CONTINUCARE CORP, 10-Q, 1998-11-16

CONTINUCARE CORP
10-Q, 1998-11-16
HOME HEALTH CARE SERVICES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 0-21910

CONTINUCARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)

FLORIDA 59-2716023
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

100 SOUTHEAST SECOND STREET
36TH FLOOR
MIAMI, FLORIDA 33131
(Address of principal executive offices)
(Zip Code)

(305) 350-7515
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]

At November 2, 1998, the Registrant had 14,606,283 shares of $0.0001 par value
common stock outstanding.

<PAGE> 2

CONTINUCARE CORPORATION

INDEX

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

<S> <C>
Consolidated Balance Sheets - September 30, 1998 (Unaudited) and June 30, 1998..................... 3
Consolidated Statements of Operations - Three Months Ended September 30, 1998 (Unaudited)
and 1997 (Unaudited)............................................................................ 4
Consolidated Statements of Cash Flows - Three Months Ended September 30, 1998 (Unaudited)
and 1997 (Unaudited)............................................................................ 5
Notes to Consolidated Financial Statements September 30, 1998 (Unaudited).......................... 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS........................................................................... 8

PART II - OTHER INFORMATION

SIGNATURE PAGE..................................................................................... 14

</TABLE>

<PAGE> 3

PART I - FINANCIAL INFORMATION

ITEM 1. - FINANCIAL STATEMENTS

CONTINUCARE CORPORATION

CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

ASSETS SEPTEMBER 30, 1998 JUNE 30, 1998
------------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents ................................................ $ 5,189,626 $ 7,435,724
Accounts receivable, net of allowance for doubtful accounts of
$2,322,000 at September 30, 1998 and $2,071,000 at June 30, 1998......... 8,946,803 9,009,462
Other receivables ........................................................ 940,338 1,091,744
Prepaid expenses and other current assets ................................ 728,569 595,086
Income taxes receivable .................................................. 1,800,000 1,800,000
------------ ------------
Total current assets ................................................. 17,605,336 19,932,016
Notes receivable, net of allowance for doubtful accounts of
$5,510,000 at September 30, 1998 and at June 30, 1998 ..................... 1,633,262 1,644,420
Equipment, furniture and leasehold improvements, net ........................ 5,447,374 5,496,025
Cost in excess of net tangible assets acquired, net of
accumulated amortization of $3,490,000 at September 30, 1998 .............. 39,987,208 38,621,561
and $2,252,000 at June 30, 1998
Other intangible assets net of accumulated amortization of
$120,000 at September 30, 1998 ............................................ 6,604,917
Deferred financing costs, net of accumulated amortization of
$588,700 at September 30, 1998 and $400,000 at June 30, 1998 .............. 3,115,299 3,373,999
Other assets, net ........................................................... 430,867 418,084
------------ ------------
Total assets ......................................................... $ 74,824,263 $ 69,486,105
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable ......................................................... $ 685,732 $ 816,844
Accrued expenses ......................................................... 5,167,409 5,223,153
Medical claims payable ................................................... 807,230 966,251
Current portion of long term debt ........................................ 2,112,150 850,000
Accrued interest payable ................................................. 1,518,657 623,556
Current portion of capital lease obligations ............................. 329,474 328,295
------------ ------------
Total current liabilities ............................................ 10,620,652 8,808,099
Long term debt .............................................................. 5,415,621
Convertible subordinated notes payable ...................................... 45,000,000 46,000,000
Deferred tax liability ...................................................... 954,894 954,894
Obligations under capital lease ............................................. 365,641 496,766
------------ ------------
Total liabilities .................................................... $ 62,356,808 $ 56,259,759
------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock; $0.0001 par value; 100,000,000 shares authorized, 17,536,283
shares issued at September 30, 1998 and 16,661,283 at June 30, 1998;
14,606,203 shares outstanding at September 30, 1998 and 13,731,283 at
June 30, 1998 .......................................................... 1,462 1,374
Additional paid-in capital ............................................... 32,910,465 31,099,303
Retained deficit ......................................................... (15,201,792) (12,631,651)
Treasury stock (2,930,000 shares) ........................................ (5,242,680) (5,242,680)
------------ ------------
Total shareholders' equity ............................................. 12,467,455 13,226,346
------------ ------------
Total liabilities and shareholders' equity ............................. $ 74,824,263 $ 69,486,105
============ ============
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE> 4

CONTINUCARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>

THREE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operations continuing at June 30, 1998
Revenue
Medical services, net .............................. $ 48,674,972 $ 2,205,165
Management fees .................................... 282,927 384,023
------------ ------------
Subtotal ......................................... 48,957,899 $ 2,589,188
Expenses
Medical services ................................... 41,385,623 585,577
Payroll and employee benefits ...................... 4,026,953 1,202,735
Provision for bad debt ............................. 250,525 63,323
Professional fees .................................. 260,842 10,954
General and administrative ......................... 3,098,292 796,530
Depreciation and amortization ...................... 1,734,576 103,563
------------ ------------
50,756,811 2,762,682
Operations disposed of during fiscal 1998
Revenue .............................................. -- 1,074,596
Expenses ............................................. -- 802,474
------------ ------------
Subtotal ........................................... -- 272,122
Income (loss) from operations ........................... (1,798,912) 98,628
Other income (expense)
Interest income .................................... 53,658 62,102
Interest expense ................................... (955,864) (35,753)
------------ ------------
(Loss) income before income taxes and extraordinary items (2,701,118) 124,977
(Benefit) provision for income taxes .................... -- 49,677
------------ ------------
Net (loss) income before extraordinary items ............ (2,701,118) 75,300
Gain on extinguishment of debt, net of taxes ............ 130,977 --
------------ ------------
Net (loss) income ....................................... $ (2,570,141) $ 75,300
============ ============
Net income (loss) per share before extraordinary items
Basic .............................................. $ (.19) $ .01
Diluted ............................................ $ (.19) $ .01
Extraordinary items
Basic .............................................. $ .01 $ --
Diluted ............................................ $ .01 $ --
Net income (loss) per share
Basic .............................................. $ (.18) $ .01
Diluted ............................................ $ (.18) $ .01
Shares used in earnings per share calculations
Basic .............................................. 14,063,892 10,888,993
Diluted ............................................ 14,063,892 11.112.883
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE> 5

CONTINUCARE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>

THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1998 1997
-------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ....................................................... $(2,570,141) $ 75,300
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization including amortization
of deferred loan costs ................................................ 1,734,576 103,563
Bad debt expense ...................................................... 250,525 89,083
Gain on extinguishment of debt, net of taxes .......................... (130,977) --
Changes in assets and liabilities, excluding the effect of acquisitions:
Increase in accounts receivable ....................................... (187,866) (601,251)
Increase in prepaid expenses and other current assets ................. (133,483) (72,269)
Decrease (increase) in other receivables .............................. 151,406 (600,000)
Decrease in intangible assets ......................................... -- 237,137
Increase in other assets .............................................. (12,783) (50,761)
Decrease in medical claims payable .................................... (159,021) --
Increase (decrease) in accounts payable and accrued expenses .......... (186,856) 444,295
Increase (decrease) in accrued interest payable ....................... 895,101 (4,923)
Decrease in income and other taxes payable ............................ -- (539,798)
----------- -----------
Net cash used in operating activities ...................................... (349,519) (919,624)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for acquisitions .............................................. (579,137) (3,406,411)
Cash paid for purchase of contracts ..................................... (4,225,000) --
-----------
Property and equipment additions ........................................ (352,402) (46,373)
Proceeds from notes receivable .......................................... 11,158 --
----------- -----------
Net cash used in investing activities ...................................... (5,145,381) (3,452,784)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment to extinguish debt ............................................ (720,000) --
Principal repayments under capital lease obligation ................... (129,946) (10,620)
Payment on acquisition notes .......................................... (901,252)
Proceeds from note payable ............................................ 5,000,000 2,500,000
Repayment of shareholder note ......................................... -- (599,000)
----------- -----------
Net cash provided by financing activities .................................. 3,248,802 1,890,380
----------- -----------
Net increase (decrease) in cash and cash equivalents ....................... (2,246,098) (2,482,028)

Cash and cash equivalents at beginning of period ........................... 7,435,724 6,989,580
----------- -----------
Cash and cash equivalents at end of period ................................. $ 5,189,626 $ 4,507,552
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

Stock issued for acquisition ............................................... $ 1,811,250 $ --
=========== ===========
Note payable for purchase of contracts ..................................... $ 2,500,000 $ --
=========== ===========
Cash paid for income taxes ................................................. $ -- $ 607,671
=========== ===========
Cash paid for interest ..................................................... $ 60,763 $ 68,297
=========== ===========
</TABLE>

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS

<PAGE> 6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)

NOTE 1 - UNAUDITED INTERIM INFORMATION

The accompanying interim consolidated financial data for Continucare
Corporation ("Continucare" or the "Company") are unaudited; however, in the
opinion of management, the interim data include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the results for
the interim period. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.

The results of operations for the three months ended September 30, 1998
are not necessarily indicative of the results to be expected for the year ending
June 30, 1999.

The interim unaudited consolidated financial statements should be read
in conjunction with the audited consolidated financial statements and notes
thereto for the year ended June 30, 1998 as set forth in the Company's Form
10-KSB.

NOTE 2 - BASIS OF PRESENTATION

In fiscal 1998, the Company's focus shifted away from the behavioral
health area, an area which had previously been a substantial source of the
Company's revenue. In the fiscal year 1997, the contracts to manage and provide
staffing and billing services for behavioral health programs in hospitals and
freestanding mental health rehabilitation centers represented approximately 86%
of total revenue. In the first quarter of fiscal 1998, the Company assigned its
behavioral health management contracts with freestanding centers and hospitals.
The Company's operations in the behavioral health care area are referred to as
"Results from Operations Disposed of during Fiscal 1998" in the Consolidated
Statements of Operations. Certain prior year amounts have been reclassified
to conform with the current year presentation.

NOTE 3 - BUSINESS COMBINATION

On April 10, 1997, the Company, through Continucare Physician Practice
Management, Inc., a wholly owned subsidiary, acquired all of the outstanding
stock of certain arthritis rehabilitation centers and affiliated physician
practices. The acquisitions included the purchase of AARDS, INC. ("AARDS"), a
Florida corporation formerly known as Norman G. Gaylis, M.D., Inc. In connection
with the purchase the Company entered into a management agreement with ZAG
Group, Inc. ("ZAG"). The management agreement, among other things, provided for
ZAG to perform certain services in exchange for specified compensation. In
addition, the Company entered into a put/call agreement with ZAG, which allowed
each of the parties to require the other party, after a two-year period, to
either sell or purchase all the issued and outstanding capital stock of ZAG for
a specified price to be paid in a combination of cash and common stock of the
Company. In August the Company paid approximately $2 million to ZAG in
connection with the cancellation of the put/call agreement of which $115,000 was
paid in cash and the remaining $1,885,000 was paid by issuing 575,000 shares of
the Company's common stock with a fair market value of approximately $1.6
million. In the event that the common stock issued does not have an aggregate
fair market value of approximately $1,885,000 on October 15, 1999, the Company
is obligated to pay additional cash consideration or issue additional shares of
its common stock so that the aggregate value of the stock issued is
approximately $1,885,000. The management agreement was terminated upon the
cancellation of the put/call agreement. The total amount paid in connection with
the cancellation of the put/call agreement is included in cost in excess of
tangible assets acquired on the accompanying balance sheet and is being
amortized over a weighted average life of 14 years.

6
<PAGE> 7

NOTE 4 - OTHER INTANGIBLE ASSETS

In August 1998 the Company purchased contracts with approximately 30
physicians from an unrelated entity. The total purchase price was approximately
$6.7 million of which $4.2 million was paid in cash at closing the remaining
$2.5 million is payable in equal monthly installments over the ensuing 24
months. The total amount is included in other intangible assets on the
accompanying consolidated balance sheet and is being amortized over 10 years,
the term of the contracts.

NOTE 5 - REPURCHASE OF NOTES

In August 1998, the Company purchased $1.0 million face value of its 8%
Convertible Subordinated Notes due 2002 for approximately $744,000, recognizing
a gain of approximately $200,000 which is included in gain on extinguishment of
debt on the accompanying consolidated statement of operations net of the related
income taxes.

NOTE 6 -CONTINGENCIES

The Company is a party to the case of JAMES N. HOUGH, PLAINTIFF V.
INTEGRATED HEALTH SERVICES, INC., A DELAWARE CORPORATION, AND REHAB MANAGEMENT
SYSTEMS, INC., A FLORIDA CORPORATION ("RMS"), AND CONTINUCARE REHABILITATION
SERVICES, INC., A FLORIDA CORPORATION, in the Circuit Court of the Tenth
Judicial Circuit in and for Polk County, Florida, Civil Division. Mr. Hough was
the founder and former Chief Executive Officer and President of RMS. Mr. Hough
sold RMS to Integrated Health Services, Inc. ("IHS"), and entered into an
Employment Agreement (the "Employment Agreement") with IHS. RMS was acquired by
Continucare in February 1998. Mr. Hough is seeking damages from the Employment
Agreement and is alleging breach of contract. His initial demand of $1.1 million
was rejected by the Company and the Company intends to vigorously defend the
claim.

The Company is a party to the case of MANAGED HEALTH CARE SYSTEMS AND
AFFILIATES ("MHS") V. CONTINUCARE ACQUISITION CORP. AND CONTINUCARE HOME HEALTH
SERVICES, INC. MHS is seeking in excess of $1 million damages for an alleged
breach of contract. The Company believes the claim has little merit and intends
to vigorously defend the claim.

The Company is a party to the case of KAMINE CREDIT CORP. AS ASSIGNEE
OF TRICOUNTY HOME HEALTH CARE SERVICES, INC. (KAMINE) V. CONTINUCARE
CORPORATION. Kamine is seeking in excess of $5 million damages for alleged
breach of contract. The Company believes the claim has little merit and intends
to vigorously defend the claim.

The Company is also involved in various legal proceedings incidental to
its business, substantially all of which involve claims related to the alleged
malpractice of employed and contracted medical professionals.

In the opinion of the Company's management, no individual item of
litigation or group of similar items of litigation, taking into account the
insurance coverage maintained by the Company and any accounts for self-insured
retention, is likely to have a material adverse effect on the Company's
financial position, results of operations or liquidity.

<PAGE> 8

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. When used in this Form 10-Q, the words
"believe," "anticipate," "think," "intend," "plan," "will be," and similar
expressions, identify such forward-looking statements. Such statements regarding
future events and/or the future financial performance of the Company are subject
to certain risks and uncertainties, which could cause actual events or the
actual future results of the Company to differ materially from any
forward-looking statement. Certain factors that might cause such a difference
are set forth in the Company's Form 10-K for the period ended June 30, 1998,
including the following: (1) limited operating history of Continucare in current
business, (2) various risks associated with the acquisition of businesses
including the expenses associated with the integration of the acquired
businesses, difficulties in assimilating the operations of the acquired
entities, and diversion of management resources; (3) statutory and regulatory
changes, retroactive and prospective rate adjustments, administrative rulings
and funding restrictions, any of which could limit or reduce reimbursement
levels; (4) ability to attract and retain a sufficient number of qualified
medical professionals; and (5) fluctuations in the volume of services rendered
and/or the number of patients using the Company's services.

GENERAL

Continucare is a provider of integrated outpatient healthcare services
in Florida. The Company provides a broad continuum of healthcare services
through its network of physician practices, outpatient clinics, rehabilitation
centers, home healthcare services, diagnostic imaging services and laboratory
services (within its group physician practices). As a result of its ability to
provide a quality continuum of healthcare services through approximately 300
locations, the Company has become a preferred healthcare provider in Florida to
some of the nation's largest managed care organizations, including (i) Humana
Medical Plans, Inc., for which, as of September 30, 1998, it managed the care
for approximately 22,000 patients on a capitated basis and (ii) Foundation
Health Corporation Affiliates, for which, as of September 30, 1998, it managed
the care for approximately 33,000 patients on a capitated basis. As of September
30, 1998, the Company's Florida delivery services network included approximately
300 physicians.

In fiscal 1998, the Company's focus shifted away from the behavioral
health area, an area which had previously been a substantial source of the
Company's revenue. In the fiscal year 1997, the contracts to manage and provide
staffing and billing services for behavioral health programs in hospitals and
freestanding mental health rehabilitation centers represented approximately 86%
of total revenue. In the first quarter of fiscal 1998, the Company assigned its
behavioral health management contracts with freestanding centers and hospitals.
The Company's operations in the behavioral health care area are referred to as
"Results from Operations Disposed of during Fiscal 1998" in the Consolidated
Statements of Operations. Accordingly, comparative data for the three months
ended on September 30, 1998 and the three months ended September 30, 1997 would
represent this change in focus on the Company's businesses, and the Company has
limited its discussion with respect to comparison of these periods.

RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with the unaudited consolidated statements and notes thereto appearing elsewhere
in this Form 10-Q.

8
<PAGE> 9

THE FINANCIAL RESULTS DISCUSSED BELOW RELATED TO THE OPERATION OF CONTINUCARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AS COMPARED TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1997

REVENUE FROM OPERATIONS CONTINUING AT SEPTEMBER 30, 1998

Medical Services revenue increased from approximately $2,205,000 for
the three months ended September 30, 1997 to approximately $48,700,000 for the
three months ended September 30, 1998. The Company made a number of acquisitions
during fiscal 1998 as it developed its outpatient services strategy. The
substantial increase of approximately $46,470,000 in medical services revenues
for the three months ended September 30, 1998 was a result of these
acquisitions.

Approximately 21.8% of the Company's medical services revenue is
derived from fee-for-service arrangements and 78.2% from capitated payments from
HMOs.

Fee-for-service revenue represents amounts realized that relate
directly to medical services provided by a facility owned by the Company.
Capitated revenue represents a fixed monthly fee from an HMO in exchange for the
Company assuming responsibility for the provision of medical services for each
covered individual. The Company also has arrangements with hospitals whereby a
percentage of the hospital's charges are remitted to the Company for services
provided to patients of the hospital.

EXPENSES FROM OPERATIONS CONTINUING AT SEPTEMBER 30, 1998

Medical services expense of approximately $41,386,000 for the three
months ended September 30, 1998, represent the direct cost of providing medical
services to patients as well as the medical claims incurred by the Company under
the capitated contracts with HMOs. The costs of the medical services provided
include the salaries and benefits of health professionals providing the
services, insurance and other costs necessary to operate the centers. Medical
claims costs represent the cost of medical services provided by providers other
than the Company but which are to be paid by the Company for individuals covered
by capitated arrangements with HMOs. Medical services of approximately $586,000
for the three months ended September 30, 1997 represent the direct cost of
providing medical services to patients, including salaries and benefits and
insurance and other costs. The increase of approximately $40,800,000 was
attributable to the acquisitions noted above.

Payroll and related benefits increased by approximately $2,824,000, or
234.8%, from approximately $1,203,000 for the three months ended September 30,
1997 to approximately $4,027,000 for the three months ended September 30, 1998.
As a percent of revenue, salary and related benefits fell from 46.5% of total
revenue for the three months ended September 30, 1997 to 8.2% for the three
months ended September 30, 1998. This increase was a direct result of the growth
from the acquisitions made during 1998.

Provision for bad debts was approximately $251,000 or 0.5% of total
revenues for the three months ended September 30, 1998, as compared to
approximately $63,000 or 2.4% of total revenue for the three months ended
September 30, 1997. The dollar amount increase is due to the revenue increase
from the acquisitions during the years ended June 30, 1998 and 1997. The
decrease as a percentage of total revenue is due to the increase in revenue
under capitated managed care contracts.

Professional fees were approximately $261,000, or 0.5% of total
revenue, for the three months ended September 30, 1998 as compared to
approximately $11,000, or 0.4%, of total revenue, for the three months ended
September 30, 1997. The increase of approximately $250,000 is consistent with
the increase in revenue.

General and administrative expenses were approximately $3,098,000, or
6.3% of total revenue, for the three months ended September 30, 1998, as
compared to approximately $797,000, or 30.8% of total revenues, for the three
months ended September 30, 1997. The increase of approximately $2,401,000 was
primarily related to the increased costs attributable to the administrative
costs related to the rehabilitation entities, home health agencies, outpatient
primary care centers and the outpatient radiology and diagnostic imaging
services company acquired during fiscal year 1998.

9
<PAGE> 10

Depreciation and amortization increased to approximately $1,735,000, or
3.5% of total revenue, for the three months ended September 30, 1998 as compared
to approximately $104,000, or 4.0% of total revenue, for the three months ended
September 30, 1997 primarily as a result of the amortization of goodwill and
other intangibles related to the acquisitions noted above.

REVENUES AND EXPENSES FROM OPERATIONS DISPOSED OF DURING 1998

The Company had no revenues or expenses during the three months ended
September 30, 1998, associated with operations disposed of during 1998.

INTEREST

Consolidated net interest income (expense) for the three months ended
September 30, 1998, was approximately ($902,000), or (1.8)% of total revenues,
compared to approximately $29,000, or 1.1% of total revenue, for the three
months ended September 30, 1997. Approximately $932,000 of interest expense for
the three months ended September 30, 1998 primarily relates to the $45 million
of 8% Convertible Subordinated Notes due September 30, 2002, (the "Notes")
issued on October 30, 1997 and amortization of deferred financing costs incurred
in connection with issuing the Notes. Interest on the notes is payable
semiannually beginning April 30, 1998.

NET INCOME (LOSS)

Continucare's consolidated net loss for the three months ended
September 30, 1998 was approximately ($2,540,000) compared to net income for the
three months ended September 30, 1997 of approximately $75,000 for the reasons
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

In August 1998, the Company entered into a credit facility (the "Credit
Facility") with First Union National Bank of Florida ("First Union") which
provides for a $5,000,000 Acquisition Facility and a $5,000,000 Revolving Loan.
Under the terms of the Credit Facility, the Company may elect the interest rate
to be either the bank's prime rate or the London InterBank Offered Rate plus 250
basis points. Interest only on each acquisition advance under the Acquisition
Facility is payable monthly in arrears for the first six months. Commencing six
months from the date of each acquisition advance, the advance shall be repayable
in equal monthly amortization payments, based upon a five year amortization. The
Company borrowed the entire $5 million Acquisition Facility to fund acquisitions
in the first quarter of 1999. Interest only on the Revolving Loan advances is
payable quarterly in arrears. In all events, the Revolving Loan matures and all
unpaid principal and interest is due in full on August 31, 2001. The $5,000,000
Revolving Loan is comprised of (i) $2,000,000 reserved for a pending letter of
credit arrangement, and (ii) $3,000,000 which can be drawn commencing September
30, 1999, as long as the Company is in compliance with all covenants of the
Credit Facility. The Credit Facility (a) is secured by substantially all of the
assets of the Company, (b) is decreased by $1.5 million placed in a restricted
account at First Union if the pending letter of credit is issued, which will be
released when certain covenants have been met by the Company and (c) contains
restrictive covenants which, among other things, require the Company to maintain
certain financial ratios and minimum liquidity requirements and limit the
incurrence of additional debt, the payment of dividends and the amount of
capital expenditures. Although the Company is currently in compliance with the
covenants in the Credit Agreement, there can be no assurance that the Company
will be in compliance with the covenants through the maturity date.

For the three months ended September 30, 1998, net cash used in
operating activities was approximately $350,000 primarily as a result of the net
loss. For the three months ended September 30, 1998, net cash used in investing
activities was approximately $5,145,000, primarily related to the purchase of
contracts with approximately 30 physicians from an unrelated entity. Net cash
provided by financing

10
<PAGE> 11

activities for the three months ended September 30, 1998 was approximately
$3,249,000 comprised primarily of the $5 million borrowed under the Acquisition
Facility.

The Company's working capital was approximately $6,541,000 at September
30, 1998, compared to $11,124,000 at June 30, 1998.

During the three months ended September 30, 1998, capital expenditures
amounted to approximately $.3 million. Capital expenditures during fiscal 1999
principally for computers and equipment are not expected to exceed $1.0 million.

The Company is taking steps to improve its cash flow position and
profitability, including reduction of annualized salary expense by approximately
$3.0 million and implementation of new procedures to improve billings and
collections. Assuming the successful implementation of these steps and the
compliance by the Company of the financial covenants set forth in the Credit
Agreement, the Company believes that its cash on hand and anticipated cash flow
from operations will be sufficient to meet the Company's obligations during
fiscal 1999, although there can be no assurance that it will be able to do so.

IMPACT OF YEAR 2000

The Year 2000 Issue is the result of the computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations and
patient care, including, among other things, a failure of certain patient care
applications and equipment, a failure of control systems, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.

Based on a recent and ongoing assessment, the Company determined that
it will be required to modify or replace certain portions of its software,
hardware and patient care equipment so that its systems will function properly
with respect to dates in the year 2000 and thereafter. Affected systems will
include clinical and biomedical instrumentation and equipment used within the
Company for purposes of direct or indirect patient care such as imaging,
laboratory, pharmacy and respiratory devices; cardiology measurement and support
devices; emergency care devices (including monitors, defibrillators, dialysis
equipment and ventilators); and general patient care devices (including
telemetry equipment and intravenous pumps). The Company presently believes that
with modifications to existing software and conversions to new clinical and
biomedical instrumentation and equipment, the Year 2000 Issue will not pose
significant operational problems. However, if such modifications and conversions
are not made, or are not completed timely, the Year 2000 Issue could have a
material impact on the operations of the Company.

The Company has initiated formal communications with all of its
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. The Company's total Year 2000 project cost and estimates to
complete include the costs and time associated with the impact of third-party
Year 2000 Issues based on presently available information. However, there can be
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems.

The Company will utilize both internal and external resources to
reprogram, or replace and test the software and patient care equipment for Year
2000 modifications. The Company anticipates completing Year 2000 project by June
30, 1999, which is prior to any anticipated impact on its operating systems. The
total cost of the Year 2000 project is estimated at $1.0 million and is being
funded through operating cash flows. Of the total projected cost, approximately
$800,000 is attributable to the purchase of new software and patient care
equipment, which will be capitalized. The remaining $200,000, which will be
expensed as incurred, is not expected to have a material effect on the results
of operations. Through September 30, 1998, the Company has incurred
approximately $600,000 ($100,000 expensed and $500,000 capitalized for new
systems and equipment).

11
<PAGE> 12

The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially from
those anticipated. Specific factors that might cause material differences
include, but are not limited to, the availability and costs of replacement
equipment and personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to the case of JAMES N. HOUGH, PLAINTIFF V.
INTEGRATED HEALTH SERVICES, INC., A DELAWARE CORPORATION, AND REHAB MANAGEMENT
SYSTEMS, INC., A FLORIDA CORPORATION ("RMS"), and CONTINUCARE REHABILITATION
SERVICES, INC., A FLORIDA CORPORATION, in the Circuit Court of the Tenth
Judicial Circuit in and for Polk County, Florida, Civil Division. Mr. Hough was
the founder and former Chief Executive Officer and President of RMS. Mr. Hough
sold RMS to Integrated Health Services, Inc. ("IHS"), and entered into an
Employment Agreement (the "Employment Agreement") with IHS. RMS was acquired by
Continucare in February 1998. Mr. Hough is seeking damages from the Employment
Agreement and is alleging breach of contract. His initial demand of $1.1 million
was rejected by the Company and the Company intends to vigorously defend the
claim.

ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS

In July 1998, the Company issued 575,000 shares of Common Stock to the
shareholders of ZAG Group, Inc. as partial consideration for a business
combination with the Company. See Note 3 to Notes to Consolidated Financial
Statements. Also in July 1998, the Company issued 300,000 shares of Common Stock
as part of a settlement of a claim by a former shareholder. All such shares were
issued pursuant to an exemption set forth under Section 4(2) of the Securities
Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

12
<PAGE> 13

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.16 Employment Agreement between the Company and Bruce
Altman, dated as of the 11th day of August, 1998

10.17 Acquisition Facility ($5,000,000), Revolving Credit
Facility ($5,000,000) and Security Agreement, among
the Company and First Union National Bank of Florida,
dated August 17, 1998

10.18 Physician Employment Agreement, dated as of April
1997, by and between Arthritis and Rheumatic Disease
Specialties, Inc. and Norman Gaylis, M.D.

10.19 Employment Agreement, dated as of the 1st day of
October, 1997, by and between Continucare Corporation
and Steven J. Baldwin.

27.1 Financial Data Schedule

(b) Reports on Form 8-K

The Company filed a Form 8-K, dated August 18, 1998, to report
an acquisition of certain assets under Item 2 of Form 8-K. It
was not necessary to provide financial statements in
connection with the acquisition.

<PAGE> 14

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.

CONTINUCARE CORPORATION

Dated: November 16, 1998 By: /s/ Charles M. Fernandez
---------------------------------
Charles M. Fernandez, Chairman,
Chief Executive Officer, President

Dated: November 16, 1998 By: /s/ Bruce Altman
---------------------------------
Bruce Altman
Senior Vice President and
Chief Financial Officer

<PAGE> 1
EXHIBIT 10.16

BRUCE ALTMAN EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made and entered into as of the 11th
day of August, 1998 by and between CONTINUCARE CORPORATION, a Florida
corporation (the "Company") and Bruce Altman (the "Employee").

RECITALS

A. The Board of Directors of the Company (the "Board") believes
that the Employee can contribute to the growth and success of
the Company, and desires to assure the Company of the
Employee's employment and to compensate him therefor.

B. The Board has determined that this Agreement will reinforce
and encourage the Employee's attention and dedication to the
Company.

C. The Employee is willing to make his services available to the
Company on the terms and conditions hereinafter set forth.

AGREEMENT

NOW, THEREFORE, in consideration of the premises and mutual covenants set forth
herein, the parties agree as follow:

1. EMPLOYMENT

1.1 GENERAL. The Company hereby agrees to employ the Employee, and the
employee hereby agrees to serve the company on the terms and conditions
set forth herein.

1.2 DUTIES OF EMPLOYEE. During the term of this Agreement, the Employee
shall serve as Senior Vice President, Chief Financial Officer and shall
diligently perform all services as may be assigned to him by the
C.E.O., and shall exercise such power and authority as may from time to
time be delegated to him by the C.E.O. The Employee shall devote
substantially all of his business time and attention to the business
and affairs of the Company, render such services to the best of his
ability, and use his best efforts to promote the interests of the
Company.

2. TERM. Except as otherwise provided in Section 5 hereof, the term of this
Agreement shall commence on August 24th, 1998 and shall terminate at the end
of the Term ("Term"). The Term shall be a two year period commencing August
24th, 1998 and ending of August 23rd, 2000.

<PAGE> 2

3. COMPENSATION

3.1 BASE SALARY. The Employee shall receive a base salary at the annual
rate of One Hundred Sixty Thousand Dollars ($160,000) (the "Base
Salary") during the Term of this Agreement, with such Base Salary
payable in installments consistent with the Company's normal payroll
schedule, subject to applicable withholding and other taxes.

3.2 BONUS. The Employee shall receive a bonus (the "Bonus") equal to at
least 10% of the Base Salary, which amount shall be payable in equal
quarterly installments over the one-year period following the date
hereof. The Employee shall also be eligible to receive an additional
bonus in an amount determined by the majority vote of all members of
the Company's Compensation Committee, based upon the Company's
operating results, financial condition, prospects and intended
utilization of earnings, if any.

3.3 STOCK OPTION. The Employee shall receive a warrant of 62,500 shares of
the Company at a price of $5.125 per share. The warrant shall vest
equally over a two-year period at a rate of 50% a year.

3.4 CHANGE OF CONTROL. Upon a change of control in the Company, the
Employee shall be entitled to an acceleration of the remainder of the
Employee's Agreement up to a maximum of 1 year salary or the remainder
of the Employee's Agreement which ever is less and the automatic
vesting of the total warrant of 62,500 shares of the Company. For the
purposes of this Agreement a change of ownership of 50% or more of the
Company's outstanding shares shall be a change in control.

4. EXPENSE REIMBURSEMENT AND OTHER BENEFITS

4.1 OTHER REIMBURSABLE EXPENSES. During the Term of the Employee's
employment hereunder, the Company, upon the submission of proper
substantiation by the Employee, shall reimburse the Employee for all
other reasonable expenses actually and necessarily paid or incurred by
the Employee in the course of and pursuant to the business of the
Company, including annual Association dues and up to a maximum of
$5,000 (Five Thousand) for continuing education courses necessary to
maintain licensure and 2 weeks paid time off.

4.2 OTHER BENEFITS. The Employee and his immediate family shall be entitled
to participate in all medical and hospitalization, group life
insurance, and any and all other plans as are presently and hereinafter
provided by the Company to is executives. The Employee shall also be
entitled to two week first year, four weeks second year vacation in
accordance with the Company's prevailing policy for its executives,
with any additional vacation time to be determined by the C.E.O.

4.3 WORKING FACILITIES. The Company shall furnish the Employee with an
office, secretarial help and such other facilities and services
suitable to his position and adequate for the performance of his duties
hereunder.

<PAGE> 3

4.4 AUTOMOBILE AND PHONE ALLOWANCE. The Employee shall be entitled to an
automobile and phone allowance of $950 per month, which amount is
intended to compensate Employee for wear and tear and other expenses
incurred by Employee by reason of the use of Employee's automobile or
telephone for Company business from time to time.

5. TERMINATION

5.1 TERMINATION FOR CAUSE. The Company shall at all times have the right,
upon written notice to the Employee, to terminate the Employee's
employment hereunder for "Cause" (as hereinafter defined). For purposes
of the Agreement, the term "Cause" shall mean (I) the willful failure
or refusal of the employee to perform material duties or render
material services assigned to him from time to time by the C.E.O. or
the Board (except during reasonable vacation periods or sick leave),
(II) the indictment of the Employee for a felony, (III) the
association, directly or indirectly, of the Employee for his profit or
financial benefit, with any person, firm, partnership, association,
entity or corporation that competes with the Company in any material
way, excluding purchases of stock by the Employee not to exceed 5% of
any publicly held company which so competes, (IV) the disclosing or
using of any material trade secret or confidential information of the
Company at any time by the Employee, except as required in connection
with his duties to the Company, of (V) the intentional breach by the
Employee of his fiduciary duty to the Company as defined by applicable
law. Upon any termination pursuant to his Section 5.1, the Employee
shall be entitled to be paid his Base Salary to the date of termination
and the amount, if any, of the unpaid Bonus in accordance with Section
3.2 hereof, and the Company shall have no further liability hereunder
(other than for reimbursement for reasonable business expenses incurred
prior to the date of termination).

5.2 DISABILITY. The Company shall at all times have the right, upon written
notice to the Employee, to terminate the Employee's employment
hereunder if the Employee shall, as the result of mental or physical
incapacity, illness or disability, become unable to perform his duties
hereunder for in excess of ninety (90) days in any 12-month so long as
the Company is in compliance with applicable law. Upon any termination
pursuant to this Section 5.2, the Company shall pay to the Employee any
unpaid amounts of his Base Salary accrued through the effective date of
termination and the amount, if any, of the unpaid Bonus in accordance
with Section 3.2 hereof, and an additional amount to be determined by
the majority vote of the Board of Directors in their discretion, the
Company shall have no further liability hereunder (other than for
reimbursement for reasonable business expenses incurred prior to the
date of termination, subject, however, to the provisions of Section
4.1).

<PAGE> 4

5.3 DEATH. In the event of the death of the Employee during the term of his
employment hereunder, the Company shall pay to the estate of the
deceased Employee any unpaid amounts of his Base Salary accrued through
the effective date of his death and the amount, if any, of the unpaid
Bonus in accordance with Section 3.2 hereof, and the Company shall have
no further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the death, subject,
however, to the provisions of Section 4.1). In the event of the death
of the Employee on Company business, the Board of Directors may
consider payment of an amount determined by a majority of the Board to
the estate of the Employee.

5.4 TERMINATION WITHOUT CAUSE. At any time the Company shall have the right
to terminate the Employee's employment hereunder by written notice to
the Employee; provided, however, that the Company shall continue to pay
the Employee the Base Salary for the period of six (6) months of the
Agreement per Section 2 following the effective date of termination
specified in such notice in accordance with the Company's normal
payroll policies and the amount, if any, of the unpaid Bonus in
accordance with Section 3.2 hereof. The Company shall provide
outplacement services with Right Management Consultants for the 6
months period at a cost not to exceed $12,000 (Twelve Thousand). In
addition, the stock option as described in 3.4 shall vest immediately
and in the full amount of 62,500 shares. The Company shall have no
further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 4.1).

5.5 RESIGNATION BY EMPLOYEE. The Employee shall at all times have the
right, upon 180 days' written notice to the Company, to terminate the
Employee's employment hereunder. Upon any termination pursuant to this
Section 5.5, the Employee shall be entitled to be paid his Base Salary
to the date of termination and the amount, if any, of the unpaid Bonus
in accordance with Section 3.2 hereof, and the Company shall have no
further liability hereunder (other than for reimbursement for
reasonable business expenses incurred prior to the date of termination,
subject, however, to the provisions of Section 4.1).

6. RESTRICTIVE COVENANTS

6.1 NON-COMPETITION. While employed by the Company and for a period of
ninety (90) days following the termination of the Employee's employment
hereunder (other than a termination without cause, as contemplated by
Section 5.4 hereof), the Employee shall not, directly or indirectly,
engage in or have any interest in any sole proprietorship, partnership,
corporation, or business or any other person or entity (whether as an
employee, officer, director, partner, agent, security holder, creditor,
consultant, or otherwise) that directly or indirectly engages primarily
in the outpatient healthcare business (the "Business") in competition
with the Company and/or its "affiliates" (as such term is defined in
rule 12b-2 as promulgated under the Securities Exchange Act of 1934, as
amended) or otherwise similar to the business of the Company and its
affiliates in Florida or in any other state in which the Company and/or
its affiliates are conducting business at the time of termination or
separation.

<PAGE> 5

6.2 NON-DISCLOSURE. Employee shall not divulge, communicate, use to the
detriment of the Company or any affiliate or for the benefit of any
other person or persons, or misuse in any way, any confidential
information pertaining to the business of the Company or any affiliate.
Any confidential information or data now known or hereafter acquired by
the Employee with respect to the business of the Company or any
affiliate (which shall include but not be limited to information
concerning the Company's or any affiliates' financial condition,
prospects, patients, sources, and methods of doing business) shall be
deemed a valuable, special and unique asset of the Company that is
received by the Employee in confidence and as a fiduciary, and the
Employee shall remain a fiduciary to the Company with respect to all
such information except for information which is in the public domain
and any and all information or documents requested by legal process,
that is, by subpoena, with the Employee to provide sufficient
notification to the Company upon receipt of such legal process.

6.3 NON-SOLICITATION OF EMPLOYEES AND CUSTOMERS. While employed by the
Company, and for a period of three years (except that the period with
respect to the prohibition in Clause (II) hereof shall be one year if
Employee's employment is terminated pursuant to Section 5.4 hereof)
following the date his employment is terminated hereunder, the Employee
shall not, directly or indirectly, for himself or for any other person,
firm, corporation, partnership, association or other entity, (I)
attempt to employ or enter into any contractual agreement with any
employee or former employee of the Company, unless such employee has
not been employed by the Company for a period in excess of six months,
and/or (II) call on or solicit any of the actual or targeted patients
of the Company, nor shall the Employee make known the names and
addresses of such patients.

6.4 BOOK AND RECORDS. All books, records, and accounts relating in any
manner to the customers or clients of the Company, whether prepared by
the Employee or otherwise coming into the Employee's possession, shall
be the exclusive property of the Company and shall be returned
immediately to the Company on termination of the Employee's employment
hereunder or on the Company's request at any time.

7. INJUNCTION. It is recognized and hereby acknowledged by the parties hereto
that a breach by the Employee of any of the covenants contained in Section 6
of this Agreement will cause irreparable harm and damage to the Company, the
monetary amount of which may be virtually impossible to ascertain. As a
result, the Employee recognizes and hereby acknowledges that the Company
shall be entitled to an injunction from any court of competent jurisdiction
enjoining and restraining any violation of any or all of the convenants
contained in Section 6 of this Agreement by the Employee or any of his
affiliates, associates, partners or agents, either directly or indirectly,
and that such right to injunction shall be cumulative and in addition to
whatever other remedies the Company may possess.

8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to any
conflict of law, rule or principle that would give effect to the laws of
another jurisdiction.

<PAGE> 6

9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter hereof and, upon its
effectiveness, shall supersede all prior agreements, understandings, and
arrangements, both oral and written, between the Employee and the Company
(or any of its affiliates, including, without limitation, Continucare
Corporation) with respect to such subject matter. This Agreement may not be
modified in any way unless by a written instrument signed by both the
Company and the Employee.

10. NOTICES. Any notice required or permitted to be given hereunder shall be
deemed given when delivered by hand or when deposited in the United States
mail, by registered or certified mail, return receipt requested, postage
prepaid, to the parties hereto at their respective address set forth in the
Purchase Agreement or to such other address as either party hereto may from
time to time give notice of to the other.

11. BENEFITS; BINDING EFFECT. This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns, including without limitation any successor to the Company, whether
by merger, consolidation, sales of stock, sales of assets or otherwise;
provided, however, that the Employee shall not delegate his employment
obligations hereunder, or any portion thereof, to any other person.

12. SEVERABILITY. The invalidity of any one or more of the words, phrases,
sentences, clauses or sections contained in this Agreement shall not affect
the enforceability of the remaining portions of this Agreement or any part
thereof, all of which are inserted conditionally on their being valid in law
and, in the event that any one or more of the words, phrases, sentences,
clauses or sections contained in this Agreement shall be declared invalid,
this Agreement shall be construed as if such invalid word or words, phrase
or phrases, sentence or sentences, clause or clauses, or sections or
sections has not been inserted. If such invalidity is caused by length of
time or size of area, or both, the otherwise invalid provision will be
considered to be reduced to a period or area which would cure such
invalidity.

13. WAIVERS. The waiver by either party hereto of a breach or violation of any
term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.

14. DAMAGES. Nothing contained herein shall be construed to prevent the Company
or the Employee from seeking and recovering from the other damages sustained
by either or both of them as a result of its or his breach of any term or
provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or for the injunction
of any action constituting a breach of any of the terms or provisions of
this Agreement, then the party found to be at fault shall pay all reasonable
court costs and attorney's fees of the other.

15. SECTION HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

<PAGE> 7

16. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement
is intended, nor shall be construed to confer upon or give any person other
than the Company, the Employee and their respective heirs, personal
representatives, legal representatives, successors and assigns, as
applicable, any rights or remedies under or by reason of this Agreement.

IN THE WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

CONTINUCARE CORPORATION

By: /s/ Charles M. Fernandez
---------------------------------
Charles M. Fernandez
C.E.O.
/s/ Bruce Altman
---------------------------------
Bruce Altman

<PAGE> 1

EXHIBIT 10.17

ACQUISITION FACILITY ($5,000,000.00),
REVOLVING CREDIT FACILITY ($5,000,000.00) AND SECURITY AGREEMENT

Among

CONTINUCARE CORPORATION

"Borrower"

and

FIRST UNION NATIONAL BANK

"Bank"

DATED AUGUST 17, 1998

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>

Section Number

<S> <C> <C>
1. DEFINITIONS.....................................................................................1
1.1. DEFINED TERMS.................................................................1
1.2. FINANCIAL TERMS...............................................................5

2. REPRESENTATIONS AND WARRANTIES..................................................................5
2.1. VALID EXISTENCE AND POWER.....................................................5
2.2. AUTHORITY.....................................................................5
2.3. FINANCIAL CONDITION...........................................................5
2.4. LITIGATION....................................................................5
2.5. AGREEMENTS, ETC...............................................................6
2.6. AUTHORIZATIONS................................................................6
2.7. TITLE.........................................................................6
2.8. COLLATERAL....................................................................6
2.9. LOCATION......................................................................6
2.10. TAXES. ......................................................................6
2.11. WITHHOLDING TAXES.............................................................7
2.12. LABOR LAW MATTERS.............................................................7
2.13. ACCOUNTS......................................................................7
2.14. USE AND LOCATION OF COLLATERAL................................................7
2.15. JUDGMENT LIENS................................................................7
2.16. INTENT AND EFFECT OF TRANSACTIONS.............................................7
2.17. SUBSIDIARIES..................................................................7
2.18. HAZARDOUS MATERIALS...........................................................7
2.19. ERISA.........................................................................7
2.20. INVESTMENT COMPANY ACT........................................................8
2.21. ADDITIONAL REPRESENTATIONS....................................................8

3. THE ACQUISITION LOAN............................................................................8
3.1. ACQUISITION LOAN..............................................................8
3.2. LIMITATIONS ON ADVANCES.......................................................8
3.3. NOTICE AND MANNER OF BORROWING................................................8
3.4. CALCULATION OF INTEREST.......................................................9
3.5. UNUSED FEE....................................................................9
3.6. REPAYMENT TERMS...............................................................9

4. THE REVOLVING LOAN..............................................................................9
4.1. REVOLVING LOAN................................................................9
4.2. LIMITATIONS ON REVOLVING LOAN ADVANCES.......................................10
4.3. NOTICE AND MANNER OF BORROWING...............................................10
4.4. CALCULATION OF INTEREST......................................................10
4.5. OVERDUE AMOUNTS..............................................................10
4.6. UNUSED FEE...................................................................10
4.7. 30 DAY CLEAN UP REQUIREMENT..................................................10
4.8. REPAYMENT TERMS..............................................................11
</TABLE>

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<PAGE> 3

<S> <C> <C>
4.9. LETTERS OF CREDIT; BANKER'S ACCEPTANCES......................................11

5. CONDITIONS PRECEDENT TO BORROWING..............................................................12
5.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE......................................12
5.2. CONDITIONS PRECEDENT TO EACH ADVANCE.........................................13

6. COVENANTS OF THE BORROWER......................................................................13
6.1. USE OF LOAN PROCEEDS.........................................................13
6.2. MAINTENANCE OF BUSINESS AND PROPERTIES. ....................................13
6.3. INSURANCE....................................................................13
6.4. NOTICE OF DEFAULT............................................................14
6.5. INSPECTIONS..................................................................14
6.6. FINANCIAL INFORMATION........................................................14
6.7. DEBT.........................................................................14
6.8. LIENS........................................................................15
6.9. EXECUTIVE COMPENSATION. ....................................................15
6.10. .............................................................................15
6.11. KEY EXECUTIVE AS PRIMARY OFFICER.............................................15
6.12. CORPORATE ACCOUNT............................................................15
6.13. DIVIDENDS....................................................................15
6.14. MERGER, SALE, ETC............................................................15
6.15. LOANS AND OTHER INVESTMENTS..................................................15
6.16. CHANGE IN BUSINESS...........................................................16
6.17. ACCOUNTS.....................................................................16
6.18. TRANSACTIONS WITH AFFILIATES.................................................16
6.19. NO CHANGE IN NAME, OFFICES; REMOVAL OF COLLATERAL............................16
6.20. NO SALE, LEASEBACK...........................................................16
6.21. MARGIN STOCK.................................................................16
6.22. PAYMENT OF TAXES, ETC........................................................16
6.23. SUBORDINATION................................................................16
6.24. COMPLIANCE; HAZARDOUS MATERIALS..............................................16
6.25. SUBSIDIARIES.................................................................17
6.26. COMPLIANCE WITH ASSIGNMENT LAWS..............................................17
6.27. FURTHER ASSURANCES. ........................................................17
6.28. WITHHOLDING TAXES............................................................17
6.29. OTHER COVENANTS..............................................................17

7. DEFAULT........................................................................................17
7.1. EVENTS OF DEFAULT............................................................17
7.2. REMEDIES.....................................................................18
7.3. RECEIVER.....................................................................19

8. SECURITY AGREEMENT.............................................................................19
8.1. SECURITY INTEREST............................................................19
8.2. REMEDIES.....................................................................19
8.3. POWER OF ATTORNEY............................................................20
8.4. ENTRY........................................................................20
8.5. DEPOSITS; INSURANCE..........................................................20
8.6. OTHER RIGHTS.................................................................20
8.7. ACCOUNTS.....................................................................20
8.8. TANGIBLE COLLATERAL..........................................................21
8.9. WAIVER OF MARSHALLING........................................................21
</TABLE>

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<PAGE> 4

<S> <C> <C>
9. ARBITRATION....................................................................................21
9.1. PRESERVATION AND LIMITATION OF REMEDIES......................................21

10. MISCELLANEOUS..................................................................................22
10.1. NO WAIVER, REMEDIES CUMULATIVE...............................................22
10.2. SURVIVAL OF REPRESENTATIONS..................................................22
10.3. EXPENSES. ..................................................................22
10.4. NOTICES......................................................................23
10.5. GOVERNING LAW................................................................23
10.6. SUCCESSORS AND ASSIGNS.......................................................23
10.7. COUNTERPARTS.................................................................23
10.8. POWERS.......................................................................23
10.9. APPROVALS....................................................................23
10.10. MULTIPLE BORROWERS...........................................................23
10.11. CONFLICT.....................................................................23
10.12. OTHER PROVISIONS.............................................................23
10.13. WAIVER OF JURY TRIAL. ......................................................23
10.14. RECITALS. ..................................................................24
</TABLE>

-iii-

<PAGE> 5

ACQUISITION FACILITY, REVOLVING CREDIT FACILITY AND
SECURITY AGREEMENT

THIS AGREEMENT (the "Agreement"), dated as of August 17, 1998 between
CONTINUCARE CORPORATION, a Florida corporation (the "Borrower"), and FIRST UNION
NATIONAL BANK, a national banking association (the "Bank");

W I T N E S S E T H :
---------------------

WHEREAS, Borrower has applied to Bank for an Acquisition Facility Loan,
as defined below, in the maximum principal amount of Five Million Dollars
($5,000,000.00) to be evidenced by a promissory note executed by the Borrower;
and

WHEREAS, Borrower has applied to Bank for a Revolving Loan, as defined
below, in the maximum principal amount of Five Million Dollars ($5,000,000.00)
to be evidenced by a promissory note executed by Borrower; and

WHEREAS, as security for the loans the Borrower has agreed to execute
and deliver to the Lender this Acquisition Facility, Revolving Credit Facility
and Security Agreement and other documentation as reasonably desired by Lender
to create a first security interest in favor of the Bank in and to the business
assets of Borrower; and

WHEREAS, the Bank has agreed to make the loans to the Borrower subject
to the terms of this Agreement and the other Loan Documents, as defined below.

NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and to induce the Bank to extend credit to the
Borrower, the parties agree as follows:

1. DEFINITIONS. In addition to terms defined elsewhere in this
Agreement, the following terms have the meanings indicated:

1.1. DEFINED TERMS.

"ACCOUNT" shall mean any account receivable,
including any rights of payment for services rendered or goods sold or leased,
which is not evidenced by an instrument or chattel paper, whether or not it has
been earned by performance, and in addition includes all property included in
the definition of "accounts" as used in the Code, together with any guaranties,
letters of credit and other security therefor.

"ACCOUNT DEBTOR" shall mean a Person who is obligated
under any Account, Chattel Paper, General Intangible or instrument (as
instrument is defined in the Code).

"ACQUISITION FACILITY" OR ACQUISITION LOAN" shall
mean the $5,000,000.00 acquisition loan facility as more fully set forth in
Section 3 below to be advanced in accordance with and subject to the terms of
this Agreement.

<PAGE> 6

"ACQUISITION NOTE" shall mean a promissory note
evidencing Advances under the Acquisition Loan.

"ACTUAL/360 METHOD" shall mean the method of
determining the annual effective interest yield by taking the stated (nominal)
interest rate for a year's period and the dividing said rate by 360 to determine
the daily periodic rate to be applied for each day in the interest period.
Application of such computation produces an annualized effective interest rate
exceeding that of the nominal rate.

"ADVANCE" shall mean an advance of proceeds of the
Revolving Loan and/or the Acquisition Loan to the Borrower pursuant to this
Agreement, on any given Advance Date.

"ADVANCE DATE" shall mean the date as of which an
Advance is made.

"ADVANCE REQUEST" shall mean the written request for
an Advance.

"AFFILIATE" of a named Person shall mean (a) any
Person owning 10% more of the voting stock or rights of such named Person or of
which the named Person owns 10% or more of such voting stock or rights; (b) any
Person controlling, controlled by or under common control with such named
Person; (c) any officer or director of such named Person or any Affiliates of
the named Person; and (d) any family member of the named Person or any Affiliate
of such named Person.

"BUSINESS DAY" shall mean a weekday on which
commercial banks are open for business in Miami , Florida.

"CHATTEL PAPER" shall mean all writing or writings
which evidence both a monetary obligation and a security interest in or the
lease of specific goods and in addition includes all property included in the
definition of "chattel paper" as used in the Code, together with any guaranties,
letters of credit and other security therefor.

"CODE" shall mean the Uniform Commercial Code, as in
effect in Florida from time to time.

"COLLATERAL" means the following property of the
Borrower, wherever located and whether now owned by Borrower or hereafter
acquired: (a) all Inventory; (b) all General Intangibles; (c) all Accounts and
Chattel Paper and any other instruments or intangibles representing payment for
goods or services; (d) all Equipment; (e) any other collateral described in
Exhibit 1.1A hereto (if any) or in which the Bank may be hereafter granted a
security interest or Lien; (f) all funds on deposit with or under the control of
the Bank or its agents or correspondents; and (g) all parts, replacements,
substitutions, profits, products and cash and non-cash proceeds of any of the
foregoing (including insurance proceeds payable by reason of loss or damage
thereto) in any form and wherever located. Collateral shall include all written
or electronically recorded records relating to any such Collateral and other
rights relating thereto.

"DEBT" shall mean all liabilities of a Person as
determined under generally accepted accounting principles and all obligations
which such Person has guaranteed or endorsed or is otherwise secondarily or
jointly liable, and shall include, without limitation (a) all obligations of
such Person for borrowed money or purchased assets, (b) obligations secured by
assets of such Person whether or not any personal liability exists, (c) the
capitalized amount of any capital or finance lease obligations of such Person,
(d) the unfunded portion of pension or benefit plans or other similar
liabilities of such Person, (e) obligations of such

<PAGE> 7

Person as a general partner, (f) contingent obligations of such Person pursuant
to guaranties, endorsements, letters of credit and other secondary liabilities,
and (g) obligations for deposits.

"DEFAULT RATE" shall mean a rate equal to five
percent (5%) over the applicable rate then in effect under this Agreement.

"EQUIPMENT" shall mean all of Borrower's equipment,
machinery, trade fixtures, library materials, software and manuals presently
existing or hereafter acquired, wherever located, and all parts and equipment
which may be attached to or which are necessary to the operation of such
personal property or fixtures.

"EVENT OF DEFAULT" shall mean any event specified as
such in Section 7.1 hereof ("Events of Default"), provided that there shall have
been satisfied any requirement in connection with such event for the giving of
notice or the lapse of time, or both; "DEFAULT" or "default" shall mean any of
such events, whether or not any such requirement for the giving of notice or the
lapse of time or the happening of any further condition, event or act shall have
been satisfied.

"GENERAL INTANGIBLES" shall mean all intangible
personal property (including things in action) except Accounts, Chattel Paper
and instruments (as defined in the Code), including all contract rights,
copyrights, trademarks, trade names, service marks, patents, patent drawings,
designs, formulas, rights to a Person's name itself, customer lists, rights to
all prepaid expenses, marketing expenses, rights to receive future contracts,
fees, commissions and orders relating in any respect to any business of a
Person, all licenses and permits, all computer programs and other software owned
by a Person, or which a Person has the right to use, and all rights for breach
of warranty or other claims for funds to which a Person may be entitled, and in
addition includes all property included in the definition of "general
intangibles" as used in the Code.

"INDEBTEDNESS" shall mean all obligations now or
hereafter owed to the Bank by the Borrower, whether related or unrelated to the
Loans, including, without limitation, amounts owed or to be owed under the terms
of the Loan Documents, including, without limitation, amounts owed or to be owed
or arising out of the transactions described therein, including, without
limitation, the Loans, sums advanced to pay overdrafts on any account maintained
by the Borrower with the Bank, reimbursement obligations for outstanding letters
of credit or banker's acceptances issued to the account of the Borrower, or its
Subsidiaries, amounts paid by the Bank under letters of credit or drafts
accepted by the Bank for the account of the Borrower or its Subsidiaries,
together with all interest accruing thereon, all reasonable fees of the Bank,
all costs of collection, attorneys' fees and expenses of or advances by the Bank
which the Bank pays or incurs in discharge of obligations of the Borrower or to
repossess, protect, preserve, store or dispose of any Collateral, whether such
amounts are now due or hereafter become due, direct or indirect and whether such
amounts due are from time to time reduced or entirely extinguished and
thereafter re-incurred.

"INVENTORY" means all goods, merchandise and other
personal property of a Person which is held for sale or lease or furnished or to
be furnished under a contract for services or raw materials, and all work in
process and materials used or consumed or to be used or consumed in a Person's
business, and in addition, includes all property included in the definition of
"inventory" as used in the Code.

"LIEN" (collectively "LIENS") shall mean any
mortgage, pledge, statutory lien or other lien arising by operation of law,
security interest, trust arrangement, financing lease, collateral assignment or
other encumbrance, or any segregation of assets or revenues (whether or not
constituting a security interest)

<PAGE> 8

with respect to any present or future assets, revenues or rights to the receipt
of income of the Person referred to in the context in which the term is used.

"LOANS" shall mean the Acquisition Loan and the
Revolving Loan. "LOAN DOCUMENTS" shall mean this Agreement, any other Security
Agreement, the Notes, the Advance Requests, UCC-l financing statements and all
other documents and instruments now or hereafter evidencing, describing,
guaranteeing or securing the Indebtedness contemplated hereby or delivered in
connection herewith, as they may be modified.

"MATURITY DATE" shall mean August 30, 2001.

"MAXIMUM ACQUISITION LOAN AMOUNT" shall mean Five
Million Dollars ($5,000,000.00).

"MAXIMUM REVOLVING LOAN AMOUNT" shall mean Five
Million Dollars ($5,000,000.00).

"NOTES" shall mean the Acquisition Note and the
Revolving Note, and any other promissory notes now or hereafter evidencing any
Indebtedness, and all modifications, extensions and renewals thereof.

"PERMITTED DEBT" shall mean (a) the Indebtedness; and
(b) any other Debt listed on Exhibit 1.1C hereto (if any) and any extensions,
renewals, replacements, modifications and refundings of any such Debt if, and to
the extent, permitted by Exhibit 1.1C; provided, however, that the principal
amount of such Debt may not be increased from the amount shown as outstanding on
such exhibit; and (c) such other Debt as the Bank may consent to in writing from
time to time.

"PERMITTED LIENS" shall mean (a) Liens securing the
Indebtedness; (b) Liens for taxes and other statutory Liens, landlord's Liens
and similar Liens arising out of operation of law (provided they are subordinate
to the Bank's Liens on Collateral) so long as the obligations secured thereby
are not past due or are being contested as permitted herein; (c) Liens described
on Exhibit 1.1D hereto (if any), provided, however, that no debt not now secured
by such Liens shall become secured by such Liens hereafter and such Liens shall
not encumber any other assets; and (d) such other Liens as the Bank may consent
to in writing from time to time.

"PERSON" shall mean any natural person, corporation,
unincorporated organization, trust, joint-stock company, joint venture,
association, company, limited or general partnership, any government, or any
agency or political subdivision of any government.

"REVOLVING FACILITY " OR "REVOLVING LOAN" shall mean
the $5,000,000.00 revolving loan facility as set forth in Section 4 hereof.

"REVOLVING NOTE" shall mean the $5,000,000.00
promissory note evidencing the Revolving Loan.

"SECURITY AGREEMENT" shall mean this Agreement as it
relates to a security interest in the Collateral, and any other mortgage,
security agreement or similar instrument now or hereafter executed by the
Borrower or other Person granting the Bank a security interest in any Collateral
to secure the Indebtedness.

<PAGE> 9

"SUBSIDIARY" shall mean any corporation, partnership
or other Person in which the Borrower, directly or indirectly, owns more than
fifty percent (50%) of the stock, capital or income interests, or other
beneficial interests, or which is effectively controlled by the Borrower. The
term "control" means the possession, directly or indirectly, of the power to
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise.

1.2. FINANCIAL TERMS. All financial terms used herein shall
have the meanings assigned to them under generally accepted accounting
principles unless another meanings shall be specified.

2. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter
into this Agreement and to make the Loans provided for herein, the Borrower
makes the following representations and warranties, all of which shall survive
the execution and delivery of the Loan Documents. Unless otherwise specified,
such representations and warranties shall be deemed made as of the date hereof
and as of the Advance Date of any Advance by the Bank to the Borrower:

2.1. VALID EXISTENCE AND POWER. The Borrower and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization is duly
qualified or licensed to transact business in all places where the failure to be
so qualified would have a material adverse effect on it. The Borrower has the
power to make and perform the Loan Documents executed by it and all such
instruments will constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, subject only to
bankruptcy and similar laws affecting creditors' rights generally.

2.2. AUTHORITY. The execution, delivery and performance
thereof by the Borrower have been duly authorized by all necessary action of the
Borrower, and do not and will not violate any provision of law or regulation, or
any writ, order or decree of any court or governmental or regulatory authority
or agency or any provision of the governing instruments of the Borrower, and do
not and will not, with the passage of time or the giving of notice, result in a
breach of, or constitute a default or require any consent under, or result in
the creation of any Lien upon any property or assets of the Borrower pursuant
to, any law, regulation, instrument or agreement to which the Borrower is a
party or by which the Borrower or its properties may be subject, bound or
affected.

2.3. FINANCIAL CONDITION. Other than as disclosed in financial
statements delivered on or prior to the date hereof to the Bank, or arising
since the date of such financial statements in the ordinary course of business,
neither the Borrower nor any Subsidiary has any material direct or contingent
obligations or liabilities (including any guarantees or leases) or any material
unrealized or anticipated losses from any commitments of such Person except as
described on Exhibit 2.3 or 2.4 (if any). The Borrower is not aware of any
material adverse fact (other than facts which are generally available to the
public and not particular to the Borrower, such as general economic or industry
trends) concerning the conditions or future prospects of the Borrower or any
Subsidiary which has not been fully disclosed to the Bank, including any
material adverse change in the operations or financial condition of such Person
since the date of the most recent financial statements delivered to the Bank.

2.4. LITIGATION. Except as disclosed on Exhibit 2.4 (if any),
there are no suits or proceedings pending, or to the knowledge of the Borrower
threatened, before any court or by or before any governmental or regulatory
authority, commission, bureau of agency or public regulatory body against or

<PAGE> 10

affecting the Borrower, any Subsidiary, or their assets, which if adversely
determined would have a material adverse effect on the financial condition or
business of the Borrower or such Subsidiary.

2.5. AGREEMENTS, ETC. Neither the Borrower nor any Subsidiary
is a party to any agreement or instrument or subject to any court order,
governmental decree or any charter or other corporate restriction, materially
adversely affecting its business, properties or assets, operations or condition
(financial or otherwise) nor is any such Person in default in the performance,
observance or fulfillment of any of the material obligations, covenants or
conditions contained in any material agreement or instrument to which it is a
party, or any law, regulation, decree, order or the like.

2.6. AUTHORIZATIONS. All authorizations, consents, approvals
and licenses required under applicable law or regulation for the ownership or
operation of the property owned or operated by the Borrower or any Subsidiary or
for the conduct of any business in which it is engaged have been duly issued and
are in full force and effect except where the failure to have any such
authorization, consent, approval or license would not have a material adverse
effect on the business or financial condition of the Borrower, and it is not in
default, nor has any event occurred which with the passage of time or the giving
of notice, or both, would constitute a default, under any of the terms or
provisions of any part thereof, or under any order, decree, ruling, regulation,
closing agreement or other decision or instrument of any governmental
commission, bureau or other administrative agency or public regulatory body
having jurisdiction over such Person, which default would have a material
adverse effect on such Person. Except as noted herein, no approval, consent or
authorization of, or filing or registration with, any governmental commission,
bureau or other regulatory authority or agency is required with respect to the
execution, delivery or performance of any Loan Document.

2.7. TITLE. The Borrower and each Subsidiary has good title to
all of the assets shown in its financial statements free and clear of all Liens,
except Permitted Liens and except for such assets which have been disposed of in
the ordinary course of the Borrower's business since the date of such financial
statements.

2.8. COLLATERAL. The security interests granted to the Bank
herein and pursuant to any other Security Agreement (a) constitute and, as to
subsequently acquired property included in the Collateral covered by the
Security Agreement, will constitute, security interests under the Code entitled
to all of the rights, benefits and priorities provided by the Code and (b) are,
and as to such subsequently acquired Collateral will be fully perfected,
superior and prior to the rights of all third persons, now existing or hereafter
arising, subject only to Permitted Liens. All of the Collateral is intended for
use solely in the Borrower's business.

2.9. LOCATION. The chief executive office of the Borrower
where the Borrower's business records are located is the address designated for
notices in Section 10.4 ("NOTICES") and the Borrower has no other places of
business except as shown on Exhibit 2.9 (if any).

2.10. TAXES. Except to the extent that Borrower maintains a
deferred tax liability as more fully described in Note 5 to the Financial
Statements contained in the Borrower's Annual Report on Form 10-KSB for the
Borrower's fiscal year ended June 30, 1997, the Borrower and each Subsidiary has
filed all federal and state income and other tax returns which, to the best
knowledge of the Borrower, are required to be filed, and have paid all taxes as
shown on said returns and all taxes, including AD VALOREM taxes, shown on all
assessments received by it to the extent that such taxes have become due.
Neither the Borrower nor any Subsidiary is subject to any federal, state or
local tax Liens nor has such Person received any notice of deficiency or other
official notice to pay any taxes. The Borrower and each Subsidiary has paid all
sales and excise taxes payable by it.

<PAGE> 11

2.11. WITHHOLDING TAXES. The Borrower and each Subsidiary has
paid all withholding, FICA and other payments required by federal, state or
local governments with respect to any wages paid to employees.

2.12. LABOR LAW MATTERS. No goods or services have been or
will be produced by the Borrower or any Subsidiary in violation of applicable
labor laws or regulations or any collective bargaining agreement or other labor
agreements or in violation of any minimum wage, wage-and-hour or other similar
laws or regulations, other than violations that would not have a material
adverse effect upon Borrower and any Subsidiary taken as a whole.

2.13. ACCOUNTS. Each Account, instrument, Chattel Paper and
other writing constituting any portion of the Collateral is (a) genuine and
enforceable in accordance with its terms except for such limits thereon arising
from bankruptcy and similar laws relating to creditors' rights; (b) not subject
to any defense, setoff, claim or counterclaim of a material nature against the
Borrower except as to which the Borrower has notified the Bank in writing or
which is ordinary and usual in the conduct of the Borrower's business or
businesses similarly situated; and (c) not subject to any other circumstances
known to the Borrower that would impair the validity, enforceability or amount
of such Collateral except as to which the Borrower has notified the Bank in
writing or which is ordinary and usual in the conduct of the Borrower's business
or businesses similarly situated.

2.14. USE AND LOCATION OF COLLATERAL. The Collateral is
located only, and shall at all times be kept and maintained only, at the
Borrower's location or locations as described herein. No such Collateral is
attached or affixed to any real property so as to be classified as a fixture
unless the Bank has otherwise agreed in writing.

2.15. JUDGMENT LIENS. Neither the Borrower nor any Subsidiary,
nor any of their assets, are subject to any unpaid judgments (whether or not
stayed) or any judgment liens in any jurisdiction.

2.16. INTENT AND EFFECT OF TRANSACTIONS. This Agreement and
the transactions contemplated herein (a) are not made or incurred with intent to
hinder, delay or defraud any person to whom the Borrower has been, is now, or
may hereafter become indebted; (b) do not render the Borrower insolvent nor is
the Borrower insolvent on the date of this Agreement; (c) do not leave the
Borrower with unreasonably small capital with which to engage in its business or
in any business or transaction in which it intends to engage; and (d) are not
entered into with the intent to incur, or with the belief that the Borrower
would incur, debts that would be beyond its ability to pay as such debts mature.

2.17. SUBSIDIARIES. If the Borrower has any Subsidiaries, they
are listed on Exhibit 2.17.

2.18. HAZARDOUS MATERIALS. Except as referenced in Section
6.25, the Borrower's property and improvements thereon have not in the past been
used, are not presently being used, and will not in the future be used for, nor
does the Borrower or any Subsidiary engage in, the handling, storage,
manufacture, disposition, processing, transportation, use or disposal of
hazardous or toxic materials.

2.19. ERISA. As of January 1, 1997, the Borrower maintains a
qualified 401(k) plan for the employees. Additionally, pursuant to its Amended
and Restated 1995 Stock Option Plan, the Borrower has authorized up to 1,200,000
shares of common stock of the Borrower for issuance upon exercise of stock
options granted pursuant to the stock option plan. The stock option plan is not
qualified under the provisions of section 401(a) of the Internal Revenue Code of
1986.

<PAGE> 12

2.20. INVESTMENT COMPANY ACT. Neither the Borrower nor any
Subsidiary is an "investment company" as defined in the Investment Company Act
of 1940, as amended.

2.21. ADDITIONAL REPRESENTATIONS. Any additional
representations or warranties set forth on Exhibit 2.21 (if any) hereto are true
and correct in all material respects.

3. THE ACQUISITION LOAN

3.1. ACQUISITION LOAN. Subject to the terms of this Agreement,
the Bank agrees to lend to the Borrower a total principal amount not to exceed
Five Million Dollars ($5,000,000.00) to be used for acquisition by Borrower of
business entities and assets. The Acquisition Loan shall be evidenced by and
payable in accordance with the terms of a promissory note in the face amount of
$5,000,000.00. The Acquisition Note shall evidence the outstanding principal
balance of the Acquisition Loan, as it may change from time to time. Advances
under the Acquisition Loan shall be subject to the following terms:

(a) Advances of proceeds of the Acquisition Loan
shall be limited to an aggregate of Five Million Dollars ($5,000,000.00)
("Maximum Acquisition Loan Amount") at any time outstanding;

(b) Advances of proceeds of the Acquisition Loan
shall require the prior written consent of Bank in its sole and absolute
discretion.

(c) All Acquisition Advances by the Bank to or for
the account of the Borrower, whether or not in excess of the Maximum Acquisition
Loan Amount, shall be considered part of the Indebtedness under the Acquisition
Note, shall bear interest as provided in the Acquisition Note, and shall be
entitled to all rights and benefits hereunder and under all other Loan
Documents; and

(d) The Borrower shall not request and the Bank will
not be required to consider requests for Acquisition Advances after the Maturity
Date; provided that the Bank may in its discretion extend such date in writing
and further provided that the repayment obligations of the Borrower for
Acquisition Advances made by the Bank after such date (as it may be extended)
shall be binding on the Borrower or other persons liable for any Indebtedness to
the same extent as obligations with respect to Acquisition Advances made prior
to such date.

3.2. LIMITATIONS ON ADVANCES. The outstanding principal
balance of the Acquisition Loan may increase and decrease from time to time, and
Acquisition Advances thereunder may be repaid and reborrowed, but the total of
Acquisition Advances outstanding at any one time under the Acquisition Loan
shall never exceed the Maximum Acquisition Loan Amount.

The Borrower shall immediately pay to the Bank any amount by which the
Acquisition Loan exceeds the Maximum Acquisition Loan Amount. The Bank may, in
its discretion, make, or permit to remain outstanding, Advances to the Borrower
in excess of the Maximum Acquisition Loan Amount and all such amounts shall be
part of the Acquisition Loan and Indebtedness, shall bear interest as provided
in the Acquisition Note, shall be payable ON DEMAND and shall be entitled to all
rights and security provided for herein, in the Security Agreement and all other
Loan Documents.

3.3. NOTICE AND MANNER OF BORROWING. Unless another
satisfactory procedure for disbursements is agreed upon in writing by the
parties, the following procedure will be used for disbursement of proceeds of
the Acquisition Loan. The Borrower shall deliver a written and signed Advance
Request to the Bank not later than 12:00 noon, Jacksonville time, not less than
ten (10) business days prior to the proposed

<PAGE> 13

Advance Date, setting forth the amount of the requested Advance, setting forth
the intended acquisition, and specifying the date (which shall be a Business
Day), and the amount of the proposed Advance of proceeds, and shall furnish to
Bank documentation evidencing the proposed Acquisition in form and substance
reasonably satisfactory to Bank. Any Acquisition Advance shall be subject to the
prior written consent of Bank, which Bank may withhold in its sole discretion.

The time within which any Advance is to be made shall be extended
for the period of any delay beyond Lender's reasonable control. In no event
shall Lender have any liability to Borrower for consequential or special damages
resulting from a failure to fund within the time periods specified above.

3.4. CALCULATION OF INTEREST. All interest under the
Acquisition Note or hereunder shall be calculated on the basis of a 360-day year
for the actual number of days elapsed in an interest period (Actual/360 method),
unless the Bank shall otherwise elect.

3.5. UNUSED FEE. Borrower shall pay to Bank each quarter, for
so long as the Acquisition Loan is outstanding, on the fifteenth day of October,
January, April and August of each year, a fee equal to one-eighth of one percent
(1/8%) of the unused balance of the Acquisition Facility based upon the average
unused balance during the previous calendar quarter.

3.6. REPAYMENT TERMS. All Advances under the Acquisition
Facility shall bear interest at the rate specified in the Acquisition Note.

Interest only on each Acquisition Advance shall be payable monthly
in arrears for a period of six (6) months.

Commencing six months from the date of each Acquisition Advance,
the Advance shall be repayable in equal monthly amortization payments, based
upon a 5 year amortization on the basis of the principal amount of such
Acquisition Advance outstanding on the six month anniversary thereof.

4. THE REVOLVING LOAN

4.1. REVOLVING LOAN. Subject to the terms of this Agreement
the Bank agrees to lend to the Borrower a total principal amount not to exceed
the amount of Five Million Dollars ($5,000,000.00) for working capital to be
used in the operation of the Borrower's business. The Revolving Loan shall be
evidenced by and payable in accordance with the terms of a promissory note in
the face amount of $5,000,000.00. The Revolving Note shall evidence the
outstanding principal balance of the Revolving Loan, as it may change from time
to time. Advances under the Revolving Loan shall be subject to the following
terms:

(a) Advances of proceeds of the Revolving Loan shall
be limited to an aggregate principal of $5,000,000.00 (the "Maximum Revolving
Loan Amount") at any time outstanding;

(b) Advances of proceeds of the Revolving Loan shall
be in increments of One Hundred Thousand Dollars ($100,000.00) each.

(d) All Revolving Advances by the Bank to or for the
account of the Borrower, whether or not in excess of the Maximum Revolving Loan
Amount, shall be considered part of the Indebtedness

<PAGE> 14

under the Revolving Note, shall bear interest as provided in the Revolving Note,
and shall be entitled to all rights and benefits hereunder and under all other
Loan Documents; and

(e) The Borrower shall not request and the Bank will
not be required to consider requests for Revolving Advances after the Maturity
Date; provided that the Bank may in its discretion extend such date in writing
and further provided that the repayment obligations of the Borrower for Advances
made by the Bank after such date (as it may be extended) shall be binding on the
Borrower or other persons liable for any Indebtedness to the same extent as
obligations with respect to Advances made prior to such date.

4.2. LIMITATIONS ON REVOLVING LOAN ADVANCES. The outstanding
principal balance of the Revolving Loan may increase and decrease from time to
time, and Advances thereunder may be repaid and reborrowed, but the total of
Advances outstanding at any one time under the Revolving Loan shall never exceed
the Maximum Revolving Loan Amount. All prepayments shall be in increments of One
Hundred Thousand Dollars ($100,000.00) each.

The Borrower shall immediately pay to the Bank any amount by which the Revolving
Loan exceeds the Maximum Revolving Loan Amount. The Bank may, in its discretion,
make, or permit to remain outstanding, Revolving Advances to the Borrower in
excess of the Maximum Revolving Loan Amount and all such amounts shall be part
of the Loan and Indebtedness, shall bear interest as provided in the Revolving
Note, shall be payable on demand and shall be entitled to all rights and
security provided for herein, the Security Agreement and all other Loan
Documents.

4.3. NOTICE AND MANNER OF BORROWING. Unless another
satisfactory procedure for disbursements is agreed upon in writing by the
parties, the following procedure will be used for disbursement of proceeds of
the Revolving Loan. The Borrower shall deliver a written and signed Advance
Request to the Bank not later than 12:00 noon, Jacksonville, Florida, time, on
the Business Day of the proposed Advance Date, specifying the date (which shall
be a Business Day), and the amount of the proposed Advance of proceeds, and
providing such other information as the Bank may require.

4.4. CALCULATION OF INTEREST. All interest under the Note or
hereunder shall be calculated on the basis of a 360-day year for the actual
number of days elapsed in an interest period (Actual/360 method), unless the
Bank shall otherwise elect.

4.5. OVERDUE AMOUNTS. Any payments not made as and when due
shall bear interest from the date due until paid at the Default Rate.

4.6. UNUSED FEE. Borrower shall pay to Bank each quarter for
so long as the Revolving Loan is outstanding, on the fifteenth day of October,
January, April and August of each year, a fee equal to one-eighth of one percent
(1/8%) of the unused balance of the Revolving Facility based upon the average
unused balance during the previous calendar quarter.

4.7. 30 DAY CLEAN UP REQUIREMENT. During each year between
August 1 and the succeeding August 31st, Borrower shall repay in full the
Revolving Loan and not borrow any additional funds thereunder for a period not
less than 30 days, so that for a period of not less than 30 days each year there
shall be no outstanding Advances under the Revolving Loan.

<PAGE> 15

4.8. REPAYMENT TERMS. All Advances under the Revolving
Facility shall bear interest at the rate specified in the Revolving Note.
Interest only on the Advances shall be payable quarterly in arrears on the
fifteenth day of each October, January, April and August of each year. The
entire outstanding principal balance plus unpaid accrued interest thereon shall
be repayable on the Maturity Date of August 31, 2001.

4.9. LETTERS OF CREDIT; BANKER'S ACCEPTANCES.

(a) At its discretion the Bank may from time to time
issue, extend or renew letters of credit and banker's acceptances for the
account of the Borrower or its Subsidiaries. The availability of Advances under
the Revolving Loan shall be reduced by outstanding obligations of the Bank under
any letters and banker's acceptances issued, extended or renewed pursuant to
this Agreement. All payments made by the Bank under any such letters of credit
or banker's acceptances and all fees, commissions, discounts and other amounts
owed or to be owed to the Bank in connection therewith, shall be deemed to be
Revolving Advances under the Revolving Note, shall be secured by the Collateral,
and shall be repaid on demand. The Borrower shall complete and sign such
applications and supplemental agreements and provide such other documentation as
the Bank may reasonably require. The form and substance of all letters of credit
and acceptances, including expiration dates, shall be subject to the Bank's
approval. The Bank may charge a fee or commission for issuance, renewal or
extension of a letter of credit or acceptance. The Borrower unconditionally
guarantees all obligations of any Subsidiary with respect to letters of credit
issued by the Bank for the account of such Subsidiary and all acceptances of any
Subsidiaries' drafts. If after the occurrence of an Event of Default the Bank
should accelerate and demand payment of the Revolving Loan, the Borrower shall,
on demand, deliver to the Bank good funds equal to 100% of the Bank's maximum
liability under all outstanding letters of credit and banker's acceptances
issued for the account of the Borrower and its Subsidiaries under this
Agreement, to be held as cash collateral for the Borrower's reimbursement
obligations and other indebtedness.

(b) In order to induce Bank to issue letters of
credit and banker's acceptances, the Borrower agrees that neither Bank nor its
correspondents or agents shall be liable or responsible for, and the Borrower's
unconditional obligation to reimburse Bank for draws under and payments made by
the Bank in respect to such letters of credit and bankers acceptances shall not
be affected by, any event or circumstance, including without limitation: (i) the
validity, enforceability, genuineness or sufficiency of documents or of any
endorsement thereon existing in connection with any such letter of credit or
banker's acceptance, even if such documents should in fact prove in any or all
respects to be invalid unenforceable, insufficient, fraudulent or forged; (ii)
any breach of contract or other dispute between the Borrower and any beneficiary
of a letter of credit or holder of a draft accepted by the Bank; (iii) payment
by the Bank upon presentation of a draft or documents which do not comply in any
respect with the terms of such letter of credit or draft; (iv) loss of or damage
to any collateral; (v) the invalidity or insufficiency of any endorsements; (vi)
delay in giving or failure to give notice of arrival or any other notice; (vii)
failure of any instrument to bear any reference or adequate reference to the
letter of credit or draft or to documents to accompany any instrument at
negotiation; or (viii) failure of any person to note the amount of any payment
on the reverse of the letter of credit or to surrender to or take up the letter
of credit or draft or to forward documents in the manner required by the letter
of credit or draft; or (ix) any other matter whatsoever excepting only with
respect to each of the foregoing items the gross negligence (or negligence as to
(iii) above) or willful misconduct of the Bank or its agent. The Borrower agrees
that any action taken or permitted to be taken by the Bank or its agent under or
in connection with any letter of credit or banker's acceptance, including
related drafts, documents, or property, unless constituting gross negligence or
willful misconduct (or negligence as to (iii) above on the part of the
Bank or its agent), shall be binding on the Borrower and shall not create any
resulting liability to the Borrower on the part of the Bank or its agent. The
Borrower will promptly examine a copy of the letter of credit (and any

<PAGE> 16

amendments thereof) or draft sent to it by the Bank or its agent, and the
Borrower will immediately notify the Bank in writing of any claim or
irregularity.

(c) Any letter of credit issued hereunder shall be
governed by the Uniform Customs of Practice for Documentary Credit (1993 Rev.),
International Chamber of Commerce Publication No. 500, as revised from time to
time.

5. CONDITIONS PRECEDENT TO BORROWING. Prior to any Advance of the
proceeds of any Loans, the following conditions shall have been satisfied, in
the sole opinion of the Bank and its counsel:

5.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE. In addition to
any other requirement set forth in this Agreement, the Bank will not make the
initial Advance under the Loans unless and until the following conditions shall
have been satisfied:

(a) LOAN DOCUMENTS. The Borrower and each other party
to any Loan Documents, as applicable, shall have executed and delivered this
Agreement, the Notes, and other required Loan Documents, all in form and
substance satisfactory to the Bank.

(b) SUPPORTING DOCUMENTS. The Borrower shall cause to
be delivered to the Bank the following documents:

(i) A copy of the governing instruments of
the Borrower and each Subsidiary, and a good standing certificate of the
Borrower and each Subsidiary, certified by the appropriate official of its state
of incorporation and the State of Florida, if different;

(ii) Incumbency certificate and certified
resolutions of the board of directors (or other appropriate Persons) of the
Borrower executing any Loan Documents authorizing the execution, delivery and
performance of the Loan Documents; and

(iii) UCC-11 searches and other Lien
searches showing no existing security interests in or Liens on the Collateral
other than the security interests of the Bank and other than Permitted Liens.

(c) INSURANCE. The Borrower shall have delivered to
the Bank satisfactory evidence of insurance meeting the requirements of Section
6.3 ("INSURANCE").

(d) PERFECTION OF LIENS. UCC-l financing statements
covering the Collateral executed by the Borrower shall duly have been recorded
or filed in the manner and places required by law to establish, preserve,
protect and perfect the interests and rights created or intended to be created
by this Agreement and any other Security Agreement; and all taxes, fees and
other charges in connection with the execution, delivery and filing of this
Agreement, the Security Agreement and the financing statements shall duly have
been paid.

(e) ADDITIONAL DOCUMENTS. The Borrower shall have
delivered to the Bank all additional opinions, documents, certificates and other
assurances that the Bank or its counsel may reasonably require.

<PAGE> 17

5.2. CONDITIONS PRECEDENT TO EACH ADVANCE. The following
conditions, in addition to any other requirements set forth in this Agreement,
shall have been met or performed by the applicable Advance Date with respect to
any Advance Request:

(a) ADVANCE REQUEST. The Borrower shall have
delivered to the bank an Advance Request and other information, as required
under in Section 3 or 4, as applicable ("NOTICE AND MANNER OF BORROWING").

(b) NO DEFAULT. No Default shall have occurred and be
continuing or will occur upon the making of the Advance in question and the
Borrower shall have delivered to the Bank an officer's certificate to such
effect, which shall be incorporated in the Advance Request.

(c) CORRECTNESS OF REPRESENTATIONS. All
representations and warranties made by the Borrower shall be true and correct
with the same effect as though the representations and warranties had been made
on and as of the proposed Advance Date and the Borrower shall have delivered to
the Bank an officer's certificate to such effect, which shall be incorporated in
the Advance Request.

(d) NO ADVERSE CHANGE. There shall have been no
material adverse change in the condition, financial or otherwise, of the
Borrower from such condition as it existed on the date of the most recent
financial statements of such Person delivered prior to date hereof.

(e) FURTHER ASSURANCES. The Borrower shall have
delivered such further documentation or assurances as the Bank may reasonably
require.

6. COVENANTS OF THE BORROWER. The Borrower covenants and agrees that
from the date hereof and until payment in full of the Indebtedness and the
formal termination of this Agreement, unless the Bank shall otherwise consent in
writing, the Borrower and each Subsidiary:

6.1. USE OF LOAN PROCEEDS. Shall use the proceeds of the Loans
only for the commercial purposes permitted herein or otherwise permitted by the
Bank and furnish the Bank all evidence that it may reasonably require with
respect to such use.

6.2. MAINTENANCE OF BUSINESS AND PROPERTIES. Shall at all
times maintain, preserve and protect all Collateral and all the remainder of its
material property used or useful in the conduct of its business, and keep the
same in good repair, working order and condition, and from time to time make, or
cause to be made, all material needful and proper repairs, renewals,
replacements, betterments and improvements thereto so that the business carried
on in connection therewith may be conducted properly and in accordance with
standards generally accepted in businesses of a similar type and size at all
times, and maintain and keep in full force and effect all licenses and permits
necessary to the proper conduct of its business.

6.3. INSURANCE. Shall maintain such liability insurance,
malpractice insurance, workers' compensation insurance, business interruption
insurance and casualty insurance as may be required by law, customary and usual
for prudent businesses in its industry or as may be reasonably required by the
Bank and shall insure and keep insured all Collateral and other properties in
good and responsible insurance companies satisfactory to the Bank. All hazard
insurance covering Collateral shall be in amounts and shall contain co-insurance
and deductible provisions approved by the Bank, shall name and directly insure
the Bank as secured party and loss payee under a long-form New York standard
loss payee clause, or its equivalent, and shall not be terminable except upon 30
days' written notice to the Bank.

<PAGE> 18

6.4. NOTICE OF DEFAULT. Shall provide to the Bank immediate
notice of (a) the occurrence of a Default, (b) any material litigation or
material changes in existing litigation or any judgment against it or its
assets, (c) any material damage or loss to property in excess of applicable
insurance coverage therefor, (d) any notice from taxing authorities as to
claimed deficiencies or any tax lien or any notice relating to alleged ERISA
violations, (e) any Reportable Event, as defined in ERISA, (f) any rejection,
return, offset, dispute, loss or other circumstance having a material adverse
effect on any Collateral, and (g) any loss or threatened loss of material
licenses or permits.

6.5. INSPECTIONS. Shall permit inspections of the Collateral
and the records of such Person pertaining thereto, at such times and in such
manner as may be reasonably required by the Bank and shall further permit such
inspection, review and audits of its other records and its properties (with such
reasonable frequency and at such reasonable times as the Bank may desire) by the
Bank as the Bank may deem necessary or desirable from time to time. The cost of
such audits, reviews and inspections shall be borne by the Borrower; provided
that, so long as no material adverse change in the business or financial
condition of the Borrower shall have occurred in the reasonable discretion of
the Bank, the Borrower shall not be obligated to pay the cost of any such audit,
review or inspection conducted more frequently than once in each twelve-month
period commencing on the Closing Date.

6.6. FINANCIAL INFORMATION. Shall maintain books and records
in accordance with generally accepted accounting principles and shall furnish to
the Bank the following periodic financial information:

(a) QUARTERLY REPORTS. Within 45 days after the end
of each fiscal quarter, an income statement and a balance sheet prepared in
accordance with generally accepted accounting principles, as at the end of any
for such month and year-to-date, each certified by the chief financial officer
or president of the Borrower as being true and accurate (subject to year end
audit adjustments);

(b) ANNUAL REPORTS. Within 90 days after the end of
each fiscal year, an income statement and a reconciliation of surplus statement
of the Borrower for such year, and a balance sheet as of the end of such year
prepared in accordance with generally accepted accounting principles, audited by
an independent certified public accounting firm consisting of any one of the
largest six accounting firms in the United States as selected by the Borrower;
and

(c) ACCOUNTS RECEIVABLE REPORTS. Within 30 days after
the end of each fiscal year, a report listing Accounts of the Borrower as of the
last Business Day of the year (the "Accounts Receivable Report") which should
include the amount and age of each Account, the name and mailing address of each
Account Debtor and such other information as the Bank may reasonably require,
all in reasonable detail and in form reasonably acceptable to the Bank; and

(d) NO DEFAULT CERTIFICATES. Together with each
report required by Subsection (a) and (b), shall submit a certificate of its
president or chief financial officer that no Default or Event of Default then
exists or if a Default or Event of Default exists, the nature and duration
thereof and the Borrower's intention with respect thereto. If the Borrower has
Subsidiaries, the financial statements required above shall be in consolidated
and, if required by the Bank, consolidating form for the Borrower and all
Subsidiaries required by generally accepted accounting principles to be
consolidated for financial reporting purposes. In addition to the financial
statements required herein, the Bank reserves the right in its reasonable
discretion to require other or additional financial or other information
concerning the Borrower, its Subsidiaries, and/or the Collateral.

6.7. DEBT. Shall not create or permit to exist any Debt,
including any guaranties or other contingent obligations, except Permitted Debt.

<PAGE> 19

6.8. LIENS. Shall not create or permit to exist any Liens on
any of its property except Permitted Liens.

6.9. EXECUTIVE COMPENSATION. Shall not pay on an annual basis
more than $500,000 (plus the other cost-of-living increases, bonuses and other
benefits provided in that certain Charles M. Fernandez Employment Agreement,
dated as of September 11, 1996, between Zanart Entertainment Incorporated, and
Charles M. Fernandez), in any calendar year to the primary executive of Borrower
(the "Key Executive"), Charles Fernandez.

6.10. YEAR 2000 COMPATIBILITY. Borrower shall take all actions
necessary to assure that Borrower's computer based systems are able to operate
and effectively process data including dates on and after January 1, 2000. At
the request of Bank, Borrower shall provide Bank assurance acceptable to Bank of
Borrower's Year 2000 compatibility.

6.11. KEY EXECUTIVE AS PRIMARY OFFICER. Shall not allow or
permit Charlie Fernandez to be removed or discharged or terminated from his
position as the Chief Executive Officer of Borrower.

6.12. CORPORATE ACCOUNT. Shall maintain its primary operating
and cash management accounts with Lender.

6.13. DIVIDENDS. Shall not pay or declare any dividends (other
than stock dividends) or other distribution or purchase, redeem or otherwise
acquire any stock or other equity interests or pay or acquire any debt
subordinate to the Indebtedness unless, after giving effect thereto, there shall
be no Default hereunder and such payment or acquisition is specifically
permitted by Exhibit 6.13 hereto (if any); provided, however, that any
Subsidiary may pay dividends to the Borrower or another Subsidiary wholly-owned
by the Borrower.

6.14. MERGER, SALE, ETC. Shall maintain its corporate
existence, good standing and necessary qualifications to do business and shall
not merge or consolidate with any Person or (except acquisitions which are
financed in whole or in part with the proceeds of the Loans or are otherwise
permitted by the Bank in accordance with the provisions of the Agreement and the
merger of any Subsidiaries of the Borrower with and into each other and/or with
and into the Borrower) acquire all or substantially all of the assets of, or 70%
or more of any class of equity interest of, any Person or sell, lease, assign or
otherwise dispose of any Collateral or substantial portion of its other assets
(other than sales of obsolete or worn-out equipment and sales of Inventory in
the ordinary course of business), or sell or otherwise dispose of stock of any
Subsidiary (other than to another Subsidiary which is a Guarantor of the Loans
or to Borrower).

6.15. LOANS AND OTHER INVESTMENTS. Except to the extent of the
contingent liabilities described in Exhibit 2.3 to this Agreement, shall not
make or permit to exist any advances or loans to, or guarantee or become
contingently liable, directly or indirectly, in connection with the obligations,
leases, stock or dividends of, or own, purchase or make any commitment to
purchase any stock, bonds, notes, debentures or other securities of, or any
interest in, or make any capital contributions to (all of which are sometimes
collectively referred to herein as "Investments") any Person except for (a)
purchases of direct obligations of the federal government, (b) deposits in
commercial banks, (c) commercial paper of any U.S. corporation having the
highest ratings then given by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, (d) investments in Subsidiaries, (e) endorsement of
negotiable instruments for collection in the ordinary course of business, and
(f) acquisitions permitted under this Agreement.

<PAGE> 20

6.16. CHANGE IN BUSINESS. Shall not enter into any business
which is substantially different from the business or businesses in which it is
presently engaged.

6.17. ACCOUNTS. (a) shall not sell, assign or discount any of
its Accounts, Chattel Paper or any promissory notes held by it other than the
discount of such notes in the ordinary course of business for collection; and
(b) shall notify the Bank promptly in writing with any discount, offset or other
deductions not shown on the face of an Account invoice and any dispute over an
Account, and any information relating to an adverse change in any Account
Debtor's financial condition or ability to pay its obligations.

6.18. TRANSACTIONS WITH AFFILIATES. Shall not directly or
indirectly purchase, acquire or lease any property from, or sell, transfer or
lease any property to, or otherwise deal with, in the ordinary course of
business or otherwise, any Affiliate (other than a Subsidiary); provided,
however, that any acts or transactions prohibited by this Section may be
performed or engaged in, if upon terms not less favorable to the Borrower or
such Subsidiary than if no such relationship existed. Any such Affiliate may be
a director, officer, employee of the Borrower or any Subsidiary, subject to the
limitations on compensation contained in this Section and elsewhere in this
Agreement.

6.19. NO CHANGE IN NAME, OFFICES; REMOVAL OF COLLATERAL. Shall
not, unless it shall have given 60 days' advance written notice thereof to the
Bank, (a) change its name or the location of its chief executive office or other
office where books or records are kept or (b) permit any Inventory or other
tangible Collateral to be located at any location other than as specified in
Section 2.9. ("LOCATION"), provided, that Bank acknowledges that Borrower
intends to move its headquarters to the City of Coral Gables, Florida.

6.20. NO SALE, LEASEBACK. Shall not enter into any
sale-and-leaseback or similar transaction.

6.21. MARGIN STOCK. Shall not use any proceeds of the Loan to
purchase or carry any margin stock (within the meaning of Regulation U of the
Board of Governors of Federal Reserve System) or extend credit to others for the
purpose of purchasing or carrying any margin stock.

6.22. PAYMENT OF TAXES, ETC. Shall pay before delinquent all
of its debts and taxes except that the Bank shall not unreasonably withhold its
consent to nonpayment of taxes being actively contested in accordance with law
(provided that the Bank may require bonding or other reasonable assurances if
such contest were to pose a material threat to the lien or priority of the Bank
Security interest in any Collateral or the forfeiture of any Collateral).
Provided, however, that Borrower shall be permitted to continue to defer payment
of the Deferred Taxes to the extent that, and for so long as, such deferral is
permitted in accordance with generally accepted accounting principles and is not
inconsistent with the provisions of the Internal Revenue Code of 1986 as
amended.

6.23. SUBORDINATION. Shall cause all debt and other
obligations now or hereafter owed to any Affiliate to be subordinated in right
of payment and security to the Indebtedness in accordance with subordination
agreements reasonably satisfactory to the Bank. Provided, however, that the
Borrower shall be permitted to pay its Affiliates wages, salaries and director's
fees (subject, in the case of Charles M. Fernandez, to the limitations contained
elsewhere in the Agreement, as amended hereby) at a fair and reasonable rate and
payment of such services rendered or property furnished to the Borrower at a
fair and reasonable value.

6.24. COMPLIANCE; HAZARDOUS MATERIALS. Shall strictly comply
with all laws, regulations, ordinances and other legal requirements,
specifically including, without limitation, ERISA, all securities laws and all
laws relating to hazardous materials and the environment. Neither the Borrower
nor any Subsidiary

<PAGE> 21

shall engage in the storage, manufacture, disposition, processing, handling, use
or transportation of any hazardous or toxic materials, whether or not in
compliance with applicable laws and regulations.

6.25. SUBSIDIARIES. Except with respect to acquisitions
permitted under this Agreement, shall not acquire, form or dispose of any
Subsidiaries or permit any Subsidiary to issue capital stock except to its
parent.

6.26. COMPLIANCE WITH ASSIGNMENT LAWS. Shall if reasonably
required by the Bank comply with the Federal Assignment of Claims Act and any
other applicable law relating to assignment of government contracts.

6.27. FURTHER ASSURANCES. Shall take such further action and
provide to the Bank such further assurances as may be reasonably requested to
ensure compliance with the intent of this Agreement and the other Loan
Documents.

6.28. WITHHOLDING TAXES. Pay as and when due all employee
withholding, FICA and other payments required by federal, state and local
governments with respect to wages paid to employees.

6.29. OTHER COVENANTS. Shall comply with such additional
covenants as may be set forth in Exhibit 6.29 hereto.

7. DEFAULT.

7.1. EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default:

(a) Any representation or warranty made by the
Borrower herein or therein or in any certificate or report furnished in
connection herewith or therewith shall prove to have been untrue or incorrect in
any material respect when made; or

(b) There shall occur any default by the Borrower in
the payment, when due, of any principal of or interest on the Notes, or any of
the Notes, any amounts due hereunder or any other Loan Document or any other
Indebtedness (not cured within any grace period provided in such Note or in the
document or instrument evidencing such Indebtedness), it being expressly
understood and agreed that a default under any of the Acquisition Note or the
Revolving Note shall constitute a default under all Notes;

(c) There shall occur any default by the Borrower in
the performance of any agreement, covenant or obligation contained in this
Agreement or such Loan Document not provided for elsewhere in this Section 7 and
such default is not cured within any grace period provided in this Agreement or
such other Loan Document in respect to such default;

(d) Any other obligation now or hereafter owed by the
Borrower or any Subsidiary to the Bank shall be in default and not cured within
any applicable period of grace provided therein or any such Person shall be in
default under any other obligation for the payment of money in excess of
$500,000.00 owed to any other obligee, which default entitles the obligee to
accelerate any such obligations or exercise other remedies with respect thereto;
or

(e) The Borrower or any Subsidiary shall (i)
voluntarily liquidate or terminate operations or apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of such Person or of all or of a substantial part of its assets,
(ii) admit in writing its inability,

<PAGE> 22

or be generally unable, to pay its debts as the debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the federal Bankruptcy Code (as now or hereafter in effect), (v) file
a petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
(vi) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vii) take any corporate action for the purpose of effecting
any of the foregoing; or

(f) Without its application, approval or consent, a
proceeding shall be commenced, in any court of competent jurisdiction, seeking
in respect of such Person any remedy under the federal Bankruptcy Code, the
liquidation, reorganization, dissolution, winding-up, or composition or
readjustment of debt, the appointment of a trustee, receiver, liquidator or the
like of such Person, or of all or any substantial part of the assets of such
Person, or other like relief under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts which is not
dismissed within sixty (60) days of the commencement thereof; or

(g) Any security interest or Lien of the Bank
hereunder or under any other Security Agreement shall not constitute a perfected
security interest of first priority in the Collateral thereby encumbered,
subject only to Permitted Liens; or

(h) There shall occur any material loss, theft,
damage or destruction of any of the Collateral, which loss is not fully insured
unless the Borrower provides additional Collateral or other adequate assurances
to the Bank upon demand; or

(i) A judgment in excess of $100,000.00 shall be
rendered against the Borrower or any Subsidiary and shall remain undischarged,
undismissed and unstayed for more than ten days (except judgments validly
covered by insurance with a deductible of not more than $100,000.00) or there
shall occur any levy upon, or attachment, garnishment or other seizure of, any
material portion of the Collateral or other assets of the Borrower or, any
Subsidiary by reason of the issuance of any tax levy, judicial attachment or
garnishment or levy of execution which remains undischarged, undismissed and
unstayed for more than ten days; or

(j) Changes occur in the Federal regulations or laws
governing Medicare and/or Medicaid programs which materially adversely impact
the operations and business of Borrower, in the reasonable opinion of Bank.

7.2. REMEDIES. If any Default shall occur, the Bank may,
without notice to the Borrower, at its option, withhold further Advances to the
Borrower of proceeds of the Loans. Should (a) any nonmonetary Event of Default
occur and not be cured within thirty (30) days following delivery of written
notice thereof by the Bank to the Borrower (which notice shall be complete upon
hand or overnight delivery or upon facsimile delivery or mailing by certified
mail, return receipt requested) or, if such nonmonetary default is not curable
with said 30 day period, if action to cure is commenced within said 30 day
period and diligently pursued, and the Collateral or the security for the Loan
is not impaired, a reasonable time to cure shall be afforded, not to exceed a
total of ninety (90) days after such notice or (b) any monetary Event of Default
occur, the Bank may declare any or all Indebtedness to be immediately due and
payable (if not earlier demanded), bring suit against the Borrower to collect
the Indebtedness, exercise any remedy available to the Bank hereunder and
take any action or exercise any remedy provided herein or in any other Loan
Document or under applicable law. No remedy shall be exclusive of other remedies
or impair the right of the Bank to exercise any other remedies.

<PAGE> 23

7.3. RECEIVER. In addition to any other remedy available to
it, the Bank shall have the absolute right, upon the occurrence of an Event of
Default, to seek and obtain the appointment of a receiver to take possession of
and operate and/or dispose of the business and assets of the Borrower and any
costs and expenses incurred by the Bank in connection with such receivership
shall bear interest at the Default Rate and shall be secured by all Collateral.

8. SECURITY AGREEMENT.

8.1. SECURITY INTEREST.

(a) As security for the payment and performance of
any and all of the Indebtedness and the performance of all other obligations and
covenants of the Borrower hereunder and under the Loan Documents, certain or
contingent, now existing or hereafter arising, which are now, or may at any time
or times hereafter be owing by the Borrower to the Bank, the Borrower hereby
pledges to the Bank and give the Bank a continuing security interest in and
general Lien upon and right of set-off against, all right, title and interest of
the Borrower in and to the Collateral, whether now owned or hereafter acquired
by the Borrower.

(b) Except as herein or by applicable law otherwise
expressly provided, the Bank shall not be obligated to exercise any degree of
care in connection with any Collateral in its possession, to take any steps
necessary to preserve any rights in any of the Collateral or to preserve any
rights therein against prior parties, and the Borrower agrees to take such
steps. In any case the Bank shall be deemed to have exercised reasonable care if
it shall have taken such steps for the care and preservation of the Collateral
or rights therein as the Borrower may have reasonably requested the Bank to take
and the Bank's omission to take any action not requested by the Borrower shall
not be deemed a failure to exercise reasonable care. No segregation or specific
allocation by the Bank of specified items of Collateral against any liability of
the Borrower shall waive or affect any security interest in or Lien against
other items of Collateral or any of the Bank's options, powers or rights under
this Agreement or otherwise arising.

(c) Upon the occurrence of an Event of Default and
the expiration of any applicable grace or cure period the Bank may at any time
and from time to time, with or without notice to the Borrower, (i) transfer into
the name of the Bank or the name of the Bank's nominee any of the Collateral,
(ii) notify any Account Debtor or other obligor of any Collateral to make
payment thereon direct to the Bank of any amounts due or to become due thereon
and (iii) receive and after a default direct the disposition of any proceeds of
any Collateral.

(d) In the event that Borrower and Bank execute any
International Swap Dealers Association (ISDA) Master Agreements and Schedules
then the Collateral shall also secure such ISDA Master Agreement and Schedules,
together with confirmation letters, which may hereafter be executed between
Borrower and Bank.

8.2. REMEDIES.

(a) If an Event of Default shall have occurred and be
continuing, without waiving any of its other rights hereunder or under any other
Loan Documents, the Bank shall have all rights and remedies of a secured party
under the Code (and the Uniform Commercial Code of any other applicable
jurisdiction) and such other rights and remedies as may be available hereunder,
under other applicable law or pursuant to contract. If requested by the Bank,
the Borrower will promptly assemble the Collateral and make it available to the
Bank at a place to be designated by the Bank. The Borrower agrees that any
notice by the Bank of the sale or disposition of the Collateral or any other
intended action hereunder, whether required by

<PAGE> 24

the Code or otherwise, shall constitute reasonable notice to the Borrower if the
notice is mailed to the Borrower by regular or certified mail, postage prepaid,
at least ten days before the action to be taken. The Borrower shall be liable
for any deficiencies in the event the proceeds of the disposition of the
Collateral do not satisfy the Indebtedness in full.

(b) If an Event of Default shall have occurred and be
continuing, the Bank may demand, collect and sue for all amounts owed pursuant
to Accounts, General Intangibles, Chattel paper or for proceeds of any
Collateral (either in the Borrower's name or the Bank's name at the latter's
option), with the right to enforce, compromise, settle or discharge any such
amounts. The Borrower appoints the Bank as the Borrower's attorney-in-fact to
endorse the Borrower's name on all checks, commercial paper and other
instruments pertaining to Collateral or proceeds.

8.3. POWER OF ATTORNEY. The Borrower authorizes the Bank at
the Borrower's expense to file any financing statements relating to the
Collateral (without the Borrower's signature thereon) which the Bank reasonably
deems appropriate and the Borrower irrevocably appoints the Bank as its
attorney-in-fact to execute any such financing statements in the Borrower's name
and to perform all other acts which the Bank reasonably deems appropriate to
perfect and to continue perfection of the security interest of the Bank. The
Borrower hereby appoints the Bank as the Borrower's attorney-in-fact to, upon
the occurrence and continuance of any Event of Default, endorse, present and
collect on behalf of the Borrower and in the Borrower's name any draft, checks
or other documents necessary or desirable to collect any amounts which the
Borrower may be owed.

8.4. ENTRY. The Borrower hereby irrevocably consents to any
act by the Bank or its agents in entering upon any premises for the purposes of
inspecting the Collateral and the Borrower hereby waives its right to assert
against the Bank or its agents any claim based upon trespass or any similar
cause of action for entering upon any premises where the Collateral may be
located.

8.5. DEPOSITS; INSURANCE. Upon the occurrence and continuance
of an Event of Default, the Borrower authorizes the Bank to collect and apply
against the Indebtedness when due any cash or deposit accounts in its
possession, and any refund of insurance premiums or any insurance proceeds
payable on account of the loss or damage to any of the Collateral and
irrevocably appoints the Bank as its attorney-in-fact to endorse any check or
draft or take other action necessary to obtain such funds.

8.6. OTHER RIGHTS. The Borrower authorizes the Bank without
affecting the Borrower's obligations hereunder or under any other Loan Document
from time to time (i) to take from any party and hold additional Collateral or
guaranties for the payment of the Indebtedness or any part thereof, and to
exchange, enforce or release such collateral or guaranty of payment of the
Indebtedness or any part thereof and to release or substitute any endorser or
guarantor or any party who has given any security interest in any collateral as
security for the payment of the Indebtedness or any part thereof or any party in
any way obligated to pay the Indebtedness or any part thereof; and (ii) upon the
occurrence and continuance of any Event of Default to direct the manner of the
disposition of the Collateral and the enforcement of any endorsements,
guaranties, letters of credit or other security relating to the Indebtedness or
any part thereof as the Bank in its sole discretion may determine.

8.7. ACCOUNTS. Upon the occurrence and continuance of any
Event of Default, the Bank may notify any Account Debtor of the Bank's security
interest and may direct such Account Debtor to make payment directly to the Bank
for application against the Indebtedness. Any such payments received by or on
behalf of the Borrower at any time, whether before or after default, shall be
the property of the Bank, shall be held in trust for the Bank and not commingled
with any other assets of any Person (except to the extent they may be commingled
with other assets of the Borrower in an account with the Bank) and shall be
immediately
20

<PAGE> 25

delivered to the Bank in the form received. The Bank shall have the right to
apply any proceeds of Collateral to such of the Indebtedness as it may
determine.

8.8. TANGIBLE COLLATERAL. Except as otherwise provided herein
or agreed to in writing by the Bank, no Inventory or other tangible Collateral
shall be commingled with, or become an accession to or part of, any property of
any other Person so long as such property is Collateral. Upon the occurrence and
continuance of any Event of Default, the Borrower shall, upon the request of the
Bank, promptly assemble all tangible Collateral for delivery to the Bank or its
agents. No tangible Collateral shall be allowed to become a fixture unless the
Bank shall have given its prior written authorization.

8.9. WAIVER OF MARSHALLING. The Borrower hereby waives any
right it may have to require marshalling of its assets.

9. ARBITRATION. Upon demand of any party hereto, whether made before or
after institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Agreement, and other Loan
Documents ("Disputes") between or among parties to this Agreement, shall be
resolved by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, claims
brought as class actions, claims arising from Loan Documents executed in the
future, or claims arising out of or connected with the transaction reflected by
this Agreement.

Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51 ET
SEQ. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000. All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction. The
panel from which all arbitrators are selected shall be comprised of licensed
attorneys. The single arbitrator selected for expedited procedure shall be a
retired judge from the highest court of general jurisdiction, state or federal,
of the state where the hearing will be conducted or if such person is not
available to serve, the single arbitrator may be a licensed attorney.
Notwithstanding the foregoing, this arbitration provision does not apply to
disputes under or related to swap agreements.

9.1. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding
the preceding binding arbitration provisions, Bank and Borrower agree to
preserve, without diminution, certain remedies that any party hereto may employ
or exercise freely, independently or in connection with an arbitration
proceeding or after an arbitration action is brought. Bank and Borrower shall
have the right to proceed in any court of proper jurisdiction or by self-help to
exercise or prosecute the following remedies, as applicable: (i) all rights to
foreclose against any real or personal property or other security by exercising
a power of sale granted under Loan Documents or under applicable law or by
judicial foreclosure and sale, including a proceeding to confirm the sale; (ii)
all rights of self-help including peaceful occupation of real property and
collection of rents, set-off, and peaceful possession of personal property; and
(iii) obtaining provisional or ancillary remedies including injunctive relief,
sequestration, garnishment, attachment, appointment of receiver and filing an
involuntary bankruptcy proceeding. Preservation of these remedies does not limit
the power of an arbitrator to grant similar remedies that may be requested by a
party in a Dispute.

Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right or
claim to punitive or exemplary damages they have now or

<PAGE> 26

which may arise in the future in connection with any Dispute whether the
Disputes is resolved by arbitration or judicially.

10. MISCELLANEOUS.

10.1. NO WAIVER, REMEDIES CUMULATIVE. No failure on the part
of the Bank to exercise, and no delay in exercising, any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are in addition to any other remedies provided by
law, any Loan Document or otherwise.

10.2. SURVIVAL OF REPRESENTATIONS. All representations and
warranties made herein shall survive the making of the Loans hereunder and the
delivery of the Notes, and shall continue in full force and effect so long as
any Indebtedness is outstanding, there exists any commitment by the Bank to the
Borrower, and until this Agreement is formally terminated in writing.

10.3. EXPENSES. Whether or not the Loans herein provided for
shall be made, the Borrower shall pay all reasonable costs and expenses in
connection with the preparation, execution, delivery, amendment and enforcement
of this Agreement and any Loan Document, including the reasonable fees and
disbursements of counsel for the Bank in connection therewith, whether suit be
brought or not and whether incurred at trial or on appeal, and all costs of
repossession, storage, disposition, protection and collection of Collateral. If
the Borrower should fail to pay any tax or other amount required by this
Agreement to be paid or which may be reasonably necessary to protect or preserve
any Collateral or the Borrower's or Bank's interests therein, the Bank may make
such payment and the amount thereof shall be payable on demand, shall bear
interest at the Default Rate from the date of demand until paid and shall be
deemed to be Indebtedness entitled to the benefit and security of the Loan
Documents.

In addition, the Borrower agrees to pay and save the Bank harmless against any
liability for payment of any state documentary stamp taxes, intangible taxes or
similar taxes (including interest or penalties, if any) which may now or
hereafter be determined to be payable in respect to the execution, delivery or
recording of any Loan Document or the making of any Advance, whether originally
thought to be due or not, and regardless of any mistake of fact or law on the
part of the Bank or the Borrower with respect to the applicability of such tax.
The provisions of this Section shall survive payment in full of the Loans and
termination of this Agreement.

10.4. NOTICES. Any notice or other communication hereunder to
any party hereto shall be by hand delivery, overnight delivery, facsimile,
telegram, telex or registered or certified mail and unless otherwise provided
herein shall be deemed to have been given or made when delivered, telegraphed,
telexed, faxed or deposited in the mails, postage prepaid, addressed to the
party at its address specified below (or at any other address that the party may
hereafter specify to the other parties in writing):

The Bank:

First Union National Bank
200 S. Biscayne Boulevard, Suite 1500
Miami, Florida 33133
Attention: Jorge Gonzalez, Vice President
and
James Baiter, Vice President

<PAGE> 27

The Borrower:

Continucare Corporation
100 S.E. Second Street
36th Floor
Miami, Florida 33131

Attention: Charles M. Fernandez,
Chief Executive Officer
and
Susan Tarbe, General Counsel

10.5. GOVERNING LAW. This Agreement and the Loan Documents
shall be deemed contracts made under the laws of the State of Florida and shall
be governed by and construed in accordance with the laws of said state except
insofar as the laws of another jurisdiction may govern the perfection, priority
and enforcement of security interests in Collateral located in another
jurisdiction.

10.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the Borrower and the Bank, and their
respective successors and assigns; provided, that the Borrower may not assign
any of its rights hereunder without the prior written consent of the Bank, and
any such assignment made without such consent will be void.

10.7. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which when taken together shall constitute but one and the same instrument.

10.8. POWERS. All powers of attorney granted to the Bank are
coupled with an interest and are irrevocable.

10.9. APPROVALS. If this Agreement calls for the approval or
consent of the Bank, such approval or consent may be given or withheld in the
discretion of the Bank unless otherwise specified herein.

10.10. MULTIPLE BORROWERS. If more than one Person is named
herein as the Borrower, all obligations, representations and covenants herein
and in other Loan Documents to which the Borrower is a party shall be joint and
several.

10.11. CONFLICT. In the event of a conflict between this
Agreement and any other Loan Document the terms of this Agreement shall be
controlling.

10.12. OTHER PROVISIONS. Any other or additional terms and
conditions set forth in Exhibit 10.13 (if any) are hereby incorporated herein.

10.13. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT EITHER OF THEM MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED UPON THIS AGREEMENT OR
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER LOAN
DOCUMENT AND ANY OTHER AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION
HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR

<PAGE> 28

ACTIONS OF ANY PARTY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES
ENTERING INTO THIS AGREEMENT.

10.14. RECITALS. The recitals contained on page 1 of this
Agreement are true and correct and are incorporated herein by reference.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.

CONTINUCARE CORPORATION

By:
--------------------------------------------
Its: Vice President

FIRST UNION NATIONAL BANK

By:
--------------------------------------------
Its: Vice President

<PAGE> 1

Exhibit 10.18
[EXECUTION COPY]

PHYSICIAN EMPLOYMENT AGREEMENT

THIS PHYSICIAN EMPLOYMENT AGREEMENT (the "Agreement") dated as of
April ___, 1997 (the "Execution Date"), is entered into by and between
ARTHRITIS AND RHEUMATIC DISEASE SPECIALTIES, INC., a Florida corporation and
its successors and assigns (the "Company") and NORMAN GAYLIS, M.D., (the
"Physician").

PRELIMINARY STATEMENTS

1. Simultaneous with the execution and delivery of this Agreement, ContinuCare
Corporation, a Florida corporation and Sheridan Healthcorp, Inc., a Florida
corporation closed the transactions memorialized by two Stock Purchase
Agreements, dated as of April 10, 1997 (the "Stock Purchase Agreements")
whereby ContinuCare acquired all of the issued and outstanding stock of Norman
Gaylis, Inc, and Arthritis and Rheumatic Disease Specialties, Inc. All
capitalized terms not defined in this Agreement shall have the meanings given
them in the Stock Purchase Agreements.

2. Physician is currently employed by Arthritis and Rheumatic Disease
Specialties, Inc. pursuant to an Employment Agreement dated January 4, 1996.
The Physician desires to terminate such Employment Agreement and to enter this
Employment Agreement.

3. The Company desires to employ the Physician and the Physician desires to
serve the Company, on the terms and subject to the conditions contained in this
Agreement.

In consideration of the parties' promises and mutual covenants in this
Agreement, the Company and the Physician agree as follows:

AGREEMENT

1. EMPLOYMENT. The Company employs the Physician and the Physician
accepts the employment upon this Agreement's terms and conditions.

2. TERM OF EMPLOYMENT. Unless terminated earlier under the provisions
of this Agreement, the initial term of employment of the Physician shall be for
a period of four (4) years (the "Term"), commencing on April ___, 1997 (the
"Commencement Date") and expiring on March 31, 2001 (the "Expiration Date").
One Hundred Eighty (180) days prior to the expiration of the Term, the Company
may elect, in its sole discretion, to extend the term for a period of three
years (the "First Renewal Term") by sending a written notice to the Physician.
One Hundred Eighty (180) days prior to the expiration of the First Renewal Term
and any Additional Renewal Terms (as defined below), the Company may elect, in
its sole discretion, to extend the term for consecutive three-year periods (the
"Additional Renewal Terms") by sending a written notice to the Physician. The
First Renewal Term and the Additional Renewal Terms shall be collectively the
"Renewal Terms" and shall be upon the same terms and conditions as contained in
this Agreement (except where otherwise specified in this Agreement). Any
written notice from the Company to the Physician notifying Physician of the
Companies intent to extend the Term or any Renewal Terms shall be a "Renewal
Notice".

The Physician, in his sole discretion, may reject the Company's
election for any Renewal Terms, by sending a notice to the Company within
twenty (20) days of the Renewal Notice (a "Rejection Notice"). If the Physician
rejects an extension of the Term or any Renewal Terms, then this Agreement
shall terminate upon the Expiration Date of the Term or Renewal Term then in
effect. If the Physician fails to timely send the Company a Rejection Notice,
then this Agreement shall be extended for the First Renewal Term or any
Additional Renewal Term, as applicable.

3. COMPENSATION. During the Term and all Renewal Terms, the Physician
shall be compensated as follows:

<PAGE> 2

(a) SALARY COMPENSATION.

(i) BASE COMPENSATION. Provided that this Agreement
has not been terminated, the Company shall pay to the Physician as compensation
for the performance of his duties under this Agreement, base compensation at an
annual rate of: (i) Four Hundred Fifty Thousand Dollars ($450,000.00) during
the Term; and, (ii) Five Hundred Thousand Dollars ($500,000.00) during any
Renewal Terms. The Physician shall be paid Base Compensation biweekly in
substantially equal installments, or at more frequent intervals as the Board of
Directors may determine, subject to all applicable withholdings, set offs, and
taxes.

(ii) REDUCTION OF BASE COMPENSATION. The Company
acknowledges that Physician serves, on the Company's behalf as Medical Director
of various inpatient and outpatient hospital programs throughout the North Dade
and South Dade areas. In the event that all of these programs are terminated
and a replacement program or programs are not implemented by the Company within
six (6) months of the termination of all of these programs which generate at
least Two Hundred Thousand Dollars ($200,000.00) of revenue, Physician's
current base salary at the time the six (6) month period has elapsed shall be
reduced an amount equal such reduction but in no event shall such reduction be
more than Two Hundred Thousand Dollars ($200,000.00).

(iii) INCENTIVE COMPENSATION. Provided that this
Agreement has not been terminated, during each year of the Term and any Renewal
Term, the Physician shall be entitled to receive fifty percent (50%) of
earnings before interest, taxes, depreciation and amortization ("EBITDA")
derived from the Physician's provision of professional services (the "Physician
Services") at the PA Offices listed on Schedule 3(a)(ii) which EBITDA is in
excess of Three Hundred Sixty Five Thousand Dollars ($365,000.00) derived from
the Physician Services at those PA Offices or any future offices opened by the
Company where Physician provides Physician Services. All Incentive Compensation
payable pursuant to this Agreement shall be paid to Physician annually within
ninety (90) days of the end of each calendar year during the Term and all
Renewal Terms, subject to applicable withholdings, insurance copayments and
other taxes. The Physician shall be entitled, upon reasonable request to the
Company, to be given access to records directly related to the EBITDA from the
Physician Services.

(b) EMPLOYEE BENEFIT PLANS. The Physician shall be entitled
to participate in or benefit from the benefits that are afforded to other
Company employees. The Company retains the right to terminate or alter in its
sole and absolute discretion, any plans or policies from time to time. The
Company's existing benefit plans are described on Schedule 3(b), which benefits
may be altered or terminated by the Company at any time.

(c) VACATION AND SICK DAYS. The Physician shall accrue six
(6) weeks paid vacation time during each 12 month calendar year commencing
April 10, 1997. The Physician shall also accrue ten (10) paid sick days the
contract year he is employed under this Agreement. Vacation and sick days shall
be used within the contract year, and vacation days shall only be used at the
times and intervals mutually agreed upon between Physician and the Company. The
Physician shall not be entitled to any additional compensation for unused
vacation and sick days. Additionally, any time spent by Physician on education,
through the attendance of lectures, seminars or other educational activities,
when Physician would otherwise be providing services to the Company shall be
considered vacation time.

(d) LICENSES, STAFF FEES AND PROFESSIONAL FEES. During the
Term and all Renewal Terms, the Company shall pay Physician's applicable
hospital medical staff fees and professional license fees which enable
Physician to fulfill his obligations under this Agreement.

(e) PROFESSIONAL LIABILITY INSURANCE. During the Term and all
Renewal Terms, the following will apply:

(i) the Company shall insure, at its cost, the
Physician under the Company's current professional liability policy written by
Zurich-American Insurance Company ("Physicians' Insurance") in the amount of
$1,000,000.00 for each claim and $3,000,000.00 annual aggregate limit and the
costs for such insurance shall be borne by the Company;

<PAGE> 3

(ii) in the event the Company determines to provide
professional liability insurance for the Physician from other than Physicians'
Insurance, at its costs, the Company agrees to provide coverage limits no less
than as specified in subsection (i) above;

(iii) subject to Section 3(e)(vi), the Company may,
in its absolute sole discretion, at any time during the Term and all Renewal
Terms, continue, modify, change or substitute the malpractice insurance policy
coverage for Physician and/or the Company for Physician's provision of medical
services while acting in the scope of his employment pursuant to the terms and
conditions of this Agreement which was obtained pursuant to Company's
obligations under this Agreement;

(iv) Physician shall immediately execute and
deliver, in strict accordance with Company's written instructions, all
documents and instruments necessary to effectuate the provisions of this
Section; and,

(v) Physician agrees to act in full accordance with
the terms and conditions of any and all malpractice insurance policies, copies
of which shall be provided to the Physician.

(vi) subject to Section 3(e)(i) and (ii), Company
will obtain a continuous claims made professional liability insurance policy to
cover Physician pursuant to the terms of this Agreement. The Company shall, at
the Company's expense, continue to cover Physician for medical malpractice
claims arising out of his employment under this Agreement through a date four
(4) years from the date of termination by: (i) continuing the continuous claims
made professional liability insurance policy, (ii) purchasing a replacement
continuous claims made professional liability insurance policy with retroactive
coverage which does not create any lapse in coverage; or, (iii) purchasing
appropriate tail coverage to meet its obligation under this subparagraph.

(f) WITHHOLDINGS. The Company may withhold from any
compensation or other benefits payable under this Agreement, or arrange for the
payment of, any federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.

4. EMPLOYMENT DUTIES.

(a) The Physician agrees during his employment under this
Agreement to: (i) serve, at the pleasure of the Company's Board of Directors,
as the Company's President; (ii) provide medical services on behalf of the
Company as a duly licensed physician under the laws of the State of Florida;
(iii) provide the Physician Services; and, (iv) perform any other duties and
assignments relating to the business of the Company, its affiliates and
subsidiaries, as the Company's Board of Directors or its delegates directs,
provided further that those duties or assignments shall be reasonably related
to the Physician's expertise and experience ((i), (ii), (iii) and (iv) shall be
collectively, the "Physician Duties"). During the Term and any Renewal Terms,
the Physician shall, except during vacation periods, approved leaves and
periods of illness, devote his entire business time and attention to the
performance of the Physician Duties under this Agreement and shall use his best
efforts, skills and abilities to perform his duties in accordance with
applicable laws which are brought to his attention by the Company and to
promote the Company's best interests.

(b) CALL. The Physician agrees and acknowledges that his
services may be necessary on evenings and weekends, and shall be available for
weekday and weekend call in accordance with the Company's reasonable call
policies and schedules.

(c) ACCESS TO RECORDS. Upon written request, and in
accordance with Title 42 of the United States Code, Section 1395(x)(v)(l)(I),
as amended, Physician agrees to make available to the Secretary of the United
States Department of Health and Human Services or the Comptroller General of
the United States, or any of their duly authorized representatives, this
Agreement, all documents and records necessary to certify the nature and extent
of services provided by Physician under this Agreement.

<PAGE> 4

(d) ACTIVITY. The Company agrees to pay for or reimburse
Physician for any reasonable business expenses including, without limited to a
car allowance of five hundred dollars ($500) per month, cellular phone, beeper
and other normal business expenses incurred by the Physician and approved by
the Company.

(e) MISCELLANEOUS. The Physician further agrees and
acknowledges that he shall comply with and follow all written policies,
standards, rules and regulations established by the Company in performing the
Physician Duties under this Agreement, and agrees to be bound by and comply
with the terms and conditions of other agreements to which the Company is a
party to, or to which it may become a party to, with hospitals, ambulatory
surgical centers, insurance companies, third party payers and other providers
of medical services in connection with the provision of medical services.

(i) Without the Company's prior written consent
(which consent shall not be unreasonably withheld), the Physician shall not,
during: his employment under this Agreement, render medical services, or any
other related services, for any other person or entity as an employee, agent,
independent contractor or otherwise,

(ii) Except as described in Schedule 4(e)(ii) (the
"Outside Services"), without the Company's prior written consent (which shall
not be unreasonably withheld), the Physician shall not, during his employment
under this Agreement, devote any time to consulting, lecturing, or engaging in
any other self employment or employment activities. The Company consents to the
Physician's participation in the Outside Services, provided that: (a) the
Outside Services are not provided during the time period when the Physician's
services are required pursuant to this Agreement; and, (b) the Outside Services
do not affect, in any manner whatsoever, the Employee's ability to perform the
services required pursuant to this Agreement.

(iii) The Physician shall immediately notify the
Company of any and all incidents, unfavorable occurrences, notices or claims
made arising out of his services as soon as he becomes aware of this
information and shall cooperate in any investigation and in the defense of any
incidents, unfavorable occurrences, notices and claims.

5. DUTY TO ACCOUNT.

(a) Physician shall assign, account, and pay to the Company
all accounts receivable, compensation and any other form of remuneration due
from or paid by any source other than the Company attributable to medical
services he has rendered in his professional capacity on behalf of the Company
under this Agreement or sums which come into his possession which are
attributable to the services of other employees of the Company, (collectively
the "Company Receivables"), except as Company may otherwise agree in writing.
Physician appoints the Company as his attorney in fact to execute, deliver
and/or endorse checks, applications for payments, insurance claim forms or
other instruments or documents, convenient or required in the exclusive
discretion of the Company to fully collect, secure and realize all sums due to
the Company in respect to services provided under this Agreement. The power of
attorney is coupled with an interest, is irrevocable and shall survive the
expiration or termination of this Agreement for a time period without
limitation. Disability insurance benefits and medical expense reimbursements
received by Physician pursuant to any formal plan of the Company shall not be
considered a Company Receivable for purposes of this Section.

(b) All Company Receivables shall be the sole property of the
Company. In no event shall Physician be entitled to any portion of the Company
Receivables, or the proceeds from Company Receivables, during the Term, any
Renewal Terms or after the termination of this Agreement, whether or not
Company Receivables may have been derived in any way from the performance of
Physician pursuant to the terms of this Agreement.

6. REPRESENTATIONS AND WARRANTIES. The Physician represents and
warrants to the Company as follows:

<PAGE> 5

(a) Physician is a physician duly licensed to practice
medicine under the laws of the State of Florida;

(b) Physician has complied with all laws, rules and
regulations relating to the practice of medicine and is able to enter into and
perform all duties under this Agreement;

(c) Physician is not a party to or bound by any other
agreement or commitment, or subject to any restriction or agreement related to
previous employment or consultation containing confidentiality or non-compete
covenants or other relevant restrictions which may have a possible present or
future adverse affect on the Company or the Physician in the performance of his
duties under this Agreement; and,

(d) to his knowledge, Physician is in good physical and
mental health and does not suffer from any illness or disability which could
prevent him from fulfilling his responsibilities under this Agreement; and,

(e) the Physician has never: (i) had his professional
license, Drug Enforcement Agency number, Medicare provider status or staff
privileges at any hospital or medical facility suspended, relinquished,
terminated or revoked; (ii) been reprimanded, sanctioned or disciplined by any
licensing board or any federal, state, or local society or agency, governmental
body, hospital, third party payor or specialty board; or, (iii) had a final
judgment or settlement without judgment entered against him in connection with
a malpractice or similar action for an amount in excess of Five Thousand
Dollars ($5,000.00).

The Physician agrees to immediately notify the Company of any fact or
circumstance which occurs or is discovered during the Term and any Renewal
Terms, which in itself or with the passage of time and/or the combination with
other reasonably anticipated factors does render or will render any of these
representations and warranties to be untrue.

7. CONFIDENTIALITY.

(a) CONFIDENTIAL INFORMATION. The Physician acknowledges that
as a result of the Physician's employment with the Company, the Physician has
and will necessarily become informed of, and have access to, certain valuable
and confidential information of the Company, including, without limitation,
trade secrets, technical information plans, lists of patients, data, records,
fee schedules, computer programs, manuals, processes, methods, intangible
rights, contracts, agreements, licenses, personnel information and the identity
of health care providers (collectively, the "Confidential Information"), and
that the Confidential Information, even though it may be contributed, developed
or acquired in whole or in part by the Physician, is the Company's exclusive
property to be held by the Physician in trust and solely for the Company's
benefit. Accordingly, except as required by law, the Physician shall not, at
any time, either during or subsequent to the Term and any Renewal Terms, use,
reveal, report, publish, copy, transcribe, transfer or otherwise disclose to
any person, corporation or other entity, any of the Confidential Information
without the prior written consent of the Company, except to officers and
employees of the Company and except for information which legally and
legitimately is or becomes of general public knowledge from authorized sources
other than the Physician.

(b) RETURN OF CONFIDENTIAL INFORMATION. Upon the termination
of this Agreement, the Physician shall promptly deliver to the Company all
Company property and possessions including all drawings, manuals, letters,
notes, notebooks, reports, copies, deliverable Confidential Information and all
other materials relating to the Company's business which are in the Physician's
possession or control.

8. NON-COMPETITION. Without the Company's prior written consent, which
may be withheld in its absolute sole discretion, Physician agrees that he will
not: (i) during the Term and any Renewal Terms of his employment under this
Agreement and at any time within a two-year period from the date of termination
of employment pursuant to Section 10 of this Agreement anywhere within
twenty-five (25) miles from any location where the Physician provided medical
services (the "Restricted Area"); on his own behalf or as a principal, partner,
stockholder, officer, employee, agent, consultant, independent contractor,
director or trustee of any person, partnership, entity, firm or corporation:

<PAGE> 6

(a) own, manage, operate, control or otherwise engage in a
Competing Business (as defined below), or receive any compensation in any
capacity from any Competing Business;

(b) other than as a patient himself for as the Company
directs, have any business relationship, in any capacity whatsoever, with any
IPA, PHO, or any other form of an integrated delivery system, competing medical
practice or medical services delivery system which is operated in or affiliated
in any manner with medical practices in the Restricted Area;

(c) attempt to solicit or solicit the patients or facilities
serviced by the Company to terminate, curtail or restrict their relationship
with the Company or attempt to provide or provide those patients or facilities
with medical services previously furnished to them by the Physician while
employed by the Company during the Term and any Renewal Terms;

(d) otherwise divert or attempt to divert from the Company
any business or business opportunity whatsoever; or,

(e) attempt to solicit or solicit any person employed or
contracted by the Company, or any of their affiliates, to leave their
employment or not fulfill their contractual responsibility, whether or not the
employment or contracting is full-time or temporary, pursuant to a written or
oral agreement, or for a determined period or at will.

The term "Competing Business" shall mean any business which
is competitive with the Company, which is specifically agreed to by the parties
to be the management, provision and operation of hospital-based medical
services, including pathology and rheumatology services for hospitals,
ambulatory surgical facilities and similar organizations; the management and
organization of any rheumatology networks; the provision of rheumatology
services; the operation and management of a management services organization
("MSO") available for contract to physicians, hospitals, healthcare facilities,
integrated delivery systems, PHOS, IPAs and physician networks; and, the
acquisition and operation of primary care and specialty physician offices.

In the event that the Company commits a breach of a material
term of this Agreement (after the Company has received at least thirty (30)
days written notice of that material breach and the Company has failed to
remedy that breach within the thirty day period) then Sections 8(a), (b), (c)
and (d) shall not apply.

Notwithstanding anything contained in this Section 8, should the Company not
elect to extend the Term or any Renewal Term by sending Physician a Renewal
Notice as described in Section 2, then Sections B(a), (b), (c) and (d) shall
not apply.

9. REMEDIES. The Physician and the Company each acknowledge that: (i)
the services Physician will render under this Agreement are special and unique
and cannot be replaced by the Company; (ii) the event of a breach by the
Physician of the provisions of Sections 4(c), 5, 7, 8 or 11 (a) will cause the
Company irreparable harm; and, (iii) monetary damages in an action at law would
not provide an adequate remedy in the event of a breach. Accordingly, the
Physician agrees that, in addition to any other remedies (legal, equitable or
otherwise) available to the Company, the Company may seek and obtain injunctive
relief against the breach or threatened breach of the provisions of Sections
4(c), 5, 7, 8 or 11(a) as well as all other rights and remedies available at
law and equity including, without limitation, the right to be indemnified by
Physician for all claims, damages, actions, suits whatsoever for a breach of
Sections 4(c), 5, 7, 8 or 11(a) and if the Company prevails in litigation
against the Physician, its reasonable attorneys' fees, expenses and costs
incurred in enforcing any provisions of Sections 4(c), 5, 7, 8 or 1l(a),
whether or not litigation is instituted, and if instituted, at pre-trial, trial
and appellate levels. Nothing contained in this Section 9 shall be construed as
prohibiting the Company and all other injured parties from pursuing all other
remedies available to them for a breach or threatened breach of the provisions
of Sections 4(c), 5, 7, 8 or 11(a), including the recovery of compensatory and
punitive damages from Physician. Physician further acknowledges and agrees that
the covenants contained in Sections 4(c), 5, 7, 8 or 1l(a) are necessary for
the protection of the Company's legitimate business and professional duties,
ethical obligations and interests, and are reasonable in scope and content.

<PAGE> 7

10. TERMINATION. This Agreement may be terminated prior to the
expiration of the Term described in Section 2, upon the occurrence of any of
the following events:

(a) DEATH. This Agreement will automatically terminate upon
the death of the Physician. The Company shall have no further obligation under
this Agreement to make any payments to, or bestow any benefits on, the
Physician's beneficiary or beneficiaries from and after the date of the
Physician's death, other than as provided in Section 10(e).

(b) DISABILITY. This Agreement may be terminated at the
Company's option, exercisable in its absolute sole discretion, if the Physician
shall suffer a permanent disability. For the purposes of this Agreement, the
term "permanent disability" means the Physician's inability to perform his
duties under this Agreement for a period of any six (6) consecutive months due
to illness, accident or any other physical or mental incapacity. The Company
shall have no further obligation under this Agreement to make any payments to,
or bestow any benefits on, the Physician from and after the date of termination
under this provision, other than as provided in Section 10(e).

(c) CAUSE. This Agreement may be terminated for cause at the
Company's option, at any time. Cause shall mean, for purposes of this
Agreement, the Physician's: (i) material breach of any provision of this
Agreement; (ii) willful refusal to perform any duty directed by the Company's
Board of Directors or a supervising officer, an executive of the Company or any
authorized delegates, which is reasonably within the scope of the Physician's
duties; (iii) misappropriation of assets or business opportunities of the
Company for personal or non-Company use; (iv) conviction of any criminal act
except for a minor traffic offense; (v) commission of fraud, embezzlement, or
breach of trust relating to or arising out of his relationship with the
Company, its subsidiaries and affiliates; (vi) revocation or suspension of
Physician's license to practice medicine under the laws of the State of Florida
after appeal fights have been exhausted (provided that a good faith and
probable appeal has been made); (vii) inability to obtain adequate professional
liability coverage in accordance with Section 3(e) of this Agreement due to the
Physician's claims history or fault; (viii) failure or inability to competently
and adequately perform his duties under this Agreement as determined by the
Company's Board of Directors, exercisable in its reasonable discretion; or,
(ix) Physician's breach of this obligations contained into Section 1l(a) of
this Agreement. Prior to the Company's termination of this Agreement for cause
under Section 10(c)(ii, vi or viii), the Company shall first have provided
Physician with at least thirty (30) days prior written notice and Physician
shall have not, within that thirty (30) days remedied, to the Company's
reasonable satisfaction, the basis of that termination. The Company shall have
no further obligation under this Agreement to make any payments to, or bestow
any benefits on, the Physician from and after the date of the Physician's
termination under this provision, other than as provided in Section 10(e).

This Agreement may be terminated for cause at the Physician's
option, for the Company's failure to materially perform its obligations to the
Physician under this Agreement after the Company has received at least thirty
(30) days prior written notice of that material failure and the Company has
failed within that thirty (30) day period to remedy that substantial failure to
the Physician's reasonable satisfaction.

(d) VOLUNTARY. This Agreement may be terminated by either
party, without cause, upon the following events: (i) by the Company by not
electing to extend the Term or any Renewal Terms as described in Section 2; or,
(ii) by the Physician by sending a Rejection Notice. The Company shall have no
further obligation under this Agreement to make any payments to, or bestow any
benefits on, the Physician from and after the date of termination of this
Agreement under this provision, other than as provided in Section 10(e).

<PAGE> 8

(e) OBLIGATIONS. In the event of a termination under Sections
10(a), (b), (c) or (d), the Company shall have no further obligation under this
Agreement to make any payments to, or bestow any benefits on, the Physician
from and after the date of termination, other than payments or benefits accrued
and due and payable to Physician prior to the date of the termination.
Physician shall, upon Company's request and immediately upon notice, vacate all
premises, including all facilities serviced by the Company. Physician shall
return all of the property of the Company and its affiliates that is in his
possession or control.

11. MISCELLANEOUS.

(a) SUBSTANCE ABUSE POLICY. It is the Company's policy (the
"Policy") that none of its employees shall use or abuse any controlled
substances at any time (other than those medications lawfully prescribed by a
medical doctor in a reasonable diagnosis and which do not interfere with the
Employee's capacity to perform his or her obligations under this Agreement) or
be under the influence of alcohol or be affected by the Use of alcohol during
the time period required to perform their duties and obligations under any
employment agreements. Company and Physician both acknowledge and agree that
the purpose of this Policy is for the benefit of the Company, the Physician and
the individuals whom they serve.

In compliance with this Policy, during the Term and any
Renewal Terms Physician agrees to submit to random drug testing immediately
upon the Company's request. Testing may include, but shall not be limited to,
the taking of blood and urine samples and utilization of gas chromatography. In
the event that a positive test result is reached indicating a violation of the
Company's Policy, the Physician may, at his own expense and subject to the
supervision and approval of the Company of the manner and testing facilities
utilized, elect to have a second drug test performed, at a time which is no
longer than two days after the initial positive results were received by the
Company and the Employee. The Company may, in its sole and absolute discretion,
terminate the Physician for cause pursuant to Section 10(c) of this Agreement
in the event either: (i) a positive test result is received in the initial drug
test and the Physician fails to exercise his option for a second test in the
manner provided for in this Section; or, (ii) positive test results are
received from both tests. In the event that the second test result is negative,
the Company may, at any time, retest the Physician pursuant to the terms of
this Section.

(b) SURVIVAL. The provisions of Sections 6, 7, 8, 9, 10(d)
and 11 shall survive the termination of this Agreement for a time period
without limitation.

(c) ENTIRE AGREEMENT; WAIVER. This Agreement contains the
entire understanding of the parties and merges and supersedes any prior or
contemporaneous agreements between the parties relating to this Agreement's
subject matter. This Agreement may not be modified or terminated orally, and no
modification, termination or attempted waiver of any of the provisions shall be
binding unless in writing and signed by the party against whom it is sought to
be enforced; provided however, that Physician's compensation may be increased
at any time by the Company without in any way affecting all of the other terms
and conditions of this Agreement, which in all other respects shall remain in
full force and effect. Failure of a party to enforce one or more of the
provisions of this Agreement or to require at any time performance of any of
the obligations under this Agreement shall not be construed to be a waiver of
any provisions by a party nor to in any way affect the validity of this
Agreement or a party's right to enforce any provision of this Agreement, nor to
preclude a party from taking any other action at any time which it would
legally be entitled to take.

(d) MERGERS AND CONSOLIDATION; SUCCESSORS AND ASSIGNS.
Physician shall not have the right to assign, or delegate this personal service
Agreement, or any of his rights or obligations under this Agreement, without
the Company's consent. The preceding sentence shall not hinder the Physician's
estate from being entitled to receive all accrued and unpaid compensation and
benefits due to Physician at the time of his death. The Company may freely
assign and delegate all of its rights and duties under this Agreement.
Additionally, the parties each agree that upon the sale of all or substantially
all of the assets, business and goodwill of the Company to another company or
any other entity, or upon the merger or consolidation of the Company with
another company or any other entity, this Agreement shall inure to the benefit
of, and be binding upon, both Physician and the Company and any entity
purchasing the assets, business and goodwill, or surviving merger or
consolidation.

<PAGE> 9

(e) ADDITIONAL ACTS. The Physician and the Company each
agrees to execute, acknowledge and deliver all further instruments, agreements
or documents and do all further acts that are necessary or expedient to carry
out this Agreement's intended purposes. Each party recognizes that time is of
the essence with respect to each of their obligations in this Agreement. Each
party agrees to act as soon as practicable in light of the particular
circumstances and use their best efforts in as timely a fashion as possible to
maximize the intended benefits of this Agreement.

(f) NOTICES. Whenever any notice, demand or request is
required or permitted under this Agreement, that notice, demand or request
shall be either hand-delivered in person or sent by United States Mail,
registered or certified, postage prepaid, or delivered via overnight courier to
the addresses below or to any other address that either party may specify by
notice to the other party. Neither party shall be obligated to send more than
one notice to the other party and no notice or a change of address shall be
effective until received by the other party. A notice shall be deemed received
upon hand delivery, two business days after posting in United States Mail or
one business day after dispatch by overnight courier.

To the Company: Arthritis and Rheumatic Disease Specialties, Inc
100 SE 2nd Street, 36th Floor
Miami, FL 33131
Arm: Susan Turbo, General Counsel

To the Physician: Norman Gaylis, M.D.
100 NW 170th Street, Suite 105
North Miami Beach, FL 33169

(g) HEADINGS. The headings of the paragraphs of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise affect the construction of the terms or provisions of
this Agreement. References in this Agreement to Sections are to the sections of
this Agreement.

(h) CONSTRUCTION. This Agreement shall be construed without
regard to any presumption or other rule requiring construction against the
party causing this Agreement to be drafted, including any presumption of
superior knowledge or responsibility based upon a party's business or
profession or any professional training, experience, education or degrees of
any member, agent, officer or employee of any party. If any words in this
Agreement have been stricken out or otherwise eliminated (whether or not any
other words or phrases have been added) and the stricken words initialed by the
party against whom the words are construed, this Agreement shall be construed
as if the words so stricken out or otherwise eliminated were never included in
this Agreement and no implication or inference shall be drawn from the fact
that those words were stricken out or otherwise eliminated.

(i) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.

(j) SEVERABILITY. The invalidity or unenforceability of any
one or more of the words, phrases, sentences, clauses, or sections contained in
this Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement or any pan of any provision, all of which are
inserted conditionally on their being valid in law, and in the event that any
one or more of the words, phrases, sentences, clauses or sections contained in
this Agreement shall be declared invalid or unenforceable, this Agreement shall
be construed as if such invalid or unenforceable word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted or shall be enforced as nearly as possible according to their
original terms and intent to eliminate any invalidity or unenforceability. If
any invalidity or unenforceability is caused by the length of any period of
time or the size of any area set forth in any part of this Agreement, the
period of time or area, or both, shall be considered to be reduced to a period
or area which would cure the invalidity or unenforceability.

(k) GOVERNING LAW. This Agreement is made and executed and
shall be governed by the laws of the State of Florida, without regard to its
conflicts of laws principles.

<PAGE> 10

(l) NO THIRD PARTY BENEFICIARIES. All obligations of the
Company under this Agreement are imposed solely and exclusively for the benefit
of Physician, and no other person will have standing to enforce, be entitled to
or be deemed to be the beneficiary of any of these obligations.

(m) LITIGATION; PREVAILING PARTY. In the event of any
arbitration or litigation, including appeals, with regard to this Agreement,
the prevailing party shall be entitled to recover from the non-prevailing party
all reasonable fees, costs, and expenses of counsel (at pretrial, trial and
appellate levels).

(n) JURISDICTION; VENUE: INCONVENIENT FORMAL JURY TRIAL. ANY
SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, OR ANY JUDGMENT
ENTERED BY ANY COURT IN RESPECT TO THIS AGREEMENT SHALL BE BROUGHT IN THE
COURTS OF THE STATE OF FLORIDA OR IN THE U.S. DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF FLORIDA IN DADE COUNTY, AND THE PARTIES ACCEPT THE EXCLUSIVE
PERSONAL JURISDICTION OF THOSE COURTS FOR THE PURPOSE OF ANY SUIT, ACTION OR
PROCEEDING. IN ADDITION, THE PARTIES KNOWINGLY, INTENTIONALLY AND IRREVOCABLY
WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH THEY MAY NOW
OR LATER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR ANY JUDGMENT ENTERED BY ANY COURT
BROUGHT IN THE STATE OF FLORIDA, AND FURTHER, KNOWINGLY, INTENTIONALLY AND
IRREVOCABLY WAIVE ANY CLAIM THAT ANY SUIT, ACTION OR PROCEEDING BROUGHT IN THE
STATE OF FLORIDA HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY WAIVES
ALL RIGHTS TO ANY TRIAL BY JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF
THIS AGREEMENT.

Each of the parties have duly executed this Agreement as of the
Execution Date.

COMPANY:

ARTHRITIS AND RHEUMATIC DISEASE SPECIALTIES,
INC., a Florida corporation

By: /s/ Susan Tarbe
----------------------------------------
Susan Tarbe, Vice President

PHYSICIAN:

NORMAN GAYLIS, M.D.

/s/ Norman Gaylis, M.D.
--------------------------------------------
Norman Gaylis, M.D.

<PAGE> 1

Exhibit 10.19

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into this
1st day October of 1997, by and between CONTINUCARE CORPORATION, a Florida
corporation, ("the Company"), and Steven J. Baldwin, ("Executive").

1. EMPLOYMENT:

1.1 EMPLOYMENT AND TERM. The Company shall employ Executive and the
Executive shall serve the Company in accordance with terms and conditions set
forth herein, for the period of time (hereinafter referred to as the "Term")
commencing October 1, 1997 (the "Effective Date") and expiring on the second
anniversary thereof, unless sooner terminated as hereinafter set forth.

1.2 DUTIES OF EXECUTIVE. The Executive shall serve as the Senior Vice
President of Rehabilitation Services for the Company and shall perform the
duties of an executive commensurate with such position, shall diligently
perform all services as may be reasonably assigned to him by the Board of
Directors of the Company (hereinafter referred to as the "Board") and shall
exercise such power and authority as may, from time to time, be assigned to him
by the President of the Company or the Board. The Executive shall devote his
full time and attention to the business and affairs of the Company, render such
services to the best of his ability, and use his best efforts to promote the
interests of the Company.

1.3 PLACE OF PERFORMANCE. In connection with his employment by the
Company, the Executive shall be placed at the Company's principal executive
offices in South Florida, except for required travel on the Company's business.

2. COMPENSATION.

2.1 SALARY AND BONUS. During the Term, the Executive shall receive (a)
a base salary at the annual rate of $125,000 ("base salary"), such base salary
to be payable in substantially equal installments consistent with the Company's
normal payroll schedule, subject to applicable withholding and other taxes. The
Executive shall be eligible for bonus payments every 6 months, which shall be
granted at the sole discretion of the President in consultation with the
Compensation Committee (the "Compensation Committee") of the Company's Board of
Directors.

1
<PAGE> 2

2.2 STOCK OPTION GRANT. The Executive shall be granted stock options
to purchase 40,000 shares of Continucare stock, at a price equal to the average
trading price for the preceding thirty [30] days prior to the date of this
contract, which shall vest equally over three years.

3. EXPENSE REIMBURSEMENT AND OTHER BENEFITS.

3.1 EXPENSE ALLOWANCE. During the Term, the Executive shall receive an
expense allowance for proper and necessary expenses related to the business of
the Company in the amount of $600.00 per month to be used at the discretion of
the Executive.

3.2 EXPENSE REIMBURSEMENT. During the Term, the Company, shall
reimburse the Executive, upon presentation of appropriate and related
documentation, any and all expenses for out of town travel, meals and
entertainment directly associated to the business of the Company.

3.3 REIMBURSEMENT OF LIVING RENTAL FEE. The Company shall, upon
presentation of appropriate and related documentation, reimburse the Executive
for a living rental fee for a 3-month period effective as of October 1, 1997.
Said living rental fee shall not exceed the sum of One Thousand Five Hundred
and no/cents Dollars ($1,500.00) per month.

3.4 MOVING EXPENSES. The Company, upon presentation of appropriate and
related documentation shall reimburse the Executive for reasonable moving
expenses, which expenses are not to exceed $7,000.00.

3.5 OTHER BENEFITS. The Executive shall be entitled to participate in
all medical, hospitalization, dental plan, group life insurance, dental and any
and all other plans as are presently and hereinafter offered by the Company to
its employees.

3.6 WORKING FACILITIES. The Company shall furnish the Executive with
an office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.

4. TERMINATION:

4.1 TERMINATION FOR CAUSE. The Company shall at all times have the
right, upon written notice to the Executive, to terminate the Executive's
employment hereunder for cause. For purposes of this Agreement, the term
"Cause" shall mean (i) a material breach of this Agreement which is not cured
within 15

2
<PAGE> 3

days after receipt by the Executive of written notice of same; (ii) fraud,
embezzlement, misappropriation of funds or breach of trust; (iii) charging or
indictment of the Executive with any criminal act which is a felony; (iv)
exclusion of the Executive from any federal or state healthcare program; (v)
material, willful or knowing failure or refusal by the Executive to perform his
duties hereunder; (vi) disability of the Executive which prohibits the
Executive from performing his duties hereunder for a period of 30 consecutive
days; and/or (vii) the failure of the Executive to adhere to the Company's
Compliance Program. Any termination for Cause shall be made in writing to the
Executive which notice shall set forth in detail all acts or omissions upon
which the company is relying for such termination. Upon any termination
pursuant to this Section 4.1, the Executive shall be entitled to be paid his
Base Salary accrued through the date of termination and any unpaid bonus
previously awarded by the Compensation Committee and the Company shall have no
further liability hereunder.

4.2 TERMINATION WITHOUT CAUSE. At any time the Company shall have the
right to terminate the Executive's employment hereunder by written notice to
the Executive. In the event the Executive is terminated without Cause, this
Agreement shall be terminated and the Executive shall be entitled to continue
to receive his monthly Base Salary compensation for a period of six months and
any unpaid bonus previously awarded by the Compensation Committee. Except as
provided in this Section 4.2, the Company shall have no further liability
hereunder, (other than for reimbursement for reasonable business expenses
incurred prior to the date of termination, subject, however, to the provisions
of Sections 3.1 and 3.2 hereof). Notwithstanding the foregoing, the Executive
shall be obligated to use his best efforts to seek employment (subject to the
restrictions set forth in Section 6 hereof) following such termination on terms
comparable to those provided hereunder and to mitigate to the fullest extent
possible any and all amounts due and payable hereunder.

4.3 DEATH. In the event of the death of the Executive during the term
of employment hereunder, the Company shall pay to the Personal Representative
of the Estate of the deceased Executive any unpaid base salary accrued through
the date of death and any unpaid bonus previously awarded by the Compensation
Committee. Except as provided in this Section 4.3, the Company shall have no
further liability hereunder (other than for reimbursement for reasonable
business expenses incurred prior to the date of the Executive's death, subject,
however, to the provisions of Sections 3.1 and 3.2 hereof).

3
<PAGE> 4

4.4 RESIGNATION BY EXECUTIVE. The Executive shall at all times have
the right, upon sixty (60) days written notice to the Company, to terminate the
Executive's employment hereunder. Upon any termination pursuant to this Section
4.4, the Executive shall be entitled to be paid his accrued Base Salary and any
unpaid bonus previously awarded by the Compensation Committee and the Company
shall have no further liability hereunder.

5. FULL SETTLEMENT. The Company's obligation to make payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others.

6. RESTRICTIVE COVENANTS.

6.1 NON-COMPETITION. During the Term, the Executive will not, directly
or indirectly, engage in activities which are competitive with the Company's
rehabilitative services business. In the events that (i) the Executive
voluntarily resigns his employment with the Company and there has been no
material breach of this agreement by the company, or (ii) the Company, in good
faith, terminates the Executive for Cause as defined in Provision 4.1 above
(excluding, however, any termination based upon disability under 4.1[vi]) then,
for a period of twelve (12) months following the date of termination, the
Executive will not, directly or indirectly, engage in, become employed with, or
have any interest in any person or business entity, regardless of its legal
form, which engages in competition with the Company's rehabilitative services
business in any city where the Company conducts such business during the Term
or at the time of Executive's termination of employment with the Company. These
restrictive covenants will no apply in the event that (i) the Executive, in
good faith, resigns his employment due to a material breach of this agreement
by the Company, or (ii) the Company terminates the Executive without cause, or
(iii) the Company terminates the Executive for Cause based upon disability
under Provision 4.1(vi) above, or (iv) the Term of this agreement simply
expires and the parties do not renew their employment relationship upon
mutually acceptable conditions. Nothwithstanding the foregoing, the Executive
may continue to hold securities and/or acquire, solely for investment purposes,
securities of any company which are traded on any national securities exchange
or which are regularly quoted in the over-the counter market, so long as the
Executive does not control, acquire a controlling interest in, or become a
member of a group which exercises direct or indirect control of, more than five
(5%) percent of any class of capital stock of such corporation.

4
<PAGE> 5

and for a period of twelve months following the termination (other than
without Cause, as defined in Section 4.1) of the Executive's employment by the
Company (not including Executive's voluntary resignation or expiration of the
Term), the Executive shall not directly or indirectly engage in or have any
interest in, directly or indirectly any sole proprietorship, partnership,
corporation, business or any other person or entity (whether as an employee,
officer, director, partner, agent, security holder, creditor, consultant or
otherwise) that, directly or indirectly engages in competition with the Company
in any and all states in which the Company and/or any of its subsidiary
conducts its business during the Term or at the time Executive's employment
with the Company is terminated; provided, however, that Executive may continue
to hold company securities and/or acquire, solely as an investment, shares of
capital stock or other equity securities of any company which are traded on any
national securities exchange or are regularly quoted in the over-the-counter
market, so long as Executive does not control, acquire a controlling interest
in or became a member of a group which exercises direct or indirect control of
more than 5% of any class of capital stock of such corporation.

6.2 NONDISCLOSURE. During the Term and following termination of the
Executive's employment with the Company, Executive shall not divulge,
communicate, use to the detriment of the Company or for the benefit of any
other person or persons, or misuse in any way, any Confidential Information (as
hereinafter defined) pertaining to the business of the Company. Any
Confidential Information or data now or hereafter acquired by the Executive
with respect to the business of the Company (which shall include, but not be
limited to, information concerning the Company's financial condition,
prospects, technology, customers, suppliers, partners, methods of doing
business and marketing and promotion of the Company's services) shall be deemed
a valuable, special and unique asset of the Company that is received by the
Executive in confidence and as a fiduciary, and Executive shall remain a
fiduciary to the Company with respect to all such information. For purposes of
this Agreement "Confidential Information" means information disclosed to the
Executive or known by the Executive as a consequence of or through his
employment by the Company (including information conceived, originated,
discovered or developed by the Executive) prior to or after the date hereof and
not generally discovered or developed by the Executive) prior to or after the
date hereof, and not generally known about the Company or its business.
Notwithstanding the foregoing, nothing herein shall be deemed to restrict the
Executive from disclosing Confidential Information to the extent required by
law.

5
<PAGE> 6

6.3 NONSOLICITATION OF EMPLOYEES. During the Term and for a period of
one year following termination of the Executive's employment with the Company,
Executive shall not directly or indirectly for himself or for any other person,
firm, corporation, partnership, association or other entity, attempt to employ
or enter into any contractual arrangement with any employee or former employee
of the Company, unless such employee or former employee has not been employed
by the company for a period in excess of six months.

6.4 BOOKS AND RECORDS. All books, records, accounts and similar
repositories of Confidential Information of the Company, whether prepared by
the Executive or otherwise coming into the Executive's possession, shall be the
exclusive property of the Company and shall be returned immediately to the
Company upon termination of this Agreement or on the Board's request at any
time.

7. INJUNCTION. It is recognized and hereby acknowledged by the parties hereto
that a breach by the Executive of any of the covenants contained in Section 6
of this Agreement will cause irreparable harm and damage to the Company, the
monetary amount of which may be virtually impossible to ascertain. As a result,
the Executive recognizes and hereby acknowledges that the Company shall be
entitled to an injunction from any court of competent jurisdiction enjoining
and restraining any violation of any or all of the covenants contained in
Section 6 of this Agreement by the Executive or any of his affiliats,
associates, partners or agents, either directly or indirectly, and that such
right to injunction shall be cumulative and in addition to whatever other
remedies the Company may possess.

8. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida.

9. NOTICES. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been given when delivered by
hand or when deposited in the United States mail, by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:

If to the Company: Continucare Corporation
c/o Susan Tarbe
Chief Executive Officer
100 S.E. 2 Street
36th Floor
Miami, Florida 33131

If to the Executive: Steven J. Baldwin

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

<PAGE> 7

or to such other address as either party hereto may, from time to time, give
notice of to the other in the aforesaid manner.

10. BENEFITS: BINDING EFFECT. This Agreement shall be for the benefit of and
binding upon the parties hereto and their respective heirs, Personal
Representatives, legal representatives, successors and, where applicable,
assigns. Notwithstanding the foregoing, neither party may assign its rights or
benefits, or delegate any of its duties, hereunder without the prior written
consent of the other party hereto.

11. SEVERABILITY. The invalidity of any one or more of the words, phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
enforceability of the remaining portion of this Agreement or any part thereof,
all of which are inserted conditionally on their being valid in law, and, in
the event that any one or more of the words, phrases, sentences, clauses or
sections contained in this Agreement shall be declared invalid, this Agreement
shall be construed as if such invalid word or words, phrase or phrases,
sentence or sentences, clause or clauses, or section or sections had not been
inserted. If such invalidity is caused by duration, geographic scope or both,
the otherwise invalid provision will be considered to be reduced to a period or
area which would cure such invalidity.

12. WAIVERS. The waiver by either party hereto of a breach or violation of any
term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.

13. DAMAGES. Nothing contained herein shall be construed to prevent the Company
or the Executive from seeking and recovering from the other damages sustained
by either or both of them as a result of a breach, by either or both of them,
of any term or provision of this Agreement. In the event that either party
hereto brings suit for the collection of any damages resulting from or the
injunction of any action constituting a breach of any of the terms or provision
of this Agreement, then the party found to be at fault shall pay all reasonable
court costs and attorneys' fees of the other.

14. NO THIRD PARTY BENEFICIARY. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person (other
than the parties hereto and, in the case of Executive, his heirs, Personal
Representative and/or

7
<PAGE> 8

legal representative) any rights or remedies under or by reason of this
Agreement.

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

CONTINUCARE CORPORATION

By /s/ Charles M. Fernandez
------------------------------------------------
Charles M. Fernandez
Chief Executive Officer
President and Chairman of
the Board.

By /s/ Steven J. Baldwin
------------------------------------------------
Steven J. Baldwin

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,189,626
<SECURITIES> 0
<RECEIVABLES> 10,580,065
<ALLOWANCES> 7,832,000
<INVENTORY> 0
<CURRENT-ASSETS> 17,605,336
<PP&E> 5,447,374
<DEPRECIATION> 4,742,406
<TOTAL-ASSETS> 74,824,263
<CURRENT-LIABILITIES> 10,620,652
<BONDS> 53,222,886
0
0
<COMMON> 1,462
<OTHER-SE> 12,465,994
<TOTAL-LIABILITY-AND-EQUITY> 74,824,263
<SALES> 0
<TOTAL-REVENUES> 49,957,811
<CGS> 0
<TOTAL-COSTS> 41,385,623
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<LOSS-PROVISION> 250,525
<INTEREST-EXPENSE> 955,864
<INCOME-PRETAX> (2,701,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,701,118)
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<EXTRAORDINARY> 130,977
<CHANGES> 0
<NET-INCOME> (2,540,141)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0

</TABLE>