HEALTH MANAGEMENT INC/DE, DEF 14A, 1996-10-09

HEALTH MANAGEMENT INC/DE
DEF 14A, 1996-10-09
DRUG STORES AND PROPRIETARY STORES

Previous: CAROLINA INVESTMENT PARTNERS LIMITED PARTNERSHIP, 8-K, 1996-10-09

Next: CANDELA CORP /DE/, S-3, 1996-10-09

<PAGE> 1

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant: [x]
Filed by a Party other than the Registrant: [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or Section
240.14a-12

HEALTH MANAGEMENT, INC.
-------------------------
(Name of Registrant as Specified in Its Charter)

NOT APPLICABLE
-------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.

1) Title of each class of securities to which transaction
applies:

2) Aggregate number of securities to which transaction applies:

3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and show how it
was determined):

4) Proposed maximum aggregate value of transaction:

5) Total Fee paid:

[x] Fee paid previously with preliminary materials:

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.

1) Amount Previously Paid: $250 paid with filing of Preliminary
Proxy Statement.

2) Form, Schedule or Registration Statement No.:

3) Filing Party:

4) Date Filed:
<PAGE> 2
HEALTH MANAGEMENT, INC.
1371-A ABBOTT COURT
BUFFALO GROVE, ILLINOIS 60089

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

Notice of Annual Meeting of Stockholders
To Be Held November 6, 1996

TO THE STOCKHOLDERS OF HEALTH MANAGEMENT, INC.:

The Annual Meeting of Stockholders of Health Management, Inc., a
Delaware corporation (the "Company"), will be held on Wednesday, November 6,
1996, at The Clarion, 6810 North Mannheim Road, Rosemont, Illinois 60018, at
10:00 a.m. local time, to consider and act upon the following matters, each of
which is explained more fully in the following Proxy Statement. A proxy card
for your use in voting on these matters is also enclosed.

1. To elect four (4) directors;

2. To ratify the appointment of BDO Seidman as independent
auditors; and

3. To consider and act upon a proposal to approve an amendment to
the Certificate of Incorporation of the Company to increase
the authorized capital stock of the Company;

4. To consider and act upon a proposal to ratify a 1996 Employee
Stock Option Plan;

5. To consider and act upon a proposal to ratify a 1997 Employee
Stock Purchase Plan;

6. To consider and act upon a proposal to ratify the issuance of
certain stock options by the Company to the Chief Executive
Officer and President of the Company;

7. To consider and act upon a proposal to ratify the issuance of
certain stock options by the Company to certain nonemployee
directors of the Company;

8. To consider and act upon a proposal to ratify a 1996
Nonemployee Director Stock Option Plan;

9. To transact any other business that may properly come before
the meeting or any adjournment thereof.

Only common stockholders of record at the close of business on October
3, 1996 are entitled to notice of and to vote at the Annual Meeting.

Shares can only be voted at the Annual Meeting if the holder is
present or represented by proxy. If you do not expect to attend the Annual
Meeting, you are urged to date and sign the enclosed proxy and return it in the
accompanying envelope promptly, so your shares may be voted in accordance with
your wishes and the presence of a quorum may be assured. The giving of a proxy
does not affect your right to vote in person in the event you attend the
Meeting.

The Company's Annual Report for 1996 is enclosed with this Notice of
Meeting and Proxy Statement.

By Order of the Board of Directors,

W. James Nicol,
Chief Executive Officer and President
October 9, 1996
<PAGE> 3
PROXY STATEMENT

HEALTH MANAGEMENT, INC.

1371-A ABBOTT COURT
BUFFALO GROVE, ILLINOIS 60089

INTRODUCTION

The Board of Directors of Health Management, Inc., a Delaware
corporation (the "Company"), hereby solicits proxies in the form enclosed with
this Proxy Statement for use at the 1996 Annual Meeting of Stockholders (the
"Annual Meeting") to be held at 10:00 a.m. local time on Wednesday, November 6,
1996 at The Clarion, 6810 North Mannheim Road, Rosemont, Illinois 60018, and
any postponement or adjournment thereof.

The Company is sending with this Proxy Statement its Annual Report on
Form 10-K, which contains financial statements for the fiscal year ended April
30, 1996, to all stockholders entitled to vote. This Proxy Statement and form
of proxy is first being sent to stockholders on or about the date of the
accompanying Notice of the Annual Meeting.

Certain officers and employees of the Company, without extra
remuneration, may solicit proxies by telecopier, by telephone and in person.
In addition to mailing copies of this material to stockholders, the Company may
request brokerage houses, custodians, fiduciaries and nominees, and reimburse
them for their expenses in connection therewith, who hold stock in their names
or custody or in the names of nominees for others to forward such material to
those persons for whom they hold stock of the Company and to request the
authority for execution of the proxies. The Company may also retain outside
proxy solicitors in consideration of certain remuneration.

Only stockholders of record as of the close of business on October 3,
1996 will be entitled to vote at the Meeting and any adjournments thereof. As
of that date, 9,330,182 shares of the common stock of the Company, par value
$.03 per share ("Common Stock") (excluding treasury shares) were issued and
outstanding. Each such share outstanding will be entitled to one vote, and
stockholders may vote in person or by proxy. Execution of a proxy will not in
any way affect a stockholder's right to attend the meeting and vote in person;
any stockholder giving a proxy has the right to revoke it at any time before it
is exercised by written notice to the secretary of the Company. In addition,
stockholders attending the meeting may revoke their proxies at that time.
Unless so revoked, the shares represented by the proxies solicited by the Board
of Directors will be voted in accordance with the directions given therein by
the stockholder.

All properly executed proxies which are returned in time to be cast at
the Annual Meeting, if no contrary instruction is indicated, will be voted as
stated below under "election of directors." In addition to the election of
directors, the stockholders will consider and vote upon (i) a proposal to
ratify the selection of auditors; (ii) a proposal to approve an amendment to
the Certificate of Incorporation of the Company to increase the capital stock
of the Company; (iii) a proposal to ratify a 1996 Employee Stock Option Plan;
(iv) a proposal to ratify a 1997 Employee Stock Purchase Plan; (v) a proposal
to ratify the issuance by the Company of certain options to purchase shares of
Common Stock to the Chief Executive Officer and President of the Company; (vi)
a proposal to ratify the issuance by the Company of certain options to purchase
shares of Common Stock to certain directors of the Company; and (vii) a
proposal to ratify a 1996 Nonemployee Director Stock Option Plan. Where a
choice has been specified on the proxy with respect to the foregoing matters,
the shares represented by the proxy will
<PAGE> 4
be voted in accordance with the specification. The shares will be voted FOR if
no specification is indicated.

The presence, in person or by proxy, of the holders of a majority of
the voting stock of the Company is necessary to constitute a quorum to transact
business. If a quorum is not present or represented at the Annual Meeting, a
majority of the votes represented at the meeting may adjourn the Annual Meeting
from time to time without notice other than an announcement until a quorum is
present or represented. Assuming the presence of a quorum with respect to the
election of directors, the four nominees receiving the greater number of votes
cast by the holders of the common stock will be elected as directors. There
will be no cumulative voting in the election of directors. Assuming the
presence of a quorum with respect to other proposals, the affirmative vote of
the holders of the majority of the shares of Common Stock present in person or
represented by proxy is required to approve the proposal to ratify the
selection of auditors and any other matter which may come before the meeting.

An automated system administered by the Company's transfer agent
tabulates the votes. Abstentions are included in the determination of the
number of shares present and voting and are counted as abstentions in
tabulating the votes cast on nominations or proposals presented to
stockholders. Broker non-votes are not included in the determination of the
number of shares present and voting or as a vote with respect to such
proposals.

The Company knows of no other matter to be presented at the meeting.
If any other matter should be presented at the Annual Meeting upon which a vote
properly may be taken, shares represented by all proxies received by the
Company will be voted with respect thereto in accordance with the judgment of
the persons named as proxies.

PROPOSAL 1

ELECTION OF DIRECTORS

The persons named in the accompanying proxy will vote for the election
of four directors, unless authority to vote is withheld. The term of office of
each director elected will continue until the 1997 Annual Meeting of
Stockholders, or until a successor shall have been duly elected and qualified.
Andre C. Dimitriadis, W. James Nicol, D. Mark Weinberg and Dr. Timothy J.
Triche are the nominees for election as directors of the Company. Each has
informed the Company that he is willing to serve as director. However, if any
nominee should decline or become unable to serve as a director for any reason,
votes will be cast for a substitute nominee, if any, designated by the Board of
Directors. If no substitute nominee is designated prior to the election, votes
will be cast according to the judgment in such matters of the person or persons
voting the proxy. Messrs. Dimitriadis, Nicol and Weinberg, and Dr. Triche are
each incumbent directors.

Shares represented by proxies returned duly executed will be voted,
unless otherwise specified, in favor of the following four nominees: W. James
Nicol, Andre C. Dimitriadis, D. Mark Weinberg and Dr. Timothy J. Triche. Each
nominee for director has consented to serve on the Board of Directors and will
be elected by a plurality of the votes cast at the Annual Meeting of
Stockholders. If any (or all) such persons should be unavailable or unable to
serve, the persons named in the enclosed Proxy will vote the shares covered
thereby for such substitute nominee (or nominees) as the Board of Directors may
select. Stockholders may withhold authority to vote for any nominee by
entering the name of such nominee in the space provided for such purpose on the
enclosed Proxy Card.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES NAMED HEREIN.

- 2 -
<PAGE> 5
Set forth below is certain information with respect to each of the
nominees for the office of director, each director and each other executive
officer or key employee of the Company. Any information set forth below with
respect to each person nominated and recommended to be elected by the Board of
Directors of the Company is based on the records of the Company and information
furnished to it by the nominees. Reference is made to "Principal Stockholders
and Stock Ownership of Management" for information pertaining to stock
ownership by the nominees.

DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The executive officers, directors (including the current nominees) and
key employees of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Andre C. Dimitriadis 55 Chairman of the Board of Directors and Director
W. James Nicol 53 Chief Executive Officer, President and Director
James R. Mieszala 45 Chief Operating Officer
Paul S. Jurewicz 40 Chief Financial Officer, Executive Vice President,
Treasurer and Assistant Secretary
Dr. Timothy J. Triche 52 Director
D. Mark Weinberg 43 Director and Secretary
Clifford E. Hotte 49 Director
Virginia Belloise 49 Director
</TABLE>

W. James Nicol

Mr. Nicol was appointed to the offices of Chief Executive Officer and
President of the Company effective as of May 1, 1996. He was also named to the
Board of Directors of the Company in May 1996. Prior to joining the Company,
Mr. Nicol was a Senior Vice President and the Chief Financial Officer of
Careline, Inc. from May 1995 to October 1995. From 1990 until 1995, Mr. Nicol
served as Senior Vice President and Chief Financial Officer of Quantum Health
Resources, Inc. For 17 years prior to joining Quantum, Mr. Nicol held various
senior-level management positions with Comprehensive Care Corporation and was
its Chief Executive Officer and President from 1989-1990. Mr. Nicol also
serves on Comprehensive's Board of Directors and is a member of such board's
audit and compensation committees. Mr. Nicol graduated from Bradley University
in 1969 with a B.S. in Political Science and Economics.

James R. Mieszala

Mr. Mieszala has been the Chief Operating Officer of the Company since
May 1996. Mr. Mieszala served as Acting President of the Company from February
to May 1996. Prior to joining the Company, from 1986 to 1996, Mr. Mieszala
held a variety of positions with Caremark, Inc., including Vice President and
General Manager of the Specialized Pharmaceutical Services Division. From 1978
to 1986, Mr. Mieszala was employed by Baxter International in various
management roles. Mr. Mieszala graduated from the University of Illinois in
1973 and has an M.B.A. from the Keller Graduate School of Management.

- 3 -
<PAGE> 6
Paul S. Jurewicz

Mr. Jurewicz has been the Chief Financial Officer of the Company since
December 1995, an Executive Vice President of the Company since April 1996, the
Treasurer of the Company since February 1996 and the Assistant Secretary of the
Company since March 1996. Prior to joining the Company, Mr. Jurewicz held
several positions with Caremark, Inc. From September 1995 until he joined the
Company, Mr. Jurewicz was Chief Financial Officer at Caremark's North Suburban
Clinic, a multi-specialty physician clinic. From 1994 to September 1995, Mr.
Jurewicz served as Vice President of Shared Services of Caremark and from 1991
to 1994 he served as Vice President/Controller of Caremark, Inc.'s Healthcare
Services Division. From 1980 to 1991, Mr. Jurewicz was employed by Baxter
International. Mr. Jurewicz earned a B.S. in accounting from DePaul
University, an M.B.A. from the Lake Forest Graduate School of Management and a
C.P.A. certificate in the State of Illinois.

Andre C. Dimitriadis

Mr. Dimitriadis was elected as a Director of the Company in October
1993. He became the Chairman of the Board of Directors of the Company in May
1996. Mr. Dimitriadis is the Chief Executive Officer and Chairman of LTC
Properties, Inc., Oxnard, California, a real estate investment trust that
invests in long-term care and other health care related facilities. Prior to
founding LTC Properties, Mr. Dimitriadis was Executive Vice President and Chief
Financial Officer of Beverly Enterprises, an owner/operator of nursing
facilities, from October 1989 to May 1992. From December 1984 to July 1989 he
was Executive Vice President, Chief Financial Officer and a Director of
American Medical, Inc., an owner/operator of hospitals. Mr. Dimitriadis is a
Director of Magellan Health Services, Inc. and Assisted Living Concepts, Inc.
Mr. Dimitriadis earned a B.S. in electrical engineering from Robert College,
Istanbul, Turkey, an M.S. in computer science from Princeton University and an
M.B.A. and Ph.D. from New York University.

D. Mark Weinberg

Mr. Weinberg was elected as a Director of the Company in November 1995
and was appointed to the office of Secretary in March 1996. Mr. Weinberg is
the President of the WellPoint Group's Unicare Businesses. Prior to that
position, from 1987 to 1996, Mr. Weinberg held a variety of executive
management positions with WellPoint Health Networks Inc. and its affiliates,
including Executive Vice President. Mr. Weinberg received a B.S. in 1975 from
the University of Missouri at Columbia.

Dr. Timothy J. Triche

Dr. Triche was elected as a Director of the Company in November 1995.
Dr. Triche is the Chairman of the Board and the Chief Executive Officer of
OncorMed, Inc., a clinical services company. He is also Pathologist-in-Chief
for the Children's Hospital of Los Angeles in Los Angeles, California and
Professor of Pathology and Pediatrics at, and Vice Chairman of, the University
of Southern California School of Medicine, Los Angeles, California. Prior to
June 1988, he was Chief of the Ultrastructural Laboratory of the Division of
Pathology at the National Cancer Institute of the National Institutes of Health
in Bethesda, Maryland. Dr. Triche is also a director of Oncor, Inc. Dr.
Triche received an A.B. from Cornell University in 1966 and in 1971 received
both a Ph.D. in Cell Biology and an M.D. from Tulane University.

- 4 -
<PAGE> 7
Clifford E. Hotte

Clifford E. Hotte, Ph.D. who has been a director of the Company since
1988, founded Home Care Management, Inc., the Company's first operating
subsidiary in 1985. Clifford E. Hotte served as the Chief Executive Officer
and President of the Company from February 1988 to February 1996 and as
Chairman of the Company's Board of Directors from 1988 to February 1996.
Clifford E. Hotte is married to Ms. Belloise, who is also a director of the
Company.

Virginia Belloise

Ms. Belloise has been a Director of the Company since March 1988. She
also served as Personnel and Human Services Director for the Company from 1988
until 1993 and was the Company's Secretary from March 1988 until December 1993
and for a period of time in 1996. Ms. Belloise previously held the position of
Clinical Laboratory Manager at Deepdale General Hospital, Little Neck, New
York, from March 1985 to October 1987. Ms. Belloise is married to Clifford E.
Hotte, who is also a director of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers and directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the NASDAQ Stock Market. Executive officers, directors
and greater than ten percent stockholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they may file.

Based solely on a review of the copies of such forms furnished to the
Company, or written representations from certain persons that no Forms 5 were
required, the Company believes that during the fiscal year ended April 30,
1996, no directors, officers or beneficial owners of more than 10% of the
Common Stock, other than as described below, failed to file, on a timely basis,
reports required by Section 16(a) of the Securities Exchange Act of 1934. Mr.
Dimitriadis failed timely to file one Form 4 reflecting three transactions and
Messrs. Weinberg, Mieszala and Jurewicz and Dr. Triche each failed timely to
file one Form 3.

BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD

During the year ended April 30, 1996 the Board of Directors held
twelve meetings and executed written consents. Each director attended at least
75% of the aggregate number of meetings of the Company's Board of Directors and
committees on which he or she served.

The existing committees of the Board of Directors include the
Executive Committee, the Compensation Committee, the Audit Committee and the
Special Committee.

The Executive Committee, whose members are Messrs. Dimitriadis,
Weinberg and Nicol and Dr. Triche, and whose chairman is Mr. Dimitriadis, is
generally authorized to exercise all of the powers and authority of the Board
of Directors in the management of the business and affairs of the Company to
the maximum extent permitted of an executive committee under Delaware law.
This committee held two meetings during the year ended April 30, 1996.

The Board of Directors has a compensation committee which consists of
Mr. Dimitriadis and Dr. Triche, with Dr. Triche serving as chairman. Mr.
Dimitriadis and Dr. Triche were appointed by

- 5 -
<PAGE> 8
the Board of Directors to serve as members of the committee on November 29,
1995. Prior to that, David R. Walker comprised the Compensation Committee, and
J. Douglas Cox also served on that committee until he resigned as a director of
the Company on July 24, 1995. The functions of this committee are to review
executive compensation and approve grants of options to Company officers and
employees, and renew, approve and recommend to the Board of Directors the terms
and conditions of all stock option plans or changes thereto. The Compensation
Committee held one meeting during the year ended April 30, 1996.

The Board of Directors has an audit committee composed of directors
who are neither employees nor affiliates of the Company. The Audit Committee
is currently comprised of Messrs. Dimitriadis and Weinberg, with Mr.
Dimitriadis serving as chairman. Mr. Dimitriadis was reappointed, and Mr.
Weinberg was appointed, by the Board of Directors to serve as members of the
committee on February 18, 1996. Prior to July 24, 1995, when he resigned as a
director of the Company, J. Douglas Cox was also on the Audit Committee along
with Mr. Dimitriadis. On November 29, 1995, David Walker was appointed to
comprise the Audit Committee and he served as such until he resigned as a
director in December, 1995. This committee recommends to the Board of
Directors (for approval by the stockholders) a public accounting firm to
conduct the annual audit of the accounts of the Company. The Audit Committee
also meets with the Chief Financial Officer and the accounting firm before the
audit commences to discuss the accounting firm's evaluation of the adequacy and
effectiveness of the Company's accounting procedures and internal controls, to
approve the overall scope of the audit and the fees to be charged, and to
inquire regarding and discuss with the accounting firm recent FASB, SEC or
other regulatory agency pronouncements, if any, which might affect the
Company's financial statements. The Audit Committee also meets with the Chief
Financial Officer and the accounting firm at the conclusion of the audit to
review the audited financial statements, to discuss the results of the audit,
to discuss any significant recommendations by the accounting firm for
improvement of the Company's accounting systems and controls, and to discuss
the quality and depth of staffing in the accounting and financial departments
of the Company. This committee held two meetings during the year ended April
30, 1996; as of February 18, 1996, many of the functions of the audit committee
were performed by the special committee of the Board of Directors described in
the following paragraph.

On February 18, 1996 the Board of Directors established a special
committee consisting of Messrs. Dimitriadis and Weinberg and Dr. Triche, Mr.
Dimitriadis being the chairman. This committee was formed for the purposes of
conducting an internal review of the financial statements of the Company and
the Company's accounting practices. This committee caused an internal
investigation of the Company's financial practices to be undertaken, and such
investigation led to a restatement of the Company's financial statements for
the periods covered by fiscal year ended April 30, 1995 and by the first two
fiscal quarters in the fiscal year ending April 30, 1996. This committee held
nine meetings during the year ended April 30, 1996.

Currently, outside directors are entitled to receive $2,000 per year
as a retainer, $1,000 per meeting of the Board of Directors attended in person,
$1,000 per Chairmanship of a committee of the Board of Directors, and $500 per
meeting of a committee of the Board of Directors attended in person. No such
payments have been made by the Company since August 31, 1995. Currently, each
outside director is entitled to receive an option to purchase 4,000 shares at
the time of his or her election. Each non-employee director also receives an
annual automatic grant of options to purchase 1,000 shares of common stock for
each completed year of service. All of the options mentioned above vest over a
six month period. In addition, the Board of Directors voted to award Mr.
Dimitriadis 1,000 shares of Common Stock on February 8, 1995 and on that same
date awarded him 4,000 shares of Common Stock to be issued to him on the fifth
anniversary of the date that he was elected to the Board of Directors, provided
that if he resigns, retires or dies prior to such date he is entitled only to
the pro rata amount of such shares; however, if he is terminated as a director,
other than for cause, or if there is

- 6 -
<PAGE> 9
a merger, consolidation, acquisition of substantially all of the assets,
reorganization or liquidation of the Company, he will be entitled to the full
4,000 shares. These awards of shares were in place of awards of 5,000 shares
to be made over a five-year period at the time of Mr. Dimitriadis' election to
the Board of Directors.

On April 3, 1996, the Executive Committee passed resolutions compensating
Messrs. Dimitriadis and Weinberg and Dr. Triche for their efforts serving on
various committees of the Board, including the Special Committee, and for
serving on the Office of the Chief Executive Officer. Each of Mr. Weinberg and
Dr. Triche were awarded options to purchase 7,500 shares of Common Stock, stock
appreciation rights with respect to 22,500 shares of Common Stock and $30,000
in cash, and Mr. Dimitriadis was awarded options to purchase 10,000 shares of
Common Stock, stock appreciation rights with respect to 30,000 shares of Common
Stock and $40,000 in cash. The vesting schedule for the exercisability of the
stock options and for the stock appreciation rights were one-half upon the
appointment of the permanent Chief Executive Officer of the Company and
one-half upon the first anniversary of the date thereof. The exercise price or
strike price for these stock options and stock appreciation rights was the
average closing price of shares of Common Stock for the five (5) trading days
preceding April 3, 1996 or $4.8375 per share. On September 9, 1996, the
Executive Committee of the Board of Directors of the Company repriced the
exercise price of the stock options to $4.16 per share, or the average closing
price of Common Stock for the five (5) trading days preceding September 9,
1996. Also at the September 9th meeting of the Executive Committee, the stock
appreciation rights previously authorized for issuance to Messrs. Dimitriadis
and Weinberg and Dr. Triche were rescinded and in place thereof stock options
were authorized, subject to stockholder approval, for 30,000, 22,500 and 22,500
shares of Common Stock, respectively (See Proposal 7 below). The exercise
price of those stock options was also set at $4.16 per share and the options
vest one-half on September 9, 1996 and one-half on September 9, 1997. The
foregoing awards of stock options, stock appreciation rights and cash were
contingent upon Messrs. Weinberg and Dimitriadis and Dr. Triche waiving their
respective rights to any remuneration to which they may be entitled from the
Company for the period beginning on February 18, 1996 through September 9,
1996. In addition, Mr. Weinberg and Dr. Triche relinquished their rights to
receive the options for 4,000 shares normally granted to new directors of the
Company. Also, at the Company's request, the grantees have agreed to defer
such cash compensation until the Company's liquidity situation improves.

In addition on May 6, 1996, the Board of Directors of the Company voted to
issue stock options for 30,000 shares of the Common Stock for each non-employee
director and stock options for an additional 20,000 shares of the Common Stock
to the Chairman of the Board, subject to stockholder approval (See Proposal 7
below). The exercise price of these options was originally the average closing
price of the Common Stock for the five (5) trading days prior to May 6, 1995 or
$5.5875 per share. At the September 9th meeting of the Executive Committee the
exercise price of these options was reset at $4.16 per share. Such option
vests as follows: one third (1/3) on the first anniversary of the Annual
Meeting, one third (1/3) on the second anniversary of the Annual Meeting, and
one-third (1/3) on the third anniversary of the Annual Meeting. These options
terminate with respect to any unvested portion thereof if (i) the grantee is
not re-elected as a director at the 1996 annual stockholders meeting, (ii)
during the one-year period preceding any given vesting date such grantee
attends less than 75% of the Board of Directors meetings to which he or she is
entitled to attend or (iii) the grantee voluntarily resigns as a director.

- 7 -
<PAGE> 10
PROPOSAL 2

RATIFICATION OF SELECTION OF AUDITORS

The Board of Directors has selected the firm of BDO Seidman, LLP,
independent accountants, to serve as auditors for the fiscal year ending April
30, 1997, subject to ratification by the stockholders. BDO Seidman, LLP has
served as the Company's auditors since 1990.

It is expected that a member of the firm of BDO Seidman, LLP, will be
present at the meeting, will have an opportunity to make a statement as so
desired and will be available to respond to appropriate questions.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THEIR SELECTION OF
AUDITORS.

PROPOSAL 3

RATIFICATION OF AMENDMENT TO CERTIFICATE OF INCORPORATION

INTRODUCTION

The Board of Directors of the Company has approved and recommends
adoption of a proposal to amend the Company's Certificate of Incorporation as
set forth in the Certificate of Amendment, a copy of which is attached to this
Proxy Statement as Exhibit A (the "Amended Certificate"). The Amended
Certificate would amend the existing Certificate of Incorporation to increase
(i) the authorized capital stock of the Company from 21,000,000 to 40,000,000
shares and (ii) the authorized Common Stock of the Company from 20,000,000 to
39,000,000 shares. As set forth below, the Board of Directors believes that
the best interests of the Company and its stockholders will be served by
adopting this amendment to the Certificate of Incorporation, as indicated.
Under Delaware law, the affirmative vote of at least the majority of the
outstanding shares of common stock of a corporation is required for approval of
the Amended Certificate. The Amended Certificate has been approved by the
Company's Board of Directors, which unanimously recommends a vote in favor of
the proposal. If approved by the stockholders at the annual meeting, the
Amended Certificate will become effective upon filing with the Secretary of
State of the State of Delaware.

EXPLANATION OF THE PROPOSED AMENDMENT

The Company's Certificate of Incorporation presently provides that the
Company is authorized to issue a total of 21,000,000 shares of capital stock,
of which the Company may issue 20,000,000 shares of Common Stock and 1,000,000
shares of Preferred Stock. Under the Amended Certificate, the authorized
capital stock of the Company would be increased from 21,000,000 to 40,000,000
shares, of which the authorized Common Stock of the Company would be increased
from 20,000,000 shares to 39,000,000 shares. At October 3, 1996, there were
9,330,182 shares of the Company's Common Stock issued and outstanding in
addition to stock options, warrants and convertible debt for which additional
shares of Common Stock are reserved. The proposed increase would give the
Board flexibility to issue additional shares of Common Stock in connection
with, among other things, the Stipulation of Partial Settlement relating to the
pending stockholder litigation, the above-mentioned 1996 Employee Option Plan,
the above-mentioned 1996 Nonemployee Option Plan, the above- mentioned 1997
Stock Purchase Plan, and the possible refinancing of the Company's outstanding
bank debt.

- 8 -
<PAGE> 11
The Stipulation of Partial Settlement which provides for the
settlement of the consolidated stockholder class action lawsuit filed in the
United States District Court for the Eastern District of New York against the
Company, In re Health Management, Inc. Securities Litigation, Master File No.
96. Civ 0889, was entered into on September 16, 1996. This action arose out of
alleged misrepresentations and omissions by the Company in connection with
certain of its previous securities filings. The Stipulation of Partial
Settlement provides for, among other things, the payment by the Company of
$2,000,000 in cash, the issuance of 2,200,000 shares of Common Stock and
warrants to purchase 2,200,000 shares of Common Stock. Preliminary court
approval of the Stipulation of Partial Settlement was received on September 17,
1996 and a hearing for final court approval is currently scheduled for November
8, 1996.

The Company is presently in default under its Credit Agreement with
Chase Manhattan Bank, N.A., as agent and lender. The Company has executed a
Forbearance Agreement with its lenders which provides that, subject to certain
conditions, that the lenders agree not to exercise their rights and remedies
under the Credit Agreement until November 15, 1996. In pursuance of financing
to remedy the default condition under the Credit Agreement, the Company has
recently engaged National Westminster Bank Plc to act as its financial advisor
to explore a variety of strategic and financial alternatives, including a
possible refinancing of the bank debt. Such refinancing would likely require
the reservation or issuance of additional shares of Common Stock.

VOTE REQUIRED FOR THE PROPOSAL

Approval of the proposed Amended Certificate will require the
affirmative vote of holders of at least a majority of the outstanding shares of
the Company's Common Stock.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION.

PROPOSAL 4

PROPOSAL TO APPROVE THE HEALTH MANAGEMENT, INC.
1996 EMPLOYEE STOCK OPTION PLAN

BACKGROUND

The Board of Directors is proposing for stockholder approval the
Health Management, Inc. 1996 Stock Option Plan (the "Employee Option Plan").
The purpose of the Employee Option Plan is to enable the Company to grant
officers and other key employees of the Company and its subsidiaries options to
purchase shares of Common Stock, thereby attracting, retaining and rewarding
such employees and strengthening the mutuality of interests between such
employees and the Company's stockholders.

An aggregate of 1,500,000 shares of Common Stock (subject to
adjustment for any dividend, stock split or other relevant change in the
Company's capitalization) are reserved for issuance pursuant to the Employee
Option Plan. All of such shares may, but need not, be issued pursuant to the
exercise of incentive stock options. The maximum number of option shares which
may be awarded to any participant in any fiscal year during the term of the
Plan is 200,000 shares.

The text of the Employee Option Plan is attached as Exhibit B to this
Proxy Statement. The following is a summary of the material provisions of the
Employee Option Plan.

- 9 -
<PAGE> 12
ADMINISTRATION AND ELIGIBILITY

The Employee Option Plan is administered by the Compensation
Committee. The Compensation Committee has the authority to interpret the Plan,
establish rules and regulations for its operations, select officers and other
key employees of the Company and its subsidiaries to receive options, and,
subject to the Employee Option Plan, determine the terms and conditions of
options.

Officers and other key employees of the Company or any of its
subsidiaries are eligible to participate in the Employee Option Plan. The
selection of participants from eligible employees is within the discretion of
the Compensation Committee. As of September 30, 1996, approximately 100
employees were eligible to participate in the Employee Option Plan.

TYPES AND TERMS OF OPTIONS

The Employee Option Plan provides for the grant of incentive stock
options and non-qualified stock options. The Compensation Committee will
determine with regard to each option granted, the number of shares subject to
the option, the manner and time of the option's exercise and vesting, and the
exercise price per share of stock subject to the option. The maximum option
term is ten years and the exercise price of each option will be not less than
100% of the fair market value of the Common Stock on the date the option is
granted. The option price may at the discretion of the Compensation Committee
be paid by a participant in cash, shares of Common Stock owned by the
participant, or a combination thereof, or such other consideration as the
Compensation Committee may deem appropriate. The Compensation Committee may
also in its discretion permit a participant to pay all or a portion of the
withholding taxes required with respect to the exercise of any option by
electing to have the Company withhold shares of Common Stock from the shares
otherwise deliverable at exercise.

The Employee Option Plan provides that options shall not be
transferable otherwise than by will or the laws of descent and distribution.
Notwithstanding the foregoing, the Compensation Committee may permit the
transfer of an option by a participant to members of the participant's
immediate family or trusts or family partnerships for the benefit of such
persons.

No option may be granted after September 15, 2006. However, the Board
of Directors reserves the right to amend, suspend or discontinue the Employee
Option Plan at any time, subject to the rights of participants with respect to
any outstanding options.

The Employee Option Plan contains provisions for equitable adjustment
of options in the event of merger, consolidation or reorganization, or issuance
of shares by the Company without new consideration.

FEDERAL INCOME TAX TREATMENT

A participant who is granted an incentive stock option will not
recognize any taxable income at the time of the grant of the option or at the
time of its exercise. Similarly, the Company will not be entitled to any
deduction at the time of grant or exercise. If the participant holds the
shares acquired pursuant to an incentive stock option for at least two years
from the date of grant and one year from the date of exercise, any gain
realized on a subsequent disposition of the shares will be treated as long-term
capital gain. Under such circumstances, the Company will not be entitled to
any deduction for federal income tax purposes.

If the shares obtained upon the exercise of an incentive stock option
are not held for the requisite holding periods, then the participant will have
ordinary income at the time of disposition equal to the

- 10 -
<PAGE> 13
excess of the fair market value of the stock on the date of exercise over the
option price (but not more than the gain realized on the disposition) and the
Company will be entitled to a corresponding deduction.

A participant who is granted a non-qualified stock option will not
recognize taxable income at the time of grant, but will have taxable income at
the time of exercise equal to the difference between the exercise price of the
shares and the fair market value of the shares on the date of exercise. The
Company will be entitled to a tax deduction at the same time for the same
amount.

OTHER INFORMATION

No options have been granted under the Employee Option Plan to date.
The options to be granted under the Employee Option Plan are not determinable
at this time. As of October 3, 1996, the closing price of the Common Stock was
$4.50.

The affirmative vote of holders of a majority of the shares
represented and entitled to vote at the meeting is required for approval of the
Employee Option Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE HEALTH
MANAGEMENT, INC. 1996 EMPLOYEE STOCK OPTION PLAN.

PROPOSAL 5

PROPOSAL TO APPROVE THE HEALTH MANAGEMENT, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN

BACKGROUND

The Board of Directors believes it is in the best interests of the
Company to encourage stock ownership by employees of the Company. Accordingly,
on September 16, 1996, the Board of Directors adopted, subject to stockholder
approval, the Health Management, Inc. 1997 Employee Stock Purchase Plan (the
"Stock Purchase Plan"). An aggregate of 2,000,000 shares of Common Stock
(subject to adjustment for any dividend, stock split or other relevant change
in the Company's capitalization) may be sold pursuant to the Stock Purchase
Plan. The text of the Stock Purchase Plan is attached as Exhibit C to this
Proxy Statement. The following is a summary of the material provisions of the
Stock Purchase Plan.

ADMINISTRATION AND ELIGIBILITY

The Stock Purchase Plan is to be administered by the Compensation
Committee of the Board of Directors. The Compensation Committee has the
authority to make rules and regulations governing the administration of the
Stock Purchase Plan.

All employees of the Company are eligible to participate in the Stock
Purchase Plan except that the following may be excluded at the discretion of
the Compensation Committee: (i) employees whose customary employment is 20
hours or less per week; (ii) employees whose customary employment is for not
more than five months per year; and (iii) employees who have been employed for
less than two years. As of September 30, 1996, approximately 400 employees
were eligible to participate in the Stock Purchase Plan.

- 11 -
<PAGE> 14
PARTICIPATION AND TERMS

An eligible employee may elect to participate in the Stock Purchase
Plan as of any Enrollment Date. Enrollment Dates occur on the first day of a
six-month offering period commencing on the first trading day of January and
July of each year. To participate in the Stock Purchase Plan an employee must
complete an enrollment and payroll deduction authorization form provided by the
Company which indicates the amounts to be deducted from his or her salary and
applied to the purchase of the Common Stock on the Share Purchase Date (as
hereinafter defined). The payroll deduction must be within limits set by the
Compensation Committee. On the last trading day of each offering period (the
"Share Purchase Date"), the amount credited to each participating employee's
payroll deduction account is applied to purchase as many whole shares of Common
Stock as may be purchased with such amount at the applicable purchase price.

The purchase price for the Common Stock (the "Purchase Price") is
equal to the lower of 85% of the closing price of shares of the Common Stock as
reported on the NASDAQ National Market (i) on the first trading day of the
applicable offering period; or (ii) on the Share Purchase Date. Employees may
purchase Common Stock through the Stock Purchase Plan only by payroll
deductions.

AMENDMENT AND TERMINATION

The Board of Directors of the Company may amend the Stock Purchase
Plan at any time, provided that if stockholder approval is required for the
Stock Purchase Plan to continue to comply with the requirements of Securities
and Exchange Commission Regulation Section 240.16b-3 or Section 423 of the
Internal Revenue Code (the "Code"), such amendment shall not be effective
unless approved by the Company's stockholders within twelve months after the
date of adoption by the Board of Directors.

The Stock Purchase Plan may be terminated by the Board of Directors at
any time.

FEDERAL INCOME TAX CONSEQUENCES

The Stock Purchase Plan is intended to be an "employee stock purchase
plan" as defined in Section 423 of the Code. As a result, an employee
participant will pay no federal income tax upon enrolling in the Stock Purchase
Plan or upon purchase of the Common Stock. A participant may recognize income
and/or gain or loss upon the sale or other disposition of Common Stock
purchased under the plan, the amount and character of which will depend on
whether the Common Stock are held for two years from the first day of the
offering period.

If the participant sells or otherwise disposes of the Common Stock
within that two-year period, the participant will recognize ordinary income at
the time of disposition in an amount equal to the excess of the market price of
the Common Stock on the date of purchase over the purchase price and the
Company will be entitled to a tax deduction for the same amount.

If the participant sells or otherwise disposes of the Common Stock
after holding the Common Stock for the two- year period, the participant will
recognize ordinary income at the time of disposition in an amount equal to the
lesser of (i) the excess of the market price of the Common Stock on the first
day of the offering period over the Purchase Price, or (ii) the excess of the
market price of the Common Stock at the time of disposition over the purchase
price. The Company will not be entitled to any tax deduction with respect to
Common Stock purchased under the plan if the Common Stock are held for the
requisite two-year period.

The employee may also recognize capital gain or loss at the time of
disposition of the Common Stock, either short-term or long-term, depending on
the holding period for the Common Stock.

- 12 -
<PAGE> 15
OTHER INFORMATION

The Stock Purchase Plan is intended to go into effect on January 1,
1997. As of October 3, 1996, the closing price of the Common Stock was $4.50.

The affirmative vote of holders of a majority of the shares of Common
Stock represented and entitled to vote at the meeting is required for approval
of the Stock Purchase Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE 1997
STOCK PURCHASE PLAN.

PROPOSAL 6

RATIFICATION OF ISSUANCE OF STOCK OPTION
TO THE CHIEF EXECUTIVE OFFICER AND PRESIDENT OF THE COMPANY

GENERALLY

On April 20, 1996, the Company authorized the grant to W. James Nicol,
the Chief Executive Officer, the President and a director of the Company, an
option to purchase 500,000 shares of the Common Stock at an exercise price
equal to the average closing price of shares of Common Stock for the five (5)
trading days prior to April 20, 1996 or $5.375 per share, subject to
stockholder approval. The exercise price for these options was reset at the
September 9th meeting of the Executive Committee to $4.16 per share, the
average closing price of shares of Common Stock for the five (5) trading days
prior to September 9, 1996. The option becomes exercisable, in one-third
installments, on the first three anniversaries of May 1, 1996 and expires on
the seventh anniversary of the date of grant. A copy of the option agreement
for such shares is attached hereto as Exhibit D.

The Company granted this option to induce Mr. Nicol to accept his
position with the Company as the Chief Executive Officer and the President of
the Company. In this position, Mr. Nicol manages the day-to-day operations of
the Company and the development of the Company's strategy, financings,
acquisitions, investor and financial community relations and evaluation of
management. For his services as the Chief Executive Officer and President, Mr.
Nicol receives an annual salary of $300,000 plus a performance bonus in an
amount to be determined in the future. No compensation was paid to Mr. Nicol
with respect to the year ended April 30, 1996.

In the event that Mr. Nicol's employment with the Company is
terminated (i) by the Company other than for disability or cause or (ii) by Mr.
Nicol as a result of a change in control of the Company or as a result of the
Board of Directors materially reducing the scope and/or authority of his duties
as President and Chief Executive Officer of the Company, then the unvested
portion of Mr. Nicol's option will vest automatically and his option will
become immediately exercisable. In the event Mr. Nicol's employment is
terminated for reasons other than as described clauses (i) and (ii) of the
preceding sentence, then the unvested portion of Mr. Nicol's option will not
vest and his interest therein will cease immediately.

In the event of a change of control in the Company, the unvested
portion of the Mr. Nicol's option will vest automatically, and Mr. Nicol will
have the right to exercise all or any portion of the option, in addition to any
portion of the option exercisable prior to such event.

This stock option can be amended by the Board of Directors or an
authorized committee thereof with the consent of the optionee.

- 13 -
<PAGE> 16
FEDERAL INCOME TAX CONSEQUENCES

Mr. Nicol will not recognize any taxable income as a result of the
grant of the option. Mr. Nicol will have taxable income at the time of the
exercise of the option equal to the difference between the exercise price of
the shares and the fair market value of the shares on the date of exercise.
The Company will be entitled to a tax deduction at the same time for the same
amount.

OTHER INFORMATION

As of October 3, 1996, the closing price of a share of Common Stock
was $4.50.

The affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote on the option grant is required for
authorization and approval of this stock option grant. In the event that the
stockholders of the Company do not authorize and approve this option grant, the
option will be terminated.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE STOCK OPTION
TO THE CHIEF EXECUTIVE OFFICER AND THE PRESIDENT.

PROPOSAL 7

RATIFICATION OF ISSUANCE OF STOCK OPTIONS
TO CERTAIN DIRECTORS

GENERALLY

The Board of Directors recommends ratification of the Company's grant
of options to purchase shares of the Common Stock of the Company to nonemployee
directors of the Company, as described in this proposal.

At a Special Meeting which was held in May 1996, the Board of
Directors of the Company adopted a resolution, subject to stockholder approval,
that (i) each of the current nonemployee directors of the Company receive as
compensation for his or her services as a director, options to purchase 30,000
shares of Common Stock and (ii) the Chairman of the Board receive options for
an additional 20,000 shares of Common Stock, all at an exercise price equal to
the average closing price of shares of Common Stock for the five (5) trading
days prior to May 6, 1996 or $5.5875 per share. At a meeting of the Executive
Committee held on September 9, 1996, the exercise price of these options was
reset to $4.16 per share or the average closing price of the Common Stock for
the five (5) trading days preceding September 9, 1996. Such options are to
vest one-third (1/3) on and after the first, second and third anniversary of
the Annual Meeting. These options will expire on May 6, 2003 and will
terminate immediately with respect to the unvested portions thereof if (i) the
grantee is not re-elected as a director at the Annual Meeting, (ii) during the
one-year period preceding any given vesting date such grantee attends less than
75% of the Board of Directors meetings to which he or she is required to attend
or (iii) the grantee voluntarily resigns as a director. A form of these
options is attached hereto as Exhibit E.

The Company granted these options to compensate the nonemployee
directors of the Company for their efforts serving on the Board and on its
various committees. An additional purpose of awarding these options is to
provide motivation to these directors to put forth maximum efforts toward the
continued growth, profitability and success of the Company and its subsidiaries
by providing incentives to such directors through the ownership and performance
of the Common Stock. The Board of

- 14 -
<PAGE> 17
Directors believes that it is in the best interests of the Company and its
stockholders that its directors be compensated in a manner that provides such
directors with a strong incentive to advance both the short-term and long- term
interests of the Company. The nonemployee directors of the Company expend a
substantial portion of their time on Company matters and are involved in the
development of the Company's strategy, financings, acquisitions, investor and
financial community relations and evaluation of management.

Stock appreciation rights were also authorized for issuance on April
3, 1996 by the Executive Committee to Messrs. Dimitriadis and Weinberg and Dr.
Triche with respect to 30,000, 22,500 and 22,500 shares of Common Stock,
respectively. On September 9, 1996, the authorization for the stock
appreciation rights was rescinded and replaced with stock options, subject to
stockholder approval, with respect to an aggregate of 75,000 shares of Common
Stock (30,000 shares for Mr. Dimitriadis and 22,500 shares for each of Mr.
Weinberg and Dr. Triche) priced at $4.16 per share or the average closing price
of the five (5) trading days preceding September 9, 1996. These options vest
one-half as of September 9, 1996 and one-half as of September 9, 1997. A form
of these options is attached hereto as Exhibit F. These options are in
addition to the stock options originally granted to Messrs. Dimitriadis and
Weinberg and Dr. Triche on April 3, 1996 with respect to 10,000, 7,500 and
7,500 shares of Common Stock, respectively.

The stock options described in the previous paragraph were granted to
members of the Special Committee of the Board of Directors who conducted an
internal investigation and also served in the interim Office of the Chief
Executive Officer prior to the appointment of W. James Nicol to that position.
Because of the nature of the internal investigation, the time expended by the
members of the Special Committee far exceeded the time they anticipated serving
as directors for the Company. The Special Committee met nine times from
February 18, 1996 to May 20, 1996 and the Office of the Chief Executive Officer
met several times per week.

For their services as directors of the Company, each outside director
is currently entitled to receive $2,000 per year as a retainer, $1,000 per
meeting of the Board of Directors attended in person, $1,000 per Chairmanship
of a committee of the Board of Directors, and $500 per meeting of a committee
of the Board of Directors attended in person. Furthermore, each outside
director is entitled to receive an option to purchase 4,000 shares at the time
of his or her election. Each outside director also is entitled to receive an
annual automatic grant of options to purchase 1,000 shares of common stock for
each completed year of service. The members of the Special Committee have
waived the director compensation described in this paragraph for the period
from February 1, 1996, the day on which the Special Committee was formed, to
September 9, 1996, in consideration of the stock options described above and
certain cash consideration described in "Proposal 1 - Board of Directors and
Committees of the Board" above. Dr. Triche and Mr. Weinberg also waived their
rights to the 4,000 shares of Common Stock they would have been entitled to at
the time of their election to the Board of Directors.

The stock options covered by this proposal can be amended by the Board
of Directors or an authorized committee thereof with the consent of the
optionee.

FEDERAL INCOME TAX CONSEQUENCES

The nonemployee directors will not recognize any taxable income as a
result of the grant of the options. A director will have taxable income at the
time of the exercise of an option equal to the difference between the exercise
price of the shares and the fair market value of the shares on the date of
exercise. The Company will be entitled to a tax deduction at the same time for
the same amount.

- 15 -
<PAGE> 18
OTHER INFORMATION

As of October 3, 1996, the closing price of a share of Common Stock was
$4.50.

The affirmative vote of the holders of at least a majority of all
outstanding shares entitled to vote on the option grant is required for
authorization and approval of these stock option grants. In the event that the
stockholders of the Company do not authorize and approve these option grants,
the options will be terminated.

PROPOSAL 8

PROPOSAL TO APPROVE THE HEALTH MANAGEMENT, INC.
1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS

BACKGROUND

The Board of Directors is proposing for stockholder approval the
Health Management, Inc. 1996 Stock Option Plan for Nonemployee Directors (the
"Director Option Plan"). The purpose of the Director Option Plan is to enable
the Company to attract and retain outstanding individuals to serve as members
of the Board of Directors by providing such persons options to acquire shares
of Common Stock, thereby strengthening the mutuality of interests between such
persons and the Company's stockholders. The text of the Director Option Plan
is attached as Exhibit G to this Proxy Statement. The following is a summary
of the material provisions of the Director Option Plan.

DESCRIPTION OF DIRECTOR OPTION PLAN

The Director Option Plan reserves 250,000 shares of Common Stock for
automatic grants of nonqualified stock options to members of the Board of
Directors who are not officers or employees of the Company or its subsidiaries
(a "Nonemployee Director"). The Director Option Plan is intended to be
self-governing and requires no discretionary action by any administrative body
with respect to any grant of an option under the plan. Subject to approval of
the Director Option Plan by the stockholders of the Company, each Nonemployee
Director in office on adjournment of the 1996 Annual Meeting, or on the
adjournment of any succeeding Annual Meeting during the term of the Director
Option Plan, and who has not previously been granted a stock option while
serving as a director, will automatically receive a nonqualified stock option
to purchase 10,000 shares of Common Stock on the date of adjournment. Each
Nonemployee Director in office on adjournment of any Annual Meeting during the
term of the Director Option Plan who previously has been granted a stock option
while serving as a director will receive a stock option for 2,500 shares of
Common Stock on the date of adjournment.

OTHER TERMS OF OPTION GRANTS

Each option is granted for a term of ten years and becomes exercisable
in equal installments on the first four anniversaries of the grant date. The
Option Price may be paid in cash or by delivery of Common Stock owned by the
Nonemployee Director valued at fair market value on the date of exercise.

No option granted under the Director Option Plan shall be transferable
by a Nonemployee Director, otherwise than by will or by the laws of descent and
distribution. All options shall be exercisable during the Nonemployee
Director's lifetime only by the Nonemployee Director or his legal
representative. Notwithstanding the foregoing, an option may be transferred to
the Nonemployee Director's immediate family or trusts or family partnerships
for the benefit of such persons. In the event of a Nonemployee Director's
death or retirement, all options shall become fully exercisable and

- 16 -
<PAGE> 19
may be exercised for two years from the date of death or for the balance of the
term of the option in the case of retirement.

The Board of Directors of the Company may suspend or terminate the
Director Option Plan at any time. The Board of Directors may also amend the
Director Option Plan from time to time to reflect changes in applicable laws or
regulations or to permit the Company or the participants to enjoy the benefits
of any such change. However, no amendment shall, without stockholder approval,
increase the number of shares of Common Stock which may be issued under the
Director Option Plan.

The Director Option Plan contains provisions for automatic adjustment
of awards in the event of a merger, consolidation, or reorganization, or
issuance of shares by the Company without new consideration.

FEDERAL TAX TREATMENT

OTHER INFORMATION

If all nominees are elected at the 1996 Annual Meeting, there will be
three (3) Nonemployee Directors who will each automatically receive stock
options covering 2,500 shares under the Director Option Plan. As of October 3,
1996, the closing price of a share of Common Stock was $4.50.

The affirmative vote of holders of a majority of the shares
represented and entitled to vote at the meeting is required for approval of the
Director Option Plan.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE HEALTH
MANAGEMENT, INC. 1996 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS.

PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT

The following information is submitted as of July 23, 1996 with respect to
the Company's voting securities owned beneficially by each person known by the
Company owning more than 5% of the Common Stock of the Company (this being the
only class of voting securities now outstanding), by Named Executive Officers
of the Company and by all directors, officers both individually and as a group:

- 17 -
<PAGE> 20
<TABLE>
<CAPTION>
Amount Approx.
Name of Beneficial Beneficially Percent
Owner Address Owned of Class
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Clifford E. Hotte 51 Prospect Rd. 1,006,432(1) 10.4%
Center Port, NY 11721

Putnam Investments, Inc. One Post Office Square 883,600(2) 9.1%
Boston, MA 02109

Lloyd N. Myers 11 Rosemont Lane 298,760(3) *
Pittsburgh, PA 15217

James R. Mieszala c/o 1371-A Abbott Court 66,666(4) *
Buffalo Grove, IL 60089

Paul S. Jurewicz c/o 1371-A Abbott Court 66,666(5) *
Buffalo Grove, IL 60089

Virginia Belloise 51 Prospect Road 62,053(6) *
Center Port, NY 11721

Robert C. Clifton c/o 1371-A Abbott Court 45,000(7) *
Buffalo Grove, IL 60089

Andre C. Dimitriadis c/o 1371-A Abbott Court 27,000(8) *
Buffalo Grove, IL 60089

Michael R. Norman 8 Old Field Woods Road 400(9) *
Seatauket, New York 11733

W. James Nicol c/o 1371-A Abbott Court -0-(10) *
Buffalo Grove, IL 60089

D. Mark Weinberg c/o 1371-A Abbott Court -0-(11)
Buffalo Grove, IL 60089

Dr. Timothy J. Triche c/o 1371-A Abbott Court -0-(12) *
Buffalo Grove, IL 60089

Drew Bergman 9 Cornell Place 1,016(13) *
Merrick, NY 11566

All Directors and Officers as a Group
(9 Persons) (1) (4) (5) (6) (7) (8)
(10) (11) (12) 1,273,817 13.1%
</TABLE>
*Less than one percent (1.0%)

(1) Does not include shares beneficially owned by Virginia Belloise,
Clifford E. Hotte's wife. Also, does not include unvested options
authorized for issuance to all non-employee directors, which are
subject to stockholder approval at the Annual Meeting. (See "Board of
Directors and Committees of the Board".)

(2) Based solely upon the information contained in Amendment No. 3 to the
Schedule 13G filed with the Securities and Exchange Commission by
Marsh & McLennan Companies, Inc. ("M&MC"), Putnam Investments, Inc.
("PI"), Putnam Investment Management, Inc. ("PIM")

- 18 -
<PAGE> 21
and The Putnam Advisory Company, Inc. ("PAC"), dated August 7, 1995.
PI is a wholly-owned subsidiary of M&MC and wholly owns PIM and PAC.
Consists of 441,800 shares held by PI, 382,377 shares held by PIM and
59,426 shares held by PAC.

(3) Does not include 3,395 shares held by Benjamin Dines TTEE Lloyd E.
Myers Descendants Trust U/A dated September 13, 1994, in trust for
Lauren Myers and Zachary Myers.

(4) Includes 66,666 shares subject to presently exercisable options.

(5) Includes 66,666 shares subject to presently exercisable options.

(6) Includes 42,020 shares held in trusts for benefit of the minor
children of Clifford E. Hotte, and for benefit of nieces and nephews
of Clifford E. Hotte and Ms. Belloise, of which Ms. Belloise is
trustee, with voting and dispositive power. Also includes 7,000
shares subject to presently exercisable options. Does not include
shares beneficially owned by Ms. Belloise's husband, Clifford E.
Hotte. Also does not include unvested options authorized for issuance
to all non-employee directors, which are subject to stockholder
approval at the Annual Meeting. (See Proposal 7.)

(7) Includes 45,000 shares subject to presently exercisable options.

(8) Includes 6,000 shares subject to presently exercisable options. Does
not include 10,000 shares subject to options authorized for Mr.
Dimitriadis for his expanded role as a director since February 18,
1996 and for his participation in the interim Office of the Chief
Executive Officer; the options, when issued, will be exercisable with
respect to one-half the shares, or 5,000 shares. Also does not
include unvested options authorized for issuance to all non-employee
directors and other options, which are subject to stockholder approval
at the Annual Meeting. (See Proposal 7.)

(9) Based solely upon the information contained in Mr. Norman's most
recent Form 4 filed with the SEC. Mr. Norman's vested options to
purchase 12,000 shares of the Company terminated within 30 days at the
termination of his employment on May 9, 1996 and are, therefore, not
included herein.

(10) Does not include certain shares subject to options which are
contingent on approval by the Company's stockholders at the Annual
Meeting. (See Proposal 6.)

(11) Does not include 7,500 shares subject to options authorized for Mr.
Weinberg for his expanded role as a director since February 18, 1996
and for his participation in the interim Office of the Chief Executive
Officer; the options, when issued, will be exercisable with respect to
one-half the shares, or 3,750 shares. Also does not include unvested
options authorized for issuance to all non-employee directors and
other options, which are subject to stockholder approval at the Annual
Meeting. (See Proposal 7.)

(12) Does not include 7,500 shares subject to options authorized for Mr.
Triche for his expanded role as a director since February 18, 1996 and
for his participation in the interim Office of the Chief Executive
Officer; the options, when issued, will be exercisable with respect to
one-half the shares, or 3,750 shares. Also does not include unvested
options authorized for issuance to all non-employee directors and
other options, which are subject to stockholder approval at the Annual
Meeting. (See Proposal 7.)

(13) All of Mr. Bergman's stock options have terminated.

- 19 -
<PAGE> 22

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes compensation for services to the
Company in all capacities awarded to, earned by or paid to (i) the Company's
chief executive officers, (ii) the three other most highly compensated
executive officers who earned in excess of $100,000 in salary and bonus and
(iii) the one other executive officer of the Company who served during the
fiscal year ended April 30, 1996 but who no longer held such office as of April
30, 1996 and who earned in excess of $100,000 in salary and bonus, for each of
the three fiscal years ended April 30, 1996 (the "Named Executive Officers").
No other executive officer of the Company met the definition of "highly
compensated" within the meaning of the Securities and Exchange Commission's
executive compensation disclosure rules.

<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ---------- ----------
Options/ All Other
Name and Principal Position Year Salary(1) Bonus(1) SARs Compensation(2)
--------------------------- ---- ------- ------ ---- ------------
<S> <C> <C> <C> <C> <C>
W. James Nicol, Chief Executive

Officer and President(3)

Committee of the Office of

the Chief Executive Officer(4)

Clifford E. Hotte, Chief 1996 $277,408 -0- -0- $3,712

Executive Officer and 1995 $220,000 -0- 150,000 $2,382

President(5) 1994 $200,000 $100,00 -0- $2,171

Robert Clifton, Vice President 1996 $165,264 -0- -0- $3,059
1995 $149,600 -0- -0- $1,723
1994 $136,000 $ 47,600 75,000 $1,689

Lloyd N. Myers, Vice President - 1996 $200,000 -0- -0- $1,933

Sales and Marketing(6) 1995 $200,000 -0- -0- $2,310

Michael R. Norman, Chief 1996 $151,000 -0- -0- $2,324

Operating Officer and 1995 $ 95,077 -0- 60,000 $ 409

Executive Vice President (7)

Drew Bergman, Chief Financial 1996 $187,500 -0- -0- $2,841

Officer and Chief Development 1995 $100,000 -0- 12,500 $ 489

Officer(8) 1994 $ 85,000 $ 21,250 62,500 $ 467

</TABLE>

(1) During the 1994 fiscal year, Clifford E. Hotte entered into a new
three-year employment agreement under which he was to receive a base
salary of $200,000 during its first year and a 10% increase commencing
in fiscal 1995. The Board of Directors increased Clifford E. Hotte's
salary to $250,000 effective May 1, 1995. Messrs. Clifton and Bergman
entered into two-year employment agreements commencing May 1, 1993,
under which they received base salaries of $136,000 and $85,000
respectively, and included a 10% increase for the period after April
30, 1994. The Board of Directors increased Mr. Bergman's salary to
200,000 effective May 1, 1995. During the 1994 fiscal year, Mr.
Norman entered into a two-year employment agreement, which expired on
May 9, 1996 and was not renewed by the Company, under which Mr. Norman
received a base salary of $100,000 per year for the first year of the
term of the agreement which was increased by the Board of Directors to
$150,000

- 20 -
<PAGE> 23
in the second year. During the 1996 fiscal year, Messrs. Mieszala and
Jurewicz entered into employment agreements, each with terms in excess
of two years, under which they receive $210,000 and $160,000,
respectively, during the first year of the terms of the agreements and
10% increase commencing after May 1, 1997. The compensation of
Messrs. Mieszala and Jurewicz was reset by the Company's Executive
Committee on April 3, 1993 to $225,000 and $180,000, respectively.
Subsequent to the 1996 fiscal year, Mr. Nicol entered into a
three-year employment agreement under which he is to receive $300,000
during the first year of the term of the agreement plus a bonus to be
determined in the future and Messrs. Mieszala and Jurewicz entered
into new employment agreements reflecting, among other things, their
respective increased salary levels. (See "Employment Agreements and
Termination of Employment and Change in Control Arrangements".)

(2) All compensation listed herein consists of matching payments made
pursuant to the Company's 401(k) Plan.

(3) Mr. Nicol is presently the Chief Executive Officer and the President
of the Company. He was appointed to those positions by the Board of
Directors to replace the Committee of the Office of the Chief
Executive Officer as of May 1, 1996. Mr. Nicol received no
compensation from the Company in the fiscal year ended April 30, 1996.
(See "Employment Agreements and Termination of Employment and Change
in Control Arrangements".)

(4) The Board of Directors of the Company established a committee on an
interim basis to fill the role of the office of the Chief Executive
Officer of the Company on February 26, 1996 to replace Clifford E.
Hotte until a permanent Chief Executive Officer was installed. The
interim committee was comprised of Messrs. Dimitriadis and Weinberg
and Dr. Triche, all members of the Board of Directors. The
compensation authorized for such persons consists of stock options and
cash in consideration of their expanded roles as directors and their
participation in the interim Office of the Chief Executive Officer.
(See Proposal 1 - "Board of Directors and Committees of the Board".)

(5) Clifford E. Hotte was the Chief Executive Officer and the President of
the Company until February 26, 1996, when he was replaced as Chief
Executive Officer by a Committee of the office of the Chief Executive
Officer and as President by Mr. Mieszala, who served as Acting
President of the Company until May 1, 1996. Clifford E. Hotte's
employment with the Company was terminated on March 20, 1996 and he
received compensation for a 30-day period following such termination
as well as $32,215 for accrued vacation and personal days.

(6) Mr. Myers was appointed to the office of Vice President - Sales and
Marketing of the Company in May 1995. His employment with the Company
ended on July 9, 1996.

(7) Mr. Norman joined the Company in May 1994 and was Chief Operating
Officer of the Company until May 9, 1996. He was replaced as Chief
Operating Officer by Mr. Mieszala.

(8) Mr. Bergman served as Chief Financial Officer of the Company until
December 18, 1995 when he was appointed to the position of Chief
Development Officer and replaced as Chief Financial Officer by Mr.
Jurewicz. Mr. Bergman resigned as Chief Development Officer in
February 1996 and received compensation from the Company until March
29, 1996 as well as $2,885 for accrued vacation days.

- 21 -
<PAGE> 24
OPTION GRANTS IN LAST YEAR

No options were granted to the Named Executive Officers during the fiscal
year ended April 30, 1996.

AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR ENDED APRIL 30, 1996 AND
FISCAL YEAR END OPTION VALUES

No options were exercised during the fiscal year ended April 30, 1996 by the
Named Executive Officers.

The following table provides information relating to the number and value of
options held by such Executive Officers at fiscal year-end:
<TABLE>
<CAPTION>
Number of Unexercised Options/ SARs at Value of Unexercised in the Money
Fiscal Options/SARs at
Name Year End (#) Fiscal Year End ($)
------------------------------------- ---------------------- ---------------------
Exercisable/Unexercisable Exercisable/Unexercisable1
<S> <C> <C>
W. James Nicol 0/0 0/0

Committee of the Office of the Chief
Executive Officer(2) n/a(2) n/a(2)

Clifford E. Hotte 0/0(3) 0/0

Robert Clifton 45,000/30,000 n/a(4)

Lloyd N. Myers 0/0 0/0

Michael R. Norman 12,000/48,000 n/a(5)

Drew Bergman(6) 6,667/0(6) $5,834/0(6)
</TABLE>

(1) The value of unexercised options is determined by multiplying the number
of options held by the difference in the fair market value of the Common
Stock underlying the options at April 30, 1996 (as determined by the
closing sales price as reported by the NASDAQ National Market, which was
$5.375 per share) and the exercise price of the options granted.

(2) The Board of Directors of the Company established a committee on an
interim basis to fill the role of the office of the Chief Executive
Officer of the Company on February 26, 1996 to replace Clifford E. Hotte
until a permanent Chief Executive Officer was installed. The interim
committee was comprised of Messrs. Dimitriadis and Weinberg and Dr.
Triche, all members of the Board of Directors. The compensation
authorized for such persons consists of stock options and cash in
consideration of their expanded roles as directors and their participation
in the interim Office of the Chief Executive Officer. (See Proposal 1 --
"Board of Directors and Committees of the Board".)

(3) Clifford E. Hotte's options to purchase 150,000 shares of Common Stock
terminated 30 days after his termination with the Company on March 20,
1996.

(4) Mr. Clifton's options have an exercise price of $10.375 per share; the
closing price per share of the Common Stock on April 30, 1996 was $5.375
and, therefore, none of his options were in-the-money.

(5) Mr. Norman's options had an exercise price of $14.00 per share; the
closing price per share of the Common Stock on April 30, 1996 was $5.375
and therefore none of his options were in-the-money.

(6) Mr. Bergman's options to purchase 62,500 shares of Common Stock terminated
30 days after the termination of his employment with the Company in
February 1996. Options to purchase 6,667 shares which were issued on June
4, 1992 pursuant to the Company's 1989 Stock Option Plan with an exercise
price of $4.50 per share terminated three months after the termination of
Mr. Bergman's employment with the Company, but were still in effect on
April 30, 1996.

- 22 -
<PAGE> 25

LONG-TERM INCENTIVE PLAN AWARDS TABLE.

There were no long-term incentive plans awards granted by the Company
during the fiscal year ended April 30, 1996.

DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE.

The Company has no defined benefit or actuarial plans.

EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS

In May 1996 the Company entered into a three year employment agreement
with W. James Nicol to serve as Chief Executive Officer and President of the
Company. Pursuant to the terms of the employment agreement, Mr. Nicol receives
an annual base salary of $300,000. Mr. Nicol may also receive a performance
bonus in an amount to be determined under an executive incentive compensation
plan. The Board of Directors granted Mr. Nicol stock options to purchase
500,000 shares of Common Stock, subject to stockholder approval, at an exercise
price equal to the average closing price of shares of Common Stock for the five
(5) trading days preceding April 20, 1996 or $5.375 per share and such exercise
price has been reset to $4.16 per share. Mr. Nicol's options will vest
one-third on and after May 1 of each of 1997, 1998 and 1999. Pursuant to the
employment agreement, if (i) the Company terminates Mr. Nicol other than for
disability or for cause or (ii) Mr. Nicol resigns pursuant to the agreement
upon a change of control of the Company or upon a material reduction by the
Company of Mr. Nicol's scope and/or authority, then Mr. Nicol will be entitled
to receive a severance payment equal to his base salary for the remaining term
of the agreement and all of the options granted to Mr. Nicol under the
agreement shall become vested and immediately exercisable. If the Company
terminates Mr. Nicol other than for disability or for cause, then Mr. Nicol
will also be entitled to receive a prorated portion of any bonus to which he
may be entitled.

Effective September 9, 1996, Mr. James R. Mieszala, the Chief Operating
Officer of the Company, entered into an employment agreement with the Company
which replaced his then existing employment agreement with the Company's
subsidiary, Home Care Management, Inc., a New York corporation. The term of
employment under the agreement extends to April 30, 1998. Pursuant to the
terms of the employment agreement, Mr. Mieszala is entitled to receive an
annual base salary of $225,000. Mr. Mieszala may also receive a performance
bonus in an amount to be determined under an executive incentive compensation
plan. Mr. Mieszala has also been granted stock options to purchase 200,000
shares of Common Stock, subject to a waiver of any rights to any previously
granted options. The original exercise price for the options of $4.975 per
share was reset on September 9, 1996 to $4.16 per share. Mr. Mieszala's
options vest one-third on and after April 3 of each of 1996, 1997 and 1998.
Pursuant to the employment agreement, if (i) the Company terminates Mr.
Mieszala other than for disability or for cause or (ii) Mr. Mieszala resigns
pursuant to the agreement upon a change of control of the Company or upon a
material reduction by the Company of Mr. Mieszala's scope and/or authority,
then Mr. Mieszala will be entitled to receive a severance payment equal to his
base salary for the remaining term of the agreement and all of the options
granted to Mr. Mieszala under the agreement shall become vested and immediately
exercisable. If the Company terminates Mr. Mieszala other than for disability
or for cause, then Mr. Mieszala will also be entitled to receive a prorated
portion of any bonus to which he may be entitled.

- 23 -
<PAGE> 26
Effective September 9, 1996, Mr. Paul S. Jurewicz, the Chief Financial
Officer and Executive Vice President of the Company, entered into an employment
agreement with the Company which replaced his then existing employment
agreement with the Company. The term of employment under the agreement extends
to April 30, 1998. Pursuant to the terms of the employment agreement, Mr.
Jurewicz is entitled to receive an annual base salary of $180,000. Mr.
Jurewicz may also receive a performance bonus in an amount to be determined
under an executive incentive compensation plan. Mr. Jurewicz has also been
granted stock options to purchase 200,000 shares of Common Stock, subject to a
waiver of any rights to any previously granted options. The original exercise
price for the options of $4.975 per share was reset on September 9, 1996 to
$4.16 per share. Mr. Jurewicz's options vest one-third on and after April 3 of
each of 1996, 1997 and 1998. Pursuant to the employment agreement, if (i) the
Company terminates Mr. Jurewicz other than for disability or for cause or (ii)
Mr. Jurewicz resigns pursuant to the agreement upon a change of control of the
Company or upon a material reduction by the Company of Mr. Jurewicz' scope
and/or authority, then Mr. Jurewicz will be entitled to receive a severance
payment equal to his base salary for the remaining term of the agreement and
all of the options granted to Mr. Jurewicz under the agreement shall become
vested and immediately exercisable. If the Company terminates Mr. Jurewicz
other than for disability or for cause, then Mr. Jurewicz will also be entitled
to receive a prorated portion of any bonus to which he may be entitled.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors has a compensation committee which consists of Mr.
Dimitriadis and Dr. Triche, with Dr. Triche serving as chairman. Mr.
Dimitriadis and Dr. Triche are independent non-employee directors and were
appointed by the Board of Directors to serve as members of the compensation
committee on February 18, 1996. Prior to the resignations of J. Douglas Cox and
David R. Walker as directors of the Company on July 24, 1995 and as of December
31, 1995, respectively, each of Mr. Cox and Mr. Walker was on the Compensation
Committee.

On February 26, 1996, due to the resignation of Clifford E. Hotte as Chief
Executive Officer and President of the Company, a committee including Messrs.
Dimitriadis and Weinberg and Dr. Triche was formed to serve as the office of
the Chief Executive Officer until a successor to Clifford E. Hotte could be
appointed. Mr. Dimitriadis was appointed as Chair of this committee. This
committee was dissolved as of May 1, 1996 upon the appointment by the Board of
Directors of Mr. Nicol to the office of Chief Executive Officer. The
compensation received by Mr. Dimitriadis and Dr. Triche for their roles as
such is described above under Proposal 1 - "Board of Directors and Committees
of the Board".

REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION

INTRODUCTION

During the fiscal year ended April 30, 1996, the Compensation Committee
consisted of two independent non-employee directors, Dr. Triche and Mr.
Dimitriadis who were appointed on February 18, 1996. Prior to that time
Douglas Cox and David Walker comprised the Compensation Committees until Mr.
Cox's resignation from the Board of Directors on July 24, 1995 and Mr. Walker's
resignation from the Board of Directors as of December 31, 1995, respectively.
The Compensation Committee is responsible for establishing executive
compensation for the Company's top level executives, administering

- 24 -
<PAGE> 27
the Company's current long-term incentive program and implementing any
additional short and long-term compensation programs for executives which the
Compensation Committee believes are appropriate in the future. All decisions
by the Compensation Committee are subject to the approval of the Board of
Directors or the Executive Committee thereof. The Compensation Committee met
twice during the fiscal year ended April 30, 1996.

PHILOSOPHY

Generally, the compensation philosophy of the Company is to develop and
implement policies that will encourage and reward outstanding performance, seek
to increase the profitability of the Company, and maximize the Company's return
on equity so as to increase stockholder value. Maintaining competitive
compensation levels in order to attract and retain executives who bring
valuable experience and skills to the Company is also an important
consideration. The Company's executive compensation programs are designed to
attract and retain talented individuals and motivate them to achieve the
Company's business objectives and performance targets, including increasing
long-term stockholder value. Currently, the Company is focused on attracting
and retaining employees to a company that has recently undergone significant
change.

This year the Company had substantial change in management and increased
responsibilities of certain executives combined with reduced liquidity.
Accordingly, the Company made substantial demands on its new senior management
team. In order to properly attract and provide incentives to these executives,
the Company weighted executive compensation heavily towards stock options
grants determined on a discretionary basis. Short-term incentives consisted of
modest salary increases.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

For the fiscal year ended April 30, 1996, Clifford E. Hotte, who served as
Chief Executive Officer until February 1996, received an annual base salary of
$250,000 and no bonus for that year. Clifford E. Hotte's base salary was set
well below the median salary levels for executives of comparable companies
within the health care industry due to the Company's performance-oriented
culture and the need to invest cash in the business to fund its rapid growth.

Mr. Nicol, who was appointed Chief Executive Officer as of May 1, 1996,
will receive an annual base salary of $300,000 in the fiscal year ending April
30, 1997 plus a bonus in an amount to be determined in the future and options
to purchase 500,000 shares of Common Stock. The Compensation Committee
believes that Mr. Nicol's salary is reasonable in light of the unusual demands
which will be placed on him during the upcoming year, that his compensation
level reflects the Compensation Committee's confidence in Mr. Nicol and the
Company's desire to attract and retain his talents, as the President and Chief
Executive Officer of the Company. (See "Employment Agreements and Termination
of Employment and Change in Control Arrangements".)

- 25 -
<PAGE> 28
EXECUTIVE COMPENSATION FOR FISCAL YEAR 1997

In the fiscal year ending April 30, 1997, total compensation of top
executives will be targeted to a level between the median and 75th percentile
compensation levels paid by a peer group consisting of companies constituting
the Health Care Services in the NASDAQ National Market, which is the industry
index used in the Company's Stockholder Return Performance Graph. It is
anticipated that total compensation will consist of base salary, annual
incentives and grants of long-term equity awards in the form of stock options.
Stock option grants will be based on a number of factors determined by the
Compensation Committee, including the executive's position within the Company,
past and expected future contributions to the Company's business, the targeted
total compensation level for the executive and for extraordinary efforts. The
Compensation Committee continue to consider annual bonuses based upon
achievement of both individual and corporate goals.

CONCLUSION

The Compensation Committee believes that the compensation paid to its
executive officers is comparable to compensation paid by similar companies and
appropriate under the current circumstances.

DR. TIMOTHY J. TRICHE, CHAIRMAN

STOCK PERFORMANCE CHART

The following graph compares cumulative total returns to the holders of
the Common Stock from May 24, 1990 (the date the Common Stock began trading on
NASDAQ National Market) through the end of the fiscal year ended April 30, 1996
to a peer group consisting of Health Care service companies listed on the
NASDAQ National Market, and to the NASDAQ Market Index. Total return values
were calculated based on the assumption of $100 invested and on cumulative
total return values assuming reinvestment of dividends. The stock price
performance shown on the graph below is not necessarily indicative of future
price performance.

- 26 -
<PAGE> 29

COMPARISON OF MAY 1, 1991 TO APRIL 30, 1996 CUMULATIVE
TOTAL RETURN
AMONG HEALTH MANAGEMENT, INC., HEALTH CARE SERVICE COMPANIES
LISTED ON THE NASDAQ NATIONAL MARKET, AND THE NASDAQ INDEX

[PERFORMANCE GRAPH]

<TABLE>
<S> <C> <C> <C> <C> <C>
NASDAQ National Market Index $100 $121.22 $139.88 $155.11 $180.32 $257.02
NASDAQ Market Index 100 130.37 135.85 172 175.13 272.96
Health Management, Inc. 100 616.88 1,076.25 1,745.62 1,903.13 564.38
</TABLE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On March 27, 1995, a subsidiary of the Company, HMI Pennsylvania, Inc.
("HMI Pennsylvania") entered into a lease with Messrs. Irwin Hirsh and Lloyd
N. Myers for a facility in Pittsburgh, Pennsylvania. On the same date, another
subsidiary of the Company, HMI Retail Corp., Inc., entered into a lease
agreement with Mr. Hirsh for an additional facility in Pittsburgh,
Pennsylvania. Until July 9, 1996, Mr. Hirsh was Vice President - Contracts
Administration of HMI Pennsylvania, Inc. and Mr. Myers was the Company's Vice
President - Sales and Marketing and Vice President - Program Development of HMI
Pennsylvania, Inc. The Company pays an aggregate of $8,867 per month for both
leases. Each lease has a term of three years and may be extended, at the
option of HMI Pennsylvania, Inc., for an additional two year term. The Company
believes that the terms of the leases are on an arms' length basis and are as
favorable to the Company as terms that could be obtained from unrelated third
parties.

- 27 -
<PAGE> 30
COST OF PROXY STATEMENT

The Company will bear the costs of preparing and mailing this Proxy
Statement. Arrangements have also been made with brokerage firms, custodians,
nominees and fiduciaries for the forwarding of materials to beneficial owners
of Shares held of record by such persons. The Company will reimburse such
firms for their reasonable expenses in forwarding such materials.

STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING

Proposals of stockholders intended for inclusion in the proxy statement
and proxy to be mailed to all stockholders entitled to vote at the 1997 Annual
Meeting of Stockholders of the Company must be received at the Company's
principal executive offices at 1371-A Abbott Court, Buffalo Grove, Illinois
60089, not later than April 30, 1997. In order to limit controversies with
respect to the date on which a proposal was received by the Company, proponents
should submit their proposals by certified mail - return receipt requested.

ALONG WITH THIS PROXY STATEMENT, THE COMPANY IS PROVIDING ITS STOCKHOLDERS
WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING
THE FINANCIAL STATEMENTS AND SCHEDULES FILED THEREWITH AND AMENDMENTS THERETO.

- 28 -
<PAGE> 31
EXHIBIT A

CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF HEALTH MANAGEMENT, INC.

Under Section 242 of the General Corporation Law
of the State of Delaware

Health Management, Inc., a Delaware corporation (the
"Corporation"), hereby certifies as follows:

1. The Certificate of Incorporation of the Corporation is hereby am1ended
by increasing the authorized capital stock of the Corporation from
21,000,000 shares of capital stock (consisting of 20,000,000 shares of
Common Stock and 1,000,000 shares of preferred stock) to 40,000,000
shares of capital stock (consisting of 39,000,000 shares of Common
Stock and 1,000,000 shares of preferred stock) so that, as amended,
the first paragraph of Article FOURTH shall be and read as follows:

FOURTH: That the total number of shares of all
classes of stock which the Corporation shall
have authority to issue shall be 40,000,000
shares, of which 1,000,000 shall be preferred
stock of the par value of one cent each
($.01) (hereinafter called the "Preferred
Stock") and of which 39,000,000 shares shall
be common stock of the par value of three
cents each ($.03) (hereinafter called the
"Common Stock").

2. The foregoing amendment to the Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this
Certificate of Amendment to be signed by W. James Nicol, its President, and the
undersigned hereby affirms that this Certificate of Amendment is the act and
deed of the Corporation and that the facts stated herein are true and correct,
all as of the date set forth below.

HEALTH MANAGEMENT, INC.

Dated: November __, 1996 By:
----------------------------
W. James Nicol, President

<PAGE> 32
EXHIBIT B

HEALTH MANAGEMENT, INC.

1996 STOCK OPTION PLAN

1. Purpose. The purpose of the 1996 Stock Option Plan (the
"Plan") is to enable Health Management, Inc. (the "Company") to offer officers
and other key employees of the Company and its subsidiaries equity interests in
the Company, thereby attracting, retaining and rewarding such employees and
strengthening the mutuality of interest between the employees and the Company's
stockholders.

2. Administration. The Plan shall be administered by a
committee (the "Committee") which shall be the Compensation Committee of the
Board of Directors or another committee consisting of not less than two
directors of the Company appointed by the Board of Directors, none of whom
shall be eligible to participate in this Plan and all of whom shall qualify as
outside directors within the meaning of Securities and Exchange Commission
Regulation Section 240.16b-3 or any successor regulation. The Committee may
establish such rules and regulations as it deems necessary for the proper
administration of the Plan and may make such determinations and interpretations
in connection with the Plan and any options granted hereunder as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives.
<PAGE> 33
3. Eligibility. All key employees of the Company or any of
its subsidiaries, including employees who are members of the Board of
Directors, shall be eligible to participate in this Plan. For these purposes,
any corporation, partnership or other entity in which the Company has a
significant financial interest may qualify as a subsidiary.

4. Benefits. The benefits awarded under the Plan shall
consist of incentive stock options and non- qualified stock options.

5. Shares Reserved. There is hereby reserved for issuance
under the Plan an aggregate of 1,500,000 shares of Common Stock of the Company
which may be authorized but unissued or Treasury shares. All of such shares
may, but need not, be issued pursuant to the exercise of incentive stock
options. The maximum number of option shares which may be awarded to any
participant in any fiscal year during the term of the Plan is 200,000 shares.
If there is a lapse, expiration, termination or cancellation of any option
prior to the issuance of shares thereunder, those shares may again be used for
new awards under this Plan.

6. Stock Option Terms. Stock options shall consist of
options to purchase shares of Common Stock of the Company and shall be either
incentive stock options or non-qualified stock options as determined by the
Committee. The option price shall be not less than 100% of the fair market
value of the shares on the date the option is granted and the price may be paid
by check

-2-
<PAGE> 34
or, in the discretion of the Committee, by the delivery (or certification of
ownership) of shares of Common Stock of the Company then owned by the
participant. In the discretion of the Committee, payment may also be made by
delivering a properly-executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price. Stock options
shall be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee at grant; provided, however,
that no stock option shall be exercisable prior to six months after the option
grant date nor later than ten years after the grant date. In the event of
termination of employment, all stock options shall terminate at such times and
upon such conditions as the Committee shall, in its discretion, set forth in
such option at the date of grant. The aggregate fair market value (determined
as of the time the option is granted) of the shares of Common Stock with
respect to which incentive stock options are exercisable for the first time by
a participant during any calendar year (under all option plans of the Company
and its subsidiaries) shall not exceed $100,000.

7. Non-transferability. Stock options granted under this
Plan shall not be transferable other than by will or the laws of descent and
distribution and shall be exercisable during the participant's lifetime only by
the participant or the participant's guardian or legal representative.
Notwithstanding

-3-
<PAGE> 35
the foregoing, at the discretion of the Committee, a grant of an option may
permit the transfer of the option by the participant solely to members of the
participant's immediate family or trusts or family partnerships for the benefit
of such persons, subject to such terms and conditions as may be established by
the Committee.

8. Change in Control. In the event of a change in control of
the Company, all outstanding stock options shall become immediately
exercisable. For these purposes, change in control shall mean the occurrence
of any of the following events, as a result of one transaction or a series of
transactions:

(a) any "person" (as that term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but excluding the Company
and any qualified or non-qualified plan maintained by the Company)
becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated
under such Act), directly or indirectly, of securities of the Company
representing more than 30% of the combined voting power of the Company's
then outstanding securities;

(b) the stockholders of the Company approve a transaction in
which the Company will be combined (by merger, share exchange,
consolidation, or otherwise) with another corporation and as a result of
such combination, less than 50% of the outstanding securities of the
surviving or resulting corporation

-4-
<PAGE> 36
will be owned in the aggregate by the former stockholders of the
Company; or

(c) individuals who constitute a majority of the Board of
Directors of the Company immediately prior to a contested election for
positions on the Board cease to constitute a majority as a result of
such contested election; or

(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all the Company's assets.

9. Other Provisions. The award of any option under the Plan
may also be subject to other provisions (whether or not applicable to the
benefit awarded to any other participant) as the Committee determines
appropriate, including such provisions as may be required to comply with
federal or state securities laws and stock exchange requirements and
understandings or conditions as to the participant's employment.

10. Fair Market Value. The fair market value of the Company's
Common Stock at any time shall be determined in such manner as the Committee
may deem equitable or as required by applicable law or regulation.

11. Adjustment Provisions.

(a) If the Company shall at any time change the number of
issued shares of Common Stock without new consideration to the Company
(such as by stock dividend

-5-
<PAGE> 37
or stock split), the total number of shares reserved for issuance under
this Plan, the maximum number of option shares which may be awarded to
any participant in any fiscal year, and the number of shares covered by
each outstanding option shall be adjusted so that the aggregate
consideration payable to the Company, if any, shall not be changed.

(b) Notwithstanding any other provision of this Plan, and
without affecting the number of shares reserved or available hereunder,
the Board of Directors may authorize the issuance or assumption of
options in connection with any merger, consolidation, exchange offer,
acquisition of property or stock, or reorganization upon such terms and
conditions as it may deem appropriate.

(c) In the event of any merger, consolidation, exchange offer,
acquisition or reorganization of the Company with any other corporation,
there shall be substituted, on an equitable basis as determined by the
Committee, for each share of Common Stock then reserved for issuance
under the Plan and for each share of Common Stock then subject to an
option granted under the Plan, the number and kind of shares of stock,
other securities, cash or other property to which holders of Common
Stock of the Company will be entitled pursuant to the transaction.

-6-
<PAGE> 38
12. Taxes. The Company shall be entitled to withhold the
amount of any tax attributable to any shares deliverable under the Plan after
giving the person entitled to receive the shares notice as far in advance as
practicable and the Company may defer making delivery of the shares if any such
tax is payable until indemnified to its satisfaction. The Committee may, in
its discretion and subject to rules which it may adopt, permit a participant to
pay all or a portion of the taxes arising from the exercise of any option under
the Plan by electing to have the Company withhold shares of Common Stock from
the shares otherwise deliverable to the participant, having a fair market value
equal to the amount to be withheld.

13. Term of Program; Amendment, Modification or Cancellation
of Benefits. No benefit shall be granted more than ten years after the date of
the adoption of this Plan by the Board of Directors of the Company; provided,
however, that the terms and conditions applicable to any benefits granted prior
to such date may at any time be amended by mutual agreement between the
Committee and the participant or any other persons as may then have an interest
therein and may be unilaterally modified by the Committee whenever such
modification is deemed necessary to protect the Company or its stockholders.
In addition, options may be granted to a participant under this Plan or under
any other stock option plan of the Company in substitution and exchange for,
and in cancellation of, any options previously granted such participant under
any such plan.

-7-
<PAGE> 39
14. Amendment or Discontinuation of Plan. The Board of
Directors may amend the Plan at any time, provided that no amendment which
increases the number of reserved shares shall be effective unless approved
within 12 months after the date of its adoption by the affirmative vote of a
majority of the stockholders entitled to vote thereon. The Board of Directors
may suspend the Plan or discontinue the Plan at any time; provided, however,
that no such action shall adversely affect any outstanding option.

15. Stockholder Approval. The Plan was adopted by the Board
of Directors on September 16, 1996, subject to stockholder approval. The Plan
and any options granted hereunder shall be null and void if stockholder
approval is not obtained at the 1996 annual meeting of stockholders.

-8-
<PAGE> 40
EXHIBIT C

HEALTH MANAGEMENT, INC.

EMPLOYEE STOCK PURCHASE PLAN

1. Purpose. Health Management, Inc., a Delaware corporation
(the "Company"), hereby adopts this Employee Stock Purchase Plan (the "Plan").
The purpose of the Plan is to provide an opportunity for the employees of the
Company and any designated subsidiaries to purchase shares of the Common Stock
of the Company through voluntary automatic payroll deductions, thereby
attracting, retaining and rewarding such persons and strengthening the
mutuality of interest between such persons and the Company's stockholders.

2. Shares Subject to Plan. An aggregate of 2,000,000 shares
(the "Shares") of Common Stock of the Company may be sold pursuant to the Plan.
Such Shares may be authorized but unissued Common Stock, treasury shares or
Common Stock purchased in the open market. If there is any change in the
outstanding shares of Common Stock by reason of a stock dividend or
distribution, stock split, recapitalization, combination or exchange of shares,
or a merger, consolidation or other corporate reorganization in which the
Company is the surviving corporation, the number of Shares available for sale
shall be equitably adjusted by the Committee appointed to administer the Plan
to give proper effect to such change.

3. Administration. The Plan shall be administered by a
committee (the "Committee") which shall be the Compensation Committee of the
Board of Directors or another committee consisting of not less than two
directors of the Company appointed by the Board, all of whom shall qualify as
outside directors within the meaning of Securities and Exchange Commission
Regulation Section 240.16b-3 or any successor regulation. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make such determinations and interpretations and to take such action in
connection with the Plan and any Shares made available hereunder as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act
hereunder, by any other member or employee or by any agent to whom duties in
connection with the administration of this Plan have been delegated or, except
in circumstances involving his or
<PAGE> 41
her bad faith, gross negligence or fraud, for any act or failure to act by the
member or employee.

4. Eligibility. All regular employees of the Company, and of
each qualified subsidiary of the Company designated for participation by the
Board of Directors, other than:

(a) employees whose customary employment is 20 hours or less per
week;

(b) employees whose customary employment is for not more than 5
months per year; and

(c) Employees who have been employed for less than two years or
such shorter period of time as may be designated by the Committee;

shall be eligible to participate in the Plan. For the purposes of this Plan,
the term "qualified subsidiary" means any corporation, 50% or more of the total
combined voting power of all classes of stock in which is now owned or
hereafter acquired by the Company or any such qualified subsidiary.

5. Participation. An eligible employee may elect to
participate in the Plan as of any "Enrollment Date". Enrollment Dates shall
occur on the first day of an Offering Period (as defined in paragraph 8). Any
such election shall be made by completing and forwarding to the Company an
enrollment and payroll deduction authorization form prior to such Enrollment
Date, authorizing payroll deductions in such amount as the employee may request
but in no event less than the minimum nor more than the maximum amount as the
Committee shall determine. A participating employee may increase or decrease
his payroll deductions as of any subsequent Enrollment Date by completing and
forwarding to the Company a revised payroll deduction authorization form;
provided, that changes in payroll deductions shall not be permitted to the
extent that they would result in total payroll deductions below the minimum or
above the maximum amount as is specified by the Committee. An eligible
employee may not initiate, increase or decrease payroll deductions as of any
date other than an Enrollment Date except by withdrawing from the Plan as
provided in paragraph 7.

6. Payroll Deduction Accounts. The Company shall establish on
its books and records a "Payroll Deduction Account" for each participating
employee, and shall credit all payroll deductions made on behalf of each
employee pursuant to paragraph 5 to his or her Payroll Deduction Account. No
interest shall be credited to any Payroll Deduction Account.

-2-
<PAGE> 42
7. Withdrawals. An employee may withdraw from an Offering
Period at any time by completing and forwarding a written notice to the
Company. Upon receipt of such notice, payroll deductions on behalf of the
employee shall be discontinued commencing with the immediately following
payroll period, and such employee may not again be eligible to participate in
the Plan until the second subsequent Enrollment Date. Amounts credited to the
Payroll Deduction Account of any employee who withdraws shall be refunded to
the employee as soon as practicable after the withdrawal.

8. Offering Periods. The Plan shall be implemented by
consecutive six-month Offering Periods with a new Offering Period commencing on
the first trading day on or after the first day of each January and July during
the term of the Plan, or on such other date as the Committee shall determine,
and continuing thereafter to the end of such period, subject to termination in
accordance with paragraph 17 hereof. The first Offering Period hereunder shall
commence on January 1, 1997. "Trading day" shall mean a day on which the
NASDAQ National Market System ("NASDAQ") is open for trading. The Committee
shall have the power to change the duration of Offering Periods (including the
commencement dates thereof) with respect to future offerings. The last trading
day of each Offering Period prior to the termination of the Plan (or such other
trading date as the Committee shall determine) shall constitute the purchase
dates (the "Share Purchase Dates") on which each employee for whom a Payroll
Deduction Account has been maintained shall purchase the number of Shares
determined under paragraph 9(a). Notwithstanding the foregoing, the Company
shall not permit the exercise of any right to purchase Shares

(a) to an employee who, immediately after the right is granted,
would own shares possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or any subsidiary;
or

(b) which would permit an employee's rights to purchase shares
under this Plan, or under any other qualified employee stock purchase
plan maintained by the Company or any subsidiary, to accrue at a rate in
excess of $25,000 in fair market value for each calendar year.

For the purposes of subparagraph (a), the provisions of Section 424(d) of the
Internal Revenue Code shall apply in determining the stock ownership of an
employee, and the shares which an employee may purchase under outstanding
rights or options shall be treated as shares owned by the employee.

-3-
<PAGE> 43
9. Purchase of Shares.

(a) Subject to the limitations set forth in paragraphs 7 and 8,
each employee participating in an offering shall purchase as many whole
Shares (plus any fractional interest in a Share) as may be purchased
with the amounts credited to his or her Payroll Deduction Account seven
days prior to the Share Purchase Date (or such other date as the
Committee shall determine) (the "Cutoff Date"). Employees may purchase
Shares only through payroll deductions, and cash contributions shall not
be permitted.

(b) The "Purchase Price" for Shares purchased under the Plan
shall be not less than the lesser of (i) an amount equal to 85% of the
closing price of shares of Common Stock at the beginning of the Offering
Period or (ii) an amount equal to 85% of the closing price of shares of
Common Stock on the Share Purchase Date. For these purposes, the
closing price shall be as reported on NASDAQ in the Wall Street Journal,
Midwest Edition. The Committee shall have the authority to establish a
different Purchase Price as long as any such Purchase Price complies
with the provisions of Section 423 of the Code.

(c) On each Share Purchase Date, the amount credited to each
participating employee's Payroll Deduction Account as of the immediately
preceding Cutoff Date shall be applied to purchase as many whole Shares
(plus any fractional interest in a Share) as may be purchased with such
amount at the applicable Purchase Price. Any amount remaining in an
employee's Payroll Deduction Account as of the relevant Cutoff Date in
excess of the amount that may properly be applied to the purchase of
Shares shall be refunded to the employee as soon as practicable.

10. Brokerage Accounts or Plan Share Accounts. By enrolling in
the Plan, each participating employee shall be deemed to have authorized the
establishment of a brokerage account on his or her behalf at a securities
brokerage firm selected by the Committee. Alternatively, the Committee may
provide for Plan share accounts for each participating employee to be
established by the Company or by an outside entity selected by the Committee
which is not a brokerage firm. Shares purchased by an employee pursuant to the
Plan shall be held in the employee's brokerage or Plan share account ("Plan
Share Account") in his or her name, or if the employee so indicates on his or
her payroll deduction authorization form, in the employee's name

-4-
<PAGE> 44
jointly with a member of the employee's family, with right of survivorship.

11. Rights as Stockholder. An employee shall have no rights as
a stockholder with respect to Shares subject to any rights granted under this
Plan until payment for such Shares has been completed at the close of business
on the relevant Share Purchase Date.

12. Certificates. Certificates for Shares purchased under the
Plan will not be issued automatically. However, certificates for whole Shares
purchased shall be issued as soon as practicable following an employee's
written request. The Company may make a reasonable charge for the issuance of
such certificates. Fractional interests in Shares shall be carried forward in
an employee's Plan Share Account until they equal one whole Share or until the
termination of the employee's participation in the Plan, in which event an
amount in cash equal to the value of such fractional interest shall be paid to
the employee in cash.

13. Termination of Employment. If a participating employee's
employment is terminated for any reason, if an employee dies, if an employee is
granted a leave of absence of more than 90 days duration, or if an employee
otherwise ceases to be eligible to participate in the Plan, payroll deductions
on behalf of the employee shall be discontinued and any amounts then credited
to the employee's Payroll Deduction Account shall be refunded to the employee
as soon as practicable.

14. Rights Not Transferable. Rights granted under this Plan are
not transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during an employee's lifetime
only by the employee.

15. Employment Rights. Neither participation in the Plan, nor
the exercise of any right granted under the Plan, shall be made a condition of
employment, or of continued employment with the Company or any subsidiary.
Participation in the Plan does not limit the right of the Company or any
subsidiary to terminate a participating employee's employment at any time or
give any right to an employee to remain employed by the Company or any
subsidiary in any particular position or at any particular rate of
remuneration.

16. Application of Funds. All funds received by the Company for
Shares sold by the Company on any Share Purchase Date pursuant to this Plan may
be used for any corporate purpose.

-5-
<PAGE> 45
17. Amendments and Termination. The Board of Directors may
amend the Plan at any time, provided that no such amendment shall be effective
unless approved within 12 months after the date of the adoption of such
amendment by the affirmative vote of stockholders holding shares of Common
Stock entitled to a majority of the votes represented by all outstanding shares
of Common Stock entitled to vote if such stockholder approval is required for
the Plan to continue to comply with the requirements of Securities and Exchange
Commission Regulation Section 240.16b-3 and Section 423 of the Internal
Revenue Code. The Board of Directors may suspend the Plan or discontinue the
Plan at any time. Upon termination of the Plan, all payroll deductions shall
cease and all amounts then credited to the participating employees' Payroll
Deduction Accounts shall be equitably applied to the purchase of whole Shares
then available for sale, and any remaining amounts shall be promptly refunded
to the participating employees.

18. Applicable Laws. This Plan, and all rights granted
hereunder, are intended to meet the requirements of an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code, as from time to time
amended, and the Plan shall be construed and interpreted to accomplish this
intent. Sales of Shares under the Plan are subject to, and shall be
accomplished only in accordance with, the requirements of all applicable
securities and other laws.

19. Expenses. Except to the extent provided in paragraph 12,
all expenses of administering the Plan, including expenses incurred in
connection with the purchase of Shares in the open market for sale to
participating employees, shall be borne by the Company and its subsidiaries.

20. Stockholder Approval. The Plan was adopted by the Board of
Directors on September 16, 1996, subject to stockholder approval. The Plan and
any action taken hereunder shall be null and void if stockholder approval is
not obtained at the next annual meeting of stockholders.

-6-
<PAGE> 46
EXHIBIT D

STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT, by and between HEALTH MANAGEMENT, INC., a
Delaware corporation ("HMI" or the "Corporation") and W. James Nicol (the
"Optionee"). In partial consideration of the services that have been provided,
and will in the future be provided, by the Optionee to the Corporation, but
subject to the approval of the shareholders of the Corporation at the next
annual meeting thereof, the Corporation hereby grants to the Optionee the
option (the "Option") to purchase a total of Five Hundred Thousand (500,000)
shares (the "Shares") of the common stock of HMI, par value $.03 per share
("Common Stock"), as of May 1, 1996 (the "Date of Grant"), subject in all
respects to the terms and conditions hereafter provided:

1. EXERCISE PRICE. The per share exercise price of the Shares which
may be purchased under the Option have been repriced to be equal
to $4.16, being the average closing price of a Share of Common
Stock on the NASDAQ National Market System for the five (5)
trading days preceding the Date of Grant of this Option (the
"Purchase Price").

2. VESTING SCHEDULE. Subject to such further limitations or
exceptions as are provided herein, the Option shall become vested
and exercisable on a cumulative basis as follows:

(a) With respect to 166,666 or approximately one-third (1/3)
of the Shares, on and after May 1, 1997; and

(b) With respect to 166,666 or approximately one-third (1/3)
of the Shares, on and after May 1, 1998; and

1
<PAGE> 47
respect to which the Option is being exercised; provided,
however, that the minimum number of Shares with respect to which
the Option may be exercised at any one time shall be 500, unless
the number of Shares with respect to which the Option is being
exercised is the total number of Shares subject to exercise under
the Option at the time. If the Option is being exercised with
respect to less than all the Shares then appropriate notations
shall be made on Schedule 1 hereto by HMI's Secretary or
Assistant Secretary and returned to the Optionee. The Purchase
Price of the Shares as to which the Option shall be exercised
shall be paid to HMI at the time of exercise either in cash or in
shares of Common Stock previously owned by the Optionee and
having a total Fair Market Value (as such term is defined below)
as of the close of the business day immediately preceding the
date of delivery of the notice of election to exercise the Option
equal to the Purchase Price, or in a combination of cash and such
shares. Any shares of Common Stock being delivered must be
accompanied by a duly executed assignment to HMI, in blank, or
with stock powers attached, together with a written
representation that such shares of Common Stock are owned by the
Optionee free and clear of all liens, claims and encumbrances and
such other representations as HMI shall reasonably determine.
Only whole shares of Common Stock with a Fair Market Value up to,
but not exceeding, the Purchase Price of the Shares to which the
Option is being exercised will be accepted hereunder. Delivery
of shares of Common Stock may be made at the offices of HMI or at
the offices of the transfer agent appointed for the transfer of
shares of Common Stock of HMI. It shall be a condition to HMI's
obligation to deliver Shares upon exercise of any portion of the
Option that the Optionee pay, or make provision satisfactory to
HMI for the payment of, any taxes which HMI is obligated to
withhold or collect with respect to such exercise or otherwise
with respect to the Option. Upon exercise of this Option as
provided herein, HMI shall issue to Optionee such Shares as
Optionee may purchase hereunder and deliver a certificate
therefor. For purposes hereof, "Fair Market Value" of a share of
Common Stock shall mean the closing market price as reported on
the NASDAQ National Market System or another recognized market
source on the applicable date of reference hereunder, or if there
is no sale on such date, then the closing market price as
reported on the NASDAQ National Market System or another
recognized market source on the last previous day on which a sale
is reported.

4. TERMINATION OF OPTION.

(a) The Option and all rights hereunder with respect thereto,
to the extent such rights shall not have been exercised, shall
terminate and become null and void after the expiration of seven
(7) years from the Date of Grant (the "Option Term").

(b) If the Optionee ceases for any reason to be employed by
the Corporation (such cessation being a "termination of
employment"), the Option, to the extent not previously exercised,
shall terminate and become null and

2
<PAGE> 48
void upon one year after such termination of employment, but in
no event, however, shall such period extend beyond the Option
Term.

(c) A transfer of the Optionee's employment between the
Corporation and any subsidiary of the Corporation, or between any
subsidiaries of the Corporation, shall not be deemed to be a termination
of employment.

(d) Notwithstanding any other provisions set forth
herein, if the Optionee (i) commits any act of malfeasance or wrongdoing
affecting the Corporation or any subsidiary of the Corporation, (ii)
breaches any covenant not to compete, or employment contract, with the
Corporation or any subsidiary of the Corporation, or (iii) engages in
conduct that would warrant the Optionee's discharge for cause (excluding
general dissatisfaction with the performance of the Optionee's duties,
but including any act of disloyalty or any conduct clearly tending to
bring discredit upon the Corporation or any subsidiary of the
Corporation), any unexercised portion of the Option shall immediately
terminate and be void.

5. EFFECT OF CERTAIN TRANSACTIONS. In the event of a Change of
Control (as defined below), the unvested portion of the Option
shall automatically accelerate, and the Optionee shall have the
right to exercise all or any portion of the Option, in addition
to any portion of the Option exercisable prior to such event, for
at least 15 days prior to the contemplated date of the
consummation of such event, whether or not otherwise exercisable
during such period; provided, however, that in no event shall the
Option be exercisable beyond the Option Term. For purposes of
this Agreement, the term "Change of Control" shall mean the
occurrence of any of the following events subsequent to the Date
of Grant:

(i) Any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing fifty percent (50%) or more of the total voting power represented
by the Corporation's then outstanding voting securities; or

(ii) Any merger or consolidation of the Corporation with any
other corporation, other than a merger or consolidation that would result in
the joint securities of the Corporation outstanding immediately prior thereto
continuing to represent (50%) or more of the total voting power represented by
the Corporation's then outstanding voting securities (either by remaining
outstanding or by being converted into voting securities of the Corporation or
such other surviving entity outstanding immediately after such merger or
consolidation); or

3
<PAGE> 49
(iii) A majority of the directors of the Corporation which were
not nominated by the Corporation's management (or were nominated by management
pursuant to an agreement with persons that acquired sufficient voting
securities of the Corporation to de facto control it) are elected to the Board
of Directors by the Corporation's shareholders; or

(iv) the shareholders of the Corporation approve a plan of
complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets.

6. ADJUSTMENTS. If HMI shall, at any time prior to the expiration
of the Option and prior to the exercise thereof: (a) declare or
pay to the holders of the Common Stock a dividend payable in any
kind of shares of Common Stock of HMI; or (b) change or divide or
otherwise reclassify its Common Stock into the same or different
number of shares with or without par value, or into shares of any
class or classes; or (c) consolidate or merge with, or transfer
all or substantially all of its property to, any other
corporation; or (d) make any distribution of its assets to
holders of its Common Stock as a liquidation or partial
liquidation dividend or by way of return of capital; then, upon
the subsequent exercise of the Option, the Optionee thereof shall
receive for the exercise price, in addition to or in substitution
for the Shares which he would otherwise then be entitled upon
such exercise, such additional Shares or scrip of HMI, or such
reclassified shares of stock of HMI, or such shares of the
securities or property of HMI resulting from such consolidation
or merger or transfer of such assets of the Corporation, which he
would have been entitled to receive had he exercised the Option
prior to the happening of any of the foregoing events.

7. COVENANTS. Neither the Option nor the Shares for which the
Option may be exercised have been registered under the Securities
Act of 1933 or the securities law of any state of the United
States. The Option has been, and any Shares acquired upon
exercise of the Option will be, acquired for investment and not
with a view to distribution or resale, and may not be sold,
pledged, hypothecated, alienated or otherwise assigned or
transferred without an effective registration statement for the
Option or Shares under the Securities Act of 1933 or an opinion
of counsel satisfactory to HMI that registration is not required
under such Act. All certificates for Shares shall be subject to
such stop orders and other restrictions or conditions as the
Board of Directors or the Executive Committee thereof may deem
advisable under the rules, regulations and other requirements of
the Securities and Exchange Commission, any stock exchange upon
which the Common Stock is then listed and any applicable federal
or state securities laws. Any Shares issued upon the exercise of
the Option prior to any registration thereof shall bear a legend
substantially in the following form:

4
<PAGE> 50
"The shares represented by this Certificate have not been
registered under the Securities Act of 1933. These shares
have been acquired for investment and not with a view to
distribution or resale, and may not be sold, pledged,
hypothecated, alienated or otherwise assigned or
transferred without an effective registration statement
for such shares under the Securities Act of 1933 or an
opinion of counsel for the Corporation that registration
is not required under such Act."

8. NO RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
stockholder with respect to any Shares covered by the Option
until he shall have become the holder of record of such Shares,
and no adjustment shall be made for dividends of any kind or
other rights for which the record date is prior to the date upon
which Optionee shall become a holder of record, except as
provided in paragraph 6 hereof.

9. NON-TRANSFERABILITY. The Option granted hereunder may not be
transferred by the Optionee except in the event of his death to
his legal representative or to the person or persons who shall
have acquired the Option by bequest or inheritance; provided,
however, that such Option must be exercised within one year of
the Optionee's death but in no event beyond the Option Term; and
provided further that the Option may be transferred to members of
the Optionee's immediate family or trusts or family partnerships
for the benefit of such persons. During the lifetime of the
Optionee, the Option may be exercised only by the Optionee, by
his legal guardian or legal representative or his permitted
transferees. Any permitted transferee of the Option granted
hereunder shall be subject to the terms and conditions of this
Option. Any purported transfer, assignment, pledge, or
encumbrance of the Option hereunder, except as expressly
permitted herein, shall be void and ineffectual.

10. EMPLOYMENT NOT AFFECTED. Neither the granting of the Option nor
its exercise shall be construed as granting to the Optionee any
right with respect to continued employment by HMI. Except as may
otherwise be limited by a written agreement between HMI and the
Optionee, the right of HMI to terminate at will the Optionee's
employment with it at any time (whether by dismissal, discharges,
retirement or otherwise) is specifically reserved by HMI and
acknowledged by the Optionee.

5
<PAGE> 51
the Optionee shall be addressed to the Optionee at the address
set forth below the Optionee's signature. Any notice shall be
deemed to be duly given if and when properly addressed and posted
by registered or certified mail, postage prepaid.

12. TAX TREATMENT. The Option is not intended to qualify as an
"incentive stock option" under Section 422A of the Internal
Revenue Code of 1986, as amended.

13. AMENDMENT OF OPTION. This Agreement may be not amended without
the consent of the Optionee except to comply with applicable
federal or state securities laws, rules and regulations.

14. GOVERNING LAW. THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS INSTRUMENT SHALL EXCLUSIVELY BE GOVERNED BY AND
DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF ILLINOIS.

15. STOCKHOLDER APPROVAL. The Option being granted pursuant to this
Agreement and all rights hereunder shall be null and void unless
approved by the shareholders of the Corporation at or before the
next annual meeting of shareholders of the Corporation.

6
<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Date of Grant.

HEALTH MANAGEMENT, INC.

, 1996
- ---------- -------------------------------
Andre C. Dimitriadis, Chairman
of the Board

ATTEST:

, 1996
- ---------- -------------------------------
Paul Jurewicz, Assistant
Secretary

, 1996
- ---------- -------------------------------
W. James Nicol: Optionee

Optionee's Address:

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

7
<PAGE> 53
SCHEDULE 1

NOTATIONS AS TO PARTIAL EXERCISE

<TABLE>
<CAPTION>
Number of Balance of
Shares Shares on Company Secretary or
Date of Exercise Purchased Option Asst. Secretary Signature Notation Date
---------------- --------- ---------- ------------------------- -------------
<S> <C> <C> <C> <C>

</TABLE>

8
<PAGE> 54
SCHEDULE A

STOCK OPTION EXERCISE FORM

-------------------------
(Date)

Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, IL 60089

Attention: Secretary/Assistant Secretary

Dear Sirs:

The undersigned elects to exercise the Option to purchase _________
shares, $.03 par value, of the Common Stock ("Common Stock") of Health
Management, Inc. ("HMI") under and pursuant to the Stock Option Agreement (the
"Agreement") between HMI and the undersigned dated as of April 19, 1996.

Delivered herewith in payment of the option price is:

1. a check in the amount of $________ and/or

2. certificates for ______ shares of Common Stock of HMI
valued at $__________ with appropriate stock powers attached
thereto, which shares are owned by the undersigned free and
clear of all liens, claims and encumbrances.

If the shares of Common Stock to be delivered to the undersigned upon
this exercise of the Option granted under the Agreement, are not subject to a
current registration statement filed under the Securities Act of 1933, as
amended (the "Act"), the undersigned hereby represents and agrees that all of
the shares of Common Stock being purchased hereunder are being acquired for
investment and not with the view to the sale or distribution thereof, and that
the undersigned understands that such shares of Common Stock are not currently
<PAGE> 55
registered under the Act and may not be sold, pledged, hypothecated, alienated
or otherwise assigned or transferred in the absence of registration under the
Act or an opinion of counsel for the Corporation to the effect that such
registration is not required under the Act.

Please deliver the certificates for the shares being issued hereunder
to:

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

Very truly yours,

-------------------------
Optionee

2
<PAGE> 56
EXHIBIT E

STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT, by and between HEALTH MANAGEMENT,
INC., a Delaware corporation ("HMI" or the "Corporation") and [name of
director] (the "Optionee"). In partial consideration of the services that have
been provided, and will in the future be provided, by the Optionee to the
Corporation, but subject to the approval of the shareholders of the Corporation
at the next annual meeting of shareholders (the "Next Annual Meeting"), the
Corporation hereby grants to the Optionee the option (the "Option") to purchase
a total of Thousand ( ) shares (the "Shares") of the common stock of
HMI, par value $.03 per share ("Common Stock"), as of May 6, 1996 (the "Date of
Grant"), subject in all respects to the terms and conditions hereafter
provided:

1. EXERCISE PRICE. The per share exercise price of the Shares
which may be purchased under the Option have been repriced to
be equal to $4.16, being to the average closing price of a
Share of Common Stock on the NASDAQ National Market System for
the five (5) trading days preceding the Date of Grant of this
Option (the "Purchase Price").

2. VESTING SCHEDULE. Subject to such further limitations or
exceptions as are provided herein, the Option shall become
vested and exercisable on a cumulative basis on the following
dates (each, a "Vesting Date"):

(a) With respect to or approximately one-third
(1/3) of the Shares, on and after the first anniversary of the
Next Annual Meeting; and

(b) With respect to or approximately one-third
(1/3) of the Shares, on and after the second anniversary of
the Next Annual Meeting; and

(c) With respect to or approximately one-third
(1/3) of the Shares, on and after the third anniversary of the
Next Annual Meeting.

1
<PAGE> 57
being exercised and identifying the Option by Date of Grant,
and (b) payment to HMI of the Purchase Price for the number of
Shares with respect to which the Option is being exercised;
provided, however, that the minimum number of Shares with
respect to which the Option may be exercised at any one time
shall be 500, unless the number of Shares with respect to
which the Option is being exercised is the total number of
Shares subject to exercise under the Option at the time. If
the Option is being exercised with respect to less than all
the Shares then appropriate notations shall be made on
Schedule 1 hereto by HMI's Secretary or Assistant Secretary
and returned to the Optionee. The Purchase Price of the
Shares as to which the Option shall be exercised shall be paid
to HMI at the time of exercise either in cash or in shares of
Common Stock previously owned by the Optionee and having a
total Fair Market Value (as such term is defined below) as of
the close of the business day immediately preceding the date
of delivery of the notice of election to exercise the Option
equal to the Purchase Price, or in a combination of cash and
such shares. Any shares of Common Stock being delivered must
be accompanied by a duly executed assignment to HMI, in blank,
or with stock powers attached, together with a written
representation that such shares of Common Stock are owned by
the Optionee free and clear of all liens, claims and
encumbrances and such other representations as HMI shall
reasonably determine. Only whole shares of Common Stock with
a Fair Market Value up to, but not exceeding, the Purchase
Price of the Shares to which the Option is being exercised
will be accepted hereunder. Delivery of shares of Common
Stock may be made at the offices of HMI or at the offices of
the transfer agent appointed for the transfer of shares of
Common Stock of HMI. It shall be a condition to HMI's
obligation to deliver Shares upon exercise of any portion of
the Option that the Optionee pay, or make provision
satisfactory to HMI for the payment of, any taxes which HMI is
obligated to withhold or collect with respect to such exercise
or otherwise with respect to the Option. Upon exercise of
this Option as provided herein, HMI shall issue to Optionee
such Shares as Optionee may purchase hereunder and deliver a
certificate therefor. For purposes hereof, "Fair Market
Value" of a share of Common Stock shall mean the closing
market price as reported on the NASDAQ National Market System
or another recognized market source on the applicable date of
reference hereunder, or if there is no sale on such date, then
the closing market price as reported on the NASDAQ National
Market System or another recognized market source on the last
previous day on which a sale is reported.

4. TERMINATION OF OPTION.

(a) The Option and all rights hereunder with respect
thereto, to the extent such rights shall not have been
exercised, shall terminate and become null and void
immediately after the expiration of seven (7) years from the
Date of Grant (the "Option Term").

(b) Notwithstanding paragraph (a) if (i) the Optionee is
not re-elected as a director at the Next Annual Meeting, (ii)
during the one-year period preceding any Vesting Date, the
Optionee attends less than 75% of the meetings of the

2
<PAGE> 58
Board of Directors of the Corporation which he is entitled to
attend, or (iii) the Optionee voluntarily resigns as a
director, the Optionee will be entitled to exercise the Option
with respect to only those Shares that had become exercisable
pursuant to paragraph 2 through the date of such resignation,
and the Option shall be exercisable by the Optionee with
respect to those Shares until expiration of the Option Term;
in all other instances the Optionee's continued service as a
director of HMI shall not effect his rights hereunder.

5. EFFECT OF CERTAIN TRANSACTIONS. In the event of a Change of
Control (as defined below), the unvested portion of the Option
shall automatically accelerate, and the Optionee shall have
the right to exercise all or any portion of the Option, in
addition to any portion of the Option exercisable prior to
such event, for at least 15 days prior to the contemplated
date of the consummation of such event, whether or not
otherwise exercisable during such period; provided, however,
that in no event shall the Option be exercisable beyond the
Option Term. For purposes of this Agreement, the term "Change
of Control" shall mean the occurrence of any of the following
events subsequent to the Date of Grant:

(i) Any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing fifty percent (50%) or more of the total voting power represented
by the Corporation's then outstanding voting securities; or

(ii) Any merger or consolidation of the Corporation with
any other corporation, other than a merger or consolidation that would result
in the joint securities of the Corporation outstanding immediately prior
thereto continuing to represent (50%) or more of the total voting power
represented by the Corporation's then outstanding voting securities (either by
remaining outstanding or by being converted into voting securities of the
Corporation or such other surviving entity outstanding immediately after such
merger or consolidation); or

(iii) A majority of the directors of the Corporation which
were not nominated by the Corporation's management (or were nominated by
management pursuant to an agreement with persons that acquired sufficient
voting securities of the Corporation to de facto control it) are elected to the
Board of Directors by the Corporation's shareholders; or

6. ADJUSTMENTS. If HMI shall, at any time prior to the
expiration of the Option and prior to the exercise thereof:
(a) declare or pay to the holders of

3
<PAGE> 59
the Common Stock a dividend payable in any kind of shares of
Common Stock of HMI; or (b) change or divide or otherwise
reclassify its Common Stock into the same or different number
of shares with or without par value, or into shares of any
class or classes; or (c) consolidate or merge with, or
transfer all or substantially all of its property to, any
other corporation; or (d) make any distribution of its assets
to holders of its Common Stock as a liquidation or partial
liquidation dividend or by way of return of capital; then,
upon the subsequent exercise of the Option, the Optionee
thereof shall receive for the exercise price, in addition to
or in substitution for the Shares which he would otherwise
then be entitled upon such exercise, such additional Shares or
scrip of HMI, or such reclassified shares of stock of HMI, or
such shares of the securities or property of HMI resulting
from such consolidation or merger or transfer of such assets
of the Corporation, which he would have been entitled to
receive had he exercised the Option prior to the happening of
any of the foregoing events.

7. COVENANTS. Neither the Option nor the Shares for which the
Option may be exercised have been registered under the
Securities Act of 1933 or the securities law of any state of
the United States. The Option has been, and any Shares
acquired upon exercise of the Option will be, acquired for
investment and not with a view to distribution or resale, and
may not be sold, pledged, hypothecated, alienated or otherwise
assigned or transferred without an effective registration
statement for the Option or Shares under the Securities Act of
1933 or an opinion of counsel satisfactory to HMI that
registration is not required under such Act. All certificates
for Shares shall be subject to such stop orders and other
restrictions or conditions as the Board of Directors or the
Executive Committee thereof may deem advisable under the
rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or
state securities laws. Any Shares issued upon the exercise of
the Option prior to any registration thereof shall bear a
legend substantially in the following form:

"The shares represented by this Certificate have not been
registered under the Securities Act of 1933. These
shares have been acquired for investment and not with a
view to distribution or resale, and may not be sold,
pledged, hypothecated, alienated or otherwise assigned or
transferred without an effective registration statement
for such shares under the Securities Act of 1933 or an
opinion of counsel for the Corporation that
gistration is not required under such act."

4
<PAGE> 60
8. NO RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
stockholder with respect to any Shares covered by the Option
until he shall have become the holder of record of such
Shares, and no adjustment shall be made for dividends of any
kind or other rights for which the record date is prior to the
date upon which Optionee shall become a holder of record,
except as provided in paragraph 6 hereof.

9. NON-TRANSFERABILITY. The Option granted hereunder may not be
transferred by the Optionee except in the event of his death
to his legal representative or to the person or persons who
shall have acquired the Option by bequest or inheritance;
provided, however, that such Option must be exercised within
one year of the Optionee's death but in no event beyond the
Option Term; and provided further that the Option may be
transferred to members of the Optionee's immediate family or
trusts or family partnerships for the benefit of such persons.
During the lifetime of the Optionee, the Option may be
exercised only by the Optionee, by his legal guardian or legal
representative or by his permitted transferees. Any permitted
transferee of the Option granted hereunder shall be subject to
the terms and conditions of this Option. Any purported
transfer, assignment, pledge, or encumbrance of the Option
hereunder, except as expressly permitted herein, shall be void
and ineffectual.

10. NOTICE. Any notice to HMI provided for in this instrument
shall be addressed to it in care of its Secretary or its
Assistant Secretary at its executive office at 1371-A Abbott
Court, Buffalo Grove, IL 60089, and any notice to the Optionee
shall be addressed to the Optionee at the address set forth
below the Optionee's signature. Any notice shall be deemed to
be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.

11. TAX TREATMENT. The Option is not intended to qualify as an
"incentive stock option" under Section 422A of the Internal
Revenue Code of 1986, as amended.

12. AMENDMENT OF OPTION. This Agreement may not be amended
without the consent of the Optionee except to comply with
applicable federal or state securities laws, rules or
regulations.

13. GOVERNING LAW. THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS INSTRUMENT SHALL EXCLUSIVELY BE GOVERNED BY AND
DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF
ILLINOIS.

14. STOCKHOLDER APPROVAL. The Option being granted pursuant to
this Agreement and all rights hereunder shall be null and void
unless approved by the shareholders of the Corporation at or
before the Next Annual Meeting.

5
<PAGE> 61
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Date of Grant.

HEALTH MANAGEMENT, INC.

, 1996
- --------- -------------------------------
W. James Nicol, Chief Executive
Officer

ATTEST:

, 1996
- --------- -------------------------------
Paul Jurewicz, Assistant
Secretary

, 1996
- --------- -------------------------------
: Optionee
------------

Optionee's Address:

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

6
<PAGE> 62
SCHEDULE 1

NOTATIONS AS TO PARTIAL EXERCISE

</TABLE>

7
<PAGE> 63
SCHEDULE A

STOCK OPTION EXERCISE FORM

---------------------------
(Date)

Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, IL 60089

Attention: Secretary/Assistant Secretary

Dear Sirs:

Delivered herewith in payment of the option price is:

1. a check in the amount of $________ and/or

<PAGE> 64
registered under the Act and may not be sold, pledged, hypothecated, alienated
or otherwise assigned or transferred in the absence of registration under the
Act or an opinion of counsel for the Corporation to the effect that such
registration is not required under the Act.

Please deliver the certificates for the shares being issued hereunder
to:

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

Very truly yours,

------------------------
Optionee

2
<PAGE> 65
EXHIBIT F

STOCK OPTION AGREEMENT

STOCK OPTION AGREEMENT, by and between HEALTH MANAGEMENT,
INC., a Delaware corporation ("HMI" or the "Corporation") and [name of
director] (the "Optionee"). In partial consideration of the services that have
been provided, and will in the future be provided, by the Optionee to the
Corporation, the Corporation hereby grants to the Optionee, subject to the
approval of the shareholders of the Corporation at the next annual meeting of
shareholders, the option (the "Option") to purchase a total of Thousand
( ) shares (the "Shares") of the common stock of HMI, par value $.03 per
share ("Common Stock"), as of September 9, 1996 (the "Date of Grant"), subject
in all respects to the terms and conditions hereafter provided:

1. EXERCISE PRICE. The per share exercise price of the Shares
which may be purchased under the Option is equal to $4.16,
being the average closing price of a Share of Common Stock on
the NASDAQ National Market System for the five (5) trading
days preceding September 9, 1996 (the "Purchase Price").

2. VESTING SCHEDULE. Subject to such further limitations or
exceptions as are provided herein, the Option shall become
vested and exercisable on a cumulative basis as follows:

(a) With respect to or one-half (1/2) of the
Shares, on and after the Date of Grant (the "First Vesting
Date"); and

(b) With respect to or one-half (1/2) of the
Shares, on and after the one year anniversary date of the
First Vesting Date.

3. MANNER OF EXERCISE. The Optionee may exercise the Option as
to all or any lesser number of whole Shares of Common Stock
covered hereby (subject to Paragraph 2 above) by providing to
HMI (a) written notice of exercise in a form substantially
attached hereto as Exhibit A, delivered or mailed to the
Secretary or Assistant Secretary of HMI at its principal
office, specifying the number of Shares as to which the Option
is being exercised and identifying the Option by Date of
Grant, and (b) payment to HMI of the Purchase Price for the
number of Shares with respect to which the Option is being
exercised; provided, however, that the minimum number of
Shares with respect to which the Option may be exercised at
any one time shall be 500, unless the number of Shares with
respect to which the Option is being exercised is the total
number of Shares subject to exercise under the Option at

1
<PAGE> 66
the time. If the Option is being exercised with respect to
less than all the Shares then appropriate notations shall be
made on Schedule 1 hereto by HMI's Secretary or Assistant
Secretary and returned to the Optionee. The Purchase Price of
the Shares as to which the Option shall be exercised shall be
paid to HMI at the time of exercise either in cash or in
shares of Common Stock previously owned by the Optionee and
having a total Fair Market Value (as such term is defined
below) as of the close of the business day immediately
preceding the date of delivery of the notice of election to
exercise the Option equal to the Purchase Price, or in a
combination of cash and such shares. Any shares of Common
Stock being delivered must be accompanied by a duly executed
assignment to HMI, in blank, or with stock powers attached,
together with a written representation that such shares of
Common Stock are owned by the Optionee free and clear of all
liens, claims and encumbrances and such other representations
as HMI shall reasonably determine. Only whole shares of
Common Stock with a Fair Market Value up to, but not
exceeding, the Purchase Price of the Shares to which the
Option is being exercised will be accepted hereunder.
Delivery of shares of Common Stock may be made at the offices
of HMI or at the offices of the transfer agent appointed for
the transfer of shares of Common Stock of HMI. It shall be a
condition to HMI's obligation to deliver Shares upon exercise
of any portion of the Option that the Optionee pay, or make
provision satisfactory to HMI for the payment of, any taxes
which HMI is obligated to withhold or collect with respect to
such exercise or otherwise with respect to the Option. Upon
exercise of this Option as provided herein, HMI shall issue to
Optionee such Shares as Optionee may purchase hereunder and
deliver a certificate therefor. For purposes hereof, "Fair
Market Value" of a share of Common Stock shall mean the
closing market price as reported on the NASDAQ National Market
System or another recognized market source on the applicable
date of reference hereunder, or if there is no sale on such
date, then the closing market price as reported on the NASDAQ
National Market System or another recognized market source on
the last previous day on which a sale is reported.

4. TERMINATION OF OPTION.

(a) The Option and all rights hereunder with respect
thereto, to the extent such rights shall not have been
exercised, shall terminate and become null and void after the
expiration of seven (7) years from the Date of Grant (the
"Option Term").

(b) If the Optionee voluntarily resigns from serving as a
director of HMI, the Optionee will be entitled to exercise the
Option with respect to only those Shares that had become
exercisable pursuant to paragraph 2 through the date the date
of such resignation, and the Option shall be exercisable by
the Optionee with respect to those Shares until expiration of
the Option Term; in all other instances (other than voluntary
resignation) the Optionee's continued service as a director of
HMI shall not effect his rights hereunder.

2
<PAGE> 67
5. EFFECT OF CERTAIN TRANSACTIONS. In the event of a Change of
Control (as defined below), the unvested portion of the Option
shall automatically accelerate, and the Optionee shall have
the right to exercise all or any portion of the Option, in
addition to any portion of the Option exercisable prior to
such event, for at least 15 days prior to the contemplated
date of the consummation of such event, whether or not
otherwise exercisable during such period; provided, however,
that in no event shall the Option be exercisable beyond the
Option Term. For purposes of this Agreement, the term "Change
of Control" shall mean the occurrence of any of the following
events subsequent to the Date of Grant:

(i) Any "person" (as such term is used in Section 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Corporation
representing fifty percent (50%) or more of the total voting power represented
by the Corporation's then outstanding voting securities; or

(ii) Any merger or consolidation of the Corporation with
any other corporation, other than a merger or consolidation that would result
in the joint securities of the Corporation outstanding immediately prior
thereto continuing to represent (50%) or more of the total voting power
represented by the Corporation's then outstanding voting securities (either by
remaining outstanding or by being converted into voting securities of the
Corporation or such other surviving entity outstanding immediately after such
merger or consolidation); or

3
<PAGE> 68
exercise price, in addition to or in substitution for the
Shares which he would otherwise then be entitled upon such
exercise, such additional Shares or scrip of HMI, or such
reclassified shares of stock of HMI, or such shares of the
securities or property of HMI resulting from such
consolidation or merger or transfer of such assets of the
Corporation, which he would have been entitled to receive had
he exercised the Option prior to the happening of any of the
foregoing events.

7. COVENANTS. Neither the Option nor the Shares for which the
Option may be exercised have been registered under the
Securities Act of 1933 or the securities law of any state of
the United States. The Option has been, and any Shares
acquired upon exercise of the Option will be, acquired for
investment and not with a view to distribution or resale, and
may not be sold, pledged, hypothecated, alienated or otherwise
assigned or transferred without an effective registration
statement for the Option or Shares under the Securities Act of
1933 or an opinion of counsel satisfactory to HMI that
registration is not required under such Act. All certificates
for Shares shall be subject to such stop orders and other
restrictions or conditions as the Board of Directors or the
Executive Committee thereof may deem advisable under the
rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or
state securities laws. Any Shares issued upon the exercise of
the Option prior to any registration thereof shall bear a
legend substantially in the following form:

"The shares represented by this Certificate have not
been registered under the Securities Act of 1933.
These shares have been acquired for investment and
not with a view to distribution or resale, and may
not be sold, pledged, hypothecated, alienated or
otherwise assigned or transferred without an
effective registration statement for such shares
under the Securities Act of 1933 or an opinion of
counsel for the Corporation that registration is not
required under such Act."

8. WAIVER OF BOARD OF DIRECTORS AND COMMITTEE FEES. In partial
consideration for the grant of the Option, the Optionee agrees
to waive all rights to any fees to which he may have otherwise
been entitled as a member of the Board of Directors, the
Special Committee, the office of the Chief Executive Office,
the Audit Committee and/or the Compensation Committee, as
applicable, for the period from February 18, 1996 (the date on
which the Special Committee was formed) through the date on
which the permanent Chief Executive Officer is appointed.

4
<PAGE> 69
9. NO RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
stockholder with respect to any Shares covered by the Option
until he shall have become the holder of record of such
Shares, and no adjustment shall be made for dividends of any
kind or other rights for which the record date is prior to the
date upon which Optionee shall become a holder of record,
except as provided in paragraph 6 hereof.

10. NON-TRANSFERABILITY. The Option granted hereunder may not be
transferred by the Optionee except in the event of his death
to his legal representative or to the person or persons who
shall have acquired the Option by bequest or inheritance;
provided, however, that such Option must be exercised within
one year of the Optionee's death but in no event beyond the
Option Term; and provided further that the Option may be
transferred to members of the Optionee's immediate family or
trusts or family partnerships for the benefit of such persons.
During the lifetime of the Optionee, the Option may be
exercised only by the Optionee, by his legal guardian or legal
representative or by his permitted transferees. Any permitted
transferee of the Option granted hereunder shall be subject to
the terms and conditions of this Option. Any purported
transfer, assignment, pledge, or encumbrance of the Option
hereunder, except as expressly permitted herein, shall be void
and ineffectual.

11. NOTICE. Any notice to HMI provided for in this instrument
shall be addressed to it in care of its Secretary or its
Assistant Secretary at its executive office at 1371-A Abbott
Court, Buffalo Grove, IL 60089, and any notice to the Optionee
shall be addressed to the Optionee at the address set forth
below the Optionee's signature. Any notice shall be deemed to
be duly given if and when properly addressed and posted by
registered or certified mail, postage prepaid.

12. TAX TREATMENT. The Option is not intended to qualify as an
"incentive stock option" under Section 422A of the Internal
Revenue Code of 1986, as amended.

13. AMENDMENT OF OPTION. This Agreement may not be amended
without the consent of the Optionee except to comply with
applicable federal and state securities laws, rules and
regulations.

14. GOVERNING LAW. THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS INSTRUMENT SHALL EXCLUSIVELY BE GOVERNED BY AND
DETERMINED IN ACCORDANCE WITH THE LAW OF THE STATE OF
ILLINOIS.

5
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Date of Grant.

HEALTH MANAGEMENT, INC.

, 1996
- ---------- ------------------------------
James R. Mieszala, Chief
Operating Officer

ATTEST:

, 1996
- ---------- ------------------------------
Paul Jurewicz, Assistant
Secretary

, 1996
- ---------- ------------------------------
Optionee

Optionee's Address:

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

6
<PAGE> 71
SCHEDULE 1

NOTATIONS AS TO PARTIAL EXERCISE

</TABLE>

7
<PAGE> 72
SCHEDULE A

STOCK OPTION EXERCISE FORM

-----------------------
(Date)

Health Management, Inc.
1371-A Abbott Court
Buffalo Grove, IL 60089

Attention: Secretary/Assistant Secretary

Dear Sirs:

Delivered herewith in payment of the option price is:

1. a check in the amount of $________ and/or

If the shares of Common Stock to be delivered to the undersigned upon
this exercise of the Option granted under the Agreement, are not subject to a
current registration statement filed under the Securities Act of 1933, as
amended (the "Act"), the undersigned hereby represents and agrees that all of
the shares of Common Stock being purchased hereunder are being acquired for
investment and not with the view to the sale or distribution thereof, and that
the undersigned understands that such shares of Common Stock are not currently
<PAGE> 73
registered under the Act and may not be sold, pledged, hypothecated, alienated
or otherwise assigned or transferred in the absence of registration under the
Act or an opinion of counsel for the Corporation to the effect that such
registration is not required under the Act.

Please deliver the certificates for the shares being issued hereunder
to:

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

Very truly yours,

-------------------------
Optionee

2
<PAGE> 74
EXHIBIT G

HEALTH MANAGEMENT, INC.
1996 STOCK OPTION PLAN
FOR NONEMPLOYEE DIRECTORS

1. Purpose. The purpose of the Health Management, Inc.
1996 Stock Option Plan for Nonemployee Directors (the "Plan") is to encourage
directors who are not officers or full-time employees of Health Management,
Inc. (the "Company") or any of its subsidiaries ("Nonemployee Directors") to
become stockholders in the Company thereby giving them a stake in the growth
and profitability of the Company, to enable them to represent the viewpoint of
the stockholders of the Company more effectively and to encourage them to
continue serving as directors.

2. Shares Reserved. There is hereby reserved for
issuance under the Plan an aggregate of 250,000 shares of Common Stock which
may be newly-issued or treasury shares. If there is a lapse, expiration,
termination or cancellation of any option granted under this Plan, all unissued
shares subject to the option may again be used for new options granted under
this Plan.

3. Grant of Options. Each person who is or becomes a
Nonemployee Director of the Company on the date of the 1996 annual meeting of
stockholders and who has not previously been granted a stock option by the
Company while serving as a Nonemployee Director shall be granted an option to
purchase 10,000 shares of Common Stock on the first business day after the date
of the annual meeting. Each person who becomes a Nonemployee Director after
the date of the 1996 annual meeting

<PAGE> 75
shall be granted an option to purchase 10,000 shares of Common Stock on the
first business day after the date of the first annual meeting which occurs
during the director's period of service.

Each Nonemployee Director who was previously granted a stock
option by the Company while serving as a Nonemployee Director or who is granted
an initial option to purchase 10,000 shares of Common Stock hereunder shall be
granted an additional option to purchase 2,500 shares of Common Stock on the
first business day after the date of each succeeding annual meeting of
stockholders on which the Nonemployee Director is a member of the Board.

4. Option Price. The option price for each option
granted to Nonemployee Directors shall be 100% of the fair market value of the
shares subject to option on the date of option grant. The option price may be
paid by check or by the delivery of shares of Common Stock then owned by the
participant (or certification of such ownership).

5. Term; Termination of Service. The option term shall
be ten years. All options granted to Nonemployee Directors shall become
exercisable in four equal annual installments on the first four anniversaries
of the date of option grant. All options shall also become fully exercisable
upon the death or retirement of a director or upon a Change in Control of the
Company (as defined in Section 8 of the Health Management, Inc. 1996 Stock
Option Plan). Each option shall expire three months after the date of
optionee's termination of service for any

-2-
<PAGE> 76
reason other than death, retirement or Change of Control. In the event of
death, each option shall be exercisable for a period of two years after death.
In the event of retirement or termination following Change of Control, each
option shall be exercisable for the balance of its term. For these purposes,
retirement shall mean termination of service on the Board of Directors after
the Nonemployee Director has attained age 65 and completed at least five years
of service as a member of the Board or otherwise with the consent of the Board.
Except in the case of death, retirement or termination following Change of
Control, any option granted to a Nonemployee Director may be exercised during
the indicated period following termination only to the extent the option was
exercisable on the date of termination.

6. Nontransferability. Any option granted under this
Plan shall not be transferable other than by will or the laws of descent and
distribution and shall be exercisable during the Nonemployee Director's
lifetime only by the director or the director's guardian or legal
representative. If a director dies during the option period, any option
granted to the director may be exercised by his or her estate or the person to
whom the option passes by will or the laws of descent and distribution.
Notwithstanding the foregoing, any option granted hereunder may be transferred
to the director's immediate family or trusts or family partnerships for the
benefit of such persons.

7. Administration. This Plan is intended to be
self-governing and requires no discretionary action by any administrative body
with respect to any transaction under the

-3-
<PAGE> 77
Plan. All grants of options to directors under the Plan shall be automatic and
nondiscretionary and shall be made strictly in accordance with the terms of the
Plan. To the extent, if any, that questions of administration arise, they
shall be resolved by the entire Board of Directors.

8. Adjustment Provisions.

(a) If the Company shall at any time change the number of
issued shares of Common Stock without new consideration to it (such as
by stock dividends, stock splits or similar transactions), the total
number of shares reserved for issuance under this Plan and the number
of shares covered by each outstanding option shall be adjusted so that
the aggregate consideration payable to the Company and the value of
each option shall not be changed.

(b) In the case of any merger, consolidation or combination
of the Company with or into another corporation, other than a merger,
consolidation or combination in which the Company is the continuing
corporation and which does not result in the outstanding Common Stock
being converted into or exchanged for different securities, cash or
other property, or any combination thereof (an "Acquisition"), any
Nonemployee Director to whom an option has been granted under the Plan
shall have the right during the remaining term of such option, to
receive upon exercise there of the Acquisition Consideration (as
defined below) receivable upon such Acquisition by a holder of the
number of shares of Common Stock which might have been obtained upon
exercise of

-4-
<PAGE> 78
such option or portion thereof, as the case may be, immediately prior
to such Acquisition. The term "Acquisition Consideration" shall mean
the kind and amount of shares of the surviving or new corporation,
cash, securities, evidence of indebtedness, other property or any
combination thereof receivable in respect of one share of Common Stock
of the Company upon consummation of an Acquisition.

9. Registration and Legal Compliance. The grant of any
option under the Plan may also be subject to other provisions as counsel to the
Company deems appropriate including, without limitation, provisions to comply
with federal and state securities laws and stock exchange requirements. The
Company shall not be required to issue or deliver any certificate for Common
Stock purchased upon the exercise of any option granted under this Plan prior
to the admission of such shares to listing on any stock exchange on which
Common Stock of the Company may at that time be listed. If the Company shall
be advised by its counsel that the shares deliverable upon exercise of an
option are required to be registered under the Securities Act of 1933, as
amended (the "Act") or any state securities law or that delivery of such shares
must be accompanied or preceded by a prospectus meeting the requirements of
such Act, the Company will use its best efforts to effect such registration or
provide such prospectus not later than a reasonable time following each
exercise of such option, but delivery of shares by the Company

-5-
<PAGE> 79
may be deferred until such registration is effective or such prospectus is
available.

10. Amendment, Suspension and Termination of Plan. The
Board of Directors may suspend or terminate the Plan at any time and may amend
it from time to time in such respects as the Board of Directors may deem
advisable in order that any grants thereunder shall conform to or otherwise
reflect any change in applicable laws or regulations or to permit the Company
or the Nonemployee Directors to enjoy the benefits of any change in applicable
laws or regulations; provided, however, that no amendment shall, without
stockholder approval, increase the number of shares of Common Stock which may
be issued under the Plan. No amendment, suspension or termination shall impair
the rights of Nonemployee Directors under any outstanding options.

11. Stockholder Approval. This Plan was adopted by the
Board of Directors of the Company on September 16, 1996. The Plan shall be
null and void if stockholder approval is not obtained at the 1996 annual
meeting of stockholders.

-6-
<PAGE> 80
PROXY

HEALTH MANAGEMENT, INC.
1371-A ABBOTT COURT
BUFFALO GROVE, ILLINOIS 60089

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints W. JAMES NICOL and JAMES R. MIESZALA as
proxies, with full power of substitution, to represent the undersigned and to
vote, as designated below all shares of Common Stock of Health Management, Inc.
which the undersigned is entitled to vote at the annual meeting to be held on
November 6, 1996, and any adjournment thereof.

This proxy when properly executed will be voted in the manner directed herein
by the stockholder. If no direction is made, this proxy will be voted "FOR"
Proposals 1 through 9.

The proxies appointed herein may act by one of said proxies at the meeting.

Please mark, sign, date and mail the proxy card promptly using the enclosed
envelope.

-----------
SEE REVERSE
SIDE
-----------
<PAGE> 81

<TABLE>
<CAPTION>
Please mark your SHARES IN YOUR NAME REINVESTMENT SHARES
<S> <C> <C> <C> <C>
[X] votes as in this
example.

FOR WITHHELD 2. Proposal to ratify the FOR AGAINST ABSTAIN
1. Election of Directors: [ ] [ ] appointment of BDO
Seidman as [ ] [ ] [ ]
Nominees: Andre C. Dimitriadis, W. James Nicol, D. Mark independent
Weinberg and Dr. Timothy J. Triche. auditors.

For, except vote withheld from the following nominee(s):
3. Proposal to approve an [ ] [ ] [ ]
amendment to the
Certificate of
Incorporation to increase
the authorized capital
stock.

4. Proposal to ratify a [ ] [ ] [ ]
1996 Employee
Stock Option
Plan.

5. Proposal to ratify [ ] [ ] [ ]
a 1997
Employee Stock
Purchase Plan.

6. Proposal to ratify the [ ] [ ] [ ]
issuance of stock
options to the Chief
Executive Officer
and President.

7. Proposal to ratify the [ ] [ ] [ ]
issuance of stock options
to certain nonemployee
directors

8. Proposal to ratify [ ] [ ] [ ]
a 1996 Nonemployee
Director
Stock Option Plan.

9. In their discretion, the [ ] [ ] [ ]
proxies are authorized
to vote upon such other
business as may
properly come before
the meeting.

</TABLE>

SIGNATURE(S) DATE
-------------------------------- ---------------
SIGNATURE(S) DATE
-------------------------------- ---------------

NOTE: Please sign exactly as name appears. Joint owners should each sign
personally. Trustees and others signing in a representative capacity
should indicate the capacity in which they sign.