U S HEALTHCARE INC
10-K/A, 1996-04-29
HOSPITAL & MEDICAL SERVICE PLANS
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<PAGE>   1
 
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                                  FORM 10-K/A
                               (AMENDMENT NO. 1)
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (FEE REQUIRED)
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
 
                                       OR
 
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
 
      FOR THE TRANSITION PERIOD FROM                  TO
 
                         COMMISSION FILE NUMBER 1-11531
 
                             U.S. HEALTHCARE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
<TABLE>
<S>                                                <C>
                   PENNSYLVANIA                                        22-2229683
          (STATE OR OTHER JURISDICTION OF                           (I.R.S. EMPLOYER
          INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)
                                                                          19422
     980 JOLLY ROAD, BLUE BELL, PENNSYLVANIA                           (ZIP CODE)
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 628-4800
 
          Securities registered pursuant to Section 12(b) of the Act:
                                      None
 
          Securities registered pursuant to Section 12(g) of the Act:
                    Common Stock, Par Value $.005 Per Share
 
     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes /X/  No / /
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  / /
 
     The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 31, 1996 was $6,292,972,648 calculated by excluding
all shares held by executive officers, directors and 5% shareholders of the
Registrant without conceding that all such persons are "affiliates" of the
Registrant for purposes of the federal securities laws.
 
     As of March 31, 1996, there were 139,512,162 shares of Common Stock
outstanding and 14,429,867 shares of Class B Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the following documents are incorporated herein by reference:
 
     Parts I, II and IV -- U.S. Healthcare's Annual Report to Shareholders for
                           the year ended December 31, 1995 ("1995 Annual Report
                           to Shareholders").
 
     The undersigned registrant hereby amends the following items and other
portions of its Annual Report on Form 10-K for the fiscal year ended December
31, 1995:
 
        Part I, Item 1 -- Business
        Part II, Item 8 -- Financial Statements and Supplementary Data
        Part III, Item 10 -- Directors and Executive Officers of the Registrant
        Part III, Item 11 -- Executive Compensation
        Part III, Item 12 -- Security Ownership of Certain Beneficial Owners and
        Management
        Part III, Item 13 -- Certain Relationships and Related Transactions
        Part IV, Item 14 -- Exhibits, Financial Statement Schedules and Reports
        on Form 8-K
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
                                     PART I
 
ITEM 1 -- BUSINESS
 
SUBSEQUENT EVENT
 
     On March 30, 1996, U.S. Healthcare, Inc. ("U.S. Healthcare") entered into
an Agreement and Plan of Merger (the "Merger Agreement") with Aetna Life and
Casualty Company ("Aetna"), Butterfly, Inc. (the name of which will be changed
to Aetna Inc.) ("Parent"), a Connecticut corporation owned 50% by Aetna and 50%
by U.S. Healthcare, New Merger Corporation ("U.S. Healthcare Sub"), a
wholly-owned subsidiary of Parent, and Antelope Sub, Inc. ("Aetna Sub"), a
wholly-owned subsidiary of Parent, pursuant to which (x) U.S. Healthcare Sub
will merge with and into U.S. Healthcare, with U.S. Healthcare surviving as a
wholly-owned subsidiary of Parent (the "U.S. Healthcare Merger"), and (y) Aetna
Sub will merge with and into Aetna, with Aetna surviving as a wholly-owned
subsidiary of Parent (the "Aetna Merger," and together with the U.S. Healthcare
Merger, the "Mergers"). As a result of the Mergers, each of U.S. Healthcare and
Aetna will become wholly-owned subsidiaries of a newly formed holding company. A
copy of the Merger Agreement was filed as Exhibit 99.1 to U.S. Healthcare's
Current Report on Form 8-K, dated April 2, 1996.
 
     Pursuant to the U.S. Healthcare Merger and the Merger Agreement, each share
of Common Stock, par value $.005 per share, of U.S. Healthcare (the "U.S.
Healthcare Common Stock") and each share of Class B Stock, par value $.005 per
share, of U.S. Healthcare (the "U.S. Healthcare Class B Stock," and together
with U.S. Healthcare Common Stock, the "U.S. Healthcare Stock") outstanding
immediately prior to the date of the Mergers (the "Merger Date") shall (except
for shares of U.S. Healthcare Stock held by U.S. Healthcare as treasury stock or
owned by Aetna or any subsidiary of Aetna immediately prior to the Merger Date
and as otherwise provided for in the Merger Agreement and as to which
dissenters' rights have been exercised in accordance with and subject to the
provisions of Pennsylvania law) be converted into the right to receive (a)
$34.20 in cash without interest, (b) 0.2246 shares of Parent Common Capital
Stock (the "Parent Common Stock") and (c) 0.0749 shares of Class C Non-Voting
Preferred Stock of Parent.
 
     Pursuant to the Aetna Merger and the Merger Agreement, each share of common
capital stock, without par value, of Aetna (the "Aetna Stock") outstanding
immediately prior to the Merger Date (except for shares of Aetna Stock held by
Aetna as treasury stock or owned by U.S. Healthcare or any subsidiary of U.S.
Healthcare immediately prior to the Merger Date and except for shares of Aetna
Stock as to which objecting shareholders' rights have been exercised in
accordance with and subject to the provisions of Connecticut law) will be
converted into the right to receive one share of Parent Common Stock.
 
     The Merger Agreement has been approved by the Board of Directors of Aetna
and the Board of Directors of U.S. Healthcare. The Mergers are subject to
approval by shareholders of both Aetna and U.S. Healthcare and federal and state
regulators and other conditions. Leonard Abramson, the principal shareholder and
owner of shares representing in excess of 80% of the voting power of the shares
of U.S. Healthcare, has agreed to vote in favor of the Mergers.
 
                                    PART II
 
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     See Exhibit 13. The financial statements included in Exhibit 13 are
incorporated herein by reference.
 
                                    PART III
 
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
NOMINEES FOR ELECTION
 
     At the 1996 Annual Meeting of Shareholders of U.S. Healthcare (the "U.S.
Healthcare Annual Meeting"), it is expected that the shareholders of U.S.
Healthcare will elect two Class III directors to hold office until the 1999
Annual Meeting of Shareholders of U.S. Healthcare and until their successors are
duly elected and qualified. U.S. Healthcare's Board of Directors is divided into
three classes serving staggered three-year terms; the term of one class of
directors expires each year. The term of the Class III directors
 
                                        1
<PAGE>   3
 
expires at the U.S. Healthcare Annual Meeting. The nominees of the U.S.
Healthcare Board of Directors for election as Class III directors are expected
to be David B. Soll, M.D. and Timothy T. Weglicki, who are currently Class III
directors. In accordance with U.S. Healthcare's Articles of Incorporation, one
of the Class III directors is to be elected by the holders of U.S. Healthcare
Common Stock and U.S. Healthcare Class B Stock, voting together as a single
class, and the other Class III director is to be elected solely by the holders
of U.S. Healthcare Common Stock. Dr. Soll will be nominated by the Board of
Directors as the Class III director to be elected by the holders of U.S.
Healthcare Common Stock and U.S. Healthcare Class B Stock, and his election will
require the affirmative vote of a majority of the votes which the holders of
U.S. Healthcare Common Stock and U.S. Healthcare Class B Stock present at the
U.S. Healthcare Annual Meeting in person or by proxy are entitled to cast,
voting together as a single class. Mr. Weglicki will be nominated by the U.S.
Healthcare Board of Directors as the Class III director to be elected solely by
the holders of U.S. Healthcare Common Stock, and his election will require the
affirmative vote of a majority of the votes which the holders of U.S. Healthcare
Common Stock present at the U.S. Healthcare Annual Meeting in person or by proxy
are entitled to cast.
 
     The nominees for election as directors and the directors whose terms of
office continue after the U.S. Healthcare Annual Meeting, together with certain
information about them, are as follows:
 
<TABLE>
<CAPTION>
                                              DIRECTOR   TERM EXPIRES         POSITION(S) WITH U.S.
                 NAME                   AGE    SINCE       (CLASS)                 HEALTHCARE
- --------------------------------------  ---   --------   ------------       -------------------------
<S>                                     <C>   <C>        <C>                <C>
Leonard Abramson(1)(2)                  63      1982        1998 (I)        Principal executive
                                                                            officer and Director
Betsy Z. Cohen(4)                       54      1994        1997 (II)       Director
Jerome S. Goodman(3)                    61      1988        1998 (I)        Director
Allen Misher, Ph.D.(1)(2)(3)(4)         63      1985        1997 (II)       Director
David B. Soll, M.D.                     65      1982        1996 (III)      Director
Timothy T. Weglicki(3)                  44      1990        1996 (III)      Director
</TABLE>
 
- ---------------
 
(1) Member of U.S. Healthcare's Stock Option Committee.
 
(2) Member of U.S. Healthcare's Executive Committee.
 
(3) Member of U.S. Healthcare's Audit Committee.
 
(4) Member of U.S. Healthcare's Compensation Committee and Incentive Plan
    Committee. Effective April 15, 1996, Ms. Cohen and Dr. Misher were appointed
    to U.S. Healthcare's Compensation Committee and Incentive Plan Committee.
    Prior to April 15, 1996, Mr. Goodman and Dr. Misher were members of U.S.
    Healthcare's Compensation Committee and Incentive Plan Committee.
 
     The Merger Agreement provides that immediately after the Merger Date, the
Board of Directors of U.S. Healthcare will be designated by Parent and will
include Michael J. Cardillo and Joseph T. Sebastianelli (the "Co-Presidents").
 
PRINCIPAL OCCUPATIONS AND DIRECTORSHIPS HELD BY THE NOMINEES FOR DIRECTORS
AND DIRECTORS OF U.S. HEALTHCARE
 
     Mr. Abramson has been the principal executive officer and a Director of
U.S. Healthcare since 1982.
 
     Ms. Cohen has been Chairman, Chief Executive Officer, and a Director of
JeffBanks, Inc. (a bank holding company) since 1981. From 1985 until 1993, Ms.
Cohen was a Director of First Union Corp. of Virginia (a bank holding company)
and its predecessor, Dominion Bankshares, Inc. (a bank holding company). Ms.
Cohen has also been a Director of Life Technologies since 1992.
 
     Mr. Goodman has been Chairman of Cherry Hill Travel, Inc. d/b/a Travel One
(a commercial travel agent) since 1971, and was the sole stockholder of Travel
One from 1971 to 1994. He has been a Director of GBC Technologies, Inc. since
1992. From 1987 until 1992, Mr. Goodman was also Chairman, President and Chief
Executive Officer of First Peoples Financial Corporation (a bank holding
company).
 
     Dr. Misher has been President Emeritus of the Philadelphia College of
Pharmacy and Science since February 1995 and was President of the Philadelphia
College of Pharmacy and Science from 1984 to 1994. He
 
                                        2
<PAGE>   4
 
has been a Director of U.S. Bioscience, Inc. since 1988, a Director of Marsam
Pharmaceuticals, Inc. (pharmaceutical company) since 1991, a Director of
Cortech, Inc. since 1994 and a Director of Oravax, Inc. since 1996.
 
     Dr. Soll is a practicing ophthalmologist and has been Director of the
Division of Ophthalmology, Cooper Hospital/University Medical Center and
Clinical Professor of Surgery (Ophthalmology), University of Medicine and
Dentistry of New Jersey/Robert Wood Johnson Medical School at Camden, New Jersey
since 1988. Dr. Soll has been Director of the Ophthalmology Service at Frankford
Hospital since 1965 and a consultant at the Philadelphia Geriatric Center since
1965, and from 1968 to the present, he has been Director of the Ophthalmology
Service at Medical College Hospitals, Elkins Park Campus.
 
     Mr. Weglicki has been a general partner of ABS Capital Partners, L.P., a
merchant banking fund affiliated with Alex. Brown & Sons Incorporated, an
investment banking and brokerage firm, since January 1994, and was a Managing
Director of Alex. Brown & Sons Incorporated from 1984 to 1995.
 
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
 
     U.S. Healthcare's Board of Directors has an Audit Committee, a Compensation
Committee, an Incentive Plan Committee, a Stock Option Committee and an
Executive Committee, but does not have a Nominating Committee.
 
     The Audit Committee, which held two meetings in 1995, consists of Dr.
Misher and Messrs. Goodman and Weglicki. The functions of the Audit Committee
generally include the following: recommending the engagement of U.S.
Healthcare's independent auditors; reviewing with U.S. Healthcare's independent
auditors the scope and results of their engagement; reviewing the scope and
results of U.S. Healthcare's internal audit function and reviewing the adequacy
of U.S. Healthcare's systems of internal accounting controls.
 
     The Compensation Committee, which held two meetings in 1995, currently
consists of Ms. Cohen and Dr. Misher. The function of the Compensation Committee
is to review and approve the compensation of U.S. Healthcare's executive
officers.
 
     The Incentive Plan Committee, which held two meetings in 1995, currently
consists of Ms. Cohen and Dr. Misher. The functions of the Incentive Plan
Committee are to grant stock options and restricted stock awards pursuant to
U.S. Healthcare's Incentive Plan and to serve as the administrative committee of
U.S. Healthcare's Incentive Plan.
 
     The Stock Option Committee, which held no meetings in 1995, consists of
Messrs. Abramson and Dickerson and Dr. Misher. The function of the Stock Option
Committee is to grant stock options pursuant to U.S. Healthcare's stock option
plans pursuant to which stock options may be granted to employees and
participating physicians under contract with U.S. Healthcare's health
maintenance organizations.
 
     The Executive Committee is empowered to exercise all of the powers of the
Board of Directors between meetings of the Board of Directors, except for
certain powers reserved by law or U.S. Healthcare's bylaws to the Board of
Directors or the shareholders. The members of the Executive Committee are Mr.
Abramson and Dr. Misher. The Executive Committee did not hold any meetings in
1995.
 
     The Board of Directors held four meetings in 1995. Each Director attended
at least 75% of the aggregate number of meetings of the Board of Directors and
committees on which the Director served.
 
COMPENSATION OF DIRECTORS
 
     For 1995, U.S. Healthcare paid an annual fee of $10,000 to each
non-employee director and $1,000 for each Board of Directors or committee
meeting attended. For 1995, Ms. Cohen received $14,000, Mr. Goodman received
$18,000, Dr. Misher received $20,000, Dr. Soll received $14,000 and Mr. Weglicki
received $16,000.
 
                                        3
<PAGE>   5
 
ITEM 11 -- EXECUTIVE COMPENSATION
 
     Summary Compensation Table. The following table summarizes the compensation
paid by U.S. Healthcare to U.S. Healthcare's executive officers for each of the
last three fiscal years.
 
<TABLE>
<CAPTION>
                                                                                            LONG-TERM COMPENSATION
                                                                              ---------------------------------------------------
                                            ANNUAL COMPENSATION                        AWARDS
                                 -----------------------------------------    ------------------------                 PAYOUTS
                                                                 OTHER        RESTRICTED                             ------------
                                                                 ANNUAL         STOCK       SECURITIES                ALL OTHER
                       FISCAL                                 COMPENSATION      AWARDS      UNDERLYING               COMPENSATION
  NAME AND POSITION     YEAR     SALARY(1)       BONUS(2)        ($)(3)         ($)(4)       OPTIONS      PAYOUTS       (5)(6)
- ---------------------  ------    ----------     ----------    ------------    ----------    ----------    -------    ------------
<S>                    <C>       <C>            <C>           <C>             <C>           <C>           <C>        <C>
Leonard Abramson        1995     $1,791,764(7)  $  700,000(8)   $121,139           None          None       None       $369,724
Principal executive
  officer               1994      1,739,577      1,635,000        77,830           None          None       None        421,581
                        1993      1,676,700      1,459,395(9)     75,114           None       150,000       None        310,836
Michael J. Cardillo     1995        575,100        221,460        15,839       $499,968        55,595       None         20,062
Co-President and        1994        475,200        300,000         9,588           None          None       None         20,096
Principal marketing
  officer               1993        432,000        225,000         8,629           None        40,500       None         29,270
Joseph T.
  Sebastianelli(10)     1995        513,000        221,460         1,688        499,968        68,095(12)   None         20,062
Co-President and
  Principal medical     1994        313,906        255,000          None        635,000(11)      None(12)   None          3,000
administrative
  officer
James H. Dickerson,
  Jr.(10)               1995        378,000        129,146         1,525        291,648        56,475(12)   None         20,062
Principal financial
  officer               1994        283,500        150,000          None        986,133(11)      None(12)   None           None
Timothy E. Nolan        1995        378,000        129,146         9,978        291,648        38,300       None         20,062
Senior sales officer    1994        286,200        270,000         6,091           None          None       None         20,096
                        1993        243,000        270,000         5,624           None        37,500       None         29,270
David F. Simon          1995        378,000        129,146         8,004        291,648        30,885       None         20,062
Principal legal
  officer               1994        361,800        150,000         4,373           None          None       None         20,096
                        1993        329,400        125,000         3,337           None        15,000       None         29,270
</TABLE>
 
- ---------------
 
 (1) Includes deferred compensation that accrues annually at a designated
     percentage of each executive officer's annual base salary, which is payable
     upon termination of employment. The designated percentage of deferred
     compensation for Mr. Abramson for 1993, 1994, and 1995 was 11.78%, and the
     designated percentage of deferred compensation for the other executive
     officers for 1993, 1994, and 1995 was 8%.
 
     The amount reported in this column also includes the portion of salary that
     each executive officer contributed to the U.S. Healthcare Savings Plan (the
     "Savings Plan"). Participants in the Savings Plan may contribute a
     percentage of their cash compensation, subject to certain limitations set
     forth in the Savings Plan.
 
 (2) Under the 1995 Stock-Based Performance Bonus Program for Senior Employees
     (the "1995 Bonus Program"), each executive officer other than Leonard
     Abramson received his 1995 bonus in a combination of cash and restricted
     shares of U.S. Healthcare's Common Stock. The restricted shares granted
     under the 1995 Bonus Program vest in five annual installments commencing on
     January 4, 1996. The 1995 bonus amount for each executive officer in this
     column (other than Leonard Abramson) includes the market value of the first
     installment of restricted shares granted under the 1995 Bonus Program which
     vested on January 4, 1996. The number of shares and the market value (which
     is determined by multiplying the number of vested shares by the closing
     price of U.S. Healthcare Common Stock on the Nasdaq Stock Market on the
     vesting date) of the first installment that vested on January 4, 1996 were
     as follows: Mr. Cardillo, 2,688 shares ($120,960); Mr. Sebastianelli, 2,688
     shares ($120,960); Mr. Dickerson, 1,049 shares ($47,205); Mr. Nolan, 996
     shares ($44,820); and Mr. Simon, 1,049 shares ($47,205). Pursuant to the
     Merger Agreement and the U.S. Healthcare Incentive Plan, all restricted
     shares vested as of March 30, 1996.
 
 (3) The deferred compensation amount, which accrues each year as described
     above in Note 1, is increased each year by an amount corresponding to
     interest, based upon U.S. Healthcare's average yield on its investments, on
     the prior year's accumulated balance. This column includes interest earned
     by each executive officer on his deferred compensation.
 
 (4) The restricted stock awards shown in this column for 1995 reflect the
     market value (as of the grant date) of the four remaining installments of
     restricted shares granted to each executive officer other than Leonard
     Abramson under the 1995 Bonus Program (described above in Note 2) which had
     not vested as of January 4, 1996. The market value of these restricted
     shares was determined by multiplying the number of unvested shares by the
     closing price of Common Stock on the Nasdaq Stock Market as of the grant
     date. As of January 1, 1996, the officers listed in this table held the
     following number of shares of restricted stock, with the following values:
     Mr. Abramson, 0 shares ($0), Mr. Cardillo, 10,752 shares ($499,968); Mr.
     Sebastianelli, 10,752 shares ($499,968); Mr. Dickerson, 6,272 shares
     ($291,648); Mr. Nolan, 6,272 shares ($291,648); and Mr. Simon, 6,272 shares
     ($291,648). As a result of U.S. Healthcare entering into the Merger
     Agreement, all shares of restricted stock vested as of March 30, 1996.
 
                                        4
<PAGE>   6
 
 (5) Includes contributions made by U.S. Healthcare to the Pension Plan for
     Employees of U.S. Healthcare (the "Pension Plan") and to the Savings Plan.
     Under the Pension Plan, U.S. Healthcare contributes for each eligible
     employee an amount equal to 8% of the employee's compensation plus 5.7% of
     the employee's compensation in excess of the social security taxable wage
     base, subject to a maximum limitation on U.S. Healthcare contribution per
     employee as specified in the Pension Plan. The Pension Plan provides for
     payment of an employee's account balance either in a lump sum or under an
     annuity option specified in the Pension Plan, as selected by the employee.
 
     The amount reported in this column also includes U.S. Healthcare's
     contributions under the Savings Plan in an amount equal to one-third of the
     participating employee's contribution, up to 2% of the employee's annual
     compensation.
 
 (6) Pursuant to agreements between U.S. Healthcare and two trusts created by
     Leonard Abramson, the trusts have purchased three split-dollar life
     insurance policies on Mr. Abramson's life and one split-dollar life
     insurance policy on the joint lives of Mr. Abramson and his wife, Madlyn K.
     Abramson. Under these agreements, U.S. Healthcare pays the premium on each
     policy, minus a sum equal to the lesser of the applicable one-year term
     premium cost computed under Internal Revenue Service Revenue Ruling 55-747
     or the cost of comparable one-year term life insurance in the amount of
     each policy. The trusts are the beneficiaries of the insurance policies.
     However, U.S. Healthcare has been granted a security interest in the death
     benefits of each policy equal to the sum of all premium payments made by
     U.S. Healthcare. These arrangements are designed so that if the assumptions
     made as to mortality experience, policy dividends and other factors are
     realized, U.S. Healthcare, upon Mr. Abramson's death or the surrender of
     the policies, will recover all of its insurance premium payments (which do
     not include certain amounts paid annually to Mr. Abramson, as described
     below). The premiums paid by U.S. Healthcare in 1993, 1994, and 1995
     pursuant to these arrangements were $405,267, $405,177, and $401,670,
     respectively. The amounts in this column do not include such premium
     payments. However, the amounts in this column include the present value of
     the imputed interest on such premium payments, such interest calculated
     based upon Mr. Abramson's remaining life expectancy, and totaled $256,760,
     $282,346, and $256,016 in 1993, 1994, and 1995, respectively.
 
     Pursuant to the split-dollar arrangement described above, Mr. Abramson
     receives each year an amount equal to the portion of the annual premiums
     due and payable on the life insurance policies which are not paid by U.S.
     Healthcare pursuant to the above-described formula, but paid by Mr.
     Abramson. The amounts reported in this column include such amounts, which
     totaled $25,049, $25,139, and $28,646 in 1993, 1994, and 1995,
     respectively.
 
     The amounts in this column also include the following payments by U.S.
     Healthcare to Mr. Abramson: (i) for 1995, $50,000 for travel and $18,000
     for 1994 tax return preparation fees and (ii) for 1994, $50,000 for travel
     expenses and $47,000 for 1992 and 1993 tax return preparation fees.
 
 (7) Does not include a $48,088 cost of living increase in base salary to which
     Mr. Abramson was entitled but declined to receive.
 
 (8) Does not include $910,488 of cash bonus Mr. Abramson earned for 1995, but
     did not receive. Mr. Abramson has an employment agreement pursuant to which
     he was entitled to receive a cash bonus for 1995 in the amount of
     $1,610,488. However, Mr. Abramson declined to receive the full amount of
     such cash bonus he was entitled for 1995 and requested that the portion of
     his bonus in excess of $700,000 be deferred until such time as U.S.
     Healthcare's earnings per share for any four consecutive quarters in the
     aggregate have exceeded $2.70 per share. The Board of Directors of U.S.
     Healthcare accepted Mr. Abramson's request. Accordingly, payment of
     $910,488 of Mr. Abramson's 1995 total bonus amount of $1,610,488 was
     initially deferred until such time as U.S. Healthcare's earnings reach the
     level described above. In connection with the execution of the Merger
     Agreement, the U.S. Healthcare Board of Directors authorized the payment of
     such portion of Mr. Abramson's bonus on the Merger Date.
 
 (9) The bonus amount for 1993 also includes a contract renewal bonus of $64,395
     payable pursuant to the employment agreement which terminated on December
     31, 1992.
 
(10) No information is reported for 1993 because Messrs. Sebastianelli and
     Dickerson were not employees of U.S. Healthcare prior to 1994.
 
(11) The value of the restricted stock grant reflected in this column is
     determined by multiplying the total number of shares awarded by the closing
     price of U.S. Healthcare Common Stock on the Nasdaq Stock Market on the
     date of grant. Messrs. Sebastianelli and Dickerson were awarded 15,000 and
     22,500 shares of U.S. Healthcare Common Stock, respectively.
 
(12) Pursuant to a repricing program adopted by the Compensation Committee of
     the U.S. Healthcare Board of Directors in 1995 (the "Options Repricing
     Program"), options to purchase 15,000 and 30,000 shares of U.S. Healthcare
     Common Stock which were granted in 1994 to Messrs. Sebastianelli and
     Dickerson, respectively, were canceled and were reissued in 1995 with a new
     exercise price and a new vesting schedule. These canceled stock options are
     not reflected in this column; only the stock options reissued in 1995 are
     included in this column.
 
                                        5
<PAGE>   7
 
U.S. Healthcare did not grant any stock appreciation rights ("SARs") to any
executive officer during the three fiscal years covered by the Summary
Compensation Table.
 
     Option/SAR Grants in Fiscal Year 1995. The following table summarizes the
stock options granted by U.S. Healthcare to U.S. Healthcare's executive officers
during the last fiscal year. No SARs were granted during the last fiscal year.
 
<TABLE>
<CAPTION>
                              NUMBER OF        % OF TOTAL
                             SECURITIES       OPTIONS/SARS
                             UNDERLYING        GRANTED TO       EXERCISE
                            OPTIONS/SARS      EMPLOYEES IN       OR BASE                          GRANT DATE
           NAME             GRANTED(#)(1)   LAST FISCAL YEAR   PRICE($/SH)   EXPIRATION DATE   PRESENT VALUE(2)
- --------------------------  -------------   ----------------   -----------   ---------------   ----------------
<S>                         <C>             <C>                <C>           <C>               <C>
Michael J. Cardillo.......      55,595            2.7%           $ 31.18      August 7, 2005      $  865,058
Joseph T. Sebastianelli...      68,095(3)         3.3%           $ 31.18      August 7, 2005       1,059,558
James H. Dickerson, Jr....      56,475(3)         2.8%           $ 31.18      August 7, 2005         878,751
Timothy E. Nolan..........      38,300            1.9%           $ 31.18      August 7, 2005         595,948
David F. Simon............      30,885            1.5%           $ 31.18      August 7, 2005         480,571
</TABLE>
 
- ---------------
 
(1) When granted, the options reflected in the table were to become exercisable
    in five equal annual installments commencing on August 7, 1996. The exercise
    price of the options is 100% of the fair market value of U.S. Healthcare
    Common Stock as of the date of grant. In addition, pursuant to the Merger
    Agreement and the U.S. Healthcare Incentive Plan, each outstanding option
    became fully vested as of March 30, 1996 and is no longer subject to any
    conditions relating to exercisability other than as agreed to under the
    Employment Agreement (as defined below) with the executive officer.
 
(2) The dollar amount set forth under this heading is the result of calculations
    based on requirements promulgated by the Securities and Exchange Commission
    and is not intended to reflect U.S. Healthcare's estimate or projection of
    possible future stock prices. The dollar amount was calculated for all
    options using the binomial option pricing model with the following
    assumptions: (a) 41.56% volatility, (b) 6.67% risk-free rate of return, (c)
    2.2% annual dividend yield and (d) all options exercised at the end of their
    term.
 
(3) In August 1995, Messrs. Sebastianelli and Dickerson received stock option
    grants for 15,000 shares and 30,000 shares, respectively, at the then fair
    market value of common stock in exchange for cancellation of a like number
    of stock options.
 
     Aggregated Option/SAR Exercises in Fiscal Year 1995 and Fiscal Year-End
Option Values. The following table summarizes the stock options exercised by
U.S. Healthcare's executive officers during the last fiscal year and the fiscal
year-end number and value of unexercised stock options held by such executive
officers. No SARs had been granted as of the end of the last fiscal year.
 
<TABLE>
<CAPTION>
                                                                      NUMBER OF                  VALUE OF
                                                                SECURITIES UNDERLYING           UNEXERCISED
                                                                     UNEXERCISED               IN-THE-MONEY
                                                                   OPTIONS/SARS AT            OPTIONS/SARS AT
                                   SHARES                        FISCAL YEAR END(#)        FISCAL YEAR END($)(2)
                                  ACQUIRED         VALUE          (EXERCISABLE(E)/            EXERCISABLE(E)
             NAME                ON EXERCISE   REALIZED($)(1)    (UNEXERCISABLE(U))          UNEXERCISABLE(U)
- -------------------------------  -----------   --------------   ---------------------      ---------------------
<S>                              <C>           <C>              <C>                        <C>
Leonard Abramson...............          0               0              60,000(E)              $1,058,793(E)
                                                                        90,000(U)               1,588,190(U)
Michael J. Cardillo............          0               0              16,200(E)                 290,790(E)
                                                                        79,895(U)               1,287,900(U)
Joseph T. Sebastianelli........          0               0              68,095(U)               1,043,215(U)
James H. Dickerson, Jr. .......          0               0              56,475(U)                 865,197(U)
Timothy E. Nolan...............          0               0               7,500(E)                 134,625(E)
                                                                        60,800(U)                 990,631(U)
David F. Simon.................     10,126         236,293              11,063(E)                 309,207(E)
                                                                        48,323(U)                 910,209(U)
</TABLE>
 
- ---------------
 
                                        6
<PAGE>   8
 
(1) Based on the difference between the closing price of U.S. Healthcare Common
    Stock on The Nasdaq Stock Market on the date of exercise and the exercise
    price of the options. In addition, pursuant to the Merger Agreement and the
    U.S. Healthcare Incentive Plan, each outstanding option became fully vested
    as of March 30, 1996 and is no longer subject to any conditions relating to
    exercisability other than as agreed to under the Employment Agreement with
    each executive officer.
 
(2) Based on the difference between the closing price of U.S. Healthcare Common
    Stock on The Nasdaq Stock Market at year end 1995 and the exercise price of
    the options.
 
     Ten-Year Option Repricing. Pursuant to the Options Repricing Program,
certain stock options were canceled and reissued in 1995 with a new exercise
price and a new vesting schedule. In addition, pursuant to the Merger Agreement
and the U.S. Healthcare Incentive Plan, each outstanding option became fully
vested as of March 30, 1996 and is no longer subject to any conditions relating
to exercisability other than as agreed to under the Employment Agreement with
each executive officer. The following table provides information regarding
repricing of stock options affecting the executive officers identified in the
Summary Compensation Table under the Options Repricing Program or any other
program within the past ten fiscal years. Messrs. Sebastianelli and Dickerson
are the only executive officers who participated in the Options Repricing
Program.
 
<TABLE>
<CAPTION>
                                     NUMBER OF                           ORIGINAL                      LENGTH OF ORIGINAL
                                    SECURITIES                           EXERCISE                         OPTION-TERM
                                    UNDERLYING    MARKET PRICE OF        PRICE OF                         REMAINING AT
                        REPRICING     OPTIONS     STOCK AT TIME OF   STOCK AT TIME OF   NEW EXERCISE        DATE OF
                          DATE       REPRICED        REPRICING          REPRICING          PRICE          REPRICING(1)
                        ---------   -----------   ----------------   ----------------   ------------   ------------------
<S>                     <C>         <C>           <C>                <C>                <C>            <C>
Leonard Abramson......   11/3/87      337,502          $ 1.67             $ 3.30           $ 1.67             4.25
Michael J. Cardillo...   11/3/87       50,625            1.67               3.00             1.67             4.25
Joseph T.
  Sebastianelli.......    8/7/95       15,000           31.18              41.04            31.18             8.58
James H. Dickerson, Jr. . ...   8/7/95    30,000        31.18              42.50            31.18             8.67
Timothy E. Nolan......   11/3/87       50,625            1.67               3.00             1.67             4.25
</TABLE>
 
- ---------------
(1) Length of time remaining is set forth in years.
 
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
 
     Mr. Abramson is a party to an employment agreement pursuant to which he is
entitled to receive the following compensation for his services in 1996: (i) an
annual base salary of $1,602,938, (ii) an annual bonus based upon U.S.
Healthcare's performance and (iii) non-cash compensation and fringe benefits
(including insurance against accidental injury or death of Mr. Abramson or his
spouse). Mr. Abramson's employment agreement, the current term of which is for a
period of 5 years from January 1, 1993, provides for a severance payment if he
is terminated by U.S. Healthcare without cause, provided that he complies with
certain confidentiality and non-competition obligations. In such event, he is
entitled to receive his then-current base salary for the balance of his
employment term (but not less than one year's base salary) and the pro rata
portion of other cash compensation (based upon the other cash compensation he
would have received had the agreement not been terminated). Pursuant to the
Agreement (the "Agreement with Principal Shareholder"), dated as of March 30,
1996, between Mr. Abramson and Parent, the terms of Mr. Abramson's employment
agreement will be superseded as of the Merger Date. A copy of such agreement was
filed as Exhibit 99.4 to U.S. Healthcare's Current Report on Form 8-K dated
April 2, 1996.
 
     In connection with the execution of the Merger Agreement, U.S. Healthcare
has entered into employment agreements (each, an "Employment Agreement"),
effective as of March 30, 1996 (the "Effective Date"), with each of the
following of its executive officers: Michael J. Cardillo, Co-President; James H.
Dickerson, Jr., Chief Financial Officer; Timothy E. Nolan, Senior Sales Officer;
Joseph T. Sebastianelli, Co-President; and David F. Simon, Chief Legal Officer.
Each Employment Agreement will be assumed by Parent at the Merger Date (each of
U.S. Healthcare and Parent is sometimes hereinafter referred to as the
"Employer") and each of the above-named executives will assume similar positions
with respect to the health operations of the combined business at such time.
Each Employment Agreement has an initial term of five years with automatic
one-year extensions commencing on the fifth anniversary of the Merger Date (or,
 
                                        7
<PAGE>   9
 
if the Mergers are not consummated, on the fifth anniversary of the Effective
Date) unless notice of nonextension is given at least 180 days prior to such
anniversary. Each Employment Agreement provides for (i) a base salary at least
equal to the executive's annual salary rate (including deferred compensation)
for 1996; (ii) an annual target bonus equal to 80% of such executive's base
salary upon the attainment of reasonable corporate performance goals, provided
that (A) the bonus payment in respect of 1997 must at least equal the target
bonus for such fiscal year and (B) if the Merger Date occurs prior to December
31, 1996, the bonus payment in respect of 1996 can be no less than that which
the executive would have received (as determined by U.S. Healthcare) had the
Merger Date occurred subsequent to such date; (iii) grants of options, shares of
restricted stock and other equity-based awards on terms no less favorable than
such grants are made to similarly situated executives of the Employer and its
subsidiaries; and (iv) benefits (including retirement, group life, medical,
dental and disability benefits) on a basis reasonably comparable in the
aggregate to those provided to the executive immediately prior to the Merger
Date, or if more favorable to the executive, to those provided to other senior
officers of Parent and its subsidiaries. For 1996, the annual salary for each of
the above-named U.S. Healthcare executives is as follows: Mr. Cardillo,
$600,000; Mr. Dickerson, $420,000; Mr. Nolan, $420,000; Mr. Sebastianelli,
$600,000; and Mr. Simon, $402,500.
 
     Each Employment Agreement provides for the payment, at the Merger Date, of
(i) a sign-on bonus (the "Cash Bonus") equal to the sum of the executive's
then-current annual salary (including deferred compensation) plus the amount of
such executive's 1995 bonus (or 1996 bonus, if the Merger Date follows December
31, 1996 and such 1996 bonus is larger); and (ii) a "stay" bonus in the form of
a grant, as of the Merger Date, of that number of shares of restricted Parent
Common Stock equal to the Cash Bonus amount divided by the average closing price
per share of Parent Common Stock over the ten trading days following the
consummation of the Merger (such grant of restricted Parent Common Stock
hereinafter referred to as the "Restricted Stock Bonus"). Restrictions with
respect to the Restricted Stock Bonus will lapse upon the second anniversary of
the date of grant, or, if earlier, (i) upon a change in control of Parent or
(ii) upon termination of the executive's employment (a) by reason of death or
"disability," (b) by the Employer other than for "cause" or (c) by the executive
for "good reason" (each such term, as defined in the Employment Agreements).
 
     Each Employment Agreement provides that the executive may not sell or
otherwise dispose (with specified exceptions) of (i) during the period
commencing with the Effective Date and ending on the Merger Date, any shares of
U.S. Healthcare Common Stock, including shares subject to option, except for the
partial cash-out of such shares and options in connection with the Mergers and
(ii) during the one-year period following the Merger Date, any shares of Parent
Common Stock. Each Employment Agreement also provides that, in consideration of
the executive's agreement to such restrictions, each executive will be
reimbursed for all income and employment taxes (and all income and employment
taxes on the reimbursement amount) payable by the executive in connection with
the vesting of restricted shares of U.S. Healthcare Common Stock or as the
result of the partial cash-out of shares of such stock still subject to option
as of the Merger Date.
 
     Each Employment Agreement provides that, if the executive's employment
under the Employment Agreement is terminated by the Employer other than for
"cause" or "disability" or by the executive for "good reason," the executive
will be entitled to receive the following payments and benefits: (i) a payment
in cash equal to three times the sum of (A) the higher of the executive's base
salary as in effect immediately prior to the event or circumstance upon which
termination of employment is based and the executive's annual base salary
(including amounts deferred for the applicable year and any interest accrued
thereon) in effect immediately prior to the Merger Date and (B) the then-current
annual target bonus, 50% of such payment to be paid in a lump sum on the date of
termination and, subject to compliance with the noncompetition provisions of the
Employment Agreement, the remaining 50% to be paid in a lump sum on the first
anniversary of the date of termination of employment); (ii) a pro rata portion,
to the date of termination, of the higher of the actual or target value of any
contingent annual bonus award made to the executive for any then uncompleted
fiscal year under any bonus plan (other than the fiscal year commencing in
1996); (iii) for thirty-six months immediately following the date of such
termination, the continuation of substantially the same welfare and pension
benefits as the executive is receiving immediately prior to termination of
employment, subject to offset by any such benefits received without cost during
such thirty-six month period; and (iv) if the executive would have become
entitled to benefits under the Employer's postretirement health
 
                                        8
<PAGE>   10
 
care or life insurance plans during the thirty-six month period following the
date of termination of employment, the provision of such postretirement benefits
beginning on the later of (A) the date the executive would have become eligible
for such benefits and (B) the date on which the welfare benefits described in
the immediately preceding clause will terminate. In the event that the
executive's employment under the Employment Agreement is terminated by reason of
death or "disability," each of the Employment Agreements provides that the
executive (or his estate or legal representative) will continue to receive his
base salary and annual bonus for the one-year period following such termination.
 
     Each Employment Agreement also provides for a payment, if necessary,
intended to reimburse the executive for any excise tax imposed under section
4999 of Internal Revenue Code of 1986, as amended (the "Code") with respect to
any payment or benefits that the executive may receive under his Employment
Agreement or any other plan, arrangement or agreement, and all income,
employment and excise taxes thereon.
 
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Directors and Executive Officers. The following table sets forth the number
of shares of U.S. Healthcare Common Stock and U.S. Healthcare Class B Stock
beneficially owned as of March 31, 1996 by each current director and executive
officer (including the chief executive officer) of U.S. Healthcare as a group.
The number of shares shown for all executive officers and directors as a group
represented approximately 2.3% of the U.S. Healthcare Common Stock and 99.9% of
the U.S. Healthcare Class B Stock outstanding. Individuals have sole voting and
investment power over the stock unless otherwise indicated in the footnotes.
 
<TABLE>
<CAPTION>
                                                                    SHARES OF U.S. HEALTHCARE
                                                                    COMMON AND CLASS B STOCK,
                                                                   AS APPLICABLE, BENEFICIALLY
                                                                            OWNED(1)
                                                                   ---------------------------
                                                  CLASS OF         NUMBER OF        PERCENT OF
                    NAME                           SHARES            SHARES           CLASS
- ---------------------------------------------  --------------      ----------       ----------
<S>                                            <C>                 <C>              <C>
Leonard Abramson.............................  Common Stock        2,268,755 (2)        1.6%
                                               Class B Stock       14,411,955          99.9%
Betsy Z. Cohen...............................  Common Stock            2,000              *
Jerome S. Goodman............................  Common Stock           83,095              *
Allen Misher, Ph.D...........................  Common Stock            5,250              *
David B. Soll, M.D...........................  Common Stock          217,147              *
Timothy T. Weglicki..........................  Common Stock           37,500 (3)          *
Michael J. Cardillo..........................  Common Stock          153,763 (4)          *
Joseph T. Sebastianelli......................  Common Stock           95,694 (5)          *
James H. Dickerson, Jr.......................  Common Stock           81,884 (6)          *
Timothy E. Nolan.............................  Common Stock          170,898 (7)          *
David F. Simon...............................  Common Stock           80,310 (8)          *
All directors and executive officers
  as a group.................................  Common Stock        3,196,296 (9)        2.3%
                                               Class B Stock       14,411,955          99.9%
</TABLE>
 
- ---------------
 
* Less than 1%.
 
(1) Based on information furnished by the beneficial owners listed.
 
(2) Includes 35,260 shares of U.S. Healthcare Common Stock held by Mr. Abramson
    and two other individuals, as trustees of a trust for the benefit of Mr.
    Abramson's grandchildren, 1,691,543 shares of U.S. Healthcare Common Stock
    held by Madlyn K. Abramson, Mr. Abramson's wife, as trustee for three trusts
    for the benefit of their children, and 80,000 shares of U.S. Healthcare
    Common Stock held in a trust for the benefit of Mr. Abramson's grandchildren
    for which Mrs. Abramson is co-trustee; Mr. Abramson disclaims beneficial
    ownership of these shares. Also includes options to purchase 450,000 shares
    of U.S. Healthcare Common Stock that are currently exercisable. If all of
    the shares of U.S. Healthcare Class B Stock beneficially owned by Mr.
    Abramson were converted into U.S. Healthcare
 
                                        9
<PAGE>   11
 
    Common Stock, Mr. Abramson would become a beneficial owner of approximately
    10.8% of all outstanding U.S. Healthcare Common Stock.
 
(3) Includes options to purchase 37,500 shares of U.S. Healthcare Common Stock
    that are currently exercisable. Mr. Weglicki has been a partner of ABS
    Capital Partners, L.P., a merchant banking fund affiliated with Alex. Brown
    & Sons Incorporated, an investment banking and brokerage firm, since January
    1994, and was a Managing Director of Alex. Brown & Sons Incorporated from
    1984 to 1995. Alex. Brown & Sons Incorporated is a market maker in U.S.
    Healthcare Common Stock, and in the ordinary course of business buys and
    sells U.S. Healthcare Common Stock. Mr. Weglicki disclaims beneficial
    ownership of any shares of U.S. Healthcare Common Stock held by Alex. Brown
    & Sons Incorporated.
 
(4) Includes 228 shares of U.S. Healthcare Common Stock held under the U.S.
    Healthcare, Inc. Savings Plan. Also includes options to purchase 96,095
    shares of U.S. Healthcare Common Stock that are currently exercisable.
 
(5) Includes 159 shares of U.S. Healthcare Common Stock held under the Savings
    Plan. Also includes options to purchase 68,095 shares of U.S. Healthcare
    Common Stock that are currently exercisable.
 
(6) Includes 88 shares of U.S. Healthcare Common Stock held under the U.S.
    Healthcare Savings Plan. Also includes options to purchase 56,475 shares of
    U.S. Healthcare Common Stock that are currently exercisable.
 
(7) Includes 15,094 shares of U.S. Healthcare Common Stock held under the U.S.
    Healthcare Savings Plan. Also includes options to purchase 68,300 shares of
    U.S. Healthcare Common Stock that are currently exercisable, 60 shares of
    U.S. Healthcare Common Stock held in a custodial account for the benefit of
    Mr. Nolan's niece, 55 shares of U.S. Healthcare Common Stock held in a
    custodial account for the benefit of Mr. Nolan's godchild, 30 shares of U.S.
    Healthcare Common Stock held in a custodial account for the benefit of Mr.
    Nolan's nephew and 20 shares of U.S. Healthcare Common Stock held in a
    custodial account for the benefit of Mr. Nolan's niece. This also includes
    4,539 shares of U.S. Healthcare Common Stock held in a joint account by Mr.
    Nolan and Kathleen Nolan, his wife.
 
(8) Includes 790 shares of U.S. Healthcare Common Stock held under the U.S.
    Healthcare Savings Plan. Also includes options to purchase 51,323 shares of
    U.S. Healthcare Common Stock that are currently exercisable.
 
(9) Includes options to purchase 827,788 shares of U.S. Healthcare Common Stock
    that are currently exercisable. Also includes 16,359 shares of U.S.
    Healthcare Common Stock held under the U.S. Healthcare Savings Plan.
    Pursuant to the Merger Agreement and the U.S. Healthcare Incentive Plan, all
    unexercisable options held by each director and executive officer as of
    March 30, 1996 became fully vested on March 30, 1996 and are no longer
    subject to any conditions relating to exercisability other than as agreed to
    under the Employment Agreements and the Agreement with Principal
    Shareholder, as applicable. If all of the shares of U.S. Healthcare Class B
    Stock beneficially owned by Mr. Abramson were converted into U.S. Healthcare
    Common Stock, all directors and executive officers as a group would become
    beneficial owners of approximately 11.4% of all outstanding U.S. Healthcare
    Common Stock.
 
     Five Percent Stockholders. The following table sets forth information
concerning the only persons known to U.S. Healthcare as of March 31, 1996 to own
beneficially more than 5% of the outstanding shares of U.S. Healthcare Stock.
 
<TABLE>
<CAPTION>
                                                                        BENEFICIAL OWNERSHIP
                                                                         OF INDICATED CLASS
                                                                     ---------------------------
                  NAME AND ADDRESS                      CLASS OF      NUMBER OF       PERCENT OF
                   OF SHAREHOLDER                         STOCK        SHARES           CLASS
- ----------------------------------------------------  -------------  -----------      ----------
<S>                                                   <C>            <C>              <C>
Leonard Abramson....................................  Common Stock     2,268,755(1)       1.6%
                                                      Class B Stock   14,411,955         99.9%
</TABLE>
 
- ---------------
 
(1) Includes 35,260 shares of U.S. Healthcare Common Stock held by Mr. Abramson
    and two other individuals, as trustees of a trust for the benefit of Mr.
    Abramson's grandchildren, 1,691,543 shares of U.S. Healthcare Common Stock
    held by Madlyn K. Abramson, Mr. Abramson's wife, as trustee for three
 
                                       10
<PAGE>   12
 
    trusts for the benefit of their children, and 80,000 shares of Common Stock
    held in a trust for the benefit of Mr. Abramson's grandchildren for which
    Mrs. Abramson is co-trustee; Mr. Abramson disclaims beneficial ownership of
    these shares. Also includes options to purchase 450,000 shares of Common
    Stock that are currently exercisable. If all of the shares of Class B Stock
    beneficially owned by Mr. Abramson were converted into Common Stock, Mr.
    Abramson would become a beneficial owner of approximately 10.8% of all
    outstanding Common Stock.
 
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     During 1995, the medical practice of Dr. Soll, a Director of U.S.
Healthcare, received $670,878 from U.S. Healthcare or its subsidiaries for
medical services rendered to members of U.S. Healthcare's health maintenance
organizations.
 
     During 1995, U.S. Healthcare paid $3,862,837 to vendors of travel and
lodging services for business related travel by employees arranged through
Cherry Hill Travel, Inc. d/b/a Travel One, a travel agency. Mr. Goodman, a
Director of U.S. Healthcare, is the Chairman of Cherry Hill Travel, Inc.
 
     U.S. Healthcare paid $248,715 in salary and cash bonus and 2,608 shares of
restricted U.S. Healthcare Common Stock (which vest in five equal annual
installments) for services rendered in 1995 by Ms. Nancy Wolfson, an employee of
U.S. Healthcare and a daughter of Mr. Abramson (who is a Director, principal
executive officer and beneficial holder of more than ten percent of the voting
securities of U.S. Healthcare). U.S. Healthcare paid $287,010 in salary and cash
bonus and 3,012 shares of restricted U.S. Healthcare Common Stock (which vest in
five equal annual installments) for services rendered in 1995 by Mr. Richard
Wolfson, an employee of U.S. Healthcare and a son-in-law of Mr. Abramson.
Pursuant to the Merger Agreement, as of March 30, 1996, each then-outstanding
share of U.S. Healthcare restricted stock became fully vested. U.S. Healthcare
owns 51% and Ms. Marcy Shoemaker (a daughter of Mr. Abramson) owns 49% of the
outstanding voting securities of Criterion Communications, Inc. ("Criterion"), a
Delaware corporation engaged in corporate communications business. U.S.
Healthcare has made available to Criterion a line of credit for up to
$10,000,000. In 1995, Criterion borrowed $184,707 under the line of credit. U.S.
Healthcare has also entered into a service agreement with Criterion pursuant to
which Criterion is obligated to pay for certain administrative services and
facilities provided by U.S. Healthcare for Criterion. Criterion paid U.S.
Healthcare $89,630 for services and facilities provided in 1995. In addition,
U.S. Healthcare is the guarantor of Criterion's obligations under a lease
agreement for Criterion's office space. Criterion has also entered into a
service agreement with U.S. Healthcare pursuant to which U.S. Healthcare is
obligated to pay for certain services provided or arranged by Criterion for U.S.
Healthcare. U.S. Healthcare paid Criterion $5,186,240 for such services provided
in 1995. Ms. Shoemaker was paid $225,000 in salary and no bonus as an officer of
Criterion. Pursuant to the Merger Agreement, Parent has agreed to cause U.S.
Healthcare to perform U.S. Healthcare's agreements with Criterion and not to
terminate such agreements until 2004, absent a breach by any other party
thereto.
 
     In connection with the execution of the Merger Agreement, U.S. Healthcare
has entered into employment agreements with twenty-seven of its executives,
including Nancy Wolfson, Richard Wolfson and Marcy Shoemaker. Nancy Wolfson and
Marcy Shoemaker are daughters of Mr. Abramson, and Richard Wolfson is a
son-in-law of Mr. Abramson.
 
                                    PART IV
 
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
(A)1. FINANCIAL STATEMENTS
 
     U.S. Healthcare's audited financial statements, previously filed as Exhibit
13 to U.S. Healthcare's Annual Report on Form 10-K, have been revised to include
the addition of Note 9 thereto which reflects that U.S. Healthcare has entered
into the Merger Agreement. Such financial statements are being filed as Exhibit
13 hereto.
 
                                       11
<PAGE>   13
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed by
the undersigned thereunto duly authorized.
 
                                          U.S. HEALTHCARE, INC
 
                                          By: /s/  Don H. Liu
 
                                            ------------------------------------
                                            Name: Don H. Liu
                                            Title: Secretary
 
Dated: April 29, 1996
 
                                       12
<PAGE>   14
 
                               INDEX TO EXHIBITS
 
<TABLE>
<C>              <S>
    Exhibit  3.  Articles of incorporation and by-laws.
            3.1  Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1989).
            3.2  By-laws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual
                 Report on Form 10-K for the year ended December 31, 1990).
    Exhibit  4.  Specimen of common stock certificate.
            4.1  Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4.1
                 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1989).
            4.2  Specimen of Class B Stock Certificate (incorporated by reference to Exhibit
                 4.2 to the Registrant's Annual Report on Form 10-K for the year ended December
                 31, 1989).
    Exhibit 10.  Material contracts.
           10.1  Employment Agreement dated as of January 1, 1993 between U.S. Healthcare, Inc.
                 and Leonard Abramson (incorporated by reference to Exhibit 10.1 to the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1992).
           10.2  Employment Agreement dated as of January 1, 1993 between U.S. Healthcare, Inc.
                 and Michael Cardillo (incorporated by reference to Exhibit 10.3 to the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1992)
                 (the Employment Agreement referenced herein as Exhibit 10.29 supersedes this
                 Employment Agreement).
           10.3  Employment Agreement dated as of January 1, 1993 between U.S. Healthcare, Inc.
                 and Timothy Nolan (incorporated by reference to Exhibit 10.4 to the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)
                 (the Employment Agreement referenced herein as Exhibit 10.33 supersedes this
                 Employment Agreement).
           10.4  Employment Agreement dated as of January 1, 1993 between U.S. Healthcare, Inc.
                 and David F. Simon (incorporated by reference to Exhibit 10.5 to the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1994)
                 (the Employment Agreement referenced herein as Exhibit 10.30 supersedes this
                 Employment Agreement).
           10.5  Employment Agreement dated as of January 24, 1994 between U.S. Healthcare,
                 Inc. and Joseph T. Sebastianelli (incorporated by reference to Exhibit 10.6 to
                 the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1994) (the Employment Agreement referenced herein as Exhibit 10.28 supersedes
                 this Employment Agreement).
           10.6  Employment Agreement dated as of February 4, 1994 between U.S. Healthcare,
                 Inc. and James H. Dickerson, Jr. (incorporated by reference to Exhibit 10.7 to
                 the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1994) (the Employment Agreement referenced herein as Exhibit 10.31 supersedes
                 this Employment Agreement).
           10.7  1982 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.13
                 to the Registrant's Registration Statement on Form S-1, No. 2-81039).
           10.8  Second Incentive Stock Option Plan (incorporated by reference to Exhibit 10.21
                 to the Registrant's Registration Statement on Form S-1, No. 2-84210).
           10.9  Third Incentive Stock Option Plan (incorporated by reference to Exhibit 10.3
                 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1987).
          10.10  U.S. Healthcare, Inc. Incentive Plan (incorporated by reference to Exhibit
                 10.8 to the Registrant's Annual Report on Form 10-K for the year ended
                 December 31, 1992).
          10.11  Form of Non-statutory Stock Option (incorporated by reference to Exhibit 10.25
                 to the Registrant's Registration Statement on Form S-1, No. 2-84210).
          10.12  1987 Non-statutory Option Plan (incorporated by reference to Exhibit 10.4 to
                 the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1987).
          10.13  Form of Stock Option Contract for Stock Options granted under the U.S.
                 Healthcare, Inc. Incentive Plan (incorporated by reference to Exhibit 10.12 to
                 the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1992).
</TABLE>
<PAGE>   15
 
<TABLE>
<S>              <C>
          10.14  Form of Restricted Stock Agreement for restricted stock awarded under the U.S.
                 Healthcare, Inc. Incentive Plan (incorporated by reference to Exhibit 10.13 to
                 the Registrant's Annual Report on Form 10-K for the year ended December 31,
                 1992).
          10.15  Form of Restricted Stock Bonus Agreement (incorporated by reference to Exhibit
                 10.13 to the Registrant's Annual Report on Form 10-K for the year ended
                 December 31, 1988).
          10.16  Amended and Restated U.S. Healthcare, Inc. Savings Plan (incorporated by
                 reference to Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1994).
          10.17  Amended and Restated Pension Plan for Employees of U.S. Healthcare, Inc.
                 (incorporated by reference to Exhibit 10.19 to the Registrant's Annual Report
                 on Form 10-K for the year ended December 31, 1994).
          10.18  Form of Incentive Stock Option Agreement (incorporated by reference to Exhibit
                 10.27 to the Registrant's Annual Report on Form 10-K for the year ended
                 December 31, 1989).
          10.19  Amendment No. 1 to 1982 Incentive Stock Option Plan (incorporated by reference
                 to Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the year
                 ended December 31, 1989).
          10.20  Amendment No. 1 to Second Incentive Stock Option Plan (incorporated by
                 reference to Exhibit 10.29 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1989).
          10.21  Amendment No. 2 to Second Incentive Stock Option Plan (incorporated by
                 reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1989).
          10.22  Amendment No. 1 to 1987 Non-statutory Stock Option Plan (incorporated by
                 reference to Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1989).
          10.23  Amendment No. 1 to Third Incentive Stock Option Plan (incorporated by
                 reference to Exhibit 10.30 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1990).
          10.24  Split Dollar Insurance Agreement dated February 1, 1990 by and between Madlyn
                 K. Abramson, Marcy A. Shoemaker (formerly Marcy Abramson), Nancy Wolfson,
                 Judith Abramson and David B. Soll, and U.S. Healthcare, Inc., and the related
                 Collateral Assignment Agreement dated February 1, 1990 by and between Madlyn
                 K. Abramson, Marcy A. Shoemaker (formerly Marcy Abramson), Nancy Wolfson,
                 Judith Abramson and David B. Soll and U.S. Healthcare, Inc. (incorporated by
                 reference to Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1990).
          10.25  Split Dollar Insurance Agreement Dated January 21, 1991 by and between Marcy
                 A. Shoemaker (formerly Marcy Abramson), Nancy Wolfson, Judith Abramson, David
                 B. Soll, Jerome Goodman and Edward M. Glickman, and U.S. Healthcare, Inc., and
                 the related Collateral Assignment Agreement dated January 21, 1991 by and
                 between Marcy A. Shoemaker (formerly Marcy Abramson), Nancy Wolfson, Judith
                 Abramson, David B. Soll, Jerome Goodman and Edward M. Glickman, and U.S.
                 Healthcare, Inc. (incorporated by reference to Exhibit 10.24 of the
                 Registrant's Annual Report on Form 10-K for the year ended December 31, 1991).
          10.26  Description of Deferred Compensation Plan (incorporated by reference to
                 Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the year
                 ended December 31, 1992).
          10.27  Description of Executive Incentive Compensation Plan (incorporated by
                 reference to Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for
                 the year ended December 31, 1992).
          10.28  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and Joseph Sebastianelli (this Employment Agreement
                 supersedes the Employment Agreement referenced herein as Exhibit 10.5)
                 (incorporated by reference to Exhibit 99.5 to U.S. Healthcare's Current Report
                 on Form 8-K dated April 2, 1996).
</TABLE>
<PAGE>   16
 
<TABLE>
<C>              <S>
          10.29  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and Michael Cardillo (this Employment Agreement supersedes
                 the Employment Agreement referenced herein as Exhibit 10.2) (incorporated by
                 reference to Exhibit 99.6 to U.S. Healthcare's Current Report on Form 8-K
                 dated April 2, 1996).
          10.30  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and David Simon (this Employment Agreement supersedes the
                 Employment Agreement referenced herein as Exhibit 10.4) (incorporated by
                 reference to Exhibit 99.7 to U.S. Healthcare's Current Report on Form 8-K
                 dated April 2, 1996).
          10.31  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and James Dickerson (this Employment Agreement supersedes the
                 Employment Agreement referenced herein as Exhibit 10.6) (incorporated by
                 reference to Exhibit 99.8 to U.S. Healthcare's Current Report on Form 8-K
                 dated April 2, 1996).
          10.32  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and Arthur Leibowitz (incorporated by reference to Exhibit
                 99.9 to U.S. Healthcare's Current Report on Form 8-K dated April 2, 1996).
          10.33  Form of Employment Agreement, dated as of March 30, 1996, by and between U.S.
                 Healthcare, Inc. and Timothy Nolan (this Employment Agreement supersedes the
                 Employment Agreement referenced herein as Exhibit 10.3) (incorporated by
                 reference to Exhibit 99.10 to U.S. Healthcare's Current Report on Form 8-K
                 dated April 2, 1996).
    Exhibit 11.  Computation of Net Income Per Common and Common Equivalent Share.*
    Exhibit 13.  The 1995 Annual Report to Shareholders of U.S. Healthcare, Inc. is not deemed
                 filed as part of this report (with the exception of the information
                 incorporated by reference to Items 5, 6, 7 and 8 of the Annual Report on Form
                 10-K for the fiscal year ended December 31, 1995 in the 1995 Annual Report to
                 Shareholders).**
    Exhibit 21.  Subsidiaries of the Registrant.*
    Exhibit 23.  Consent of Ernst & Young LLP, independent auditors.**
    Exhibit 27.  Financial Data Schedule.*
</TABLE>
 
- ---------------
 
 * Filed previously with U.S. Healthcare's Annual Report on Form 10-K for the
   fiscal year ended December 31, 1995.
 
** Filed herewith.

<PAGE>   1
 
                                   EXHIBIT 13
<PAGE>   2
 
               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
The Board of Directors and Shareholders
U.S. Healthcare, Inc.
 
     We have audited the accompanying consolidated balance sheets of U.S.
Healthcare, Inc. as of December 31, 1995 and 1994 and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
U.S. Healthcare, Inc. at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
 
     As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for marketable securities as of
December 31, 1993.
 
                                          ERNST & YOUNG LLP
 
Philadelphia, Pennsylvania
February 2, 1996
 
                                       F-1
<PAGE>   3
 
                             U.S. HEALTHCARE, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                      -----------------------
                                                                        1995          1994
                                                                      ---------     ---------
                                                                       (AMOUNTS IN THOUSANDS
                                                                      EXCEPT PER SHARE DATA)
<S>                                                                 <C>           <C>
Current assets:
  Cash and cash equivalents.........................................  $ 804,631     $ 123,814
  Marketable securities.............................................    450,006     1,009,244
  Receivables.......................................................    144,571       103,465
  Other.............................................................     31,945        38,453
                                                                      ----------    ----------
          Total current assets......................................  1,431,153     1,274,976
Property and equipment, less accumulated depreciation...............    142,137       127,562
Marketable securities...............................................     50,771        33,405
Other long-term assets..............................................     43,083        27,944
                                                                      ----------    ----------
          Total assets.............................................. $1,667,144    $1,463,887
                                                                      ==========    ==========
                            LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Medical costs payable.............................................  $ 505,832     $ 378,321
  Unearned premiums.................................................     68,655        32,283
  Accounts payable and accrued liabilities..........................     77,511        84,747
  Income taxes payable..............................................     28,179        46,525
                                                                      ----------    ----------
          Total current liabilities.................................    680,177       541,876
Long-term liabilities...............................................     22,836        16,338
                                                                      ----------    ----------
          Total liabilities.........................................    703,013       558,214
                                                                      ----------    ----------
Shareholders' equity:
  Common stock, $.005 par value -- 275,000 shares
     authorized; 148,891 and 148,307 shares
     issued in 1995 and 1994........................................        744           741
  Class B stock, $.005 par value -- 50,000 shares authorized;
     14,431 and 14,537 shares issued and outstanding in
     1995 and 1994..................................................         72            73
Additional paid-in capital..........................................    169,359       157,275
Retained earnings...................................................  1,121,616       899,072
Net unrealized gains (losses) on marketable securities,
  less applicable income taxes......................................      4,758       (27,203)
Common stock held in treasury -- at cost; 9,710 and
  2,821 shares in 1995 and 1994.....................................   (311,767)     (105,892)
Unearned portion of restricted common stock.........................    (20,651)      (18,393)
                                                                      ----------    ----------
          Shareholders' equity......................................    964,131       905,673
                                                                      ----------    ----------
          Total liabilities and shareholders' equity................ $1,667,144    $1,463,887
                                                                      ==========    ==========
</TABLE>
 
                            See accompanying notes.
 
                                       F-2
<PAGE>   4
 
                             U.S. HEALTHCARE, INC.
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                         -------------------------------------
                                                           1995          1994          1993
                                                         ---------     ---------     ---------
                                                           (AMOUNTS IN THOUSANDS EXCEPT PER
                                                                      SHARE DATA)
<S>                                                     <C>           <C>           <C>
Operating revenue:
  Commercial premiums.................................. $2,971,365    $2,635,621    $2,402,431
  Government premiums..................................    490,677       240,891       157,277
  Other, principally administrative services fees......     55,764        32,770        20,212
                                                         ----------    ----------    ----------
                                                         3,517,806     2,909,282     2,579,920
Operating expenses:
  Medical costs........................................  2,577,833     1,994,780     1,861,985
  Administrative, marketing and other operating
     costs.............................................    412,878       322,372       279,586
                                                         ----------    ----------    ----------
                                                         2,990,711     2,317,152     2,141,571
                                                         ----------    ----------    ----------
Income from operations.................................    527,095       592,130       438,349
Investment income, including net realized gains and
  losses...............................................     91,873        65,214        65,315
                                                         ----------    ----------    ----------
Income before income taxes.............................    618,968       657,344       503,664
Provision for income taxes.............................    238,303       266,225       203,989
                                                         ----------    ----------    ----------
Net income.............................................  $ 380,665     $ 391,119     $ 299,675
                                                         ==========    ==========    ==========
Net income per common and common equivalent share --
  primary and fully diluted............................      $2.42         $2.42         $1.84
                                                         ==========    ==========    ==========
Weighted average number of common and common equivalent
  shares outstanding:
  Primary..............................................    157,015       161,646       162,654
  Fully diluted........................................    157,436       161,704       162,798
</TABLE>
 
                            See accompanying notes.
 
                                       F-3
<PAGE>   5
 
                             U.S. HEALTHCARE, INC.
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                                                                         COMMON
                                                                                                             NET          STOCK
                                                                                                         UNREALIZED      HELD IN
                                   COMMON STOCK            CLASS B STOCK                                    GAINS       TREASURY
                               ---------------------   ---------------------   ADDITIONAL                 (LOSSES)      ---------
                                NUMBER                  NUMBER                  PAID-IN     RETAINED    ON MARKETABLE    NUMBER
                               OF SHARES   PAR VALUE   OF SHARES   PAR VALUE    CAPITAL     EARNINGS     SECURITIES     OF SHARES
                               ---------   ---------   ---------   ---------   ----------   ---------   -------------   ---------
<S>                            <C>         <C>         <C>         <C>         <C>          <C>         <C>             <C>
Balance at January 1, 1993...    96,781      $ 484       10,751      $  54      $120,506    $ 385,011            --           --
 Exercise of stock options
   and related tax
   benefits..................       453          2           --         --         8,993           --            --           --
 Net unrealized gains on
   marketable securities,
   less applicable income
   taxes.....................        --         --           --         --            --           --     $  23,301           --
 Restricted common stock
   transactions, net.........        20         --           --         --         1,253           --            --           --
 Conversion of Class B stock
   to common stock...........       713          4         (713)        (4)           --           --            --           --
 Purchase of treasury
   stock.....................        --         --           --         --            --           --            --         (155)
 Cash dividends paid:
   $.3867 per common share...        --         --           --         --            --      (56,490)           --           --
   $.3480 per Class B
     share...................        --         --           --         --            --       (5,381)           --           --
 Net income..................        --         --           --         --            --      299,675            --           --
 Shares distributed under a 3
   for 2 stock split.........    48,984        245        5,019         25          (270)          --            --          (78)
                                -------       ----       ------        ---      --------    ----------      -------       ------
Balance at December 31,
 1993........................   146,951        735       15,057         75       130,482      622,815        23,301         (233)
 Exercise of stock options
   and related tax
   benefits..................       402          2           --         --         8,146           --            --           --
 Net unrealized (losses) on
   marketable securities,
   less applicable income
   taxes.....................        --         --           --         --            --           --       (50,504)          --
 Restricted common stock
   transactions, net.........       434          2           --         --        18,647           --            --           --
 Conversion of Class B stock
   to common stock...........       520          2         (520)        (2)           --           --            --           --
 Purchase of treasury
   stock.....................        --         --           --         --            --           --            --       (2,588)
 Cash dividends paid:
   $.7233 per common share...        --         --           --         --            --     (105,157)           --           --
   $.6510 per Class B
     share...................        --         --           --         --            --       (9,705)           --           --
 Net income..................        --         --           --         --            --      391,119            --           --
                                -------       ----       ------        ---      --------    ----------      -------       ------
Balance at December 31,
 1994........................   148,307        741       14,537         73       157,275      899,072       (27,203)      (2,821)
 Exercise of stock options
   and related tax
   benefits..................       333          1           --         --         6,575           --            --           --
 Net unrealized gains on
   marketable securities,
   less applicable income
   taxes.....................        --         --           --         --            --           --        31,961           --
 Restricted common stock
   transactions, net.........       145          1           --         --         5,509           --            --           --
 Conversion of Class B stock
   to common stock...........       106          1         (106)        (1)           --           --            --           --
 Purchase of treasury
   stock.....................        --         --           --         --            --           --            --       (6,889)
 Cash dividends paid:
   $1.0250 per common share..        --         --           --         --            --     (144,711)           --           --
   $.9225 per Class B
     share...................        --         --           --         --            --      (13,410)           --           --
 Net income..................        --         --           --         --            --      380,665            --           --
                                -------       ----       ------        ---      --------    ----------      -------       ------
Balance at December 31,
 1995........................   148,891      $ 744       14,431      $  72      $169,359    $1,121,616    $   4,758       (9,710)
                                =======       ====       ======        ===      ========    ==========      =======       ======
 
<CAPTION>
 
                                            UNEARNED PORTION OF
                                             RESTRICTED COMMON
                                                   STOCK
                                           ---------------------
                                            NUMBER                  SHAREHOLDERS'
                                 COST      OF SHARES     AMOUNT        EQUITY
                               ---------   ---------    --------    -------------
<S>                            <C>         <C>          <C>         <C>
Balance at January 1, 1993...         --      (103)     $   (965)     $ 505,090
 Exercise of stock options
   and related tax
   benefits..................         --        --            --          8,995
 Net unrealized gains on
   marketable securities,
   less applicable income
   taxes.....................         --        --            --         23,301
 Restricted common stock
   transactions, net.........         --        37          (720)           533
 Conversion of Class B stock
   to common stock...........         --        --            --             --
 Purchase of treasury
   stock.....................  $  (5,996)       --            --         (5,996)
 Cash dividends paid:
   $.3867 per common share...         --        --            --        (56,490)
   $.3480 per Class B
     share...................         --        --            --         (5,381)
 Net income..................         --        --            --        299,675
 Shares distributed under a 3
   for 2 stock split.........         --       (33)           --             --
                               ---------      ----       -------       --------
Balance at December 31,
 1993........................     (5,996)      (99)       (1,685)       769,727
 Exercise of stock options
   and related tax
   benefits..................         --        --            --          8,148
 Net unrealized (losses) on
   marketable securities,
   less applicable income
   taxes.....................         --        --            --        (50,504)
 Restricted common stock
   transactions, net.........         --      (370)      (16,708)         1,941
 Conversion of Class B stock
   to common stock...........         --        --            --             --
 Purchase of treasury
   stock.....................    (99,896)       --            --        (99,896)
 Cash dividends paid:
   $.7233 per common share...         --        --            --       (105,157)
   $.6510 per Class B
     share...................         --        --            --         (9,705)
 Net income..................         --        --            --        391,119
                               ---------      ----       -------       --------
Balance at December 31,
 1994........................   (105,892)     (469)      (18,393)       905,673
 Exercise of stock options
   and related tax
   benefits..................         --        --            --          6,576
 Net unrealized gains on
   marketable securities,
   less applicable income
   taxes.....................         --        --            --         31,961
 Restricted common stock
   transactions, net.........         --       (48)       (2,258)         3,252
 Conversion of Class B stock
   to common stock...........         --        --            --             --
 Purchase of treasury
   stock.....................   (205,875)       --            --       (205,875)
 Cash dividends paid:
   $1.0250 per common share..         --        --            --       (144,711)
   $.9225 per Class B
     share...................         --        --            --        (13,410)
 Net income..................         --        --            --        380,665
                               ---------      ----       -------       --------
Balance at December 31,
 1995........................  $(311,767)     (517)     $(20,651)     $ 964,131
                               =========      ====       =======       ========
</TABLE>
 
                            See accompanying notes.
 
                                       F-4
<PAGE>   6
 
                             U.S. HEALTHCARE, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                          1995           1994            1993
                                                       ----------     -----------     -----------
                                                                 (AMOUNTS IN THOUSANDS)
<S>                                                    <C>            <C>             <C>
Operating Activities:
  Net income.........................................  $  380,665     $   391,119     $   299,675
  Adjustments to reconcile net income to cash flow
     from operating activities:
       Depreciation and amortization.................      33,279          27,763          21,786
       Net realized (gains) losses on sales of
          marketable securities......................     (15,079)          2,461         (10,769)
       Other non-cash (credits) charges, net.........       9,297           3,267          (1,885)
       Changes in operating assets and liabilities:
          Receivables................................     (41,106)         (5,171)        (15,277)
          Medical costs payable......................     127,511         (40,577)         35,651
          Unearned premiums..........................      36,372           4,759           7,740
          Accounts payable and accrued liabilities...      (7,236)         40,151          12,610
          Income taxes payable.......................     (15,969)         (2,327)         29,763
          Other, net.................................     (14,048)         (4,067)          2,863
                                                       ----------     -----------     -----------
            Cash flow from operating activities......     493,686         417,378         382,157
                                                       ----------     -----------     -----------
Investing Activities:
  Purchase of marketable securities..................    (904,735)     (1,161,082)     (1,604,199)
  Purchase of property and equipment, net............     (42,100)        (27,219)        (40,871)
  Proceeds from maturities or sales of marketable
     securities......................................   1,514,656       1,024,618       1,299,363
  Other..............................................     (20,893)        (16,122)         (7,614)
                                                       ----------     -----------     -----------
          Cash flow from investing activities........     546,928        (179,805)       (353,321)
                                                       ----------     -----------     -----------
Financing Activities:
  Proceeds from exercise of stock options............       4,199           4,660           3,804
  Purchase of treasury stock.........................    (205,875)        (99,896)         (5,996)
  Cash dividends paid................................    (158,121)       (114,862)        (61,871)
                                                       ----------     -----------     -----------
          Cash flow from financing activities........    (359,797)       (210,098)        (64,063)
                                                       ----------     -----------     -----------
Increase (decrease) in cash and cash equivalents.....     680,817          27,475         (35,227)
Cash and cash equivalents at beginning of year.......     123,814          96,339         131,566
                                                       ----------     -----------     -----------
Cash and cash equivalents at end of year.............  $  804,631     $   123,814     $    96,339
                                                       ==========     ===========     ===========
Supplemental disclosure of cash flow information:
Income taxes paid, net of state income tax refunds...  $  258,170     $   270,476     $   176,904
Supplemental disclosure of non-cash financing
  activities:
Income tax benefits related to exercise of stock
  options............................................  $    2,377     $     3,488     $     5,191
</TABLE>
 
                            See accompanying notes.
 
                                       F-5
<PAGE>   7
 
                             U.S. HEALTHCARE, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Principles of Consolidation -- The consolidated financial statements
include the accounts of U.S. Healthcare, Inc. and its subsidiaries (the
Company), all of which are wholly owned except for certain subsidiaries which
are not health maintenance organizations (HMOs). All significant intercompany
transactions have been eliminated in consolidation.
 
     Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and notes to consolidated financial statements. Actual
results could differ from those estimates.
 
     Cash, Cash Equivalents and Marketable Securities -- Cash equivalents
classified with cash consist of all highly liquid instruments which mature
within three months from the date of purchase. The carrying amounts of cash and
cash equivalents reported in the accompanying consolidated balance sheets
approximate fair value. Marketable securities consist of debt securities. The
Company determines the appropriate classification of debt securities at the time
of purchase and reevaluates such classification as of each balance sheet date.
At December 31, 1995 and 1994, all securities are classified as available for
sale. Such securities are carried at fair value and cumulative net unrealized
gains or losses, less applicable income taxes, are recorded as a separate
component of shareholders' equity. Realized gains and losses and unrealized
losses judged to be other than temporary are included in net income. Fair values
of marketable securities are based on market prices, where available. If quoted
market prices are not available, fair values are based on market prices of
comparable instruments. The cost of securities sold is based on the specific
identification method.
 
     At December 31, 1995 and 1994, $50,771,000 and $33,405,000, respectively,
of the Company's marketable securities were held by trustees or state regulatory
agencies in accordance with certain state requirements relating principally to
HMOs. Such securities are classified as non-current assets. The Company
determined that other marketable securities held as of December 31, 1995 and
1994 were available for use in current operations and, accordingly, classified
such securities as current assets without regard to the securities' contractual
maturity dates.
 
     The Company adopted Statement of Financial Accounting Standards Number 115
(FAS 115), "Accounting for Certain Investments in Debt and Equity Securities" as
of December 31, 1993. The adoption of FAS 115 had no effect on net income but,
as of December 31, 1993, increased marketable securities by $38,204,000,
representing net unrealized gains, and shareholders' equity by $23,301,000 (net
unrealized gains less deferred income taxes of $14,903,000).
 
     Property and Equipment -- Property and equipment, stated at cost, are
depreciated on the straight-line method over their estimated useful lives for
financial reporting purposes and under accelerated methods for income tax
purposes.
 
     Operating Revenue -- Premiums for prepaid health care are recognized as
income in the month in which the enrollees are entitled to health care services.
Administrative services fees are recognized as income as services are rendered.
 
     Medical Costs -- Medical costs consist principally of medical claims and
capitation costs. Medical claims include estimates of payments to be made on
claims reported as of the balance sheet date and estimates of health care
services rendered but not reported to the Company as of the balance sheet date.
Such estimates include the cost of services which will continue to be rendered
after the balance sheet date if the Company is obligated to pay for such
services in accordance with contract provisions or regulatory requirements.
Medical claims payable are estimated periodically and any resulting adjustments
are included in current operations. Capitation costs represent monthly fees to
participating primary care physicians and other medical providers as retainers
for providing continuing health care services.
 
                                       F-6
<PAGE>   8
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     Advertising Costs -- The Company expenses advertising costs as incurred.
Advertising costs were $47,057,000, $37,129,000 and $28,435,000 in 1995, 1994,
and 1993, respectively.
 
     Income Taxes -- Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Such
temporary differences include depreciation and amortization, allowance for
doubtful accounts, accrued compensated absences, deferred compensation and net
unrealized gains or losses on marketable securities.
 
     Retirement Plans -- The Company has a defined contribution pension plan
covering substantially all of its employees, subject to certain age and service
requirements. The Company's contribution for each eligible employee is a
percentage of the employee's compensation, as defined. The Company also has an
employee savings plan (401(k)) available to all its employees, subject to
certain age and service requirements. The Company matches 33 1/3% of the
employee's contribution, up to a maximum of 2% of the employee's annual
compensation. The Company funds pension and savings plan costs accrued. The
Company has a retiree health benefit plan covering substantially all its
employees (except for certain "key employees," as defined in the plan), subject
to certain age and service requirements set forth in the plan. Company
contributions, which are at the Company's sole discretion, are paid to a
voluntary employees' beneficiary association (VEBA) trust. Any such
contributions to the VEBA trust are allocated and credited to separate accounts
established for each eligible employee and for each employee's eligible spouse.
Funds accumulated in these separate accounts are used to fund all or a portion
of the premiums for health care benefit coverage for eligible retired employees
and their eligible spouses. When funds in these separate accounts are exhausted,
neither the Company nor the VEBA trust have any obligation to make any further
contributions or payments. Retirement plan costs were $14,199,000, $14,375,000,
and $14,322,000 in 1995, 1994 and 1993, respectively.
 
     Net Income Per Common and Common Equivalent Share -- Primary and fully
diluted net income per common and common equivalent share are based upon the
applicable weighted average number of common and common equivalent (Class B
stock and stock options) shares outstanding during the year, after giving effect
to the stock split explained in Note 7.
 
     Accounting Standards Issued But Not Yet Adopted -- In March 1995, the
Financial Accounting Standards Board (FASB) issued Financial Accounting Standard
Number 121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which addresses accounting for the
impairment of long-lived assets such as property and equipment, identifiable
intangible assets and goodwill. The prospective implementation of FAS 121, which
must be adopted in 1996, is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
 
     In October 1995, the FASB issued Financial Accounting Standard Number 123
(FAS 123), "Accounting for Stock-Based Compensation," which prescribes
accounting and reporting standards for all stock-based compensation plans,
including employee stock options and restricted stock plans. Under FAS 123,
companies may adopt a fair value method of expense recognition for all
stock-based compensation or continue to account for all stock-based compensation
under the measurement standards of Accounting Principles Board Opinion Number
25, "Accounting for Stock Issued to Employees" (APB 25). The implementation of
FAS 123 in 1996 is not expected to affect the Company's consolidated financial
position or results of operations because the Company presently expects to
continue to apply the principles of APB 25.
 
                                       F-7
<PAGE>   9
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 2. MARKETABLE SECURITIES
 
     The following is a summary of marketable securities as of December 31, 1995
and 1994:
 
<TABLE>
<CAPTION>
                                                                GROSS        GROSS
                                                 AMORTIZED    UNREALIZED   UNREALIZED   ESTIMATED
                                                    COST        GAINS        LOSSES     FAIR VALUE
                                                 ----------   ----------   ----------   ----------
                                                              (AMOUNTS IN THOUSANDS)
    <S>                                          <C>          <C>          <C>          <C>
    December 31, 1995
      Certificates of deposit..................  $    4,767         --             --   $    4,767
      U.S. Government obligations..............     338,377     $3,507      $    (519)     341,365
      Municipal tax-exempt bonds...............     146,699      5,580            (34)     152,245
      Other....................................       2,400         --             --        2,400
                                                 ----------     ------       --------   ----------
                                                 $  492,243     $9,087      $    (553)  $  500,777
                                                 ==========     ======       ========   ==========
      Classified as current....................  $  441,570     $8,761      $    (325)  $  450,006
      Classified as non-current................      50,673        326           (228)      50,771
                                                 ----------     ------       --------   ----------
                                                 $  492,243     $9,087      $    (553)  $  500,777
                                                 ==========     ======       ========   ==========
    December 31, 1994
      Certificates of deposit..................  $    5,460         --             --   $    5,460
      U.S. Government obligations..............     962,493     $  237      $ (40,863)     921,867
      Municipal tax-exempt bonds...............     117,632        505         (4,315)     113,822
      Other....................................       1,500         --             --        1,500
                                                 ----------     ------       --------   ----------
                                                 $1,087,085     $  742      $ (45,178)  $1,042,649
                                                 ==========     ======       ========   ==========
      Classified as current....................  $1,050,932     $  718      $ (42,406)  $1,009,244
      Classified as non-current................      36,153         24         (2,772)      33,405
                                                 ----------     ------       --------   ----------
                                                 $1,087,085     $  742      $ (45,178)  $1,042,649
                                                 ==========     ======       ========   ==========
</TABLE>
 
     The contractual maturities of marketable securities as of December 31, 1995
were as follows:
 
<TABLE>
<CAPTION>
                                                                                   ESTIMATED
                                                                     AMORTIZED       FAIR
                                                                       COST          VALUE
                                                                     ---------     ---------
                                                                     (AMOUNTS IN THOUSANDS)
    <S>                                                              <C>           <C>
    Due in one year or less........................................  $ 110,318     $ 110,312
    Due after one year through five years..........................    246,444       250,105
    Due after five years through ten years.........................    113,131       116,991
    Due after ten years............................................     22,350        23,369
                                                                      --------      --------
                                                                     $ 492,243     $ 500,777
                                                                      ========      ========
</TABLE>
 
     Gross realized gains on sales of marketable securities were $18,081,000 and
$13,890,000 in 1995 and 1994, respectively. Gross realized losses on sales of
marketable securities were $3,002,000 and $16,351,000 in 1995 and 1994,
respectively.
 
                                       F-8
<PAGE>   10
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
 3. RECEIVABLES
 
     Receivables consist of the following:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                                 ---------------------
                                                                   1995         1994
                                                                 --------     --------
                                                                      (AMOUNTS IN
                                                                      THOUSANDS)
        <S>                                                      <C>          <C>
        Premiums (net of allowance for doubtful accounts of
          $15,779 in 1995 and $12,910 in 1994).................  $133,303     $ 83,711
        Interest...............................................     7,196       16,441
        Other..................................................     4,072        3,313
                                                                 --------     --------
                                                                 $144,571     $103,465
                                                                 ========     ========
</TABLE>
 
     For the years ended December 31, 1995, 1994 and 1993, premiums billed to
the Federal Government, excluding premiums for Medicare beneficiaries,
represented 8%, 9% and 10%, respectively, of premium revenue. These premiums are
classified as commercial premiums in the accompanying consolidated statements of
income.
 
 4. PROPERTY AND EQUIPMENT
 
     Property and equipment consists of the following:
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                                 ---------------------
                                                                   1995         1994
                                                                 --------     --------
                                                                      (AMOUNTS IN
                                                                      THOUSANDS)
        <S>                                                      <C>          <C>
        Land...................................................  $  5,899     $  5,888
        Buildings..............................................    58,936       55,297
        Furniture and equipment................................   135,615      101,877
        Aircraft...............................................    35,767       37,881
                                                                 --------     --------
                                                                  236,217      200,943
          Less accumulated depreciation........................    94,080       73,381
                                                                 --------     --------
                                                                 $142,137     $127,562
                                                                 ========     ========
</TABLE>
 
 5. INCOME TAXES
 
     The provision for income taxes consists of the following:
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                     ----------------------------------
                                                       1995         1994         1993
                                                     --------     --------     --------
                                                           (AMOUNTS IN THOUSANDS)
        <S>                                          <C>          <C>          <C>
        Current provision:
          Federal..................................  $198,958     $211,206     $165,657
          State....................................    35,145       55,404       41,892
                                                     --------     --------     --------
                                                      234,103      266,610      207,549
        Deferred provision (benefit):
          Federal..................................     2,517         (307)      (3,055)
          State....................................     1,683          (78)        (505)
                                                     --------     --------     --------
                                                        4,200         (385)      (3,560)
                                                     --------     --------     --------
                                                     $238,303     $266,225     $203,989
                                                     ========     ========     ========
</TABLE>
 
                                       F-9
<PAGE>   11
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
     A reconciliation between the federal statutory income tax rate and the
Company's effective income tax rates is as follows:
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             -------------------------
                                                             1995      1994      1993
                                                             -----     -----     -----
                                                               (PERCENTAGE OF INCOME
                                                               BEFORE INCOME TAXES)
        <S>                                                  <C>       <C>       <C>
        Federal statutory income tax rate..................  35.0%     35.0%     35.0%
        Income tax rates are affected by:
          State income taxes...............................   3.7%      5.4%      5.3%
          Other, net.......................................  (0.2%)     0.1%      0.2%
                                                             -----     -----     -----
        Effective income tax rates.........................  38.5%     40.5%     40.5%
                                                             =====     =====     =====
</TABLE>
 
 6. LEGAL PROCEEDINGS
 
     Two class action complaints have been filed in the United States District
Court for the Eastern District of Pennsylvania seeking unspecified damages. The
complaints allege that the Company and two of its executive officers, through
certain misrepresentations and omissions about the Company, violated federal
securities laws and related state law. The Court has granted the plaintiffs'
motion for class certification as to the federal claims but has denied it as to
the state claims. The litigation is still in the preliminary stages, and merits
discovery has just begun. The Company has denied the allegations and continues
to defend the actions vigorously.
 
     The Company is also involved in legal actions concerning benefit plan
coverage and other decisions by the Company, and alleged medical malpractice by
participating providers. If found liable in such actions, which are vigorously
defended on several grounds, the Company may bear financial responsibility. The
Company is also involved in certain other claims and legal actions arising in
the ordinary course of business. In the opinion of management, these claims and
legal actions will not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
 
 7. SHAREHOLDERS' EQUITY
 
     On February 22, 1994, the Board of Directors declared a 3 for 2 stock split
on common and Class B stock effected in the form of a 50% stock dividend paid on
March 29, 1994. The effects of this stock split have been reflected in
shareholders' equity as of December 31, 1993 as if the stock split had occurred
as of that date. Amounts shown as cash dividends paid per common and Class B
share for all periods presented reflect the effects of this stock split.
 
     Class B stock is convertible into common stock on a share for share basis
and is entitled to receive cash dividends in an amount not to exceed 90% of cash
dividends paid on common stock. Voting rights are one vote per share for common
stock and fifty votes per share for Class B stock.
 
     The Company is authorized to issue 50,000,000 shares of preferred stock
with no par value. No shares were issued as of December 31, 1995 and 1994.
 
     The Company has incentive stock plans that provide for grants of stock
options and restricted stock awards. Recipients of stock options include
employees, members of the Board of Directors and certain physicians who contract
with the Company. Generally, the option price is not less than the market value
of the stock when the options are granted. Options granted under the plans are
generally exercisable commencing one year from the date of grant in increments
ranging from 20% to 33 1/3% a year. Continued affiliation with the Company is a
condition of vesting and exercise. Restricted stock awards of common stock are
granted to selected employees and certain physicians who contract with the
Company, subject to forfeiture if affiliation
 
                                      F-10
<PAGE>   12
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
with the Company terminates or violations of other terms of the awards occur
prior to the end of the prescribed restriction period. Shares are granted
without payment to the Company. Recipients have all of the rights of
shareholders except that the shares are deposited with the Company and cannot be
disposed of until the restrictions have lapsed. The approximate fair value (as
of the award date) of shares awarded is accrued, and charged to expense ratably
as the restrictions are lifted and the shares released to the recipients.
 
     Information concerning options outstanding for the two most recent years,
after giving effect to the stock split described above, is as follows:
 
<TABLE>
<CAPTION>
                                            NUMBER OF SHARES UNDER OPTION
                                         ------------------------------------
                                                           NON-                   OPTION PRICE
                                         INCENTIVE      STATUTORY       TOTAL      PER SHARE
                                         ---------     ------------     -----     ------------
                                             (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
        <S>                              <C>           <C>              <C>       <C>
        Outstanding at January 1,
          1994.........................    2,253             510        2,763     $ 1.55-32.45
        Granted........................      386             483          869     $37.09-46.09
        Exercised......................     (383)            (26)        (409)    $ 1.55-29.73
        Canceled.......................      (81)            (39)        (120)    $13.67-37.98
                                           -----           -----        -----
        Outstanding at December 31,
          1994.........................    2,175             928        3,103     $ 1.55-46.09
        Granted........................    1,427             830        2,257     $12.33-43.18
        Exercised......................     (258)            (75)        (333)    $ 1.55-37.98
        Canceled.......................     (516)            (75)        (591)    $ 6.50-46.09
                                           -----           -----        -----
        Outstanding at December 31,
          1995.........................    2,828           1,608        4,436     $ 4.74-33.95
                                           =====           =====        =====
        Exercisable at December 31,
          1995.........................      726             186          912
                                           =====           =====        =====
</TABLE>
 
     At December 31, 1995 and 1994, 27,055,000 and 28,018,000 shares,
respectively, of common stock were reserved for issuance under the plans
discussed above.
 
 8.  CONTRACTUAL ARRANGEMENTS WITH PROVIDERS
 
     The Company generally compensates primary care physicians through
prospective compensation arrangements which incorporate quality assessment
standards, comprehensiveness of care, utilization and office status components.
These components are used to adjust the capitation payments to individual
physician offices and to determine the amount of additional periodic payments.
The Company has prospective compensation arrangements for mental health,
substance abuse, diagnostic laboratory, radiology and diagnostic imaging
services, podiatric treatment, physical therapy and prescription drug
dispensing. The Company has contracts that provide for all-inclusive per diem
and per case hospitalization rates and fixed rates for ambulatory surgery,
emergency room services and specialist services. The Company has also entered
into quality-based compensation arrangements with certain hospitals, as well as
agreements with certain integrated health delivery systems under which the
systems are compensated on a substantially fixed prospective basis for medical
services, including primary, specialist and hospital care. The arrangements
described above cover the majority of medical services.
 
 9.  SUBSEQUENT EVENT (UNAUDITED)
 
     The Company and Aetna Life and Casualty Company entered into a definitive
agreement, dated March 30, 1996, pursuant to which they have agreed to merge in
a transaction valued at $8.9 billion. The merger agreement, which has been
approved by the board of directors of each company, calls for the formation of a
new holding company, Aetna Inc. Under the terms of the agreement, U.S.
Healthcare shareholders will receive $34.20 in cash, 0.2246 shares of Aetna Inc.
common stock and 0.0749 shares of Aetna Inc.
 
                                      F-11
<PAGE>   13
 
                             U.S. HEALTHCARE, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
mandatorily convertible preferred stock for each common share and each Class B
share of the Company. Following the merger, Company shareholders will own 22% of
the stock of the combined company. The merger is subject to approval by
shareholders of both companies and federal and state regulators, the close of
the previously announced sale of Aetna's property and casualty unit, and other
conditions. The merger is expected to close in the third quarter of 1996. The
controlling shareholder of the Company has agreed to vote in favor of the
merger.
 
                                      F-12
<PAGE>   14
 
                          PRICE RANGE OF COMMON STOCK
 
     The common stock of the Company is traded on The Nasdaq Stock Market under
the symbol USHC. The following table sets forth for the indicated periods the
high and low prices of the common stock as reported by Nasdaq. All quotations
have been rounded to the nearest one-eighth.
 
<TABLE>
<CAPTION>
                                                              1995             1994
                                                          ------------     ------------
                                                          HIGH     LOW     HIGH     LOW
                                                          ----     ---     ----     ---
        <S>                                               <C>      <C>     <C>      <C>
        First Quarter...................................  47 1/2   39 1/2  45 1/2   36 5/8
        Second Quarter..................................  44 1/2   26 1/2  47 1/2   35
        Third Quarter...................................  36 1/8   29 7/8  47 1/4   33 3/4
        Fourth Quarter..................................  46 1/2   34 3/8  49       38
</TABLE>
 
     On February 29, 1996, there were 3,679 and 19 shareholders of record of
common and Class B stock, respectively. The Class B stock cannot be traded but
is convertible into common stock on a share for share basis.
 
                                   DIVIDENDS
 
     The table below sets forth the cash dividends per share paid during 1995
and 1994.
 
<TABLE>
<CAPTION>
                                             1995                               1994
                                ------------------------------     ------------------------------
                                COMMON STOCK     CLASS B STOCK     COMMON STOCK     CLASS B STOCK
                                ------------     -------------     ------------     -------------
        <S>                     <C>              <C>               <C>              <C>
        First Quarter.........     $ .250           $ .2250           $.1333           $ .1200
        Second Quarter........       .250             .2250            .1700             .1530
        Third Quarter.........       .250             .2250            .2100             .1890
        Fourth Quarter........       .275             .2475            .2100             .1890
                                ------------     -------------     ------------     -------------
                  Total for
                    year......     $1.025           $ .9225           $.7233           $ .6510
                                ===========      ==========        ===========      ==========
</TABLE>
 
     Future dividends will be declared and paid at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, capital requirements and the general financial condition of the
Company. Cash dividends on the Class B stock may be paid only when dividends on
the common stock are declared and paid. Cash dividends on a share of Class B
stock cannot exceed 90% of the cash dividends on a share of common stock.
 
                                      F-13
<PAGE>   15
 
                            SELECTED FINANCIAL DATA
 
     This data should be read in conjunction with the accompanying financial
statements and related notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this report.
 
<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                       --------------------------------------------------------------
                                          1995         1994         1993         1992         1991
                                       ----------   ----------   ----------   ----------   ----------
                                                (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
<S>                                    <C>          <C>          <C>          <C>          <C>
Income Statement Data:
Operating revenue:
  Commercial premiums................  $2,971,365   $2,635,621   $2,402,431   $2,010,963   $1,584,860
  Government premiums................     490,677      240,891      157,277      105,600       74,807
  Other, principally administrative
     services fees...................      55,764       32,770       20,212       12,522        4,733
                                       ----------   ----------   ----------   ----------   ----------
                                        3,517,806    2,909,282    2,579,920    2,129,085    1,664,400
Operating expenses:
  Medical costs......................   2,577,833    1,994,780    1,861,985    1,631,317    1,279,960
  Administrative, marketing and other
     operating costs.................     412,878      322,372      279,586      227,770      182,723
                                       ----------   ----------   ----------   ----------   ----------
                                        2,990,711    2,317,152    2,141,571    1,859,087    1,462,683
                                       ----------   ----------   ----------   ----------   ----------
Income from operations...............     527,095      592,130      438,349      269,998      201,717
Investment income, including net
  realized gains and losses..........      91,873       65,214       65,315       60,139       44,101
Other income.........................          --           --           --           --        1,485
                                       ----------   ----------   ----------   ----------   ----------
Income before income taxes...........     618,968      657,344      503,664      330,137      247,303
Provision for income taxes...........     238,303      266,225      203,989      130,091       96,203
                                       ----------   ----------   ----------   ----------   ----------
Net Income...........................  $  380,665   $  391,119   $  299,675   $  200,046   $  151,100
                                       ==========   ==========   ==========   ==========   ==========
Net income per common and common
  equivalent share:(a)
  Primary............................  $     2.42   $     2.42   $     1.84   $     1.23   $      .93
  Fully diluted......................  $     2.42   $     2.42   $     1.84   $     1.23   $      .92
Weighted average number of common and
  common equivalent shares
  outstanding:(a)
  Primary............................     157,015      161,646      162,654      162,401      162,968
  Fully diluted......................     157,436      161,704      162,798      162,614      163,397
Cash dividends paid per common
  share(a)...........................  $   1.0250   $    .7233   $    .3867   $    .2733   $    .1600
Cash dividends paid per Class B
  share(a)...........................  $    .9225   $    .6510   $    .3480   $    .2460   $    .1440
Medical costs as a percentage of
  premiums...........................        74.5%        69.3%        72.7%        77.1%        77.1%
Balance Sheet data:(b)
  Total assets.......................  $1,667,144   $1,463,887   $1,343,653   $  981,094   $  758,218
  Total liabilities..................     703,013      558,214      573,926      476,004      411,324
  Shareholders' equity...............     964,131      905,673      769,727      505,090      346,894
</TABLE>
 
- ---------------
 
(a) After giving effect to 3 for 2 stock splits effected in the form of 50%
    stock dividends paid in September 1992 and March 1994.
 
(b) After giving effect to a change in the method of accounting for marketable
    securities as of December 31, 1993, explained in Note 1 of Notes to
    Consolidated Financial Statements.
 
                                      F-14
<PAGE>   16
 
                      SUPPLEMENTARY FINANCIAL INFORMATION
 
     The following table contains certain selected quarterly unaudited financial
data for 1995 and 1994.
 
<TABLE>
<CAPTION>
                                      FIRST      SECOND     THIRD      FOURTH
                                     QUARTER    QUARTER    QUARTER    QUARTER      TOTAL
                                     --------   --------   --------   --------   ----------
                                          (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
        <S>                          <C>        <C>        <C>        <C>        <C>
        1995
        Operating revenue..........  $814,029   $840,514   $909,225   $954,038   $3,517,806
        Income from operations.....   135,201    123,888    131,395    136,611      527,095
        Income before income
          taxes....................   155,002    150,052    149,859    164,055      618,968
        Net income.................    94,552     93,056     92,163    100,894      380,665
        Net income per common and
          common equivalent
          share -- primary and
          fully diluted............  $    .59   $    .59   $    .60   $    .65   $     2.42
        1994
        Operating revenue..........  $703,447   $712,036   $736,946   $756,853   $2,909,282
        Income from operations.....   137,650    141,938    152,472    160,070      592,130
        Income before income
          taxes....................   150,149    156,754    170,346    180,095      657,344
        Net income.................    89,339     93,268    101,361    107,151      391,119
        Net income per common and
          common equivalent
          share -- primary and
          fully diluted............  $    .55   $    .58   $    .63   $    .67   $     2.42
</TABLE>
 
                                      F-15
<PAGE>   17
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
GENERAL
 
     Substantially all of the Company's revenue is generated from premiums
received for health care coverage provided to its members. These premiums
represent approximately 98%, 99% and 99% of the Company's operating revenue for
the years ended December 31, 1995, 1994, and 1993, respectively. The Company's
operating expenses are primarily medical costs consisting principally of medical
claims and capitation costs.
 
     The Company's results of operations depend in large part on accurately
predicting and effectively managing medical costs and other operating expenses.
A variety of factors and risks, including competition, changes in health care
practices, changes in federal or state laws and regulations or the
interpretations thereof, inflation, provider contract changes, new technologies,
government-imposed surcharges, taxes or assessments, reductions in provider
payments by governmental payors (including Medicare and Medicaid) (such
reductions may cause providers to seek higher payments from private payors),
major epidemics, disasters, changes in product mix and entry into new geographic
markets (both of which may result in an increase in members obtaining care from
providers not under contract with the Company) and numerous other factors
affecting the delivery and cost of health care, may in the future affect the
Company's ability to control its medical costs and other operating expenses.
Governmental action (including downward adjustments to premium rates) or
business conditions (including intensification of competition and the other
factors described above) could result in premium revenues not increasing to
offset increases in medical costs and other operating expenses. Once set,
premiums are generally fixed for one-year periods and, accordingly,
unanticipated costs during such periods cannot be recovered through higher
premiums. The expiration, suspension, termination of, or failure to obtain
contracts to provide health coverage for governmental entities or other
significant customers would also negatively impact the Company. Due to these
factors and risks, no assurance can be given with respect to the Company's
premium levels or its ability to control its medical costs.
 
     Legislative and regulatory proposals have been made at the federal and
state government levels related to the health care system, including but not
limited to limitations on managed care organizations (including benefit
mandates, provider contract limitations, restrictions on utilization management,
premium assessments or taxes to pay for uncompensated care and any willing
provider requirements) and changes in the Medicare and Medicaid programs.
Legislative or regulatory action could also have the effect of reducing the
premiums paid to the Company by governmental programs or increasing the
Company's medical costs. Specifically, potential federal legislation would
reduce the premiums payable to the Company under the Medicare program as
compared to previously announced levels; other potential legislation and
regulation could have the result of reducing the premiums payable to the Company
under state Medicaid programs. The Company is unable to predict the specific
content of any legislation or regulation that may be enacted or when or in what
jurisdictions any such legislation or regulation will be adopted. Therefore, the
Company cannot predict the effect of such legislation or regulation on the
Company's business. For additional factors and risks, see the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
 
OPERATIONS
 
  1995 Compared to 1994
 
     Operating revenue increased $608,524,000 or 21%, principally due to growth
in U.S. Healthcare-insured health plan enrollment (375,000 additional members).
 
     Commercial premiums increased $335,744,000 or 13%. The principal factor for
the increase was a 13% increase in Commercial member months (the sum of members
enrolled in each month during the year). The average premium for the Commercial
plans, which at December 31, 1995, had about 1,874,000 members, decreased 1% to
approximately $138 per member per month.
 
     Government premiums consist principally of Medicare and Medicaid premiums.
Medicare premiums increased $205,600,000 or 115%. The principal factor for the
increase was a 125% increase in Medicare
 
                                      F-16
<PAGE>   18
 
member months, offset by the effect of lower average premiums per member. The
average premium for the Medicare plans, which at December 31, 1995, had about
108,000 members, decreased 4% to $437 per member per month. Medicaid and other
premiums increased $44,186,000 or 71%. The principal factor for the increase was
a 105% increase in Medicaid member months offset by the effects of lower
premiums per member. The average premium for the Medicaid plans, which at
December 31, 1995, had about 81,000 members, decreased 9% to $125 per member per
month.
 
     The following table shows total premiums earned in 1995 and the increase in
premiums compared to 1994 by plan type.
 
<TABLE>
<CAPTION>
                                                                        1995
                                                               -----------------------
                                                                PREMIUMS      INCREASE
                                                               ----------     --------
                                                               (AMOUNTS IN THOUSANDS)
        <S>                                                    <C>            <C>
        Commercial plans.....................................  $2,971,365     $335,744
        Government plans:
          Medicare plans.....................................     384,005      205,600
          Medicaid and other plans...........................     106,672       44,186
                                                               ----------     --------
                                                               $3,462,042     $585,530
                                                                =========     ========
</TABLE>
 
     Other operating revenue, which consists principally of administrative
services fees, increased $22,994,000 or 70%, principally due to a 37% increase
in employer-funded health plan members. At December 31, 1995, the Company had
about 371,000 members in employer-funded health plans.
 
     Medical costs increased $583,053,000 or 29% over 1994, primarily due to a
17% growth in U.S. Healthcare-insured member months, and higher costs per
member. Compared to 1994, the weighted average medical cost per member increased
11% to $111 per member per month. Factors for the per member increase include
changes in product and geographic mix, contractual changes in provider rates,
higher specialist usage, higher capitation rates and the inclusion of a pharmacy
benefit for most Medicare members. Compared to 1994, medical costs rose 5% to
$101 per member per month for Commercial plans, 6% to $352 per member per month
for Medicare plans and 22% to $109 per member per month for Medicaid plans.
 
     Administrative, marketing and other operating costs increased $90,506,000
or 28% over 1994. Personnel costs contributed the largest increase as a result
of higher salaries and an increase in the number of employees necessitated, in
part, by higher business volume and changes in product mix, and increased
marketing capability.
 
     Investment income increased $26,659,000 or 41% from 1994, principally due
to realized gains on sales of marketable securities and earnings on higher
average portfolio balances. Net realized gains were $15,079,000 in 1995 compared
to net realized losses of $2,461,000 in 1994.
 
     Net income for 1995 was $381 million compared to $391 million in 1994. On a
per share basis, net income was $2.42 in 1995 and 1994, reflecting the effects
of the Company's repurchase of 6.9 million shares of its common stock during
1995.
 
  1994 Compared to 1993
 
     Operating revenue increased $329,362,000 or 13%, principally due to growth
in U.S. Healthcare-insured health plan enrollment (175,000 additional members).
 
     Commercial premiums increased $233,190,000 or 10%. The principal factors
for the increase were an 8% increase in Commercial member months and higher
premium rates. The average premium for the Commercial plans, which at December
31, 1994, had about 1,595,000 members, increased 1% to approximately $139 per
member per month.
 
     Government premiums consist principally of Medicare and Medicaid premiums.
Medicare premiums increased $43,581,000 or 32%. The principal factor for the
increase was a 35% increase in Medicare member months, offset by the effect of
lower average premiums per member. The average premium for the Medicare
 
                                      F-17
<PAGE>   19
 
plans, which at December 31, 1994, had about 38,000 members, decreased 2% to
$457 per member per month. Medicaid and other premiums increased $40,033,000 or
178%. The principal factor for the increase was a 216% increase in Medicaid
member months offset by the effects of lower premiums per member. The average
premium for the Medicaid plans, which at December 31, 1994, had about 51,000
members, decreased 7% to $138 per member per month. On December 31, 1994, the
Company also had about 271,000 members in employer-funded health plans.
 
     The following table shows total premiums earned in 1994 and the increase in
premiums compared to 1993 by plan type.
 
<TABLE>
<CAPTION>
                                                                  1994
                                                                PREMIUMS      INCREASE
                                                               ----------     --------
                                                               (AMOUNTS IN THOUSANDS)
        <S>                                                    <C>            <C>
        Commercial plans.....................................  $2,635,621     $233,190
        Government plans:
          Medicare plans.....................................     178,405       43,581
          Medicaid and other plans...........................      62,486       40,033
                                                               ----------     --------
                                                               $2,876,512     $316,804
                                                               ==========     ========
</TABLE>
 
     Medical costs increased $132,795,000 or 7% over 1993, primarily due to a
12% growth in U.S. Healthcare-insured membership, partly offset by lower costs
per member.
 
     Administrative, marketing and other operating costs increased $42,786,000
or 15% over 1993. Personnel costs contributed the largest increase as a result
of higher salaries and an increase in the number of employees necessitated, in
part, by higher business volume and changes in product mix, and increased
marketing capability.
 
     Investment income was virtually unchanged from 1993, because net realized
losses on sales of marketable securities and a decrease in the yield on
investments combined to offset the effect of higher investment portfolio
balances.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company's liquidity requirements have been met from cash flow's
generated by operating activities. In 1995, net cash flows from such activities
were $493,686,000. The Company believes that its existing financial resources
are sufficient to meet its liquidity needs.
 
     The Company's operations are conducted principally through HMO and
insurance subsidiaries. These subsidiaries are subject to state regulations
which require the subsidiaries to maintain certain levels of equity, as defined.
Levels of required equity vary by state and, in some states, vary depending on
premium revenue, medical costs, the cost of care delivered by providers not
under contract to the Company and other factors. As of December 31, 1995, the
amount of equity so required was approximately $88 million. The effect of this
required equity is to limit, for use in the subsidiaries' own respective
operations, assets such as cash, marketable securities and receivables in an
amount equal to the sum of the subsidiaries' liabilities plus their required
equity. As of December 31, 1995, cash and marketable securities limited for such
use in the subsidiaries' operations under these requirements totaled
approximately $560 million. Regulations which were adopted but were not yet
effective would have increased the subsidiaries' required equity (and increased
the amount of assets limited as aforesaid) by approximately $30 million as of
December 31, 1995. Other changes in equity requirements are being considered at
the state and federal levels, which may cause the amount of equity required to
be maintained by subsidiaries to increase. Changes in the factors underlying
existing equity requirements (such as an increase in premium revenue, medical
costs or the cost of care delivered by providers not under contract to the
Company) and expansion into new geographic markets may also cause the amount of
the subsidiaries' required equity to increase. Most states also require the
subsidiaries to obtain approval or provide notice before funds in excess of
certain thresholds are transferred to affiliates.
 
                                      F-18

<PAGE>   1
 
                                   EXHIBIT 23
<PAGE>   2
 
                                                                      EXHIBIT 23
 
               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
 
     We consent to the incorporation by reference in the Annual Report (Form
10-K/A) of U.S. Healthcare, Inc. of our report dated February 2, 1996, included
in the 1995 Annual Report to Shareholders of U.S. Healthcare, Inc.
 
     Our audits also included the financial statement schedule of U.S.
Healthcare, Inc. listed in Item 14(a). This schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on the
schedule based on our audits. 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.
 
     We consent to the incorporation by reference in the Registration Statements
of U.S. Healthcare, Inc. pertaining to the 1982 Incentive Stock Option Plan and
the Second Incentive Stock Option Plan (Form S-8 No. 2-91754); the U.S.
Healthcare, Inc. Savings Plan (Form S-8 No. 33-36049); the Second Incentive
Stock Option Plan, the Third Incentive Stock Option Plan and the 1987
Non-Statutory Option Plan (Form S-8 No. 33-26157); the U.S. Healthcare, Inc.
Incentive Plan (Form S-8 No. 33-80632); and the registration of shares of U.S.
Healthcare, Inc. common stock under various non-statutory stock option grants
and for the registration of 187,073 shares (as adjusted to reflect subsequent
stock splits) of U.S. Healthcare, Inc. common stock (Form S-3 No. 33-14653) of
our report dated February 2, 1996, with respect to the consolidated financial
statements of U.S. Healthcare, Inc. incorporated by reference in the Annual
Report (Form 10-K/A) for the year ended December 31, 1995 and the related
financial statement schedule included therein.
 
                                          ERNST & YOUNG LLP
 
Philadelphia, Pennsylvania
April 26, 1996


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