active
management of the business of the Corporation; and shall see that all orders and
resolutions of the board of directors are carried into effect. The chief
operating officer shall have such other powers and perform such other duties as
may be prescribed by the chairman of the board, the chief executive officer or
the board of directors or as may be provided in these by-laws.

Section 10. Chief Financial Officer. The chief financial officer of the
Corporation shall, under the direction of the chairman of the board, the chief
executive officer and the president, be responsible for all financial and
accounting matters and for the direction of the offices of treasurer and
controller. The chief financial officer shall have such other powers and perform
such other duties as may be prescribed by the chairman of the board, the chief
executive officer or the board of directors or as may be provided in these
by-laws.

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Section 11. Vice-presidents. The vice-president, or if there shall be
more than one, the vice-presidents in the order determined by the board of
directors or the chairman of the board, shall, in the absence or disability of
the president, act with all of the powers and be subject to all the restrictions
of the president. The vice-presidents shall also perform such other duties and
have such other powers as the board of directors, the chairman of the board, the
chief executive officer, the president or these by-laws may, from time to time,
prescribe. The vice-presidents may also be designated as executive
vice-presidents or senior vice-presidents, as the board of directors may from
time to time prescribe.

Section 12. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose or
shall ensure that his or her designee attends each such meeting to act in such
capacity. Under the chairman of the board's supervision, the secretary shall
give, or cause to be given, all notices required to be given by these by-laws or
by law; shall have such powers and perform such duties as the board of
directors, the chairman of the board, the chief executive officer, the president
or these by-laws may, from time to time, prescribe; and shall have custody of
the corporate seal of the Corporation. The secretary, or an assistant secretary,
shall have authority to affix the corporate seal to any instrument requiring it
and when so affixed, it may be attested by his or her signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest the affixing by his or her signature. The assistant secretary, or if
there be more than one, any of the assistant secretaries in the order determined
by the board of directors, shall, in the absence or disability of the secretary,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors, the
chairman of the board, the chief executive officer, the president, or secretary
may, from time to time, prescribe.

Section 13. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the Corporation as may be ordered by the chairman of the board,
the chief executive officer, the chief financial officer or the board of
directors; shall cause the funds of the Corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the chairman of the board, the chief
financial officer and the board of directors, at its regular meeting or when the
board of directors so requires, an account of the Corporation; shall have such
powers and perform such duties as the board of directors, the chairman of the
board, the chief executive officer, the president, chief financial officer or
these by-laws may, from time to time, prescribe. If required by the board of
directors, the treasurer shall give the Corporation a bond (which shall be
rendered every six years) in such sums and with such surety or sureties as shall
be satisfactory to the board of directors for the faithful performance of the
duties of the office of treasurer and for the restoration to the Corporation, in
case of death, resignation, retirement, or removal from office, of all books,
papers, vouchers, money, and other property of whatever kind in the possession
or under the control of the treasurer belonging to the Corporation. The
assistant treasurer, or if there are more than one, the assistant treasurers in
the order determined by the board of directors shall, in the absence or
disability of the treasurer, perform

- 10 -

<PAGE> 11

the duties and exercise the powers of the treasurer. The assistant treasurers
shall perform such other duties and have such other powers as the board of
directors, the chairman of the board, the chief executive officer, the
president, the chief financial officer, treasurer or these by-laws may, from
time to time, prescribe.

Section 14. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.

Section 15. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the Corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person selected by it.

ARTICLE V

INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

Section 1. Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is otherwise involved (including
involvement as a witness) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a director or officer of the
Corporation or, while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter, an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director or officer or in any other capacity
while serving as a director or officer, shall be indemnified and held harmless
by the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than permitted prior
thereto), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA exercise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 2 of Article V with respect to
proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section 1 of Article V shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advance of expenses"); provided, however, that, if and to the
extent that the Delaware General

- 11 -

<PAGE> 12

Corporation Law requires, an advance of expenses incurred by an indemnitee in
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section 1 of Article V or otherwise. The Corporation may, by action of its board
of directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.

Section 2. Procedure for Indemnification. Any indemnification of a
director or officer of the Corporation or advance of expenses under Section 1 of
this Article V shall be made promptly, and in any event within forty-five (45)
days (or, in the case of an advance of expenses, twenty (20) days), upon the
written request of the director or officer. If a determination by the
Corporation that the director or officer is entitled to indemnification pursuant
to this Article V is required, and the Corporation fails to respond within sixty
(60) days to a written request for indemnity, the Corporation shall be deemed to
have approved the request. If the Corporation denies a written request for
indemnification or advance of expenses, in whole or in part, or if payment in
full pursuant to such request is not made within forty-five (45) days (or, in
the case of an advance of expenses, twenty (20) days), the right to
indemnification or advances as granted by this Article V shall be enforceable by
the director or officer in any court of competent jurisdiction. Such person's
costs and expenses incurred in connection with successfully establishing his or
her right to indemnification, in whole or in part, in any such action shall also
be indemnified by the Corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for the advance of expenses
where the undertaking required pursuant to Section 1 of this Article V, if any,
has been tendered to the Corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware General
Corporation Law for the Corporation to indemnify the claimant for the amount
claimed, but the burden of such defense shall be on the Corporation. Neither the
failure of the Corporation (including its board of directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its board of directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct. The procedure for
indemnification of other employees and agents for whom indemnification is
provided pursuant to Section 1 of this Article V shall be the same procedure set
forth in this Section 2 for directors or officers, unless otherwise set forth in
the action of the board of directors providing indemnification for such employee
or agent.

Section 3. Service for Subsidiaries. Any person serving as a director,
officer, employee or agent of a Subsidiary shall be conclusively presumed to be
serving in such capacity at the request of the Corporation.

- 12 -

<PAGE> 13

Section 4. Reliance. Persons who after the date of the adoption of this
provision become or remain directors or officers of the Corporation or who,
while a director or officer of the Corporation, become or remain a director,
officer, employee or agent of a Subsidiary, shall be conclusively presumed to
have relied on the rights to indemnity, advance of expenses and other rights
contained in this Article V in entering into or continuing such service. The
rights to indemnification and to the advance of expenses conferred in this
Article V shall apply to claims made against an indemnitee arising out of acts
or omissions which occurred or occur both prior and subsequent to the adoption
hereof.

Section 5. Non-Exclusivity of Rights. The rights to indemnification and
to the advance of expenses conferred in this Article V shall not be exclusive of
any other right which any person may have or hereafter acquire under this
Certificate of Incorporation or under any statute, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.

Section 6. Insurance. The Corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee or agent of the Corporation 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
expense, liability or loss asserted against him or her and incurred by him or
her in any such capacity, whether or not the Corporation would have the power to
indemnify such person against such expenses, liability or loss under the
Delaware General Corporation Law.

ARTICLE VI

CERTIFICATES OF STOCK

Section 1. Form. Every holder of stock in the Corporation shall be
entitled to have a certificate, signed by, or in the name of the Corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
Corporation or its employee or (2) by a registrar, other than the Corporation or
its employee, the signature of any such chairman of the board, president,
vice-president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the Corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
Corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the Corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
Corporation. Shares of stock of the Corporation shall only be transferred on the
books of the Corporation by the holder of record thereof or by such holder's

- 13 -

<PAGE> 14

attorney duly authorized in writing, upon surrender to the Corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization, and other matters as the Corporation may reasonably
require, and accompanied by all necessary stock transfer stamps. In that event,
it shall be the duty of the Corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate or certificates, and record the
transaction on its books. The board of directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the transfer
of any class or series of securities of the Corporation.

Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the Corporation
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the Corporation a bond
sufficient to indemnify the Corporation against any claim that may be made
against the Corporation on account of the loss, theft or destruction of any such
certificate or the issuance of such new certificate.

Section 3. Fixing a Record Date for Stockholder Meetings. In order that
the Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting. If no record date is fixed by the
board of directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be the close of business
on the next day preceding the day on which notice is first given. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.

Section 4. Fixing a Record Date for Other Purposes. In order that the
Corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty (60) days prior to such action. If no record date is fixed,
the record date for determining stockholders for any such purpose shall be at
the close of business on the day on which the board of directors adopts the
resolution relating thereto.

Section 5. Registered Stockholders. Prior to the surrender to the
Corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such

- 14 -

<PAGE> 15

share or shares, the Corporation may treat the registered owner as the person
entitled to receive dividends, to vote, to receive notifications, and otherwise
to exercise all the rights and powers of an owner. The Corporation shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof.

Section 6. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the Corporation may proceed to collect the
amount due in the same manner as any debt due the Corporation.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, in accordance with applicable law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
any other purpose and the directors may modify or abolish any such reserve in
the manner in which it was created.

Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the Corporation and all notes and other
evidences of indebtedness issued in the name of the Corporation shall be signed
by such officer or officers, agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.

Section 3. Contracts. In addition to the powers otherwise granted to
officers pursuant to Article IV hereof, the board of directors may authorize any
officer or officers, or any agent or agents, of the Corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances.

Section 4. Loans. The Corporation may lend money to, or guarantee any
obligation of, or otherwise assist any officer or other employee of the
Corporation or of its subsidiaries, including any officer or employee who is a
director of the Corporation or its subsidiaries, whenever, in the judgment

- 15 -

<PAGE> 16

of the directors, such loan, guaranty or assistance may reasonably be expected
to benefit the Corporation. The loan, guaranty or other assistance may be with
or without interest, and may be unsecured, or secured in such manner as the
board of directors shall approve, including, without limitation, a pledge of
shares of stock of the Corporation. Nothing in this section contained shall be
deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.

Section 5. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the board of directors.

Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the Corporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.

Section 7. Voting Securities Owned By Corporation. Voting securities in
any other corporation held by the Corporation shall be voted by the chairman of
the board, the chief executive officer, the president or a vice-president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.

Section 8. Inspection of Books and Records. Any stockholder of record,
in person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in the State of Delaware or at its principal place of business. The
Corporation shall have a reasonable amount of time to respond to any such
request.

Section 9. Section Headings. Section headings in these by-laws are for
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.

Section 10. Inconsistent Provisions. In the event that any provision of
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.

- 16 -

<PAGE> 17

ARTICLE VIII

AMENDMENTS

These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by the affirmative vote of the
majority of the total number of directors then in office. The fact that the
power to adopt, amend, alter, or repeal the by-laws has been conferred upon the
board of directors shall not divest the stockholders of such powers as set forth
in the certificate of incorporation; provided, that Sections 2 and 11 of Article
II, Sections 2, 3, 4 and 5 of Article III and Article V of these By-laws of the
Corporation shall not be altered, amended or repealed by, and no provision
inconsistent therewith shall be adopted by, the stockholders without the
affirmative vote of the holders of at least 80% of the Common Stock, voting
together as a single class.

- 17 -

<PAGE> 1
EXHIBIT 4.1

PROVINCE HEALTHCARE COMPANY

COMMON STOCK

NUMBER SHARES

INCORPORATED UNDER THE LAWS OF CUSIP 743977 10 0
THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS

THIS CERTIFIES THAT

is the owner of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER
SHARE, OF

PROVINCE HEALTHCARE COMPANY

The shares evidenced by this Certificate are transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney upon
surrender of this Certificate properly endorsed or assigned. This Certificate
and the shares represented hereby are subject to all the provisions of the
Certificate of Incorporation and Bylaws of the Corporation and the amendments
and restatements from time to time made thereto, copies of which are on file at
the principal office of the Corporation. This Certificate is not valid until
countersigned and registered by the Transfer Agent and Registrar.

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

Dated:

COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
(CHARLOTTE, NORTH CAROLINA)

TRANSFER AGENT
AND REGISTRAR

AUTHORIZED SIGNATURE

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

CHIEF FINANCIAL OFFICER AND SECRETARY PRESIDENT AND CHIEF EXECUTIVE
OFFICER

[PROVINCE HEALTHCARE COMPANY
CORPORATE SEAL]
<PAGE> 2
PROVINCE HEALTHCARE COMPANY

The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional, or other special rights of each class of stock or series thereof of
the Corporation, and the qualifications, limitations or restrictions of such
preferences and/or rights. Such request may be made to the Corporation or the
transfer agent.

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:

<TABLE>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
TEN ENT -- as tenants by the entireties ------------- --------
JT TEN -- as joint tenants with right of (Cust) (Minor)
survivorship and not as tenants under Uniform Gifts to Minors
in common Act
------------------
(State)

</TABLE>

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

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

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

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

- ------------------------------------------------------------------------ shares
of the Common Stock represented by the within certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated:

----------------------------------------------------------------------------------------------------
Notice: The signature to this assignment must correspond with the name as written upon the face
of the certificate in every particular, without alteration or enlargement or any change whatever.

Signature(s) guaranteed:

-----------------------------------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

</TABLE>

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

<PAGE> 1
Exhibit 10.8

FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT

This First Amendment to Stockholders Agreement is made as of July 14,
1997, between Principal Hospital Company, an Oregon corporation (the "Company")
(formerly known as Brim, Inc.), Golder, Thoma, Cressey, Rauner Fund IV, L.P., a
Delaware limited partnership, ("GTCR") Leeway & Co., a Massachusetts general
partnership, Martin S. Rash ("Rash"), Richard D. Gore ("Gore"), and the other
undersigned stockholders of the Company.

Each of the undersigned is a party to a Stockholders Agreement, dated
as of December 17, 1996 (the "Stockholders Agreement") among the Company, GTCR,
Leeway & Co., Rash, Gore, First Union Corporation of Virginia, AmSouth
Bancorporation, PHC of Delaware, Inc., a Delaware corporation (formerly known as
Principal Hospital Company) and certain other individuals listed on a Schedule I
to the Stockholders Agreement.

Section 23 of the Stockholders Agreement provides that an amendment to
the Stockholders Agreement must be approved in writing by the Company and the
holders of at least 90% of the Stockholder Shares (as such term is defined in
the Stockholders Agreement). The undersigned stockholders hold an aggregate of
over 90% of the Stockholder Shares.

Section 6(d) of the Stockholders Agreement is hereby amended by
deleting the final sentence of Section 6(d) in its entirety and replacing it
with the following:

A number of shares (rounded to the nearest whole number) equal to
85.3547% of any shares of Common Stock purchased pursuant by Rash
pursuant to this Section 6 shall constitute "Vesting Shares" under
Rash's Senior Management Agreement, and a number of shares (rounded to
the nearest whole number) equal to 60.7261% of any shares of Common
Stock purchased pursuant by Gore pursuant to this Section 6 shall
constitute "Vesting Shares" under Gore's Senior Management Agreement.

All other provisions of the Stockholders Agreement shall remain in full
force and effect. This First Amendment to Stockholders Agreement may be executed
simultaneously in two or more counterparts, any of which need not contain the
signatures of more than one party, but all such counterparts taken together
shall constitute one and the same agreement.

* * * *

<PAGE> 2

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Stockholders Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
-------------------------------------
Its: President

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P.,
its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner

By: /s/ Joseph P. Nolan
-------------------------------------
Its: Principal

LEEWAY & CO.

By: State Street Bank & Trust Company
its Partner

By: /s/ Kimberly A. Moynihan
-------------------------------------
Its: Assistant Secretary

FIRST UNION CORPORATION OF VIRGINIA

By: ___________________________________
Its: __________________________________

AMSOUTH BANCORPORATION

By: ___________________________________
Its: __________________________________

<PAGE> 3

PHC OF DELAWARE, INC.

By: ___________________________________
Its: __________________________________

BRIM CAPITAL CORPORATION

By: ___________________________________
Its: __________________________________

SSS CAPITAL CORPORATION

By: ___________________________________
Its: __________________________________

CTK CAPITAL CORPORATION

By: ___________________________________
Its: __________________________________

/s/ Martin S. Rash
-------------------------------------
Martin S. Rash

/s/ Richard D. Gore
-------------------------------------
Richard D. Gore

-------------------------------------
Michael Barry

/s/ Steve Taylor
-------------------------------------
Steve Taylor

-------------------------------------
John Miller

-------------------------------------
Kathleen Sego

-------------------------------------
James McKinney

<PAGE> 4

-------------------------------------
Gary Edwards

-------------------------------------
David Woodland

-------------------------------------
Christine Craft

<PAGE> 1
Exhibit 10.11

FIRST AMENDMENT TO SENIOR MANAGEMENT AGREEMENT

This First Amendment to Senior Management Agreement is made as of July
14, 1997, between Principal Hospital Company, an Oregon corporation (formerly
known as Brim, Inc.) (the "Company"), Martin S. Rash ("Executive"), and Golder,
Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited partnership ("GTCR").

The Company, Executive, GTCR, PHC of Delaware, Inc., a Delaware
corporation (formerly known as Principal Hospital Company), and Leeway and Co.
are parties to a Senior Management Agreement, dated as of December 17, 1996 (the
"Senior Management Agreement"). The Company, Executive, GTCR and certain other
investors are also parties to a Stockholders Agreement, dated as of December 17,
1996 (the "Stockholders Agreement").

Section 11(i) of the Senior Management Agreement provides that the
agreement may be amended with the prior written consent of the Company,
Executive and GTCR.

Section 2(a) of the Senior Management Agreement is hereby amended by
deleting the first sentence of Section 2(a) in its entirety and replacing it
with the following:

Executive received 193,163 shares of Common Stock pursuant to the
Merger, and, after giving effect to the purchase of shares of Common
Stock pursuant to paragraph 1(a) of this Agreement, owns an aggregate
of 315,947 shares of Common Stock, of which 227,135 shares shall be
"Vesting Shares" pursuant to this Agreement. In addition, a number of
shares (rounded to the nearest whole number) equal to 85.3547% of any
shares of Common Stock purchased pursuant to Section 6(d) of the
Stockholders Agreement shall be "Vesting Shares" pursuant to this
Agreement.

All other provisions of the Senior Management Agreement shall remain in
full force and effect. This First Amendment to Senior Management Agreement may
be executed simultaneously in two or more counterparts, any of which need not
contain the signatures of more than one party, but all such counterparts taken
together shall constitute one and the same agreement.

* * * *

<PAGE> 2

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Senior Management Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
--------------------------------------
Its: President

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P.,
its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner

By: /s/ Joseph P. Nolan
--------------------------------------
Its: Principal

/s/ Martin S. Rash
------------------------------------------
MARTIN S. RASH

<PAGE> 1
Exhibit 10.13

FIRST AMENDMENT TO SENIOR MANAGEMENT AGREEMENT

This First Amendment to Senior Management Agreement is made as of July
14, 1997, between Principal Hospital Company, an Oregon corporation (formerly
known as Brim, Inc.) (the "Company"), Richard D. Gore ("Executive"), and Golder,
Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited partnership ("GTCR").

Section 11(i) of the Senior Management Agreement provides that the
agreement may be amended with the prior written consent of the Company,
Executive and GTCR.

Section 2(a) of the Senior Management Agreement is hereby amended by
deleting the first sentence of Section 2(a) in its entirety and replacing it
with the following:

Executive received 111,266 shares of Common Stock pursuant to the
Merger, and, after giving effect to the purchase of shares of Common
Stock pursuant to paragraph 1(a) of this Agreement, owns an aggregate
of 197,938 shares of Common Stock, of which 110,404 shares shall be
"Vesting Shares" pursuant to this Agreement. In addition, a number of
shares (rounded to the nearest whole number) equal to 60.7261% of any
shares of Common Stock purchased pursuant to Section 6(d) of the
Stockholders Agreement shall be "Vesting Shares" pursuant to this
Agreement.

* * * *

<PAGE> 2

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Senior Management Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
-------------------------------------
Its: President

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P.,
its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner

By: /s/ Joseph P. Nolan
-------------------------------------
Its: Principal

/s/ Richard D. Gore
-----------------------------------------
RICHARD D. GORE

<PAGE> 1
Exhibit 10.28

FIRST AMENDMENT TO SECURITIES PURCHASE AGREEMENT

This First Amendment to Securities Purchase Agreement is made as of
September 30, 1997, between Principal Hospital Company, an Oregon corporation
(formerly known as Brim, Inc.) (the "Company"), Leeway & Co. ("Leeway").

The Company and Leeway are parties to a Securities Purchase Agreement,
dated as of December 17, 1996 (the "Securities Purchase Agreement"). All
capitalized terms used and not otherwise defined herein shall have the
respective meanings given such terms in the Securities Purchase Agreement.

The Company is proposing to merge (the "Merger") with Province
Healthcare Company, a Delaware corporation ("Province"), in order to change its
name and jurisdiction of incorporation and to make certain other changes to the
Company's authorized capitalization. Province has filed a Registration Statement
on Form S-1 under the Securities Act of 1933, as amended, with the Securities
and Exchange Commission for the initial public offering (the "IPO") of
Province's common stock.

Section 16 of the Securities Purchase Agreement provides that the terms
of the Securities Purchase Agreement may be amended and the observance of any
term of the Securities Purchase Agreement may be waived with the written consent
of the Company and the Required Holders.

1. In connection with the Merger, and in connection with and
contingent upon the consummation of the IPO, the parties
hereto wish to amend the Securities Purchase Agreement as
follows:

a. Section 7.1 and all subsections thereof shall be deleted in
their entirety and replaced with the following:

7.1 Financial Statements; Stockholder Reports. Each Subject
Entity will maintain a system of accounting in which full,
true and correct entries will be made of all dealings and
transactions in relation to its business and affairs in
accordance with generally accepted accounting principles. The
Company will furnish to each Major Holder promptly after the
sending or making available for filing of the same, copies of
all reports and financial statements which the Company shall
send or make available to the holders of its securities, and
all registration statements, proxy statements and all reports,
if any, which the Company shall file with the Securities and
Exchange Commission.

b. Section 12.36 shall be deleted in its entirety and replaced
with the following:

<PAGE> 2

12.36 Option Plan. The term "Option Plan" shall mean one or
more employee stock option plans to be adopted by the Company
together with any amendments thereto. Prior to the
consummation of a Qualifying Public Offering: (i) the Option
Plan shall not provide for the issuance of options to purchase
more than 5% of the outstanding Common Stock on a fully
diluted basis, after giving effect to the Closing and the
transactions contemplated by Section 6 of the Shareholders
Agreement as in effect on December 17, 1996; and (ii) Martin
S. Rash and Richard D. Gore shall not be eligible to receive
option grants under the Option Plan.

2. Leeway hereby waives observance of Sections 8.3(a), 8.5, and
8.6 of the Securities Purchase Agreement in connection with
the consummation of the Merger. Leeway acknowledges and agrees
that, following the Merger, the Charter and By-laws of the
surviving corporation shall be as set forth in Exhibit A
attached hereto, and Leeway waives observance of Section 8.1
of the Securities Purchase Agreement with respect to any
differences between such Charter and By-laws and the Charter
and By-laws of Principal prior to the Merger.

3. Leeway hereby consents to the disclosure regarding it
contained in the Registration Statement on Form S-1 of
Province Healthcare Company filed with the Securities and
Exchange Commission on August 27, 1997 (the "Registration
Statement"). Leeway acknowledges that it was notified at
least 60 days in advance of the filing of the Registration
Statement, and hereby waives the requirement of written notice
thereof pursuant to Section 7.6 of the Securities Purchase
Agreement. Leeway further acknowledges that Leeway and its
attorneys and accountants have been afforded the opportunity
to participate in the preparation of the Registration
Statement as required pursuant to Section 7.6 of the
Securities Purchase Agreement. Leeway hereby waives its right
to obtain an opinion from Principal's counsel and a
"cold-comfort" letter from Principal's auditors in connection
with the Registration Statement.

4. Leeway hereby consents to the First Amendments to Senior
Management Agreements, each dated as of July 14, 1997, among
Principal, Golder, Thoma, Cressey, Rauner Fund IV, L.P., a
Delaware limited partnership ("GTCR") and each of Martin S.
Rash and Richard D. Gore. Leeway further consents to the
Amended and Restated Senior Management Agreements, each dated
as of September __, 1997, among Principal, GTCR and Messrs.
Rash and Gore. Leeway consents to the termination of the
Professional Services Agreement, dated as of December 17,
1996, between Principal and Golder, Thoma, Cressey, Rauner,
Inc. in connection with the IPO.

5. Leeway hereby waives observance of Section 8.9 of the
Securities Purchase Agreement in connection with the
distribution of Common Stock of Principal in May 1997 pursuant
to the three-for-one stock split of the Common Stock of
Principal, effected as a dividend.

<PAGE> 3

6. Leeway hereby waives observance of Section 9.2 of the
Securities Purchase Agreement in connection with the issuance
of Equity Securities of Province, successor by merger to
Principal, pursuant to the Merger.

7. All other provisions of the Securities Purchase Agreement
shall remain in full force and effect.

8. This First Amendment to Securities Purchase Agreement may be
executed simultaneously in two or more counterparts, any of
which need not contain the signatures of more than one party,
but all such counterparts taken together shall constitute one
and the same agreement.

* * * *

<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to
Securities Purchase Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
--------------------------------------

Its: /s/ Chief Executive Officer
-------------------------------------

LEEWAY & CO.

By State Street Bank & Trust Company
Its Partner

By /s/ Kimberly A. Moynihan
--------------------------------------
Its Assistant Secretary

<PAGE> 1

Exhibit 10.29

SECOND AMENDMENT TO SENIOR MANAGEMENT AGREEMENT

This Second Amendment to Senior Management Agreement is made as of
October 15, 1997, between Principal Hospital Company, an Oregon corporation
(formerly known as Brim, Inc.) (the "Company"), Martin S. Rash ("Executive"),
and Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited partnership
("GTCR").

The Company, Executive, GTCR, PHC of Delaware, Inc., a Delaware
corporation (formerly known as Principal Hospital Company), and Leeway and Co.
are parties to a Senior Management Agreement, dated as of December 17, 1996,
amended as of July 14, 1997 (as so amended, the "Senior Management Agreement").

Section 11(i) of the Senior Management Agreement provides that the
agreement may be amended with the prior written consent of the Company,
Executive and GTCR.

The parties hereto agree as follows:

1. Section 1(b) of the Senior Management Agreement is hereby deleted in
its entirety.

2. Section 2(a) of the Senior Management Agreement is hereby amended by
deleting Section 2(a) in its entirety and replacing it with the following:

(a)(i) Executive received 193,163 shares of Common Stock
pursuant to the Merger, and, after giving effect to the
purchase of shares of Common Stock pursuant to paragraph 1(a)
of this Agreement, owns an aggregate of 315,947 shares of
Common Stock, of which 227,135 shares shall be "Vesting
Shares" pursuant to this Agreement. In addition, a number of
shares (rounded to the nearest whole number) equal to 85.3547%
of any shares of Common Stock purchased pursuant to Section
6(d) of the Stockholders Agreement shall be "Vesting Shares"
pursuant to this Agreement.

(ii) All Vesting Shares will become vested on the date of
Executive's death or disability (as determined by the Board in
its good faith judgment) if Executive is employed by the
Company or any of its Subsidiaries at such date.

(iii) In the event of a Public Offering: (w) the provisions of
paragraph 2(a)(iv) shall no longer be applicable; (x) 50,912
Vesting Shares shall become vested as of the date of the
consummation of the initial Public Offering; (y) 53,545 Shares
shall become vested on each of the first two anniversaries of
the consummation of such Public

<PAGE> 2

Offering; and (z) 53,546 Shares shall become vested on the
third anniversary of the consummation of such Public Offering,
in each case if as of each such date Executive is still
employed by the Company or any of its Subsidiaries.

(iv) Except as otherwise provided in this paragraph 2(a) or in
paragraph 2(b), the Vesting Shares will become vested in
accordance with the following schedule, if as of each such
date Executive is still employed by the Company or any of its
Subsidiaries:

<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Shares
Date Vested
---- --------------
<S> <C>
July 26, 1997 20%
July 26, 1998 40%
July 26, 1999 60%
July 26, 2000 80%
July 26, 2001 100%

</TABLE>

(v) All other shares of Executive Stock vest immediately upon
receipt of such shares pursuant to the Merger or the
Investment Agreement Counterpart, or upon purchase by
Executive.

3. Section 2(b) of the Senior Management Agreement is hereby amended by
deleting the first sentence of Section 2(b) in its entirety and replacing it
with the following:

If Executive ceases to be employed by the Company and its
Subsidiaries on any date other than (i) an anniversary of the
Public Offering prior to the third anniversary of the Public
Offering or (ii) any July 26 prior to July 26, 2001 (each, a
"Vesting Date"), the cumulative percentage of Vesting Shares
to become vested will be determined on a pro rata basis
according to the number of days elapsed since the prior
Vesting Date.

4. Section 6(b) of the Senior Management Agreement is hereby amended by
deleting Section 6(b) in its entirety and replacing it with the following:

(b) Termination. The Employment Period will continue until
Executive's resignation, disability (as determined by the
Board in its good faith judgment) or death or until the Board
determines in its good faith judgment that termination of
Executive's employment is in the best interests of the
Company. If Executive's employment is

<PAGE> 3

terminated by the Company with or without cause or as a result
of Executive's disability (as determined by the Board in its
good faith judgment) or death, the Company shall pay to
Executive (or his estate), in twenty-four equal monthly
installments, an amount equal to twice Executive's Annual Base
Salary; provided, that the severance payments set forth in
this paragraph 6(b) shall cease and the Company shall have no
further obligation hereunder upon Executive's acceptance of
employment with any entity whose business is within the
Company's core business of owning and operating rural
hospitals.

5. Section 8(a) of the Senior Management Agreement is hereby amended by
deleting Section 8(a) in its entirety and replacing it with the following:

(a) Noncompetition. Executive acknowledges that in the course
of his employment with the Company he will become familiar
with the Company's trade secrets and with other confidential
information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, until the earlier of (i) the
second anniversary of the end of the Employment Period and
(ii) the consummation of a Sale of the Company (the
"Noncompete Period"), he shall not directly or indirectly own,
manage, control, participate in, consult with, render services
for, (i) any business, the operating facilities of which
compete with the operating facilities of the Company or its
Subsidiaries within the geographical area included in the
50-mile radius around each location where the Company or any
Subsidiary owns, leases, manages or otherwise maintains an
operating facility, engages in business or, on the date of
Executive's termination, plans to own, lease, manage or
otherwise maintain a facility or engage in business, or (ii)
any business in which the Company or any of its Subsidiaries
has entered into a letter of intent or is or has been within
one year prior to the date of termination of Executive's
employment in active negotiations relating to the acquisition
of such business by the Company or its Subsidiaries.

6. Section 9 of the Senior Management Agreement is hereby amended by
deleting the definition of "Sale of the Company" and replacing it with the
following:

"Sale of the Company" means any transaction or series of
transactions pursuant to or as a result of which (a) the
Investor owns less than 25% of the Common Stock or (b) any
person(s) or entity(ies) (including any Affiliates of the
Investor) other than the Investor in the aggregate acquire(s)
(i) 20% or more of the Common Stock or (ii) all or
substantially all of the Company's assets determined on a

<PAGE> 4

consolidated basis; provided that the term "Sale of the
Company" shall not include an initial Public Offering.

7. All other provisions of the Senior Management Agreement shall remain
in full force and effect.

8. All share numbers in this Second Amendment to Senior Management
Agreement are on the same basis as the numbers in the Senior Management
Agreement, and therefore do not give effect to the 3-for-1 stock split of the
Company's Common Stock effected in May 1997 or the merger of the Company into
Province Healthcare Company in October 1997.

9. This Second Amendment to Senior Management Agreement may be executed
simultaneously in two or more counterparts, any of which need not contain the
signatures of more than one party, but all such counterparts taken together
shall constitute one and the same agreement.

* * * *

<PAGE> 5

IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Senior Management Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
-----------------------------------
Its: Chief Executive Officer
----------------------------------

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P.,
its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner

By: /s/ Joseph P. Nolan
------------------------------------
Its: Principal

/s/ Martin S. Rash
----------------------------------------
MARTIN S. RASH

<PAGE> 1
Exhbit 10.30

SECOND AMENDMENT TO SENIOR MANAGEMENT AGREEMENT

This Second Amendment to Senior Management Agreement is made as of
October 15, 1997, between Principal Hospital Company, an Oregon corporation
(formerly known as Brim, Inc.) (the "Company"), Richard D. Gore ("Executive"),
and Golder, Thoma, Cressey, Rauner Fund IV, L.P., a Delaware limited partnership
("GTCR").

The Company, Executive, GTCR, PHC of Delaware, Inc., a Delaware
corporation (formerly known as Principal Hospital Company), and Leeway and Co.
are parties to a Senior Management Agreement, dated as of December 17, 1996,
amended as of July 14, 1997 (as so amended, the "Senior Management Agreement").

Section 11(i) of the Senior Management Agreement provides that the
agreement may be amended with the prior written consent of the Company,
Executive and GTCR.

The parties hereto agree as follows:

1. Section 1(b) of the Senior Management Agreement is hereby deleted in
its entirety.

2. Section 2(a) of the Senior Management Agreement is hereby amended by
deleting Section 2(a) in its entirety and replacing it with the following:

(a)(i) Executive received 111,266 shares of Common Stock
pursuant to the Merger, and, after giving effect to the
purchase of shares of Common Stock pursuant to paragraph 1(a)
of this Agreement, owns an aggregate of 197,938 shares of
Common Stock, of which 110,404 shares shall be "Vesting
Shares" pursuant to this Agreement. In addition, a number of
shares (rounded to the nearest whole number) equal to 60.7261%
of any shares of Common Stock purchased pursuant to Section
6(d) of the Stockholders Agreement shall be "Vesting Shares"
pursuant to this Agreement.

(iii) In the event of a Public Offering: (w) the provisions of
paragraph 2(a)(iv) shall no longer be applicable; (x) 24,840
Vesting Shares shall become vested as of the date of the
consummation of the initial Public Offering; (y) 26,068 Shares
shall become vested on each of the first two anniversaries of
the consummation of such Public

<PAGE> 2

Offering; and (z) 26,067 Shares shall become vested on the
third anniversary of the consummation of such Public Offering,
in each case if as of each such date Executive is still
employed by the Company or any of its Subsidiaries.

<TABLE>
<CAPTION>
Cumulative
Percentage of
Vesting Shares
Date Vested
---- --------------
<S> <C>
July 26, 1997 20%
July 26, 1998 40%
July 26, 1999 60%
July 26, 2000 80%
July 26, 2001 100%
</TABLE>

(v) All other shares of Executive Stock vest immediately upon
receipt of such shares pursuant to the Merger or the
Investment Agreement Counterpart, or upon purchase by
Executive.

3. Section 2(b) of the Senior Management Agreement is hereby amended by
deleting the first sentence of Section 2(b) in its entirety and replacing it
with the following:

4. Section 6(b) of the Senior Management Agreement is hereby amended by
deleting Section 6(b) in its entirety and replacing it with the following:

<PAGE> 3

5. Section 8(a) of the Senior Management Agreement is hereby amended by
deleting Section 8(a) in its entirety and replacing it with the following:

(a) Noncompetition. Executive acknowledges that in the course
of his employment with the Company he will become familiar
with the Company's trade secrets and with other confidential
information concerning the Company and that his services will
be of special, unique and extraordinary value to the Company.
Therefore, Executive agrees that, until the earlier of (i) the
first anniversary of the end of the Employment Period and (ii)
the consummation of a Sale of the Company (the "Noncompete
Period"), he shall not directly or indirectly own, manage,
control, participate in, consult with, render services for,
(i) any business, the operating facilities of which compete
with the operating facilities of the Company or its
Subsidiaries within the geographical area included in the
50-mile radius around each location where the Company or any
Subsidiary owns, leases, manages or otherwise maintains an
operating facility, engages in business or, on the date of
Executive's termination, plans to own, lease, manage or
otherwise maintain a facility or engage in business, or (ii)
any business in which the Company or any of its Subsidiaries
has entered into a letter of intent or is or has been within
one year prior to the date of termination of Executive's
employment in active negotiations relating to the acquisition
of such business by the Company or its Subsidiaries.

6. Section 9 of the Senior Management Agreement is hereby amended by
deleting the definition of "Sale of the Company" and replacing it with the
following:

<PAGE> 4

consolidated basis; provided that the term "Sale of the
Company" shall not include an initial Public Offering.

7. All other provisions of the Senior Management Agreement shall remain
in full force and effect.

* * * *

<PAGE> 5

SRMGMTA2.RDG
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Senior Management Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
---------------------------------------
Its: Chief Executive Officer
--------------------------------------

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P.,
its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
its General Partner

By: /s/ Joseph P. Nolan
---------------------------------------
Its: Principal

/s/ Richard D. Gore
---------------------------------------
RICHARD D. GORE

<PAGE> 1
Exhibit 10.31

SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT

This Second Amendment to Stockholders Agreement is made as of September
30, 1997, between Principal Hospital Company, an Oregon corporation (the
"Company") (formerly known as Brim, Inc.), Golder, Thoma, Cressey, Rauner Fund
IV, L.P., a Delaware limited partnership, ("GTCR") Leeway & Co., a Massachusetts
general partnership, Martin S. Rash ("Rash"), Richard D. Gore ("Gore"), and the
other undersigned stockholders of the Company.

Each of the undersigned is a party to a Stockholders Agreement, dated
as of December 17, 1996, as amended by the First Amendment to Stockholders
Agreement, dated as of July 14, 1997 (as so amended, the "Stockholders
Agreement") among the Company, GTCR, Leeway & Co., Rash, Gore, First Union
Corporation of Virginia, AmSouth Bancorporation, PHC of Delaware, Inc., a
Delaware corporation (formerly known as Principal Hospital Company) and certain
other individuals listed on a Schedule I to the Stockholders Agreement.

The Company is proposing to merge with and into its wholly owned
subsidiary, Province Healthcare Company, a Delaware corporation ("Province"), in
order to change its name and jurisdiction of incorporation and to make certain
other changes in its capitalization. Upon consummation of such merger, Province
will be the successor to the Company. Province has filed a Registration
Statement on Form S-1 under the Securities Exchange Act of 1933, as amended, in
connection with a proposed initial public offering of its Common Stock, par
value $0.01 per share (the "IPO").

Section 23 of the Stockholders Agreement provides that any
modification, amendment or waiver of any provision of the Stockholders Agreement
must be approved in writing by the Company and the holders of at least 90% of
the Stockholder Shares (as such term is defined in the Stockholders Agreement).
The undersigned stockholders hold an aggregate of over 90% of the Stockholder
Shares.

The Company and the undersigned stockholders hereby amend the
Stockholders Agreement by adding the following as Section 35:

35. Termination. This Stockholders Agreement shall terminate
in its entirety upon the consummation of the sale in an
underwritten public offering registered under the Securities
Act of 1933, as amended, of shares of the Company's Common
Stock which is approved by the Company's board of directors.

All other provisions of the Stockholders Agreement shall remain in full
force and effect.

This Second Amendment to Stockholders Agreement may be executed
simultaneously in two or more counterparts, any of which need not contain the
signatures of more than one party, but all such counterparts taken together
shall constitute one and the same agreement.

<PAGE> 2

* * * *

<PAGE> 3

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to
Stockholders Agreement on the date first written above.

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
-------------------------------------
Its: Chief Executive Officer

GOLDER, THOMA, CRESSEY, RAUNER
FUND IV, L.P.

By: GTCR IV, L.P., its General Partner

By: Golder, Thoma, Cressey, Rauner, Inc.,
Its: General Partner

By: /s/ Joseph P. Nolan
-------------------------------------
Its: Principal

LEEWAY & CO.

By State Street Bank & Trust Company
Its Partner

By /s/ Kimberly A. Moynihan
-------------------------------------
Its Assistant Secretary

FIRST UNION CORPORATION

By /s/ Joseph H. Towell
-------------------------------------
Its Senior Vice President

AMSOUTH BANCORPORATION

By /s/ Joseph M. Rusnick
-------------------------------------
Its Senior Vice President

<PAGE> 4

PRINCIPAL HOSPITAL COMPANY

By: /s/ Martin S. Rash
-------------------------------------
Its: President

BRIM CAPITAL CORPORATION

By /s/ A. E. Brim
-------------------------------------
Its President

SSS CAPITAL CORPORATION

By /s/ K. David McAllister
------------------------------------
Its President

CTK CAPITAL CORPORATION

By /s/ James M. Williams
-------------------------------------
Its President

/s/ Martin S. Rash
-----------------------------------------
Martin S. Rash

/s/ Richard D. Gore
-----------------------------------------
Richard D. Gore

/s/ Michael Barry
-----------------------------------------
Michael Barry

/s/ Steve Taylor
-----------------------------------------
Steve Taylor

/s/ John Miller
-----------------------------------------
John Miller

/s/ Kathleen Sego
-----------------------------------------
Kathleen Sego

/s/ James McKinney
-----------------------------------------
James McKinney

<PAGE> 5

/s/ Gary Edwards
-----------------------------------------
Gary Edwards

/s/ David Woodland
-----------------------------------------
David Woodland

/s/ Christine Craft
-----------------------------------------
Christine Craft

<PAGE> 1
PROVINCE HEALTHCARE COMPANY
EXHIBIT 11.1 -- COMPUTATION OF EARNINGS PER SHARE
(In Thousands, except Per Share Data)

<TABLE>
<CAPTION>
Nine Months
Year Ended Ended September 30,
December 31, -------------------
1996 1996 1997
------------ ------ ------
<S> <C> <C> <C>
Pro Forma primary and fully diluted(1):
Shares outstanding(1) 7,280 7,280 7,280

Net effect of dilutive stock options and warrants--based on the
treasury stock method: (i) using the estimated initial
public offering price and (ii) assuming all common stock
issued, and common stock options and warrants granted, within
twelve months of the initial public offering of common stock,
were outstanding for all periods presented 1,564 1,564 1,564
------- ------ ------
Pro Forma number of common and common equivalent shares 8,844 8,844 8,844
======= ====== ======
Net income (loss) $(2,586) $3,671 $4,571
Preferred stock dividends and accretion (172) -- (3,708)
------- ------ ------
Net income (loss) applicable to common and common equivalent shares $(2,758) $3,671 $ 863
======= ====== ======
Net income (loss) per common and common equivalent share $ (0.31) $ 0.42 $ 0.10
======= ====== ======
</TABLE>

(1) Pro forma as to the year ended December 31, 1996 and the nine months ended
September 30, 1996. The 7,280 common shares issued in the recapitalization
and the merger in December 1996 have been included in the pro forma calculation
as if the recapitalization and merger had occurred as of the first day of 1996.
(See Note 2 to the Company's 1996 consolidated financial statements, and Note 2
to the Company's September 30, 1997 condensed consolidated financial
statements.)

<PAGE> 1

Exhibit 16.1

November 10, 1997

Securities and Exchange Commission
Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for Province Healthcare Company
(formerly Brim, Inc.) and, under the date of March 8, 1996, we reported on the
consolidated financial statements of Province Healthcare Company (formerly
Brim, Inc.) as of December 31, 1995 and for the years ended December 31, 1994
and 1995. On December 18, 1996, our appointment as principal accountants was
terminated. We have read Province Healthcare Company's statements included
under Item 11(i) of its Pre-effective Amendment No. 2 to Form S-1 dated
November 10, 1997, and we agree with such statements.

KPMG Peat Marwick LLP

<PAGE> 1

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 reports dated (i) April 30, 1997 with respect to the consolidated
financial statements of Principal Hospital Company and (ii) April 30, 1997,
except for Note 16, and Notes 1, 2 and 17, as to which the dates are May 8, 1997
and November , 1997, respectively, with respect to the consolidated financial
statements and schedule of Province Healthcare Company (which have been
restated), in Amendment No. 2 to the Registration Statement (Form S-1 No.
333-34421) and related Prospectus of Province Healthcare Company (formerly known
as Brim, Inc. until January 16, 1997 and as Principal Hospital Company from
January 16, 1997 until November , 1997) for the registration of 6,555,000
shares of its common stock.

Ernst & Young LLP

Nashville, Tennessee

November , 1997

The foregoing consent is in the form that will be signed upon the
completion of the reincorporation described in Note 17 to the consolidated
financial statements.

Ernst & Young LLP

Nashville, Tennessee

November 10, 1997

<PAGE> 1

Exhibit 23.3

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Province Healthcare Company (formerly known as Brim, Inc. until
January 16, 1997 and as Principal Hospital

Company from January 16, 1997 until November 1997)

We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.

KPMG Peat Marwick LLP

Portland, Oregon

November 10, 1997

<PAGE> 1

Exhibit 23.4

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated July 25, 1997 and August 23, 1994 with respect to
the consolidated financial statements of Memorial Hospital
Foundation -- Palestine, Inc., in the Registration Statement (Form S-1) and
related Prospectus of Province Healthcare Company (formerly known as Brim, Inc.
until January 16, 1997 and as Principal Hospital Company from January 16, 1997
until November 1997) for the registration of common stock.

Harrell, Rader, Bonner & Bolton

Palestine, Texas

November 10, 1997