CAREADVANTAGE INC, PRE 14A, 1997-04-10

CAREADVANTAGE INC
PRE 14A, 1997-04-10
MANAGEMENT SERVICES

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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934

Filed by the registrant |X|
Filed by a party other than the registrant |_|

Check the appropriate box:

|X| Preliminary proxy statement
|_| Definitive proxy statement
|_| Definitive additional materials
|_| Soliciting materials pursuant to Rule 14a-11(c) or Rule 14a-12

CAREADVANTAGE, INC.
(Name of Registrant as Specified in its Charter)

CAREADVANTAGE, INC.
(Name of Person(s) Filing Proxy Statement

Payment of filing fee (Check the appropriate box):

|X| $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a6(j)(2).
|_| $500 per each party to the controversy pursuant to Exchange Act Rules
14a-6(i)(3)
|_| Fee computed on table per Exchange Act Rules 14a-6(i)(4) and 0-11

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

N.A.
- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:
N.A.
- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:

N.A.
- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

N.A.
- --------------------------------------------------------------------------------

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

(1) Amount Previously Paid:

N.A.
- --------------------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

N.A.
- --------------------------------------------------------------------------------

(3) Filing Party:
N.A.
- --------------------------------------------------------------------------------

(4) Date Filed:
N.A.
- --------------------------------------------------------------------------------

<PAGE>

CareAdvantage, Inc.

Thomas P. Riley
Iselin, New Jersey
President

April 22, 1997

Dear Fellow Stockholder:

You are cordially invited to attend the 1997 annual meeting of stockholders of
CareAdvantage, Inc. (the "Company"). The meeting will be held at 2:00 p.m. on
Thursday, May 22, 1997, at the the offices of Crummy, Del Deo, Dolan, Griffinger
& Vecchione, 16th floor, One Riverfront Plaza, Newark, New Jersey.

The enclosed notice and proxy statement contain details concerning the business
to be considered at the meeting. The Board of Directors of the Company
recommends a vote "FOR" the election of six directors to serve until the 1998
annual meeting of stockholders, "FOR" the approval of the proposal to amend the
Company's Certificate of Incorporation to increase the total number of
authorized shares of the Company's capital stock from 100,000,000 to
200,000,000, "FOR" the approval of the amendments to the Company's 1996 Stock
Option Plan and "FOR" the ratification of the appointment of Richard A. Eisner &
Company, LLP, as independent auditors for the Company for the Company's fiscal
year ending October 31, 1997.

We sincerely hope that you will be present at the annual meeting. Whether or not
you plan to attend, please complete, sign, date and return the accompanying
proxy card in the enclosed envelope to ensure that your shares will be
represented at the meeting.

A copy of the Company's 1996 Annual Report on Form 10-KSB is also enclosed.

Sincerely,

Thomas P. Riley

<PAGE>

CareAdvantage, Inc.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 22, 1997

To the Stockholders:

The 1997 Annual Meeting of Stockholders of CareAdvantage, Inc. (the
"Company") will be held at the offices of Crummy, Del Deo, Dolan, Griffinger &
Vecchione, 16th floor, One Riverfront Plaza, Newark, New Jersey, on Thursday,
May 22, 1997, at 2:00 p.m., local time, for the following purposes:

1. To elect six directors to serve until the 1998 annual meeting of
stockholders;

2. To approve an amendment to the Company's Certificate of Incorporation,
as amended, to increase the number of authorized shares of the
Company's capital stock from 100,000,000 to 200,000,000;

3. To approve amendments to the Company's 1996 Stock Option Plan (the
"1996 Plan") to increase the number of shares of Common Stock issuable
pursuant to the 1996 Plan and to permit the grant of below-market
value options pursuant to the 1996 Plan;

3. To ratify the appointment of Richard A. Eisner & Company, LLP, as
independent auditors for the Company's fiscal year ending October 31,
1997; and

4. To transact such other business as may properly come before the
meeting.

The Board of Directors has fixed the close of business on April 21, 1997 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the 1997 Annual Meeting of Stockholders. Only stockholders of record
at the close of business on such date will be entitled to notice of, and to vote
at, the Meeting and any adjournment(s) thereof.

Your attention is directed to the accompanying Proxy Statement for further
information regarding each proposal to be made.

By Order of the Board of Directors

THOMAS P. RILEY
Secretary
Iselin, New Jersey
April 22, 1997

<PAGE>

YOU ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE POSTAGE PREPAID ENVELOPE WHICH HAS BEEN PROVIDED, WHETHER OR NOT
YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. THE PROXY MAY BE REVOKED BY YOU
AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE PRESENT AT THE MEETING YOU MAY, IF
YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND EXERCISE YOUR RIGHT TO VOTE YOUR
SHARES PERSONALLY.

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<PAGE>

PROXY STATEMENT FOR ANNUAL MEETING

CAREADVANTAGE, INC.
485-C Route 1 South
Iselin, New Jersey 08830-3037
(908) 602-7000

Annual Meeting of Stockholders
To be Held on May 22, 1997

INTRODUCTION

General

This Proxy Statement is being furnished to holders of Common Stock par
value $.001 per share, (the "Common Stock") of CareAdvantage, Inc., a Delaware
corporation, (the "Company") in connection with the solicitation by the
Company's Board of Directors (the "Board") of proxies to be voted at the 1997
Annual Meeting of Stockholders and at any adjournments or postponements thereof
(the "Annual Meeting"). The Annual Meeting is to be held on May 22, 1997, at the
the offices of Crummy, Del Deo, Dolan, Griffinger & Vecchione, 16th floor, One
Riverfront Plaza, Newark, New Jersey, at 2:00 p.m.

The principal executive offices of the Company are located at 485-C Route 1
South, Iselin, New Jersey 08830, and its telephone number is (908) 602-7000. The
enclosed proxy, notice, annual report and this proxy statement are being
transmitted to holders of Common Stock on or about April 22, 1997.

The Board has fixed the close of business on April 21, 1997 as the record
date (the "Record Date") for the determination of stockholders of the Company
who are entitled to receive notice of, and to vote at, the Annual Meeting. Only
stockholders of record on the Record Date will be entitled to vote at the Annual
Meeting and all adjournments thereof.

Matters to be considered at the Annual Meeting

At the Annual Meeting, the holders of Common Stock will be asked to
consider and vote upon the following proposals:

1. To elect six directors to serve until the 1998 annual meeting of
stockholders ("Proposal I");

<PAGE>

2. To approve an amendment to the Company's Certificate of Incorporation,
as amended , to increase the number of authorized shares of the Company's
capital stock from 100,000,000 to 200,000,000 ("Proposal II");

3. To approve amendments to the Company's 1996 Stock Option Plan (the "1996
Plan") to increase the number of shares of Common Stock issuable pursuant to the
1996 Plan and to permit the grant of below-market value options pursuant to the
1996 Plan ("Proposal III");

4. To ratify the appointment of Richard A. Eisner & Company, LLP, as
independent auditors for the Company's fiscal year ending October 31, 1997
("Proposal IV"); and

5. To transact such other business as may properly come before the Annual
Meeting.

Voting at the Annual Meeting

All properly executed proxies delivered to the Company pursuant to this
solicitation and not revoked will be voted in accordance with the directions
given and, in connection with any other business that may properly come before
the Annual Meeting, in the discretion of the persons named in the proxy. With
respect to Proposal I, stockholders may vote in favor of all nominees or
withhold their votes as to all or specific nominees. With respect to the other
proposals to be voted upon, stockholders may vote in favor of the proposal or
against the proposal or may abstain from voting. If no direction is given on a
proxy as to the manner of voting such shares, it will be voted (i) "FOR"
Proposal I, (ii) "FOR" Proposal II, (iii) "FOR" Proposal III, and (iv) "FOR"
Proposal IV.

A proxy delivered pursuant to this solicitation is revocable at any time
prior to its exercise by giving written notice to the Secretary of the Company,
by duly executing and delivering to the Secretary a later dated proxy, or by
voting in person at the Annual Meeting. Attendance at the Annual Meeting will
not, in itself, constitute revocation of a proxy.

The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock is necessary to constitute a
quorum for transaction of business at the Annual Meeting. The election of each
of the six (6) directors under Proposal I will require the affirmative vote of a
plurality of the shares of Common Stock voting in person or by proxy at the
Annual Meeting; accordingly, votes that are withheld and broker non-votes will
not affect the outcome of the election. The approval of Proposals II, III and IV
will require the affirmative vote of a majority of the shares of Common Stock
voting in person or by proxy at the Annual Meeting; accordingly, an abstention
will have the same effect as a negative vote. Because shares held by brokers
will not be considered entitled to vote on matters as to which the brokers
withhold authority, broker non-votes will not be included in counting the number
of votes necessary for approval of Proposals II, III and IV.

2

<PAGE>

VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF

Outstanding Shares

On the Record Date, an aggregate of ___________ shares of Common Stock were
outstanding and entitled to vote. Each share of Common Stock outstanding on the
Record Date is entitled to one vote on each matter to be voted upon at the
Annual Meeting, and the holders of Common Stock do not have cumulative voting
rights. The Company has no other class of issued voting securities entitled to
vote at the Annual Meeting.

Ownership of Voting Securities

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock by: (i) all persons known to the Company who own
more than 5% of the outstanding Common Stock; (ii) each nominee for election as
a director of the Company; (iii) each executive officer named in the Summary
Compensation Table; and (iv) all executive officers, and directors as a group,
in each case, as of March 24, 1997. Unless otherwise indicated, the persons
named in the table below have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them.

Beneficial Ownership of Common Stock by
Certain Stockholders and Management

Name Number of Shares Percent of
----- Beneficially Owned(1) Ownership(2)
--------------------- ------------
Blue Cross and Blue Shield of
New Jersey, Inc. (3)(4)(5) 37,617,420 77.60
CW Ventures II, L.P.(5)(6)(7) 37,784,087 65.01
John J. Petillo(8)(9) 1,850,000 7.51
David Kass(6)(10)(14)
William J. Marino(3)(11) 334 *
Robert J. Pures(3)(11)(15)
Eric Schlesinger(6)(10)
David J. McDonnell(16)
Walter Channing(5)(6)(7)(12) 37,784,087 65.01
Charles Hartman(5)(6)(7)(12) 37,784,087 65.01
Barry Weinberg(5)(6)(7)(12) 37,784,087 65.01
Thomas P. Riley(13)
Richard J. Strobel (13)(14)(17) 111,111 *

Current Directors and Executive Officers as
a Group(15) (one person) 334 *

- ----------
* Less than one percent.

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<PAGE>

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting or
investment power with respect to those securities. Includes outstanding
shares and shares subject to options exercisable within 60 days. Unless
otherwise indicated, the options indicated as owned by the persons named
above are exercisable within 60 days.

(2) The percent beneficially owned by any person or group who held options
exercisable within 60 days of [December 23, 1996] has been calculated
assuming all such options have been exercised in full and adding the number
of shares subject to such options to the total number of shares issued and
outstanding.

(3) The business address of such person or entity is 3 Penn Plaza East, Newark,
New Jersey 07105.

(4) In the event that the Services Agreement dated February 22, 1996 (the
"Services Agreement") by and among the Company, CareAdvantage Health
Systems, Inc. ("CAHS"), Contemporary Healthcare Management, Inc. ("CHCM")
and Blue Cross and Blue Shield of New Jersey, Inc.("BCBSNJ") is terminated
by BCBSNJ, CW Ventures II L.P.("CW Ventures") will have the right to
purchase BCBSNJ shares in accordance with the terms of the Stockholders
Agreement.

(5) BCBSNJ may be deemed a member of a "group," as such term is used in Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with CW Ventures, CW Partners III, L.P. ("CW Partners"), the general
partner of CW Ventures, and Walter Channing, Charles Hartman and Barry
Weinberg, the general partners of CW Partners. BCBSNJ on the one hand, and
CW Ventures, CW Partners and Messrs. Channing, Hartman and Weinberg, on the
other, disclaim membership in a group for the purpose of Section 13(d) of
the Exchange Act or for any other purpose.

(6) The business address of such person or entity is 1041 Third Avenue, New
York, New York 10021.

(7) Includes 7,799,997 shares of Common Stock issuable upon conversion of the
CW Note (as defined below) and 166,667 shares of Common Stock issuable upon
exercise of five year warrants to purchase 166,667 shares of the Company's
Common Stock (the "CW Warrants").

(8) The business address of such person is 65 Willowbrook Boulevard, Wayne, New
Jersey 07470

(9) Former Chairman of the Board of Directors and Chief Executive Officer of
the Company who resigned effective February 22, 1996. Includes 416,667
shares of Common Stock issuable upon exercise of outstanding stock options.

(10) Does not include the following shares beneficially owned by CW Ventures:
29,817,423 shares directly owned by CW Ventures and 7,799,997 and 166,667
shares of Common Stock issuable upon exercise of the CW Note and the CW
Warrants, respectively. Messrs. Kass and Schlesinger are each Vice
President of CW Group, the management company of CW Ventures and CW
Partners. Messrs. Kass and Schlesinger disclaim beneficial ownership of
such shares.

(11) Does not include the 37,617,420 shares of Common Stock directly owned by
BCBSNJ. Messrs. Marino and Pures, the President and Chief Executive Officer
and the Senior Vice President-Administration, Chief Financial Officer and
Treasurer, respectively, of BCBSNJ disclaim beneficial ownership of such
shares.

(12) Includes 29,817,423 shares directly owned by CW Ventures and 7,799,997 and
166,667 shares of Common Stock issuable upon exercise of the CW Note and
the CW Warrants, respectively. Messrs. Channing, Hartman and Weinberg are
the general partners of CW Partners, and as such may be deemed to
beneficially own such shares. Messrs. Channing, Hartman and Weinberg
disclaim beneficial ownership of such shares except to the extent of their
respective direct and indirect partnership interests in CW Ventures.

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<PAGE>

(13) The business address of such person is 485-C Route 1 South, Iselin, NJ
08830-3037.

(14) Consists of shares issuable upon exercise of currently exercisable stock
options.

(15) Does not include the following shares beneficially owned by CW Ventures or
BCBSNJ, as the case may be: the 29,817,423 shares directly owned by CW
Ventures and 7,799,997 and 166,667 shares of Common Stock issuable upon
exercise of the CW Note and the CW Warrants, respectively, and 37,617,420
shares directly owned by BCBSNJ.

(16) The business address of such person is 301 Aqua Court, Naples, Florida
34102.

(17) Mr. Strobel resigned his positions as Vice President, Secretary, Treasurer
and Chief Financial Officer effective March 17, 1997.

Certain Relationships and Related Transactions

The Company has entered into a series of transactions with BCBSNJ. On
February 22, 1996, CAHS, a wholly-owned subsidiary of the Company, issued to
BCBSNJ (as assignee of EHC) a promissory note (the "BCBSNJ Note") in the
original principal amount of $3,600,000, which provided for conversion into
13,375,083 shares of Common Stock and the issuance of an additional 24,242,337
shares of Common Stock for failure of the Company to meet certain revenue and
income thresholds. Pursuant to the terms of the BCBSNJ Note, the BCBSNJ Note was
automatically exchanged on September 30, 1996 into 13, 375,083 shares of Common
Stock, resulting in cancellation of the BCBSNJ Note. In addition, on February
27, 1997, the Company issued to BCBSNJ the 24,242,337 shares of Common Stock for
failure to meet the revenue and income thresholds. The Company, CAHS, CHCM and
BCBSNJ are parties to the Services Agreement. The Services Agreement requires,
among other things, BCBSNJ to pay a monthly "interim payment" of $833,333
(subject to recoupment under certain circumstances) to CHCM with respect to each
service month in calendar year 1996 and, in subsequent years, to pay a monthly
service fee reduced by a "trailing monthly adjustment" based on performance. As
of March 24, 1997, BCBSNJ is the beneficial owner of 37,617,420 shares of Common
Stock, constituting 77.60% of the outstanding Common Stock. In addition, several
of the Company's directors and executive officers are affiliated with BCBSNJ:
Robert Pures, a current director of the Company, is Senior Vice
President-Administration, Chief Financial Officer and Treasurer of BCBSNJ;
William J. Marino, a current director of the Company, CAHS and CHCM and an
incumbent nominee-director, is a director and the President and Chief Executive
Officer of BCBSNJ.

The Company has also entered into a series of transactions with CW
Ventures. On February 22, 1996, CAHS issued to CW Ventures a promissory note
(the "CW Note"), in the original principal amount of $2,000,000, which provides
for exchange into 7,799,997 shares of Common Stock and the issuance of an
additional 24,910,729 shares of Common Stock for failure to meet certain revenue
and income thresholds. In February, 1996, the Company also issued to CW Ventures
the CW Warrants. On February 27, 1997, the Company issued to CW Ventures the
25,914,222 shares of Common Stock for failure to meet such thresholds. As of
March 24, 1997, CW Ventures is the beneficial owner of 37,784,087 shares of
Common Stock, constituting 65.01% of the outstanding Common Stock, assuming
conversion of the CW Note and exercise of

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<PAGE>

the CW Warrants. In addition, several of the Company's current directors and
executive officers and nominee directors are affiliated with CW Ventures: Barry
Weinberg is a nominee director of the Company and is also a general partner of
CW Partners, which is the general partner of CW Ventures; Walter Channing is a
nominee director of the Company and is also a general partner of CW Partners,
which is the general partner of CW Ventures; David Kass is a current director of
the Company, CAHS and CHCM and is also the Chief Financial Officer of CW
Ventures; and Eric Schlesinger, a current director of the Company, is Vice
President of CW Group, the management company of CW Ventures and CW Partners.

PROPOSAL I: ELECTION OF DIRECTORS

The Company's By-Laws set the number of directors constituting the Board at
seven (7) directors. The six persons named below were designated by the Board of
Directors as nominees for election as directors to hold office until the next
annual meeting of stockholders or until their successors are elected and
qualified. A seventh individual has not yet been nominated to fill the vacancy.

Nominees: William J. Marino
Robert J. Pures
Walter Channing, Jr.
Barry Weinberg
Thomas P. Riley
David J. McDonnell

The affirmative vote of the holders of a plurality of the shares of Common
Stock voted in person or by proxy at the Annual Meeting is required for the
election of each director. Proxies in the accompanying form will be voted at the
Annual Meeting in favor of the election of each of the nominees listed on the
accompanying form of proxy, unless authority to do so is withheld as to an
individual nominee or nominees or all nominees as a group. Proxies cannot be
voted for a greater number of persons than the number of nominees named.
Although the Company does not anticipate that any nominee will be unable or
unwilling to serve as director, in the event of such an occurrence, proxies may
be voted in the discretion of the persons named in the proxy for a substitute
nominee designated by the Board, unless the Board determines to reduce the
number of directors constituting the Board.

The name and age of each of the nominees, their respective positions with
the Company and the period during which each such individual has served as a
director of the Company, if applicable, are set forth below. Additional
biographical information concerning each of the nominees and each of the
incumbent directors of the Company follows the table.

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<PAGE>

<TABLE>
<CAPTION>

Name Age Positions with the Company Director Since
---- --- -------------------------- --------------
<S> <C> <C> <C>
William J. Marino (1) 53 Chairman of the Board of Directors 1996
Robert J. Pures (2) 51 Director 1996
Walter Channing, Jr. 56 Director not applicable
Barry Weinberg 58 Director not applicable
Thomas P. Riley 39 Director, President and Chief 1996
Executive Officer
David J. McDonnell (1) (2) 55 Director 1997

</TABLE>

- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee

There is no family relationship among any director or executive officer of
the Company. All directors of the Company are elected by the stockholders of the
Company or, in the case of a vacancy, are elected by the directors then in
office to hold office until the next annual meeting of stockholders of the
Company and until their successors are elected and qualified or until their
earlier resignation or removal.

The Company, BCBSNJ and CW Ventures are parties to the Stockholders
Agreement, pursuant to which BCBSNJ and CW Ventures have agreed to vote their
shares of Common Stock with respect to the election of the Board for: (i) two
designees of CW Ventures, (ii) two designees of BCBSNJ, (iii) two members of
management of the Company acceptable to CW Ventures and BCBSNJ, and (iv) one
non-employee outside director who is acceptable to CW Ventures and BCBSNJ. CW
Ventures has designated Walter Channing and Barry Weinberg as members of the
Board. BCBSNJ has designated William J. Marino and Robert J. Pures as members of
the Board.

Certain Biographic Information Concerning Nominees and Incumbent Directors

William J. Marino. Mr. Marino has served as a director of the Company since
February 1996, and as a director of the Contemporary HealthCare Systems, Inc.
since December 1993. He was appointed the President and Chief Executive Officer
of BCBSNJ in January of 1994, and has continued to serve in such capacities
since that time. From January 1992 through December 1993, Mr. Marino was the
Senior Vice President of BCBSNJ. He also currently serves as director of Digital
Solutions, Inc.

Robert J. Pures. Mr. Pures was elected a director of the Company in
February 1996. Since 1995, he has served as Senior Vice President -
Administration, Chief Financial Officer and Treasurer of BCBSNJ. From October
1985 through July 1995, he was the Vice President - Finance and Treasurer of
BCBSNJ.

Walter Channing. Mr. Channing, a director-nominee, was a co-founder of
Channing, Weinberg and Company, Inc., a leading business consulting firm to
health care companies and to financial institutions. Mr. Channing serves as a
director for

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<PAGE>

a number of privately owned companies, and is a general partner of CW Partners.

Barry Weinberg. Mr. Weinberg, a director-nominee, was a co-founder of
Channing, Weinberg and Company, Inc., where he managed the development of
business strategies for companies in the health care field. He is currently on
the Board of Directors of AutoImmune Inc., as well as a number of privately
owned companies, and is a general partner of CW Partners.

Thomas P. Riley. Since August 1996, Mr. Riley has served as a director,
President and Chief Executive Officer of the Company. From February 1995 through
February 1996, Mr. Riley was Vice President of Charter Medical, a company
engaged in the health care services business. From April 1988 through February
1995, he served as President and Chief Executive Officer of National Mentor,
Inc., a company engaged in the mental health care services business.

David J. McDonnell. Mr. McDonnell was elected a director of the Company in
January 1997. Since December 1993, he has also served as a director of Value
Health, Inc., a company engaged in the health care service business. From
September, 1984 to December 1993, Mr. McDonnell was the Chief Executive Officer
of Preferred Health Care, Inc., a company engaged in the mental health care
services business.

Meetings of the Board

During fiscal year 1996, the Board held 7 meetings. A quorum was present at
each of such meeting. Each of the directors attended at least 75% of the
aggregate of all meetings of the Board during the time he was serving as a
director during fiscal year 1996.

At a meeting of the Company's Board of Directors held on January 14, 1997,
a Compensation Committee and Audit Committee was formed.

The present members of the Compensation Committee are Eric Schlesinger (who
is not a nominee for re-election), David McDonnell and William J. Marino. The
Compensation Committee shall have (i) the power to establish compensation and
other benefits for the officers and employees of the Company, and (ii) such
other powers that may be delegated to it by the Board from time to time.

The present members of the Audit Committee are Robert J. Pures, David
McDonnell and David Kass (who is not a nominee for re-election). The Audit
Committee shall have (i) the power to audit the books and accounts of the
Company, and (ii) such other powers that may be delegated to it by the Board
from time to time.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE AS DIRECTORS OF THE COMPANY.

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<PAGE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Exchange Act requires the Company's executive officers
and directors, and persons who own beneficially more than 10% of a registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission, copies of
which are required by regulation to be furnished to the Company.

Based solely on review of the copies of such forms furnished to the
Company, the Company believes that during fiscal 1996 its officers, directors
and ten percent (10%) beneficial owners complied with all Section 16(a) filing
requirements with the exception that neither BCBSNJ nor EHC filed a Form 3
reporting EHC's acquisition in February 1996 of a note exchangeable for shares
of Common Stock and Robert Ailes, M.D., a former director of the Company, failed
to file a Form 4 in June 1996, on which new options granted to Dr. Ailes were to
be reported. BCBSNJ filed a Form 3 reporting its acquisition of 13,375,083
shares of Common Stock, issued upon exchange of the BCBSNJ Note following EHC's
transfer of the BCBSNJ Note to BCBSNJ in October 1996, and Dr. Ailes filed a
Form 5 reporting the grant of options in November 1996.

EXECUTIVE COMPENSATION

Summary Compensation

The following table sets forth information concerning the compensation paid
or accrued by the Company for each of the three fiscal years ended October 31,
1996, to the individual performing the function of Chief Executive Officer
during such periods and each of the next four most highly compensated executive
officers. None of the named individuals was employed by the Company prior to the
1995 fiscal year.

Summary Compensation Table

<TABLE>
<CAPTION>

Annual Compensation Long-Term Compensation
---------------------------------------------------------------- ------------------------------
Name and Year Ended Salary Bonus Other Annual Number of All Other
Principal Position October 31 Compensation Options Compensation
(5)
- ---------------------- ------------ ------------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas P. Riley 1996 $127,500
President and
Chief Executive
Officer

Richard J. Strobel(9) 1996 $ 90,856 400,000 $2,423(6)
Former Vice
President,
Treasurer, Secretary
and Chief Financial
Officer

John J. Petillo, 1996 $ 20,833 $ 28,371 416,667 $4,206(6)
Ph.D. (1) 1995 $516,832 $ 50,773
Former Chairman,
President
and Chief Executive
Officer

Vincent M. Achilarre(2) 1996 $139,488 $ 54,871 $133,377 20,000(7) $34,620(8)
Former Vice 1995 $202,563 $ 80,000 $ 5,769
President, Chief
Financial Officer
and Treasurer

</TABLE>

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<PAGE>

<TABLE>

<S> <C> <C> <C> <C> <C> <C>
Robert Ailes, M.D.(3) 1996 $200,942 575,000 $4,908(6)
President and Chief 1995 $250,000 58,333
Executive Officer of
CAHS

Stephan D. Deutsch, 1996 $259,615 $ 23,077 250,000
M.D. (4) 1995 $ 76,293 $ 38,461 16,667
Senior Vice
President and Chief
Medical Director of
CAHS

</TABLE>

- ----------
(1) Dr. Petillo resigned his positions as Chairman of the Board, President and
Chief Executive Officer of the Company effective February 22, 1996. Dr.
Petillo was retained by the Company as a consultant through February 22,
1997.

(2) Mr. Achilarre resigned his positions as Vice President, Chief Financial
Officer and Treasurer effective May 23, 1996.

(3) Dr. Ailes joined the Company, as President and Chief Executive Officer of
CAHS, effective June 1, 1995, and is paid an annual salary of $265,000
under the terms of his amended employment agreement. Dr. Ailes served as a
director of the Company from June 1, 1995 through June 6, 1996.

(4) Dr. Deutsch joined the Company on July 1, 1995, and is paid an annual
salary of $250,000 under the terms of his employment agreement.

(5) Other Annual Compensation includes taxable fringe benefits and unused
accrued vacation days that were paid.

(6) Represents Company matching contributions to a 401(k) profit
sharing/savings plan.

(7) Options for 3,333 shares were canceled pursuant to the Board's cancellation
of the 1995 Comprehensive Stock Incentive Plan.

(8) Includes forgiveness of a loan in the amount of $30,000 and Company
matching contributions to a 401(k) profit sharing/savings plan in the
amount of $4,620.

(9) Mr. Strobel resigned his positions as Vice President, Secretary, Treasurer
and Chief Financial Officer of the Company effective March 17, 1997. Mr.
Strobel was retained by the Company as a consultant for a period of
approximately seven months.

Stock Option Plans

On June 6, 1996, the Board canceled all options granted under the Company's
1995 Comprehensive Stock Incentive Plan. Options to purchase 93,140 shares of
Common Stock had been granted under the Company's 1995 Comprehensive Incentive
Plan. On June 6, 1996 and July 24, 1996, the Board adopted and amended,
respectively: (i) the 1996 Plan and (ii) the 1996 Director Stock Option Plan
(the "Director Plan" and, together with the 1996 Plan, the "Stock Plans"). The
Stock Plans were approved and ratified by the holders of a majority of Common
Stock pursuant to a Written Consent of Stockholders in Lieu of Meeting dated
August 23, 1996. The key features of the Stock Plans are summarized below.

The Company believes that the 1996 Plan has offered flexibility to the
Company in the granting of options and that adoption of the 1996 Plan was
necessary to aid the Company in attracting, retaining and motivating officers
and employees who are in a position to contribute materially to the successful
conduct of the Company's business and affairs. The Stock Plans are intended to
furnish additional incentives whereby present and future directors, officers and
employees may be encouraged to acquire, or to increase their holdings of, Common
Stock.

As of October 31, 1996, options to purchase 1,933,334 shares of Common
Stock had been granted and were outstanding under the Stock Plans. Additional
non-plan options to purchase in the aggregate 1,094,585 shares of Common Stock
were outstanding at October 31,

10
<PAGE>

1996. The table below indicates grants of options to purchase Common Stock that
have been granted to the named persons in fiscal year 1996. On ___________, the
Compensation Committee, subject to director and stockholder approval of the
amendments set forth in Proposal III, canceled options to purchase 758,334
shares of Common Stock and granted options to purchase an aggregate of
10,887,964 shares of Common Stock under the 1996 Plan, as more fully described
below in the discussion of Proposal III.

Stock Option Grants in Last Fiscal Year:

<TABLE>
<CAPTION>

Name Fiscal Number of Shares % of Total Exercise Expiration
- ---- Year Underlying Options Price Date
---- Options Granted Granted to Per ----
--------------- Employees Share
--------- -----
<S> <C> <C> <C> <C> <C>
Thomas P. Riley 1996 None N/A N/A N/A
Richard J. Strobel 1996 400,000 21% $0.78 June 2006
John J. Petillo, Ph.D. (1) 1995 416,667 N/A $1.68 January 2005
Vincent M. Achilarre (2) 1995 16,667 N/A $1.44 January 2005
Robert Ailes, M.D. (3) 1996 575,000 30% $1.50 June 2006
Stephan D. Deutsch, M.D.(4) 1996 250,000 13% $0.78 June 2006
</TABLE>

- ----------
(1) Represents options granted to Mr. Petillo in fiscal 1995. Option price was
reset to $1.68 during fiscal 1996.

(2) Represents options granted to Mr. Achilarre in fiscal 1995. Pursuant to a
severance agreement, the exercise price of the options were re-priced at
$1.44 during fiscal 1996.

(3) Effective June 6, 1996, Dr. Ailes was awarded options to purchase 575,000
shares of Common Stock (replacing options to purchase 58,333 shares
previously granted to Dr. Ailes during fiscal 1995) at an exercise price of
[$1.50] per share.

(4) Effective July 24, 1996, Dr. Deutsch was awarded options to purchase
250,000 shares of Common Stock (replacing options to purchase 16,667 shares
of Common Stock previously granted to Dr. Deutsch during fiscal 1995) at an
exercise price of $0.78 per share. These options have since been canceled
by the Board pursuant to its unanimous written consent dated as of
__________, 1997 pursuant to which Dr. Deutsch was awarded options to
purchase _________ shares of Common Stock at an exercise price of $____ per
share.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values

<TABLE>
<CAPTION>

Name Shares to be Value Number of Value of
- ---- Acquired Realized Shares Underlying Unexercised
on Exercise(#) -------- Unexercised In-the-Money
-------------- Options at Options at
October 31, 1996 October 31, 1996
Exercisable/ Exercisable/
Unexercisable Unexercisable (1)
------------- -----------------
<S> <C> <C> <C> <C>
Thomas P. Riley 0 N/A N/A N/A
Richard J. Strobel 400,000 $0 111,111/288,889 $0/$0
John J. Petillo, Ph.D. 416,667 $0 416,667/0 $0/$0
Vincent M. Achilarre 16,667 $0 16,667/0 $0/$0
Robert Ailes, M.D. 575,000 $0 125,000/450,000 $0/$0
Stephan D. Deutsch, M.D. 250,000 $0 55,556/194,444 $0/$0
</TABLE>

- ----------
(1) Based upon the average Bid and Asked prices on the OTC Bulletin Board of
the Common Stock on December 31, 1996.

11
<PAGE>

Description of Stock Plans:

The 1996 Plan is administered by a committee of the Board, consisting of
two or more "disinterested persons" and "outside directors," as defined in the
1996 Plan (the "Compensation Committee"). Pursuant to the terms of the 1996
Plan, the Compensation Committee will select persons to be granted options and
will determine: (i) whether the respective option is to be a non-statutory,
non-qualified option or an incentive option; (ii) the number of shares of the
Company's Common Stock purchasable under such option; (iii) the time or times
when the option becomes exercisable, except that no incentive or non-statutory,
non-qualified option shall be exercised and sold by the recipient prior to six
(6) months from the date of grant; (iv) the exercise price cannot be less than
100% of the fair market value of the Common Stock on the date of grant (110% of
such fair market value for incentive options granted to a person who owns or who
is considered to own stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company); and (v) the duration of the
option, which cannot exceed ten (10) years. Incentive options may only be
granted to employees (including officers) of the Company and/or any of its
subsidiaries. Non-statutory, non-qualified options may be granted to any
employees (including employees who have been granted incentive options) and
other persons who the Board may select. Under the 1996 Plan, an aggregate of 10%
of the Company's authorized number of shares of Common Stock or 9,000,000 shares
of Common Stock has been reserved for issuance pursuant to the 1996 Plan. The
foregoing summary does not reflect the proposed amendments to the 1996 Plan
under Proposal III, which are more fully set forth below.

The Director Plan is administered by the Board. Pursuant to the terms of
the Director Plan, the Board may select non-employee individual directors to be
granted options. Each such option grant shall be (i) in the amount to purchase
166,667 shares of Common Stock; (ii) at an exercise price which cannot be less
than 100% of the fair market value of the Common Stock on the date of grant;
(iii) immediately exercisable, and (iv) for a duration of five (5) years from
the date of grant. Options under the Director Plan may be granted only to
directors of the Company. Under the Director Plan, an aggregate of 2% of the
Company's authorized number of shares of Common Stock, presently 1,800,000
shares of Common Stock, has been reserved for issuance pursuant to the Director
Plan.

All options granted under the 1996 Plan and the Director Plan are
exercisable during the option holder's lifetime only by the option holder (or
his or her legal representative) and only while such option holder is in the
Company's employ or is a Company director. With respect to both the 1996 Plan
and the Director Plan, in the event of termination of employment or of his or
her directorship, such person shall have three (3) months from such date to
exercise such option to the extent the option was exercisable as at the date of
termination, but in no event subsequent to the option's expiration date. With
respect to the 1996 Plan, in the event of termination of employment due to death
or disability of the option holder, such person shall have twelve

12
<PAGE>

(12) months from such date to exercise such option to the extent the option was
exercisable as at the date of termination, but in no event subsequent to the
option's expiration date. With respect to the Director Plan, in the event of
termination of the option holder's directorship due to death, such person shall
have twelve (12) months from such date to exercise such option to the extent the
option was exercisable as at the date of termination, but in no event subsequent
to the option's expiration date.

Both the 1996 Plan and the Director Plan contain customary anti-dilution
provisions which provide that, in the event of any change in the Company's
outstanding capital stock by reason of stock dividend, recapitalization, stock
split, combination, exchange of shares or merger or consolidation, the
Compensation Committee or the Board shall adjust the aggregate number of shares
of the Common Stock reserved for issuance under both plans. In addition, the
aggregate number of outstanding options and the exercise price per share under
both Stock Plans shall be proportionately adjusted by the Compensation Committee
or the Board, whose determination shall be conclusive.

The Board has the authority to terminate both the 1996 Plan and the
Director Plan as well as to make changes in and additions to such plans.
However, with respect to the 1996 Plan, the Board may not, unless approved by
the stockholders of the Company, change the aggregate number of shares of Common
Stock subject to the 1996 Plan, terminate modify or amend the 1996 Plan so as to
adversely affect the rights of option holders previously granted under the 1996
Plan, change the requirement of eligibility to such plan or materially increase
the benefits accruing to participants under the 1996 Plan. With respect to the
Director Plan, the Board may not, unless the option holder thereof consents,
materially impair the rights of such option holder under the 1996 Plan.

Employment Contracts and Termination of Employment,
and Change-in-Control Arrangements

On July 24, 1996, the Company extended an employment arrangement to Mr.
Thomas Riley to act as President and Chief Executive Officer of the Company.
Pursuant to the employment arrangement, Mr. Riley shall receive annual
compensation of $275,000.

On March 17, 1997, Richard J. Strobel tendered his resignation as Vice
President, Treasurer, Secretary and Chief Financial Officer of the Company, and
was retained by the Company as a consultant for a period of approximately seven
(7) months. Mr. Strobel will receive severance payments in the approximate sum
of $100,000.

Compensation of Directors

Members of the Board presently receive no annual remuneration for acting in
that capacity. The Company anticipates that its non-employee directors will be
paid reasonable out-of-pocket expenses for each attended meeting of the Board or
any committee thereof. Certain members of the Board will also be eligible for
the grant of options under the Director Plan that currently provides for each
non-employee Director to receive an annual grant of options to purchase 166,667
shares of Common Stock. None of the current directors have been granted any
options pursuant to the Director Plan. See "Description of Stock Plans" above.

13
<PAGE>

Repricing of Options

Stock options granted to Vincent Achilarre and Robert Ailes, M.D. in fiscal
year 1995 were canceled during fiscal year 1996 because such options had not
been approved by the stockholders of the Company. New options, with an exercise
price of $1.44 and $1.50 per share, respectively, were granted to these
executives in fiscal year 1996. The repricing of such options was based upon the
current market value of the stock and the perceived value of the Company, taking
into account the change of control which occurred in February of 1996 (See
"Certain Relationships and Related Transactions").

PROPOSAL II:

APPROVAL OF AMENDMENT TO CERTIFICATE OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF CAPITAL STOCK

The Board has adopted a resolution amending Article FOURTH (A) of the
Company's Certificate of Incorporation, filed with the Delaware Secretary of
State on August 26, 1995, as amended by Certificate of Amendment to Certificate
of Incorporation, filed with the Delaware Secretary of State on September 27,
1996 (as so amended, the "Certificate of Incorporation"), to increase the
authorized shares of the Company's capital stock from the current amount of
100,000,000 shares, consisting of 90,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock $.10 par value per share ("Preferred
Stock"), to 200,000,000 shares, which would consist of 190,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock (the "Charter Amendment").
Article FOURTH (A) of the Certificate of Incorporation, as amended by the
Charter Amendment, is attached hereto as ANNEX I. The description which follows
is qualified in its entirety by the exact language of the Charter Amendment.

Article FOURTH (A) of the Certificate of Incorporation currently authorizes
a total of 90,000,000 shares of Common Stock. At the close of business on
_______________, there were ______________ shares of Common Stock outstanding,
and the following additional shares of Common Stock are reserved for issuance:
(i) an additional 12,062,964 shares of Common Stock for issuance upon exercise
of outstanding options issued pursuant to the Company's 1996 Plan (subject to
stockholder approval of the amendments set forth in Proposal III), (ii) an
additional 7,799,997 shares of Common Stock for issuance to CW Ventures upon
conversion of the CW Note, (iii) an additional 166,667 shares of Common Stock
for issuance to CW Ventures upon exercise of the CW Warrant, and (iv) an
additional 1,094,585 shares of Common Stock for issuance upon-exercise of
certain outstanding non-plan options. The increase in the authorized number of
shares is proposed in order to permit the Company to grant additional stock
options or other stock-based compensation to its employees and consultants and,
where advantageous to the Company, to issue shares of its Common Stock in order
to raise additional capital in connection with future acquisitions or other
business combinations or for other purposes.

Although the Company does not currently have any agreements with respect to
additional proposed acquisitions, an increase in the authorized number of shares
of Common Stock pursuant to the Charter Amendment would allow the Company
additional flexibility to issue its Common Stock where appropriate. The Company
believes that the number of shares of Common Stock that

14
<PAGE>

would be available for issuance following adoption of the Charter Amendment
would be sufficient for any purposes foreseeable by the Company. Except for the
shares of Common Stock issuable under the Stock Plans, the Company does not have
any immediate plans to issue any of the additional shares of Common Stock which
would be authorized if the increase in authorized shares of Common Stock
contemplated by the Charter Amendment is approved. Other than increasing the
number of authorized shares of Common Stock, the proposal to increase the
authorized shares of Common Stock will not affect the rights, preferences or
privileges of the Company's stockholders.

The Board has directed that the Charter Amendment be submitted for
stockholder approval. The affirmative vote of a majority of the outstanding
shares of Common Stock entitled to vote at the Annual Meeting will be required
for approval of the Charter Amendment to increase the authorized shares of
Common Stock. In the absence of approval, the authorized number of shares of
Common Stock of the Company will remain as described above.

In connnection with the increase of authorized shares of capital stock, the
stockholders should review the financial information set forth in the Company's
annual report for fiscal year 1996, which is enclosed and which is incorporated
herein by reference.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF PROPOSAL II.

PROPOSAL III:
APPROVAL OF AMENDMENTS TO THE 1996 PLAN

General

At the Annual Meeting, the holders of Common Stock will be asked to vote
upon a proposal to approve amendments to the 1996 Plan to (i) increase by
10,000,000 the number of shares of Common Stock for which options may be granted
thereunder, and (ii) to permit the issuance of below-market value non-qualified
options pursuant to the 1996 Plan. The 1996 Plan, as amended by Proposal III, is
attached hereto as ANNEX II.

1. Increase of Shares.

Under the 1996 Plan as currently in effect, options for 9,000,000 shares of
Common Stock may be granted. On _____________, 1997, the Compensation Committee
authorized the granting of options for an aggregate of 10,887,964 shares of
Common Stock to employees and the outside director of the Company, subject to
approval by the directors and the stockholders of the amendments to the 1996
Plan set forth in Proposal III. The Board has determined that it is advisable to
continue to provide stock-based incentive compensation to the Company's officers
and key employees, thereby continuing to align the interests of such employees
with those of stockholders, and that awards under the 1996 Plan are an effective
means of providing such compensation. In order to continue to grant stock-based
incentive compensation in the future, it is necessary to increase the number of
shares of Common Stock available for grant under the 1996 Plan.

15
<PAGE>

On ________________, the Board approved the amendment to the 1996 Plan to
permit the issuance of Non-Qualified Options with an exercise price less than
the fair market value of the underlying Common Stock on the date of grant to
certain key employees of the Company and other persons whom the Compensation
Committee determines will contribute to the Company's success. On __________,
the Compensation Committee, subject to directors and stockholder approval of the
amendments to the 1996 Plan set forth in Proposal III, canceled options to
purchase 758,334 shares of Common Stock previously granted to certain key
employees of the Company and granted to certain employees and the outside
director of the Company (i) Non-Qualified Options to purchase shares of Common
Stock at an exercise price of $.16 per share, and (ii) Options to purchase
shares of Common Stock at an exercise price of $___ per share (the fair market
value on the date of grant).

The table below separately indicates grants of such Options to the named
persons.

Option Grants:

Name Number of Shares Number of Shares
- ---- Underlying Options Underlying Options
Granted with an Granted with an
Exercise Price of Exercise Price of
$.16 per share $______ per share
-------------- -----------------

Thomas P. Riley 3,952,551 2,964,413
Richard Freeman, M.D. 494,019 988.187
Stephan Deutsch, M.D. 197,608 395,275
Current executive officers
as a group (3 persons) 4,644,178 4,347,875
Current directors as a
group (1 person) 166,667 0
All employees as a
group (12 persons) 576,357 1,152,887

In addition to the Options set forth above, on _______________, the
Compensation Committee, subject to directors and stockholder approval of the
amendments set forth in Proposal III, authorized the grant of Options to
purchase 494,019 and 988,187 shares of Common Stock, with an exercise price
equal to $0.16 and $____ per share, respectively, to a person who is being
considered for an executive officer position in the Company. However,
negotiations with respect to this employment arrangement are not yet complete.

On the date of grant of the Options set forth above, the fair market value
of the Common Stock was greater than the exercise price of certain Options ($.16
per share). The Board believes that the grant of such Options to the optionees
with an exercise price of less than the fair market value of the Common Stock
will additionally motivate key employees and the outside director to contribute
materially to the successful conduct of the Company's business and affairs. The
accounting treatment to the Company of the issuance of the Options at less than
fair market value are discussed below under "Accounting Treatment".

16
<PAGE>

Summary of 1996 Plan and Amendments

The following is a summary of the 1996 Plan and the proposed Amendments to
it under Proposal III. This summary does not purport to be complete, and is
qualified in its entirety by reference to the text of the 1996 Plan, which is
attached hereto as ANNEX II.

The purpose of the 1996 Plan is to attract and retain personnel of the
highest caliber, provide increased incentive for officers and key employees and
continue to promote the well-being of the Company. The 1996 Plan presently
authorizes the granting of options for up to 9,000,000 shares of Common Stock
(collectively "Options"), and if Proposal III is approved, up to an additional
10,000,000 shares of Common Stock, subject to adjustment in the event of stock
splits, stock dividends, recapitalizations, mergers, reorganizations, exchanges
of shares and other similar changes affecting the Company's issued Common Stock.
Unless sooner terminated, the 1996 Plan expires on June 5, 2006. Officers, key
employees and independent contractors who perform services for the Company or
any of its subsidiaries are eligible to receive Options. The 1996 Plan is
administered by the Compensation Committee, which determines the persons to whom
Options will be granted, the number of Options to be granted and the specific
terms of each grant, subject to the provisions of the 1996 Plan.

The terms of the Plan provide that the Compensation Committee shall consist
of two or more "disinterested" directors as defined in Rule 16b-3 under the 1934
Act and "outside directors" as defined in regulations under Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"). The Company believes
that the current Compensation Committee qualifies under either of these
provisions. Section 162(m) of the Code limits the tax deductions of
publicly-traded corporations (such as the Company) for compensation in excess of
$1 million per annum paid to the chief executive officer and any of the four
other highest compensated officers. If the requirements of Section 162(m) are
met, compensation income eventually recognized by employees because of awards
currently made under the 1996 Plan will not count as compensation in determining
whether compensation of the chief executive officer and any of the four other
highest compensation officers of the Company is in excess of $1 million per
annum. It is the Company's present intention to attempt to meet the requirements
of Section 162(m), subject to the Board's determination as to the Company's best
interests. However, to the extent that Non-Qualified Options have been or will
be granted with an exercise price of less than the fair market value of the
Common Stock, any compensation income recognized because of such Options by an
executive covered under Section 162(m) because of such Options will count as
compensation in determining whether total compensation of such executive is in
excess of $1,000,000 in that year.

Incentive and Non-Qualified Options

The 1996 Plan currently provides both for "incentive stock options" as
defined in Section 422 of the Code ("Incentive Options") and for Options not
qualifying as Incentive Stock Options ("Non-Qualified Options"). Members of the
Board who are not also employees of the Company or any of its subsidiaries are
not eligible to receive Incentive Options under the 1996 Plan. Currently there
are approximately 120 persons eligible to receive Incentive Options under the
1996 Plan (excluding consultants and advisors).

The Compensation Committee determines the persons to whom Options may be
granted and the exercise price for each share issued in connection with an
option, but the exercise price of an Incentive Option may not be less than 100%
of the fair market value of Common Stock on the date of grant (or, in the case
of an optionee owning more than 10% of the outstanding Common

17
<PAGE>

Stock, not less than 110% of such fair market value). The aggregate number of
shares of Common Stock subject to Options granted to any employee or other
person under the 1996 Plan during any calendar year shall not exceed 19,000,000
shares. The Compensation Committee also determines when Options may be
exercised, which in no event may be more than ten years from the date of grant
(or, in the case of an Incentive Option granted to an optionee owning more than
10% of the outstanding Common Stock, not more than five years from the date of
grant), and the manner in which each Option will become exercisable. The
aggregate fair market value of the Common Stock with respect to which Incentive
Options are exercisable for the first time by any employee during any calendar
year (under all Incentive Option plans of the Company and its subsidiaries) may
not exceed $100,000.

Certain Federal Tax Consequences of the 1996 Plan

The following is a brief summary of certain Federal income tax aspects of
awards which may be granted under the 1996 Plan based upon the Code and other
statutes, regulations and interpretations in effect on the date of this Proxy
Statement. The summary is not intended to be a complete analysis of all
potential tax consequences relevant to recipients of Options or to the Company
and its subsidiaries and does not describe any state, local or foreign income or
other tax consequences. Moreover, no assurance can be given that legislative,
administrative, regulatory or judicial changes or interpretations will not occur
which could modify such analysis. In addition, an individual's particular tax
status and his other tax attributes may result in different tax consequences
from those described above. Therefore, any participant in the 1996 Plan should
consult with his own tax adviser concerning the tax consequences of the grant,
exercise and surrender of such Options and the disposition of any stock acquired
pursuant to the exercise of such Options.

Incentive Options:

A participant will recognize no taxable income upon the grant or exercise
of an Option constituting an "incentive stock option" as defined under Section
422 of the Code if such participant has been an employee of the Company or a
subsidiary at all times from the date of grant to a date not more than 3 months
before the date of exercise. The difference between the fair market value of the
stock at the date of exercise and the exercise price of an Incentive Option,
however, will be treated as an item of tax preference in the year of exercise
for purposes of the alternative minimum tax. Upon a disposition of the shares of
Common Stock after the later of two years from the date of grant and one year
after the transfer of the shares to the participant pursuant to exercise of the
Option, (i) the participant will recognize the difference, if any, between the
amount realized and the exercise price as long-term capital gain or long-term
capital loss (as the case may be) if the shares are capital assets; and (ii) the
Company will not obtain a deduction with respect to such excess.

If the optionee disposes of the shares within two years from the date of
grant of the Incentive Option, however, or within one year from the date of
exercise of the Incentive Option, however, the optionee will realize ordinary
income in an amount equal to the excess of the fair market value of the shares
of Common Stock at the date of exercise (or the amount realized on disposition,
if less) over the option price, and the Company will be allowed a corresponding
deduction. If the amount realized on a subsequent disposition exceeds the fair
market value of

18
<PAGE>

the shares at the date of exercise the gain on disposition in excess of the
amount treated as ordinary income will be treated as a capital gain. Any such
capital gain will be a long-term capital gain if the optionee holds the shares
for more than one year from the date of exercise.

Non-Qualified Options:

Except as noted below, (i) upon grant of a Non-Qualified Option, a plan
participant will recognize no income; (ii) upon exercise of the Option (if the
shares of Common Stock are not subject to a substantial risk of forfeiture and
are transferable), the participant will recognize ordinary compensation income
in an amount equal to the excess, if any, of the fair market value of the shares
on the date of exercise over the exercise price, and the Company will obtain a
deduction in the same amount, subject to the requirement that the compensation
be reasonable; and (iii) on sale of the shares, the participant will recognize a
capital gain or loss equal to the difference, if any, between the amount
realized and the sum of the exercise price and the ordinary compensation income
recognized. Such gain or loss will be treated as capital gain or loss if the
shares are capital assets in the hands of the participant.

Under current tax law it is uncertain whether the summary in the foregoing
paragraph applies to Non-Qualified Options which provide for an exercise price
of less than the fair market value of the Common Stock on the date of grant. The
Internal Revenue Service may take a position that to the extent the exercise
price of a Non-Qualified Option is substantially discounted relative to the fair
market value of the Common Stock on the date of grant, such an Option should not
be treated as a grant of an option but rather as a taxable grant of property,
taxable on the date of grant if the Option is vested on the grant date. This is
an issue on which the Service currently will not issue a private ruling because
the area is under study by the Service.

Accounting Treatment

Under present accounting rules, neither the grant nor the exercise of
Options will result in any charge to the Company's earnings, provided the
exercise price of the Option is not less than the fair market value of the
Company's Common Stock on the date the Option was granted. However, if an Option
was granted at an exercise price less than the fair market value of the Common
Stock on the date of grant, then the Company will have a charge to earnings
(compensation expense) equal to the difference between the fair market value of
the Common Stock on the date of grant and the exercise price. In addition, the
number of Options outstanding may have a dilutive effect in determining earnings
per share.

The Company will record a charge to earnings for the second quarter of
fiscal year 1997 in the approximate amount of $ ______________, representing the
difference between the fair market value of the Common Stock subject to the New
Options on the date of grant and the exercise price of the New Options.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE AMENDMENTS TO
THE 1996 PLAN SET FORTH IN PROPOSAL III.

PROPOSAL IV:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The Board has selected the firm of Richard A. Eisner & Company, LLP,
independent certified public accountants, to act as independent public
accountants for the Company for the 1997 fiscal year. Richard A. Eisner &
Company, LLP has acted in such capacity from the fiscal year ended October 31,
1996. A representative of Richard A. Eisner & Company, LLP is expected to be

19
<PAGE>

present at the Annual Meeting, and he or she will have the opportunity to make a
statement if he or she so desires and is expected to be available to respond to
appropriate questions.

On June 6, 1996, the Board selected and approved the accounting firm of
Richard A. Eisner & Company, LLP, as independent public accountants to audit the
Company's financial statements for the fiscal year ending October 31, 1996.
Accordingly, the accounting firm of Moore Stephens, PC (previously Mortenson and
Associates--effective July 1, 1996, Mortenson and Associates changed its name to
Moore Stephens), which was the independent accountant for the Company's most
recent certified financial statements (fiscal year ended October 31, 1995) was
dismissed in its capacity as the Company's accountants effective June 6, 1996.

There were no disagreements between the Company and Moore Stephens, PC on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure in connection with the audits of the two most
recent fiscal years and any subsequent interim period to the date here.

The report of Moore Stephens, PC on the Company's financial statements for
the fiscal year ended October 31, 1994 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. The Report of Moore Stephens, PC on the Company's
financial statements for the fiscal year ended October 31, 1995 was originally
issued with a disclaimer of opinion dated December 27, 1995 because of
significant uncertainties. However, on February 22, 1996, these uncertainties
were resolved and the disclaimer of opinion was withdrawn and a dual-dated
report was issued, which was modified as to uncertainty about the Company's
ability to continue as a going concern. Such uncertainty was the result of
recurring losses from operations, negative working capital and potential
required payments pursuant to the terms of certain liabilities to which the
Company was a party. Management of the Company concurred with the position of
the former independent public accountant.

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF RICHARD A. EISNER & COMPANY, LLP, AS INDEPENDENT AUDITORS FOR THE
COMPANY'S FISCAL YEAR ENDING OCTOBER 31, 1997, AS SET FORTH IN PROPOSAL IV.

STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING

Any stockholder proposals intended to be presented at the Company's next annual
meeting of stockholders must be received by the Company at its offices at 485-C
Route 1 South, Iselin, New Jersey 08830-3037, on or before _______________,
1998, for consideration for inclusion in the proxy material for such annual
meeting of stockholders.

EXPENSES OF SOLICITATION

The cost of the solicitation of proxies will be borne by the Company. [In
addition to the use of mails, proxies may be solicited by regular employees of
the Company, either personally or by telephone or telegraph.] The Company does
not expect to pay any compensation for the

20
<PAGE>

solicitation of proxies, but may reimburse brokers and other persons holding
shares in their names or in the names of nominees for expenses in sending proxy
material to beneficial owners and obtaining proxies of such owners.

OTHER MATTERS

The Board does not intend to bring any matters before the Annual Meeting
other than as stated in this Proxy Statement, and is not aware that any other
matters will be presented for action at the Annual Meeting. If any other matters
come before the Annual Meeting, the persons named in the enclosed form of proxy
will vote the proxy with respect thereto in accordance with their best judgment,
pursuant to the discretionary authority granted by the proxy. Whether or not you
plan to attend the Annual Meeting in person, please complete, sign, date and
return the enclosed proxy card promptly.

Dated: April [__], 1997 By order of the Board of Directors

[Name]
[Title]

21

<PAGE>

ANNEX I

CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CAREADVANTAGE, INC.

Pursuant to Section 242 of the General
Corporation Law of the State of Delaware

CareAdvantage, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), hereby certifies
as follows:

1. The name of the Corporation is "CareAdvantage, Inc."

2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on August 26, 1994. A Certificate of New
to the Certificate of Incorporation was filed with the Secretary of State of
Delaware on September 27, 1996.

3. The Certificate of Incorporation of the Corporation, as heretofore
amended or supplemented (the "Certificate of Incorporation"), is hereby further
amended by striking out "Article FOURTH (A)" and substituting in lieu thereof a
new "Article FOURTH (A)" changing the authorized capital stock of the
Corporation to read as follows:

"FOURTH: (A) Authorized Capital Stock. The total number of shares of
all classes of stock which the Corporation shall have the authority to
issue is Two Hundred Million (200,000,000) shares, consisting of One
Hundred Ninety Million (190,000,000) shares of Common Stock, $.001 par
value per share (the "Common Stock") and Ten Million (10,000,000)
shares of Preferred Stock, $.10 par value per share (the "Preferred
Stock")."

4. The New to the Certificate of Incorporation herein certified has been
duly adopted in the manner and by the vote prescribed by Section 242 of the
General Corporation Law of the State of Delaware.

<PAGE>

IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate be signed by a duly authorized officer of
the Corporation and attested by its Secretary this day of May, 1997.

CAREADVANTAGE, INC.

By:_________________________________
Name:
Title:

Attest:

By:________________________________
Secretary

2
<PAGE>

ANNEX II

1996 STOCK OPTION PLAN

OF

CAREADVANTAGE, INC.

AS AMENDED, MAY __, 1997

1. Purpose of Plan.

The purpose of this Stock Option Plan ("Plan") is to further the growth and
development of CareAdvantage, Inc. ("Company") and any subsidiaries thereof by
encouraging selected employees and other persons who contribute and are expected
to contribute materially to the Company's success to obtain a proprietary
interest in the Company through the ownership of stock, thereby providing such
persons with an added incentive to promote the best interests of the Company and
affording the Company a means of attracting to its service persons of
outstanding ability.

2. Stock Subject to the Plan.

An aggregate of 19,000,000 shares of the Company's common stock, $.001 par
value ("Common Stock") subject, however, to adjustment or change pursuant to
paragraph 12 hereof, shall be reserved for issuance upon the exercise of options
which may be granted from time to time in accordance with the Plan ("Options").
Such shares, in whole or in part, may be authorized but unissued shares or
issued shares which have been reacquired by the Company, as the Committee (as
such term is hereinafter defined) shall from time to time determine. If, for any
reason, an Option shall lapse, expire or terminate without having been exercised
in full, the unpurchased shares covered thereby shall again be available for
purposes of the Plan.

3. Administration.

(a) For purposes of the Plan, the "Committee" shall be defined as the
Compensation Committee of the Company's Board of Directors (the "Board") which
shall consist of two or more directors who shall be "disinterested persons" as
defined by Regulation 240.16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and "outside directors" as defined in regulations
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Committee shall have and may exercise any and all of the powers
relating to the administration of the Plan and the grant of Options thereunder
as are set forth in subparagraph 3(b) hereof as the Board shall confer and
delegate. The Board shall have power at any time to fill vacancies in, to change
the membership of, or to discharge the Committee. The Committee shall select one
of its members as its chairman and shall hold its meetings at such times and at
such places as it shall deem advisable. A majority of the

<PAGE>

Committee shall constitute a quorum and such majority shall determine its
action. Any action may be taken without a meeting by written consent of all the
members of the Committee. The Committee shall keep minutes of its proceedings
and shall report the same to the Board at the meeting next succeeding.

(b) The Committee shall administer the Plan and, subject to the provisions
of the Plan, shall have authority, along with the Board, to determine the
persons to whom, and the time or times at which, Options shall be granted, the
number of shares to be subject to each such Option and whether all or any
portion of such Options shall be incentive stock options ("Incentive Options")
qualifying under Section 422A of the Code or stock options which do not so
qualify ("Non-Qualified Options"). Both Incentive Options and Non-Qualified
Options may be granted to the same person at the same time provided each type of
Option is clearly designated. In making such determinations, the Committee may
take into account the nature of the services rendered by such persons, their
present and potential contribution to the Company's success and such other
factors as the Committee in its sole discretion may deem relevant. Subject to
the express provisions of the Plan, the Committee shall also have authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating thereto, to determine the terms and provisions of the respective Option
Agreements, which shall be substantially in the forms attached hereto as Exhibit
A and Exhibit B, and to make all other determinations necessary or advisable for
the administration of the Plan, all of which determinations shall be conclusive
and not subject to review. The Committee may delegate, in its sole discretion,
to any officer or manager of the Company the authority to perform administrative
functions under the Plan.

(c) Subject to adjustment pursuant to Section 12, the aggregate number of
shares of Common Stock subject to Options granted to any employee or other
person under the Plan during any calendar year shall not exceed 19,000,000
shares.

4. Eligibility for Receipt of Options.

(a) Incentive Options. Incentive Options may be granted only to employees
(including officers) of the Company and/or any of its subsidiaries. Further,
Incentive Options may not be granted to any person who, at the time the
Incentive Option is granted, owns (or is considered as owning within the meaning
of Section 425(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
(a "10% Owner"), unless at the time the Incentive Option is granted to the 10%
Owner, the option price is at least 110% of the fair market value of the Common
Stock subject thereto and such Incentive Option by its terms is not exercisable
subsequent to five years from the date of grant.

(b) Non-Qualified Options. Non-Qualified Options may be granted to any
employees (including employees who have been granted Incentive Options) and
other persons whom the Board (or Committee) determines will contribute to the
Company's success.

-2-
<PAGE>

5. Option Price.

The purchase price of the shares of Common Stock under each Option shall be
determined by the Committee, which determination shall be conclusive and not
subject to review, but in no event shall the purchase price be less than 100% of
the fair market value of the Common Stock on the date of grant in the case of
Incentive Options (or 110% of fair market value in the case of Incentive Options
granted to a 10% Owner).

In determining fair market value, the Committee shall consider the closing
price of the Common Stock on the date the Option is granted (if such Common
Stock is listed on a national securities exchange), the representative closing
bid and ask price in the over-the-counter market as reported by NASDAQ or as
quoted by the National Quotation Bureau or a recognized dealer in the Common
Stock on the date of grant (if a public market exists for such Common Stock and
such Common Stock is not listed on such an exchange) and such other factors as
the Committee shall deem appropriate.

For purposes of the Plan, the date of grant of an Option shall be the date
on which the Board or the Committee shall by resolution duly authorize such
Option.

6. Term of Options.

The term of each Incentive Option and Non-Qualified Option shall be such
number of years as the Committee shall determine, subject to earlier termination
as herein provided. but in no event more than ten (10) years from the date such
Incentive Option or Non-Qualified Option is granted.

7. Exercise of Options.

(a) The aggregate fair market value (determined as of the time an Incentive
Option is granted) of the shares of the Company's Common Stock purchasable
thereunder exercisable for the first time by an employee during any calendar
year may not exceed $100,000.

(b) Each Incentive Option and Non-Qualified Option shall be exercisable to
the extent determined by the Committee, but in no event shall the shares of the
Company's Common Stock underlying either an Incentive Option or a Non-Qualified
Option, once exercised, be held for less than six (6) months from the date of
grant.

(c) An Option may not be exercised for fractional shares of the Company's
Common Stock.

(d) Except as provided in paragraphs 9, 10 and 11 hereof, no Option shall
be exercisable unless the holder thereof shall have been an employee or other
person employed by or engaged in performing services for the Company and/or a
subsidiary continuously from the date of grant to the date of exercise.

-3-
<PAGE>

(e) The exercise of an Option shall be contingent upon receipt from the
holder thereof of a written representation that at the time of such exercise it
is the optionee's then present intention to acquire the Option shares for
investment and not with a view to the distribution or resale thereof (unless a
Registration Statement covering the shares purchasable upon exercise of the
Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares.

(f) The holder of an Option shall have none of the rights of a stockholder
with respect to the shares purchasable upon exercise of the Option until a
certificate for such shares shall have been issued to the holder upon due
exercise of the Option.

(g) The proceeds received by the Company upon exercise of an Option shall
be added to the Company's working capital and be available for general corporate
purposes.

(h) Upon the exercise of any Option, the Company shall have the right to
require the optionee to remit to the Company an amount sufficient to satisfy all
federal, state and local withholding tax requirements prior to the delivery of
any certificate or certificates for shares of Common Stock. In the event that
the optionee disposes of any Common Stock acquired by the exercise of an
Incentive Option within the two-year period following grant, or within the
one-year period following exercise, of the Incentive Option, the Company shall
have the right to require the optionee to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
as a condition to the registration of the transfer of such Common Stock on its
books. Whenever under the Plan payments are to be made by the Company in cash or
by check, such payments shall be net of any amounts sufficient to satisfy all
federal, state and local withholding tax requirements.

8. Non-Transferability of Options.

No Option granted pursuant to the Plan shall be transferable otherwise than
by will or the laws of descent or distribution and an Option may be exercised
during the lifetime of the holder only by such holder.

9. Termination of Employment or Engagement.

In the event the employment of the holder of an Option shall be terminated
by the Company or a subsidiary for any reason other than by reason of death or
disability, or the engagement of a non-employee holder of a Non-Qualified Option
shall be terminated by the Company or a subsidiary for any reason, such holder
may, within three (3) months from the date of such termination, exercise such
Option to the extent such Option was exercisable by such holder at the date of
such termination. Notwithstanding the foregoing, no Option may be exercised
subsequent to the date of its expiration. Absence on leave approved b~ the
Company shall not be considered an interruption of employment for any purpose
under the Plan.

Nothing in the Plan or in any Option Agreement granted hereunder shall
confer upon any holder of an Option any right to continue in the employ of the
Company or any subsidiary or obligate the Company or any

-4-
<PAGE>

subsidiary to continue the engagement of any holder of an Option or interfere in
any way with the right of the Company or any such subsidiary to terminate the
holder's of such Option employment or engagement at any time.

10. Disability of Holder of Option.

If the employment of the holder of an Option shall be terminated by reason
of such holder's disability as determined in accordance with Section 22(e)(3) of
the Code, such holder may, within twelve (12) months from the date of such
termination, exercise such option to the extent such Option was exercisable by
such holder at the date of such termination. Notwithstanding the foregoing, no
Option may be exercised subsequent to the date of its expiration.

11. Death of Holder of Option.

If the holder of any Option shall die while in the employ of, or while
performing services for, the Company or one or more of its subsidiaries (or
within six (6) months following termination of employment due to disability),
the Option theretofore granted to such person may be exercised, but only to the
extent such Option was exercisable by the holder at the date of death (or, with
respect to employees, the date of termination of employment due to disability)
by the legatee or legatees of such person under such person's Last Will, or by
such person's personal representative or distributees, within twelve (12) months
from the date of death, but in no event subsequent to the expiration date of the
Option.

12. Adjustments Upon Changes in Capitalization.

If at any time after the date of grant of an Option, the Company shall, by
stock dividend, split-up, combination, reclassification or exchange, or through
merger or consolidation or otherwise, change its shares of Common Stock into a
different number or kind or class of shares or other securities or property,
then the number of shares covered by such Option and the price per share thereof
shall be proportionately adjusted for any such change by the Committee or the
Board whose determination thereon shall be conclusive. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the outstanding securities of the class then
subject to Options hereunder are changed into or exchanged for cash or property
or securities not of the Company's issue, or upon a sale of substantially all of
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding by, another corporation or person, the Plan shall terminate, and all
Options theretofore granted hereunder shall terminate, unless provision be made
in writing in connection with such transaction for the continuance of the Plan
or for the assumption of Options theretofore granted, or the substitution for
such Options of options covering the stock of a successor employer corporation,
or a parent or a subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and

-5-
<PAGE>

prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. The Committee or the Board shall
have the discretion to provide at the time of granting any Option hereunder that
in the event the Plan and Options then outstanding shall terminate upon the
effective date of any of the transactions described in the foregoing sentence,
the vesting of the then unexercisable portion of such holder's Option shall be
accelerated, in whole or in part as determined by the Committee or the Board, so
that such holder prior to the consummation of the transaction shall be entitled
to exercise such Option (to the extent thereby exercisable) prior to
consummation of such transaction. In the event that a fraction of a share
results from an adjustment pursuant to this paragraph 12, said fraction shall be
eliminated and the price per share of the remaining shares subject to the Option
adjusted accordingly.

13. Vesting of Rights Under Options.

Neither anything contained in the Plan nor in any resolution adopted or to
be adopted by the Committee, the Board or the stockholders of the Company shall
constitute the vesting of any rights under any Option. The vesting of such
rights shall take place only when a written Option Agreement, substantially in
the form of the Incentive Stock Option Agreement attached hereto as Exhibit A or
the Non-Qualified Stock Option Agreement attached hereto as Exhibit B, shall be
duly executed and delivered by and on behalf of the Company and the person to
whom the Option shall be granted.

14. Termination and Amendment.

The Plan, which was adopted by the Board on June 6, 1996, as amended by the
Board on July 24, 1996 and on [March 24, 1997], is subject to approval by the
shareholders of the Company, within twelve (12) months after adoption by the
Board. The Plan shall terminate on June 6, 2006 and no Option shall be granted
under the Plan after such date. The Board may at any time prior to such date
terminate the Plan or make such modifications or amendments thereto as it shall
deem advisable; provided, however, that, unless otherwise approved by the
shareholders of the Company:

i) no change shall be made in the aggregate number of shares subject to
the Plan or the number of shares which may be optioned to any
employee;

ii) no termination, modification or amendment shall adversely affect the
rights of a holder of an Option previously granted under the Plan;

iii) no material modification shall be made to the requirements of
eligibility for participation in the Plan; and

iv) no material increase shall be made in the benefits accruing to
participants under the Plan.

-6-
<PAGE>

EXHIBIT A

CAREADVANTAGE, INC.

INCENTIVE STOCK OPTION AGREEMENT

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

To:

We are pleased to notify you that by the determination of the Board of
Directors (the board") and/or the Stock Option Plan Committee (the "Committee")
an incentive stock option to purchase shares of the Common Stock of
CareAdvantage, Inc. (the "Company") at a price of $__________ per share has this
day of ________________ been granted to you under the Company's 1996 Stock
Option Plan (the "Plan"). This option may be exercised only upon the terms and
conditions set forth below.

1. Purpose of Option.

The purpose of the Plan under which this incentive stock option has been
granted is to further the growth and development of the Company and its
subsidiaries by encouraging key employees and other persons who contribute and
are expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.

2. Acceptance of Option Agreement.

Your execution of this incentive stock option agreement will indicate your
acceptance of and your willingness to be bound by its terms; it imposes no
obligation upon you to purchase any of the shares subject to the option. Your
obligation to purchase shares can arise only upon your exercise of the option in
the manner set forth in paragraph 4 hereof.

3. When Option May Be Exercised.

(a) The option granted you hereunder may be exercised only as follows: [set
forth terms and expiration date of option, but in no event shall the shares of
the Company's Common Stock underlying the Option, once exercised, be held for
less than six (6) months from the date of grant.]

This option may not be exercised for less than ten (10) shares at any one
time (or the remaining shares then purchasable if less than ten) and expires at
the end of ten (10) years from the date of grant whether or not it has been duly
exercised, unless sooner terminated as provided in paragraphs 5, 6 or 7 hereof.

<PAGE>

4. How Option May Be Exercised.

This option is exercisable by a written notice signed by you and delivered
to the Company at its executive offices, signifying your election to exercise
the option. The notice must state the number of shares of Common Stock as to
which your option is being exercised, must contain a statement by you (in a form
acceptable to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be accompanied by
cash or a check to the order of the Company for the full purchase price of the
shares being purchased.

If notice of the exercise of this option is given by a person or persons
other than you, the Company may require, as a condition to the exercise of this
option, the submission to the Company of appropriate proof of the right of such
person or persons to exercise this option.

Certificates for shares of the Common Stock so purchased will be issued as
soon as practicable. The Company, however, shall not be required to issue or
deliver a certificate for any shares until it has complied with all requirements
of the Securities Act of 1933, the Securities Exchange Act of 1934, any stock
exchange on which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of such shares or
the listing of such shares on said exchange. Until the issuance of the
certification for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.

5. Termination of Employment.

If your employment with the Company (or a subsidiary thereof) is terminated
for any reason other than by death or disability, you may exercise, within three
(3) months from the date of such termination, that portion of the option which
was exercisable by you at the date of such termination, provided, however, that
such exercise occurs within ten (10) years from the date this option was granted
to you.

6. Disability.

If your employment with the Company (or a subsidiary thereof) is terminated
by reason of your disability, you may exercise, within twelve (12) months from
the date of such termination, that portion of this option which was exercisable
by you at the date of such termination, provided, however, that such exercise
occurs within ten (10) years from the date this option was granted to you.

7. Death.

If you die while employed by the Company (or a subsidiary thereof) or
within six (6) months after termination of your employment due to disability,
that portion of this option which was exercisable by you at the date of your
death may be exercised by your legatee or legatees under your Will, or by your
personal representatives or distributees, within twelve (12)

<PAGE>

months from the date of your death, but in no event after ten (10) years from
the date this option was granted to you.

8. Non-Transferability of Option.

This option shall not be transferable except by Will or the laws of descent
and distribution, and may be exercised during your lifetime only by you.

9. Adjustments upon Changes in Capitalization.

If at any time after the date of grant of this option, the Company shall,
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation, or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by this option and the price of each
such share shall be proportionately adjusted for any such change by the Board or
the Committee, whose determination shall be conclusive. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the outstanding securities of the class then
subject to options hereunder are changed into or exchanged for cash or property
or securities not of the Company's issue, or upon a sale of substantially all
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding by, another corporation or person, this option shall terminate,
unless provision be made in writing in connection with such transaction for the
continuance of the assumption of this option, or the substitution for this
option of an option covering the stock; of a successor employer corporation, or
a parent or a subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and purchase price, in which event this option shall continue
in the manner and under the terms set forth herein. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this option adjusted accordingly.

<PAGE>

10. Subject to Terms of the Plan.

This incentive stock option agreement shall be subject in all respects to
the terms and conditions of the Plan and in the event of any question or
controversy relating to the terms of the Plan, the decision of the Committee
shall be conclusive.

Sincerely yours,

CAREADVANTAGE, INC.

By:_____________________________________
Name:
Title:

Agreed to and accepted this
___ day of _________, 199 .

___________________________
Signature of Optionee

<PAGE>

EXHIBIT B

CAREADVANTAGE, INC.

NON-QUALIFIED STOCK OPTION AGREEMENT

To:

We are pleased to notify you that by the determination of the Board of
Directors (the board") and/or the Stock Option Plan Committee (the "Committee")
a non-qualified stock option to purchase shares of the Common Stock of
CareAdvantage, Inc. (the "Company") at a price of $_________ per share has this
day of _______________ been granted to you under the Company's 1996 Stock Option
Plan (the "Plan"). This option may be exercised only upon the terms and
conditions set forth below.

1. Purpose of Option.

The purpose of the Plan under which this non-qualified stock option has
been granted is to further the growth and development of the Company and its
subsidiaries by encouraging key employees and other persons who contribute and
are expected to contribute materially to the Company's success to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the best interests of
the Company, and affording the Company a means of attracting to its service
persons of outstanding ability.

2. Acceptance of Option Agreement.

Your execution of this non-qualified stock option agreement will indicate
your acceptance of and your willingness to be bound by its terms; it imposes no
obligation upon you to purchase any of the shares subject to the option. Your
obligation to purchase shares can arise only upon your exercise of the option in
the manner set forth in paragraph 4 hereof.

3. When Option May Be Exercised.

The option granted you hereunder may be exercised only as follows: [set
forth terms and expiration date of option, but in no event shall the shares of
the Company's Common Stock underlying the Option, once exercised, be held for
less than six (6) months from the date of grant.]

This option may not be exercised for less than ten (10) shares at any one
time (or the remaining shares then purchasable if less than ten) and expires at
the end of ten (10) years from the date of grant whether or not it has been duly
exercised, unless sooner terminated as provided in paragraphs 5, 6 or 7 hereof.

<PAGE>

4. How Option May Be Exercised.

This option is exercisable by a written notice signed by you and delivered
to the Company at its executive offices, signifying your election to exercise
the option. The notice must state the number of shares of Common Stock as to
which your option is being exercised, must contain a statement by you (in a form
acceptable to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchased has been declared effective
by the Securities and Exchange Commission) and must be accompanied by cash or a
check to the order of the Company for the full purchase price of the shares
being purchased, plus such amount, if any, as is required for withholding taxes.

If notice of the exercise of this option is given by a person or persons
other than you, the Company may require, as a condition to the exercise of this
option, the submission to the Company of appropriate proof of the right of such
person or persons to exercise this option.

Certificates for shares of the Common Stock so purchased will be issued as
soon as practicable. The Company, however, shall not be required to issue or
deliver a certificate for any shares until it has complied with all requirements
of the Securities Act of 1933, the Securities Exchange Act of 1934, any stock
exchange on which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of such shares or
the listing of such shares on said exchange. Until the issuance of the
certificate for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.

5. Termination of Employment or Engagement.

If your employment with the Company (or a subsidiary thereof) is terminated
for any reason other than by death or disability, or if a non-employee your
engagement by the Company (or a subsidiary) is terminated for any reason, you
may exercise, within three (3) months from the date of such termination, that
portion of this option which was exercisable by you at the date of such
termination, provided, however, that such exercise occurs prior to the
expiration date of this option set forth in paragraph 3 hereof.

6. Disability.

If your employment with the Company (or a subsidiary thereof) is terminated
by reason of your disability, you may exercise, within twelve (12) months from
the date of such termination, that portion of this option which was exercisable
by you at the date of such termination, provided, however, that such exercise
occurs prior to the expiration date of this option set forth in paragraph 3
hereof.

<PAGE>

7. Death.

If you die while employed by the Company (or a subsidiary thereof) or
within six (6) months after termination of your employment due to disability,
that portion of this option which was exercisable by you at the date of your
death may be exercised by your legatee or legatees under your Will, or by your
personal representatives or distributees, within twelve (12) months from the
date of your death, but in no event after the expiration date of this option.

8. Non-Transferability of Option.

This option shall not be transferable except by Will or the laws of descent
and distribution, and may be exercised during your lifetime only by you.

9. Adjustments upon Changes in Capitalization.

If at any time after the date of grant of this option, the Company shall,
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation, or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by this option and the price of each
such share shall be proportionately adjusted for any such change by the
Committee, whose determination shall be conclusive. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the outstanding securities of the class then
subject to options hereunder are changed into or exchanged for cash or property
or securities not of the Company's issue, or upon a sale of substantially all
the property of the Company to, or the acquisition of stock representing more
than eighty percent (80%) of the voting power of the stock of the Company then
outstanding by, another corporation or person, this option shall terminate,
unless provision be made in writing ~n connection with such transaction for the
continuance of the assumption of this option, or the substitution for this
option of an option covering the stock of a successor employer corporation, or a
parent or a subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and purchase price, in which event this option shall continue
in the manner and under the terms set forth herein. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this option adjusted accordingly.

10. Subject to Terms of the Plan.

This non-qualified stock option agreement shall be subject in all respects
to the terms and conditions of the Plan and in the event of any question or
controversy relating to the terms of the Plan, the decision of the Board or the
Committee shall be conclusive.

<PAGE>

11. Tax Status.

This option does not qualify as an "incentive stock option" under the
provisions of Section 422A of the Internal Revenue Code of 1986, as amended, and
the income tax implications of your receipt of a non-qualified stock option and
your exercise of such an option should be discussed with your tax counsel.

Sincerely yours,

CAREADVANTAGE, INC.

By:_____________________________________
Name:
Title:

Agreed to and accepted this
___ day of _________, 199 .

___________________________
Signature of Optionee

<PAGE>

(Proposed Proxy Card)

CAREADVANTAGE, INC.
ANNUAL MEETING OF STOCKHOLDERS

This Proxy is Solicited on Behalf of the Board of Directors

The undersigned hereby appoints each of Robert J. Pures and David J.
McDonnell, jointly, and each of them individually, and any person properly
designated by Mr. Pures or Mr. McDonnell, as proxy to represent the undersigned
at the Annual Meeting of Stockholders to be held at the offices of Crummy, Del
Deo, Dolen, Griffinger & Vecchione, 16th floor, One Riverfront Plaza, Newark,
New Jersey on May 22, 1997, at 2:00 p.m., local time and at any adjournment
thereof, and to vote the shares of Common Stock the undersigned would be
entitled to vote if personally present, as indicated on the reverse side of this
proxy card.

(Continued, and to be signed on the Reverse Side)

<PAGE>

A [X] Please mark your votes
as in this example

FOR WITHHELD Nominees:
1. To elect the following [ ] [ ] William J. Marino
nominees to serve on the Robert J. Pures
Board of Directors until Walter Channing
the 1998 annual meeting Barry Weinberg
af the stockholders. Thomas P. Riley
David J. McDonnell

INSTRUCTIONS: To withhold authority to vote for a specific nominee write that
nominee's name on the space provided.

_____________________________________________________________________________

FOR AGAINST ABSTAIN
2. To approve an amendment [ ] [ ] [ ]
to the Company's
Certificate of
Incorporation, as
amended, to increase the
number of authorized
shares of the Company's
Capital Stock, $.001 par
value, from 100,000,000
to 200,000,000.

3. To approve the amendments [ ] [ ] [ ]
to the Company's 1996
Stock Option Plan.

4. To ratify the appointment [ ] [ ] [ ]
of Richard A. Eisner, and
Company, LLP as
independent auditors for
the Company's fiscal year
ending October 31, 1997.

5. In their discretion, to
conduct such other
business as may properly
come before the meeting
or any adjournment
thereof.

The shares of Common Stock represented by this proxy will be voted as
directed. If no contrary instruction is given, the shares will be voted FOR
the election of the nominees, FOR the amendment to the Certificate of
Incorporation, FOR the amendments to the 1996 Stock Option Plan, and FOR
the ratification of the appointment of the independent auditors.

SIGNATURE(S)_____________________________________ Dated_______________1997

_____________________________________
Signature if Held Jointly

Note: Please date and sign exactly as your name appears hereon and return
promptly. Joint owners should each sign. When signing as corporate
officer, partner, attorney, executor, administrator, trustee or guardian,
please give full title as such. Please note any changes in your address
alongside the address as it appears in the proxy.

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