PROVINCE HEALTHCARE CO, S-1/A, 1997-12-24

PROVINCE HEALTHCARE CO
S-1/A, 1997-12-24
GENERAL MEDICAL & SURGICAL HOSPITALS, NEC

Previous: AGRITOPE INC, S-1/A, 1997-12-24

Next: FINANCIAL ASSET SECURITIES CORP CITYSCAPE HM EQ LN TR 1996-4, 8-K, 1997-12-24

<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1997

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

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

AMENDMENT NO. 3
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

DECEMBER 24, 1997

[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 $ and $ 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
% of the Common Stock ( % 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 10.
------------------
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 $2,500,000, payable
by the Company.
(2) The Company has granted the Underwriters a 30-day option to purchase up to
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
, 1998.

BT Alex. Brown

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

THE DATE OF THIS PROSPECTUS IS , 1998.
<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. 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. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services, including skilled nursing, geriatric
psychiatry and rehabilitation. 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. For the nine months ended September 30, 1997, the Company had
net operating revenue of $123.9 million.

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 Company expects to make capital expenditures
and to incur operating costs in implementing this
3
<PAGE> 5

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, a subsidiary of Brim was merged into PHC in a
transaction accounted for as a reverse acquisition (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................ shares
Common Stock to be outstanding after the
offering......................................... 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
shares of Common Stock and the repurchase of of such shares of
Common Stock (in each case at an assumed initial public offering price of
$ 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 $ per share.
4
<PAGE> 6

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

<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1) COMPANY (SUCCESSOR)(1)
------------------------------ ------------------------------------------
NINE MONTHS
PRO ENDED
PERIOD PERIOD FORMA SEPTEMBER 30,
YEAR ENDED JAN. 1, FEB. 2, YEAR -------------------
DECEMBER 31, 1996 TO 1996 TO ENDED PRO
------------------- DEC. 18, DEC. 31, DEC. 31, FORMA
1994 1995 1996 1996 1996(1) 1997 1997(2)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue............... $102,067 $101,214 $112,600 $ 17,255 $152,223 $123,948 $123,948
Operating expenses.................. 97,303 98,378 109,470 18,275 154,138 111,677 111,677
Interest expense.................... 760 589 1,547 976 3,307 6,428 5,062
Costs of recapitalization........... -- -- 8,951 -- 8,951 -- --
Loss (gain) on sale of assets....... (635) (2,814) 442 -- 442 (156) (156)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before provision for
income taxes and extraordinary
items............................. 4,639 5,061 (7,810) (1,996) (14,615) 5,999 7,365
Provision (benefit) for income
taxes............................. 1,928 1,836 (2,377) (678) (4,260) 2,777 3,310
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
items............................. 2,711 3,225 (5,433) (1,318) (10,355) 3,222 4,055
Income (loss) from discontinued
operations, less applicable income
taxes............................. (157) (264) 6,015 -- -- -- --
Extraordinary loss from early
extinguishment of debt, net of
taxes............................. -- -- -- (262) -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) to common
shareholders...................... $ 2,554 $ 2,961 $ 582 $ (1,580) $(10,355) $ 3,222 $ 4,055
======== ======== ========
Net income (loss) per share to
common shareholders(2)(3):
Income (loss) before extraordinary
item............................
Extraordinary item................
Net income (loss) to common
shareholders....................
Weighted average shares used in
computing net income (loss) per
share to common
shareholders(2)(3)................
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
BALANCE SHEET DATA:(4)
Cash and cash equivalents................................. $ 5,896 $ 5,896
Total assets.............................................. 172,119 172,119
Long-term obligations, less current maturities............ 86,027 64,599
Mandatory redeemable preferred stock...................... 50,153 --
Common stockholders' equity (deficit)..................... (536) 73,489
</TABLE>

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

<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
-------------------------------- --------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
----------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATISTICAL DATA(5):
Hospitals owned or leased (at end of
period)............................ 4 4 5 7 1 8
Licensed beds (at end of period)..... 294 294 371 513 93 570
Admissions........................... 8,868 8,839 9,496 1,964 531 11,008
Patient days......................... 57,161 56,088 56,310 8,337 1,904 61,443
Adjusted patient days(6)............. 91,047 92,085 96,812 15,949 3,893 111,455
Average length of stay (days)(7)..... 6.5 6.4 5.9 4.3 3.6 5.6
Gross outpatient service revenue (in
thousands)......................... $46,312 $51,414 $ 64,472 $14,088 $ 3,972 $82,014
Gross outpatient service revenue (%
of gross patient service
revenue)........................... 37.2% 39.1% 43.4% 48.2% 51.2% 44.9%
EBITDA (in thousands)(8)............. $ 6,294 $ 4,607 $ 4,717 $ 294 $ 300 $17,820
</TABLE>

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

(1) On December 18, 1996, a subsidiary of Brim merged into PHC in a transaction
in which Brim issued junior preferred and common stock in exchange for all
of the outstanding common stock of PHC. Because the PHC shareholders became
owners of a majority of the outstanding shares of Brim after the Merger,
PHC was considered the acquiring enterprise for financial reporting
purposes and the transaction was accounted for as a reverse acquisition.
Therefore, the historical financial statements of PHC replaced the
historical financial statements of Brim, the assets and liabilities of Brim
were recorded at fair value as required by the purchase method of
accounting, and the operations of Brim were reflected in the operations of
the combined enterprise from the date of acquisition. Since PHC had been in
existence for less than a year at December 31, 1996, and because Brim had
been in existence for several years, PHC is considered the successor to
Brim's operations. Although PHC was considered the acquiring enterprise for
financial reporting purposes, PHC became a wholly-owned subsidiary of Brim,
the predecessor company, as a result of the Merger.
(2) Pro forma 1996 and 1997 statements of operations data give effect to: (i)
the operating results of Brim 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 $35.1
million into 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 $ 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.
(3) Net income (loss) per share to common shareholders for the historical
period February 2, 1996 to December 31, 1996 and nine months ended
September 30, 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).
(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 $ 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) Management and industry analysts generally consider EBITDA to be one
measure of the financial performance of a company that provides a relevant
basis for comparison among companies, and it is presented to assist
investors in analyzing the performance of the Company and its ability to
service debt. Investors should note that this calculation of EBITDA may
differ from similarly titled measures of other companies. As calculated
herein, EBITDA represents the sum of income (loss) from continuing
operations before provision for income taxes, interest expense,
depreciation and amortization, plus costs of recapitalization and loss
(gain) on sale of assets. Management does not believe it is
6
<PAGE> 8

appropriate to include nonrecurring items in its calculation of EBITDA,
since such items by their nature are difficult to anticipate and do not
recur, and therefore are not particularly helpful to investors in analyzing
a company's ability to service debt. An increase in EBITDA level implies an
improved ability to service debt, but does not reflect the level of debt
service charges to be covered, which will change with debt levels
outstanding and interest rate changes. 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, investing, or financing
activities as a measure of liquidity.
7
<PAGE> 9

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.
8
<PAGE> 10

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; a subsidiary of Brim was merged into PHC in a
transaction accounted for as a reverse acquisition, and the Company operated
under the name Principal Hospital Company.

During 1996, prior to the Merger, 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 January 1998, the Company will be merged with and into Province
Healthcare Company, a Delaware corporation, to change the Company's name and
jurisdiction of incorporation 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. The basic elements of the December
1996 recapitalization of Brim included the following: GTCR Fund IV and other
investors purchased new shares of Brim's common and preferred stock. Brim 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 its pre-existing common and preferred stock; this
pre-existing common and preferred stock was redeemed; and certain pre-existing
debt was repaid.

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 Brim's Junior
Preferred Stock and 3,738,555 shares of Brim's Common Stock, and PHC's existing
debt of $19.6 million was repaid. Because the PHC shareholders became owners of
a majority of the outstanding shares of Brim after the Merger, PHC was
considered the acquiring enterprise for financial reporting purposes and the
transaction was accounted for as a reverse acquisition. Therefore, the
historical financial statements of PHC replaced the historical financial
statements of Brim, the assets and liabilities of Brim were recorded at fair
value as required by the purchase method of accounting, and the operations of
Brim were reflected in the operations of the combined enterprise from the date
of acquisition. Since PHC had been in existence for less than a year at December
31, 1996, and because Brim had been in existence for several years, PHC is
considered the successor to Brim's operations. Although PHC was considered the
acquiring enterprise for financial reporting purposes, PHC became a wholly-owned
subsidiary of Brim, the predecessor company, as a result of the Merger.

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. The applicable 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. In public statements
surrounding the current investigations, governmental authorities have taken
positions on a number of issues, including some for which little official
interpretation has previously been available, such as the legality of physician
ownership in health care facilities in which they perform services and the
propriety of including marketing costs in the Medicare cost report of
hospital-affiliated home health agencies. Certain of these positions appear to
be inconsistent with practices that have been common within the industry and
which have not previously been challenged in this manner. Moreover, in certain
instances, government investigations that have in the past been conducted under
the civil provisions of federal law, are now being conducted as criminal
investigations under the Medicare Fraud and Abuse Laws. The Company has reviewed
the current billing practices at all of its facilities in light of these
investigations and does not believe that any of its facilities are taking
positions on reimbursement issues that are contrary to the government's position
on these issues. Moreover, none of the Company's hospitals have physician
investors. 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

11
<PAGE> 13

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 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

12
<PAGE> 14

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 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

13
<PAGE> 15

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 $64.6
million or 46.8% 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 "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.

14
<PAGE> 16

RISKS RELATED TO INTANGIBLE ASSETS

The Company's acquisitions and the Merger have resulted in significant
increases in intangible assets and goodwill. At September 30, 1997, the Company
had goodwill and other intangible assets of $54.6 million, which are being
amortized over periods ranging from 5 to 35 years, with a weighted average of
30.2 years at September 30, 1997. There can be no assurance that the value of
intangible assets will ever be realized by the Company. On an ongoing basis, the
Company makes an evaluation, based on undiscounted cash flows, to determine
whether events and circumstances indicate that all or a portion of the carrying
value of intangible assets may no longer be recoverable, in which case an
additional charge to earnings may be necessary. Any future determination
requiring the write off of a significant portion of unamortized intangible
assets could have a material adverse effect on the Company's business, financial
condition or results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and Note of Notes
to Consolidated Financial Statements.

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 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 % of the outstanding shares
of Common Stock, including the % 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 $58.9 million from
the offering (at an assumed public offering price of $ per share) after
deduction of the underwriting discounts and estimated expenses of the offering.
Of this amount, $22.6 million will be used to redeem the Senior Preferred Stock,
including all accrued and unpaid dividends thereon, held by Leeway & Co., $12.4
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
$2.5 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."

15
<PAGE> 17

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 $ per share will exceed
the net tangible book value per share of the Common Stock after the offering by
$ per share. Purchasers of the Common Stock in the offering will experience
immediate and substantial dilution in the amount of $ per share, and present
stockholders will experience an immediate and substantial increase in net
tangible book value in the amount of $ per share of Common Stock. The net
tangible book value (deficit) of the Company at September 30, 1997 was $(65.3
million), or $(7.61) per share of Common Stock. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS

There will be shares of Common Stock outstanding upon completion
of the offering ( shares if the Underwriters over-allotment option is
exercised in full). All of the 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
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,
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

16
<PAGE> 18

the Company's current stockholders who hold an aggregate of 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."

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 $ per share, are estimated to be $58.9 million
($68.1 million if the Underwriters' over-allotment option is exercised in full).
Of this amount, $21.4 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");
$22.6 million will be used to redeem in full the outstanding Senior Preferred
Stock and all accrued and unpaid dividends thereon; and $14.9 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 ($22.6 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 ($35.1 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.

17
<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 $ 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........... $ 1,964 $ 1,964 $ 1,964
======== ======== ========
Long-term obligations, less current maturities(2):.... $ 86,027 $ 86,027 $ 64,599
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 $1,185,000); no shares pro forma
and pro forma as adjusted........................ 31,110 -- --
-------- -------- --------
Total mandatory redeemable preferred stock.......... 50,153 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: shares pro
forma and shares pro forma as
adjusted(4)...................................... 2,122
Additional paid-in capital.......................... --
Retained deficit.................................... (2,658)
-------- -------- --------
Total common stockholders' equity (deficit)...... (536) 30,395 73,489
-------- -------- --------
Total capitalization........................ $135,644 $135,465 $138,088
======== ======== ========
</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 5 of
Notes to Consolidated Financial Statements.
(3) For information regarding the Company's mandatory redeemable preferred
stock, see Note 6 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
$ per share. See "Management -- Long-Term Equity Incentive Plan" and
Note 15 of Notes to Consolidated Financial Statements.

18
<PAGE> 20

DILUTION

The net tangible book value (deficit) of the Company at September 30, 1997
was $(65.3 million), or $(7.61) 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 shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ 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 $21.7 million, or $ per share of Common
Stock. This represents an immediate increase in net tangible book value of
$ per common share to existing stockholders and an immediate dilution of
$ 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....................... $
------
Net tangible book value per common share prior to the
offering(1)............................................ $(7.61)
Increase per common share attributable to new investors...
------
Pro forma net tangible book value per common share after the
offering..................................................
------
Dilution per common share to new investors(2)............... $
======
</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 $ 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)............... % $ % $
New investors....................... $
---------- ----- ------------ -----
Total..................... 100.0% $ 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
$ 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 $ 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 (i)
the Company's predecessor (Brim) as of and for each of the four fiscal years
ended December 31, 1995, and as of December 18, 1996 and for the period January
1, 1996 to December 18, 1996, and as of and for the nine-month period ended
September 30, 1996; and (ii) the Company as of December 31, 1996 and for the
period February 2, 1996 to December 31, 1996, and as of September 30, 1996 and
for the period February 2, 1996 to September 30, 1996 and as of and for the
nine-month period ended September 30, 1997. The selected financial information
for the predecessor and the Company has been derived from the audited
consolidated financial statements of the Company (except for the September 30,
1996 and 1997 financial data, which information has been derived from the
consolidated financial statements of the Company and its predecessor 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.

20
<PAGE> 22

SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)
-----------------------------------------------------------------------
PERIOD
YEAR ENDED DECEMBER 31, JAN. 1, 1996 NINE MONTHS
--------------------------------------- TO DEC. 18, ENDED
1992 1993 1994 1995 1996 SEPT. 30, 1996
------- ------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue..... $69,245 $84,859 $102,067 $101,214 $112,600 $87,311
Operating expenses........ 66,095 81,232 97,303 98,378 109,470 80,822
Interest expense.......... 969 896 760 589 1,547 573
Costs of
recapitalization........ -- -- -- -- 8,951 --
Loss (gain) on sale of
assets.................. (7) (10) (635) (2,814) 442 170
------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations
before provision for
income taxes............ 2,188 2,741 4,639 5,061 (7,810) 5,746
Provision (benefit) for
income taxes and
extraordinary item...... 994 1,676 1,928 1,836 (2,377) 2,347
------- ------- -------- -------- -------- -------
Income (loss) from
continuing operations
before extraordinary
item.................... 1,194 1,065 2,711 3,225 (5,433) 3,399
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 and
extraordinary items..... 1,690 1,658 2,554 2,961 582 3,671
Extraordinary loss from
extinguishment of debt,
net of taxes............ -- -- -- -- -- --
Cumulative effect of
change in accounting for
income taxes............ -- 1,141 -- -- -- --
------- ------- -------- -------- -------- -------
Net income (loss) to
common shareholders..... $ 1,690 $ 2,799 $ 2,554 $ 2,961 $ 582 $ 3,671
======= ======= ======== ======== ======== =======
Net income (loss) per
share applicable to
common shareholders(3):
Income (loss) before
extraordinary item......
Extraordinary item........
Net income (loss) to
common shareholders.....
Weighted average shares used
in computing net income
(loss) per share to common
shareholders(3)...........
Cash dividends declared
per common share........

COMPANY (SUCCESSOR)(1)
--------------------------------------------------
PERIOD PERIOD NINE MONTHS
FEB. 2, 1996 TO FEB. 2, 1996 TO ENDED
DEC. 31, 1996 SEPT. 30, 1996 SEPT. 30, 1997
--------------- --------------- --------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net operating revenue..... $ 17,255 $ 3,977 $123,948
Operating expenses........ 18,275 3,986 111,677
Interest expense.......... 976 441 6,428
Costs of
recapitalization........ -- -- --
Loss (gain) on sale of
assets.................. -- -- (156)
-------- ------- --------
Income (loss) from
continuing operations
before provision for
income taxes............ (1,996) (450) 5,999
Provision (benefit) for
income taxes and
extraordinary item...... (678) -- 2,777
-------- ------- --------
Income (loss) from
continuing operations
before extraordinary
item.................... (1,318) (450) 3,222
Income (loss) from
discontinued operations,
less applicable income
taxes................... -- -- --
-------- ------- --------
Income (loss) before
cumulative effect of
change in accounting for
income taxes and
extraordinary items..... (1,318) (450) 3,222
Extraordinary loss from
extinguishment of debt,
net of taxes............ (262)
Cumulative effect of
change in accounting for
income taxes............ -- -- --
-------- ------- --------
Net income (loss) to
common shareholders..... $ (1,580) $ (450) $ 3,222
======== ======= ========
Net income (loss) per
share applicable to
common shareholders(3):
Income (loss) before
extraordinary item...... (172) -- (3,708)
Extraordinary item........
-------- ------- --------
Net income (loss) to
common shareholders..... $ (1,752) $ (450) $ (486)
======== ======= ========
Weighted average shares used
in computing net income
(loss) per share to common
shareholders(3)...........
Cash dividends declared
per common share........
</TABLE>

21
<PAGE> 23
<TABLE>
<CAPTION>
BRIM (PREDECESSOR)(1)
-----------------------------------------------------------------------
PERIOD
YEAR ENDED DECEMBER 31, JAN. 1, 1996 NINE MONTHS
--------------------------------------- TO DEC. 18, ENDED
1992 1993 1994 1995 1996 SEPT. 30, 1996
------- ------- -------- -------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:(2)
Cash and cash
equivalents........ $ 538 $ 2,477 $ 1,819 $ 2,287 $ 27,828 $ 3,993
Total assets......... 29,573 43,011 46,342 47,477 73,748 55,134
Long-term
obligations, less
current
maturities......... 4,587 8,972 6,892 5,519 74,787 5,686
Mandatory redeemable
preferred stock.... -- 8,816 8,816 8,816 31,824 8,816
Common stockholders'
equity (deficit)... 6,418 8,931 11,194 14,036 (57,764) 17,922
OTHER DATA:(2)
EBITDA(4)............ $ 4,153 $ 5,078 $ 6,294 $ 4,607 $ 4,717 $ 2,885

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

(1) On December 18, 1996, a subsidiary of Brim merged into PHC in a transaction
in which Brim issued junior preferred and common stock in exchange for all
of the outstanding common stock of PHC. Because the PHC shareholders became
owners of a majority of the outstanding shares of Brim after the Merger, PHC
was considered the acquiring enterprise for financial reporting purposes and
the transaction was accounted for as a reverse acquisition. Therefore, the
historical financial statements of PHC replaced the historical financial
statements of Brim, the assets and liabilities of Brim were recorded at fair
value as required by the purchase method of accounting, and the operations
of Brim were reflected in the operations of the combined enterprise from the
date of acquisition. Since PHC had been in existence for less than a year at
December 31, 1996, and because Brim had been in existence for several years,
PHC is considered the successor to Brim's operations. Although PHC was
considered the acquiring enterprise for financial reporting purposes, PHC
became a wholly-owned subsidiary of Brim, the predecessor company, as a
result of the Merger.
(2) 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.
(3) 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). 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). 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) Management and industry analysts generally consider EBITDA to be one measure
of the financial performance of a company that provides a relevant basis for
comparison among companies, and it is presented to assist investors in
analyzing the performance of the Company and its ability to service debt.
Investors should note that this calculation of EBITDA may differ from
similarly titled measures of other companies. As calculated herein, EBITDA
represents the sum of income (loss) from continuing operations before
provision for income taxes, interest expense, depreciation and amortization,
plus costs of recapitalization and loss (gain) on sale of assets. Management
does not believe it is appropriate to include nonrecurring items in its
calculation of EBITDA, since such items by their nature are difficult to
anticipate and do not recur, and therefore are not particularly helpful to
investors in analyzing a company's ability to service debt. An increase in
EBITDA level implies an improved ability to service debt, but does not
reflect the level of debt service charges to be covered, which will change
with debt levels outstanding and interest rate changes. 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, investing,
or financing activities as a measure of liquidity.

22
<PAGE> 24

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

On February 1, 1996, Brim acquired Parkview Regional Hospital from Parkview
Regional Hospital, Inc. (a not-for-profit organization). On December 18, 1996,
Brim and PHC consummated the Merger. 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 $ 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 Brim for the period prior to the
Merger; (ii) the operating results of Memorial Mother Frances Hospital and
Starke Memorial Hospital 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 $ 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.

23
<PAGE> 25

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 $ 5,896 $ 58,880(d)
(14,829)(e)
(22,623)(f)
(21,428)(g) $ 5,896
Accounts receivable, less
allowance for doubtful
accounts....................... 29,879 29,879 29,879
Other current assets............. 10,995 10,995 10,995
-------- ------- -------- -------- --------
Total current assets...... 46,770 -- 46,770 -- 46,770
Property, plant and equipment,
net.............................. 61,605 61,605 61,605
Cost in excess of net assets
acquired......................... 54,565 54,565 54,565
Other assets....................... 9,179 9,179 9,179
-------- ------- -------- -------- --------
Total assets.............. $172,119 $ -- $172,119 $ -- $172,119
======== ======= ======== ======== ========

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................. 4,371 4,371 4,371
Current maturities of long-term
obligations.................... 1,964 1,964 1,964
-------- ------- -------- -------- --------
Total current
liabilities............. 19,927 -- 19,927 -- 19,927
Long-term obligations, less current
maturities....................... 86,027 86,027 $(21,428)(g) 64,599
Third-party settlements............ 5,542 5,542 5,542
Other liabilities.................. 11,006 $ 3,024(a) (2,623)(f)
(2,845)(c) 11,185 8,562
-------- ------- -------- -------- --------
102,575 179 102,754 (24,051) 78,703
Mandatory redeemable preferred
stock
Senior preferred stock......... 19,043 19,043 (19,043)(f)
Junior preferred stock......... 31,110 (31,110)(c)
-------- ------- -------- -------- --------
50,153 (31,110) 19,043 (19,043) --
Common stockholders' equity
(deficit)
Common stock..................... 2,122 (2,036)(b) (d)
(c) 118 (e)
Additional paid-in-capital....... 2,036(b) (d)
(c) (e)
35,959 (957)(f)
Retained earnings (deficit)...... (2,658) (3,024)(a) (5,682) (5,682)
-------- ------- -------- -------- --------
(536) 30,931 30,395 43,094 73,489
-------- ------- -------- -------- --------
$172,119 $ -- $172,119 $ -- $172,119
======== ======= ======== ======== ========
</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.

24
<PAGE> 26

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 $3,024 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 reclassification of $2,036 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.
(c) 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 estimated accumulated and unpaid dividends of $2,845 into
shares of Common Stock as follows (at an assumed offering
price of $ per share):
Accumulated and unpaid dividends................... $ (2,845)
Junior Preferred Stock............................. (31,110)
Common Stock.......................................
Additional paid-in-capital.........................
--------
$ --
========
(d) Reflects the sale of shares of Common Stock in the offering
at an assumed offering price of $
per share, for net proceeds of $58,880 as follows:
Common Stock....................................... $
Additional paid-in-capital.........................
--------
Cash proceeds...................................... $ 58,880
========
(e) Reflects the repurchase of 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
$14,829 as follows:
Common Stock....................................... $
Additional paid-in-capital.........................
--------
Cash disbursed..................................... $(14,829)
========
(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 $2,623 using offering proceeds of $22,623 as follows:
Accumulated and unpaid dividends................... $ (2,623)
Senior Preferred Stock............................. (19,043)
Additional paid-in-capital......................... (957)
--------
Cash disbursed..................................... $(22,623)
========
(g) Reflects the application of the remaining proceeds from the offering
of $21,428 for the repayment of long-term obligations.
</TABLE>

25
<PAGE> 27

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
------------------------------------------------------- -------------------------------
COMPANY BRIM MEMORIAL STARKE MEMORIAL STARKE
FEB. 2, 1996 TO JAN. 1, 1996 TO MOTHER MEMORIAL MOTHER MEMORIAL
DEC. 31, 1996 DEC. 18, 1996 FRANCES HOSPITAL BRIM FRANCES HOSPITAL
--------------- --------------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net operating revenue.......... $17,255 $112,600 $14,395 $ 7,973 --
Operating expenses............. 18,275 109,470 16,083 8,181 $ 2,478(a) $ (571)(a) $ 222(a)
Interest expense............... 976 1,547 799 91 -- 47(b) (88)(b)
Costs of recapitalization...... -- 8,951 -- -- -- -- --
Loss on sale of assets......... -- 442 -- -- -- -- --
------- -------- ------- ------- ------- ------ ------
Loss from continuing operations
before income taxes........... (1,996) (7,810) (2,487) (299) (2,478) 524 (134)
Income tax benefit............. (678) (2,377) -- -- (296)(c) (765)(c) (169)(c)
------- -------- ------- ------- ------- ------ ------
Loss from continuing
operations.................... (1,318) (5,433) (2,487) (299) (2,182) 1,289 35
------- -------- ------- ------- ------- ------ ------
Stock dividends and
accretion..................... (172) -- -- -- -- -- --
------- -------- ------- ------- ------- ------ ------
Loss from continuing operations
applicable to common shares... $(1,490) $ (5,433) $(2,487) $ (299) $(2,182) $1,289 $ 35
======= ======== ======= ======= ======= ====== ======
Loss per common share:.........
Primary and fully diluted.....
Weighted average shares used in
earnings per share
computation:
Primary and fully diluted.....

PRE-OFFERING PRO FORMA
PRO FORMA OFFERING PRO FORMA
CONSOLIDATED ADJUSTMENTS CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
Net operating revenue.......... $152,223 $152,223
Operating expenses............. 154,138 154,138
Interest expense............... 3,372 $ (65)(d) 3,307
Costs of recapitalization...... 8,951 8,951
Loss on sale of assets......... 442 442
-------- ----- --------
Loss from continuing operations
before income taxes........... (14,680) 65 (14,615)
Income tax benefit............. (4,285) 25 (4,260)
-------- ----- --------
Loss from continuing
operations.................... (10,395) 40 (10,355)
-------- ----- --------
Stock dividends and
accretion..................... (172) 172(e) --
-------- ----- --------
Loss from continuing operations
applicable to common shares... $(10,567) $ 212 (10,355)
======== ===== ========
Loss per common share:.........
Primary and fully diluted..... $
========
Weighted average shares used in
earnings per share
computation:
Primary and fully diluted.....
</TABLE>

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

26
<PAGE> 28

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................................... 111,677 111,677
Interest expense..................................... 6,428 $(1,366)(d) 5,062
Gain on sale of assets............................... (156) (156)
-------- ------- --------
Income from continuing operations before income
taxes.............................................. 5,999 1,366 7,365
Provision for income taxes........................... 2,777 533(c) 3,310
-------- ------- --------
Income from continuing operations.................... 3,222 833 4,055
-------- ------- --------
Preferred stock dividends and accretion.............. (3,708) 3,708(e) --
-------- ------- --------
Income loss from continuing operations applicable to
common shares...................................... $ (486) $ 4,541 $ 4,055
======== ======= ========
Income per common share:
Primary and fully diluted.......................... $
========
Weighted average shares used in earnings per share
computation:
Primary and fully diluted..........................
</TABLE>

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

27
<PAGE> 29

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

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

(a) Reflects the elimination of the historical depreciation expense of Memorial
Mother Frances and Starke Memorial and the inclusion of the Company's
depreciation expense.

(b) Reflects the elimination of the historical interest expense related to debt
of Memorial Mother Frances and Starke Memorial not assumed in the
acquisitions, and the inclusion of the Company's interest expense related
to debt used to finance the acquisitions.

(c) 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.

(d) Reflects the elimination of the interest expense associated with the
$21,428 of long-term obligations to be repaid with the net proceeds of the
offering.

(e) 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.

28
<PAGE> 30

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.

PHC of Delaware, Inc., a subsidiary of the Company, 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 Starke Memorial Hospital in Knox, Indiana ("Starke Memorial"), in
October 1996 (the "Starke Acquisition").

On December 18, 1996, a subsidiary of Brim, Inc. and PHC merged in a
transaction in which Brim issued Junior Preferred Stock and Common Stock in
exchange for all of the outstanding common stock of PHC and PHC became a
subsidiary of Brim. Since the PHC shareholders became owners of a majority of
the outstanding shares of Brim after the Merger, PHC was considered the
acquiring enterprise for financial reporting purposes and the transaction was
accounted for as a reverse acquisition. Therefore, the historical financial
statements of PHC replaced the historical financial statements of Brim, the
assets and liabilities of Brim were recorded at fair value as required by the
purchase method of accounting, and the operations of Brim were reflected in the
operations of the combined enterprise from the date of acquisition. Since PHC
had been in existence for less than a year at December 31, 1996, and because
Brim had been in existence for several years, PHC is considered the successor to
Brim's operations. Although PHC was considered the acquiring enterprise for
financial reporting purposes, PHC became a wholly owned subsidiary of Brim, the
predecessor company, as a result of the Merger.

At September 30, 1997, the Company had goodwill and other intangible assets
of $54.6 million, which are being amortized over periods ranging from 5 to 35
years, with a weighted average of 30.2 years at September 30, 1997. In January
1998, the Company will be merged with and into Province Healthcare Company, a
Delaware corporation, to change the Company's name and jurisdiction of
incorporation and to make certain other changes to the Company's authorized
capitalization.

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, 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.

29
<PAGE> 31

ACQUISITIONS AND DIVESTITURES

In February 1995, Brim acquired two senior living residences for $15.8
million. In September 1995, Brim 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, Brim 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, Brim 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, Brim sold its senior living business (see " --
Discontinued Operations") and certain assets related to three medical office
buildings. 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. On December 18, 1996, a subsidiary of Brim and PHC merged
in a transaction which has been accounted for as a reverse acquisition (i.e.,
the acquisition of Brim by PHC).

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 five
months of operations for Memorial Mother Frances, three months of operations for
Starke Memorial, and 13 days of operations for Brim. The September 30, 1996
results include two months of operations for Memorial Mother Frances. 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, Brim discontinued certain operations. In May
1995, Brim 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, Brim 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, Brim 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 of Brim, Inc.

30
<PAGE> 32

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
(successor) and Brim (predecessor) included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
---------------------------- --------------------------------------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
----- ----- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net patient service revenue... 76.5% 75.0% 78.1% 95.2% 99.2% 86.8%
Management and professional
services revenue............ 15.7 19.3 16.3 3.5 -- 9.9
Other revenue................. 7.8 5.7 5.6 1.3 0.8 3.3
----- ----- ----- ----- ----- -----
Net operating revenue......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Salaries, wages and
benefits.................. 52.6 54.6 51.6 44.0 43.4 42.0
Purchased services.......... 16.5 14.2 15.3 13.2 9.7 13.9
Supplies.................... 10.8 10.0 10.0 11.0 12.5 9.6
Provision for doubtful
accounts.................. 5.0 4.5 6.8 11.1 13.8 7.1
Other operating expenses.... 5.3 7.9 7.7 17.7 12.0 10.1
Rentals and leases.......... 3.7 4.1 4.5 1.2 1.1 2.9
Depreciation and
amortization.............. 1.5 1.7 1.4 7.6 7.8 4.5
Interest expense............ 0.7 0.6 1.4 5.7 11.1 5.2
Costs of recapitalization... -- -- 7.9 -- -- --
Loss (gain) on sale of
assets.................... (0.6) (2.8) 0.4 -- -- (0.1)
----- ----- ----- ----- ----- -----
Income (loss) from continuing
operations before provision
for income taxes............ 4.5% 5.0% (6.9)% (11.6)% (11.3)% 4.8%
Income (loss) from continuing
operations.................. 2.7% 3.2% (4.8)% (7.6)% (11.3)% 2.6%
Net income (loss)............. 2.5% 2.9% 0.5% (9.2)% (11.3)% 2.6%
</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. 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).

31
<PAGE> 33

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 Period from February 2, 1996
(PHC's inception) to September 30, 1996 (successor)

The September 30, 1996 results of operations include two months of
operations for Memorial Mother Frances. The September 30, 1997 results include
nine months of operations for Memorial Mother Frances, Starke Memorial and Brim,
plus two months of operations for Needles.

Net operating revenue was $123.9 million in 1997, compared to $4.0 million
in 1996, an increase of $119.9 million, or 2,997.5%.

Net patient service revenue totaled $107.5 million in 1997, compared to
$3.9 million in 1996, an increase of $103.6 million, or 2,656.4%. This increase
is principally the result of the Merger and the Starke Acquisition, which
account for $101.9 million of the increase.

Management and professional services revenue totaled $12.3 million in 1997.
PHC did not provide management and professional services, and accordingly, had
no management and professional services revenue in 1996. 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.

Other revenue totaled $4.1 million in 1997. PHC did not have other revenue
in 1996.

Salaries, wages and benefits totaled $52.0 million in 1997, compared to
$1.7 million in 1996, an increase of $50.3 million, or 2,958.8% principally as a
result of the Merger and the Starke Acquisition. Salaries, wages and benefits,
excluding reimbursable expenses of $5.0 million in 1997, increased $45.3
million, or 2,664.7%.

Purchased services expense totaled $17.3 million in 1997, compared to $0.4
million in 1996, an increase of $16.9 million, or 4,225.0% principally as a
result of the Merger and the Starke Acquisition.

Supplies expense totaled $11.9 million in 1997 compared to $0.5 million in
1996, an increase of $11.4 million, or 2,280.0% principally as a result of the
Merger and the Starke Acquisition.

Provision for doubtful accounts totaled $8.8 million in 1997, compared to
$0.6 million in 1996, an increase of $8.2 million, or 1,366.7% principally as a
result of the Merger and the Starke Acquisition.

Other operating expenses totaled $12.5 million in 1997, compared to $0.5
million in 1996, an increase of $12.0 million, or 2,400.0% principally as a
result of the Merger and the Starke Acquisition.

Rentals and leases totaled $3.6 million in 1997. PHC did not have rentals
and leases expense in 1996.

Depreciation and amortization totaled $5.5 million in 1997, compared to
$0.3 million in 1996, an increase of $5.2 million, or 1,733.3% primarily as a
result of the Merger and the Starke Acquisition. Depreciation and amortization
related to fair market value adjustments and goodwill recorded in connection
with the Merger totaled $1.9 million.

32
<PAGE> 34

Interest expense totaled $6.4 million in 1997, compared to $0.4 million in
1996, an increase of $6.0 million, or 1,500.0%. This increase resulted primarily
from $72.0 million of new bank debt incurred in connection with the Brim
Recapitalization, immediately prior to the Merger.

The Company recorded a gain on sale of assets of $0.2 million in 1997. The
gain related primarily to the sale of the remaining assets of Fifth Avenue
Hospital.

The net result of the above was that the Company recorded net income from
operations of $3.2 million for the nine months ended September 30, 1997,
compared to a loss of $0.5 million in 1996, an increase of $3.7 million.

Period from February 2, 1996 (PHC's inception) to December 31, 1996
(Successor)

PHC of Delaware, Inc. was founded on February 2, 1996, by GTCR Fund IV and
Martin S. Rash to acquire and operate hospitals in attractive non-urban markets.
In July 1996, PHC purchased certain assets totaling $26.4 million and assumed
certain liabilities totaling $3.2 million of Memorial Mother Frances for a
purchase price of $23.2 million. 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. On
December 18, 1996, a subsidiary of Brim merged into PHC, and PHC became a
subsidiary of Brim. In exchange for their shares in PHC, the PHC shareholders
received 14,403 shares of Brim's redeemable Junior Preferred Stock and 3,738,556
shares of Brim's Common Stock. This transaction has been accounted for as a
reverse acquisition under the purchase method of accounting. As a result, for
accounting purposes PHC was considered to have acquired Brim. The historical
financial statements of PHC became the historical financial statements of Brim
and include the results of Brim from the effective date of the Merger, December
18, 1996. As a result of these acquisitions, the Company has unallocated
purchase price of $7.3 million related to Starke Memorial and $53.1 million of
cost in excess of net assets acquired related to Brim. The allocation of the
purchase prices had not been finalized at December 31, 1996, but would not have
a significant impact on the Company's consolidated results of operations for the
period.

The results of operations of the Company for the period February 2, 1996 to
December 31, 1996 include the operations of Memorial Mother Frances since the
acquisition date of July 26, 1996, the results of operations of Starke Memorial
since the acquisition date of October 1, 1996, and the results of operations of
Brim since the Merger date of December 18, 1996.

Net operating revenue totaled $17.3 million for the period. Patient service
revenue totaled $16.4 million, or 95.2% of net operating revenue. Management and
professional services revenue totaled $0.6 million, or 3.5% of net operating
revenue, and other revenue totaled $0.2 million, or 1.3% of net operating
revenue. The management and professional services revenue relates to thirteen
days' revenue from the management company acquired in the Brim Merger.

Interest expense of $1.0 million results principally from thirteen days'
interest on the $52.7 million additional debt incurred by Brim to effect the
Recapitalization, immediately before the Merger with PHC, and interest on debt
incurred by PHC to effect the Memorial Mother Frances acquisition in July 1996
($13.7 million), and the Starke Memorial acquisition in October 1996 ($5.6
million).

All other operating expenses totaled $18.3 million.

Loss from early retirement of debt of $0.3 million (net of taxes) relates
to the refinancing of $19.3 million of debt at the time of the Merger with Brim,
and was treated as an extraordinary item for accounting purposes.

The Company recorded a net loss of $1.6 million for the period February 2,
1996 to December 18, 1996.

33
<PAGE> 35

Period from January 1, 1996 to December 18, 1996 Compared to Year Ended
December 31, 1995 (Predecessor)

Net operating revenue was $112.6 million in 1996, compared to $101.2
million in 1995, an increase of $11.4 million, or 11.3%.

Net patient service revenue totaled $87.9 million in 1996, compared to
$75.9 million in 1995, an increase of $12.0 million, or 15.8%. This increase was
principally the result of the Parkview acquisition ($9.4 million in net patient
service revenue). Net patient service revenue increased $2.6 million, or 3.4%,
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 $18.3 million in 1996,
compared to $19.6 million in 1995, a decrease of $1.3 million, or 6.6%. The
decrease in management fees is principally the result of a decline in the number
of management contracts, offset partially by price increases. Professional
services fees increased $0.2 million in 1996 as a result of the introduction of
managed care consulting. Reimbursable expenses increased $0.1 million, or 1.1%,
as a result of an increase in the number of management contracts which provide
for reimbursable expenses.

Other revenue totaled $6.4 million in 1996, compared to $5.8 million in
1995, an increase of $0.6 million, or 10.3%. This increase is principally
attributable to a $1.0 million fee received in 1996 relating to a terminated
merger.

Salaries, wages and benefits expenses totaled $58.1 million in 1996,
compared to $55.3 million in 1995, an increase of $2.8 million, or 5.1%.
Salaries, wages and benefits, excluding reimbursable expenses, increased $2.7
million, or 5.8%. The Parkview acquisition accounted for $1.7 million of this
increase. Salaries, wages and benefits increased $1.1 million, or 2.0%, on a
same hospital basis, primarily as a result of increases in rates of pay.

The components of management and professional services revenue are as
follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED PERIOD FROM
DECEMBER 31, JANUARY 1 TO INCREASE
1995 DECEMBER 18, 1996 (DECREASE)
------------ ----------------- ----------
<S> <C> <C> <C>
Management fees......................... $10.5 $ 8.9 $(1.6)
Professional services fees.............. 0.2 0.4 0.2
Reimbursable expenses................... 8.9 9.0 0.1
----- ------- -----
Total......................... $19.6 $18.3 $(1.3)
===== ======= =====
</TABLE>

Purchased services expense totaled $17.2 million in 1996, compared to $14.4
million in 1995, an increase of $2.8 million, or 19.4%. The Parkview acquisition
accounted for $1.7 million of this increase. Purchased services increased $2.1
million, or 14.6%, on a same hospital basis, primarily as a result of increased
professional fees at the corporate level related to the Recapitalization.

Supplies expense totaled $11.2 million in 1996, compared to $10.1 million
in 1995, an increase of $1.1 million, or 10.9% as a result of the Parkview
acquisition.

Provision for doubtful accounts totaled $7.7 million in 1996, compared to
$4.6 million in 1995, an increase of $3.1 million, or 67.4%. The Parkview
acquisition (ten and a half month's operations in 1996) accounted for $1.1
million of this increase. The provision increased $2.0 million, or 43.5%, on a
same hospital basis. Of the same hospital increase, approximately $0.5 million
relates to a provision and write-off during 1996 for accounts receivable
acquired and subsequently deemed uncollectible at a clinic purchased by one of
the leased hospitals, and $0.6 million relates to a provision and a write-off of
uncollectible accounts receivable at the management company. The remaining $0.9
million increase reflects a deterioration in the aging of the accounts in 1996.

34
<PAGE> 36

Other operating expenses totaled $8.7 million in 1996, compared to $8.0
million in 1995, an increase of $0.7 million, or 8.8%, primarily as a result of
the Parkview acquisition. Insurance expense increased $0.3 million as a result
of an update of actuarial calculations to determine reserves for incurred but
not reported claims. Other operating expenses decreased $0.5 million, or 6.3%,
on a same hospital basis primarily as a result of the short period in 1996.

Rentals and leases totaled $5.0 million in 1996, compared to $4.1 million
in 1995, an increase of $0.9 million, or 22.0%. 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 $0.2 million.

Depreciation and amortization totaled $1.6 million in 1996, compared to
$1.8 million in 1995, a decrease of $0.2 million, or 11.1%. This decrease
resulted primarily from the sale of Fifth Avenue Hospital in May 1995 and the
short period in 1996.

Interest expense totaled $1.5 million in 1996, compared to $0.6 million in
1995, an increase of $0.9 million, or 150.0%. This increase resulted primarily
from interest penalties required to settle debt on property sold in connection
with the sale of the senior living business.

Recapitalization expense totaled $9.0 million in 1996. This expense
consisted of $8.0 million paid to settle options and $1.0 million of
transaction-related costs (principally professional fees).

Brim 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 Brim recorded a loss from continuing
operations before provision for income taxes of $7.8 million in 1996, compared
to income from continuing operations of $5.1 million in 1995, a decrease of
$12.9 million.

Brim recognized an income tax benefit of $2.4 million in 1996, as a result
of the $7.8 million loss from continuing operations (30.4% effective rate),
compared to tax expense of $1.8 million in 1995 on income of $5.1 million (36.3%
effective rate). The benefit in 1996 resulted in an increase in deferred tax
assets to a balance of $5.5 million at December 18, 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 Brim's managed care business and Fifth Avenue Hospital.

The net result of the above was that Brim recorded net income in 1996 of
$0.6 million, compared to net income of $3.0 million in 1995, a decrease of $2.4
million, or 80.0%.

Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
(Predecessor)

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

35
<PAGE> 37

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.

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 $8.0 million in 1995, compared to $5.4
million in 1994, an increase of $2.6 million, or 48.1%. 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 $0.3 million related to
merger activity in 1995.

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.

Brim 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.

Brim recorded income from continuing operations, before provision for
income taxes, of $5.1 million in 1995, compared to $4.6 million in 1994, an
increase of $0.5 million, or 10.9%. Brim recorded a provision for income taxes
on continuing operations of $1.8 million in 1995 (36.3% effective rate),
compared to $1.9 million in 1994 (41.6% 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.

36
<PAGE> 38

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 Brim's
managed care and outpatient surgery business, which was discontinued in
September 1995.

The net result of the above was that Brim recorded net income of $3.2
million for the year ended December 31, 1995, compared to net income of $2.7
million in 1994, an increase of $0.5 million, or 18.5%.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 1997, the Company had working capital of $26.8 million,
including cash and cash equivalents of $5.9 million. The ratio of current assets
to current liabilities was 2.3 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
$1.6 million for the period February 2, 1996 to December 31, 1996. Cash provided
by (used in) operations was $0.2 million and $(2.1 million) for the period
February 2, 1996 to September 30, 1996 and the nine months ended September 30,
1997, respectively.

Cash provided by investing activities totaled $3.6 million for the period
February 2, 1996 to December 31, 1996. Cash used in investing activities totaled
$22.9 million and $15.3 million for the period February 2, 1996 to September 30,
1996 and the nine months ended September 30, 1997, respectively. These amounts
related to acquisitions, of hospitals and purchases and disposals of property,
plant and equipment in each period.

Cash provided by financing activities totaled $6.0 million for the period
February 2, 1996 to December 31, 1996, and $27.5 million and $12.0 million for
the period February 2, 1996 to September 30, 1996 and the nine months ended
September 30, 1997, respectively. These amounts resulted from the proceeds from
long-term debt, net of debt refinancing and issuance of stock.

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 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 its Recapitalization, Brim 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

37
<PAGE> 39

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 period
February 2, 1996 to December 31, 1996. In March 1997, as required under the
Credit Agreement, 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, 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 all 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.

38
<PAGE> 40

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."

39
<PAGE> 41

BUSINESS

OVERVIEW

Province Healthcare Company is a provider of health care services in
attractive non-urban markets in the United States. 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. The
Company offers a wide range of inpatient and outpatient medical services and
also provides specialty services including skilled nursing, geriatric psychiatry
and rehabilitation. 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. For
the nine months ended September 30, 1997, the Company had net operating revenue
of $123.9 million.

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 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, a subsidiary of Brim was merged into PHC,
and PHC became a subsidiary of Brim. 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.

40
<PAGE> 42

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.

41
<PAGE> 43

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 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.

42
<PAGE> 44

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, PHC purchased Memorial Mother Frances in Palestine, Texas and
leased Starke Memorial in Knox, Indiana and Brim leased Parkview in Mexia,
Texas. In August 1997, the Company leased Needles in Needles, California. Brim
provided management services to Parkview, and the Company provided management
services to 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

43
<PAGE> 45

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 95.2% and 86.7% 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.

44
<PAGE> 46

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 unit 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 recently completed a renovation of General
Hospital's obstetrical unit. 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.

45
<PAGE> 47

Memorial Mother Frances Hospital is located approximately halfway between
Dallas and Houston, and approximately 50 miles from Tyler, Texas. The hospital
has added a six-bed inpatient rehabilitation unit and is in the process of
expanding the 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
expects to open an inpatient rehabilitation unit in March 1998. 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 expects to open an inpatient sub-acute unit in
March 1998. 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. 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.

46
<PAGE> 48

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>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
-------------------------------- --------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, FEBRUARY 2, FEBRUARY 2, NINE MONTHS
DECEMBER 31, 1996 TO 1996 TO 1996 TO ENDED
----------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hospitals owned or leased (at end of
period).............................. 4 4 5 7 1 8
Licensed beds (at end of period)....... 294 294 371 513 93 570
Beds in service (at end of period)..... 243 243 266 393 93 464
Admissions............................. 8,868 8,839 9,496 1,964 531 11,008
Average length of stay (days)(1)....... 6.5 6.4 5.9 4.3 3.6 5.6
Patient days........................... 57,161 56,088 56,310 8,337 1,904 61,443
Adjusted patient days(2)............... 91,047 92,085 96,812 15,949 3,893 111,455
Occupancy rate (% of licensed
beds)(3)............................. 53.3 52.3 43.1 39.5 30.6 32.1
Occupancy rate (% of beds in
service)(4).......................... 64.4 63.2 60.1 51.3 30.6 59.8
Net patient service revenue (in
thousands)........................... $71,335 $71,452 $85,636 $16,102 $3,944 $107,524
Gross outpatient service revenue (in
thousands)........................... $46,312 $51,414 $64,472 $14,088 $3,972 $ 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."

47
<PAGE> 49

<TABLE>
<CAPTION>
BRIM (PREDECESSOR) COMPANY (SUCCESSOR)
-------------------------------- --------------------------------------------------------
PERIOD PERIOD PERIOD
YEAR ENDED JANUARY 1, 1996 FEBRUARY 2, 1996 FEBRUARY 2, 1996 NINE MONTHS
DECEMBER 31, TO TO TO ENDED
------------- DECEMBER 18, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996(1) 1996 1996(1) 1997(1)
----- ----- --------------- ---------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Medicare............. 49.1% 50.2% 54.7% 63.3% 63.7% 61.0%
Medicaid............. 14.2 16.8 17.0 12.0 15.2 14.2
Private and other
sources............ 36.7 33.0 28.3 24.7 21.1 24.8
----- ----- ------ ------ ------ ------
Total....... 100.0% 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. The Ojai Valley skilled nursing facility utilization is as
follows:

<TABLE>
<CAPTION>
PRIVATE AND
MEDICARE MEDICAID OTHER SOURCES
-------- -------- -------------
<S> <C> <C> <C>
Period January 1 to December 18, 1996 (Predecessor)........ 12.9 73.5 13.6
Period February 2 to December 31, 1996 (Successor)......... 16.0 68.6 15.4
Period February 2 to September 30, 1996 (Successor)........ -- -- --
</TABLE>

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

48
<PAGE> 50

advantage in identifying and developing relationships with suitable acquisition
candidates and in understanding the local markets in which such hospitals
operate. This division represented 9.9% of net operating revenue for the nine
months ended September 30, 1997. PHC did not provide management services, and,
accordingly, had no management and professional services revenue in 1996.

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.

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

49
<PAGE> 51

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-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.

50
<PAGE> 52

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.

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

51
<PAGE> 53

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."

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

52
<PAGE> 54

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 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

53
<PAGE> 55

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.

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.

54
<PAGE> 56

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

55
<PAGE> 57

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.

56
<PAGE> 58

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

57
<PAGE> 59

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 $ 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

58
<PAGE> 60

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.

59
<PAGE> 61

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

REDEMPTION OF SENIOR PREFERRED STOCK AND COMMON STOCK CONVERSION AND REPURCHASE

Of the estimated $58.9 million in net proceeds from the offering, $22.6
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 $14.9 million (based on an assumed initial offering price of $ ).
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 December 17, 1996 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, PHC and the Company had paid or accrued an aggregate of $1.4
million and $149,590, respectively, in fees under the agreement. The agreement
will be terminated immediately prior to the

60
<PAGE> 62

consummation of the offering, and no 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.

61
<PAGE> 63

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%
Bruce V. Rauner(2)................................... 5,050,446 58.9
Joseph P. Nolan(2)................................... 5,050,446 58.9
Leeway & Co.(3)...................................... 1,353,488 15.8
Martin S. Rash....................................... 799,217 9.3
Richard D. Gore...................................... 507,197 5.9
Steven P. Taylor..................................... 149,778 1.7
James O. McKinney.................................... 23,112 *
A.E. Brim(4)......................................... 149,778 1.7
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%
</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 $ 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, 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

62
<PAGE> 64

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

63
<PAGE> 65

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 shares of
Common Stock outstanding ( shares if Underwriter's over-allotment
option is exercised in full). Of these shares, the 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 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

64
<PAGE> 66

completion of the offering, 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
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 Brim at such time (the "Original Stockholders") entered into a Registration
Agreement with Brim (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 within one

65
<PAGE> 67

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.

66
<PAGE> 68

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.............................................
=========
</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
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 , 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 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
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 date of this

67
<PAGE> 69

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 period February 2, 1996 to
December 31, 1996, and the consolidated financial statements of Brim, Inc. for
the period January 1, 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 (which as to Province contains an explanatory
paragraph regarding a change in the application of the method of accounting for
its December 18, 1996 merger with Brim, Inc.) 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 of Brim, Inc. and subsidiaries 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 report
dated March 8, 1996, except for Note 1 to the consolidated financial statements,
as to which the date is December 22, 1997 of KPMG Peat Marwick

68
<PAGE> 70

LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.

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.

69
<PAGE> 71

INDEX TO FINANCIAL STATEMENTS

PROVINCE HEALTHCARE COMPANY

<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet at December 31, 1996............. F-3
Consolidated Statement of Operations for the period February
2, 1996 to December 31, 1996.............................. F-4
Consolidated Statement of Changes in Common Stockholders'
Deficit................................................... F-5
Consolidated Statements of Cash Flows for the period
February 2, 1996 to December 31, 1996..................... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet at September 30, 1997
(Unaudited)............................................... F-22
Condensed Consolidated Statements of Income for the period
February 2, 1996 to September 30, 1996 and the Nine Months
Ended September 30, 1997 (Unaudited)...................... F-23
Condensed Consolidated Statements of Changes in Common
Stockholders' Equity (Deficit) for the Nine Months Ended
September 30, 1997 (Unaudited)............................ F-24
Condensed Consolidated Statements of Cash Flows for the
period February 2, 1996 to September 30, 1996 and the Nine
Months Ended September 30, 1997 (Unaudited)............... F-25
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................... F-26

BRIM, INC. AND SUBSIDIARIES
Report of Independent Auditors.............................. F-29
Independent Auditors' Report................................ F-30
Consolidated Balance Sheets at December 31, 1995 and
December 18, 1996......................................... F-31
Consolidated Statements of Income for the Years Ended
December 31, 1994 and 1995 and for the period January 1,
1996 to December 18, 1996................................. F-32
Consolidated Statements of Changes in Common Stockholders'
Equity (Deficit) for the Years Ended December 31, 1994 and
1995 and for the period January 1, 1996 to December 18,
1996...................................................... F-33
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994 and 1995 and for the period January 1,
1996 to December 18, 1996................................. F-34
Notes to Consolidated Financial Statements.................. F-35

MEMORIAL HOSPITAL FOUNDATION -- PALESTINE, INC.
Independent Auditors' Report................................ F-50
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-51
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-52
Notes to the Consolidated Financial Statements.............. F-53
Independent Auditors' Report................................ F-57
Consolidated Statement of Revenues and Expenses for the Year
Ended May 31, 1994........................................ F-58
Consolidated Statement of Cash Flows for the Year Ended May
31, 1994.................................................. F-59
Notes to the Consolidated Financial Statements.............. F-60
</TABLE>

F-1
<PAGE> 72

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 Principal Hospital Company) and
subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, changes in common stockholders' deficit, and cash flows for the
period February 2, 1996 (date of inception) to December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the 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 period
February 2, 1996 to December 31, 1996 in conformity with generally accepted
accounting principles.

As discussed more fully in Notes 1 and 3, the Company has changed its
application of the method of accounting for its December 18, 1996 merger with
Brim, Inc. 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 14, and Notes 1, 3 and 15, as to which the dates are
May 8, 1997 and January , 1998, respectively

The foregoing report is in the form that will be signed upon the completion
of the reincorporation and presentation of earnings per share information
described in Note 15 to the consolidated financial statements.

Ernst & Young LLP

Nashville, Tennessee
December 23, 1997

F-2
<PAGE> 73

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 11,256
Accounts receivable, less allowance for doubtful accounts
of $4,477.............................................. 22,829
Inventories............................................... 2,883
Prepaid expenses and other................................ 8,159
--------
Total current assets.............................. 45,127
Property, plant and equipment, net.......................... 52,687
Other assets:
Unallocated purchase price................................ 7,265
Cost in excess of net assets acquired, net................ 53,087
Other..................................................... 6,299
--------
66,651
--------
$164,465
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 7,915
Accrued salaries and benefits............................. 7,772
Accrued expenses.......................................... 5,359
Current maturities of long-term obligations............... 1,916
--------
Total current liabilities......................... 22,962
Long-term obligations, less current maturities.............. 82,179
Third-party settlements..................................... 6,604
Other liabilities........................................... 6,985
--------
95,768
Mandatory redeemable preferred stock........................ 46,227
Common stockholders' deficit:
Common stock -- no par value; authorized 20,000,000
shares; issued and outstanding 7,280,020 shares........ 1,680
Retained deficit.......................................... (2,172)
--------
(492)
--------
$164,465
========
</TABLE>

See accompanying notes.

F-3
<PAGE> 74

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<S> <C>
Revenue:
Net patient service revenue............................... $16,425
Management and professional services...................... 607
Other..................................................... 223
-------
Net operating revenue............................. 17,255
-------
Expenses:
Salaries, wages and benefits.............................. 7,599
Purchased services........................................ 2,286
Supplies.................................................. 1,897
Provision for doubtful accounts........................... 1,909
Other operating expenses.................................. 3,056
Rentals and leases........................................ 214
Depreciation and amortization............................. 1,314
Interest expense.......................................... 976
-------
Total expenses.................................... 19,251
-------
Loss before income tax benefit.............................. (1,996)
Income tax benefit.......................................... (678)
-------
Loss before extraordinary item.............................. (1,318)
Loss from early retirement of debt, net of taxes of $167.... (262)
-------
Net loss.................................................... $(1,580)
=======
Preferred stock dividends and accretion..................... (172)
-------
Net loss to common shareholders............................. $(1,752)
=======
Net loss per common share:
Loss before extraordinary item............................ $
Extraordinary item........................................
-------
Net loss.................................................... $
=======
Weighted average number of common shares....................
=======
</TABLE>

See accompanying notes.

F-4
<PAGE> 75

PROVINCE HEALTHCARE COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN COMMON
STOCKHOLDERS' DEFICIT
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
NOTES
CLASS A COMMON CLASS B COMMON RECEIVABLE
STOCK STOCK COMMON STOCK FOR
----------------- ----------------- ------------------- COMMON RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT TOTAL
------- ------- -------- ------ ---------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 2,
1996.................. -- $ -- -- $ -- -- $ -- $ -- $ -- $ --
Issuance of stock..... 13,983 13,983 85,890 86 -- -- (211) -- 13,858
Dividends on Class A
Common Stock........ 420 420 -- -- -- -- -- (420) --
Exchange of PHC Class
A and Class B common
stock for Brim
common stock........ (14,403) (14,403) (85,890) (86) 3,738,555 86 211 -- (14,192)
Reverse acquisition of
Brim................ -- -- -- -- 3,541,465 1,594 -- -- 1,594
Preferred stock
dividends and
accretion........... -- -- -- -- -- -- -- (172) (172)
Net loss.............. -- -- -- -- -- -- -- (1,580) (1,580)
------- -------- -------- ---- ---------- ------ ----- ------- --------
Balance at December 31,
1996.................. -- $ -- -- $ -- 7,280,020 $1,680 $ -- $(2,172) $ (492)
======= ======== ======== ==== ========== ====== ===== ======= ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 76

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD FEBRUARY 2, 1996 TO DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss.................................................... $ (1,580)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 1,314
Provision for doubtful accounts........................... 1,909
Deferred income taxes..................................... (875)
Extraordinary charge from retirement of debt.............. 429
Provision for professional liability...................... 200
Changes in operating assets and liabilities, net of
effects from acquisitions and disposals:
Accounts receivable..................................... (3,243)
Inventories............................................. 91
Prepaid expenses and other.............................. 724
Other assets............................................ 384
Accounts payable and accrued expenses................... 2,160
Accrued salaries and benefits........................... 643
Other liabilities....................................... (511)
---------
Net cash provided by operating activities................... 1,645
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (1,052)
Purchase of acquired companies, net of cash received........ 4,645
---------
Net cash provided by investing activities................... 3,593
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 19,300
Repayments of debt.......................................... (26,431)
Additions to deferred loan costs............................ (709)
Issuance of common stock.................................... 13,858
---------
Net cash provided by financing activities................... 6,018
---------
Net increase in cash and cash equivalents................... 11,256
Cash and cash equivalents at beginning of period............ --
---------
Cash and cash equivalents at end of period.................. $ 11,256
=========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period............................. $ 1,011
=========
ACQUISITIONS
Assets acquired............................................. $ 152,277
Liabilities assumed......................................... (123,504)
Common and preferred stock issued........................... (33,418)
---------
Cash paid................................................... $ (4,645)
=========
NONCASH TRANSACTIONS
Dividends and accretion..................................... $ 172
=========
</TABLE>

See accompanying notes.

F-6
<PAGE> 77

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996

1. ORGANIZATION AND RESTATEMENT OF FINANCIAL STATEMENTS

The Company (formerly Principal Hospital Company (PHC) until January ,
1998) was founded on February 2, 1996 by Golder, Thoma, Cressey, Rauner Fund IV,
L.P. (GTCR) and Mr. Martin Rash. The Company is 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 discussed in Note 3, on December 18, 1996, Brim, Inc. (Brim)
and PHC merged in a transaction in which Brim issued junior preferred stock and
common stock in exchange for all of the outstanding Class A and Class B common
stock of PHC. The merger was originally accounted for as a combination of
businesses under the common control of GTCR and the previously separate
companies were combined at historical cost in a manner similar to a pooling of
interests. After further consideration, because the PHC shareholders became
owners of a majority of the outstanding shares of Brim after the merger, the
decision was made that PHC should be considered the acquiring enterprise for
financial reporting purposes and the transaction should be accounted for as a
reverse acquisition. Therefore, the historical financial statements of PHC
replaced the historical financial statements of Brim, the assets and liabilities
of Brim were recorded at fair value as required by the purchase method of
accounting, and the operations of Brim were reflected in the operations of the
combined enterprise from the date of acquisition. Since PHC has been in
existence for less than a year at December 31, 1996 and because Brim has been in
existence for several years, PHC is considered the successor to Brim's
operations. Brim, the predecessor company and surviving legal entity, changed
its name to Principal Hospital Company on January 16, 1997. Subsequently, in
January 1998, the merged company was renamed Province Healthcare Company during
the reincorporation more fully described in Note 15.

2. ACCOUNTING POLICIES

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

F-7
<PAGE> 78

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

INTANGIBLE ASSETS

Intangible assets arising from the accounting for acquired businesses are
amortized using the straight-line method over the estimated useful lives of the
related assets which range from 5 years for management contracts to 20 to 35
years for cost in excess of net assets acquired. The Company reviews its
long-lived and intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. The
measurement of possible impairment is based upon determining whether projected
undiscounted future cash flows of the acquired business or from the use of the
asset over the remaining amortization period is less than the carrying amount of
the asset. As of December 31, 1996, in the opinion of management, there has been
no such impairment.

At December 31, 1996, cost in excess of net assets acquired and accumulated
amortization totaled $53,148,000 and $61,000, respectively. Management contracts
are included in other noncurrent assets. At December 31, 1996, management
contracts and accumulated amortization totaled $1,200,000 and $9,000,
respectively.

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
$48,000, 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 statement of
operations.

F-8
<PAGE> 79

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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,
supplemental deferred compensation liability, deferred income taxes 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.

Approximately 63% of gross patient service revenue for the period February
2, 1996 to December 31, 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
base fee, which is fixed, is based on a fair market wage and is not dependent on
any bonus structure. 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 statement of operations. Management
and professional services revenue, excluding reimbursable expenses, was $294,000
for the period February 2, 1996 to December 31, 1996. The Company does not
maintain any ownership interest in and does not fund operating losses or
guarantee any minimum income for 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.

F-9
<PAGE> 80

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

NET LOSS PER SHARE

Net loss per share for the period February 2, 1996 to December 31, 1996 is
computed using the weighted average number of shares of common stock outstanding
during the period. Pursuant to the Securities and Exchange Commission Staff
Accounting Bulletins, all 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).

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 to treat all 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.

F-10
<PAGE> 81

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ACQUISITIONS

MEMORIAL MOTHER FRANCES HOSPITAL

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, summarized as follows (In
thousands):

<TABLE>
<S> <C>
Assets acquired:
Current assets............................................ $ 3,545
Property, plant and equipment, net........................ 22,849
-------
26,394
Liabilities assumed
Current liabilities....................................... (478)
Long-term obligations..................................... (2,234)
Other liabilities......................................... (499)
-------
(3,211)
-------
Purchase price.............................................. $23,183
=======
</TABLE>

STARKE MEMORIAL HOSPITAL

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. At December
31, 1996, 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 completed the allocation in the third quarter of 1997.
The final allocation of the purchase price did not have a significant impact on
the Company's consolidated results of operations. The unallocated purchase price
is being amortized over 20 years until the final allocation has been completed.

BRIM, INC.

On December 18, 1996, a subsidiary of Brim merged into PHC. Brim is engaged
in the business of owning, leasing and managing hospitals in non-urban
communities primarily in the northwestern and southwestern United States. In
exchange for their shares in PHC, the PHC shareholders received 14,403 shares of
newly-designated redeemable junior preferred stock and 3,738,555 shares of newly
designated common stock of Brim. Because GTCR had a significant ownership in
both PHC and Brim at the time the merger took place, the merger was originally
accounted for as a combination of businesses under common control. As discussed
in Note 1, after further consideration, the decision was made that the merger
should be accounted for as a reverse acquisition under the purchase method of
accounting. As a result, for accounting purposes PHC was considered as having
acquired Brim. The historical financial statements of PHC became the historical
financial statements of Brim and include the results of operations of Brim from
the effective date of the merger, December 18,

F-11
<PAGE> 82

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996. The reverse acquisition of Brim by PHC resulted in cost in excess of net
assets acquired of $53,148,000 summarized as follows (In thousands):

<TABLE>
<S> <C>
Purchase price.............................................. $ 1,594
Add liabilities assumed:
Current liabilities....................................... 18,811
Long-term obligations..................................... 80,333
Other liabilities......................................... 13,407
---------
112,551
Mandatory redeemable preferred stock........................ 31,824
---------
144,375
Less assets acquired:
Current assets............................................ 57,015
Property, plant and equipment, net........................ 29,766
Other noncurrent assets................................... 4,840
Management contracts...................................... 1,200
---------
92,821
---------
Cost in excess of net assets acquired....................... $ 53,148
=========
</TABLE>

The cost in excess of net assets acquired of $53,148,000 is being amortized
over a period ranging from 20 to 35 years, resulting in a weighted average
useful life of 30.9 years.

The principal elements of transactions occurring in conjunction with the
reverse acquisition included the following:

- First Additional Investment -- As a result of the reverse acquisition,
PHC is deemed for financial reporting purposes to have assumed an
agreement between Brim and GTCR 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. Richard Gore, and 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 15).

- 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 15).

- The Company approved a plan 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 this liability in the cost in excess
of net assets acquired of Brim. Subsequent to year-end, the Company
terminated approximately 200 employees and paid severance benefits of the
full amount of the recorded severance liability.

F-12
<PAGE> 83

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- As a result of the reverse acquisition, PHC is deemed for financial
reporting purposes to have assumed a warrant that had been issued by Brim
for 343,265 shares of Brim's common stock. The warrant has an exercise
price of $0.045 per share and has a twelve-year term (see Note 15).

In accordance with its stated policy, management of the Company evaluates
all acquisitions independently to determine the appropriate amortization period
for cost in excess of net assets acquired. Each evaluation includes an analysis
of factors such as historic and projected financial performance, evaluation of
the estimated useful lives of buildings and fixed assets acquired, the
indefinite lives of certificates of need and licenses acquired, the competition
within local markets, and lease terms where applicable.

OTHER INFORMATION

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 January
1, 1996. 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
January 1, 1996.

<TABLE>
<CAPTION>
DECEMBER 31,
1996
--------------
(IN THOUSANDS)
<S> <C>
Total revenue............................................... $152,223
Net loss.................................................... (10,833)
Net loss per share.......................................... $ --
Weighted average common shares.............................. --
</TABLE>

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.

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following at December 31, 1996
(In thousands):

<TABLE>
<S> <C>
Land........................................................ $ 3,121
Leasehold improvements...................................... 2,616
Buildings and improvements.................................. 33,152
Equipment................................................... 12,817
-------
51,706
Less allowances for depreciation and amortization........... (933)
-------
50,773
Construction-in-progress (estimated cost to complete at
December 31, 1996 -- $1,427).............................. 1,914
-------
$52,687
</TABLE>

Assets under capital leases were $12,164,000 net of accumulated
amortization of $154,000 at December 31, 1996.

F-13
<PAGE> 84

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at December 31, 1996 (In
thousands):

<TABLE>
<CAPTION>
(RESTATED)
----------
<S> <C>
Revolving credit agreement.................................. $37,000
Term loan................................................... 35,000
Other debt obligations...................................... 87
-------
72,087
Obligations under capital leases (see Note 10).............. 12,008
-------
84,095
Less current maturities..................................... (1,916)
-------
$82,179
=======
</TABLE>

Prior to the merger, the Company had outstanding debt of $19,300,000. In
connection with the merger, the Company repaid its outstanding debt and reported
a $262,000 loss on early retirement, net of taxes of $167,000, as a result of
the write off of related deferred financing costs.

As a result of the reverse acquisition, PHC is deemed for financial
reporting purposes to have assumed a $100 million credit facility which Brim had
entered into in December 1996 during its recapitalization, 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. The interest
rate 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-14
<PAGE> 85

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 an 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>

6. MANDATORY REDEEMABLE PREFERRED STOCK

Redeemable preferred stock consists of the following at December 31, 1996:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Series A redeemable senior preferred stock -- $1,000 per
share stated value, authorized 25,000, issued and
outstanding 20,000, net of issuance costs of $892,000 and
a warrant of $139,000..................................... $18,969
Series B redeemable junior preferred stock -- $1,000 per
share stated value, authorized 50,000, issued and
outstanding 28,540, net of issuance costs of $1,282,000... 27,258
-------
$46,227
=======
</TABLE>

The 20,000 outstanding shares of Series A redeemable senior preferred stock
and a warrant to purchase 343,265 shares of common stock were issued in December
1996 by Brim for cash of $20.0 million. 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 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 28,540 outstanding shares of Series B redeemable junior preferred stock
were issued in December 1996 by Brim. Issuance costs totaled $1,282,000. Series
B redeemable junior preferred stock pays cumulative preferential dividends which
accrue on a daily basis at the rate of 8% and are

F-15
<PAGE> 86

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

7. STOCKHOLDERS' EQUITY

STOCKHOLDERS EQUITY

The capital stock of the Company consists of common stock, no par value, of
which 20,000,000 shares are authorized and 7,280,020 shares are issued and
outstanding as of December 31, 1996.

The capital stock of PHC consisted of Class A Common Stock, and Class B
Common Stock. All of the PHC Class A and Class B Common Stock was exchanged by
the PHC shareholders in the merger for 14,403 shares of Brim junior preferred
stock and 3,738,555 shares of Brim common stock as more fully discussed in Note
3.

STOCK OPTIONS

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 15).

WARRANT

In connection with the reverse acquisition of Brim (see Note 3), the
Company is deemed for financial reporting purposes to have assumed a warrant
that had been issued by Brim to purchase 343,265 shares of Brim's common stock.
The warrant has an exercise price of $0.045 per share and has a twelve-year term
(See Note 15.)

8. 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:

- 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.

F-16
<PAGE> 87

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- 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.

9. INCOME TAXES

The provision for income tax expense (benefit) attributable to the loss
before extraordinary item consists of the following for the period February 2,
1996 to December 31, 1996 (In thousands):

<TABLE>
<S> <C>
Current:
Federal................................................... $ 159
State..................................................... 38
-----
197
Deferred:
Federal................................................... (707)
State..................................................... (168)
-----
(875)
-----
$(678)
=====
</TABLE>

The differences between the Company's effective income tax rate of 33.8%
before extraordinary item and the statutory federal income tax rate of 34.0% are
as follows for the period February 2, 1996 to December 31, 1996 (In thousands):

<TABLE>
<S> <C>
Statutory federal rate...................................... $(681)
State income taxes, net of federal income tax benefit....... (86)
Other....................................................... 89
-----
$(678)
=====
</TABLE>

F-17
<PAGE> 88

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the Company's deferred tax assets and liabilities are as
follows as of December 31, 1996 (In thousands):

<TABLE>
<S> <C>
Deferred tax assets -- current:
Accounts and notes receivable............................. $ 3,305
Accrued vacation liability................................ 710
Accrued liabilities....................................... 1,260
-------
Net deferred tax assets--current............................ $ 5,275
=======
Deferred tax assets--noncurrent:
Net operating losses from separate return subsidiary...... $ 278
Accrued liabilities....................................... 706
-------
984
Less valuation allowance.................................. (278)
-------
Deferred tax assets -- noncurrent......................... 706
Property, plant and equipment............................. (3,759)
Management contracts...................................... (464)
Other..................................................... (41)
-------
(4,264)
-------
Net deferred tax liabilities -- noncurrent.................. $(3,558)
=======
</TABLE>

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

The Internal Revenue Service is in the process of finalizing its
examination of Brim, Inc.'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.

10. 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.

F-18
<PAGE> 89

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 (In thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $ 2,765 $ 4,043
1998........................................................ 2,722 3,371
1999........................................................ 2,403 2,666
2000........................................................ 1,478 2,278
2001........................................................ 1,083 1,784
Thereafter.................................................. 10,786 5,831
------- -------
Total minimum lease payments................................ 21,237 $19,973
=======
Amount representing interest................................ (9,229)
-------
Present value of net minimum lease payments
(including $1,869 classified as current)........ $12,008
=======
</TABLE>

11. 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.

12. 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 Company.
Contributions by the Company to the plans totaled $112,000 for the period
February 2, 1996 to December 31, 1996.

The Company sponsors 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
$4,000 for the period February 2, 1996 to December 31, 1996.

13. 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

F-19
<PAGE> 90

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.

14. 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 common share and per share data, included in the
accompanying consolidated financial statements and footnotes thereto, have been
restated to reflect this stock split.

15. 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 per share equal to the initial public offering price of the
Company's common stock. 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 (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
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.)

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.

PURCHASE OF HOSPITAL PROPERTY, PLANT AND EQUIPMENT

Effective August 12, 1997, the Company acquired the building and equipment
of Ojai Valley Community Hospital for a price of $4,800,000. The Company had
been leasing this facility prior to that date.

F-20
<PAGE> 91

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PUBLIC OFFERING OF COMMON STOCK

The Company is in the registration process 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 a portion of the 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.

The Company has filed its Registration Statement without the inclusion of
the number of shares being offered or the anticipated offering price per share.
For this reason, earnings per share information can not be presented until such
share information becomes available and the treasury stock method and cheap
stock rules can be applied.

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 7.)

REINCORPORATION

On January , 1998, 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 common share and per share data included in the consolidated
financial statements and footnotes thereto, have been restated to reflect this
reincorporation.

F-21
<PAGE> 92

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................................ 7,614
--------
Total current assets.............................. 46,770
Property, plant and equipment, net.......................... 61,605
Other assets:
Cost in excess of net assets acquired..................... 54,565
Other..................................................... 9,179
--------
63,744
--------
$172,119
========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 7,144
Accrued salaries and benefits............................. 6,448
Accrued expenses.......................................... 4,371
Current maturities of long-term obligations............... 1,964
--------
Total current liabilities......................... 19,927
Long-term obligations, less current maturities.............. 86,027
Third-party settlements..................................... 5,542
Other liabilities........................................... 11,006
--------
102,575
Mandatory redeemable preferred stock........................ 50,153
Common stockholders' equity (deficit):
Common stock, no par value, authorized 20,000,000; issued
and outstanding 8,581,510.............................. 2,122
Retained deficit.......................................... (2,658)
--------
(536)
--------
$172,119
========
</TABLE>

See accompanying notes.

F-22
<PAGE> 93

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 2, NINE MONTHS
1996 TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Net patient service revenue............................... $3,944 $107,524
Management and professional services...................... -- 12,325
Other..................................................... 33 4,099
------ --------
Net operating revenue....................................... 3,977 123,948
------ --------
Expenses:
Salaries, wages and benefits.............................. 1,725 52,009
Purchased services........................................ 384 17,269
Supplies.................................................. 496 11,943
Provision for doubtful accounts........................... 550 8,806
Other operating expenses.................................. 479 12,515
Rentals and leases........................................ 43 3,586
Depreciation and amortization............................. 309 5,549
Interest expense.......................................... 441 6,428
Loss (gain) on sale of assets............................. -- (156)
------ --------
Total expenses.............................................. 4,427 117,949
------ --------
(Loss) income before provision for income taxes............. (450) 5,999
Provision for income taxes.................................. -- 2,777
------ --------
Net (loss) income........................................... $ (450) $ 3,222
====== ========
Preferred stock dividends and accretion..................... -- (3,708)
------ --------
Net loss applicable to common and common equivalent
shares.................................................... $ (450) $ (486)
====== ========
Net loss per common and common equivalent shares............ $ $
====== ========
Weighted average number of common and common equivalent
shares....................................................
====== ========
</TABLE>

See accompanying notes.

F-23
<PAGE> 94

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
NO PAR VALUE
COMMON STOCK RETAINED
------------------ EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
--------- ------ --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1996............................ 7,280,020 $1,680 $(2,172) $ (492)
Net income............................................ -- -- 3,222 3,222
Issuance of stock..................................... 1,301,490 442 -- 442
Dividends and accretion............................... -- -- (3,708) (3,708)
--------- ------ ------- -------
Balance at September 30, 1997........................... 8,581,510 $2,122 $(2,658) $ (536)
========= ====== ======= =======
</TABLE>

See accompanying notes.

F-24
<PAGE> 95

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
FOR THE
PERIOD
FEBRUARY 2, NINE MONTHS
1996 TO ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1997
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES......... $ 159 $ (2,089)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (171) (12,600)
Net capital contributions and withdrawals -- investments.... -- (115)
Purchase of acquired companies.............................. (23,183) (2,562)
Other....................................................... 455 --
-------- --------
Net cash used in investing activities....................... (22,899) (15,277)
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 13,700 9,000
Repayments of debt.......................................... (148) (1,402)
Issuance of common stock.................................... 85 442
Issuance of preferred stock................................. 13,847 3,755
Proceeds from common stock note............................. -- 211
-------- --------
Net cash provided by financing activities................... 27,484 12,006
-------- --------
Net increase (decrease) in cash and cash equivalents........ 4,744 (5,360)
Cash and cash equivalents at beginning of period............ -- 11,256
-------- --------
Cash and cash equivalents at end of period.................. $ 4,744 $ 5,896
======== ========
ACQUISITIONS
Fair value of assets acquired............................... $ 26,394 $ 2,683
Liabilities assumed......................................... (3,211) (121)
-------- --------
Cash paid................................................... $ 23,183 $ 2,562
======== ========
</TABLE>

See accompanying notes.

F-25
<PAGE> 96

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. NET LOSS PER SHARE

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). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletins, all 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).

3. ACQUISITIONS

Purchase of Hospital Property, Plant and Equipment -- Effective August 12,
1997, the Company acquired the building and equipment of Ojai Valley Community
Hospital for a price of $4,800,000. The Company had been leasing this facility
prior to that date.

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.

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.

F-26
<PAGE> 97

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

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

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, 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. 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-27
<PAGE> 98

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

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

EXERCISE OF WARRANT

6. SUBSEQUENT EVENTS

PUBLIC OFFERING OF COMMON STOCK

The Company is in the registration process under the Securities Act of 1933
for a public offering of common stock which is expected to close in the first
quarter of 1998. 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

On January , 1998, 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-28
<PAGE> 99

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Brim, Inc.

We have audited the accompanying consolidated balance sheet of Brim, Inc.
and subsidiaries as of December 18, 1996 and the related consolidated statements
of income, changes in common stockholders' equity (deficit), and cash flows for
the period January 1, 1996 to December 18, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brim, Inc. and
subsidiaries as of December 18, 1996, and the consolidated results of their
operations and their cash flows for the period January 1, 1996 to December 18,
1996 in conformity with generally accepted accounting principles.

Ernst & Young LLP

Nashville, Tennessee
April 30, 1997,
except for Note 16, as to which the date is
January , 1998

The foregoing report is in the form that will be signed upon the completion
of the reincorporation described in Note 16 to the consolidated financial
statements.

Ernst & Young LLP

Nashville, Tennessee
December 23, 1997

F-29
<PAGE> 100

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Brim, Inc.:

We have audited the accompanying consolidated balance sheet of Brim, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of income, 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 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.

As discussed more fully in Note 1 to the consolidated financial statements,
the Company changed its application of the method of accounting for its
provision for professional liability and comprehensive general liability and,
accordingly, has restated the consolidated financial statements referred to
above to reflect this change.

KPMG Peat Marwick LLP

Portland, Oregon
March 8, 1996, except for Note 1
to the consolidated financial statements,
as to which the date is December 22, 1997

F-30
<PAGE> 101

BRIM, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1995 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,287 $ 27,828
Accounts receivable, less allowance for doubtful accounts
of $2,078 in 1995 and $3,468 in 1996................... 18,286 18,889
Inventories............................................... 1,754 2,140
Prepaid expenses and other................................ 6,403 7,125
------- --------
Total current assets.............................. 28,730 55,982
Property, plant and equipment, net.......................... 10,201 12,926
Other assets:
Investments in other health care-related businesses....... 4,564 423
Other..................................................... 3,982 4,417
------- --------
8,546 4,840
------- --------
$47,477 $ 73,748
======= ========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,065 $ 6,312
Accrued salaries and benefits............................. 3,661 4,742
Accrued expenses.......................................... 2,128 4,256
Current maturities of long-term obligations............... 839 884
------- --------
Total current liabilities......................... 10,693 16,194
Long-term obligations, less current maturities.............. 5,519 74,787
Third-party settlements..................................... 6,472 6,604
Other liabilities........................................... 1,941 2,103
------- --------
13,932 83,494
Mandatory redeemable preferred stock........................ 8,816 31,824
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 3,541,465 in 1996.................. 414 1,594
Notes receivable for common stock......................... -- (180)
Common stock warrant...................................... -- 139
Retained earnings (deficit)............................... 13,622 (59,317)
------- --------
14,036 (57,764)
------- --------
$47,477 $ 73,748
======= ========
</TABLE>

See accompanying notes.

F-31
<PAGE> 102

BRIM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
YEAR ENDED DECEMBER 31, 1996 TO
------------------------ DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Revenue:
Net patient service revenue........................... $ 78,109 $ 75,871 $ 87,900
Management and professional services.................. 15,969 19,567 18,330
Other................................................. 7,989 5,776 6,370
-------- -------- --------
Net operating revenue......................... 102,067 101,214 112,600
-------- -------- --------
Expenses:
Salaries, wages and benefits.......................... 53,659 55,289 58,105
Purchased services.................................... 16,879 14,411 17,199
Supplies.............................................. 11,035 10,143 11,218
Provision for doubtful accounts....................... 5,056 4,601 7,669
Other operating expenses.............................. 5,363 8,030 8,674
Rentals and leases.................................... 3,781 4,133 5,018
Depreciation and amortization......................... 1,530 1,771 1,587
Interest expense...................................... 760 589 1,547
Costs of recapitalization............................. -- -- 8,951
(Gain) loss on sale of assets......................... (635) (2,814) 442
-------- -------- --------
Total expenses................................ 97,428 96,153 120,410
-------- -------- --------
Income (loss) from continuing operations before
provision for income taxes............................ 4,639 5,061 (7,810)
Provision (benefit) for income taxes.................... 1,928 1,836 (2,377)
-------- -------- --------
Income (loss) from continuing operations................ 2,711 3,225 (5,433)
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.............................................. $ 2,554 $ 2,961 $ 582
======== ======== ========
</TABLE>

See accompanying notes.

F-32
<PAGE> 103

BRIM, INC. AND SUBSIDIARIES

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
--------- ------ ---------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 -- as
previously reported........... 837,154 $ 824 $ -- $ -- $ 8,289 $ 9,113
Prior period adjustment --
(Note 1) -- -- -- -- (182) (182)
--------- ------ ----- ---- -------- --------
Balance at January 1, 1994 --
as restated................ 837,154 824 -- -- (8,107) (8,931)
Issuance of stock............. 33,490 546 -- -- -- 546
Retirement of stock........... (52,922) (837) -- -- -- (837)
Net income.................... -- -- -- -- 2,554 2,554
--------- ------ ----- ---- -------- --------
Balance at December 31, 1994.... 817,722 533 -- -- 10,661 11,194
Issuance of stock............. 12,328 245 -- -- -- 245
Retirement of stock........... (16,521) (364) -- -- -- (364)
Net income.................... -- -- -- 2,961 2,961
--------- ------ ----- ---- -------- --------
Balance at December 31, 1995.... 813,529 414 -- -- 13,622 14,036
Recapitalization
transaction................ 2,727,936 1,180 (180) 139 (73,521) (72,382)
Net income.................... -- -- -- -- 582 582
--------- ------ ----- ---- -------- --------
Balance at December 18, 1996.... 3,541,465 $1,594 $(180) $139 $(59,317) $(57,764)
========= ====== ===== ==== ======== ========
</TABLE>

See accompanying notes.

F-33
<PAGE> 104

BRIM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE
PERIOD
YEAR ENDED JANUARY 1,
DECEMBER 31, 1996 TO
------------------------ DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 2,554 $ 2,961 $ 582
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,962 2,438 1,587
Provision for doubtful accounts........................... 5,076 4,734 7,669
Loss (income) from investments............................ 64 (86) 272
Deferred income taxes..................................... 109 (229) (3,364)
Gain on sale of assets.................................... (361) (2,608) (8,519)
Provision for professional liability...................... 433 301 468
Changes in operating assets and liabilities, net of effects from
acquisitions and disposals:
Accounts receivable..................................... (9,493) (5,269) (5,899)
Inventories............................................. 124 (140) (48)
Prepaid expenses and other.............................. (408) 3,178 2,448
Accounts payable and accrued expenses................... 1,044 (1,880) 3,450
Accrued salaries and benefits........................... -- -- 1,144
Third-party settlements................................. 1,693 62 245
Other liabilities....................................... (136) 232 (214)
---------- ---------- --------
Net cash provided by (used in) operating activities......... 2,661 3,694 (179)
INVESTING ACTIVITIES
Purchase of property, plant and equipment................... (5,271) (1,398) (12,642)
Net capital contributions and withdrawals -- investments.... (1,489) (2,063) 1,775
Purchase of acquired company................................ (4,364) (15,765) (1,763)
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 51
---------- ---------- --------
Net cash (used in) provided by investing activities......... (714) (1,527) 9,369
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 2,871 39 72,000
Repayments of debt.......................................... (5,185) (1,619) (6,249)
Issuance of common stock.................................... 546 245 --
Repurchase of common stock.................................. (837) (364) --
Recapitalization............................................ -- -- (49,400)
---------- ---------- --------
Net cash (used in) provided by financing activities......... (2,605) (1,699) 16,351
---------- ---------- --------
Net (decrease) increase in cash and cash equivalents........ (658) 468 25,541
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 $ 27,828
========== ========== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the year............................... $ 750 $ 1,435 $ 439
========== ========== ========
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
========== ========== ========
NONCASH TRANSACTIONS
Property, plant and equipment acquired through capital
leases.................................................... $ -- $ -- $ 3,045
========== ========== ========
Noncash issuance of stock in connection with
recapitalization.......................................... $ -- $ -- $ 4,118
========== ========== ========
</TABLE>

See accompanying notes.

F-34
<PAGE> 105

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 18, 1996

1. RESTATEMENT OF FINANCIAL STATEMENTS

The Company has restated its consolidated financial statements for the
years ended December 31, 1994 and 1995 in order to reflect the provision for
professional liability and comprehensive general liability not previously
recognized. As stated in Note 2 to the consolidated financial statements, the
Company is insured for professional liability based on a claims-made policy. For
claims reported outside of the policy term, the Company has established a
liability based on an estimate for claims incurred but not reported (IBNR). This
IBNR liability was not reported in previous years. The impact of the restatement
on the Company's financial results as originally reported is summarized below
(In thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995
------------------- -------------------
AS AS AS AS
REPORTED RESTATED REPORTED RESTATED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Other operating expenses..................... $ 4,930 $ 5,363 $ 7,729 $ 8,030
Provision for income taxes................... 2,097 1,928 1,953 1,836
Net income................................... 2,818 2,554 3,145 2,961
Retained earnings............................ 11,107 10,661 14,252 13,622
</TABLE>

Retained earnings at January 1, 1994 has been restated in the accompanying
consolidated statements of changes in common stockholders' equity to reflect a
cumulative decrease in earnings of $182,000 relating to the establishment of the
IBNR liability.

2. ORGANIZATION AND ACCOUNTING POLICIES

Brim, Inc. and its subsidiaries (Brim or the Company) 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. Immediately thereafter, as more fully described in Note 16, a
subsidiary of the Company was merged into Principal Hospital Company (PHC) and
was accounted for as a reverse acquisition of Brim by PHC. Brim, the predecessor
company, was renamed Principal Hospital Company on January 16, 1997.
Subsequently in January 1998, the merged company was renamed Province Healthcare
Company (Province) during the reincorporation more fully described in Note 16.
Province is considered the successor company of Brim.

BASIS OF CONSOLIDATION

USE OF ESTIMATES

F-35
<PAGE> 106

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CASH EQUIVALENTS

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 18, 1996, consist of receivables from
Medicare and Medicaid of 27% and 19%, 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.

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

OTHER ASSETS

Deferred loan costs totaling $2,959,000 at December 18, 1996 are included
in other noncurrent assets and are amortized over the term of the related debt
by the interest method.

RISK MANAGEMENT

F-36
<PAGE> 107

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Approximately 61% of gross patient service revenue for each of the years
ended December 31, 1994 and 1995, and for the period January 1, 1996 to December
18, 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
base fee, which is fixed, is based on a fair market wage and is not dependent on
any bonus structure. 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 income. Management and
professional services revenue, excluding reimbursable expenses, was $9,048,000,
$10,652,000 and $9,329,000 for the years ended December 31, 1994 and 1995, and
for the period January 1, 1996 to December 18, 1996, respectively. The Company
does not maintain any ownership interest in and does not fund operating losses
or guarantee any minimum income for 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

F-37
<PAGE> 108

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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 Golder, Thoma,
Cressey, Rauner Fund IV, L.P. (GTCR), and PHC. The basic elements of the
recapitalization of the Company included the following: GTCR 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.

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. Martin 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.

F-38
<PAGE> 109

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- 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 redeemed Brim shareholders.

The common stock ownership subsequent to the recapitalization consists of a
22.5% interest held by certain of the pre-recapitalization Brim shareholders and
77.5% held by the new investors.

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 $14,231,000. Costs totaling
$8,951,000 were charged to operations at the date of the recapitalization,
consisting of cash paid to buy-out stock options of $7,995,000 and
transaction-related costs of $956,000. Costs of $2,321,000 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.

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

F-39
<PAGE> 110

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. The
operating results of Parkview have been included in the accompanying
consolidated statements of income from the date of acquisition. Accordingly, the
accompanying consolidated statement of income for the period January 1, 1996 to
December 18, 1996 includes the results of approximately 10 months of operations
of Parkview.

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.

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>
FOR THE PERIOD
YEAR ENDED DECEMBER 31, JANUARY 1 TO
------------------------ DECEMBER 18,
1994(1) 1995(2) 1996(3)
---------- ---------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Total revenue....................................... $101,976 $111,201 $113,433
Income from continuing operations................... 2,195 3,705 (236)
</TABLE>

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

(1) Excludes the hospital divested in 1995.
(2) Includes Parkview Regional Hospital and excludes the hospital divested in
1995.
(3) Includes Parkview Regional Hospital.

F-40
<PAGE> 111

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
1995 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land.................................................... $ 823 $ 465
Leasehold improvements.................................. 1,315 4,448
Buildings and improvements.............................. 3,300 2,439
Equipment............................................... 8,654 9,048
------- -------
14,092 16,400
Less allowances for depreciation and amortization....... (4,609) (3,904)
------- -------
9,483 12,496
Construction-in-progress (estimated cost to complete at
December 18, 1996 -- $1,049).......................... 718 430
------- -------
$10,201 $12,926
======= =======
</TABLE>

Assets under capital leases were $2,400,000 and $3,527,000 net of
accumulated amortization of $750,000 and $1,376,000 at December 31, 1995 and
December 18, 1996, respectively.

6. LONG-TERM OBLIGATIONS

Long-term obligations consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
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 3,584
------ -------
6,358 75,671
Less current maturities................................. (839) (884)
------ -------
$5,519 $74,787
====== =======
</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 18,
1996. Future borrowings under the revolver are limited, in certain instances, to
acquisitions of identified businesses. At December 18, 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 was
9.25% at December 18, 1996. The Company

F-41
<PAGE> 112

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Aggregate maturities of long-term obligations at December 18, 1996,
excluding capital leases, are as follows (In thousands):

F-42
<PAGE> 113

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. MANDATORY REDEEMABLE PREFERRED STOCK

Redeemable preferred stock consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 18,
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 14,137 shares in 1996, net of issuance costs of
$1,282,000 in 1996...................................... -- 12,855
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 $31,824
====== =======
</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 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 6,414 shares issued to GTCR, 103 shares issued to Mr. Rash, 192
shares issued to Mr. Gore, and 96 shares issued to two banks for $6,805,000;
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. 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.

F-43
<PAGE> 114

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 18, 1996, the Company did not have a stock option plan in place
and no stock options were outstanding.

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

F-44
<PAGE> 115

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
period January 1, 1996 to December 18, 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>
FOR THE
YEAR ENDED PERIOD
DECEMBER 31, JANUARY 1, 1996
------------------------ TO DECEMBER 18,
1994 1995 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Current:
Federal.................................. $1,519 $1,580 $ 561
State.................................... 300 334 134
------ ------ -------
1,819 1,914 695
Deferred:
Federal.................................. 102 (63) (2,481)
State.................................... 7 (15) (591)
------ ------ -------
109 (78) (3,072)
------ ------ -------
$1,928 $1,836 $(2,377)
====== ====== =======
</TABLE>

The differences between the Company's effective income tax rate of 41.5%,
36.2% and 30.4% 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>
FOR THE
YEAR ENDED PERIOD
DECEMBER 31, JANUARY 1, 1996
----------------------- TO DECEMBER 18,
1994 1995 1996
---------- ---------- ---------------
<S> <C> <C> <C>
Statutory federal rate....................... $1,577 $1,721 $(2,655)
State income taxes, net of federal income tax
benefit.................................... 202 211 (302)
Amortization of goodwill..................... 61 69 16
Change in valuation allowance................ 54 (141) (2)
Nondeductible recapitalization costs......... -- -- 298
Other........................................ 34 (24) 268
------ ------ -------
$1,928 $1,836 $(2,377)
====== ====== =======
</TABLE>

F-45
<PAGE> 116

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- DECEMBER 18,
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Deferred tax assets -- current:
Accounts and notes receivable................ $ 491 $ 544 $2,957
Accrued vacation liability................... 674 692 628
Accrued liabilities.......................... 187 121 1,178
Other........................................ -- 2 --
------ ------ ------
Net deferred tax assets--current............... $1,352 $1,359 $4,763
====== ====== ======
Deferred tax assets--noncurrent:
Depreciation of property, plant and
equipment................................. $ 107 $ 232 $ 196
Net operating losses from separate return
subsidiary................................ 421 280 278
Accrued liabilities.......................... 489 620 623
Deferred revenue............................. -- 42 --
------ ------ ------
1,017 1,174 1,097
Less valuation allowance....................... (421) (280) (278)
------ ------ ------
Deferred tax assets -- noncurrent.............. 596 894 819
Deferred tax liabilities -- other.............. -- (76) (41)
------ ------ ------
Net deferred tax assets -- noncurrent.......... $ 596 $ 818 $ 778
====== ====== ======
</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 and 1995 and for the period January 1, 1996 to
December 18, 1996 was $54,000, $141,000 and $2,000, respectively. The Company
had net operating loss carryforwards (NOLs) of approximately $714,000 at
December 18, 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.

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 18, 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

F-46
<PAGE> 117

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$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.
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.

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 and 1995 and for the period January 1, 1996 to
December 18, 1996, respectively. Income from operations was $742,000, $1,178,000
and $537,000, net of taxes, for the years ended December 31, 1994 and 1995 and
for the period January 1, 1996 to December 18, 1996, respectively. The gain on
the disposal of this business segment was $5,478,000, net of taxes.

F-47
<PAGE> 118

BRIM, INC. 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 is summarized as follows:

<TABLE>
<CAPTION>
FOR THE
PERIOD
JANUARY 1,
DECEMBER 31, 1996 TO
----------------- DECEMBER 18,
1994 1995 1996
------ ------- ------------
<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

Future minimum payments 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........................................................ $1,070 $ 3,884
1998........................................................ 1,063 3,251
1999........................................................ 1,007 2,633
2000........................................................ 540 2,278
2001........................................................ 563 1,784
Thereafter.................................................. 5 5,831
------ -------
Total minimum lease payments................................ 4,248 19,661
=======
Amount representing interest................................ (664)
------
Present value of net minimum lease payments
(including $837 classified as current)......... 3,584
======
</TABLE>

13. CONTINGENCIES

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

F-48
<PAGE> 119

BRIM, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 Company. Contributions by the Company
to the plans totaled $355,000, $394,000 and $385,000 for the years ended
December 31, 1994 and 1995 and for the period January 1, 1996 to December 18,
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 $95,000 for the year ended December 31, 1995 and for
the period January 1, 1996 to December 18, 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. SUBSEQUENT EVENTS

Immediately after the recapitalization discussed in Note 3, a subsidiary of
the Company was merged into PHC and the Company was renamed Principal Hospital
Company. In exchange for their shares in PHC, the PHC shareholders received
newly-issued redeemable junior preferred stock and common stock of the Company.
While the Company was the legal acquirer, the merger was accounted for as a
reverse acquisition of the Company by PHC.

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.

REINCORPORATION

On January , 1998, Principal Hospital Company changed its jurisdiction of
incorporation to Delaware and was renamed Province Healthcare Company
(Province). Province 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-49
<PAGE> 120

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-50
<PAGE> 121

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-51
<PAGE> 122

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-52
<PAGE> 123

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-53
<PAGE> 124

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-54
<PAGE> 125

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-55
<PAGE> 126

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-56
<PAGE> 127

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-57
<PAGE> 128

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-58
<PAGE> 129

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-59
<PAGE> 130

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-60
<PAGE> 131

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-61
<PAGE> 132

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-62
<PAGE> 133

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-63
<PAGE> 134

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

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........................... 9
The Recapitalization and the Merger... 9
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................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 40
Management............................ 55
Certain Relationships and Related
Transactions........................ 60
Principal Stockholders................ 62
Description of Capital Stock.......... 62
Shares Eligible for Future Sale....... 64
Underwriting.......................... 67
Legal Matters......................... 68
Experts............................... 68
Additional Information................ 69
Index to Financial Statements......... F-1
</TABLE>

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

[PROVINCE HEALTHCARE LOGO]

Common Stock
-------------------
PROSPECTUS
-------------------

BT Alex. Brown

BancAmerica Robertson Stephens

Goldman, Sachs & Co.

The Robinson-Humphrey
Company
, 1998

======================================================
<PAGE> 135

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............................. 500,000
Transfer Agent's Fees and Expenses.......................... 11,500
Accounting Fees and Expenses................................ 1,355,000
Legal Fees and Expenses..................................... 450,000
Miscellaneous Expenses...................................... 91,371
----------
Total..................................................... $2,500,000
==========
</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> 136

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> 137
*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> 138
*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 (for SEC use only)

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

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

(b) Financial Statement Schedules.

Schedule II -- Valuation and Qualifying Accounts.

II-4
<PAGE> 139

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> 140

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 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 December 24, 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. 3 to the Registration Statement has been signed on December 24, 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> 141

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Province Healthcare Company

We have audited the consolidated financial statements of Province
Healthcare Company (formerly known as Principal Hospital Company) and
subsidiaries as of December 31, 1996, and for the period February 2, 1996 (date
of inception) to December 31, 1996, as restated to reflect the change in the
application of the method of accounting for its December 18, 1996 merger with
Brim, Inc., and have issued our report thereon dated April 30, 1997, except for
Note 14, and Notes 1, 3 and 15, as to which the dates are May 8, 1997 and
January , 1998, respectively (included elsewhere in this Registration
Statement). Our audit also included the financial statement schedule as of
December 31, 1996 and for the period February 2, 1996 (date of inception) to
December 31, 1996, 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 14, and Notes 1, 3
and 15, as to which the dates are
May 8, 1997 and January , 1998,
respectively

Ernst & Young LLP

Nashville, Tennessee
December 23, 1997

S-1
<PAGE> 142

PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------- ---------- ------------------------- ------------- ----------
ADDITIONS
-------------------------
(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>
For the period February 2,
1996 to December 31, 1996:
Allowance for doubtful
accounts............... $ -- $1,909 $3,468 $ 900(2) $4,477
</TABLE>

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

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

S-2

<PAGE> 1

Exhibit 16.1

December 24, 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, except for Note 1 as
to which the date is December 22, 1997, 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
the General Instruction to Form S-1) under the caption "Change in Accountants"
at page 67 of its Pre-effective Amendment No. 3 to Form S-1 dated December 24,
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, except for Note 16, as to which
the date is January , 1998, with respect to the consolidated financial
statements of Brim, Inc. and (ii) April 30, 1997, except for Note 14, and Notes
1, 3 and 15, as to which the dates are May 8, 1997 and January , 1998,
respectively, with respect to the consolidated financial statements and schedule
of Province Healthcare Company (which have been restated), in Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-34421) and related Prospectus of
Province Healthcare Company (formerly known as Principal Hospital Company) for
the registration of shares of its common stock.

Ernst & Young LLP

Nashville, Tennessee
January , 1998

The foregoing consent is in the form that will be signed upon the
completion of the reincorporation and presentation of earnings per share
information described in Note 15 to the consolidated financial statements.

Ernst & Young LLP

Nashville, Tennessee
December 23, 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 December 1997) for the registration of common stock.

Harrell, Rader, Bonner & Bolton

Palestine, Texas
December 23, 1997