AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997

REGISTRATION NO. 333-


SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

INTEGRATED PHYSICIAN SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

          DELAWARE                                  8742                                 23-2820597
(State or other jurisdiction                 (Primary Standard                        (I.R.S. Employer
    of incorporation or                  Industrial Classification                  Identification No.)
       organization)                            Code Number)

INTEGRATED PHYSICIAN SYSTEMS, INC.
2644 BRISTOL ROAD
WARRINGTON, PENNSYLVANIA 18976
(Address of principal place of business)

SCOTT G. POLLOCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTEGRATED PHYSICIAN SYSTEMS, INC.
2644 BRISTOL ROAD
WARRINGTON, PENNSYLVANIA 18976

(215) 343-1942/(215) 343-8761 (TELECOPY) (Name, address, and telephone number of principal executive offices and agent for service)

COPIES TO:

       ROBERT STEVEN BROWN, ESQ.                      LAWRENCE B. FISHER, ESQ.
         STEPHEN H. GRAY, ESQ.                   ORRICK, HERRINGTON & SUTCLIFFE LLP
     BROCK FENSTERSTOCK SILVERSTEIN                       666 FIFTH AVENUE
          MCAULIFFE & WADE LLC                        NEW YORK, NEW YORK 10103
          153 EAST 53RD STREET                (212) 506-5000/(212) 506-5151 (TELECOPY)
        NEW YORK, NEW YORK 10022
(212) 371-2000/(212) 371-5500 (TELECOPY)

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement.

IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933, CHECK THE FOLLOWING BOX. /X/

IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES PURSUANT TO RULE
462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. / /

IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. / /

IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /

CALCULATION OF REGISTRATION FEE

See attached page.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.




CALCULATION OF REGISTRATION FEE

                                                                PROPOSED        PROPOSED MAXIMUM
      TITLE OF EACH CLASS OF            AMOUNT TO BE        MAXIMUM OFFERING   AGGREGATE OFFERING      AMOUNT OF
   SECURITIES TO BE REGISTERED           REGISTERED        PRICE PER UNIT (1)      PRICE (1)        REGISTRATION FEE

 Common Stock, par value $.01 per   1,725,000
              share                 Shares (2)                   $10.00         $  17,250,000.00      $   5,227.20

    [6 1/2% to 8%] Convertible
   Subordinated Debentures due
              , 2004, including
    Common Stock issuable upon
  conversion of such Debentures     $28,750,000(3)(4)            100%              28,750,000.00          8,712.13

    Representative's Warrants               --(4)                   .0001                  15.00                --

     Common Stock, par value
  $.01 per share, underlying the    150,000
    Representative's Warrants       Shares (4)                    12.00             1,800,000.00            545.46

     Convertible Subordinated
      Debentures underlying
    Representative's Warrants,
   including Common Stock to be
issued upon the conversion thereof  $2,500,000 (4)               100%               2,500,000.00            757.57

              TOTAL                          --                    --           $  50,300,015.00      $  15,242.36

(1) Estimated solely for the purpose of calculating the registration fee.

(2) Includes 225,000 shares of common stock, par value $.01 per share (the "Common Stock"), of the Company which the Underwriters have the option to purchase solely to cover over-allotments, if any.

(3) Includes $3,750,000 principal amount of 6 1/2% to 8% Convertible Subordinated Debentures due , 2004 (the "Debentures") which the Underwriters have the option to purchase solely to cover over-allotments, if any.

(4) Pursuant to Rule 416, there are also being registered such indeterminate number of shares of Common Stock as may become issuable pursuant to the anti-dilution provisions of the Debentures and Representative's Warrants.


CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK AND DEBENTURES, INCLUDING PURCHASES OF THE COMMON STOCK AND/OR DEBENTURES TO STABILIZE THEIR RESPECTIVE MARKET PRICES, PURCHASES OF THE COMMON STOCK AND/OR DEBENTURES TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE UNDERWRITERS IN THE COMMON STOCK AND/OR DEBENTURES, RESPECTIVELY, AND THE IMPOSITION OF PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

The Company intends to furnish to its stockholders annual reports containing financial statements audited and reported on by its independent certified public accountants after the end of each fiscal year and make available such other periodic reports as the Company may deem appropriate or as may be required by law.

2

SUBJECT TO COMPLETION, DATED AUGUST 8, 1997

PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.


INTEGRATED PHYSICIAN SYSTEMS, INC. [LOGO]

$25,000,000 [6 1/2% TO 8%] CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004
AND
1,500,000 SHARES OF COMMON STOCK

This Prospectus relates to the offering (the "Offering") of $25,000,000 aggregate principal amount of % Convertible Subordinated Debentures due 2004 (the "Debentures") and 1,500,000 shares of Common Stock, par value $.01 per share (the "Common Stock") of Integrated Physician Systems, Inc., a Delaware corporation (the "Company"). The Debentures and the Common Stock are sometimes hereinafter referred to as the "Securities."

Interest on the Debentures will be payable semi-annually on and of each year, commencing , 1998, at the rate of % per annum [6 1/2% to 8%][. The Debentures are convertible into shares of Common Stock at any time prior to maturity, unless previously redeemed, at a conversion price per share of $ [120% to 130% of the initial public offering price of the Common Stock], subject to adjustment as hereinafter provided. The Debentures are redeemable, in whole or in part, at the option of the Company, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest, at any time on or after , 2000 [36 months after issuance], provided that the Closing Price (as defined) of the Common Stock, during the 20 consecutive trading days prior to the date of the notice of redemption, has equaled or exceeded $ [150% of the initial public offering price of the Common Stock], subject to adjustment in certain events. The Debentures are subordinated to all existing and future Senior Indebtedness (as hereinafter defined) and are effectively subordinated to all indebtedness of the Company. At March 31, 1997, the Company had pro forma consolidated indebtedness to which the Debentures would be effectively subordinated aggregating approximately $672,000. See "Description of Debentures."

Prior to this Offering, there has been no public market for the Debentures or the Common Stock, and there can be no assurance that such a market will develop upon completion of this Offering, or, if developed, that it will be sustained. It is anticipated that the initial public offering price of the Common Stock will be $ per share. For information regarding the factors considered in determining the terms of the Debentures and the initial offering price of the Common Stock, see "Underwriting." The Company has applied for the listing of the Debentures and the Common Stock on the American Stock Exchange (the "AMEX") under the symbols "IPS.C" and "IPS," respectively.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 AND "DILUTION" FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

                                                                PRICE TO          UNDERWRITING        PROCEEDS TO
                                                                 PUBLIC           DISCOUNT(2)        COMPANY (2)(3)
Per Debenture............................................       100%(1)                %                   %
Per Share................................................          $                   $                   $
Total Debentures.........................................       $   (1)                $                   $
Total Shares.............................................          $                   $                   $
Total(4).................................................          $                   $                   $

(1) Plus accrued and unpaid interest, if any, from , 1997
(2) Does not include additional consideration to be received by National Securities Corporation, the representative (the "Representative") of the several underwriters (the "Underwriters"), in the form of a non-accountable expense allowance. In addition, see "Underwriting" for information concerning indemnification and contribution arrangements with the Underwriters and other compensation payable to the Representative.
(3) Before deducting estimated expenses of $ payable by the Company, including the Representative's non-accountable expense allowance.
(4) The Company has granted the Underwriters an option, exercisable within 45 days from the date of this Prospectus, to purchase up to an additional $3,750,000 principal amount of Debentures and/or up to an additional 225,000 shares of Common Stock upon the same terms and conditions, solely to cover over-allotments, if any. If the over-allotment option granted to the Underwriters is exercised in full, the total Price to Public, Underwriting Discount, and Proceeds to Company will be $ , $ , and $ , respectively. See "Underwriting."

The Securities offered hereby are being offered, subject to prior sale, when, as, and if delivered to, and accepted by, the Underwriters, subject to approval of certain legal matters by counsel and certain other conditions. The Underwriters reserve the right to withdraw, modify, or cancel the Offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the Securities offered hereby will be made against payment therefor at the offices of National Securities Corporation, 1001 Fourth Avenue, Seattle, Washington 98154, on or about , 1997.

NATIONAL SECURITIES CORPORATION

The date of this Prospectus is , 1997


PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED

INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UPON CONSUMMATION OF THIS OFFERING, INTEGRATED PHYSICIAN SYSTEMS, INC. WILL ACQUIRE (THE "ACQUISITIONS") CERTAIN ASSETS AND ASSUME CERTAIN LIABILITIES ASSOCIATED WITH 12 MEDICAL PRACTICES (THE "INITIAL AFFILIATED PRACTICES") AND 100% OF THE CAPITAL STOCK OF A MEDICAL BILLING COMPANY, AND WILL ENTER INTO MANAGEMENT SERVICES AGREEMENTS WITH EACH SUCH MEDICAL PRACTICE (THE INITIAL AFFILIATED PRACTICES, SUCH MEDICAL BILLING COMPANY, AND AN INDEPENDENT PRACTICE ASSOCIATION MANAGEMENT COMPANY ACQUIRED BY THE COMPANY IN APRIL 1997 (THE "PMI ACQUISITION"), ARE REFERRED TO COLLECTIVELY AS THE "INITIAL ACQUIRED ENTITIES"). AS USED HEREIN, "COMPANY" REFERS TO INTEGRATED PHYSICIAN SYSTEMS, INC. AND ITS SUBSIDIARIES AND "AFFILIATED PRACTICES" REFERS TO THE INITIAL AFFILIATED PRACTICES AND ANY PHYSICIAN PRACTICES WITH WHICH THE COMPANY MAY ENTER INTO SIMILAR RELATIONSHIPS IN THE FUTURE. EXCEPT AS OTHERWISE INDICATED, THE INFORMATION IN THIS PROSPECTUS DOES NOT GIVE EFFECT TO (I) THE EXERCISE OF THE REPRESENTATIVE'S WARRANTS; (II) THE EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND (III) THE ISSUANCE OF UP TO 300,000 SHARES OF COMMON STOCK UPON THE EXERCISE OF OPTIONS WHICH MAY BE GRANTED UNDER THE COMPANY'S 1996 STOCK OPTION PLAN (THE "PLAN"). THE INFORMATION IN THIS PROSPECTUS RELATING TO SHARES OF COMMON STOCK AND PER SHARE AMOUNTS GIVES EFFECT TO THE ISSUANCE OF AN AGGREGATE OF 365,800 SHARES OF COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE ACQUISITIONS.

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.

THE COMPANY

Integrated Physician Systems, Inc. (the "Company") is a newly established physician practice management organization ("PPMO") which is developing an integrated health care delivery network in selected geographic areas through affiliation with physician practices. Upon the closing of this Offering, the operations of the Company will consist of (i) the Initial Affiliated Practices, consisting of 12 medical practices located in New Jersey and Pennsylvania, (ii) Professional Medical Images Ltd. ("PMI"), which is engaged in the development and management of independent practice associations ("IPAs") and is currently affiliated with approximately 225 physicians in the State of New Jersey, and
(iii) Network Billings Systems, Inc. ("NBS"), which is engaged in the development and management of physician fee billing, electronic medical records, and utilization information systems for medical practices. NBS currently manages patient and third party billing services for 25 medical practices unaffiliated with the Company in Pennsylvania.

The Company's objective is to develop and manage an integrated health care delivery network that provides high quality, cost-effective care. The Company has focused, and intends, at least initially, to continue to focus, its primary affiliation efforts on physician practices located in New Jersey, New York, and Pennsylvania. The Company targets physicians who are committed to the delivery of high quality, cost-effective care and have a reputation with their patients, peers, and payors for providing quality medical services and that have the capacity to increase profitability through improved performance on existing patient bases. When affiliating with a physician practice, the Company will typically purchase the practice's non-real estate operating assets and enter into a long-term practice management services agreement ("PMSA") with the practice in exchange for a combination of Common Stock, cash, notes, other securities of the Company, and/or the assumption of liabilities.

The health care delivery system in the United States has been undergoing substantial change, largely in response to concerns over the quality and escalating cost of health care. National expenditures for health care grew from $250 billion in 1980 to an estimated $1 trillion in 1995. Of the total estimated 1995 expenditures, physicians received approximately $200 billion for their own services and controlled an additional $600 billion through the referral of patients for additional care and services provided by others.

3

Concerns over the accelerating cost of health care have resulted in the increasing prominence of managed care. The Company believes that traditional physician practices are at a competitive disadvantage in a managed care environment because they typically have high operating costs, have little purchasing power with suppliers, and must spread overhead over a relatively small revenue base. In addition, these physician practices often have insufficient capital to acquire equipment to incorporate new technologies and often lack the sophisticated systems necessary to contract effectively with managed care entities. Physician practices are increasingly turning to organizations such as the Company to provide the professional management expertise and capital required to compete in the managed care environment and otherwise to assist them with the increasingly complex management of physician practices. The Company believes that this has resulted in a need for management organizations committed to preserving the professional autonomy of physician practices and whose economic incentives are aligned with those of physicians.

The Company's operating strategy includes the following: (i) targeting for affiliation high quality and productive physician practices which are committed to expanding and providing cost-effective care; (ii) integrating physician practices into Company-coordinated strategic business units ("SBUs") to provide physician and medical support services within specific geographic regions; (iii) contracting with state and local governments to provide medical services for elderly and indigent populations; (iv) enhancing the ability of the Affiliated Practices to focus on clinical practice issues by relieving them of most administrative functions; (v) implementing and utilizing sophisticated information systems to manage patient care and to control costs; (vi) coordinating purchases of supplies, equipment, and services in order to realize economies of scale; (vii) developing and enhancing IPA services and contracts;
(viii) positioning the Company to maximize managed care contract opportunities; and (ix) developing ancillary services and broadening the specialties of the Company's health care delivery network.

The Company was incorporated under the laws of the State of Delaware on April 25, 1995. The Company's principal offices are located at 2644 Bristol Road, Warrington, Pennsylvania 18976, and its telephone number is (215) 343-1942.

4

THE OFFERING

SECURITIES OFFERED

Debentures...................................  $25,000,000 aggregate principal amount of
                                               [6 1/2% to 8%] Convertible Subordinated
                                               Debentures due       , 2004 (the
                                               "Debentures")

Common Stock.................................  1,500,000 shares

DEBENTURE TERMS

Interest Payment Dates.......................  Each       and       , commencing       ,
                                               1998

Maturity Date................................  , 2004

Conversion...................................  The Debentures are convertible into shares of
                                               Common Stock at any time prior to maturity,
                                               unless previously redeemed, at a conversion
                                               price of $         per share [120% to 130% of
                                               the initial public offering price of the
                                               Common Stock], subject to adjustment in
                                               certain events.

Redemption at Option of Company..............  The Debentures are not redeemable prior to
                                                        , 2000. Thereafter, the Debentures
                                               are redeemable, in whole or in part, from
                                               time to time, at the option of the Company at
                                               a redemption price equal to 100% of the
                                               principal amount thereof plus accrued and
                                               unpaid interest, provided that the Debentures
                                               may not be redeemed prior to maturity unless
                                               the closing price of the Common Stock for 20
                                               consecutive trading days prior to the date of
                                               notice of such redemption has equaled or
                                               exceeded $         , [150% of the initial
                                               public offering price of the Common Stock],
                                               subject to adjustment in certain events. See
                                               "Description of Debentures-- Optional
                                               Redemption."

Redemption at Option of Holders..............  In the event that a Repurchase Event (as
                                               defined) occurs, subject to certain
                                               conditions, each holder of a Debenture shall
                                               have the right, at the holder's option, to
                                               require the Company to purchase all or any
                                               part of such holder's Debentures at 100% of
                                               the principal amount thereof plus accrued and
                                               unpaid interest through the date of
                                               redemption.

Sinking Fund.................................  If a sinking fund is established for any
                                               indebtedness ranking junior to, or pari passu
                                               with, the Debentures and which has a maturity
                                               or weighted average time to maturity which is
                                               on or prior to       , 2004, the Debentures
                                               will be entitled to an annual sinking fund
                                               beginning in the Company's next fiscal year
                                               calculated to retire that amount of
                                               Debentures equal to the lesser of (i) the
                                               same percentage of outstanding Debentures
                                               prior to

5

                                               maturity as the percentage of the principal
                                               amount of such other indebtedness to be
                                               retired prior to maturity on the same payment
                                               schedule as such other indebtedness or (ii)
                                               such amount of Debentures necessary to result
                                               in the Debentures having the same weighted
                                               average time to maturity as the other
                                               indebtedness.

Subordination................................  The Debentures are subordinated in right of
                                               payment to all present and future Senior
                                               Indebtedness (as defined) of the Company. The
                                               Indenture will not restrict the incurrence of
                                               additional Senior Indebtedness by the Company
                                               or any indebtedness by any Subsidiary. See
                                               "Description of Debentures."

SECURITIES OUTSTANDING
  PRIOR TO THE OFFERING

Debentures...................................  None

Common Stock.................................  3,409,300 shares

SECURITIES OUTSTANDING IMMEDIATELY
  FOLLOWING THE OFFERING

Debentures...................................  $25,000,000 aggregate principal amount

Common Stock.................................  4,909,300 shares

USE OF PROCEEDS..............................  Payments due upon consummation of the
                                               Acquisitions; funds available for future
                                               acquisitions of additional physician
                                               practices and/or other medical entities;
                                               hardware, software, and installation cost of
                                               an information system; repayment of certain
                                               indebtedness; and general corporate and
                                               working capital purposes.

RISK FACTORS.................................  The purchase of the Securities offered hereby
                                               is speculative and involves substantial risk.
                                               Prospective investors should carefully review
                                               and consider the information set forth under
                                               "Risk Factors" and "Dilution."

PROPOSED AMEX TRADING SYMBOLS:

Debentures...................................  "IPS.C"

Common Stock.................................  "IPS"

6

SUMMARY FINANCIAL INFORMATION

STATEMENT OF OPERATIONS DATA:

                                                                                  THREE MONTHS ENDED MARCH 31,
                                        INCEPTION                          ------------------------------------------
                                       (APRIL 25,        YEAR ENDED
                                          1995)       DECEMBER 31, 1996            1996                  1997
                                         THROUGH    ---------------------  --------------------  --------------------
                                        DECEMBER                  PRO                    PRO                   PRO
                                        31, 1995     ACTUAL     FORMA(1)    ACTUAL    FORMA(1)    ACTUAL    FORMA(1)
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
Revenue:                                $                                             $4,795,000
  Medical service revenue, net of
  contractual adjustments and bad
  debts..............................               $  --      $18,470,000 $                     $          $4,716,000
  Other revenue......................      --          --          38,000     --          9,000     --         10,000
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
    Total revenue....................      --          --      18,508,000     --      4,804,000     --      4,726,000
Costs and expenses:..................      --
  Salaries and wages.................      --          --      13,519,000     --      3,263,000     --      2,580,000
  Medical supplies and expenses......      --          --         426,000     --        110,000     --         98,000
  General and administrative               --                                         1,283,000
  expenses...........................                   4,000   4,174,000      2,000                12,000  1,842,000
  Depreciation and                          1,000                                       298,000
  amortization.......................                   2,000   1,185,000      1,000                 1,000    300,000
  Interest expense...................      --          --       1,752,000     --        438,000     --        438,000
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
    Total costs and expenses.........       1,000       6,000  21,056,000      3,000  5,392,000     13,000  5,258,000
Loss before income taxes.............      (1,000)   (  6,000)  (2,548,000  (  3,000)  (588,000)  ( 13,000)  (532,000)
Provision for income taxes...........      --          --          --         --         --         --         --
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
Net loss.............................   $  (1,000)  $(  6,000) $(2,548,000 $(  3,000) $(588,000) $( 13,000) $(532,000)
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
                                       -----------  ---------  ----------  ---------  ---------  ---------  ---------
Pro forma net loss per                                                                   $(0.12)
share(2).............................                          $    (0.52)                                  $   (0.11)

                                                               ----------             ---------             ---------
                                                               ----------             ---------             ---------
Pro forma weighted average                                                            4,909,300
number of shares outstanding(2)......                           4,909,300                                   4,909,300
                                                               ----------             ---------             ---------
                                                               ----------             ---------             ---------

BALANCE SHEET DATA:

                                                                        DECEMBER 31,           MARCH 31, 1997
                                                                    --------------------  ------------------------
                                                                                                     PRO FORMA, AS
                                                                      1995       1996      ACTUAL    ADJUSTED(1)(3)
                                                                    ---------  ---------  ---------  -------------

Working capital (deficiency)......................................  $ (74,000) $(243,000) $(329,000)  $27,225,000

Total assets......................................................     73,000    296,000    473,000    41,957,000

Total liabilities.................................................     74,000    273,000    463,000    25,672,000

Stockholders' equity (deficit)....................................  $  (1,000) $  23,000  $  10,000   $16,285,000


(1) The pro forma statement of operations data for the fiscal year ended December 31, 1996 and for the three months ended March 31, 1996 and 1997 is presented as if the Acquisitions and the PMI Acquisition had occurred on January 1, 1996. The pro forma balance sheet data for March 31, 1997 is presented as if the Acquisitions and the PMI Acquisition had occurred on March 31, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and Notes to Unaudited Pro Forma Consolidated Financial Statements.

(2) See Note II to the Unaudited Pro Forma Consolidated Statement of Operations Adjustments.

(3) Gives effect on a pro forma basis to the issuance after March 31, 1997 of an aggregate principal amount of $125,000 Series A 10% Senior Notes (the "Senior Notes") and 12,500 shares of Common Stock as part of a bridge financing of the Company (the "Bridge Financing"), and as adjusted to reflect the sale of the Debentures and the Common Stock offered hereby, assuming an initial public offering price of 100% and $10.00 per share, respectively, and the initial application of the net proceeds therefrom. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

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RISK FACTORS

AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SECURITIES OFFERED HEREBY. PROSPECTIVE INVESTORS SHOULD BE IN A POSITION TO RISK THE LOSS OF THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.

ABSENCE OF COMBINED OPERATING HISTORY; NO ASSURANCE OF PROFITABILITY. The Company was incorporated in April 1995 and, to date, has conducted limited operations and generated limited revenue. At March 31, 1997, the Company had a working capital deficiency of approximately $329,000 and an accumulated deficit of approximately $20,000. The likelihood of the future success of the Company is highly speculative and must be considered in light of its limited operating history, as well as the problems, expenses, difficulties, risks, and complications frequently encountered in connection with similarly situated companies in early stages of development. The Company is subject to all of the business risks associated with a new enterprise, including constraints on its financial and human resources, lack of established business relationships, and uncertainties regarding affiliations and future revenues. The Company has entered into agreements to acquire certain assets and assume certain liabilities of the Initial Affiliated Practices and NBS upon consummation of this Offering. In connection with the consummation of the Acquisitions, the Company is entering into PMSAs to provide management services to the Initial Affiliated Practices for initial terms of 40 years. The Initial Affiliated Practices have operated as separate independent entities. There can be no assurance that the process of integrating the management and administrative functions of the Initial Affiliated Practices will be successful or that the Company will be able to manage these operations effectively or profitably and successfully implement the Company's operating or expansion strategies. Failure by the Company to successfully implement its operating and expansion strategies would have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business."

RISKS RELATED TO EXPANSION STRATEGY. The Company's expansion strategy involves growth through affiliation with physician practices and the expansion of such practices. The Company is subject to various risks associated with this strategy, including the risks that the Company will be unable to identify and recruit suitable affiliation candidates, successfully expand and manage the Affiliated Practices, or successfully integrate the Affiliated Practices into its existing operations. The Company's expansion is dependent on its ability to affiliate with quality physician practices, to manage and control costs, and to realize economies of scale. There can be no assurance that the Company will be able to achieve and manage its planned expansion or that suitable physician practices will be available for affiliation upon terms satisfactory to the Company, or at all. There can be no assurance that the Company's expansion strategy will be successful or that material modifications to the Company's expansion strategy will not be required. The failure of the Affiliated Practices to achieve anticipated performance levels could materially adversely affect the Company. In pursuing its expansion strategy, the Company intends to expand its presence into new geographic markets. In entering a new geographic market, the Company will be required to comply with laws and regulations of jurisdictions that differ materially from those applicable to the Company's current operations, deal with different payors, as well as face competitors with greater knowledge of such markets than the Company. There can be no assurance that the Company will be able to effectively establish a presence in any new market. See "Business-Strategy" and "Business-Government Regulation."

ADDITIONAL FINANCING REQUIREMENTS. The Company's expansion strategy will require substantial capital resources. Capital is required not only for the acquisition of substantially all of the assets of the Affiliated Practices and other medical entities, but also for the integration, operation, and expansion of the Affiliated Practices and such medical entities. In addition, the Company's Affiliated Practices and other

8

acquired entities may, from time to time, require capital for renovation, expansion, and the purchase of additional medical equipment and technology. The Company believes that the net proceeds of this Offering, together with anticipated revenues from operations, will be sufficient to satisfy its capital requirements for at least 12 months following the date of this Prospectus. There can be no assurance that such resources will be sufficient to satisfy the Company's capital requirements for said period. After the 12-month period, the Company may require additional financing in order to meet its current plans for expansion. Such financing may take the form of the issuance of common or preferred equity securities or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain needed additional capital on a timely basis, on favorable terms, or at all. Any additional financing could result in dilution of the then-existing equity positions, and increased interest and amortization expense. If the Company is unable to secure additional sources of financing on terms and conditions favorable to the Company, or at all, the Company's expansion strategy could be materially adversely affected. In any of such events, the Company may be unable to implement its current plans for expansion or to repay its debt obligations. See "Use of Proceeds" and "Business--Strategy."

LIMITED MANAGEMENT RESOURCES. The Company's anticipated growth is expected to place a significant strain on its managerial, operational, and financial resources. To manage this growth, the Company will be required to significantly expand its operational and financial systems and expand, train, and manage its work force. The ability of the Company to attract and retain highly skilled personnel is critical to the operations and expansion of the Company. The Company faces competition for such personnel from other PPMOs and more established organizations, many of which have significantly larger operations and greater financial, marketing, human, and other resources than the Company. There can be no assurance that the Company will be successful in attracting and retaining qualified personnel on a timely basis, on competitive terms, or at all. In the event that the Company is not successful in attracting and retaining such personnel, the Company may be materially adversely affected. Further, the Company anticipates that it will take time to integrate additional skilled individuals into the Company's operations and to build a cohesive and efficient workforce.

RELIANCE ON AFFILIATED PRACTICES. The Company will receive fees for management services provided to its Affiliated Practices under the PMSAs. Revenue received by the Company from the Affiliated Practices under the PMSAs generally will depend on revenue generated by the Affiliated Practices. The revenue from the Affiliated Practices will be dependent on fees generated by the physicians employed by the Affiliated Practices. In connection with the PMSAs, each physician will enter into an employment agreement, each of which will have a three to five year term, with the professional corporation in which that physician practices. Any loss of revenue by the Affiliated Practices, including losses resulting from a substantial reduction in the number of physicians employed by, or associated with, the Affiliated Practices, could have a material adverse effect on the Company. See "Business --Affiliation Structure."

DEPENDENCE ON THIRD PARTY REIMBURSEMENT. The Company's ability to collect fees in a timely manner, or at all, is affected by whether its Affiliated Practices are reimbursed for their medical services and the amount of reimbursement. Substantially all of the revenue of the Affiliated Practices, on which the Company's revenue will be dependent, will derive from commercial health insurance, state workers' compensation programs, and other third-party payors. All of these providers and programs are regulated at the state or federal level. There are increasing and significant public and private sector pressures to contain health care costs and to restrict reimbursement rates for medical services. For example, it has been reported that the Medicare program is expected to experience a deficiency of funds early in the next century. Accordingly, Congress, in its fiscal year 1997 budget legislation, called for, and considered, severe reductions in both the Medicare and Medicaid programs. Several states have taken measures to reduce the reimbursement rates paid to health care providers in their states. The Company believes that additional states will implement reductions from time to time. Reductions in Medicare and Medicaid rates often lead to reductions in the reimbursement rates of other third party payors as well. Thus, changes in the level of support by federal and state governments of health care services, the methods by which health care services

9

may be delivered, and the prices of such services may all have a material impact on the revenue of the Company, which in turn could have a material adverse effect on the Company.

Third party payors may disagree with the description or coding of a bill for medical services, or may contest a description or code under a lesser fee schedule depending on the medical services rendered. Such disagreements on description of professional services or bill coding, particularly where the third party payor is a federal or state funded health care program, could result in lesser reimbursement, which could have a material adverse effect on the Company. Persistent disagreements or alleged "upcoding" could result in allegations of fraud or false billing, both of which constitute felonies. Such an allegation, if proven, could result in forfeitures of payment, civil money penalties, civil fines, suspensions, or exclusion from participation in federal or state funded health care programs, and could have a material adverse effect on the Company. Investigation and prosecution for fraudulent or false billing could have a material adverse effect on the Company, even if such allegations were disproven.

The Company's income may be materially adversely affected by the uncollectibility of medical fees from third party payors or by delay in the submission of claims, and the long collection cycles for such receivables. Many third party payors, particularly insurance carriers covering automobile no-fault and workers' compensation claims refuse, as a matter of business practice, to pay claims unless submitted to arbitration. Further, third party payors may reject medical claims if, in their judgment, the procedures performed were not medically necessary or if the charges exceed such payor's allowable fee standards. In addition, some receivables may not be collected because of omissions or errors in timely completion of the required claim forms. The inability of the Affiliated Practices to collect their receivables could materially adversely affect the Company. See "Risk Factors--Government Regulation," "Business-Third Party Reimbursement" and "Business-Government Regulation."

GOVERNMENT REGULATION. Federal and state laws regulate the relationships among providers of health care services, physicians, and other clinicians. These laws include federal fraud and abuse provisions. Such provisions prohibit the solicitation, receipt, payment, or offering of any direct or indirect remuneration for the referral of patients for which reimbursement is made under any federal or state funded health care program or for the recommending, leasing, arranging, ordering, or providing of services covered by such programs. States have similar laws that apply to patients covered by private and government programs. Federal fraud and abuse laws also impose restrictions on physicians' referrals for designated health services covered under Medicare or Medicaid to entities with which they have financial relationships. Various states have adopted similar laws that cover patients in private programs as well as government programs. There can be no assurance that the federal and state governments will not consider additional prohibitions on physician ownership, directly or indirectly, of facilities to which they refer patients, which could adversely affect the Company. Violations of these laws may result in substantial civil or criminal penalties for individuals or entities, including large civil money penalties and exclusion from participation in federal or state health care programs. Such exclusion, if applied to the Affiliated Practices could result in significant loss of reimbursement and could have a material adverse effect on the Company.

Federal law also prohibits conduct that may be, or result in, price-fixing or other anticompetitive conduct. Moreover, the Company may in the future contract with licensed insurance companies and/or HMOs. Certain of such contracts may require the Affiliated Practices on behalf of which the Company contracts to assume risk in connection with providing health care service under capitation arrangements. To the extent that the Company or the Affiliated Practices may be in the business of insurance as a result of entering into such arrangements, they may be subject to a variety of regulatory and licensing requirements applicable to insurance companies or HMOs. There can be no assurance that review of the Company's or the Affiliated Practices' businesses by courts or regulatory authorities will not result in a determination that could materially adversely affect the operations of the Company or such Affiliated Practices or that the health care regulatory environment will not change so as to restrict the Company's or such Affiliated Practices' existing operations or their expansion.

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Moreover, the laws of many states prohibit physicians from sharing professional fees, or "splitting fees," with anyone other than a member of the same profession. These laws and their interpretations vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. Expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationship with the Affiliated Practices, which could have an adverse effect on the Company. Although the Company believes that the operations of the Initial Affiliated Practices as currently conducted are in compliance in all material respects with existing applicable laws, there can be no assurance that review of the Company's business by courts or regulatory authorities will not result in a determination that could adversely affect the operations of the Company or that the health care regulatory environment will not change so as to restrict the Company's existing operations or its expansion.

Every state imposes licensing requirements on individual physicians and on certain other health care providers and facilities. Many states require regulatory approval, including licensing to render care or certificates of need before establishing certain types of health care services which entail the acquisition of expensive medical equipment or facilities. While the performance of management services on behalf of a medical practice does not currently require any regulatory approval, there can be no assurance that such activities will not be subject to licensure in the future. Such requirements could have a material adverse effect on the Company and its operations. See "Business - Government Regulation."

STATE LAWS PROHIBITING THE CORPORATE PRACTICE OF MEDICINE. The Affiliated Practices are anticipated to be business corporations wholly-owned by the Company in states in which the Company believes general business corporations are permitted to own a medical practice. In other states, the Affiliated Practices will be formed as professional corporations owned by one or more medical doctors licensed to practice medicine under applicable state law. Corporations such as the Company are not permitted under certain state laws to practice medicine or exercise control over the medical judgments or decisions of practitioners. Laws regulating the corporate practice of medicine and the interpretation thereof vary from state to state and are enforced by the courts and by regulatory authorities with broad discretion. The Company believes that it performs only non-medical administrative services, does not represent to the public or its clients that it offers medical services, and does not exercise influence or control over the practice of medicine by the practitioners with whom it contracts. Expansion of the operations of the Company to certain jurisdictions may require structural and organizational modifications of the Company's form of relationship with practitioners in order to comply with laws regulating the corporate practice of medicine, which could have an adverse effect on the Company. Although the Company believes its operations, as currently conducted, are in compliance in all material respects with existing applicable laws, there can be no assurance that the Company's structure will not be challenged as constituting the unlicensed practice of medicine or that the enforceability of the agreements underlying this structure will not be limited. If such a challenge were made successfully in any state, the Company could be subject to civil and criminal penalties under such state's law and could be required to restructure its contractual arrangements in that state. Such results, or the inability to successfully restructure its contractual arrangements, could have a material adverse effect on the Company.

HEALTH CARE REFORM. Although Congress failed to pass comprehensive health care reform legislation in 1996, the Company anticipates that Congress and state legislatures will continue to review and assess alternative health care delivery and payment systems and may in the future propose and adopt legislation effecting fundamental changes in the health care delivery system. Also, Congress is expected to consider major reductions in the rate of increase of Medicare and Medicaid spending as a part of efforts to balance the budget of the United States. The Company cannot predict the ultimate timing, scope, or effect of any legislation concerning health care reform, including legislation affecting the Medicare and Medicaid programs. Any proposed federal legislation, if adopted, could result in significant changes in the availability, delivery, pricing, and payment for health care services and products. Various states also have undertaken, or are considering, significant health care reform initiatives. Although it is not possible to

11

predict whether any health care reform legislation will be adopted or, if adopted, the exact manner and the extent to which the Company will be affected, it is likely that the Company will be affected in some fashion, and there can be no assurance that any health care reform legislation, if and when adopted, will not have a material adverse effect on the Company.

EXPOSURE TO PROFESSIONAL LIABILITY. In recent years, physicians, hospitals, and other participants in the health care industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories. Many of these lawsuits involve large claims and substantial defense costs. The Company does not engage in the practice of medicine or provide medical services, nor does it control the practice of medicine by the Affiliated Practices or the compliance with regulatory and other requirements directly applicable to the Affiliated Physicians and Affiliated Practices; however, there can be no assurance that the Company will not become involved in such litigation in the future. See "Business -- Professional Liability Insurance."

The PMSAs will require the Affiliated Practices to maintain, at their expense, professional liability insurance for themselves and each physician employed by, or otherwise providing medical services for, the Affiliated Practices in the minimum amount of $1,000,000 per occurrence and $3,000,000 in the aggregate. In addition, each of the Affiliated Practices will undertake to comply with all applicable regulations and requirements, and the Company will be indemnified under the PMSA for claims against the Company arising in connection with actions by the Affiliated Practices. The Company has applied for general liability insurance for itself and requires that it be named as an additional insured party on the professional liability insurance policies of the Affiliated Practices pursuant to the PMSA. In addition, the Company will maintain liability insurance on its non-physician professional employees, such as nurses and midwives.

There can be no assurance that the Company, its employees, the Affiliated Practices, or the physicians employed by, or associated with, the Affiliated Practices will not be subject to claims in amounts that exceed the coverage limits or that such coverage will be available when needed. Further, there can be no assurance that professional liability or other insurance will continue to be available to the Affiliated Practices in the future at adequate levels, at an acceptable cost, or at all. A successful claim against the Company or an Affiliated Practice in excess of the relevant insurance coverage could have a material adverse effect upon the Company. Claims against the Company or an Affiliated Practice, regardless of the merits or eventual outcomes, may also have a material adverse effect on the Company.

RISKS ASSOCIATED WITH MANAGED CARE CONTRACTS. An increasing percentage of patients are coming under the control of managed care entities. The Company believes that its success will, in part, depend upon its ability to negotiate on behalf of the Affiliated Practices favorable managed care contracts with HMOs and other private third party payors. Such contracts often shift much of the financial risk of providing care from the payor to the provider by requiring the provider to furnish all or a portion of its services in exchange for a fixed, or "capitated," fee per member patient per month, regardless of the level of such patients' utilization rates and, sometimes in the case of primary care physicians, to accept financial risk for health care services not normally furnished by such physicians (e.g., specialty physician or hospital services). The Company intends to negotiate capitation agreements with managed care organizations. Some managed care agreements also offer "shared risk" provisions under which physicians and physician practice management concerns can earn additional compensation based on the utilization of services by members, but may be required to bear a portion of any loss in connection with such "shared-risk" provisions. Any such losses could have a material adverse effect on the Company. In order for capitation contracts, especially any with "shared-risk" provisions, to be profitable for the Company, the Company must effectively monitor the utilization of its services delivered to members of the managed care organization who are patients of the Affiliated Practices and, to the extent such Affiliated Practices are responsible for overall patient care, monitor the utilization of specialist physicians or hospitals, negotiate favorable rates with such other providers, and obtain, on favorable terms, stop loss protection limiting its per enrollee exposure above specified thresholds. There can be no assurance that the Company will be able to negotiate satisfactory managed care contracts for the Affiliated Practices. Nor can there be any

12

assurance that any managed care contracts it enters into on behalf of the Affiliated Practices will not adversely affect the Company or the Affiliated Practices.

COMPETITION. The physician practice management industry is highly competitive. The Company is subject to significant competition both in affiliating with physician practices and in seeking managed care contracts on behalf of the Affiliated Practices. Its competitors include hospitals, managed care organizations, and other PPMOs. In comparison with the Company, many of its competitors are larger and have substantially greater resources, provide a wider variety of services, and have longer established relationships with purchasers of such services. There can be no assurance that the Company will be able to compete effectively, that additional competitors will not enter the market, or that such competition will not make it more difficult to enter into affiliations with physician practices on terms beneficial to the Company. The Company also experiences competition in the recruitment and retention of qualified physicians and other health care professionals on behalf of the Affiliated Practices. There can be no assurance that the Company will be able to recruit or retain a sufficient number of qualified physicians and other health care professionals to expand its operations. See "Business-Competition."

DEPENDENCE ON KEY EMPLOYEES. The Company is dependent substantially upon the efforts of Scott G. Pollock, Chief Executive Officer and a Director of the Company, Peter R. Heisen, M.D., President, Chief Medical Officer, and a Director of the Company, and Dennis B. Liotta, M.D., Executive Vice President, Chief Operating Officer, and a Director of the Company. The loss of, or unavailability of, any of these individuals or the inability of the Company to attract other qualified employees could have a material adverse effect upon the Company. The Company has entered into employment agreements with these key executives, with minimum terms of at least three years. In addition, the Company has obtained, and is the sole owner and beneficiary of, an insurance policy in the amount of $1,000,000 on the life of each of Messrs. Pollock, Heisen, and Liotta. See "Management."

NO PRIOR PUBLIC MARKET; ARBITRARY DETERMINATION OF PUBLIC OFFERING PRICES; POSSIBLE VOLATILITY OF DEBENTURE AND COMMON STOCK MARKET PRICES. Prior to this Offering, there has been no public market for the Debentures or Common Stock, and there can be no assurance that an active public market for the Debentures or the Common Stock will develop or, if developed, be sustained after this Offering. The terms of the Debentures and the initial public offering price of the Common Stock were arbitrarily determined by negotiation between the Company and the Representative, and do not necessarily bear any relationship to the Company's assets, book value, results of operations, or any other generally accepted criteria of value. From time to time after this Offering, there may be significant volatility in the market price of the Debentures and the Common Stock. Quarterly operating results of the Company or other developments affecting the Company, such as announcements by the Company or its competitors regarding acquisitions or dispositions, new procedures, changes in general conditions in the economy or the health care industry, and general market conditions could cause the market price of the Debentures and the Common Stock to fluctuate substantially. The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies' securities and have often been unrelated to the operating performance of these companies. Concern about the potential effects of health care reform measures has contributed to the volatility of stock prices in companies in health care and related industries and may similarly affect the price of the Debentures and the Common Stock following this Offering. See "Underwriting."

NO DIVIDENDS. The Company has not paid cash dividends on the Common Stock since inception and does not intend to pay any dividends to its stockholders in the foreseeable future. The Company currently intends to reinvest earnings, if any, in the development and expansion of its business. See "Dividend Policy."

IMMEDIATE AND SUBSTANTIAL DILUTION; DISPARITY OF CONSIDERATION. The purchasers of the shares of Common Stock offered hereby will experience immediate and substantial dilution in the net tangible book value of the shares of Common Stock of $9.22 per share, or approximately 92.2% per share. The current

13

stockholders of the Company, including the Directors and entities and persons affiliated with them acquired their shares of Common Stock for nominal consideration. As a result, new investors will bear substantially all of the risks inherent in an investment in the Company. See "Dilution."

SUBSTANTIAL CONTROL BY MANAGEMENT. Upon the closing of this Offering, the Company's officers and directors will own approximately 24.8% of the outstanding shares of Common Stock (approximately 23.7% of the outstanding shares of Common Stock if the Underwriters' over-allotment option is exercised in full). As a result, such persons may have the ability to control the election all of the directors of the Company and to control the outcome of all issues submitted to a vote of the stockholders of the Company. Furthermore, such concentration of ownership could limit the price that certain investors might be willing to pay in the future for shares of Common Stock and could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire control of, the Company. See "Principal Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE The sale, or availability for sale, of a substantial number of shares of Common Stock in the public market subsequent to this Offering pursuant to Rule 144 under the Securities Act ("Rule 144") or otherwise could materially adversely affect the market price of the Common Stock and could impair the Company's ability to raise additional capital through the sale of its equity securities or debt financing. Of the 4,909,300 shares of Common Stock to be outstanding upon completion of this Offering, the 1,500,000 shares of Common Stock offered hereby (1,725,000 shares of Common Stock if the Underwriters' over allotment option is exercised in full) will be immediately freely tradeable without restriction under the Securities Act, except for shares purchased by affiliates of the Company, which shares will be subject to the resale limitations of Rule 144 under the Securities Act. The availability of Rule 144 to the holders of restricted securities of the Company would be conditioned on, among other factors, the availability of certain public information concerning the Company. The remaining 3,409,300 shares of Common Stock are "restricted securities" as that term is defined in Rule 144 and may, under certain circumstances, be sold without registration under the Securities Act. All existing stockholders of the Company, including all of the executive officers and directors of the Company, have agreed, however, not to sell or otherwise dispose of any securities of the Company for a period of 18 months from the date of this Prospectus without the Representative's prior written consent. After such 18-month period, all 3,409,300 shares may be sold in accordance with Rule 144. See "Shares Eligible for Future Sale."

PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS. The Company's Certificate of Incorporation, as amended, authorizes the Board of Directors to issue up to 1,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the Board of Directors, without further action by stockholders, and may include voting rights (including the right to vote as a series on particular matters), preferences as to dividends and liquidation, conversion and redemption rights, and sinking fund provisions. No preferred stock is currently outstanding, and the Company has no present plans for the issuance of any preferred stock. However, the issuance of any such preferred stock could materially adversely affect the rights of holders of Common Stock and, therefore, could reduce the value of the Common Stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict the Company's ability to merge with, or sell its assets to, a third party. The ability of the Board of Directors to issue preferred stock could discourage, delay, or prevent a takeover of the Company, thereby preserving control of the Company by the current stockholders.

In addition, the Company is subject to Section 203 of the Delaware General Corporation Law, which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder. See "Description of Capital Stock."

POSSIBLE ACQUISITIONS AND BUSINESS OPPORTUNITIES; DISCRETIONARY USE OF NET PROCEEDS. Approximately 49.2% ($17,500,000) of the estimated net proceeds from the sale of the Debentures at an assumed

14

public offering price of 100% and from the sale of the Common Stock at an assumed initial public offering price of $10.00 per share has been allocated to acquisitions of additional physician practices and other medical entities. The Company's management will have broad discretion as to the application of such net proceeds. Depending on the structure of any possible acquisition or other business opportunity, the Company's Board of Directors may have the power and authority under the laws of the State of Delaware to approve and consummate such transaction on behalf of the Company without a stockholder vote. See "Use of Proceeds."

SUBSTANTIAL PORTION OF NET PROCEEDS ALLOCATED FOR GENERAL CORPORATE AND WORKING CAPITAL PURPOSES. Approximately 22.3% ($7,905,000) of the estimated net proceeds from the sale of the Debentures at an assumed public offering price of 100% and from the sale of the Common Stock at an assumed public offering price of $10.00 per share, has been allocated for general corporate and working capital purposes. Such proceeds may be utilized in the discretion of the Board of Directors. As a result, investors will not know in advance how such net proceeds will be utilized by the Company. See "Use of Proceeds."

RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS. This Prospectus contains certain forward-looking statements regarding the plans and objectives of management for future operations, including plans and objectives relating to the Affiliated Practices. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Company's plans and objectives are based on a successful execution of the Company's expansion strategy and assumptions that the Affiliated Practices will be profitable, that the health care industry will not change materially or adversely, and that there will be no unanticipated material adverse change in the Company's operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Prospectus will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the Company's early stage operations, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved.

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USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Debentures and Common Stock offered hereby are estimated to be approximately $35,575,000 (approximately $41,005,000 if the Underwriters' over-allotment option is exercised in full), assuming an initial public offering price of 100% and $10.00 per share, respectively. The Company intends to use the net proceeds of this Offering as follows:

                                                                                        APPROXIMATE     APPROXIMATE
APPLICATION OF NET PROCEEDS                                                                AMOUNT       PERCENTAGE
--------------------------------------------------------------------------------------  ------------  ---------------
Payments due upon consummation of the Acquisitions (1)................................  $  7,937,000          22.3%
Funds available for acquisitions of additional physician practices and other medical
  entities (2)........................................................................    17,500,000          49.2%
Hardware, software, and installation cost of information system (3)...................     1,650,000           4.6%
Repayment of indebtedness (4).........................................................       583,000           1.6%
General corporate and working capital purposes (5)....................................     7,905,000          22.3%
                                                                                        ------------         -----
                                                                                        $ 35,575,000         100.0%
                                                                                        ------------         -----
                                                                                        ------------         -----


(1) The Company plans to consummate the Acquisitions concurrently with the closing of this Offering. In connection with the Acquisitions, the Company will acquire certain assets and assume certain liabilities of the Initial Affiliated Practices and NBS. The costs of the Acquisitions will be paid pursuant to the respective purchase agreements through a combination of cash, notes in the aggregate principal amount of $114,000, and an aggregate of 365,800 shares of Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
(2) The Company plans to acquire certain assets and assume certain liabilities of other physician practices and other medical entities on terms the Company expects to be similar to the Acquisitions. The Company intends to finance these transactions through a combination of cash payments and issuances of notes, shares of Common Stock, and/or other securities of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
(3) Represents the costs of the hardware, software, and the installation cost associated with the information system that the Company intends to install at each Affiliated Practice.
(4) Represents (i) repayment of advances to the Company from a third party in the amount of $118,000 due upon the consummation of this Offering and bearing interest at a rate of 10% per annum, (ii) repayment of an aggregate principal amount of $435,000 of the Senior Notes sold by the Company in the Bridge Financing, and (iii) certain accrued liabilities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Certain Transactions."
(5) The remaining portion of the net proceeds will be allocated to working capital and will be used by the Company for general corporate purposes, including amounts required to pay officers' salaries, consultant and professional fees, office and administrative expenses, and other corporate expenses.

The foregoing represents the Company's best estimate of its allocation of the net proceeds from the sale of the Debentures and Common Stock offered hereby, based upon the Company's currently contemplated operations, the Company's business plan, and current economic and industry conditions, and is subject to reapportionment of proceeds among the categories listed above or to new categories in response to, among other things, changes in its plans, regulations, industry conditions, and future revenues and expenditures.

Based on the Company's operating plan, the Company believes that the net proceeds of this Offering, together with anticipated revenues from operations, will be sufficient to satisfy its capital requirements for at least 12 months following the date of this Prospectus. There can be no assurance that such resources will be sufficient to satisfy the Company's capital requirements for said period. After the 12-month period, the Company may require additional financing in order to meet its current plans for expansion. Such financing may take the form of the issuance of common or preferred equity securities or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain needed additional capital on a timely basis, on favorable terms, or at all. Any additional financing could result in dilution of the then-existing equity positions, and increased interest and amortization expense. If the Company is unable to secure additional sources of financing on terms and conditions favorable to the Company, or at all, the Company's expansion strategy could be materially adversely affected. In any of such events, the Company may be unable to implement its current plans for expansion or to repay its debt obligations. See "Capitalization," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business--Development and Operations."

Net proceeds, if any, received by the Company from the sale of the Securities issuable upon exercise of the Underwriters' over-allotment option, and proceeds, if any, received by the Company upon exercise of the Representative's Warrants, will be utilized for general corporate and working capital purposes.

Pending their utilization by the Company, the Company intends to invest the net proceeds of this Offering in interest-bearing deposit accounts, certificates of deposit, or similar short-term investment grade financial instruments.

16

DILUTION

At March 31, 1997, the pro forma negative net tangible book value of the Company, after giving effect to (i) the issuance after March 31, 1997 of an aggregate principal amount of $125,000 Senior Notes and 12,500 shares of Common Stock as part of the Bridge Financing, (ii) the PMI Acquisition, and (iii) the Acquisitions, was $(6,757,000), or approximately $(1.98) per share of Common Stock based on 3,409,300 shares of Common Stock outstanding. The net tangible book value per share represents the amount of the Company's total assets less the amount of its intangible assets and liabilities, divided by the number of shares of Common Stock outstanding. After giving effect to the receipt of net proceeds from the sale of the Debentures and Common Stock offered hereby at an assumed initial public offering price of 100% and $10.00, respectively, and the initial application of the net proceeds therefrom, the adjusted pro forma combined net tangible book value of the Company at March 31, 1997, would have been $3,818,000, or approximately $.78 per share of Common Stock. This would result in dilution to the public investors of approximately $9.22 per share (or approximately 92.2%). The following table illustrates the per share dilution:

Assumed initial public offering price per share of Common
Stock.......................................................             $   10.00

  Pro forma negative net tangible book value per share of
  Common Stock prior to this Offering.......................  $   (1.98)

  Increase attributable to new investors....................       2.76
                                                              ---------

Pro forma net tangible book value per share of Common Stock
after this Offering.........................................                   .78
                                                                         ---------

Dilution in pro forma net tangible book value per share of
Common Stock to new investors...............................             $    9.22
                                                                         ---------
                                                                         ---------

In the event the Underwriters' over-allotment option is exercised in full, the pro forma net tangible book value as of March 31, 1997 would be $5,854,250, or $1.19 per share of Common Stock, which would result in immediate dilution in net tangible book value to new investors of approximately $8.81 per share.

The following table sets forth, on a pro forma basis, as of the date of this Prospectus, the number of shares of Common Stock purchased, the percentage of total shares of Common Stock purchased, the total consideration paid, the percentage of total consideration paid, and the average price per share of Common Stock paid by the investors in this Offering and the existing stockholders of the Company:

                                                       SHARES OF COMMON
                                                        STOCK PURCHASED         TOTAL CONSIDERATION        AVERAGE
                                                    -----------------------  --------------------------   PRICE PER
                                                      NUMBER    PERCENTAGE      AMOUNT      PERCENTAGE      SHARE
                                                    ----------  -----------  -------------  -----------  -----------
Existing Stockholders.............................   3,043,500        62.0%  $      30,000         0.2%   $    0.01
Initial Acquired Entities.........................     365,800         7.5%      3,658,000        19.5%   $   10.00
New Investors(1)..................................   1,500,000        30.5%     15,000,000        80.3%   $   10.00
                                                    ----------       -----   -------------       -----
  Total...........................................   4,909,300       100.0%  $  18,688,000       100.0%
                                                    ----------       -----   -------------       -----
                                                    ----------       -----   -------------       -----

17

CAPITALIZATION

The following table sets forth, at March 31, 1997, the capitalization of the Company (i) on an actual basis and (ii) on a pro forma, as adjusted basis, giving effect to (a) the issuance after March 31, 1997 of the aggregate principal amount of $125,000 Senior Notes and 12,500 shares of Common Stock as part of the Bridge Financing, (b) the PMI Acquisition, and (c) the sale of the Debentures and Common Stock at the assumed initial public offering price of 100% and $10.00, respectively, and the initial application of the net proceeds therefrom, including the consummation of the Acquisitions. This table should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Prospectus. See "Use of Proceeds" and the Consolidated Financial Statements and the Notes thereto.

                                                                                              MARCH 31, 1997
                                                                                         -------------------------
                                                                                                      PRO FORMA,
                                                                                           ACTUAL     AS ADJUSTED
                                                                                         ----------  -------------
Short-term debt........................................................................  $  310,000  $    --
                                                                                         ----------  -------------
                                                                                         ----------  -------------
Long-term debt:
  Debentures...........................................................................      --         25,000,000
  Notes payable........................................................................      --            387,000
                                                                                         ----------  -------------
      Total long-term debt.............................................................      --         25,387,000
                                                                                         ----------  -------------
Stockholders' equity:
  Preferred Stock--$.01 par value, authorized--
  1,000,000 shares; none issued and outstanding........................................      --           --

  Common Stock--$.01 par value, authorized--
  50,000,000 shares; issued and outstanding
  3,043,500 shares, actual and 4,909,300 shares
  pro forma as adjusted................................................................      30,000         49,000
  Additional paid-in capital...........................................................      --         16,256,000
  Accumulated earnings (deficit).......................................................     (20,000)       (20,000)
                                                                                         ----------  -------------
Total stockholders' equity.............................................................      10,000     16,285,000
                                                                                         ----------  -------------
Total capitalization...................................................................  $   10,000  $  41,672,000
                                                                                         ----------  -------------
                                                                                         ----------  -------------

18

DIVIDEND POLICY

The Company has not paid cash dividends on the Common Stock since inception and does not intend to pay any dividends to its stockholders in the foreseeable future. The Company currently intends to reinvest earnings, if any, in the development and expansion of its business. The declaration of dividends in the future will be at the election of the Board of Directors and will depend upon the earnings, capital requirements, and financial position of the Company, general economic conditions, and other pertinent factors.

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SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company for each of the periods indicated. The selected financial data of the Company for the period from April 25, 1995 (inception) to December 31, 1995 and the year ended December 31, 1996 are derived from the Financial Statements of the Company which have been audited by Feldman Radin & Co., P.C., independent certified public accountants. The selected financial data for the three month periods ended March 31, 1996 and 1997 and as of March 31, 1997 were derived from the unaudited financial statements of the Company. The unaudited financial statements include all adjustments, consisting of normal recurring accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for these periods. All of the information set forth below should be read in conjunction with the Financial Statements of the Company and related notes thereto appearing elsewhere in this Prospectus.

STATEMENT OF OPERATIONS DATA:

                                                                                             THREE MONTHS ENDED MARCH 31,
                                             INCEPTION                             -------------------------------------------------
                                            (APRIL 25,          YEAR ENDED
                                               1995)        DECEMBER 31, 1996               1996                      1997
                                              THROUGH    ------------------------  -----------------------  ------------------------
                                             DECEMBER                    PRO                      PRO                       PRO
                                             31, 1995     ACTUAL      FORMA(1)      ACTUAL      FORMA(1)      ACTUAL      FORMA(1)
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
Revenue:
  Medical service revenue, net of
    contractual adjustments and bad
    debts.................................   $  --       $  --      $  18,470,000  $  --      $  4,795,000  $   --      $  4,716,000
  Other revenue...........................      --          --             38,000     --             9,000      --            10,000
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
    Total revenue.........................      --          --         18,508,000     --         4,804,000      --         4,726,000
Costs and expenses:.......................                                                                                   --
  Salaries and wages......................      --          --         13,519,000     --         3,263,000      --         2,580,000
  Medical supplies and expenses...........      --          --            426,000     --           110,000      --            98,000
  General and administrative expenses.....      --           4,000      4,174,000      2,000     1,283,000      12,000     1,842,000
  Depreciation and amortization...........       1,000       2,000      1,185,000      1,000       298,000       1,000       300,000
  Interest expense........................      --          --          1,752,000     --           438,000      --           438,000
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
    Total costs and expenses..............       1,000       6,000     21,056,000      3,000     5,392,000      13,000     5,258,000
Loss before income taxes..................      (1,000)     (6,000)    (2,548,000)    (3,000)     (588,000)    (13,000)    (532,000)
Provision for income taxes................      --          --           --           --           --           --           --
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
Net loss..................................   $  (1,000)  $  (6,000) $  (2,548,000) $  (3,000) $   (588,000) $  (13,000) $  (532,000)
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
                                            -----------  ---------  -------------  ---------  ------------  ----------  ------------
Pro forma net loss per share(2)...........                          $       (0.52)            $      (0.12)             $     (0.11)
                                                                    -------------             ------------              ------------
                                                                    -------------             ------------              ------------
Pro forma weighted average number of
  shares outstanding(2)...................                              4,909,300                4,909,300                 4,909,300
                                                                    -------------             ------------              ------------
                                                                    -------------             ------------              ------------


(1) The pro forma statement of operations data for the fiscal year ended December 31, 1996 and for the three months ended March 31, 1996 and 1997 is presented as if the Acquisitions and the PMI Acquisition had occurred on January 1, 1996. The pro forma balance sheet data for March 31, 1997 is presented as if the Acquisitions and the PMI Acquisition had occurred on March 31, 1997. See "Management's Discussion and Analysis of Financial Condition and Results of Operation" and Notes to Unaudited Pro Forma Consolidated Financial Statements."

(2) See Note II to the Unaudited Pro Forma Consolidated Statement of Operations Adjustments.

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BALANCE SHEET DATA:

                                                                             DECEMBER 31,               MARCH 31, 1997
                                                                        -----------------------  -----------------------------
                                                                                                               PRO FORMA, AS
                                                                           1995        1996        ACTUAL      ADJUSTED(1)(3)
                                                                        ----------  -----------  -----------  ----------------
Working capital (deficiency)..........................................  $  (74,000) $  (243,000) $  (329,000)  $   27,225,000

Total assets..........................................................      73,000      296,000      473,000       41,957,000

Total liabilities.....................................................      74,000      273,000      463,000       25,672,000

Stockholders' equity (deficit)........................................  $   (1,000) $    23,000  $    10,000   $   16,285,000


(3) Gives effect on a pro forma basis to the issuance after March 31, 1997 of Senior Notes in the aggregate principal amount of $125,000 and 12,500 shares of Common Stock as part of the Bridge Financing, and as adjusted to reflect the sale of the Debentures and the Common Stock offered hereby, assuming an initial public offering price of 100% and $10.00 per share, respectively, and the initial application of the net proceeds therefrom. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. SEE "RISK FACTORS--RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS." ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS." THE FOLLOWING DISCUSSION OF THE OPERATIONS AND FINANCIAL CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S AUDITED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.

GENERAL

The Company was incorporated under the laws of the State of Delaware on April 25, 1995. The Company's activities to date have consisted primarily of developing corporate infrastructure, seeking capital to fund operations, seeking affiliations with physician practices, negotiating acquisitions of certain assets of such physician practices, and providing consulting services to one of the Initial Affiliated Practices pursuant to a consulting agreement.

In April 1997, pursuant to a stock purchase agreement, the Company purchased all of the outstanding capital stock of PMI from Dr. Dennis B. Liotta, the president of PMI, for $2,000 and agreed to assume PMI's liabilities in the amount of $37,000. In addition, the Company entered into an employment agreement pursuant to which Dr. Liotta agreed to serve as the Executive Vice President and Chief Operating Officer of the Company. As a result of such transaction, PMI became a wholly-owned subsidiary of the Company.

Simultaneously with the closing of this Offering, the Company intends to exchange cash, notes, and an aggregate of 365,800 shares of Common Stock for certain assets, and assume certain liabilities of the Initial Affiliated Practices and NBS and NBS's subsidiary, Radiology Billing and Management Services, Inc. The Initial Affiliated Practices are located in the States of New Jersey and Pennsylvania and are comprised of the following entities: Joel Fuhrman, M.D., P.C.; Bound Brook Pediatric Associates, P.A.; Branchberg Eye Physicians, P.A.; Alexander Kudryk, M.D.; Audrey Hinds-McDonald, M.D., P.A.; Hunterdon Ophthalmologists, P.A.; Richard M. Weeder, M.D.; Felix Salerno, M.D.; Kenneth Stern, M.D., P.A.; Flemington Medical Group, P.A.; John E. Durst, M.D.; Reliance Medical Group, P.C. and its affiliate Reliance Health Care Group, Inc.

Pursuant to asset purchase agreements and/or goodwill purchase agreements with the Initial Affiliated Practices, the Company will issue promissory notes in the aggregate principal amount of $114,000. Such notes will bear interest at the rate of 8% per annum and mature in September 1999. The Company will also assume certain liabilities of the Initial Affiliated Practices and NBS in the aggregate amount of $523,000 consisting of $57,000 of capitalized lease obligations, $65,000 of general accounts payable, $273,000 of long-term obligations, and $128,000 of short-term notes payable. The agreements between the Company and the Initial Affiliated Practices expire on September 30, 1997.

The Acquisitions will be accounted for as a "purchase." The recording of such Acquisitions will be based upon ultimate appraisals, evaluations, and estimates of fair values. If these appraisals and evaluations identify assets with lives shorter than estimated by the Company, such assets will be amortized over their expected useful lives. Goodwill will be amortized on a straight-line basis over a 20 year period. Periodically, but no less than quarterly, the Company will evaluate the relative fair market value of the intangible assets identified, in its acquisitions by eliminating the future earning streams of the related business lines and comparing the present value of the result of that estimation to the stated value of the related assets. Impairments, if any, will be charged to operations when identified. Substantially all of the goodwill on the Company's pro forma adjusted balance sheet as of March 31, 1997 is related to the Acquisitions. The Company is continually seeking additional physician practices with which to affiliate and

22

is currently engaged in negotiations with various groups, although as of the date of this Prospectus, the Company does not have any agreements with such additional physician practices.

Prior to affiliation with the Company, the medical practices to be acquired practice medicine through sole proprietorships or through professional corporations ("PCs") owned by one or more medical doctors licensed to practice medicine under applicable state law (the "Affiliated Physicians"). Two of the sole proprietorships being acquired by the Company were, prior to affiliation with the Company, affiliated with a PC. The assets attributable to such sole proprietorships will be acquired by the Company as part of the Acquisitions. In connection with the acquisition of the physician practices by the Company, the Company will acquire, pursuant to asset purchase agreements with the PCs and/or goodwill purchase agreements with the sole proprietorships, the furniture, fixtures, medical equipment and supplies, goodwill, and certain other assets of the practices. The Company will cause to be formed a new PC (the "Affiliated PC"), to be owned by a director or officer of the Company, designated by the Board of Directors, who is also a physician. The Affiliated PC will employ the Affiliated Physicians and will carry on the practice previously conducted by such physicians. The Affiliated PCs will, simultaneously therewith, enter into long-term contractual relationships with the Company, generally for 40 years, pursuant to PMSAs.

Under the terms of the PMSAs, the Affiliated PCs will assign all of their revenue to the Company in return for the services and expertise provided to the Affiliated PCs by the Company, including furnishing the Affiliated PCs with facilities, equipment, and supplies required for the operation of the practice and for the assumption by the Company of the overhead costs of the practice. The Company, in turn, will return to the Affiliated PCs such sums, estimated to be approximately 40% of revenues, as shall be required to pay physician compensation, taxes, benefits, and personal expenses. Each Affiliated Physician will provide medical services to an Affiliated PC pursuant to the terms of an employment agreement, generally three to five years in duration, by which the Affiliated Physician earns a base salary and can earn additional incentive compensation based upon the profitability of the practice to which the physician is employed.

Operating expenses will consist of the expenses incurred by the Company in fulfilling its obligations under the PMSAs. These expenses are the same as the operating costs and expenses that would have been incurred by the Affiliated Practices, including, without limitation, non-physician salaries and employee benefits, medical supplies, building rent, equipment leases, malpractice insurance premiums, management information systems, and other expenses related to practice operations.

In addition to the practice expenses discussed above, the Company will also incur personnel and administrative expenses in connection with maintaining a corporate office that provides management, administrative, and marketing services to the Affiliated Practices. The Company's profitability will depend on, among other things, increasing market share, expanding healthcare services, enhancing operating efficiencies, and developing favorable contractual relationships with payors.

Management believes that industry trends toward cost containment and lower reimbursement rates will continue to result in a reduction in per patient revenue. Further reductions in reimbursement rates could have an adverse effect on the Company's operations unless the Company is otherwise able to offset such payment reductions.

RESULTS OF OPERATIONS

The Company has conducted no significant operations to date and will not conduct significant operations until the Acquisitions and the Offering are completed. General and administrative expenses were incurred during the year ended December 31, 1996 and during the three months ended March 31, 1997 in connection with this Offering. The Company has incurred and will continue to incur various legal, accounting, travel, personnel, and marketing costs in connection with the Acquisitions and the Offering. See "Use of Proceeds."

23

LIQUIDITY AND CAPITAL RESOURCES

The Company commenced operations on April 25, 1995 and, as of March 31, 1997, the Company had a working capital deficiency of approximately $329,000 and an accumulated deficit of approximately $20,000. The Company has generated limited revenue since its inception.

Between December 1996 and May 1997, the Company consummated the Bridge Financing, the gross proceeds of which were $435,000. Such proceeds were used by the Company to fund the expenses relating to this Offering and other expenses in connection with the operation of the Company's initial activities. The Bridge Financing resulted in the issuance of 43,500 shares of Common Stock and Senior Notes pursuant to which the Company is obligated to pay the aggregate principal amount of $435,000, plus interest thereon. The Senior Notes bear interest at the rate of 10% per annum and mature on the earlier of (i) one year from the date of issuance and (ii) the closing of the Offering. The Company intends to repay the Senior Notes, plus interest thereon, with a portion of the net proceeds from this Offering. See "Use of Proceeds."

Wellness Concepts Inc. ("Wellness"), the founding stockholder of the Company, has advanced $148,000 to the Company since inception. Such amount was used to fund a portion of the costs of this Offering. As of July 31, 1997, the balance owed by the Company to Wellness was $118,000, which the Company intends to repay with a portion of the net proceeds of this Offering. See "Use of Proceeds" and "Certain Transactions."

Effective April 1, 1997, the Company entered into a one year consulting agreement with Reliance Medical Group, P.C. ("Reliance"), one of the Initial Affiliated Practices. Under the terms of the consulting agreement, the Company provides physician practice management services to Reliance in return for a fixed monthly compensation of $25,000. Upon consummation of the Offering, the consulting agreement will be terminated and Reliance will become an Affiliated Practice.

The Company anticipates that capital expenditures during 1997 will relate primarily to affiliations with additional physician practices. Future acquisitions of physician practices are expected to be structured similarly to the acquisitions of the Initial Affiliated Practices. It is anticipated that funding for these purposes will be derived from the proceeds of this Offering and cash flow from operations. Based on the Company's operating plan, the Company believes that the net proceeds of this Offering, and anticipated revenues from operations will be sufficient to satisfy its capital requirements for at least 12 months following the date of this Prospectus. There can be no assurance that such resources will be sufficient to satisfy the Company's capital requirements for said period. After the 12-month period, the Company may require additional financing in order to meet its current plans for expansion. Such financing may take the form of the issuance of common or preferred equity securities or debt securities, or may involve bank financing. There can be no assurance that the Company will be able to obtain needed additional capital on a timely basis, on favorable terms, or at all. Any additional financing could result in dilution of the then-existing equity positions, increased interest and amortization expense, or decreased income to fund future expansion. In any of such events, the Company may be unable to implement its current plans for expansion or to repay its debt obligations

24

BUSINESS

GENERAL

The Company is a newly established PPMO which is developing an integrated health care delivery network in selected geographic areas through affiliation with physician practices. Upon the closing of this Offering, the operations of the Company will consist of (i) the Initial Affiliated Practices, consisting of 12 medical practices located in New Jersey and Pennsylvania, (ii) PMI, which is engaged in the development and management of IPAs and is currently affiliated with approximately 225 physicians in the State of New Jersey, and (iii) NBS, which is engaged in the development and management of physician fee billing, electronic medical records, and utilization information systems for medical practices. NBS currently manages patient and third party billing services for 25 medical practices unaffiliated with the Company in Pennsylvania.

The Company's objective is to develop and manage an integrated health care delivery network that provides high quality, cost-effective care. The Company has focused and intends, at least initially, to continue to focus, its primary affiliation efforts on physician practices located in New Jersey, New York, and Pennsylvania. The Company targets physicians who are committed to the delivery of high quality, cost-effective care and have a reputation with their patients, peers, and payors for providing quality medical services and that have the capacity to increase profitability through improved performance on existing patient bases. When affiliating with a physician practice, the Company will typically purchase the practice's non-real estate operating assets and enter into a long-term PMSA with the practice in exchange for a combination of Common Stock, cash, notes, other securities of the Company, and/or the assumption of liabilities.

INDUSTRY BACKGROUND

The health care delivery system in the United States has been undergoing substantial change, largely in response to concerns over the quality and escalating cost of health care. National expenditures for health care grew from $250 billion in 1980 to an estimated $1 trillion in 1995. Of the total estimated 1995 expenditures, physicians received approximately $200 billion for their own services and controlled an additional $600 billion through the referral of patients for additional care and services provided by others. Concerns over the accelerating cost of health care have resulted in the increasing prominence of managed care. The Company believes that traditional physician practices are at a competitive disadvantage in a managed care environment because they typically have high operating costs, have little purchasing power with suppliers, and must spread overhead over a relatively small revenue base. In addition, these physician practices often have insufficient capital to acquire equipment to incorporate new technologies and often lack the sophisticated systems necessary to contract effectively with managed care entities. Physician practices are increasingly turning to organizations such as the Company to provide the professional management expertise and capital required to compete in the managed care environment and otherwise to assist them with the increasingly complex management of physician practices. The Company believes that this has resulted in a need for management organizations committed to preserving the professional autonomy of physician practices and whose economic incentives are aligned with those of physicians.

As a result of these changes in the marketplace, physicians are increasingly abandoning traditional private practice in favor of affiliations with larger organizations, such as PPMOs, which offer skilled and innovative management of physician practices, sophisticated information systems, and capital resources. Many payors and their intermediaries, including governmental entities and HMOs, are increasingly looking to outside providers of physician services to develop and maintain quality outcomes, management programs, and patient care data. In addition, such payors and intermediaries look to share the risk of providing services through capitation arrangements which provide for fixed payments for patient care over a specified period of time.

25

The Company believes that PPMOs preserve the professional autonomy of physician groups whose economic incentives are aligned with those of physicians. Because of the position of primary care physicians in managing the delivery of healthcare by both providing primary care and controlling patient referrals, the Company further believes that multi-speciality groups with a substantial primary care orientation are likely to be best positioned to succeed in the emerging managed care environment because the specialty groups will be able to refer patients within the Company's integrated health care delivery network.

STRATEGY

The Company's strategy is to develop and manage an integrated health care delivery network that provides high quality, cost-effective care. The key elements of this strategy are as follows:

TARGETING FOR AFFILIATION HIGH QUALITY AND PRODUCTIVE PHYSICIAN PRACTICES WHICH ARE COMMITTED TO EXPANDING AND PROVIDING COST-EFFECTIVE CARE. The Company targets physician practices which are committed to the delivery of high quality, cost-effective care and have a reputation with patients, peers, and payors for providing quality medical services. The targeted physician practices must also be intent on expanding and enhancing their practices. The Company has focused and intends, at least initially, to continue to focus its primary affiliation efforts on physician practices located in New Jersey, New York, and Pennsylvania.

INTEGRATING PHYSICIAN PRACTICES INTO COMPANY-COORDINATED SBUS TO PROVIDE PHYSICIAN AND MEDICAL SUPPORT SERVICES WITHIN SPECIFIC GEOGRAPHIC REGIONS. The Company intends to organize the Affiliated Practices and any related medical support services into SBUs. The SBUs will be designed to provide a comprehensive range of physician and medical support services within specific geographic regions. The Company believes that its SBU structure will achieve operating efficiencies and enhance its ability to secure contracts with managed care organizations. Under the SBU model, physicians affiliated with the Company will continue to exercise the same level of clinical autonomy they possessed prior to affiliation with the Company, while at the same time capitalizing on the advantages of belonging to a larger organization. Furthermore, the Company believes that such a model will provide it with greater management control of its health care delivery network.

CONTRACTING WITH STATE AND LOCAL GOVERNMENTS TO PROVIDE MEDICAL SERVICES TO ELDERLY AND INDIGENT POPULATIONS. The Company believes that the increasing cost of health care has begun to, and will in the future, cause urban governments to subsidize health care services to the elderly and indigent population. One of the Initial Affiliated Practices has a contract with the city of Atlantic City, New Jersey, to deliver health care services to the elderly and indigent. The Company believes that it will be able to approach and contract directly with other local governments to provide low cost, comprehensive medical care services, through the Affiliated Practices, to the elderly and indigent.

ENHANCING THE ABILITY OF THE PHYSICIANS TO FOCUS ON CLINICAL PRACTICE ISSUES BY RELIEVING THEM OF MOST ADMINISTRATIVE FUNCTIONS. Physicians in independent practice are required to devote considerable time to process paperwork for payors, as well as supervising the administration of their offices. The Company intends to assume most of the administrative functions of each Affiliated Practice, thereby enabling each physician to devote increased time to the provision of medical care. Furthermore, Affiliated Physicians will participate in utilization and quality management committees, which will be responsible for focusing on the assessment and improvement of patient outcomes.

IMPLEMENTING AND UTILIZING AN INFORMATION SYSTEM TO MANAGE PATIENT CARE AND TO CONTROL COSTS. The Company believes that information technology is critical to the advancement of a quality health care delivery system. The Company intends to develop and implement an information system that provides for the ongoing collection and review of clinical and administrative data in order to control overhead expenses, maximize reimbursement, and provide effective utilization management. Furthermore, the

26

Company believes that an information system will enable the Affiliated Practices to collect and retrieve clinical data more efficiently.

COORDINATING PURCHASES OF SUPPLIES, EQUIPMENT, AND SERVICES IN ORDER TO REALIZE ECONOMIES OF SCALE. The Company believes that economies of scale inherent in a health care delivery network with centralized billing, collections, payroll, and accounting services will allow the Company to reduce operating costs and enable the Company to negotiate quantity purchasing contracts for supplies, equipment, and services on behalf of the Affiliated Practices. In addition, the Company believes that a health care delivery network configuration provides the Company the leverage to negotiate rates and contract terms with HMOs and other payors more favorable than the rates and terms that physician groups have historically been able to obtain independently. Similarly, the Company believes that as a larger entity it will have more bargaining power and will be able to negotiate more favorable rates for purchased out-of-network physician services.

DEVELOPING AND ENHANCING IPA SERVICES AND CONTRACTS. The Company believes that the health care industry will continue to be driven by local market factors and that organized providers of health care, including IPAs, will continue to play a significant role in delivering cost-effective, quality medical care. Physicians affiliated with IPAs often seek additional practice management services, including billing, staffing, and financial management services, which the Company believes it can provide on competitive terms. The Company anticipates that IPA management will be an additional service that will allow it to enter new markets without initially having to affiliate with physician practices.

POSITIONING THE COMPANY TO MAXIMIZE MANAGED CARE CONTRACT OPPORTUNITIES. The complexities of the managed care environment create a significant administrative burden for physicians. The growth of capitated reimbursement presents the challenge of projecting costs of care based upon patient populations, physician treatment patterns, and the specific requirements of managed care contracts. The Company intends to develop and utilize a management information system, which will be designed to improve productivity, manage complex reimbursement methodologies, measure patient satisfaction and outcomes of care, and integrate information from multiple sources.

DEVELOPING ANCILLARY SERVICES AND BROADENING THE SPECIALTIES OF THE COMPANY'S HEALTH CARE DELIVERY NETWORK IN ORDER TO ENHANCE REVENUES AND PROFITABILITY. The Company may add ancillary services, such as pharmacy, laboratory testing, radiologic imaging, and medical/surgical specialists either by acquisition and affiliation or by direct contracting. Including these services and specialists will enable the Company to deliver more comprehensive services and intensify its market presence. As of the date of this Prospectus, the Company has no understanding, commitment, or agreement with respect to any acquisitions, affiliations, or direct contracting other than the Acquisitions.

DEVELOPMENT AND OPERATIONS

The Company has developed a physician practice model based on the formation of SBUs consisting of physicians situated in the same geographic area. By forming SBUs, the Company believes that physicians employed by the Affiliated Practices will continue to exercise the same level of clinical autonomy they possessed prior to affiliation with the Company, while at the same time capitalizing on the advantages of belonging to a larger organization, including the ability to exercise leverage in negotiating with managed care companies. Furthermore, such a model is designed to provide the Company with greater management control of its physician network. The Company believes that its SBU model is replicable and will ultimately permit it to expand its operations nationwide.

IDENTIFYING POTENTIAL AFFILIATIONS. The Company has focused, and intends, at least initially, to continue to focus, its primary affiliation efforts on primary care physician practices located in New Jersey, New York, and Pennsylvania. The Company intends to expand its efforts to other states and to specialty medical practices following the affiliation and integration of the Initial Affiliated Practices. The Company's

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development goals emphasize the affiliation of high-profile practices, both primary and specialty care, to meet the needs of patients and payors, adjusted according to the dynamics of individual markets.

The Company's success will largely depend upon the quantity and quality of physician practices that it can attract to affiliate with the Company. Management believes that the Company will have the financial resources, experienced personnel, and information systems that will enable it to identify a significant number of potential affiliates that meet the Company's criteria for affiliation.

The Company targets markets by considering, among other things, the following factors: (i) population size and distribution; (ii) physician practice density, specialty composition, saturation, and average group size; (iii) local competitors in the physician management business; (iv) level of managed care penetration; and (v) local industry and economy. The Company focuses on physicians within such markets who are committed to the delivery of high quality, cost-effective care and have a reputation with their patients, peers, and payors for providing quality medical services and that have the capacity to increase profitability through improved performance on existing patient bases. Once the Company identifies a potential affiliate, the Company conducts a comprehensive analysis of the practice, including a thorough financial and operational review and evaluation of staff, facilities, equipment, and systems. Initially, an estimate of the current value of the practice is calculated based on the practice's gross income, net profit, and new treatment contracts written during the prior twelve months. In addition, current staff are interviewed to determine their suitability for, and commitment to, the practice, and the facilities and equipment are reviewed to ensure that they will support a larger and growing practice without significant additional cost. Finally, the practice's current systems for starting new patients, reviewing treatment programs, scheduling, communicating with patients and referral sources, marketing and controlling expenses, and the cost of upgrading or replacing the systems, are analyzed.

If the practice satisfies the Company's criteria for affiliation, an offer is made for the practice to affiliate with the Company. The Company outlines proposed financial terms of the affiliation, including the Company's valuation of the practice and the amount of cash, notes, and shares of Common Stock that the Company proposes to pay to acquire certain assets of the PC associated with the practice. Once the basic business terms of the affiliation are agreed to, the parties proceed to execute an asset purchase agreement and/or goodwill purchase agreement and the related PMSA.

Prior to affiliation with the Company, the medical practices to be acquired practice medicine through sole proprietorships or through PCs owned by one or more medical doctors licensed to practice medicine under applicable state law. In connection with the acquisition of the physician practices by the Company, the Company will acquire, pursuant to asset purchase agreements and/or goodwill purchase agreements with the sole proprietorships or PCs, the furniture, fixtures, medical equipment and supplies, goodwill, and certain other assets of the practices. The Company will cause to be formed an Affiliated PC, to be owned by a director or officer of the Company, designated by the Board of Directors, who is also a physician. The Affiliated PC will employ the Affiliated Physicians and will carry on the practice previously conducted by such physicians. The Affiliated PCs will, simultaneously therewith, enter into long-term contractual relationships with the Company, generally for 40 years, pursuant to PMSAs.

Under the terms of the PMSAs, the Affiliated PCs will assign all of their revenue to the Company in return for the services and expertise provided to the Affiliated PCs by the Company, including furnishing the Affiliated PCs with facilities, equipment, and supplies required for the operation of the practice and for the assumption by the Company of the overhead costs of the practice. The Company, in turn, will return to the Affiliated PCs such sums, estimated to be approximately 40% of revenues, as shall be required to pay physician compensation, taxes, benefits, and personal expenses. Each Affiliated Physician will provide medical services to an Affiliated PC pursuant to the terms of an employment agreement, generally three to five years in duration, by which the physician earns a base salary and can earn additional incentive compensation based upon the profitability of the practice with which the physician is employed.

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OPERATIONS. Effective upon the consummation of this Offering, the Company will acquire the Initial Affiliated Practices. To meet payor demand for price competitive quality services, the Company intends to organize the Affiliated Practices into SBUs by utilizing a market-based approach that incorporates a comprehensive range of physician and medical support services within specific geographic regions. The Company will engage in research activities and market analysis to determine the optimal configuration of each SBU for its particular market.

The Company intends to enhance growth in the Affiliated Practices by adding to, and expanding, managed care arrangements, assisting in the recruitment of new physicians and adding services which historically have been performed outside of the practices. The Company will work closely with the Affiliated Physicians in targeting and recruiting physicians and in merging sole practices or single specialty groups into the Affiliated Practices. The Company intends to assist in the development of new and expanded ancillary services by providing the needed capital resources and management services. In addition, the Company intends to recognize and develop opportunities to provide services throughout a market by positioning the Affiliated Practices in such a way that an entire market is covered geographically. The Company believes this approach will improve patient convenience and respond to coverage criteria essential to payors.

The Company's organizational structure is designed to include physician representation on the Company's Board of Directors. In addition, the Company and each SBU will establish a Planning Board consisting of an SBU clinical director, two physician representatives, and three representatives of the Company. The Planning Board's responsibilities include developing long-term strategic objectives, recommending significant capital expenditures, and facilitating communication and information exchange between the Company and each of the SBUs. The representation of the Affiliated Physicians on each Planning Board ensures that the physicians within each group will retain a significant voice in the expansion and operation of their group, while benefitting from the Company's management experience and expertise. As the Company expands, it intends to establish Planning Boards on a regional level.

The Company's SBUs will consist predominantly of primary care and specialty physicians organized in a similar configuration as the Initial Affiliated Practices. The following table sets forth the configuration, consisting of five initial SBUs, of the Company's Initial Affiliated Practices:

                                                  NUMBER OF
LOCATION                                    AFFILIATED PHYSICIANS                  SPECIALTIES
-----------------------------------------  -----------------------  -----------------------------------------
Atlantic City, New Jersey................                15         Primary Care / OB/GYN
Atlantic City, New Jersey................                 7         Primary Care / Pediatric Medicine
Atlantic City, New Jersey................                 5         Internal Medicine
Atlantic City, New Jersey................                 3         Primary Care

Hunterdon County, New Jersey.............                 3         Primary Care
Hunterdon County, New Jersey.............                 3         Opthamology
Hunterdon County, New Jersey.............                 2         General Surgery

Somerset County, New Jersey..............                 1         Primary Care
Somerset County, New Jersey..............                 1         Primary Care / Pediatric Medicine

Hudson County, New Jersey................                 1         Primary Care

Monmouth County, New Jersey..............                 1         Primary Care
                                                         --
                                                         42

Primary care includes family practice, internal medicine, pediatrics, and obstetrics/gynecology. Physicians in such practice categories are regarded as "gatekeepers" for the remainder of the health care industry and, as such, these physicians generally coordinate patient care from various providers in various settings to ensure appropriate care and resource utilization. By initially developing primary care markets,

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the Company believes it will be able to subsequently build an integrated comprehensive physician network that includes specialty care practices, outpatient services, and ancillary services.

In April 1997, the Company acquired 100% of the capital stock of PMI. PMI has, for the past seven years, been engaged in the business of the management of IPAs. An IPA is generally composed of a group of geographically diverse independent physicians who form an association for the purpose of contracting as a single entity. PMI provides a number of administrative management services to physician organizations, including, but not limited to, credentialing services, licensing, group purchasing, managed care contracting, benefits administration, and practice management. As a subsidiary of the Company, PMI will continue to offer such services and products to those physician groups which are not yet willing to be acquired by the Company, but are interested in receiving the benefits to be derived from an association with a physician practice management company. By contracting with these physician organizations, the Company believes it will be able to expand its influence in the physician marketplace and will have the opportunity to showcase its products and services. The Company believes that the IPA structure not only increases the purchasing power of the constituent practices, but also provides a foundation for the development of an integrated physician network.

Effective upon the consummation of this Offering, the Company will acquire 100% of the capital stock of NBS. NBS has, for the past eleven years, been engaged in the business of providing comprehensive medical billing and collection services to physicians and medical practices throughout Pennsylvania. In so doing, NBS has developed computer systems which streamline the collection and processing of the data required for the efficient and cost-effective billing of fees and medical services. Additionally, officials of NBS are familiar with the rules, regulations, customs, and practices related to the often complex and complicated reimbursement procedures utilized by Medicare, Medicaid, and managed care organizations with respect to payment for physician services. Subsequent to the consummation of this Offering, the Company believes it will benefit from this specialized knowledge and experience as it intends to install the NBS billing and collection practices in each of the Affiliated Practices. In addition, the Company believes that NBS's current customers, which are currently unaffiliated with the Company, will provide it with a pool of prospective acquisitions as well as an outlet for additional third party management services offered by the Company.

MANAGEMENT AND ADMINISTRATION SERVICES. Upon affiliation with a physician practice, the Company intends to assume most administrative functions of each practice, including billing, collections, accounts payable, payroll, human resources, purchasing, lease administration, property management, and telecommunications, thereby enabling each physician to devote increased time to the provision of medical care. Furthermore, Affiliated Physicians will participate in utilization and quality management committees, which will be responsible for focusing on the assessment and improvement of patient outcomes. The Company anticipates that the Affiliated Physicians will be an integral part of the ongoing evaluation and monitoring of medical care. As a result, the Company anticipates that each Affiliated Practice will benefit from increased efficiency and economies of scale.

The Company intends to provide medical management services to the Affiliated Practices. These services will include:

UTILIZATION MANAGEMENT. Utilization management services have been designed to be peer-to-peer. This means that the Affiliated Physicians within each SBU will be responsible for reviewing and advising one another on how to better manage operations and mitigate costs. Utilization management services will encourage the Affiliated Physicians to provide cost-effective care to their patients that emphasizes (i) disease prevention and (ii) the elimination of unnecessary tests, procedures, hospitalizations, surgeries, and referrals to specialty care physicians. In addition, the Company intends to design and implement a management information system to enable the Company and the Affiliated Practices to correct coding errors, which are typically made by individual and small group practices, which the Company believes may

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result in improved revenues. Additionally, regular chart reviews and billing audits will allow the Company to do its own pre-loss risk management to prevent malpractice claims.

CASE MANAGEMENT. The Company intends to utilize its management services to advise the Affiliated Practices with respect to workers' compensation and personal injury evaluation and treatment on an as needed basis. The Company's management services will be comprised of both a clinical and an administrative process by which health care services are identified, coordinated, implemented, and evaluated on an ongoing basis for patients experiencing certain health problems, particularly those that require longer-term treatment. In both the workers' compensation and personal injury areas, the Company believes that the case management approach will provide the Affiliated Practices with guidance, prevent costly litigation, and allow for a continuum of care over an extended treatment period. The Company believes that the success of these services with the Affiliated Practices could lead to the future development of a similar service to practices unaffiliated with the Company.

QUALITY ASSURANCE. The Company intends to implement programs that provide both physicians and payors with quality assurance information on a regular reporting basis. These programs include physician peer review, patient satisfaction surveys, medical records auditing, and continuing education/development for medical staff as required by accrediting organizations, state law, and licensing requirements.

PHYSICIAN CREDENTIALING. The Company intends to maintain, and comply with, the credentialing standards established by national accreditation bodies for each of the Affiliated Physicians, without exception. The credentialing process is an important part of any managed care contracting arrangement. The Company intends to comply with the standards of the National Committee on Quality Assurance ("NCQA") and the Joint Commission on Accreditation of Health Care Organizations.

ANCILLARY SERVICES. The Company intends to add ancillary services, such as laboratory testing, pharmacy, imaging, and medical/surgical specialists to its SBUs, on a SBU-by-SBU basis determined based on need, either by acquisition and affiliation or by direct contracting. The Company believes that including these services and specialists will enable the Company to deliver more comprehensive services, which will increase its bargaining power with managed care companies and payors and intensify its market presence. Management will rely on each SBU to identify the need for services and medical/surgical specialities which will augment its ability to deliver comprehensive health care.

MANAGED CARE

The Company intends to undertake the identification, evaluation, and negotiation of managed care contracts on behalf of the Affiliated Practices. Upon a physician practice's affiliation, the Company will begin managed care contracting activities designed to increase the practice's revenues and market share, including determining the value of existing third party relationships, identifying desirable managed care contracts and network affiliations, and identifying practice strengths and weaknesses with respect to managed care contracting strategies, including: (i) practice-specific contracting designed to increase access to managed care patients; (ii) development of global-priced products which establish a single price for all the medical costs of a designated procedure; (iii) specialty carve-outs and single specialty networks, such as orthopedics, ophthalmology, and obstetrics/gynecology, that serve as exclusive providers for managed care plans; and (iv) full-risk capitation by contracting with a third party payor to provide all physician services and, in some cases, hospital and other facility services for a fixed price. By forming SBUs, the Company believes that it will be well positioned to assist the Affiliated Physicians in gaining additional market share, growing practice revenues, and efficiently managing practice costs.

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INFORMATION SYSTEM

The Company believes that information technology is essential to the advancement of a quality health care delivery network. When a physician practice becomes affiliated with the Company, the Company will evaluate the administrative and clinical operation of the practice and reengineer the practice to operate within the Company's information system. The Company intends to implement a system that provides for the ongoing collection and review of clinical and administrative data in order to control overhead expenses, maximize reimbursement, and provide effective utilization management. In addition, the Company intends to install a standardized system and set of procedures within each Affiliated Practice. Furthermore, the Company believes that an information system will enable the Affiliated Practices to collect and retrieve clinical data more efficiently.

The Company is developing an integrated information system to support its growth and acquisition plans. The Company's overall information system design will be open, modular, and flexible. Although the Company intends to implement a system which will support core practice management and billing functions, the nucleus of the Company's information system will be an individual patient electronic medical record ("EMR"). The Company intends to configure its system to give Affiliated Physicians and their staff efficient and rapid access to complex clinical data. The Company believes that the use of the EMR will enhance operational efficiencies through automation of many routine clinical functions and will link "physician-specific" treatment protocols by diagnosis, thereby allowing physicians to check treatments against pre-defined protocols at the time of service.

Effective and efficient access to key clinical patient data is essential for improving costs and quality outcomes. The Company intends to utilize its information system to improve productivity, manage complex reimbursement procedures, measure patient care satisfaction and outcomes of care, and integrate information from multiple facilities. The Company believes such an information system will enable it to analyze clinical and cost data in order to accurately determine thresholds of profitability under various capitation arrangements into which it may enter in the future.

AFFILIATION STRUCTURE

The Company utilizes an affiliation structure that aligns the interests of the Company with those of its physicians. Moreover, the affiliation structure is designed to allow each Affiliated Practice to retain professional autonomy and control over its medical practices through continued governance of its professional corporation or similar organization.

Prior to affiliation with the Company, the medical practices to be acquired practice medicine through sole proprietorships or through PCs owned by one or more medical doctors licensed to practice medicine under applicable state law. When a medical practice has agreed to affiliate with the Company, the Company purchases the practice's non-real estate operating assets and assumes certain of its liabilities, and the practice enters into a long-term PMSA with the Company in exchange for a combination of Common Stock, cash, notes, other securities of the Company, and/or the assumption of certain liabilities. The Company has utilized as partial consideration for the Acquisitions, and intends to continue to utilize, Common Stock in payment of a significant portion of its consideration for Affiliated Practices.

The PMSAs provide that the physicians are responsible for the provision of all medical services and the Company is responsible solely for the management of the operations of all other aspects of the Affiliated Practice. The Company will provide the physician practice with the facilities, equipment, and supplies used in the medical practice, employ substantially all of the non-physician personnel utilized by the practice, except those whose services are directly related to the provision of medical care, and assume certain of the liabilities of the physician practice.

The Company's PMSAs are generally for a term of 40 years and generally cannot be terminated by either party without cause, which consists primarily of bankruptcy or material default.

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Under the terms of the PMSAs, the Affiliated Practices will assign all of their revenue to the Company in return for the services and expertise provided to the Affiliated Practices by the Company and for the assumption by the Company of all of the overhead costs of the practice. The Company, in turn, will return to the Affiliated Practices such sums, estimated to be approximately 40% of revenues, as shall be required to pay physician compensation, taxes, benefits and personal expenses. Each Affiliated Physician will provide medical services to the Affiliated Practices pursuant to the terms of an employment agreement, generally three to five years in duration, by which the physician earns a base salary and can earn additional incentive compensation based upon the profitability of the practice with which the physician is assigned. The employment contract provides for the repayment to the Company of all or a portion of the physician's share of the consideration paid by the Company for the practice's non-real estate operating assets in the event of the physician's breach of the contract. This relationship offers the physician an opportunity to maintain a level of compensation equal to that which the physician earned prior to the affiliation, while giving the practice access to capital, managment expertise, information systems, and managed care contracts. Each Affiliated Practice also enters into an agreement not to compete with the Company, and each physician within the group enters into an agreement not to compete with the Affiliated Practice during the period of his or her employment and for a period of time thereafter, typically two years.

COMPETITION

The physician practice management industry is highly competitive. The Company is subject to significant competition both in affiliating with physician practices and in seeking managed care contracts on behalf of the Affiliated Practices. Its competitors include hospitals, managed care organizations, and other PPMOs. In comparison with the Company, many of its competitors are larger and have substantially greater resources, provide a wider variety of services, and have longer established relationships with purchasers of such services. The Company intends to compete in such market by focusing on the quality of service of its Affiliated Practices and believes its affiliation selection process, the skills and experience of its management and personnel, and its medical information system will all be important competitive factors. There can be no assurance, however, that the Company will be able to compete effectively, that additional competitors will not enter the market, or that such competition will not make it more difficult to enter into affiliations with physician practices on terms beneficial to the Company.

The Company also experiences competition in the recruitment and retention of qualified physicians and other health care professionals on behalf of the Affiliated Practices. There can be no assurance that the Company will be able to recruit or retain a sufficient number of qualified physicians and other health care professionals to expand its operations.

THIRD PARTY REIMBURSEMENT

The Company's ability to collect fees in a timely manner, or at all, is affected by whether the Affiliated Practices are reimbursed for their medical services and the amount of reimbursement. Substantially all of the revenue of the Affiliated Practices, on which the Company's revenue will be dependent, will derive from commercial health insurance, state workers' compensation programs, and other third party payors. All of these providers and programs are regulated at the state or federal level. There are increasing and significant public and private sector pressures to contain health care costs and to restrict reimbursement rates for medical services. For example, it has been reported that the Medicare program is expected to experience a deficiency of funds early in the next century. Accordingly, Congress, in its fiscal year 1997 budget legislation, called for, and considered, severe reductions in both the Medicare and Medicaid programs. Several states have taken measures to reduce the reimbursement rates paid to health care providers in their states. The Company believes that additional states will implement reductions from time to time. Reductions in Medicare and Medicaid rates often lead to reductions in the reimbursement rates of other third party payors as well. Thus, changes in the level of support by federal and state governments of health care services, the methods by which health care services may be delivered, and the prices of such

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services may all have a material impact on the revenue of the Company, which in turn could have a material adverse effect on the Company.

Third party payors may disagree with the description or coding of a bill for medical services, or may contest a description or code under a lesser fee schedule depending on the medical services rendered. Such disagreements on the description of professional services or bill coding, particularly where the third-party payor is a federal or state funded health care program, could result in lesser reimbursement, which could have a material adverse effect on the Company. Persistent disagreements or alleged "upcoding" could result in allegations of fraud or false billing, both of which constitute felonies. Such an allegation, if proven, could result in forfeitures of payment, civil money penalties, civil fines, suspensions, or exclusion from participation in federal or state funded health care programs, and could have a material adverse effect on the Company. Investigation and prosecution for fraudulent or false billing could have a material adverse effect on the Company, even if such allegations were disproven.

The Company's income may be materially adversely affected by the uncollectibility of medical fees from third party payors or by delay in the submission of claims, and the long collection cycles for such receivables. Many third party payors, particularly insurance carriers covering automobile no-fault and workers' compensation claims refuse, as a matter of business practice, to pay claims unless submitted to arbitration. Further, third party payors may reject medical claims if, in their judgment, the procedures performed were not medically necessary or if the charges exceed such payor's allowable fee standards. In addition, some receivables may not be collected because of omissions or errors in timely completion of the required claim forms. This does not mean that such claims will not ultimately be paid. The Affiliated Practices normally would resubmit the claim with such revisions as requested and/or forms and documentation. Outstanding claims that continue to be disputed after one year or more could then be submitted to an arbitration process. Often, when final arbitration decisions are about to be rendered, the third party payor will settle. Although the Company will take all legally available steps to collect receivables on behalf of the Affiliated Practices, there is a significant risk that the Affiliated Practice receivables may not be collected, which could materially adversely affect the Company.

GOVERNMENT REGULATION

As a participant in the health care industry, the Company's operations and relationships are subject to extensive and increasing regulation by a number of governmental entities at the federal, state, and local levels. The Company is also subject to laws and regulations relating to business corporations in general. The Company believes its operations and the operations of the Initial Affiliated Practices and NBS are currently, and will continue to be, in material compliance with all applicable laws. Nevertheless, because of the structure of the intended relationship with the Affiliated Practices, many aspects of the Company's business operations have not been the subject of state or federal regulatory interpretation and there can be no assurance that a review of the Company's or the Affiliated Practices by courts or regulatory authorities will not result in a determination that could adversely affect the operations of the Company or the Affiliated Practices.

A significant portion of the revenues of the Affiliated Practices will be derived from payments made by government sponsored health care programs principally Medicare and Medicaid. As a result, any change in reimbursement regulations, policies, practices, interpretations, or statutes could adversely affect the future operations of the Company. The federal Medicare program has adopted a system of reimbursement for physician services, known as the resource based relative value scale schedule ("RBRVS"). The Company expects that the RBRVS fee schedule and other future changes in Medicare reimbursement will result in a reduction in the Medicare revenue received by certain Affiliated Practices. However, the Company does not believe such reductions will adversely affect the Company's projected operating results.

Certain provisions of the Social Security Act, commonly referred to as the "Anti-kickback Statute," prohibit the offer, payment, solicitation, or receipt of any form of remuneration in return for the

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recommendation, arrangement, purchase, lease, or order of items or services that are covered by Medicare or state health programs. The Anti-kickback Statute is broad in scope and has been broadly interpreted by courts in many jurisdictions. Read literally, the statute places at risk many legitimate business arrangements, potentially subjecting such arrangements to lengthy, expensive investigations and prosecutions initiated by federal and state governmental officials. Many states have adopted similar prohibitions against payments intended to induce referrals of Medicaid and other third party payor patients. The Company believes that although it will receive remuneration under the PMSAs for management services, it is not in a position to make or influence the referral of patients or services reimbursed under government programs to the physician groups and, therefore, believes that it will not violate the Anti-kickback Statute. The Company will also not be a separate provider of Medicare or state health program reimbursed services. To the extent the Company is deemed to be either a referral source or a separate provider under the PMSAs the financial provisions of these agreements could be subject to scrutiny and prosecution under the Anti-kickback Statute. Violation of the Anti-kickback Statute is a felony punishable by fines up to $25,000 per violation and imprisonment for up to five years. In addition, the Department of Health and Human Services may impose civil penalties and may exclude violators from participation in Medicare or state health programs.

In July 1991, in part to address concerns regarding the Anti-kickback Statute, the federal government published regulations that provide exceptions, or "safe harbors," for transactions that will be deemed not to violate the Anti- kickback Statute. Among the safe harbors included in the regulations were provisions relating to the sale of practitioner practices, management and personal service agreements, and employee relationships. Additional safe harbors were published in September 1993 offering new protections under the Anti-kickback Statute to eight activities, including referrals within group practices. Proposed amendments to clarify these safe harbors were published in July 1994 which, if adopted, would cause substantive retroactive changes to the 1991 regulations. Although the Company believes that it will not be in violation of the Anti-kickback Statute, its operations may not fit within any of the existing or proposed safe harbors.

Significant prohibitions against physician referrals were enacted by Congress in the Omnibus Budget Reconciliation Act of 1993. These prohibitions, commonly known as "Stark II," amended prior physician self-referral legislation known as "Stark I" by dramatically enlarging the field of physician-owned or physician interested entities to which the referral prohibitions apply. Effective January 1, 1995, Stark II prohibits, subject to certain exemptions, a physician or a member of his immediate family from referring Medicare or Medicaid patients to an entity providing "designated health services" in which the physician has an ownership or investment interest, or with which the physician has entered into a compensation arrangement, including the physician's own group practice. The designated health services include radiology and other diagnostic services, radiation therapy services, physical and occupational therapy services, durable medical equipment, parenteral and enteral nutrients, equipment, and supplies, orthotic and prosthetic devices and supplies, outpatient prescription drugs, home health services, and inpatient and outpatient hospital services. The penalties for violating Stark II include a prohibition on payment by these government programs and civil penalties of as much as $15,000 for each violative referral and $100,000 for participation in a "circumvention scheme." The Company believes that its activities, as structured, will not be in violation of Stark I or Stark II. While the Company believes it will be in compliance with the Stark legislation, future regulations could require the Company to modify the form of its relationships with physician groups. Moreover, the violation of Stark I or II by the Affiliated Practices could result in significant fines and loss of reimbursement which would adversely affect the Company.

Because the Affiliated Practices will remain separate legal entities, they may be deemed competitors subject to a range of antitrust laws which prohibit anti-competitive conduct, including price fixing, concerted refusals to deal and division of market. The Company intends to comply with such state and federal laws as may affect its development of an integrated health care delivery network, but there is no assurance that a review of the Company's business by courts or regulatory authorities will not result in a determination that could adversely affect the operation of the Company and the Affiliated Practices.

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There are also state and federal civil and criminal statutes imposing substantial penalties, including civil and criminal fines and imprisonment, on health care providers which fraudulently or wrongfully bill governmental or other third party payors for health care services. The federal law prohibiting false billings allows a private person to bring a civil action in the name of the United States government for violations of the law's provisions. The Company believes that it will be in material compliance with such laws, but there is no assurance that the Company's activities will not be challenged or scrutinized by governmental authorities. Moreover, technical Medicare and other reimbursement rules affect the structure of physician billing arrangements. The Company believes that it will be in material compliance with such regulations, but regulatory authorities may differ. In such event the Company may have to modify its relationship with the Affiliated Practices. Noncompliance with such regulations may adversely affect the operations of the Company and subject it and certain Affiliated Practices to penalties and additional costs.

Every state imposes licensing requirements on individual physicians and on certain other health care providers and facilities. Many states require regulatory approval, including licensing to render care or certificates of need before establishing certain types of health care services which entail the acquisition of expensive medical equipment or facilities. While the performance of management services on behalf of a medical practice does not currently require any regulatory approval, there can be no assurance that such activities will not be subject to licensure in the future.

The laws of many states, including New York, New Jersey, and Pennsylvania, prohibit business corporations such as the Company from practicing medicine and employing physicians to practice medicine. The Company will perform only non-medical administrative service, will not represent to the public or its clients that it offers medical services, and will not exercise influence or control over the practice of medicine by the physicians with whom it affiliates. Accordingly, the Company believes that it will not be in violation of any state laws relating to the practice of medicine. The laws in most states regarding the corporate practice of medicine have been subjected to limited judicial and regulatory interpretation and, therefore, no assurances can be given that the Company's activities will be found to be in compliance, if challenged. In addition to prohibiting the practice of medicine, numerous states prohibit entities like the Company from engaging in certain health care related activities such as fee-splitting with physicians. The Company believes it is likely that more states will adapt similar legislation. Accordingly, expansion of the operations of the Company to certain jurisdictions may lead to structural and organizational modifications in the Company's form of contractural relationships with physician practices. Such changes, if any, could have an adverse effect on the Company. Further, there can be no assurance that the Company's arrangements with the Affiliated Practices will not be successfully challenged as constituting the unauthorized practice of medicine.

Laws in all states regulate the business of insurance and the operation of HMOs. Many states also regulate the establishment and operation of networks of health care providers. Many state insurance commissioners have interpreted their states' insurance statutes to prohibit entities from entering into risk-based managed care contracts unless there is an entity licensed to engage in the business of insurance, such as an HMO, in the chain of contracts. An entity not licensed to engage in the business of insurance that contracts directly with a self-insured employer in such a state may be deemed to be engaged in the unlicensed business of insurance. While these laws do not generally apply to the hiring and contracting of physicians by other health care providers, there can be no assurance that regulatory authorities of the states in which the Company operates would not apply these laws to require licensure of the Company's operations as an insurer, as an HMO or as a provider network. The Company believes that it will be in compliance with these laws in the states in which it does business, but there can be no assurance that future interpretations of insurance laws and health care network laws by the regulatory authorities in these states or in the states into which the Company may expand will not require licensure or a restructuring of some or all of the Company's operations.

In addition to current regulation, the Clinton Administration and several members of Congress have proposed legislation for comprehensive reforms affecting the payment for, and availability of, health care

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services. Aspects of certain of these health care proposals, such as reductions in Medicare and Medicaid payments, if adopted, could adversely affect the Company. Other aspects of such proposals, such as universal health insurance coverage and coverage of certain previously uncovered services, could have a positive impact on the Company's business. It is not possible at this time to predict what, if any, reforms will be adopted by Congress or state legislatures, or when such reforms will be adopted and implemented.

As health care reform progresses, and the regulatory environment accommodates reform, it is likely that changes in state and federal regulations will necessitate modifications to the Company's agreements and/or operations. While the Company believes that it will be able to restructure in accordance with applicable laws and regulations, the Company cannot be certain that such restructuring will be possible or profitable in all circumstances.

EMPLOYEES

At June 30, 1997, the Company had seven employees consisting of four executive officers, the general counsel to the Company, and two employees of PMI.

PROFESSIONAL LIABILITY INSURANCE

In recent years, physicians, hospitals, and other participants in the health care industry have become subject to an increasing number of lawsuits alleging medical malpractice and related legal theories. Many of these lawsuits involve large claims and substantial defense costs. The Company does not engage in the practice of medicine or provide medical services, nor does it control the practice of medicine by the Affiliated Practices or the compliance with regulatory and other requirements directly applicable to the Affiliated Physicians and Affiliated Practices. Although the Company has not been a party to any litigation relating to the practice of medicine, there can be no assurance that the Company will not become involved in such litigation in the future.

The PMSAs will require the Affiliated Practices to maintain, at their expense, professional liability insurance for themselves and each physician employed by or otherwise providing medical services for the Affiliated Practices in the minimum amount of $1,000,000 per occurrence and $3,000,000 in the aggregate. In addition, each Affiliated Practice will undertake to comply with all applicable regulations and requirements, and the Company will be indemnified under the PMSA for claims against the Company arising in connection with actions by the Affiliated Practices. The Company has applied for general liability insurance for itself and intends to require that it be named as an additional insured party on the professional liability insurance policies of the Affiliated Practices pursuant to the PMSA. In addition, the Company will maintain liability insurance on its non-physician professional employees, such as nurses and midwives.

There can be no assurance that the Company, its employees, the Affiliated Practices, or the Affiliated Physicians will not be subject to claims in amounts that exceed the coverage limits or that such coverage will be available when needed. Further, there can be no assurance that professional liability or other insurance will continue to be available to the Affiliated Practices in the future at adequate levels, at an acceptable cost, or at all. A successful claim against the Company or an Affiliated Practice in excess of the relevant insurance coverage could have a material adverse effect upon the Company. Claims against the Company or an Affiliated Practice, regardless of the merits or eventual outcomes, may also have a material adverse effect on the Company.

PROPERTIES

The Company has assumed the lease of PMI, which covers approximately 2,400 square feet, at $29,792 per annum, at 615 Hope Road, Eatontown, New Jersey. Prior to the consummation of this Offering, the Company has been conducting its administration and marketing operations at the offices of Wellness Concepts, Inc., at 2644 Bristol Road, Warrington, Pennsylvania 18976. After this Offering, the Company

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intends to use both the Hope Road and Bristol Road facilities as its principal places of business. Upon consummation of the Acquisitions, the Company will lease approximately 17 medical practice facilities of the Affiliated Practices in the form of either a sublease of facilities being leased by the PCs or entering into a lease agreement with the sole practitioners who own their facilities. The annual rent payments of such medical facilities are estimated to aggregate approximately $725,000 . In addition, upon the consummation of the Acquisitions, the Company will acquire a medical practice facility currently owned by Reliance, at 3407 Atlantic Avenue, Atlantic City, New Jersey.

LEGAL PROCEEDINGS

There are no material lawsuits pending, or to the Company's knowledge, threatened against the Company.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information concerning the members of the Board of Directors and executive officers of the Company.

NAME                                     AGE                                       TITLE
-----------------------------------      ---      -----------------------------------------------------------------------

Scott G. Pollock(1)................          36   President, Chief Executive Officer, Chief Financial Officer and a
                                                    Director

Dennis B. Liotta, M.D..............          43   Executive Vice President, Chief Operating Officer and a Director

Peter Heisen, M.D.(1)..............          54   Vice President, Chief Medical Officer and a Director

David I. Rosen, M.D................          59   Vice President for Business Development and a Director

Joseph F. Murray...................          41   Secretary and a Director

Walter B. Dunsmore.................          50   Corporate General Counsel and a Director

Robert M. Rubin....................          55   Director

Randall K. Sprau(2)................          50   Consultant


(1) Effective upon the consummation of this Offering, Mr. Pollock will resign his position as President of the Company. At such time the office of President will be assumed by Dr. Heisen.

(2) Effective upon the consummation of this Offering, Mr. Sprau will become a Vice President and the Chief Information Officer of the Company.

Each director is elected for a period of one year at the Company's annual meeting of stockholders and serves until the next annual meeting and until his successor is duly elected and qualified. Officers of the Company are elected by, and serve at the discretion of, the Board of Directors.

Set forth below is a brief summary of the background of each director, executive officer, and key employee of the Company.

SCOTT G. POLLOCK is a co-founder of the Company, has served as the President and Chief Executive Officer of the Company since August 1, 1996 and has served as a Director and Chief Financial Officer of the Company since April 1995. Since January 1, 1994, Mr. Pollock has served as Chief Financial Officer of Wellness Concepts, Inc. ("Wellness"), an owner and manager of long-term care facilities and other health care related ventures. Effective upon the consummation of this Offering, Mr. Pollock will resign from his position with Wellness. From 1986 through December, 1993, Mr. Pollock was a Director and Senior Manager at Zelenofske, Axelrod & Co., Ltd., a regional health care consulting and certified public accounting firm. Mr. Pollock received a Bachelor of Science degree in accounting from Indiana University of Pennsylvania and is a member of the American Institute of Certified Public Accountants.

DENNIS B. LIOTTA, M.D., is a co-founder of the Company and has served as the Executive Vice President, Chief Operating Officer and a Director of the Company since April 1995. Since 1990, Dr. Liotta has served as President of PMI, a health care marketing and management firm. In 1986, Dr. Liotta founded, and from 1986 through 1990, served as President of ProHEALTH, a care organization in New Jersey that specifically addressed work-related injuries and illnesses. From 1985 through 1990, Dr. Liotta maintained a private internal medicine practice. Dr. Liotta received his medical training at Northeastern University, completed his residency in internal medicine at Monmouth Medical Center in New Jersey, and received an MBA from Rutgers University.

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PETER R. HEISEN, M.D. will, upon the consummation of this Offering, become President and Chief Medical Officer of the Company. Since 1993, Dr. Heisen has been a principal with William M. Mercer, Inc., a national health care consulting firm, and has worked on a number of projects helping clients design, operate, and build health care delivery systems. From May 1991 through September 1992, Dr. Heisen was Medical Director of PruCare of New Jersey ("PruCare"), a state-wide managed care insurance plan serving more than 250,000 subscribers through affiliations with 3,000 physicians and 42 hospitals. From 1986 through 1991, Dr. Heisen served as the Associate Medical Director at PruCare. From 1971 through 1991, Dr. Heisen engaged in the private practice of medicine, specializing in internal medicine and infectious disease. Dr. Heisen received his medical degree from the University of Pennsylvania and has an undergraduate degree in mathematics from Swarthmore College. Dr. Heisen is a Diplomate of the American Board of Internal Medicine and the National Board of Medical Examiners.

DAVID I. ROSEN, M.D. has served as Vice President for Business Development and a Director of the Company since April 1995. Dr. Rosen is also a co-founder of the Company. From 1978 to June 1996, Dr. Rosen was the managing partner of Hunterdon Urological Associates, a New Jersey urological practice. Since 1989, Dr. Rosen has also been a general partner of a licensed 68- bed long-term and subacute care facility in Hunterdon County. Dr. Rosen is a board certified urologist who graduated cum laude with a Bachelor of Arts degree from Brooklyn College. He received his medical degree, with honors, from State University of New York at Syracuse School of Medicine. Following three years in the U.S. Navy (Lt. M.C.), he completed his post graduate medical education in urology at Stanford University.

JOSEPH F. MURRAY has served as Corporate Counsel, Secretary, and a Director of the Company since April 1995. Since 1986, Mr. Murray has served, and currently serves, as Vice President and General Counsel of Wellness. Following the consummation of this Offering, Mr. Murray will maintain a part-time position with Wellness. From 1991 to 1994 he was also Vice President, General Counsel and a Board Member of GraceCare Health Systems, Inc., a long-term care management company. From 1980 until 1986, Mr. Murray was engaged in the private practice of law primarily representing health care clients. Mr. Murray received a Bachelor of Arts degree in Political Science and an L.L.M. in Taxation from Villanova University, and a Juris Doctor from Widener University School of Law. He is a member of the National Health Lawyers Association.

ROBERT M. RUBIN has served as a Director of the Company since August 1996. Mr. Rubin was the founder, President, Chief Executive Officer, and a Director of Superior Care, Inc. ("SCI") from its inception in 1976 until May 1986. Mr. Rubin continued as a Director of SCI (now known as Olsten Corporation ("Olsten")) until the latter part of 1987. Olsten, a New York Stock Exchange listed company, is engaged in providing home care and institutional staffing services and health care management services. Mr. Rubin is also a Director, Chairman of the Board, and minority stockholder of American United Global, Inc. ("AUG"), a public communications and software company. From May 1991 to January 1994, Mr. Rubin served as Chairman of the Board and Chief Executive Officer of AUG and its subsidiaries. Since 1993, Mr. Rubin has served as the Chairman of the Board and Chief Executive Officer of ERD Waste Corp., a diversified public waste management company. Mr. Rubin is the Chairman of the Board of Western Power & Equipment Corp. ("WPEC"), a public company engaged in the distribution of construction equipment. Between November 1992 and March 1993, he served as Chief Executive Officer of WPEC. Mr. Rubin is also a Director of Response USA, Inc., a public company engaged in the sale and distribution of electronic security and personal emergency response systems; Diplomat Juvenile Products, Inc., a public company engaged in the catalogue sales business; Help at Home, Inc., a public company which provides home health care personnel; and Arzan International
(1991) Ltd., an Israeli manufacturer, processor, and distributor of food products.

WALTER B. DUNSMORE, ESQ. is an attorney who has been associated with the Company since April 1996. From April 1991 to September 1995, Mr. Dunsmore was General Counsel and Chief Financial Officer of Nutrition Management Services Company, a national health care food service provider. From 1976 through 1991, Mr. Dunsmore was engaged in the private practice of law with an emphasis on business and

40

health care clients. Mr. Dunsmore received his Bachelor of Business Administration from Temple University and his Juris Doctor degree from Seton Hall University.

RANDALL K. SPRAU currently serves as a consultant to the Company and will, effective upon the consummation of this Offering, become a Senior Vice President and the Chief Information Officer of the Company. Prior to becoming associated with the Company, Mr. Sprau had been employed, since 1969, by Shared Medical Systems, Inc. ("SMS"). SMS is a provider of information systems and computer products to the health care industry. Mr. Sprau has held a variety of positions with SMS, most recently as Vice President of Information Systems. In addition, from 1981 through 1994, Mr. Sprau managed the development, marketing, and installation of SMS' premier clinical information system for physicians. Mr. Sprau received a degree in mathematics from Mankato State University.

EXECUTIVE COMPENSATION

The following table sets forth compensation awarded to, earned by, or paid to Scott G. Pollock, the Company's President and Chief Executive Officer, for the year ended December 31, 1996. No other executive officer of the Company received compensation in excess of $100,000 during the Company's last fiscal year.

NAME AND PRINCIPAL POSITION                                                 FISCAL YEAR    SALARY
-------------------------------------------------------------------------  -------------  ---------

Scott G. Pollock; President, Chief Executive Officer,
  Chief Financial Officer and a Director.................................         1996    $       0(1)


(1) During 1996, and until August 1, 1997, Mr. Pollock received no salary, but was reimbursed for all out-of-pocket expenses. At August 1, 1997, Mr. Pollock's employment agreement commences, pursuant to which he is entitled to an annual base salary of $200,000. See "Management--Employment Agreements."

DIRECTOR COMPENSATION

Members of the Board of Directors will receive compensation at the rate of $200 per meeting attended. All Directors will be reimbursed for out-of-pocket expenses incurred in attending meetings of the Board of Directors or committees thereof and for other expenses incurred in their capacity as Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

On May 1, 1997, the Board of Directors formalized the creation of a Compensation Committee, which is comprised of Messrs. Pollock, Murray, and Dunsmore. The Compensation Committee has (i) full power and authority to interpret the provisions of, and supervise the administration of, the Plan and
(ii) the authority to review all compensation matters relating to the Company.

On May 1, 1997, the Board formalized the creation of an Audit Committee, which is comprised of Messrs. Heisen, Murray, and Dunsmore. The Audit Committee is responsible for reviewing the plans and results of the audit engagement with the independent auditors; reviewing the adequacy, scope, and results of the internal accounting controls and procedures; reviewing the degree of independence of the auditors; reviewing the auditors' fees; and recommending the engagement of auditors to the full Board of Directors.

DIRECTORS' LIMITATION OF LIABILITY

The Company's Certificate of Incorporation and By-Laws include provisions to
(a) eliminate the personal liability of directors for monetary damages resulting from breaches of their fiduciary duty (except for liability for breaches of the duty of loyalty, acts, or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, violations under Section 174 of the Delaware

41

General Corporation Law, or for any transaction from which the director derived an improper personal benefit) and (b) indemnify the directors and officers to the fullest extent permitted by the Delaware General Corporation Law, including circumstances under which indemnification is otherwise discretionary. The Company believes that these provisions are necessary to attract and retain qualified persons as directors and officers.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Messr. Pollock, and Drs. Heisen and Liotta to serve in their respective positions with the Company. Each of the agreements has a term of three years, commencing on August 1, 1997 and terminating on July 31, 2000. Each of the agreements contains a covenant not to compete with the Company for a period of two years following termination of employment with the Company. Each of these employees is entitled to an annual salary of $200,000 and Company-paid health, life, and disability benefits, as well as a monthly automobile allowance of $600. Each of the employment agreements additionally provides that the employee may receive bonus compensation of between 10% and 30% of their annual salary, based upon the achievement of certain financial and operational goals. Each of the agreements provides that in the event that the agreement is terminated for any reason other than a change in control of the Company the employee shall be entitled to receive all accrued compensation and a severance payment equal to two months salary. In the event that such employment is terminated as a result of a change in control of the Company, each of the above-named employees shall be entitled to receive all accrued compensation and a payment equal to two times such employee's (i) base salary and (ii) the maximum potential bonus under the agreement.

The Company has entered into a memorandum of understanding to enter an employment agreement with Randall K. Sprau upon consummation of this Offering to serve as the Senior Vice President and Chief Information Officer of the Company. The agreement will have a term of three years. Pursuant to the terms of such employment agreement, Mr. Sprau will initially receive an annual salary of $175,000 and Company-paid health, life, and disability benefits. Mr. Sprau additionally may receive bonus compensation of between 10% and 30% of his annual salary, based upon the achievement of certain financial and operational goals. Concurrently with the execution of the emplyment agreement, Mr. Sprau agreed to enter into an agreement not to compete with the Company. Until such employment agreement is executed, Mr. Sprau has agreed to provide consulting services to the Company in consideration of the reimbursement of all of his expenses in connection with his engagement as a consultant.

STOCK OPTION PLAN

On April 24, 1996, the Board of Directors and the stockholders of the Company adopted the Plan. The Plan provides for the grant of options to purchase up to 300,000 shares of Common Stock to employees, officers, directors, and consultants of the Company. Options may be either "incentive stock options" within the meaning of Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified options. Incentive stock options may be granted only to employees of the Company, while non-qualified options may be issued to non-employee directors, consultants, and others, as well as to employees of the Company.

The Plan will be administered by "disinterested members" of the Board of Directors (as defined by Rule 16b-3 of the Exchange Act) or the Compensation Committee thereof, who will determine, among other things, the individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares of Common Stock issuable upon the exercise of each option, and the option exercise price.

The exercise price per share of Common Stock subject to an incentive option may not be less than the fair market value per share of Common Stock on the date the option is granted. The per share exercise price of the Common Stock subject to a non-qualified option may be established by the Board of Directors.

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The aggregate fair market value (determined as of the date the option is granted) of Common Stock for which any person may be granted incentive stock options which first become exercisable in any calendar year may not exceed $100,000. No person who owns, directly or indirectly, at the time of the granting of an incentive stock option to such person, 10% or more of the total combined voting power of all classes of stock of the Company (a "10% Stockholder") shall be eligible to receive any incentive stock options under the Plan unless the exercise price is at least 110% of the fair market value of the shares of Common Stock subject to the option, determined on the date of grant. Non-qualified options are not subject to such limitation.

No stock option may be transferred by an optionee other than by will or the laws of descent and distribution, and, during the lifetime of an optionee, the option will be exercisable only by the optionee. In the event of termination of employment other than by death or disability, the optionee will have no more than three months after such termination during which the optionee shall be entitled to exercise the option, unless otherwise determined by the Board of Directors. Upon termination of employment of an optionee by reason of death or permanent and total disability, such optionee's options will remain exercisable for one year thereafter to the extent such options were exercisable on the date of such termination. No similar limitation applies to non-qualified options.

Options under the Plan must be issued within ten years from the effective date of the Plan. The effective date of the Plan is April 24, 1996. Incentive stock options granted under the Plan cannot be exercised more than ten years from the date of grant. Incentive stock options issued to a 10% Stockholder are limited to five year terms. Options granted under the Plan generally provide for the payment of the exercise price in cash and may provide for the payment of the exercise price by delivery to the Company of shares of Common Stock already owned by the optionee having a fair market value equal to the exercise price of the options being exercised, or by a combination of such methods. Therefore, if so provided in an optionee's options, such optionee may be able to tender shares of Common Stock to purchase additional shares of Common Stock and may theoretically exercise all of his stock options with no additional investment other than the purchase of his original shares.

Any unexercised options that expire or that terminate upon an employee's cessation of employment with the Company become available again for issuance under the Plan.

To date, no options have been granted under the Plan.

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date hereof, the ownership of the Common Stock by (i) each person who is known by the Company to own of record or beneficially more than 5% of the outstanding Common Stock, (ii) each of the Company's directors and executive officers, and (iii) all directors and executive officers of the Company as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.

                                                                                    NUMBER OF     PERCENTAGE OF CLASS
                                                                                     SHARES     ------------------------
                                                                                   BENEFICIALLY   BEFORE        AFTER
                      NAME AND ADDRESS OF BENEFICIAL OWNER                          OWNED(1)     OFFERING     OFFERING
---------------------------------------------------------------------------------  -----------  -----------  -----------

Scott G. Pollock(2)..............................................................     225,000          7.4%         4.6%

Dennis B. Liotta, M.D.(2)........................................................     180,000          5.9%         3.7%

Peter R. Heisen, M.D.(2).........................................................      60,000          2.0%         1.2%

David I. Rosen, M.D.(2)..........................................................     213,750          7.0%         4.4%

Joseph F. Murray(2)..............................................................      20,000          0.7%         0.4%

Walter B. Dunsmore, Esq.(2)......................................................      20,000          0.7%         0.4%

Robert M. Rubin
  6060 Kings Gate Circle
  Delray Beach, Florida 33486....................................................     500,000         16.4%        10.2%

John D. Sullivan
  1040 First Avenue, Suite 161
  New York, New York 10021.......................................................     500,000         16.4%        10.2%

Family Investment Associates, L.P.
  c/o Walter B. Dunsmore, Esq.
  2114 Barnwood Circle
  Trooper, Pennsylvania 19403....................................................     220,000          7.2%         4.5%

Master Holdings, Inc.
  235 E. 87th Street
  Suite 5H
  New York, New York 10128.......................................................     200,000          6.6%         4.1%

James M. and Ellen Foulke
  1275 Fritz Circle
  Huntington Valley, Pennsylvania 19006..........................................     420,250         13.8%         8.6%

All directors and executive officers of the
  Company as a group (7 persons).................................................   1,218,750         40.0%        24.8%


(1) As used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose or direct the disposition) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, including a right to acquire such power(s) during the next 60 days. Unless otherwise noted, beneficial ownership consists of sole ownership, voting, and investment power with respect to all shares shown as beneficially owned by them.

(2) The address of each of the referenced individuals is c/o Integrated Physician Systems, Inc., 2644 Bristol Road, Warrington, Pennsylvania 18976.

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CERTAIN TRANSACTIONS

Since the Company's inception, Wellness, the founding stockholder of the Company, has advanced to the Company an aggregate of $148,000 to assist in funding the fees and expenses accrued in connection with this Offering. Such advance bears no interest and is required to be repaid upon the closing of this Offering. As of the date of this Prospectus, the balance owed by the Company on such advance is $118,000, all of which will be paid with a portion of the net proceeds from this Offering. Scott G. Pollock and Joseph F. Murray are currently the Chief Financial Officer and the Vice President and General Counsel, respectively, of Wellness. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

The Affiliated PCs, which, upon the consummation of this Offering, will employ the Affiliated Physicians and enter into the PMSAs with the Company, will be 100% owned by David I. Rosen, M.D., the Vice President for Business Development of the Company. The Company has entered an agreement with Dr. Rosen whereby, upon his death, incapacity, or removal from office or directorship of the Company, he has agreed to transfer 100% of his ownership in such Affiliated PCs to an officer or director of the Company designated by the Board of Directors of the Company who is also a physician. Furthermore, Dr. Rosen is restricted from selling or otherwise transferring his stock in the Affiliated PCs to a person or entity other than such officer or director of the Company. Dr. Rosen will receive no payment, whether in the form of dividends or otherwise, by virtue of his being stockholder thereof. See "Business--Development and Operations."

All future transactions between the Company and its officers, directors, and 5% stockholders will be on terms no less favorable to the Company than can be obtained from unaffiliated third parties and will be approved by a majority of the independent and disinterested directors of the Company.

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DESCRIPTION OF DEBENTURES

GENERALLY

The Debentures will be issued under an Indenture, to be dated as of , 1997, (the "Indenture"), between the Company, as issuer, and , as trustee (the "Trustee"), a copy of which has been filed as an exhibit to the Registration Statement. The descriptions of the Debentures and the Indenture in this Prospectus are summaries, do not purport to be complete, and are subject to, and are qualified in their entirety by reference to, all provisions of the Indenture. Wherever terms defined in the Indenture are used in this Prospectus, such defined terms are incorporated herein by reference. Article and Section references appearing below refer to the corresponding Articles and Sections of the Indenture.

The Debentures will be unsecured subordinated obligations of the Company, will be limited to an aggregate principal amount of $28,750,000 (including $3,750,000 subject to the Underwriters' over-allotment option and excluding $2,500,000, subject to the Representative's Warrants) and will mature on , 2004. The Debentures will bear interest at the rate per annum stated in their title from the date of the issuance thereof or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on 15 and 15 of each year, commencing 15, 1998, to each holder in whose name a Debenture (or any predecessor Debenture) is registered at the close of business on the Regular Record Date for such interest payment, which shall be 1 or 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date (unless, with certain exceptions, such Debentures are converted or redeemed prior to such Interest Payment Date). Interest on the Debentures will be paid on the basis of a 360-day year consisting of twelve 30-day months (Section 311). Principal of, and interest on, the Debentures will be payable at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, City of New York, and such other office or agency of the Company as may be maintained for such purpose (initially the corporate trust office of the Trustee in New York, New York). Debentures may be surrendered for transfer, exchange, repurchase, redemption, or conversion at that agency or office. Payment of interest may, at the option of the Company, be made by check mailed to the address of the holder entitled thereto as it appears in the Debenture Register (See Sections 301, 305, 1002 and 1202). The Debentures will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple thereof (Section 302). No service charge will be made for any transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith (Section 305). The Company is not required to transfer or exchange any Debenture (i) during a period beginning at the opening of business 15 days before the date of the mailing of a notice of redemption and ending at the close of business on the date of such mailing or (ii) selected for redemption, in whole or in part, except the unredeemed portion of Debentures being redeemed in part. All moneys paid by the Company to the Trustee or any Paying Agent for the payment of, principal of, and premium, if any, and interest on any Debenture which remain unclaimed for two years after such principal, premium, or interest became due and payable may be repaid to the Company. Thereafter, the holder of such Debenture may, as an unsecured general creditor, look only to the Company for payment thereof.

The Indenture does not contain any provisions that would provide protection to holders of the Debentures against a sudden and dramatic decline in credit quality of the Company resulting from any takeover, recapitalization, or similar restructuring, except as described under "Description of Debentures--Certain Rights to Require Repurchase of Debentures."

The Indenture contains no financial covenants or covenants restricting the incurrence of indebtedness by the Company or any Subsidiary (as defined therein). Although certain agreements under which Senior Indebtedness (as defined therein) in the future may be outstanding may contain limitations on the incurrence of indebtedness by the Company or its Subsidiaries, such agreements may be amended or modified as provided therein, may provide only incidental protection to holders of Debentures in the event

46

of a Repurchase Event (as described below), and are not intended for the benefit of the holders of the Debentures. In addition, future agreements under which future Senior Indebtedness may be outstanding may contain provisions which may require repayment of such Senior Indebtedness prior to repayment of the Debentures upon, among other things, a Repurchase Event.

CONVERSION RIGHTS

The Debentures (or any portion thereof that is an integral multiple of $1,000) will be convertible into Common Stock at the option of the holders thereof at any time and from time to time prior to, and including, the maturity date unless a Debenture or a portion thereof shall have been called for redemption, through optional redemption, a sinking fund or otherwise, in which case it will be convertible if duly surrendered on or before the close of business on the fifth day preceding the Redemption Date at the conversion price stated on the cover hereof (subject to adjustment as described below). The conversion price shall be subject to adjustment upon certain events, including in the event that:

(a) The Company shall declare a dividend or make a distribution on its outstanding Common Stock payable in Common Stock or shall declare or make a dividend or other distribution on any other class of capital stock of the Company or any subsidiary not wholly owned by the Company which dividend or distribution includes Common Stock.

(b) The Company shall subdivide the outstanding Common Stock into a greater number of shares, or combine the outstanding Common Stock into a smaller number of shares.

(c) The Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date therefor) to subscribe for or purchase Common Stock (or securities convertible into Common Stock) at a price per share (or having an initial conversion price per share) less than the Current Market Price (as defined in Section 1204(h) of the Indenture) of Common Stock on such record date.

(d) The Company shall fix a record date for making a distribution to holders of its Common Stock or holders (other than the Company or its wholly-owned subsidiaries) of capital stock of any Subsidiary (as defined in the Indenture) (i) of evidences of indebtedness of the Company or any Subsidiary, (ii) of assets (including shares of any class of capital stock, cash or other securities, but excluding any rights or warrants referred to in subsection (c), above, or securities referred to in subsection (e), below, excluding any dividend or distribution referred to in subsection (a), above, and excluding any dividend or distribution paid exclusively in cash out of retained or current earnings) or (iii) of rights or warrants entitling the holders thereof to receive upon payment of the consideration set forth therein shares of capital stock of the Company (excluding those referred to in subsection (c) above).

(e) The Company shall issue or distribute Common Stock, (excluding shares issued (i) in any of the transactions described in subsection (a) above, (ii) upon conversion or exchange of securities convertible into or exchangeable for Common Stock described in subsection (f) below, (iii) to employees or consultants under the Plan, as now in effect or hereafter amended, if such shares would otherwise be included in this section (e),
(iv) to the Company's employees or consultants under bona fide benefit plans, employment agreements, or consulting agreements adopted by the Company's Board of Directors and approved by its stockholders or granted at an exercise price of at least 100% of the fair market value of the shares on the date of grant whether or not approved by stockholders, if such shares would otherwise be included in this Section (e) (but only to the extent that the aggregate number of shares excluded by this subdivision (iv) and issued after the date of the Indenture shall not exceed 10% of the Common Stock outstanding at the time of any such issuance), (v) upon exercise of rights or warrants issued to the holders of Common Stock, (vi) to acquire, or in connection with the acquisition of, all or any portion of a business as a going concern, whether such acquisition shall be effected by purchase of assets, exchange of securities, merger, consolidation or otherwise, (vii) in

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connection with the entry into a medical practice or other professional practice management agreement by the Company for a term of at least five years, (viii) upon exercise of rights or warrants issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to these conversion price adjustments (without regard to Section 1204(j) of the Indenture) with respect to the transaction giving rise to such rights or (ix) pursuant to an offering effected at a discount of less than 5% from the Current Market Price per share determined as provided in Section 1204(h) of the Indenture) for a consideration per share less than the Current Market Price per share on the date the Company fixes the offering price of such additional shares.

(f) The Company shall issue any securities convertible into, or exchangeable for, its Common Stock (excluding securities issued in transactions described in sections (c) and (d) above, or the Securities (as defined in the Indenture)) for a consideration per share of Common Stock initially deliverable upon conversion or exchange of such securities less than the Current Market Price per share in effect immediately prior to the issuance of such securities.

Upon the termination of the right to convert or exchange such securities, the conversion price shall forthwith be readjusted to such conversion price as would have obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Company for such securities. No adjustment in the conversion price need be made unless such adjustment would require an increase or decrease of at least 1% in such price; provided, however, that any such adjustment which is not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Fractional shares will not be issued upon conversion, but in lieu thereof, the Company will pay cash equal to the market value of such fractional share computed with reference to the Closing Price of the Common Stock on the last business day prior to conversion (Section 1203). Debentures surrendered for conversion during the period from the close of business on any Regular Record Date to the opening of business on the next succeeding Interest Payment Date (except Debentures whose maturity is prior to such Interest Payment Date and Debentures called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon to be paid on such Interest Payment Date (provided, however, that if the Company shall default in payment of such interest, such payment shall be returned to the payor thereof.) Except for Debentures surrendered for conversion which must be accompanied by payment as described above, no interest on converted Debentures will be payable by the Company on any Interest Payment Date subsequent to the date of conversion (Sections 307 and 1202).

Except as stated above, the conversion price will not be adjusted for the issuance of Common Stock or any securities convertible into, or exchangeable for, Common Stock or for payment of dividends on the Common Stock or any preferred shares of the Company.

The Company has covenanted under the Indenture to reserve and keep available at all times out of its authorized but unissued shares of Common Stock, for the purpose of effecting conversions of Debentures, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Debentures.

CERTAIN RIGHTS TO REQUIRE REPURCHASE OF THE DEBENTURES

In the event of any Fundamental Change (as described below) affecting the Company which constitutes a Repurchase Event occurring after the date of issuance of the Debentures and on or prior to maturity, each holder of Debentures will have the right, at the holder's option, to require the Company to repurchase all or any part of the holder's Debentures on the date (the "Repurchase Date") that is 30 days after the date the Company gives notice of the Repurchase Event as described below at a price (the "Repurchase Price") equal to 100% of the principal amount thereof, together with accrued and unpaid

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interest to the Repurchase Date. On or prior to the Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an amount of money sufficient to pay the Repurchase Price of the Debentures which are to be repurchased on or promptly following the Repurchase Date (Section 1403). In the event the Company becomes obligated to repurchase some or all of the Debentures, the Company expects that it would seek to finance the Repurchase Price with its available cash and short-term investments, through available bank credit facilities (if any), or through a public or private issuance of debt or equity securities.

Failure by the Company to repurchase the Debentures when required as described in the second preceding paragraph will result in an Event of Default under the Indenture whether or not such repurchase is permitted by the subordination provisions of the Indenture (Section 501). On or before the 15th day after the occurrence of a Repurchase Event, the Company shall mail (or at its option cause the Trustee to mail) to all holders of record of Debentures notice of the occurrence of such Repurchase Event, setting forth, among other things, the date by which the repurchase right must be exercised, the Repurchase Price and the procedures which the holder must follow to exercise this right. No failure of the Company to give such notice shall limit any holder's right to exercise a repurchase right (Section 1402). Failure to give notice of the Repurchase Event in accordance with the terms of the Indenture will result in an Event of Default. To exercise the repurchase right, the holder of a Debenture must deliver, on or before the fifth day prior to the Repurchase Date, written notice to the Company (or an agent designated by the Company for such purpose) of the holder's exercise of such right, together with the certificates evidencing the Debentures with respect to which the right is being exercised, duly endorsed for transfer (Section 1402). Such notice of exercise may be withdrawn by the holder by a written notice of withdrawal delivered to the Trustee at any time prior to the close of business on the fifth day prior to the Repurchase Date and thereafter only with the consent of the Company (Section 1402).

The term "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for or constitute the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization or otherwise) which is not all or substantially all common stock which is (or, upon consummation of, or immediately following, such transaction or event, will be) listed on a national securities exchange or approved for quotation in any Nasdaq system or any similar system of automated dissemination of quotations of securities prices. For purposes of the definition of a "Fundamental Change," (i) "substantially all of the Common Stock" shall mean at least 85% of the Common Stock outstanding immediately prior to the transaction or event giving rise to a Fundamental Change and (ii) consideration shall be "substantially all common stock" if at least 80% of the fair value (as determined in good faith by the Board of Directors) of the total consideration is attributable to common stock. A Fundamental Change would not include an acquisition of a majority of the outstanding Common Stock by any person or group so long as it does not result in termination of such listing or approval for quotation.

A Repurchase Event is a right to require the Company to repurchase the Debentures and a Repurchase Event shall have occurred if a Fundamental Change shall have occurred unless (i) the Current Market Price of the Common Stock is at least equal to the conversion price of the Debentures in effect immediately preceding the time of such Fundamental Change or (ii) the consideration in the transaction or event giving rise to such Fundamental Change to the holders of Common Stock consists of cash, securities that are, or immediately upon issuance will be, listed on a national securities exchange or quoted in the Nasdaq National Market (or in the case of securities which are common stock in any Nasdaq system or any similar system of automated dissemination of quotations of securities prices), or a combination of cash and such securities, and the aggregate fair market value of such consideration (which, in the case of such securities, shall be equal to the average of the daily Closing Prices of such securities during the 10 consecutive trading days commencing with the sixth trading day following consummation of such transaction or event) is at least 105% of the conversion price of the Debentures in effect on the date immediately preceding the closing date of such transaction or event. The right to require the Company to repurchase

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the Debentures as a result of the occurrence of a Repurchase Event could create an event of default under Senior Indebtedness, as a result of which any repurchase could, absent a waiver, be prevented by the subordination provisions of the Debentures. Failure by the Company to repurchase the Debentures when required will result in an Event of Default with respect to the Debentures whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the holders of the Debentures upon a repurchase may be limited by certain financial covenants contained in any future Senior Indebtedness. In the event a Repurchase Event occurs and the holders exercise their rights to require the Company to repurchase Debentures, the Company intends to comply with applicable tender offer rules under the Exchange Act, including Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase. This right to require repurchase would not necessarily afford holders of the Debentures protection in the event of highly leveraged or other transactions involving the Company that may impair the rights of holders of Debentures.

The effect of these provisions granting the holders the right to require the Company to repurchase the Debentures upon the occurrence of a Repurchase Event may make it more difficult for any person or group to acquire control of the Company or to effect a business combination with the Company and may discourage open market purchases of the Common Stock or a non-negotiated tender or exchange offer for the Common Stock. Accordingly, such provisions may limit a stockholder's ability to realize a premium over the market price of the Common Stock in connection with any such transaction.

SUBORDINATION

The payment of the principal of, and interest on, the Debentures will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, or marshaling of assets, whether voluntary, involuntary or in receivership, bankruptcy, insolvency or similar proceedings, the holders of all Senior Indebtedness will be first entitled to receive payment in full of cash amounts due or to become due thereon before any payment is made on account of the principal of, and premium, if any, or interest on, the indebtedness evidenced by the Debentures or on account of any other monetary claims, including such monetary claims as may result from rights of repurchase or rescission, under or in respect of the Debentures, before any payment is made to acquire any of the Debentures for cash, property, or securities or before any distribution is made with respect to the Debentures of any cash, property, or securities. No payments on account of principal of, sinking fund requirements, if any, or premium, if any, or interest on the Debentures shall be made, and no Debentures shall be redeemed or repurchased, if at the time thereof: (i) there is a default in the payment of all or any portion of the obligations under any Senior Indebtedness; or (ii) there shall exist a default in any covenant with respect to the Senior Indebtedness (other than as specified in clause (i) of this sentence), and, in such event, such default shall not have been cured or waived or shall not have ceased to exist, the Trustee and the Company shall have received written notice from any holder of such Senior Indebtedness stating that no payment shall be made with respect to the Debentures, and such default would permit the maturity of such Senior Indebtedness to be accelerated provided that no such default will prevent any payment on, or in respect of, the Debentures for more than 120 days unless the maturity of such Senior Indebtedness has been accelerated (Section 1303).

The holders of the Debentures will be subrogated to the rights of the holders of the Senior Indebtedness to the extent of payments made on Senior Indebtedness upon any distribution of assets in any such proceedings out of the distributive share of the Debentures (Section 1302).

By reason of such subordination, in the event of insolvency, creditors of the Company, who are not holders of Senior Indebtedness or of the Debentures, may recover less, ratably, than holders of Senior Indebtedness but may recover more, ratably, than the holders of the Debentures.

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Senior Indebtedness is defined in the Indenture as: (a) the principal of, and unpaid interest (whether accruing before or after filing of any petition in bankruptcy or any similar proceedings by or against the Company and whether or not allowed as a claim in bankruptcy or any similar proceeding) on, the following, whether heretofore or hereafter created, incurred, assumed, or guaranteed: (i) all indebtedness for borrowed money, created, incurred, assumed, or guaranteed by the Company (other than indebtedness evidenced by the Debentures and indebtedness which by the terms of the instrument creating or evidencing the same is specifically stated to be not superior in right of payment to the Debentures); (ii) bankers' acceptances and reimbursement obligations under letters of credit; (iii) obligations of the Company under interest rate and currency swaps, caps, floors, collars, or similar agreements or arrangements intended to protect the Company against fluctuations in interest or currency rates; (iv) any other indebtedness evidenced by a note or written instrument; and (v) obligations of the Company under any agreement to lease, or lease of, any real or personal property, which obligations are required to be capitalized on the books of the Company in accordance with generally accepted accounting principles then in effect (other than leases which by their terms are specifically stated to be not superior in right of payment to the Debentures), or guarantees by the Company of similar obligations of others; and (b) all deferrals, modifications, renewals, or extensions of such indebtedness, and any debentures, notes, or other evidence of indebtedness issued in exchange for such indebtedness or to refund the same (Section 101).

The Debentures are obligations exclusively of the Company. Certain operations of the Company will be conducted through its subsidiaries, principally PMI and, upon completion of this Offering, NBS (the "Subsidiaries"). The Subsidiaries are separate distinct entities that have no obligation, contingent or otherwise, to pay any amounts due pursuant to the Debentures. In addition, the payment of dividends, interest, and the repayment of certain loans and advances to the Company by the Subsidiaries may be subject to certain statutory or contractual restrictions and are contingent upon the earnings of such Subsidiaries. The Debentures will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Subsidiaries. In addition, the right of the Company and, therefore, the right of creditors of the Company (including holders of Debentures) to receive assets of any such Subsidiary upon the liquidation or reorganization of any such Subsidiary or otherwise will be effectively subordinated to the claims of the Subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such Subsidiary, in which case the claims of the Company would still be subordinate to any secured claim on the assets of such Subsidiary and any indebtedness of such Subsidiary senior to that held by the Company.

At March 31, 1997, Senior Indebtedness and indebtedness of the Subsidiaries and the Initial Affiliated Practices aggregated approximately $672,000 on a pro forma basis, giving effect to the Acquisitions. The Company expects that it and its Subsidiaries will from time to time incur additional indebtedness, including Senior Indebtedness. The Indenture does not prohibit or limit the incurrence, assumption, or guarantee by the Company or its Subsidiaries of additional indebtedness, including Senior Indebtedness.

EVENTS OF DEFAULT

Events of Default under the Indenture are: (i) failure to pay principal of any Debenture when due, whether at maturity, upon redemption or acceleration, or otherwise, whether or not such payment is prohibited by the subordination provisions of the Indenture; (ii) failure to pay any interest on any Debenture when due or within 30 days thereafter, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iii) failure to deposit when due or within 30 days thereafter any sinking fund payment for the Debentures, whether or not such deposits are prohibited by the subordination provisions of the Indenture; (iv) failure to pay any Repurchase Price when due or within 10 days thereafter on any Debenture, whether or not such payments are prohibited by the subordination provisions of the Indenture; (v) failure to perform any other covenant of the Company in the Indenture, which default continues for 60 days after written notice to the Company by the Trustee or to the Company and the Trustee by the holders of not less than 25% in aggregate principal amount of the outstanding Debentures;

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(vi) default on any indebtedness of the Company or the Subsidiaries in excess of $1,000,000 for borrowed money or on any Senior Indebtedness resulting in such indebtedness being declared due and payable after the expiration of any applicable grace period or becoming due and payable and the holders thereof taking any action to collect such indebtedness; and (vii) certain events in bankruptcy, insolvency, or reorganization of the Company or significant Subsidiaries (Section 501). Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders, unless such holders shall have offered to the Trustee reasonable indemnity (Section 514). Subject to such provisions for the indemnification of the Trustee, the holders of a majority in principal amount of the outstanding Debentures will have the right to determine the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee (Section 512). If an Event of Default (other than those relating to certain events of bankruptcy, insolvency, and reorganization) shall occur and be continuing, either the Trustee or the holders of at least 25% in aggregate principal amount of the outstanding Debentures may by written notice to the Company and, if applicable, to the Trustee, accelerate the maturity of all Debentures; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the holders of a majority in aggregate principal amount of outstanding Debentures may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture (Section 502). If an Event of Default occurs by reason of certain events in bankruptcy, insolvency, and reorganization, all principal and accrued and unpaid interest due under the Debentures then outstanding shall automatically become immediately due and payable. No holder of any Debenture will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default, the holders of at least 25% in aggregate principal amount of the outstanding Debentures shall have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as trustee, the Trustee shall not have received from the holders of a majority in principal amount of the outstanding Debentures a direction inconsistent with such request and the Trustee shall have failed to institute such proceeding within 60 days after such notice (Section 507). However, such limitations do not apply to a suit instituted by a holder of a Debenture for the enforcement of payment of the principal or Repurchase Price of, sinking fund payment for, if any, or interest on such Debenture on or after the respective due dates expressed in such Debenture or of the right to convert such Debenture in accordance with the Indenture (Section 508).

The Indenture provides that the Trustee shall, within 90 days after a Responsible Officer of the Trustee has actual knowledge of the occurrence of a default (not including any grace period allowed), mail to the holders of the Debentures, as their names and addresses appear on the Debenture Register, notice of all uncured defaults known to it; provided, however, that except in the case of default in the payment of principal or Repurchase Price of, sinking fund payment for, if any, or interest on any of the Debentures, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interests of the holders of the Debentures (Section 602).

The Company will be required to furnish to the Trustee annually a certificate with respect to its compliance with the terms, provisions, and conditions of the Indenture and as to any default with respect thereto (Section 1004).

OPTIONAL REDEMPTION

The Debentures are not redeemable prior to , 2000. Thereafter, the Debentures will be redeemable until maturity, at the Company's option, in whole or from time to time in part, upon not less than 45 nor more than 60 days' notice mailed to each holder of the Debentures at such holder's address appearing in the Debenture Register at a redemption price equal to 100% of the principal amount thereof plus accrued but unpaid interest thereon to the date fixed for redemption (subject to the right of holders of

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record on a relevant record date to receive interest due on an Interest Payment Date that is on or prior to the date fixed for redemption), except that the Debentures may not be redeemed prior to maturity unless, for the 20 consecutive trading days immediately preceding the date of the notice of redemption, the Closing Price has equaled or exceeded $ [150% of the Closing Price of the Common Stock on the effective date of this offering], subject to adjustment in the case of the same events which result in an adjustment of the conversion price. For purposes of optional redemption, the "Closing Price" on any trading day shall mean the last reported sales price of the Common Stock, or, in case no such reported sale takes place on such day, the closing bid price of the Common Stock, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market or Nasdaq, as the case may be, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq National Market or Nasdaq, the closing bid price in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose and is reasonably acceptable to the Trustee. If less than all of the Debentures are to be redeemed, the Trustee, in its discretion, will select those to be redeemed as a whole or in part by such method as the Trustee shall deem fair and appropriate. Notice of redemption will be given to holders of the Debentures to be redeemed by first class mail at their last address appearing on the Debenture Register.

SINKING FUND

If the Company provides for one or more sinking funds for securities representing indebtedness for money borrowed ranking equal or junior to the Debentures, and such indebtedness has a maturity or weighted average time to maturity which is on or prior to , 2004, the Company will provide a sinking fund for the Debentures calculated to retire that amount of Debentures equal to the lesser of (i) the same percentage of outstanding Debentures prior to maturity as the percentage of the principal amount of such other indebtedness to be retired prior to maturity on the same payment schedule as such other indebtedness or (ii) such amount of Debentures necessary to result in the Debentures having the same weighted average time to maturity as other indebtedness. Except as set forth herein with respect to the credit against mandatory sinking fund payments, the redemption price and other terms of the sinking fund applicable to the Debentures shall be the same as those applicable to the relevant indebtedness, except that the redemption price of the Debentures in connection with the sinking fund shall be 100% of the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption. The Company may, at its option, receive credit against mandatory sinking fund payments for the principal amount of (i) Debentures acquired by the Company and surrendered for cancellation, (ii) Debentures previously converted into Common Stock, and (iii) Debentures redeemed or called for redemption otherwise than through the operation of the sinking fund.

LIMITATIONS ON DIVIDENDS AND REDEMPTIONS

The Indenture provides that the Company will not (i) declare or pay any dividend or make any other distribution on any Junior Securities (as described below), except dividends or distributions payable in Junior Securities, or (ii) purchase, redeem or otherwise acquire or retire for value any Junior Securities, except Junior Securities acquired upon conversion thereof into other Junior Securities, or (iii) permit a Subsidiary to purchase, redeem or otherwise acquire or retire for value any Junior Securities, if, upon giving effect to such dividend, distribution, purchase, redemption, retirement or other acquisition, a default in the payment of any principal or Repurchase Price of, sinking fund payment for, if any, premium, if any, or interest on any Debenture shall have occurred and be continuing.

The term "Junior Securities" means (i) the Common Stock, (ii) shares of any other class or classes of capital stock of the Company, (iii) any other non-debt securities of the Company (whether or not such other securities are convertible into Junior Securities), and (iv) debt securities of the Company (other than

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Senior Indebtedness and the Debentures) as to which, in the instrument creating or evidencing Senior Indebtedness and the same or pursuant to which the same is outstanding, it is expressly provided that such debt securities are not Senior Indebtedness with respect to, or do not rank PARI PASSU with, the Debentures.

CONSOLIDATION, MERGER, AND SALE OF ASSETS

The Company, without the consent of the holders of any of the Debentures, may consolidate with or merge into any other Person or convey, transfer, sell, or lease its assets substantially as an entirety to any Person, provided that:
(i) either (a) the Company is the continuing corporation or (b) the corporation or other entity formed by such consolidation or into which the Company is merged or the Person to which such assets are conveyed, transferred, sold or leased is organized under the laws of the United States or any state thereof or the District of Columbia and expressly assumes all obligations of the Company under the Debentures and the Indenture; (ii) immediately after and giving effect to such merger, consolidation, conveyance, transfer, sale, or lease no Event of Default, and no event which, after notice or lapse of time, would become an Event of Default, under the Indenture shall have occurred and be continuing;
(iii) upon consummation of such consolidation, merger, conveyance, transfer, sale, or lease, the Debentures and the Indenture will be a valid and enforceable obligations of the Company or such successor Person, corporation, or other entity and (iv) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, sale, or lease complies with the provisions of the Indenture (Sections 801 and 802).

MODIFICATION AND WAIVER

Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding Debentures; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Debenture affected thereby, (i) change the Stated Maturity of the principal of, or any installment of interest on, any Debenture, (ii) reduce the principal amount of any Debenture or reduce the rate or extend the time of payment of interest thereon, (iii) change the place or currency of payment of principal of, or Repurchase Price or interest on, any Debenture, (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any Debenture, (v) adversely affect the right to convert Debentures, (vi) reduce the percentage of the aggregate principal amount of outstanding Debentures, the consent of the holders of which is necessary to modify or amend the Indenture,
(vii) reduce the percentage of the aggregate principal amount of outstanding Debentures, the consent of the holders of which is necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (viii) modify the provisions of the Indenture with respect to the subordination of the Debentures in a manner adverse to the holders of the Debentures, or (ix) modify the provisions of the Indenture with respect to the right to require the Company to repurchase Debentures in a manner adverse to the holders of the Debentures (Section 902). The holders of a majority in aggregate principal amount of the Outstanding Debentures may, on behalf of all holders of Debentures, waive any past default under the Indenture or Event of Default, except a default in the payment of, principal or interest on, any of the Debentures or in respect of a provision which under the Indenture cannot be modified without the consent of the holder of each outstanding Debenture (Section 902).

SATISFACTION AND DISCHARGE

The Indenture provides that the Company may discharge its obligations under the Indenture while Debentures remaining outstanding if (i) all outstanding Debentures will become due and payable at their scheduled maturity within one year or (ii) all outstanding Debentures are scheduled for redemption within one year, and in either case the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding Debentures on the date of their scheduled maturity or scheduled redemption (Section 401).

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GOVERNING LAW

The Indenture and the Debentures will be governed and construed in accordance with the laws of the State of New York without giving effect to such state's conflicts of laws principles.

INFORMATION CONCERNING THE TRUSTEE

The Company and its Subsidiaries may maintain deposit accounts and conduct other banking transactions with the Trustee or its affiliates in the ordinary course of business, and the Trustee and its affiliates may from time to time in the future provide the Company and its Subsidiaries with banking and financial services in the ordinary course of their businesses.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company is authorized by its Certificate of Incorporation to issue an aggregate of 50,000,000 shares of Common Stock, par value $.01 per share, and 1,000,000 shares of preferred stock, par value $.01 per share. As of March 31, 1997, 3,043,500 shares of Common Stock were outstanding and held of record by 42 stockholders, and no shares of preferred stock were outstanding. Following the completion of this Offering, an aggregate of 4,909,300 shares of Common Stock outstanding (5,134,300 shares if the Underwriters' over-allotment option is exercised in full) and no shares of preferred stock will be outstanding.

COMMON STOCK

Holders of Common Stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. There is no cumulative voting for the election of directors. Subject to the prior rights of any series of preferred stock which may from time to time be outstanding, if any, holders of Common Stock are entitled to receive ratably, dividends when, as, and if declared by the Board of Directors out of funds legally available therefor and, upon the liquidation, dissolution, or winding up of the Company, are entitled to share ratably in all assets remaining after payment of liabilities and payment of accrued dividends and liquidation preferences on the preferred stock, if any. Holders of Common Stock have no preemptive rights and have no rights to convert their Common Stock into any other securities. The outstanding Common Stock is validly authorized and issued, fully-paid, and nonassessable. In the event the Company were to elect to sell additional shares of Common Stock following this Offering, investors in this Offering would have no prior right to purchase such additional shares. As a result, their percentage equity interest in the Company would be diluted. The shares of Common Stock offered hereby will be, when issued and paid for, fully paid and not liable for further call or assessment. Holders of the Common Stock do not have cumulative voting rights, which means that the holders of more than one half of the outstanding shares of Common Stock (subject to the rights of the holders of the preferred stock) can elect all of the Company's directors, if they choose to do so. In such event, the holders of the remaining shares of Common Stock would not be able to elect any directors. The Board of Directors is empowered to fill any vacancies thereon. Except as otherwise required by Delaware law, and subject to the rights of the holders of preferred stock, all stockholder action is taken by the vote of a majority of the outstanding shares of Common Stock voting as a single class present at a meeting of stockholders at which a quorum (consisting of a majority of the outstanding shares of Common Stock) is present in person or proxy, or by written consent in lieu of such meeting.

PREFERRED STOCK

Preferred stock may be issued in one or more series and having such rights, privileges, and limitations, including voting rights, conversion privileges, and/or redemption rights, as may, from time to time, be determined by the Board of Directors of the Company. Preferred stock may be issued in the future in connection with acquisitions, financings, or such other matters as the Board of Directors deems appropriate. In the event that any such shares of preferred stock are to be issued, a Certificate of Designation, setting forth the series of such preferred stock and the rights, privileges, and limitations with respect thereto, shall be filed with the Secretary of State of the State of Delaware. The effect of such preferred stock is that the Company's Board of Directors alone, subject to, federal securities laws and Delaware law, may be able to authorize the issuance of preferred stock which could have the effect of delaying, deferring, or preventing a change in control of the Company without further action by the stockholders, and may adversely affect the voting and other rights of the holders of the Common Stock. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of Common Stock, including the loss of voting control to others.

TRANSFER AGENT

The Company has appointed Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004, as transfer agent for the Common Stock.

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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following summary sets forth the principal federal income tax consequences of holding and disposing of Debentures. This summary is based upon laws, regulations, rulings and judicial decisions now in effect, all of which are subject to change, possibly on a retroactive basis. This summary is presented for informational purposes only and relates only to Debentures or Common Stock received in exchange therefor that are held as "capital assets" (generally, property held for investment within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The summary discusses certain federal income tax consequences to holders of Debentures ("holders") that are citizens or residents of the United States. It does not discuss state, local or foreign tax consequences, nor does it discuss tax consequences to categories of holders that may be subject to special rules, such as tax exempt organizations, insurance companies, financial institutions and dealers in stocks and securities. Tax consequences may vary depending on the particular status of an investor.

This summary does not purport to deal with all aspects of federal income taxation that may be relevant to an investor's decision to purchase the Debentures. Each investor should consult his or her own tax advisor as to the particular tax consequences to such person of purchasing, holding and disposing of the Debentures, including the applicability and effect of any state, local or foreign tax laws and any recent proposed changes in applicable income tax laws.

STATED INTEREST

A holder using the accrual method of accounting for tax purposes generally will be required to include interest in income as such interest accrues, while a cash basis holder generally will be required to include interest in income when cash payments are received (or made available for receipt) by such holder.

CONVERSION OF DEBENTURES

Except as otherwise indicated below, no gain or loss will be recognized for federal income tax purposes upon the conversion of the Debentures into Common Stock. Cash paid in lieu of fractional Common Stock will be taxed as if the fractional Common Stock was issued and then redeemed for cash, resulting in either sale or exchange treatment or dividend treatment. The tax basis of the Common Stock received upon conversion will be equal to the tax basis of the Debentures converted reduced by the portion of such basis, if any, allocable to any fractional share interest exchanged for cash. The holding period of the Common Stock received upon conversion will include the holding period of the Debentures converted.

If at any time the Company makes a distribution of property to its shareholders that would be taxable to such shareholders as a dividend for federal income tax purposes (e.g. distributions of cash, evidences of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the anti-dilution provisions of the Indenture, the conversion price of the Debentures is reduced, such reduction will be deemed to be the payment of a stock distribution to holders which may be taxable as a dividend. If the Company voluntarily reduces the conversion price for a period of time, holders may, in certain circumstances, have to include in gross income an amount equal to the value of the reduction in the conversion price. Holders could, therefore, have taxable income as a result of an event pursuant to which they received no cash or property that could be used to pay the related income tax.

POSSIBLE ORIGINAL ISSUE DISCOUNT

Because the Debentures have an initial interest accrual period that is longer than each subsequent interest accrual period, it is possible that upon retirement of the Debentures, the holders thereof would be required to recognize income equal to the "de minimis OID" amount, within the meaning of Section

57

1.1273-1 (d)(6) of the regulations under the Code. Assuming a holder holds the Debenture as a capital asset, any such income required to be recognized thereunder will be characterized as capital gain.

DISPOSITION OF DEBENTURES OR SHARES OF COMMON STOCK

In general, the holder of a Debenture or the Common Stock into which it is converted will recognize gain or loss upon the sale, redemption, retirement or other disposition of the Debenture or Common Stock in an amount equal to the difference between the amount of cash and the fair market value of property received (except to the extent attributable to the payment of accrued interest) and the holder's adjusted tax basis in the Debenture or Common Stock. The holder's tax basis in a Debenture generally will be such holder's cost, increased by the amount of accrued market discount a holder elects to include in income with respect to the Debenture (discussed below), and reduced by (i) any principal payments received by such holder and (ii) the amount of any amortizable bond premium the holder elects to amortize with respect to the Debenture. If a holder holds a Debenture as a capital asset, such gain or loss will be a capital gain or loss except to the extent of any accrued market discount (see "Market Discount on Resale") if the Debenture has been held for the then requisite holding period at the time of the sale, exchange, redemption or retirement.

MARKET DISCOUNT ON RESALE

The tax consequences of the sale of a Debenture by a holder may be affected by the market discount provisions of the Code. Market discount is defined as the excess of a debt instrument's stated redemption price (or its revised issue price in the case of a debt instrument issued with original issue discount) at maturity over the holder's tax basis in such debt instrument immediately after its acquisition. If the market discount is less than 25% of the stated redemption price (or the revised issue price, as the case may be) at maturity multiplied by the number of complete years to maturity (after the holder acquired the debt instrument), then the market discount will be considered to be zero.

If a holder purchases a Debenture at a market discount and thereafter recognizes gain on its disposition (or the disposition of the Common Stock into which such Debenture is converted) such gain is treated as ordinary interest income to the extent it does not exceed the accrued market discount on such Debenture. In addition, recognition of gain to the extent of accrued market discount may be required in the case of some dispositions which would otherwise be nonrecognition transactions. Unless a holder elects to use a constant rate method, accrued market discount equals a Debenture market discount multiplied by a fraction, the numerator of which equals the number of days the holder holds such Debenture and the denominator of which equals the total number of days following the date the holder acquires such Debenture up to and including the date of its maturity. If a holder of a Debenture acquired at a market discount receives a partial principal payment prior to maturity, that payment is treated as ordinary income to the extent of the accrued market discount on the Debenture at the time payment is received. However, when the holder disposes of the Debenture, the accrued market discount is reduced by the amount of the partial principal payment previously included in income.

A holder that acquires a Debenture at a market discount may be required to defer a portion of any interest expense that may otherwise be deductible on any indebtedness incurred to purchase such Debenture until the holder disposes of such Debenture in a taxable transaction. A holder of Debentures acquired at a market discount may elect to include the market discount in income as the discount accrues, either on a ratable basis, or, if elected, on a constant interest rate basis. Once made, the current inclusion election applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the Internal Revenue Service (the "IRS"). If a holder of a Debenture elects to include the market discount in income as it accrues, the foregoing rules with respect to the recognition of ordinary income on sales and certain other dispositions and with respect to the deferral of interest deductions on related indebtedness, would not apply.

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BOND PREMIUM

If, as a result of a purchase at a premium, a holder's adjusted tax basis in a Debenture exceeds the Debenture's stated redemption price at maturity, such excess may constitute amortizable bond premium. If the Debenture is a capital asset in the hands of the holder, Section 171 of the Code allows the holder to elect to amortize any such bond premium under the constant interest rate method as an offset against interest income earned on the Debenture. The amount of amortizable bond premium equals the excess of the holder's basis (for determining loss on sale or exchange) in the Debenture over the amount payable at maturity or, if it results in a smaller amortizable bond premium, an earlier call date. If a holder is required to amortize bond premium by reference to such a call date and the Debenture is not in fact called on such date, the remaining unamortized premium must be amortized to a succeeding call date or to maturity.

A holder's tax basis in a Debenture must be reduced by the amount of amortized bond premium. An election to amortize bond premium applies to all bonds (other than tax-exempt bonds) held by the holder at the beginning of the first taxable year to which the election applies or thereafter acquired by the holder and is irrevocable without the consent of the IRS.

BACKUP WITHHOLDING

Under the "backup withholding" provisions of federal income tax law, the Company, its agent, a broker or any paying agent, as the case may be, will be required to withhold a tax equal to 31% of any payment of (i) principal, premium, if any, and interest on the Debentures, (ii) proceeds from the sale or redemption of the Debentures, (iii) dividends on the Common Stock and (iv) proceeds from the sale or redemption of the Common Stock, unless the holder (a) is exempt from backup withholding and, when required, demonstrates this fact to the payor or (b) provides a taxpayer identification number to the payor, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Certain holders (including corporations, tax-exempt organizations, individual retirement accounts and, to a limited extent, nonresident aliens) are not subject to the backup withholding importing requirements. A nonresident alien must submit a statement, signed under penalties of perjury, attesting to that individual's exemption from backup withholding. A holder of Debentures or Common Stock that is otherwise required to but does not provide the Company with a correct taxpayer identification number may be subject to penalties imposed by the Code. Any amounts paid as backup withholding with respect to the Debentures or Common Stock will be credited to the income tax liability of the person receiving the payment from which such amount was withheld. Holders of Debentures and Common Stock should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such an exemption.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of this Offering, and giving effect to the Acquisitions, the Company will have 4,909,300 shares of Common Stock outstanding (5,134,300 shares of Common Stock outstanding if the Underwriters' over-allotment option is exercised in full). Of these shares, the 1,500,000 shares of Common Stock offered hereby (1,725,000 shares if the Underwriters' over-allotment option is exercised in full) will be freely tradeable without restriction under the Securities Act unless purchased by affiliates as that term is defined in Rule 144 under the Securities Act.

The remaining 3,409,300 shares of Common Stock are "restricted securities" within the meaning of Rule 144 of the Securities Act and, if held for at least one year, would be eligible for sale in the public market in reliance upon, and in accordance with, the provisions of Rule 144 following the expiration of such one-year period. In general, under Rule 144 as currently in effect, a person or persons whose shares are aggregated, including a person who may be deemed to be an "affiliate" of the Company as that term is defined under the Securities Act, would be entitled to sell within any three month period a number of shares beneficially owned for at least one year that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock, or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice, and the availability of current public information about the Company. However, a person who is not deemed to have been an affiliate of the Company during the 90 days preceding a sale by such person and who has beneficially owned such shares of Common Stock for at least two years may sell such shares without regard to the volume, manner of sale, or notice requirements of Rule 144. All officers and directors of the Company, current stockholders, and option holders under the Plan have agreed not, directly or indirectly, to offer, agree to offer to sell, transfer, pledge, assign, encumber, grant an option for the purchase or sale of, hypothecate, or otherwise dispose of any securities of the Company for a period of 18 months from the date of this Prospectus without the Representative's prior written consent. After such 18-month period, all 3,409,300 shares may be sold in accordance with Rule 144.

Prior to this offering, there has been no public market for the Company's securities. Following this offering, the Company cannot predict the effect, if any, that sales of shares of Common Stock pursuant to Rule 144 or otherwise, or the availability of such shares for sale, will have on the market price prevailing from time to time. Nevertheless, sales by the current stockholders of a substantial number of shares of Common Stock in the public market could materially adversely affect prevailing market prices for the Common Stock. In addition, the availability for sale of a substantial number of shares of Common Stock acquired through the exercise of the Representative's Warrants or the outstanding options under the Plan could materially adversely affect prevailing market prices for the Common Stock.

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UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom National Securities Corporation is acting as representative (in such capacity, the "Representative"), have severally agreed, subject to the terms and conditions of the Underwriting Agreement (the "Underwriting Agreement") to purchase from the Company, and the Company has agreed to sell to the Underwriters on a firm commitment basis, the respective amount of Debentures and number of shares of Common Stock set forth opposite their names:

                                                                      AMOUNT OF    NUMBER OF
UNDERWRITERS                                                         DEBENTURES      SHARES
------------------------------------------------------------------  -------------  ----------
National Securities Corporation...................................

                                                                    -------------  ----------
      Total.......................................................  $  25,000,000   1,500,000
                                                                    -------------  ----------
                                                                    -------------  ----------

The Underwriters are committed to purchase all the Debentures and shares of Common Stock offered hereby, if any of such Securities are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to conditions precedent specified therein.

The Company has been advised by the Representative that the Underwriters propose initially to offer the Securities to the public at the initial public offering prices set forth on the cover page of this Prospectus and to such dealers at such prices less concessions not in excess of % of the principal amount of Debentures and $ per share of Common Stock. Such dealers may reallow a concession not in excess of % of the Debentures and $ per share of Common Stock to certain other dealers. After the commencement of the Offering, the public offering prices, concession, and reallowance may be changed by the Representative.

The Representative has informed the Company that it does not expect sales to discretionary accounts by the Underwriters to exceed five percent of the Securities offered hereby.

The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make. The Company has also agreed to pay to the Representative a non-accountable expense allowance equal to 2% of the gross proceeds derived from the sale of the Securities underwritten, of which [$50,000] has been paid to date.

The Company has granted to the Underwriters an over-allotment option, exercisable during the 45 day period from the date of this Prospectus, to purchase up to an aggregate of $3,750,000 principal amount of Debentures and/or an additional 225,000 shares of Common Stock at the initial offering price per Debenture and share of Common Stock, respectively, offered hereby, less underwriting discounts and the non-accountable expense allowance. Such option may be exercised only for the purpose of covering over-allotments, if any, incurred in the sale of the Securities offered hereby. To the extent such option is exercised in whole or in part, each Underwriter will have a firm commitment, subject to certain conditions, to purchase the amount of additional Securities proportionate to its initial commitment.

The Company has agreed, at the request of the Representative, that for five years after the date of this Prospectus, it will use its best efforts to cause one individual designated by the Representative to be elected to the Company's Board of Directors.

In connection with this Offering, the Company has agreed to sell to the Representative, for nominal consideration, warrants to purchase from the Company up to an aggregate of $2,500,000 principal amount of Debentures and/or up to 150,000 shares of Common Stock (the "Representative's Warrants"). The

61

Representative's Warrants are initially exercisable at a price of 100% of the principal amount of Debentures and $ per share of Common Stock [120% of the initial public offering price per share of Common Stock] for a period of four years, commencing at the beginning of the second year after their issuance and sale and are restricted from sale, transfer, assignment, or hypothecation for a period of 12 months from the date hereof, except to officers of the Representative. The Representative's Warrants provide for adjustment in the number of shares of Common Stock issuable upon the exercise thereof and in the exercise price of the Representative's Warrants as a result of certain events, including subdivisions and combinations of the Common Stock. The Representative's Warrants grant to the holders thereof certain rights of registration for the securities issuable upon exercise thereof.

All officers and Directors of the Company, all holders of the issued and outstanding Common Stock, and all holders of options, warrants, or other securities convertible exercisable, or exchangeable for the issued or outstanding Common Stock have agreed not to, directly or indirectly, issue, offer, agree or offer to sell, sell, transfer, assign, encumber, grant an option for the purchase or sale of, pledge, hypothecate, or otherwise dispose of any beneficial interest in such securities for a period of 18 months following the effective date of the Registration Statement without the prior written consent of the Company and the Representative (the "Lock-up Agreements"). An appropriate legend shall be marked on the face of the certificates representing all such certificates.

In connection with this Offering, certain Underwriters and selling group members and their respective affiliates may engage in transactions that stabilize, maintain, or otherwise affect the market prices of the Securities. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for purchase of the Debentures and/or Common Stock for the purpose of stabilizing their respective market prices. The Underwriters also may create a short position for the account of the Underwriters by selling more Securities in connection with the Offering than they are committed to purchase from the Company, and in such case, may purchase Securities in the open market following completion of the Offering, to cover all or a portion of such short position. The Underwriters may also cover all or a portion of such short position, up to an aggregate of $3,750,000 principal amount of Debentures and/or 225,000 shares of Common Stock, by exercising the Underwriters' over-allotment option referred to above. In addition, the Representative may impose "penalty bids" under contractual arrangements with the Underwriters whereby it may reclaim from an Underwriter (or dealer participating in the Offering) for the account of other Underwriters, the selling concession with respect to the Securities which are distributed in the Offering but subsequently purchased for the account of the Underwriters in the open market. None of the transactions described in this paragraph is required , and, if they are undertaken, they may be discontinued at any time.

Prior to this Offering, there has been no public market for the Debentures and the Common Stock. Consequently, the initial public offering prices of the Securities has been determined by negotiation between the Company and the Representative and does not necessarily bear any relationship to the Company's asset value, net worth, or other established criteria of value. The factors considered in these negotiations, in addition to prevailing market conditions, included the history of, and prospects for, the industry in which the Company competes, an assessment of the Company's management, the prospects for the Company, its capital structure, the market for initial public offerings, and certain other factors as were deemed relevant.

The foregoing is a summary of the principal terms of the agreements described above and does not purport to be complete. Reference is made to a copy of each such agreement, which are filed as exhibits to the Registration Statement. See "Additional Information."

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LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Brock Fensterstock Silverstein McAuliffe & Wade LLC, New York, New York. Orrick, Herrington & Sutcliffe, LLP, New York, New York, has acted as counsel to the Underwriters in connection with this Offering.

EXPERTS

The financial statements of the Company as at December 31, 1996, and for the period then ended have been audited by Feldman Radin & Co., P.C., independent certified public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon such reports upon the authority of said firm as experts in accounting and auditing. Certain health care-related legal matters will be passed upon for the Company by Kalogredis, Tsoules and Sweeney Ltd., Wayne, Pennsylvania.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the "Commission"), 450 Fifth Street, N.W., Washington D.C. 20549, a registration statement on Form S-1 (the "Registration Statement"), including amendments thereto, under the Securities Act with respect to the securities offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules filed therewith, as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the Offering, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus as to the contents of any contract or other document which has been filed as an exhibit to the Registration Statement are qualified in their entirety by reference to such exhibits for a complete statement of their terms and conditions. The Registration Statement and the exhibits and schedules thereto may be inspected without charge at the offices of the Commission and copies of all or any part thereof may be obtained from the Commission's principal office at 450 Fifth Street, N.W., Washington D.C. 20549 or at certain of the regional offices of the Commission located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission. Electronic registration statements filed through the Electronic Data Gathering, Analysis, and Retrieval system are publicly available through the Commission's Web site (http://www.sec.gov). Following the consummation of this Offering and the listing of the Debentures and the Common Stock on the AMEX, reports and other information concerning the Company may be inspected at the offices of the AMEX, 86 Trinity Place, New York, New York 10006.

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INDEX TO FINANCIAL STATEMENTS

                                                                                                               PAGE
                                                                                                             ---------

INTEGRATED PHYSICIAN SYSTEMS, INC.:

  Report of Independent Public Accountants.................................................................        F-1

  Balance Sheets...........................................................................................        F-2

  Statements of Operations.................................................................................        F-3

  Statements of Changes in Stockholders' Equity............................................................        F-4

  Statements of Cash Flows.................................................................................        F-5

  Notes to Financial Statements............................................................................        F-6

HISTORICAL FINANCIAL STATEMENTS OF THE
  INITIAL AFFILIATED PRACTICES AND PMI:

  Report of Independent Public Accountants.................................................................        F-9

  Combined Balance Sheets..................................................................................       F-10

  Combined Statements of Operations........................................................................       F-11

  Combined Statements of Stockholders' and Owners' Deficit.................................................       F-12

  Combined Statements of Cash Flows........................................................................       F-13

  Notes to Combined Financial Statements...................................................................       F-14

UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF
  INTEGRATED PHYSICIAN SYSTEMS, INC.:

  Basis of Presentation....................................................................................       F-20

  Unaudited Pro Forma Consolidated Balance Sheet...........................................................       F-22

  Unaudited Pro Forma Consolidated Statements of Operations................................................       F-23

  Notes to Unaudited Pro Forma Consolidated Financial Statements...........................................       F-26


To the Board of Directors and Stockholders of Integrated Physician Systems, Inc.

We have audited the accompanying balance sheets of Integrated Physician Systems, Inc., a Delaware corporation, as of December 31, 1995 and 1996, and the related statements of operations, changes in stockholders'equity, and cash flows for the period from inception, April 25, 1995, through December 31, 1995, and for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Integrated Physician Systems, Inc., as of December 31, 1995 and 1996, and the results of its operations and its cash flows for the period from inception, April 25, 1995 through December 31, 1995, and for the year ended December 31, 1996, in conformity with generally accepted accounting principles.

FELDMAN RADIN & CO., P.C.
Certified Public Accountants

New York, New York
May 9, 1997

F-1

INTEGRATED PHYSICIAN SYSTEMS, INC.

BALANCE SHEETS

                                                                                   DECEMBER 31,
                                                                               ---------------------   MARCH 31,
                                                                                 1995        1996        1997
                                                                               ---------  ----------  -----------
                                                                                                      (UNAUDITED)
                                                     ASSETS

CURRENT ASSETS:
  Cash.......................................................................  $  --      $   30,000   $ 134,000
                                                                               ---------  ----------  -----------
      Total current assets...................................................     --          30,000     134,000
                                                                               ---------  ----------  -----------
OTHER ASSETS:
  Deferred registration costs................................................     64,000     259,000     333,000
  Organization costs, net of accumulated amortization of $1,000, $3,000, and
    $4,000, respectively.....................................................      9,000       7,000       6,000
                                                                               ---------  ----------  -----------
      Total other assets.....................................................     73,000     266,000     339,000
                                                                               ---------  ----------  -----------
                                                                               $  73,000  $  296,000   $ 473,000
                                                                               ---------  ----------  -----------
                                                                               ---------  ----------  -----------

                                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable and accrued liabilities...................................  $  --      $   30,000   $  35,000
  Due to related party.......................................................     74,000     118,000     118,000
  Senior notes...............................................................     --         125,000     310,000
                                                                               ---------  ----------  -----------
      Total liabilities......................................................     74,000     273,000     463,000
                                                                               ---------  ----------  -----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock--$.01 par value, authorized--1,000,000 shares; none issued
    and outstanding..........................................................     --          --          --
  Common stock $.01 par value, authorized--50,000,000 shares; issued and
    outstanding 1,000, 3,012,500, and 3,031,000 shares, respectively.........     --          30,000      30,000
  Additional paid-in capital.................................................     --          --          --
  Accumulated deficit........................................................     (1,000)     (7,000)    (20,000)
                                                                               ---------  ----------  -----------
      Total stockholders' (deficit) equity...................................     (1,000)     23,000      10,000
                                                                               ---------  ----------  -----------
                                                                               $  73,000  $  296,000   $ 473,000
                                                                               ---------  ----------  -----------
                                                                               ---------  ----------  -----------

See notes to financial statements

F-2

INTEGRATED PHYSICIAN SYSTEMS, INC.

STATEMENTS OF OPERATIONS

                                                                INCEPTION
                                                               (APRIL 25,
                                                                  1995)                         THREE MONTHS
                                                                 THROUGH       YEAR ENDED      ENDED MARCH 31,
                                                              DECEMBER 31,    DECEMBER 31,  ---------------------
                                                                  1995            1996        1996        1997
                                                             ---------------  ------------  ---------  ----------
                                                                                                 (UNAUDITED)
REVENUES...................................................     $  --          $   --       $  --      $   --
COSTS AND EXPENSES:
    General and administrative expenses....................        --               4,000       2,000      12,000
    Amortization of organization costs.....................         1,000           2,000       1,000       1,000
                                                                  -------     ------------  ---------  ----------
        Total costs and expenses...........................         1,000           6,000       3,000      13,000
                                                                  -------     ------------  ---------  ----------
LOSS BEFORE PROVISION FOR INCOME TAXES.....................        (1,000)         (6,000)     (3,000)    (13,000)
PROVISION FOR INCOME TAXES.................................        --              --          --          --
                                                                  -------     ------------  ---------  ----------
NET LOSS...................................................     $  (1,000)     $   (6,000)  $  (3,000) $  (13,000)
                                                                  -------     ------------  ---------  ----------
                                                                  -------     ------------  ---------  ----------
NET LOSS PER SHARE.........................................     $   (0.00)     $    (0.00)  $   (0.00) $    (0.00)
                                                                  -------     ------------  ---------  ----------
                                                                  -------     ------------  ---------  ----------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING..............         1,000       2,251,292       1,000   3,022,000
                                                                  -------     ------------  ---------  ----------
                                                                  -------     ------------  ---------  ----------

See notes to financial statements

F-3

INTEGRATED PHYSICIAN SYSTEMS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                                       COMMON STOCK       ADDITIONAL                    TOTAL
                                                   ---------------------    PAID-IN    ACCUMULATED   STOCKHOLDERS'
                                                     SHARES     AMOUNT      CAPITAL      DEFICIT        EQUITY
                                                   ----------  ---------  -----------  ------------  ------------
BALANCE, April 25, 1995..........................      --      $  --       $  --        $   --        $   --
  Issuance of common stock.......................       1,000     --          --            --            --
  Net loss.......................................      --         --          --            (1,000)       (1,000)
                                                   ----------  ---------  -----------  ------------  ------------
BALANCE, December 31, 1995.......................       1,000     --          --            (1,000)       (1,000)
  Issuance of common stock.......................   3,011,500     30,000      --            --            30,000
  Net loss.......................................      --         --          --            (6,000)       (6,000)
                                                   ----------  ---------  -----------  ------------  ------------
BALANCE, December 31, 1996.......................   3,012,500     30,000      --            (7,000)       23,000
  Issuance of common stock (Unaudited)...........      18,500     --          --            --            --
  Net loss (Unaudited)...........................      --         --          --           (13,000)      (13,000)
                                                   ----------  ---------  -----------  ------------  ------------
BALANCE, March 31, 1997 (Unaudited)..............   3,031,000  $  30,000   $  --        $  (20,000)   $   10,000
                                                   ----------  ---------  -----------  ------------  ------------
                                                   ----------  ---------  -----------  ------------  ------------

See notes to financial statements

F-4

INTEGRATED PHYSICIAN SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

                                                               INCEPTION
                                                           (APRIL 25, 1995)                     THREE MONTHS
                                                                THROUGH        YEAR ENDED      ENDED MARCH 31,
                                                             DECEMBER 31,     DECEMBER 31,  ---------------------
                                                                 1995             1996        1996        1997
                                                           -----------------  ------------  ---------  ----------
                                                                                                 (UNAUDITED)
CASH FLOWS USED IN OPERATING ACTIVITIES:
  Cash paid for general and administrative expenses......      $  --           $   (4,000)  $  (2,000) $  (12,000)
                                                                 -------      ------------  ---------  ----------
    Net cash used in operating activities................         --               (4,000)     (2,000)    (12,000)
                                                                 -------      ------------  ---------  ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Increase in deferred registration costs................        (74,000)        (195,000)     --         (74,000)
                                                                 -------      ------------  ---------  ----------
    Net cash used in investing activities................        (74,000)        (195,000)     --         (74,000)
                                                                 -------      ------------  ---------  ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in accounts payable and accrued expenses......         --               30,000      --           5,000
  Proceeds from senior notes.............................         --              125,000      --         185,000
  Net advances from related party........................         74,000           44,000       2,000      --
  Issuance of common stock...............................         --               30,000      --          --
                                                                 -------      ------------  ---------  ----------
    Net cash provided by financing activities............         74,000          229,000       2,000     190,000
                                                                 -------      ------------  ---------  ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................         --               30,000      --         104,000
CASH AND CASH EQUIVALENTS, beginning of period...........         --               --          --          30,000
                                                                 -------      ------------  ---------  ----------
CASH AND CASH EQUIVALENTS, end of period.................      $  --           $   30,000   $  --      $  134,000
                                                                 -------      ------------  ---------  ----------
                                                                 -------      ------------  ---------  ----------
RECONCILIATION OF NET LOSS TO NET CASH USED IN OPERATING
  ACTIVITIES:
  Net loss...............................................      $  (1,000)      $   (6,000)  $  (3,000) $  (13,000)
  Adjustments to reconcile net loss to net cash used in
    operating activities--Amortization of organization
    costs................................................          1,000            2,000       1,000       1,000
                                                                 -------      ------------  ---------  ----------
    Net cash used in operating activities................      $  --           $   (4,000)  $  (2,000) $  (12,000)
                                                                 -------      ------------  ---------  ----------
                                                                 -------      ------------  ---------  ----------

See notes to financial statements

F-5

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION

Integrated Physician Systems, Inc. ('IPS' or the 'Company'), was established as a Delaware corporation on April 25, 1995, for the purpose of creating a physician practice management company which will (i) own the assets of and manage physician groups, (ii) own or manage Independent Practice Associations,
(iii) provide management services to independent physicians including hospital-based physicians and (iv) own or manage medically related ancillary services. The Company's operations to date have consisted primarily of seeking affiliations with physicians, negotiating acquisitions of the assets of such physician practices and negotiating agreements to provide management services to such practices. The Company plans to make an initial public offering of its common stock and convertible subordinated debentures (the "IPO") and simultaneously exchange cash, notes and shares of its common stock for selected assets and liabilities associated with 12 physician practices and a medical billing company (referred to collectively as the 'Initial Affiliated Practices').

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. ORGANIZATION COSTS

Organization costs incurred in the formation of the Company are amortized on a straight-line basis over a five-year period.

B. DEFERRED REGISTRATION COSTS

Substantially all costs incurred to date have been in conjunction with the anticipated initial public offering of the Company's common stock and convertible subordinated debentures. All costs incurred in connection with such efforts have been capitalized and will be charged against the proceeds of the IPO upon its successful completion.

C. INCOME TAXES

As reflected in the accompanying statements of operations, the Company incurred losses from operations during the period from inception, April 25, 1995, through December 31, 1995, the year ended December 31, 1996, and the three months ended March 31, 1997. Due to the limited operations of the Company since its inception and pending the IPO of its common stock and convertible subordinated debentures, a valuation allowance has been recorded to fully reserve for the deferred tax benefits generated by net operating losses. There is no significant difference in the tax and book basis of the Company's assets or liabilities that would give rise to deferred tax balances.

D. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-6

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. RELATED PARTY

The founding stockholder of the Company, Wellness Concepts, Inc., has advanced funds on behalf of the Company in connection with the IPO. Such payments have been reflected as amounts due to a related party in the accompanying balance sheets and will be repaid at the closing of the IPO. The Company has no resources to repay such amounts should the IPO not be successfully completed.

4. SENIOR NOTES

As of March 31, 1997, the Company is obligated to pay an aggregate amount of $310,000 pursuant to the terms of series A 10% Senior Notes (the 'Senior Notes') in varying amounts issued by the Company in connection with its Bridge Financing in contemplation of its IPO. The Senior Notes bear interest at the rate of 10% per annum until the notes maturity, which is the earlier of 12 months from the date of issuance or the closing of the IPO. Interest on the Senior Notes is payable in arrears on the maturity date. In connection with the issuance of the Senior Notes, the Company issued, as additional consideration, 31,000 shares of common stock, par value $.01 per share.

5. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 105 "Disclosures About Fair Value of Financial Instruments" requires disclosure about the fair value of all financial instruments. Carrying amounts of all financial instruments approximate fair value as of December 31, 1996 and March 31, 1997.

6. INTERIM FINANCIAL STATEMENTS

The balance sheet at March 31, 1997, and the statements of operations and cash flows for the three months ended March 31, 1997 are unaudited, but, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of results for the interim period. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of results to be expected for the entire year.

7. SUBSEQUENT EVENTS

A. ISSUANCE OF ADDITIONAL SENIOR NOTES

On May 1, 1997, the Company issued an additional aggregate principal amount of $125,000 Senior Notes, in varying amounts, issued by the Company in connection with its Bridge Financing in contemplation of its IPO. The Senior Notes are more fully described in Note 4 to the financial statements. In connection with the issuance of the additional Senior Notes, the Company issued, as additional consideration, 12,500 shares of common stock, par value $.01 per share.

B. ACQUISITION OF PROFESSIONAL MEDICAL IMAGES, INC. (PMI)

On April 1, 1997, the Company acquired 100% of the outstanding common stock of PMI, in return for $2,000 and the assumption, by the Company, of all of the outstanding net liabilities of PMI in the amount of $37,000. PMI is a New Jersey business corporation engaged in the business of managing and developing IPAs and providing a full range of consulting services to physicians, hospitals and managed care organizations.

C. CONSULTING AGREEMENT

Effective April 1, 1997, the Company entered into a Consulting Agreement with several physician practices and a management service organization collectively known as the Reliance Medical Group ("Reliance"). Under the terms of a one year consulting agreement, the Company provides physician practice management services to Reliance in return for fixed monthly compensation in the amount of

F-7

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. SUBSEQUENT EVENTS (CONTINUED) $25,000. It is anticipated that the Reliance physician practices and management service organization will be acquired as part of the Initial Affiliated Practices.

D. COMMITMENTS AND CONTINGENCIES

The Company intends to consummate an initial public offering of its common stock and convertible subordinated debentures and contemporaneously exchange $7,937,000 in cash, $114,000 in notes and 365,800 shares of its common stock for selected assets of, and certain liabilities associated with the Initial Affiliated Practices. The Company has entered into purchase and sale and other related acquisition agreements with the Initial Affiliated Practices the closing of which will occur at the time of the IPO.

In connection with the consummation of the acquisitions, the Company will enter into Practice Management Services Agreements ("PMSAs") to provide management services to the Initial Affiliated Practices for initial terms of 40 years.

8. PRO FORMA INFORMATION

Summarized pro forma information which assumes that the acquisition of PMI and the Initial Affiliated Practices occurred, utilizing the purchase method of accounting, on March 31, 1997 for balance sheet purposes and on January 1, 1996 and January 1, 1997 for statement of operations purposes is as follows:

                                                                                MARCH 31, 1997
PRO FORMA BALANCE SHEET                                                          (UNAUDITED)
------------------------------------------------------------------------------  --------------
Working capital...............................................................   $ 27,225,000
Total assets..................................................................   $ 41,957,000
Long-term debt................................................................   $ 25,407,000
Stockholders' equity..........................................................   $ 16,285,000

                                                                                THREE MONTHS
                                                              YEAR ENDED      ENDED MARCH 31,
PRO FORMA STATEMENTS OF OPERATIONS                         DECEMBER 31, 1996        1997
---------------------------------------------------------  -----------------  ----------------
                                                                (UNAUDITED)        (UNAUDITED)
Physician and related service revenues...................    $  18,470,000     $    4,716,000
Net loss.................................................    $  (2,548,000)    $     (532,000)
Loss per share...........................................    $       (0.52)    $        (0.11)

This pro forma information may not be indicative of actual results if the transactions had occurred on the dates indicated or of results which may be realized in the future.

9. STOCK OPTION PLAN

In 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"). The purpose of the Plan is to provide directors, officers, key employees and certain advisors with additional incentives by increasing their proprietary interest in the Company. The Company has authorized 300,000 shares of Common Stock to be issued pursuant to the Plan. As of December 31, 1995, 1996, and March 31, 1997 there were no options outstanding under the Plan.

F-8

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Integrated Physician Systems, Inc.

We have audited the accompanying combined balance sheets of Professional Medical Images ("PMI") and the Initial Affiliated Practices (as identified in Note 1) as of December 31, 1995 and 1996, and the related combined statements of operations, owners' deficit and cash flows for each of the three years in the period ended December 31, 1996. These combined financial statements are the responsibility of PMI and the Initial Affiliated Practices' management. Our responsibility is to express an opinion on these financial statements based on our audits

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

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of PMI and the Initial Affiliated Practices as of December 31, 1995 and 1996, and the results of its operations, owners' deficit and cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that PMI and the Initial Affiliated Practices will continue as going concerns. As discussed in Note 6 to the financial statements, one of the Initial Affiliated Practices (the "Defaulted Practice") is currently in default under several of its debt agreements and its current liabilities exceed its current assets by $4,744,000 as of December 31, 1996. These matters raise substantial doubt about the Defaulted Practices' ability to continue as a going concern. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Defaulted Practice be unable to continue as a going concern.

FELDMAN RADIN & CO., P. C.
Certified Public Accountants

New York, New York
May 9, 1997

F-9

INITIAL AFFILIATED PRACTICES AND PMI

COMBINED BALANCE SHEETS

                                                                                 DECEMBER 31,
                                                                          --------------------------   MARCH 31,
                                                                              1995          1996          1997
                                                                          ------------  ------------  ------------
                                                      ASSETS

CURRENT ASSETS:
  Cash and cash equivalents.............................................  $    195,000  $    254,000  $    244,000
  Accounts receivable, less allowance for contractual adjustments and
    bad debts of $6,194,000 in 1995, $6,304,000 in 1996 and $6,039,000
    in 1997.............................................................     1,484,000     2,153,000     2,554,000
  Prepaid expenses and other current assets.............................        76,000       198,000       382,000
                                                                          ------------  ------------  ------------
    Total current assets................................................     1,755,000     2,605,000     3,180,000
                                                                          ------------  ------------  ------------
PROPERTY AND EQUIPMENT, net.............................................     1,391,000     1,241,000     1,180,000
                                                                          ------------  ------------  ------------
OTHER NONCURRENT ASSETS, net............................................       120,000        83,000        41,000
                                                                          ------------  ------------  ------------
                                                                          $  3,266,000  $  3,929,000  $  4,401,000
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------
                                LIABILITIES AND STOCKHOLDERS' AND OWNERS' DEFICIT

CURRENT LIABILITIES:
  Bank overdrafts.......................................................  $    199,000  $    118,000  $    116,000
  Short-term notes payable..............................................     1,966,000     2,243,000     2,145,000
  Current portion of long-term debt.....................................       254,000       182,000       182,000
  Current portion of obligations under capital lease....................        53,000        39,000        37,000
  Accounts payable and accrued expenses.................................     1,242,000     1,515,000     1,371,000
  Accrued payroll and payroll taxes.....................................     2,011,000     3,252,000     3,600,000
                                                                          ------------  ------------  ------------
    Total current liabilities...........................................     5,725,000     7,349,000     7,451,000
                                                                          ------------  ------------  ------------
LONG-TERM DEBT, net of current portion..................................       488,000       545,000       598,000
                                                                          ------------  ------------  ------------
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASE, net of current portion.......        50,000        27,000        20,000
                                                                          ------------  ------------  ------------
OTHER LONG-TERM LIABILITIES.............................................         3,000        54,000        54,000
                                                                          ------------  ------------  ------------
    Total liabilities...................................................     6,266,000     7,975,000     8,123,000
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' AND OWNERS' DEFICIT.......................................    (3,000,000)   (4,046,000)   (3,722,000)
                                                                          ------------  ------------  ------------
                                                                          $  3,266,000  $  3,929,000  $  4,401,000
                                                                          ------------  ------------  ------------
                                                                          ------------  ------------  ------------

See notes to financial statements

F-10

INITIAL AFFILIATED PRACTICES AND PMI
COMBINED STATEMENTS OF OPERATIONS

                                                                                                  THREE MONTHS ENDED
                                                          YEARS ENDED DECEMBER 31,                    MARCH 31,
                                                 -------------------------------------------  --------------------------
                                                     1994           1995           1996           1996          1997
                                                 -------------  -------------  -------------  ------------  ------------

                                                                                                     (UNAUDITED)
REVENUE:
  Medical services revenue, net of contractual
    adjustments and bad debts..................  $  18,351,000  $  18,769,000  $  18,470,000  $  4,795,000  $  4,716,000
  Other revenue................................        156,000         82,000         38,000         9,000        10,000
                                                 -------------  -------------  -------------  ------------  ------------
    Total revenue..............................     18,507,000     18,851,000     18,508,000     4,804,000     4,726,000
                                                 -------------  -------------  -------------  ------------  ------------
COSTS AND EXPENSES:
  Salaries and wages...........................     11,090,000     10,472,000     10,421,000     2,489,000     2,143,000
  Medical supplies and expenses................        504,000        623,000        426,000       110,000        98,000
  General and administrative expenses..........      5,879,000      4,533,000      4,564,000     1,280,500     1,552,000
  Payroll tax interest and penalties...........        194,000        145,000        490,000       122,500       166,000
  Depreciation and amortization................        244,000        370,000        306,000        71,000        80,000
  Interest expense.............................        246,000        254,000        203,000        55,000        59,000
                                                 -------------  -------------  -------------  ------------  ------------
    Total costs and expenses...................     18,157,000     16,397,000     16,410,000     4,128,000     4,098,000
                                                 -------------  -------------  -------------  ------------  ------------
    Net earnings distributable to owners before
      owners' compensation.....................  $     350,000  $   2,454,000  $   2,098,000  $    676,000  $    628,000
                                                 -------------  -------------  -------------  ------------  ------------
                                                 -------------  -------------  -------------  ------------  ------------

See notes to financial statements

F-11

INITIAL AFFILIATED PRACTICES AND PMI

COMBINED STATEMENTS OF STOCKHOLDERS' AND OWNERS' DEFICIT

BALANCE, December 31, 1993......................................................  $ (587,000)
Net earnings distributable to owners before owners' compensation................     350,000
Compensation and distributions to owners........................................  (2,344,000)
                                                                                  ----------
BALANCE, December 31, 1994......................................................  (2,581,000)
Net earnings distributable to owners before owners' compensation................   2,454,000
Compensation and distributions to owners........................................  (2,873,000)
                                                                                  ----------
BALANCE, December 31, 1995......................................................  (3,000,000)
Net earnings distributable to owners before owners' compensation................   2,098,000
Compensation and distributions to owners........................................  (3,144,000)
                                                                                  ----------
BALANCE, December 31, 1996......................................................  (4,046,000)
Net earnings distributable to owners before owners' compensation (unaudited)....     628,000
Compensation and distributions to owners (unaudited)............................    (304,000)
                                                                                  ----------
BALANCE, March 31, 1997 (unaudited).............................................  $(3,722,000)
                                                                                  ----------
                                                                                  ----------

See notes to financial statements

F-12

INITIAL AFFILIATED PRACTICES AND PMI

COMBINED STATEMENTS OF CASH FLOWS

                                                                                                                    THREE
                                                                                                                    MONTHS
                                                                                                                    ENDED
                                                                                YEARS ENDED DECEMBER 31,          MARCH 31,
                                                                        ----------------------------------------  ----------
                                                                            1994          1995          1996         1996
                                                                        ------------  ------------  ------------  ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings distributable to owners................................  $    350,000  $  2,454,000  $  2,098,000  $  676,000
                                                                        ------------  ------------  ------------  ----------
  Adjustments to reconcile net earnings distributable to owners to net
    cash provided by operating activities -
    Depreciation and amortization.....................................       244,000       370,000       306,000      71,000
    Changes in assets and liabilities -
      (Increase) decrease in -
        Accounts receivable, net......................................        55,000      (183,000)     (669,000)   (250,000)
        Prepaid expenses and other current assets.....................       148,000       (31,000)     (122,000)   (172,000)
    Increase (decrease) in -
      Accounts payable and accrued expenses...........................      (123,000)      453,000       273,000    (224,000)
      Accrued payroll and payroll taxes...............................       910,000       111,000     1,241,000      15,000
                                                                        ------------  ------------  ------------  ----------
                                                                           1,234,000       720,000     1,029,000    (560,000)
                                                                        ------------  ------------  ------------  ----------
  Net cash provided by operating activities before compensation and
    distributions of net earnings paid to owners......................     1,584,000     3,174,000     3,127,000     116,000
Compensation and distributions of net earnings paid to owners.........    (2,344,000)   (2,873,000)   (3,144,000)   (394,000)
                                                                        ------------  ------------  ------------  ----------
  Net cash provided by (used in) operating activities.................      (760,000)      301,000       (17,000)   (278,000)
                                                                        ------------  ------------  ------------  ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment..................................      (673,000)     (419,000)     (156,000)     --
  (Increase) decrease in of other noncurrent assets...................        76,000       (30,000)       37,000      34,000
                                                                        ------------  ------------  ------------  ----------
          Net cash used in investing activities.......................      (597,000)     (449,000)     (119,000)     34,000
                                                                        ------------  ------------  ------------  ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from (repayments of) bank overdraft........................       635,000      (436,000)      (81,000)    205,000
  Proceeds from (repayments of) short-term notes payable..............       --            543,000       277,000     171,000
  Proceeds from (repayments of) current portion of long-term debts....        34,000       220,000       (72,000)    (73,000)
  Proceeds from (repayments of) obligations under capital leases......       115,000       (12,000)      (37,000)    (25,000)
  Proceeds from (repayments of) long-term debt........................       347,000      (151,000)       57,000     (36,000)
  Proceeds from (repayments of) other long-term liabilities...........         9,000        (6,000)       51,000      60,000
                                                                        ------------  ------------  ------------  ----------
    Net cash provided by (used in) financing activities...............     1,140,000       158,000       195,000     302,000
                                                                        ------------  ------------  ------------  ----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................      (217,000)       10,000        59,000      58,000
CASH AND CASH EQUIVALENTS, beginning of period........................       402,000       185,000       195,000     195,000
                                                                        ------------  ------------  ------------  ----------
CASH AND CASH EQUIVALENTS, end of period..............................       185,000  $    195,000  $    254,000  $  253,000
                                                                        ------------  ------------  ------------  ----------
                                                                        ------------  ------------  ------------  ----------
SUPPLEMENTAL CASHFLOW DISCLOSURE
  Interest paid.......................................................  $    242,000  $    248,000  $    301,000  $   76,000
                                                                        ------------  ------------  ------------  ----------
                                                                        ------------  ------------  ------------  ----------


                                                                           1997
                                                                        ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings distributable to owners................................  $  628,000
                                                                        ----------
  Adjustments to reconcile net earnings distributable to owners to net
    cash provided by operating activities -
    Depreciation and amortization.....................................      80,000
    Changes in assets and liabilities -
      (Increase) decrease in -
        Accounts receivable, net......................................    (401,000)
        Prepaid expenses and other current assets.....................    (184,000)
    Increase (decrease) in -
      Accounts payable and accrued expenses...........................    (144,000)
      Accrued payroll and payroll taxes...............................     348,000
                                                                        ----------
                                                                          (301,000)
                                                                        ----------
  Net cash provided by operating activities before compensation and
    distributions of net earnings paid to owners......................     327,000
Compensation and distributions of net earnings paid to owners.........    (304,000)
                                                                        ----------
  Net cash provided by (used in) operating activities.................      23,000
                                                                        ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment..................................     (19,000)
  (Increase) decrease in of other noncurrent assets...................      42,000
                                                                        ----------
          Net cash used in investing activities.......................      23,000
                                                                        ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from (repayments of) bank overdraft........................      (2,000)
  Proceeds from (repayments of) short-term notes payable..............     (98,000)
  Proceeds from (repayments of) current portion of long-term debts....      --
  Proceeds from (repayments of) obligations under capital leases......      (9,000)
  Proceeds from (repayments of) long-term debt........................      53,000
  Proceeds from (repayments of) other long-term liabilities...........      --
                                                                        ----------
    Net cash provided by (used in) financing activities...............     (56,000)
                                                                        ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................     (10,000)
CASH AND CASH EQUIVALENTS, beginning of period........................     254,000
                                                                        ----------
CASH AND CASH EQUIVALENTS, end of period..............................  $  244,000
                                                                        ----------
                                                                        ----------
SUPPLEMENTAL CASHFLOW DISCLOSURE
  Interest paid.......................................................  $   52,000
                                                                        ----------
                                                                        ----------

See notes to financial statements

F-13

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS ORGANIZATION AND BASIS OF PRESENTATION

The Initial Affiliated Practices are based in New Jersey and Pennsylvania and are comprised of the following entities: Joel Fuhrman, M.D., P.C.; Bound Brook Pediatric Associates, P.A.; Branchberg Eye Physicians, P.A.; Alexander Kudryk, M.D.; Audrey Hinds--McDonald, M.D., P.A.; Hunterdon Ophthalmologists, P.A.; Richard M. Weeder, M. D.; Felix Salerno, M. D.; Kenneth Stern, M. D., P.
A.; Flemington Medical Group, P.A.; John E. Durst, M. D.; Reliance Medical Group, P.C.; and its affiliate Reliance Health Care Group, Inc.; and Medical Billing and Management Services, Inc. and its subsidiary Radiology Billing and Management Services, Inc. ("MBMS").

All of the Initial Affiliated Practices with the exception of Professional Medical Images Ltd, (PMI) and MBMS have entered into binding agreements with Integrated Physician Systems, Inc., (IPS) a physician practice management company located in New Jersey and Pennsylvania, whose terms provide that, at the closing thereof: a) IPS will acquire substantially all of the assets, intangibles and goodwill of the Initial Affiliated Practices, in return for $7,937,000 in cash, $114,000 in notes and 365,800 shares of its common stock; b) IPS will assume certain liabilities of the Initial Affiliated Practices in the amount of $486,000; c) each of the physicians associated with the Initial Affiliated Practices (excluding MBMS) will become contracted employees of professional corporations affiliated with IPS, (the "PC's"); and d) the PC's will be managed by IPS in accordance with the terms of forty (40) year practice management services agreements whereby IPS shall be responsible for all aspects of the operation of the Initial Affiliated Practice (excluding MBMS) excluding matters related to the practice of medicine. As a result of the combined effects of these agreements, subsequent to the closing thereof, for the purposes of financial reporting, the Initial Affiliated Practices will be controlled by IPS.

The combined financial statements of the Initial Affiliated Practices have been presented as supplemental information concerning the entities that IPS intends to acquire following its planned IPO and include the financial statements of PMI, which was acquired by IPS in April 1997. The Initial Affiliated Practices and PMI previously have operated as separate independent entities. Their historical financial positions, results of operations, and cash flows have been combined in the accompanying financial statements and do not reflect any adjustments relating to the proposed transaction nor adjustments to reflect changes that may have occurred if the actual operations of the Initial Affiliated Practices had been combined. Within the Initial Affiliated Practices and PMI all significant intercompany accounts and transactions have been eliminated.

The accompanying financial statements have been prepared on the accrual basis of accounting. These financial statements have been prepared to show the combined operations and combined financial position of the Initial Affiliated Practices and PMI. Because certain of the Initial Affiliated Practices are nontaxpaying entities (i.e., S Corporations and sole proprietorships in which case income taxes are the responsibility of the respective owners) and because in certain C corporations substantially all of the income has been paid to the owners as compensation, the financial statements have been presented on a pre-tax basis, as is further described in Note 2. Therefore, net earnings distributable to owners before physicians compensation reflects net earnings before physician compensation, before distributions of earnings or losses and before dividends.

F-14

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. METHOD OF ACCOUNTING

The combined financial statements of the Initial Affiliated Practices and PMI are presented on the accrual basis of accounting. Accordingly, revenues are recorded when earned, rather than when received and expenses are recorded when incurred, rather than when paid.

B. REVENUES

Medical service revenues are accounted for in the period the services are provided. The revenues are reported at the estimated realizable amounts from patients, third-party payors and others. Provisions for estimated third-party payor adjustments are recorded in the period the related services are provided. Any adjustment to those amounts are recorded in the period in which the revised amount is determined. A portion of the Initial Affiliated Practices' medical services revenue is derived from Medicare, Medicaid and other governmental programs. Medicare, Medicaid and other governmental programs reimburse physicians based on fee schedules which are determined by the specific governmental agency. Additionally, certain of the Initial Affiliated Practices participate in agreements with managed care organizations to provide services at negotiated fee-for-service rates or for capitated payments.

C. CONCENTRATION OF CREDIT RISK

The Initial Affiliated Practices (except for MBMS) extend credit to patients covered by insurance programs such as Medicare and Medicaid and private insurers. The Initial Affiliated Practices (except for MBMS) manage credit risk with the various public and private insurance providers, as appropriate. Allowances for doubtful accounts have been made for potential adjustments, where appropriate.

D. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

E. INCOME TAXES

The Initial Affiliated Practices and PMI are comprised principally of nontaxpaying entities or taxable entities that distribute substantially all of their income as owners compensation. Accordingly no provision for income taxes and deferred tax assets and liabilities is reflected in these financial statements as they have been prepared on a pre-tax basis.

F. CASH AND CASH EQUIVALENTS

The Initial Affiliated Practices and PMI include as cash and cash equivalents all cash accounts which are not subject to withdrawal restrictions or penalties, and all highly liquid instruments, with original maturities of three months or less.

F-15

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

3. OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following:

                                                                             DECEMBER 31,
                                                                        ----------------------
                                                                           1995        1996
                                                                        ----------  ----------

Excess of cost over fair value of assets acquired.....................  $   75,000  $   75,000
Customer lists........................................................      70,000      70,000
                                                                        ----------  ----------
                                                                           145,000     145,000
Less: Accumulated amortization........................................     (25,000)    (61,000)
                                                                        ----------  ----------
                                                                        $  120,000  $   84,000
                                                                        ----------  ----------
                                                                        ----------  ----------

4. COMMITMENTS AND CONTINGENCIES

The Initial Affiliated Practices are insured with respect to medical malpractice risks except for Medical Billing Management Services, Inc. and its subsidiary, Radiology Billing and Management Services, Inc. which are not in the practice of medicine. In the normal course of business certain of the Initial Affiliated Practices have been named in lawsuits. In the opinion of the management of the Initial Affiliated Practices the ultimate liability, if any, of the Initial Affiliated Practices with respect to any such lawsuit will not exceed the insurance coverages carried by the Initial Affiliated Practices and will not materially impact the operating results or results of financial condition of the Initial Affiliated Practices.

All of the Initial Affiliated Practices have entered into binding agreements with IPS, the terms of which provide that in exchange for $7,937,000 in cash, $114,000 in notes, 365,800 shares of common stock, and the assumption of liabilities in the amount of $486,000, IPS will acquire substantially all of the assets, goodwill, and intangibles of the Initial Affiliated Practices. The acquisitions by IPS will coincide with the consummation of its IPO.

In connection with the consummation of the acquisition of the Initial Affiliated Practices by IPS, the Initial Affiliated Practices will enter into PMSAs to receive management services for initial terms of 40 years.

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

                                                      ESTIMATED           DECEMBER 31,
                                                    USEFUL LIVES   ---------------------------
                                                       (YEARS)         1995           1996
                                                    -------------  -------------  ------------

Land and building.................................             30  $     375,000  $    375,000
Leasehold improvements............................           5-10        595,000       607,000
Medical and computer equipment....................            5-7      1,129,000     1,141,000
Equipment under capital leases....................            5-7        269,000       269,000
Furniture and fixtures............................           7-10        238,000       244,000
Automobiles.......................................            3-5        238,000       267,000
                                                                   -------------  ------------
Total.............................................                     2,844,000     2,903,000
Less: Accumulated depreciation....................                    (1,453,000)   (1,662,000)
                                                                   -------------  ------------
  Net.............................................                 $   1,391,000  $  1,241,000
                                                                   -------------  ------------
                                                                   -------------  ------------

F-16

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

6. SHORT-TERM AND LONG-TERM OBLIGATIONS AND COMMITMENTS

A. SHORT-TERM NOTES PAYABLE

Short-term notes payable consists of the following:

                                                                           DECEMBER 31,
                                                                    --------------------------
                                                                        1995          1996
                                                                    ------------  ------------

Notes payable to various banks bearing interest at 5% to prime +3%
  collateralized by various assets of the Initial Affiliated
  Practices.......................................................  $  1,709,000  $  1,355,000
Secured and unsecured demand notes payable to various owners of
  the Initial Affiliated Practices and other individuals, bearing
  interest at 5% to 9%............................................       124,000       888,000
                                                                    ------------  ------------
                                                                    $  1,833,000  $  2,243,000
                                                                    ------------  ------------
                                                                    ------------  ------------

B. LONG-TERM DEBT

Long-term debt consists of the following:

                                                                           DECEMBER 31,
                                                                    --------------------------
                                                                        1995          1996
                                                                    ------------  ------------

Mortgage notes payable to New Jersey Economic Development
  Authority, and South Jersey Transit Authority bearing interest
  from 3% to 6%...................................................  $    270,000  $    227,000
Term loans payable to banks, due through 2001, bearing interest at
  9.25%, payable monthly..........................................       --            182,000
Notes payable to a physician relating to the acquisition of
  practice assets and accounts receivable, bearing interest
  ranging from 0% to 10%..........................................       106,000        52,000
Notes payable to several hospitals with whom certain of the
  Initial Affiliated Practices are associated, bearing interest
  ranging from 7% to 10 %, payable in periodic installments.......       328,000        94,000
Other debt........................................................       171,000       172,000
                                                                    ------------  ------------
    Total long-term debt..........................................       875,000       727,000
Less: Current portion.............................................      (128,000)     (182,000)
                                                                    ------------  ------------
    Long-term debt, excluding current portion.....................  $    747,000  $    545,000
                                                                    ------------  ------------
                                                                    ------------  ------------

As of December 31, 1996 one of the Initial Affiliated Practices (the "Defaulted Practice") has not complied with the payment provisions of its mortgage note and its long term bank debt. Because of the significant arrearage in payments with respect to the long term bank debt, the entire amount of long term bank debt has been reclassified as short term obligations.

F-17

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

B. LONG-TERM DEBT (CONTINUED)
As of December 31, 1996, the aggregate amounts of annual principal maturities of long-term debts (excluding capital lease obligations) are as follows:

1997..............................................................  $ 150,000
1998..............................................................    259,000
1999..............................................................     43,000
2000..............................................................     23,000
2001..............................................................    126,000
                                                                    ---------
  Total...........................................................  $ 601,000
                                                                    ---------
                                                                    ---------

The Initial Affiliated Practices lease office space under noncancellable operating lease agreements as well as certain equipment under capital leases and noncancelable operating lease agreements, which expire at various dates. At December 31, 1996, minimum annual rental commitments under capital leases and noncancelable operating leases with terms in excess of one year are as follows:

                                                                     CAPITAL      OPERATING
                                                                     LEASES         LEASES
                                                                  -------------  ------------
1996............................................................   $    46,000   $    350,000
1997............................................................        23,000        300,000
1998............................................................         7,000        260,000
1999............................................................       --             201,000
2000............................................................       --             120,000
                                                                  -------------  ------------
  Total minimum lease payments..................................   $    76,000   $  1,231,000
                                                                                 ------------
                                                                                 ------------
Less: Amounts representing interest.............................       (10,000)
                                                                  -------------
  Present value of minimum capital lease payments...............        66,000
Less: Current portion of obligations under capital lease........       (39,000)
                                                                  -------------
Long-term obligations under capital lease, net of current
  portion.......................................................   $    27,000
                                                                  -------------
                                                                  -------------

Rent expense related to operating leases amounted to $640,000, $746,000 and $713,000 for the years ended December 31, 1994, 1995 and 1996, respectively.

7. EMPLOYEE BENEFIT PLANS

Certain of the Initial Affiliated Practices have qualified and unqualified defined contribution pension plans or profit sharing plans. The applicable Initial Affiliated Practices pay all general and administrative expenses of these plans. The applicable Initial Affiliated Practices made contributions related to these plans totaling $224,000, $237,000 and $175,000 in 1994, 1995 and 1996, respectively.

The Initial Affiliated Practices do not typically provide employees any post retirement benefits other than pensions and, accordingly, the impact of Statement of Financial Accounting Standards No. 106 had no material effect on the Initial Affiliated Practices.

F-18

INITIAL AFFILIATED PRACTICES AND PMI

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

SFAS No. 107 "Disclosures About Fair Value of Financial Instruments" requires disclosure about the fair value of all financial instruments. Carrying amounts of all financial instruments approximate fair value as of December 31, 1996.

9. ACCOUNTING FOR LONG-LIVED ASSETS

Under the requirements of SFAS No. 121 "Accounting for Long-Lived Assets and for Long-Lived-Assets to be Disposed of", each of the Initial Affiliated Practices and PMI is obligated to recognize an impairment loss on their long lived assets whenever the sum of the expected future cash flows resulting from their use is less than their carrying amount. As of December 31, 1996, no impairment exists with respect to any of the Initial Affiliated Practices long-lived assets.

10. RELATED PARTY TRANSACTIONS

Various related party transactions exists with respect to owners and/or stockholders of the Initial Affiliated Practices primarily involving leasing and lending activities.

Certain owners and/or stockholders made loans to their applicable entities. Obligations payable to these owners and/or stockholders were $124,000 and $438,000 as of December 31, 1995 and 1996, respectively. Interest paid associated with these obligations was $2,000, $3,000 and $8,000 for the years ended December 31, 1994, 1995 and 1996, respectively.

Rent expense incurred for the lease of facilities used by the applicable Initial Affiliated Practices and payable to various owners of the applicable Initial Affiliated Practices was $88,000, $113,000 and $105,000 for the years ended December 31, 1994, 1995 and 1996, respectively.

11. ACCRUED PAYROLL AND PAYROLL TAXES

Applicable to the "Defaulted Practice," as of December 31, 1995 and 1996 and included in accrued payroll and payroll taxes are approximately $1,363,000 and $2,871,000 of delinquent Federal and State of New Jersey payroll and withholding taxes including interest and penalties thereon.

F-19

INTEGRATED PHYSICIAN SYSTEMS, INC.

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION

The following pro forma consolidated financial statements include the unaudited pro forma consolidated balance sheet of Integrated Physician Systems, Inc. (IPS or the Company), as of December 31, 1996, and the unaudited pro forma consolidated statements of operations for the year ended December 31, 1996, and the three months ended March 31, 1996 and 1997.

The following unaudited pro forma financial statements (i) give effect to the acquisitions of the Initial Affiliated Practices and PMI, pursuant to which the Company will acquire certain assets and assume certain liabilities in exchange for 365,800 shares of the Company's Common Stock, cash and notes payable (ii) reflect the effects of the provisions of the Practice Management Services Agreements between the Company and each of the Initial Affiliated Practices (except for the medical billing company) and (iii) give effect to the consummation of the IPO. For purposes of developing the unaudited pro forma balance sheet the value of the Company's Common Stock is based upon the assumed initial public offering price of $10.00 per share. The estimated aggregate amounts to be allocated to the assets acquired and liabilities assumed consist of:

Common stock...................................................  $3,658,000

Cash...........................................................   7,937,000

Notes payable..................................................     114,000
                                                                 ----------

                                                                 $11,709,000
                                                                 ----------
                                                                 ----------

The allocation is based upon preliminary estimates in accordance with generally accepted accounting principles. The actual allocation will be based on the estimated fair market value of the tangible and intangible assets and liabilities of such Initial Affiliated Practices and PMI as of the date of the Acquisitions. For purposes of the pro forma financial statements, such allocation has been estimated as follows:

Current assets.................................................  $  146,000

Intangible assets..............................................  10,086,000

Property, equipment and improvements...........................   2,000,000

Liabilities....................................................    (523,000)
                                                                 ----------

                                                                 $11,709,000
                                                                 ----------
                                                                 ----------

The unaudited pro forma financial statements have been prepared by the Company based upon the historical financial statements of Integrated Physician Systems, Inc. and the Initial Affiliated Practices and PMI included elsewhere in this Prospectus and certain preliminary estimates and assumptions deemed appropriate by management of the Company. The pro forma balance sheet as of March 31, 1997 gives effect to the Acquisitions and the consummation of the IPO as if such transactions had occurred on March 31, 1997 and reflects certain transactions occurring subsequent to March 31, 1997. The pro forma statements of operations for the year ended December 31, 1996 and the three months ended March 31, 1996 and 1997 assumes the Acquisitions and the IPO were completed on January 1, 1996. These pro forma

F-20

financial statements may not be indicative of actual results as if the transactions had occurred on the dates indicated or which may be realized in the future. Neither expected benefits nor cost efficiencies anticipated by the Company following consummation of the Acquisitions have been reflected in such pro forma financial statements; however, cost reductions as contractually agreed per the Practice Management Services Agreements have been reflected in the pro forma financial statements. The pro forma general and administrative expenses do not include the anticipated incremental costs of managing such additional Affiliated Practices as the related management fees are not included in the pro forma revenues. Such costs may also be substantial and may vary according to the operations of each new Initial Affiliated Practice.

The pro forma financial statements should be read in conjunction with the historical financial statements of Integrated Physicians Systems, Inc. and the Initial Affiliated Practices and PMI, including the related notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" that appear elsewhere in this Prospectus.

F-21

INTEGRATED PHYSICIAN SYSTEMS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

                                                                          MARCH 31, 1997
                                                   -------------------------------------------------------------
                                                    INTEGRATED    INITIAL
                                                    PHYSICIAN    AFFILIATED
                                                     SYSTEMS,    PRACTICES  ADJUSTMENTS
                     ASSETS                            INC.       AND PMI       (A)      ADJUSTMENTS  PRO FORMA
-------------------------------------------------  ------------  ---------  -----------  -----------  ----------
CURRENT ASSETS:
  Cash and cash equivalents......................   $  134,000   $ 244,000   $(244,000)  1$2,950,000(C) $27,407,000
                                                                                         22,625,000(C)
                                                                                             63,000(D)
                                                                                         (7,937,000)(D)
                                                                                           (435,000)(E)
                                                                                            125,000(E)
                                                                                           (118,000)(B)
  Accounts receivable, net.......................       --       2,554,000  (2,554,000)      83,000(D)     83,000
  Prepaid expenses...............................       --         382,000    (382,000)      --           --
                                                   ------------  ---------  -----------  -----------  ----------
      Total current assets.......................      134,000   3,180,000  (3,180,000)  27,356,000   27,490,000
                                                   ------------  ---------  -----------  -----------  ----------
PROPERTY AND EQUIPMENT...........................       --       1,180,000  (1,180,000)   2,000,000(D)  2,000,000
OTHER NONCURRENT ASSETS
  Organization costs, net........................        6,000      --          --           --            6,000
  Service agreements.............................       --          --          --        2,500,000(D)  2,500,000
  Deferred registration costs....................      333,000      --          --          570,000(C)     --
                                                                                           (903,000)(C)
  Goodwill.......................................       --          --          --        6,696,000(D)  6,696,000
  Deferred financing costs.......................       --          --          --        2,375,000(C)  2,375,000
  Other noncurrent assets........................       --          41,000     (41,000)     890,000(D)    890,000
                                                   ------------  ---------  -----------  -----------  ----------
                                                       339,000   1,221,000  (1,221,000)  14,128,000   14,467,000
                                                   ------------  ---------  -----------  -----------  ----------
                                                    $  473,000   $4,401,000 ($4,401,000) 4$1,484,000  $41,957,000
                                                   ------------  ---------  -----------  -----------  ----------
                                                   ------------  ---------  -----------  -----------  ----------
        LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------------
CURRENT LIABILITIES:
  Bank overdraft.................................   $   --       $ 116,000   $(116,000)   $  --       $   --
  Accounts payable and accrued liabilities.......       35,000   1,371,000  (1,371,000)      65,000(D)    100,000
  Accrued payroll and payroll taxes..............       --       3,600,000  (3,600,000)      --           --
  Due to related party...........................      118,000      --          --         (118,000)(B)     --
  Notes payables and current portion of long-term
    debt.........................................       --       2,327,000  (2,327,000)     128,000(D)    128,000
  Current portion of obligations under capital
    lease........................................       --          37,000     (37,000)      37,000(D)     37,000
  Senior notes...................................      310,000      --          --         (435,000)(E)     --
                                                                                            125,000(E)
                                                   ------------  ---------  -----------  -----------  ----------
      Total current liabilities..................      463,000   7,451,000  (7,451,000)    (198,000)     265,000
                                                   ------------  ---------  -----------  -----------  ----------
LONG-TERM DEBT:
  Notes payable, net of current portion..........       --         598,000    (598,000)     273,000(D)    387,000
                                                                                            114,000(D)
  Obligations under capital lease, net of current
    portion......................................       --          20,000     (20,000)      20,000(D)     20,000
    % convertible subordinated debentures               --          --          --       25,000,000(C) 25,000,000
  Other debts....................................       --          54,000     (54,000)      --           --
                                                   ------------  ---------  -----------  -----------  ----------
    Total long-term debt.........................       --         672,000    (672,000)  25,407,000   25,407,000
                                                   ------------  ---------  -----------  -----------  ----------
      Total liabilities..........................      463,000   8,123,000  (8,123,000)  25,209,000   25,672,000
                                                   ------------  ---------  -----------  -----------  ----------
STOCKHOLDERS'/OWNERS' EQUITY (DEFICIT)
  Common stock...................................       30,000      --          --           15,000(C)     49,000
                                                                                              4,000(C)
  Additional paid-in capital.....................       --          --          --       12,602,000(C) 16,256,000
                                                                                          3,654,000(D)
  Accumulated deficit............................      (20,000)     --          --           --          (20,000)
  Accumulated/owners' deficit....................                (3,722,000)  3,722,000      --           --
                                                   ------------  ---------  -----------  -----------  ----------
    Total stockholders'/owners' equity
      (deficit)..................................       10,000   (3,722,000)  3,722,000  16,275,000   16,285,000
                                                   ------------  ---------  -----------  -----------  ----------
                                                    $  473,000   $4,401,000 ($4,401,000) 4$1,484,000  $41,957,000
                                                   ------------  ---------  -----------  -----------  ----------
                                                   ------------  ---------  -----------  -----------  ----------

See notes to pro forma consolidated financial statements

F-22

INTEGRATED PHYSICIAN SYSTEMS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

                                                                THREE MONTHS ENDED MARCH 31, 1997
                                                      -----------------------------------------------------
                                                       INTEGRATED     INITIAL
                                                       PHYSICIAN     AFFILIATED
                                                        SYSTEMS,     PRACTICES
                                                          INC.        AND PMI     ADJUSTMENTS   PRO FORMA
                                                      ------------  ------------  -----------  ------------
REVENUE:
  Medical service revenue, net of contractual
    adjustments and bad debts.......................   $   --       $  4,716,000   $  --       $  4,716,000
  Other revenue.....................................       --             10,000      --             10,000
                                                      ------------  ------------  -----------  ------------
      Total revenue.................................       --          4,726,000      --          4,726,000
                                                      ------------  ------------  -----------  ------------
COSTS AND EXPENSES:
  Salaries and wages................................       --          1,805,000     775,000 (AA    2,580,000
                                                                                     628,000 (AA
                                                                                    (628,000) AA)
  Medical supplies and expenses.....................       --             98,000      --             98,000
  General and administrative expenses...............       12,000      1,890,000     (60,000) BB)    1,842,000
  Payroll tax interest and penalties................       --            166,000    (166,000) CC)      --
  Depreciation and amortization.....................        1,000         80,000     (80,000) DD)      300,000
                                                                                     299,000 (DD
  Interest expense..................................       --             59,000     (59,000) EE)
                                                                                     438,000 (FF      438,000
                                                      ------------  ------------               ------------
      Total costs and expenses......................       13,000      4,098,000                  5,258,000
                                                      ------------  ------------               ------------

LOSS BEFORE INCOME TAXES............................      (13,000)       --         (519,000) GG)     (532,000)

NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE OWNERS'
  COMPENSATION......................................       --       $    628,000    (628,000) AA)
                                                                    ------------
                                                                    ------------

PROVISION FOR INCOME TAXES..........................       --                         --     (HH      --
                                                      ------------                             ------------
NET LOSS............................................   $  (13,000)                             $   (532,000)
                                                      ------------                             ------------
                                                      ------------                             ------------
LOSS PER SHARE......................................                                           $      (0.11)
                                                                                               ------------
                                                                                               ------------

See notes to pro forma consolidated financial statements

F-23

INTEGRATED PHYSICIAN SYSTEMS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

                                                                 YEAR ENDED DECEMBER 31, 1996
                                                   ---------------------------------------------------------
                                                    INTEGRATED      INITIAL
                                                    PHYSICIAN     AFFILIATED
                                                     SYSTEMS,      PRACTICES
                                                       INC.         AND PMI      ADJUSTMENTS     PRO FORMA
                                                   ------------  -------------  -------------  -------------
REVENUE:
  Medical service revenue, net of contractual
    adjustments and bad debts....................   $   --       $  18,470,000  $    --        $  18,470,000
  Other revenue..................................       --              38,000       --               38,000
                                                   ------------  -------------  -------------  -------------
        Total revenue............................       --          18,508,000       --           18,508,000
                                                   ------------  -------------  -------------  -------------

COSTS AND EXPENSES:
  Salaries and wages.............................       --          10,421,000      3,098,000 (AA    13,519,000
                                                                                    2,098,000 (AA
                                                                                   (2,098,000  AA)
  Medical supplies and expenses..................       --             426,000       --              426,000
  General and administrative expenses............        4,000       4,564,000       (394,000  BB)     4,174,000
  Payroll tax interest and penalties.............       --             490,000       (490,000  CC)      --
  Depreciation and amortization..................        2,000         306,000       (306,000  DD)     1,185,000
                                                                                    1,183,000 (DD
  Interest expense...............................       --             203,000       (201,000  EE)     1,752,000
                                                                                    1,750,000 (FF
                                                   ------------  -------------                 -------------
    Total costs and expenses.....................        6,000      16,410,000                    21,056,000
                                                   ------------  -------------                 -------------

LOSS BEFORE INCOME TAXES.........................       (6,000)       --           (2,542,000  GG)    (2,548,000)
NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE
  OWNERS' COMPENSATION...........................                $   2,098,000     (2,098,000  AA)      --
                                                                 -------------
                                                                 -------------
PROVISION FOR INCOME TAXES.......................       --                            -       (HH      --
                                                   ------------                                -------------
NET LOSS.........................................   $   (6,000)                                $  (2,548,000)
                                                   ------------                                -------------
                                                   ------------                                -------------
LOSS PER SHARE...................................                                              $       (0.52)
                                                                                               -------------
                                                                                               -------------

See notes to pro forma consolidated financial statements

F-24

INTEGRATED PHYSICIAN SYSTEMS, INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

                                                                THREE MONTHS ENDED MARCH 31, 1996
                                                     -------------------------------------------------------
                                                      INTEGRATED     INITIAL
                                                      PHYSICIAN     AFFILIATED
                                                       SYSTEMS,     PRACTICES
                                                         INC.        AND PMI      ADJUSTMENTS    PRO FORMA
                                                     ------------  ------------  -------------  ------------
REVENUE:
  Medical service revenue, net of contractual
    adjustments and bad debts......................   $   --       $  4,795,000  $    --        $  4,795,000
  Other revenue....................................       --              9,000       --               9,000
                                                     ------------  ------------  -------------  ------------
      Total revenue................................       --          4,804,000       --           4,804,000
                                                     ------------  ------------  -------------  ------------

COSTS AND EXPENSES:
  Salaries and wages...............................       --          2,489,000        774,000 (AA    3,263,000
                                                                                       676,000 (AA
                                                                                      (676,000  AA)
  Medical supplies and expenses....................       --            110,000       --             110,000
  General and administrative expenses..............        2,000      1,281,000       --           1,283,000
  Payroll tax interest and penalties...............       --            122,000       (122,000  CC)      --
  Depreciation and amortization....................        1,000         71,000        (71,000  DD)      298,000
                                                                                       297,000 (DD
  Interest expense.................................       --             55,000        (55,000  EE)      438,000
                                                                                       438,000
                                                     ------------  ------------                 ------------
    Total costs and expenses.......................        3,000      4,128,000                    5,392,000
                                                     ------------  ------------                 ------------

LOSS BEFORE INCOME TAXES...........................       (3,000)       --            (585,000  GG)     (588,000)
NET EARNINGS DISTRIBUTABLE TO OWNERS' BEFORE
  OWNERS' COMPENSATION.............................       --            676,000       (676,000  AA)      --
                                                                   ------------
                                                                   ------------
PROVISION FOR INCOME TAXES.........................       --                          --       (HH      --
                                                     ------------                               ------------
NET LOSS...........................................   $   (3,000)  $                            $   (588,000)
                                                     ------------                               ------------
                                                     ------------                               ------------
LOSS PER SHARE.....................................                                             $      (0.12)
                                                                                                ------------
                                                                                                ------------

See notes to pro forma consolidated financial statements

F-25

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL STATEMENTS

UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS

(A) Reflects the elimination of the combined Initial Affiliated Practices' historical balance sheet accounts prior to the pro forma adjustments entries (B), (C), (D), and (E).

(B) Reflects the repayment of monies borrowed for the purpose of funding the initial operations of the Company from Wellness Concepts, Inc., a related party, in the amount of $118,000 from the net proceeds of the IPO.

(C) Reflects the issuance of 1,500,000 shares of common stock by the Company at an assumed initial offering price of $10 per share and the issuance of the aggregate principal amount of $25,000,000 of the % convertible subordinated debentures, less underwriters' discount, offering expenses, and non-accountable expense allowance and other expenses of the IPO.

(D) Reflects the purchase of the Initial Affiliated Practices and PMI which includes (a) the public issuance of 365,800 shares of common stock of the Company at the price of $10 per share (b) the issuance of a $114,000 note by the Company and (c) the assumption of certain liabilities of the Initial Affiliated Practices and PMI in the amount of $523,000. The components of the entry are summarized as follows:

Cash............................................................  $  63,000
Accounts receivable.............................................     83,000
Property and equipment..........................................  2,000,000
Other noncurrent assets.........................................    890,000
Service agreements..............................................  2,500,000
Goodwill........................................................  6,696,000
Accounts payable................................................    (65,000)
Issued long-term notes payable..................................   (114,000)
Short term notes payable and current portion of long-term
  debt..........................................................   (128,000)
Current portion of obligations under capital lease..............    (37,000)
Long-term debt, net of current portion..........................   (273,000)
Long-term obligations under capital lease, net of current
  portion.......................................................    (20,000)
Common stock issued.............................................     (4,000)
Additional paid-in-capital......................................  (3,654,000)
                                                                  ---------
Net cash payments made to Initial Affiliated Practices and
  PMI...........................................................  $7,937,000
                                                                  ---------
                                                                  ---------

(E) Reflects the issuance after March 31, 1997 of an aggregate principal amount of $125,000 Senior Notes as part of the Bridge Financing and the repayment of the Senior Notes in the aggregate principal amount of $435,000 from the net proceeds of the IPO.

F-26

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ADJUSTMENTS

(AA) To reclassify "Net Earnings Distributable to Owners Before Owners Compensation" to "Salaries and Wages" and to adjust the physician and owner compensation to agree with the contracted physician and management salaries and incentive compensation.

(BB) Reflects the elimination of certain nonessential and non-practice related expenses and other expenditures related to the Initial Affiliated Practices which are non-recurring.

(CC) Reflects the elimination of penalties and interest associated with delinquent federal and state payroll and withholding taxes of the Defaulted Practices, since those obligations are neither being assumed by the Company nor are expected to recur.

(DD) Reflects the elimination of depreciation and amortization related to the historical asset basis of the Initial Affiliated Practices and PMI and includes the depreciation and amortization expenses associated with the assets acquired from the Initial Affiliated Practices and PMI. Goodwill and service agreements associated with the acquisitions of the Initial Affiliated Practices and PMI are being amortized over 20 and 30 years respectively. Deferred financing costs associated with the convertible subordinated debentures are being amortized over 7 years.

(EE) Reflects the elimination of interest expense incurred by the Initial Affiliated Practices during the year ended December 31, 1996 and the three months ended March 31, 1996 and 1997 because debt associated with such interest expense has not been assumed by the Company.

(FF) Represents recording of interest expense on the convertible subordinated debentures to be offered in the IPO. No estimated interest income on idle funds associated with the proceeds from the issuance of the convertible suordinated debentures has been assumed.

(GG) Represents the adjustment to income before income tax resulting from the reclassification of "Net Earnings Distributable to Owners Before Owners Compensation" to salaries and wages and the net effects of adjustments BB through EE.

(HH) The Company has generated pro forma pre-tax losses for financial reporting purposes. Recognition of deferred tax assets will require the generation of future taxable income. Because there can be no assurance that the Company will generate any earnings in future years a valuation allowance has been established equal to the deferred tax assets created by the pro forma losses.

F-27

INTEGRATED PHYSICIAN SYSTEMS, INC.

NOTES TO UNAUDITED PRO FORMA

CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(II) The number of shares used in the pro forma loss per share calculations are determined as follows:

                                                                                   NUMBER OF
                                                                                     SHARES
                                                                                   ----------
Outstanding shares after the Initial Public Offering.............................   4,500,000
Shares issued in connection with Bridge Financing................................      43,500
Shares issued to acquire the Initial Affiliated Practices........................     365,800
                                                                                   ----------
Shares used to compute primary loss per share....................................   4,909,300
Shares to be issued in connection with conversion of subordinated convertible
  debentures.....................................................................   1,786,000
                                                                                   ----------
Shares used to compute fully diluted loss per share (1)..........................   6,695,300
                                                                                   ----------
                                                                                   ----------


(1) Fully diluted loss per share has not been computed as it would be anti-dilutive.

F-28



NO UNDERWRITER, DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATES AS OF WHICH SUCH INFORMATION IS FURNISHED.


TABLE OF CONTENTS

                                                      PAGE
                                                      -----
Prospectus Summary...............................           3
Risk Factors.....................................           8
Use of Proceeds..................................          16
Dilution.........................................          17
Capitalization...................................          18
Dividend Policy..................................          19
Selected Financial Data..........................          20
Management's Discussion and Analysis of
  Financial Condition and Results of
  Operations.....................................          22
Business.........................................          25
Management.......................................          39
Principal Stockholders...........................          44
Certain Transactions.............................          45
Description of Debentures........................          46
Description of Capital Stock.....................          56
Certain United States Federal
  Income Tax Considerations......................          57
Shares Eligible for Future Sale..................          60
Underwriting.....................................          61
Legal Matters....................................          63
Experts..........................................          63
Financial Statements.............................         F-1


UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

[LOGO]
INTEGRATED

PHYSICIAN SYSTEMS,
INC.

$25,000,000 [6 1/2% TO 8%]
CONVERTIBLE SUBORDINATED
DEBENTURES DUE , 2004
AND 1,500,000
SHARES OF COMMON STOCK


PROSPECTUS


NATIONAL SECURITIES CORPORATION
, 1997




PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is an itemization of all expenses (subject to future contingencies) incurred or expected to be incurred by the Company in connection with the issuance and distribution of the securities being offered hereby (items marked with an asterisk (*) represent estimated expenses);

SEC Registration Fee...........................................  $14,584.90
NASD Filing Fees...............................................    5,530.00
AMEX Filing Fees...............................................   25,000.00
Legal Fees and Expenses........................................  175,000.00*
Blue Sky Fees (including counsel fees).........................   35,000.00*
Accounting Fees and Expenses...................................  250,000.00*
Transfer Agent and Registrar Fees..............................    5,000.00*
Printing and Engraving Expenses................................   80,000.00*
Miscellaneous..................................................   34,885.10*
                                                                 ----------
      Total....................................................  $625,000.00
                                                                 ----------
                                                                 ----------

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Delaware General Corporation Law, Section 102(b)(7), enables a corporation in its original certificate of incorporation, or an amendment thereto validly approved by stockholders, to eliminate or limit personal liability of members of its Board of Directors for violations of a director's fiduciary duty of care. However, the elimination or limitation shall not apply where there has been a breach of the duty of loyalty, failure to act in good faith, intentional misconduct or a knowing violation of a law, the payment of a dividend or approval of a stock repurchase which is deemed illegal or an improper personal benefit is obtained. The Company's Certificate of Incorporation includes the following language:

"The personal liability of the Directors of the Corporation is hereby eliminated to the fullest extent permitted by paragraph (7) of Subsection
(b) of Section 102 of the General Corporation Law of the State of Delaware as the same may be amended and supplemented."

Delaware General Corporation Law, Section 145, permits a corporation organized under Delaware law to indemnify directors and officers with respect to any matter in which the director or officer acted in good faith and in a manner he reasonably believed to be not opposed to the best interests of the Company, and, with respect to any criminal action, had reasonable cause to believe his conduct was lawful. Article VII, Section 7 of the By-laws of the Company provides as follows:

"The corporation shall indemnify its officers, directors, employees, and agents to the extent permitted by the General Corporation Law of Delaware."

Article 11 of the Certificate of Incorporation of the Company, as amended, permits indemnification of, and advancement of expenses to, among others, officers and directors of the Corporation. Such Article provides as follows:

"(a) Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee, or agent of any other corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect

II-1


to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the indemnitee's heirs, executors, and administrators; provided, however, that, except as provided in paragraph (c) of this Article 11 with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

"(b) The right to indemnification conferred in paragraph (a) of this Article 11 shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article 11 or otherwise.

"(c) The rights to indemnification and to the advancement of expenses conferred in paragraphs (a) and (b) of this Article 11 shall be contract rights. If a claim under paragraph (a) or (b) of this Article 11 is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by an indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the

II-2


indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article 11 or otherwise, shall be on the Corporation.

"(d) The rights to indemnification and to the advancement of expenses conferred in this Article 11 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors, or otherwise.

"(e) The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Delaware General Corporation Law.

"(f) The Corporation's obligation, if any, to indemnify any person who was or is serving as a director, officer, employee, or agent of any direct or indirect subsidiary of the Corporation or, at the request of the Corporation, of any other corporation or of a partnership, joint venture, trust, or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, or other enterprise.

"(g) Any repeal or modification of the foregoing provisions of this Article 11 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification."

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Set forth below in chronological order is information regarding the numbers of shares of Common Stock sold by the Company and the principal amount of debt instruments issued by the Company since April 25, 1995, the consideration received by the Company for such shares, options and debt instruments and information relating to the section of the Securities Act of 1933, as amended (the "Securities Act"), or rule of the Securities and Exchange Commission under which exemption from registration was claimed. None of these securities was registered under the Securities Act. Except as otherwise indicated, no sales of securities involved the use of an underwriter and no commissions were paid in connection with the sale of any securities.

On April 27, 1995, the Company issued 1,000 shares of Common Stock to Wellness Concepts, Inc. ("Wellness"), the founding stockholder of the Company at a price of $.01 per share.

On April 24, 1996, the Company completed a 3,000-for-one stock split and Wellness surrendered all of its Common Stock to the Company. On April 25, 1996, the Company issued to certain stockholders, including certain directors and officers of the Company, a total of 3,000,000 shares of Common Stock at a price of $.01 per share.

Between December 1996 and May 1997, the Company consummated the private placement of 8.7 Units, each Unit consisting of $50,000 principal amount of Series A 10% Senior Notes and 5,000 shares of Common Stock. Pursuant thereto, the Company issued an aggregate principal amount of $435,000 of Senior Notes and 43,500 shares of Common Stock. The Units were offered to, and purchased by, accredited investors pursuant to section 4(2) of the Securities Act and the rules promulgated thereunder.

Each purchaser of the securities described above has represented that he/she/it understands that the securities acquired may not be sold or otherwise transferred absent registration under the Securities Act or the availability of an exemption from the registration requirements of the Securities Act, and each certificate evidencing the securities owned by each purchaser bears or will bear upon issuance a legend to that effect.

II-3


ITEM 16. EXHIBITS

(a) The following exhibits are filed herewith:

  EXHIBIT NO.
-----------------

          1.1      Form of Underwriting Agreement*
          3.1      Certificate of Incorporation, as amended
          3.2      Bylaws, as amended
          4.1      Form of Representative's Warrant Agreement*
          4.2      Specimen Common Stock Certificate *
          4.3      Form of Indenture
          5.1      Opinion of Brock Fensterstock Silverstein McAuliffe & Wade LLC *
         10.1      Employment Agreements with Scott Pollock, Dennis B. Liotta, M.D., and Peter R.
                   Heisen, M.D.
         10.2      1996 Stock Option Plan
         10.3      Form of Asset Purchase Agreement with Affiliated Practices
         10.4      Form of Employment Agreement with affiliated physicians
         10.5      Form of Practice Management Services Agreement
         10.6      Form of Goodwill Purchase Agreements*
         23.1      Consent of Feldman Radin & Co., P.C.
         23.2      Consent of Brock Fensterstock Silverstein McAuliffe & Wade LLC (contained in the
                   Opinion filed as Exhibit 5.1).*
         23.3      Consent of Kalogredis Tsoules and Sweeney Ltd.
         24.1      Power of Attorney (set forth on the signature page hereof)


* To be filed by amendment.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes:

(1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the Securities Act;

(ii) To reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement;

(iii) To include any additional or changed material information on the plan of distribution;

(2) that, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be treated as a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the

II-4


Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(c) The Registrant hereby undertakes that it will:

(1) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective.

(2) For the purpose of determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement relating to the securities offered therein, and the offering of such securities at that time as the initial bona fide offering thereof.

(d) The Registrant hereby undertakes that it will provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.

II-5


SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in The City of New York on August 8, 1997.

INTEGRATED PHYSICIAN SYSTEMS, INC.

By:             /s/ SCOTT G. POLLOCK
     -----------------------------------------
                  Scott G. Pollock
       PRESIDENT AND CHIEF EXECUTIVE OFFICER

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Scott G. Pollock and Joseph F. Murray, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and his name, place and stead, and in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments and registration statements filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended and otherwise), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorneys-in-fact and agents, and each of them, full power and authority to do and perform such and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.

          SIGNATURE                       TITLE                    DATE
------------------------------  --------------------------  -------------------
     /s/ SCOTT G. POLLOCK       President, Chief Executive
------------------------------    Officer, Chief Financial    August 8, 1997
       Scott G. Pollock           Officer and a Director
  /s/ DENNIS B. LIOTTA, M.D.    Executive Vice President,
------------------------------    Chief Operating Officer     August 8, 1997
    Dennis B. Liotta, M.D.        and a Director
    /s/ PETER HEISEN, M.D.      Vice President, Chief
------------------------------    Medical Officer and a       August 8, 1997
      Peter Heisen, M.D.          Director
   /s/ DAVID I. ROSEN, M.D.     Vice President for
------------------------------    Business Development and    August 8, 1997
     David I. Rosen, M.D.         a Director
     /s/ JOSEPH F. MURRAY
------------------------------  Secretary and a Director      August 8, 1997
       Joseph F. Murray
    /s/ WALTER B. DUNSMORE
------------------------------  Corporate General Counsel     August 8, 1997
      Walter B. Dunsmore          and a Director
     /s/ ROBERT M. RUBIN
------------------------------  Director                      August 8, 1997
       Robert M. Rubin



                                      II-6


CERTIFICATE OF INCORPORATION

OF

INTEGRATED PHYSICIAN SYSTEMS, INC.

The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and promoting the purposes hereinafter stated, under the provisions and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified, and referred to as the "General Corporation Law of the State of Delaware"), hereby certifies that:

FIRST: The name of the corporation (hereinafter called "corporation") is
INTEGRATED PHYSICIAN SYSTEMS, INC.

SECOND: The address, including street, number, city, and county of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801 and the name of the registered agent of the corporation in the State of Delaware at such address is The Corporation Trust Company.

THIRD: The purpose of the corporation is to enter into a loan transaction with Forrest Financial Corporation and a Securities Pledge Agreement; to issue and repay a note with Forrest Financial Corporation; to acquire and pledge the collateral and acquire an investment agreement to secure and repay the note; to engage in any acts and transactions incidental or otherwise related to the entry into the Securities Pledge Agreement, the issuance and repayment of the note or the acquisition of the collateral and investment agreement, and to do all other acts required by law or required or permitted by the note or the Securities Pledge Agreement; and to engage in any act, have any power, enter into any contract, and own any property allowed by law as necessary or incidental to any of the foregoing.

FOURTH: The total number of shares of stock which the corporation shall have authority to issue One Thousand (1000). The par value of each such share is One Cent ($.01). All such shares are of one class and are shares of Common Stock.


FIFTH: The name and the mailing address of the incorporator are as follows:

NAME                                MAILING ADDRESS
----                                ---------------

Michael Zelinsky                    Clark, Ladner, Fortenbaugh
                                       & Young
                                    One Commerce Square
                                    22nd Floor
                                    2005 Market Street
                                    Philadelphia, PA 19103

SIXTH: The corporation is to have perpetual existence.

SEVENTH: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors,and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:

1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors


shall be fixed by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total number of directors" shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were not vacancies. No election of directors need be by written ballot.

2. After the original or other Bylaws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of Section 109 of the General Corporation Law of the State of Delaware, and, after the corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be exercised by the Board of Directors of the corporation, provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of Section 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote for the corporation unless provisions for such classification shall be set forth in this certificate of incorporation.

3. When ever the corporation shall be authorized to issue only one class of stock, each outstanding shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection
(b) of Section 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.

NINTH: The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of Section 102 of the General Corporation Law of the State of Delaware, as the same


may be amended and supplemented.

TENTH: The corporation shall, to the fullest extent permitted by the provisions of Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the indemnification provided for herein shall not be deemed exclusive or any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.

Signed on April 25, 1995

/s/ Michael A. Zelinsky
------------------------
      Incorporator


CERTIFICATE OF AMENDMENT

OF THE CERTIFICATE OF INCORPORATION

OF INTEGRATED PHYSICIAN SYSTEMS, INC.

Adopted in accordance with the provisions of Section 242 of the General Corporation law of the State of Delaware

It is hereby certified that:

1. The name of the corporation (hereinafter called the "Corporation") is Integrated Physician Systems, Inc.

2. The Corporation was incorporated on April 25, 1995.

3. The Certificate of Incorporation is hereby amended by deleting Article FOURTH thereof and by substituting in lieu of said Article FOURTH, the following:

"FOURTH:

A. The aggregate number of shares which the Corporation shall have authority to issue is fifty-one million (51,000,000) shares, of which one million (1,000,000) shares shall be designated 'Preferred Shares' and of which fifty million (50,000,000) shares shall be designated 'Common Shares.' All shares of the Corporation shall be of the par value of $.01 per share.

B. Authority is hereby expressly granted to the Board of Directors of the Corporation (or a committee thereof designated by the Board of Directors pursuant to the by-laws of the Corporation, as from time to time amended (the "By-laws")) to issue Preferred Shares from time to time as Preferred Shares of any series and to declare and pay dividends thereon in accordance with the terms thereof and, in connection with the creation of each such series, to fix by the resolution or resolutions providing for the issue of shares thereof, the number of shares of such series, and the designations, powers, preferences, and rights (including voting rights), and the qualifications, limitations, and restrictions of such series, to the full extent now or hereafter permitted by the laws of the State of Delaware."

4. The Certificate of Incorporation is hereby amended by adding as a new Article TWELVE:

"TWELVE: At 5:00 P.M., Eastern Standard Time, on April 24, 1996, (i) each of the one thousand (1,000) outstanding shares of the Common Stock of the Corporation held by each holder of record on such date shall be automatically changed from one (1) shares of Common Stock to three thousand (3,000) shares of


Common Stock. No fractional shares will be issued - a fractional share, based on all the shares of Common Stock held by the record holder of such shares, of four-tenths of one share or more shall be increased to the next higher whole number share, and a fractional share of less than four-tenths of one share shall be disregarded."

5. These amendments were authorized by written consent of the Directors and by written consent of the holders of a majority of the outstanding shares of Common Stock which consents were executed on April 24, 1996. A written notice of action was provided to each stockholder who did not consent to this Certificate of Amendment in pursuance of Section 228 of the General Corporation law of the State of Delaware.

IN WITNESS WHEREOF, I have subscribed this document on the date set forth below and do hereby affirm, under the penalties of perjury, that the statements contained herein have been examined by me and are true and correct.

Dated as of April 25, 1996.

/s/ Joseph F. Murray
-----------------------------
Joseph F. Murray


Secretary


Exhibit 3.2

BY-LAWS

of

INTEGRATED PHYSICIAN SYSTEMS, INC.

(A Delaware Corporation)


INTEGRATED PHYSICIAN SYSTEMS, INC.

(A Delaware Corporation)

BY-LAWS

ARTICLE I

STOCKHOLDERS

Section 1.1 Places of Meetings.

All meetings of the stockholders shall be held at such place or places in or outside of the State of Delaware as the Board of Directors may from time to time determine, or as may be designated in the notice of meeting or waiver of notice thereof, subject to any provisions of the laws of the State of Delaware.

Section 1.2 Annual Meetings.

The annual meeting of the stockholders of the Company, for the election of directors and for the transaction of any other business which may properly be transacted at the annual meeting, shall be held at such hour on such day and at such place within or without the State of Delaware as may be fixed by the Board of Directors.

Section 1.3 Special Meetings.

Special meetings of stockholders for any purpose or purposes may be held at any time upon call of the Chairman of the Board, if any, the President, the Secretary, or a majority of the Board of Directors, at such time and place either within or without the State of Delaware as may be stated in the notice. A special meeting of stockholders shall be called by the President or the


Secretary upon the written request, stating time, place, and the purpose or purposes of the meeting, of stockholders who together own of record at least twenty percent (20%) of the outstanding stock of all classes entitled to vote at such meeting.

Section 1.4 Notices of Meetings

Written notice of stockholders meetings, stating the place, date, and hour thereof, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given by the Chairman of the Board, if any, the President, any Vice President, the Secretary, or an Assistant Secretary, to each stockholder entitled to vote thereat at least ten days but not more than sixty days before the date of the meeting, unless a different period is prescribed by law.

Section 1.5 Quorum.

Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws, at any meeting of stockholders, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting shall be present or represented by proxy in order to constitute a quorum for the transaction of any business. In the absence of a quorum, a majority in interest of the stockholders present or the chairman of the meeting may adjourn the meeting from time to time in the manner provided in Section 1.5 of these By-Laws until a quorum shall attend.

2

Section 1.6 Adjournment.

Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

Section 1.7 Organization.

The Chairman of the Board, if any, or in his absence the President, or in their absence any Vice President, shall call to order meetings of stockholders and shall act as chairman of such meetings. The Board of Directors or, if the Board fails to act, the stockholders may appoint any stockholder, director, or officer of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board, the President, and all Vice Presidents.

The Secretary of the Corporation shall act as secretary of all meetings of stockholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any other person to act as secretary of the meeting.

3

Section 1.8 Voting.

Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws and except for the election of directors, at any meeting duly called and held at which a quorum is present, a majority of the votes cast at such meeting upon a given question by the holders of outstanding shares of stock of all classes of stock of the Corporation entitled to vote thereon who are present in person or by proxy shall decide such question. At any meeting duly called and held for the election of directors at which a quorum is present, directors shall be elected by a plurality of the votes cast by the holders (acting as such) of shares of stock of the Corporation entitled to elect such directors.

ARTICLE II

BOARD OF DIRECTORS

Section 2.1 Number and Term of Office.

The business, property, and affairs of the Corporation shall be managed by or under the direction of a Board of at least three (3) directors; provided, however, that the Board, by resolution adopted by vote of a majority of the then authorized number of directors, may increase or decrease the number of directors. The directors shall be elected by the holders of shares entitled to vote thereon at the annual meeting of stockholders, and each shall serve (subject to the provisions of Article IV) until the next succeeding annual meeting of stockholders and until his respective successor has been elected and qualified.

4

Section 2.2 Chairman of the Board.

The directors may elect one of their members to be Chairman of the Board of Directors. The Chairman shall be subject to the control of and may be removed by the Board of Directors. He shall perform such duties as may from time to time be assigned to him by the Board.

Section 2.3 Meetings.

The annual meeting of the Board of Directors, for the election of officers and the transaction of such other business as may come before the meeting, shall be held without notice at the same place as, and immediately following, the annual meeting of the stockholders.

Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board.

Special meetings of the Board of Directors shall be held at such time and place as shall be designated in the notice of the meeting whenever called by the Chairman of the Board, the President or by any two of the directors then in office.

Section 2.4 Notice of Special Meetings.

The Secretary, or in his absence any other officer of the Corporation, shall give each director notice of the time and place of holding of special meetings of the Board of Directors by mail at least five days before the meeting, or by electronically confirmed facsimile or personal service at least two days before the meeting. Unless otherwise stated in the notice thereof, any and all business may be transacted at any meeting without specification of such business in the notice.

5

Section 2.5 Quorum and Organization of Meetings.

One-half of the total number of members of the Board of Directors as constituted from time to time shall constitute a quorum for the transaction of business, but, if at any meeting of the Board of Directors (whether or not adjourned from a previous meeting) there shall be less than a quorum present, a majority of those present may adjourn the meeting to another time and place, and the meeting may be held as adjourned without further notice or waiver. Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws, a majority of the directors present at any meeting at which a quorum is present may decide any question brought before such meeting. Meetings shall be presided over by the Chairman of the Board, if any, or in his absence by the President, or in the absence of both by such other person as the directors may select. The Secretary of the Corporation shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

Section 2.6 Committees.

The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member. Any such committee, to the extent

6

provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business, property, and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have power or authority in reference to amending the Certificate of Incorporation of the Corporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors pursuant to authority expressly granted to the Board of Directors by the Corporation's Certificate of Incorporation, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation, or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), adopting an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law of the State of Delaware, recommending to the stockholders the sale, lease, or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of dissolution, or amending these By-Laws; and, unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware. Each committee which may be established by the Board of Directors pursuant to these By-Laws may fix its own rules and procedures. Notice of meetings of committees, other than of regular meetings provided for by the rules, shall be given to committee members. All action taken by committees shall be recorded in minutes of the meetings.

7

Section 2.7 Action Without Meeting.

Nothing contained in these By-Laws shall be deemed to restrict the power of members of the Board of Directors or any committee designated by the Board to take any action required or permitted to be taken by them without a meeting.

Section 2.8 Telephone Meetings.

Nothing contained in these By-Laws shall be deemed to restrict the power of members of the Board of Directors, or any committee designated by the Board, to participate in a meeting of the Board, or committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

ARTICLE III

OFFICERS

Section 3.1 Executive Officers.

The executive officers of the Corporation shall be a Chairman of the Board, President, one or more Vice Presidents, and a Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint such other officers (including a Controller, a Treasurer and one or more Assistant

8

Treasurers and Assistant Secretaries) as it may deem necessary or desirable. Each officer shall hold office for such term as may be prescribed by the Board of Directors from time to time. Any person may hold at one time two or more offices.

Section 3.2 Powers and Duties.

The Chairman of th Board shall be the chief executive officer of the Corporation. The President shall be responsible for the day to day affairs of the Corportion. In the absence of the President, a Vice President appointed by the President or, if the President fails to make such appointment, by the Board, shall perform all the duties of the President. The officers and agents of the Corporation shall each have such powers and authority and shall perform such duties in the management of the business, property, and affairs of the Corporation as generally pertain to their respective offices, as well as such powers and authorities and such duties as from time to time may be prescribed by the Board of Directors.

ARTICLE IV

RESIGNATIONS, REMOVALS AND VACANCIES

Section 4.1 Resignations.

Any director or officer of the Corporation, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, the President, or the Secretary of the Corporation. Any such resignation shall take effect at the time specified

9

therein or, if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective.

Section 4.2 Removals.

The Board of Directors, by a vote of not less than a majority of the entire Board, at any meeting thereof, or by written consent, at any time, may, to the extent permitted by law, remove with or without cause from office or terminate the employment of any officer or member of any committee and may, with or without cause, disband any committee.

Any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares entitled at the time to vote at an election of directors.

Section 4.3 Vacancies.

Any vacancy in the office of any director or officer through death, resignation, removal, disqualification, or other cause, and any additional directorship resulting from increase in the number of directors, may be filled at any time by a majority of the directors then in office (even though less than a quorum remains) or, in the case of any vacancy in the office of any director, by the stockholders, and, subject to the provisions of this Article IV, the person so chosen shall hold office until his successor shall have been elected and qualified; or, if the person so chosen is a director elected to fill a vacancy, he

10

shall (subject to the provisions of this Article IV) hold office for the unexpired term of his predecessor.

ARTICLE V

CAPITAL STOCK

Section 5.1 Stock Certificates.

The certificates for shares of the capital stock of the Corporation shall be in such form as shall be prescribed by law and approved, from time to time, by the Board of Directors.

Section 5.2 Transfer of Shares.

Shares of the capital stock of the Corporation may be transferred on the books of the Corporation only by the holder of such shares or by his duly authorized attorney, upon the surrender to the Corporation or its transfer agent of the certificate representing such stock properly endorsed.

Section 5.3 Fixing Record Date.

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of

11

any other lawful action, the Board of Directors may fix, in advance, a record date, which, unless otherwise provided by law, shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.

Section 5.4 Lost Certificates.

The Board of Directors, or any transfer agent of the Corporation may direct a new certificate or certificates representing stock of the Corporation to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors (or any transfer agent of the Corporation authorized to do so by a resolution of the Board of Directors) may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as the Board of Directors (or any transfer agent so authorized) shall direct to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed or the issuance of such new certificates, and such requirement may be general or confined to specific instances.

12

Section 5.5 Regulations.

The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, registration, cancellation, and replacement of certificates representing stock of the Corporation.

ARTICLE VI

MISCELLANEOUS

Section 6.1 Corporate Seal.

The corporate seal shall have inscribed thereon the name of the Corporation, the year of organization, and the words "Corporate Seal" and "Delaware."

Section 6.2 Fiscal Year.

The fiscal year of the Corporation shall be determined by resolution of the Board of Directors.

Section 6.3 Notices and Waivers Thereof.

Whenever any notice whatever is required by law, the Certificate of Incorporation, or these By-Laws to be given to any stockholder, director, or officer, such notice, except as otherwise provided by law, may be given personally, or by mail, or, in the case of directors or officers, by telegram, cable, or radiogram, addressed to such address as appears on the books of the Corporation. Any notice given by telegram, cable, or radiogram shall be deemed to have been given when it shall have been delivered for

13

transmission and any notice given by mail shall be deemed to have been given when it shall have been deposited in the United States mail with postage thereon prepaid.

Whenever any notice is required to be given by law, the Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed by the person entitled to such notice, whether before or after the meeting or the time stated therein, shall be deemed equivalent in all respects to such notice to the full extent permitted by law.

Section 6.4 Stock of Other Corporations or Other Interests.

Unless otherwise ordered by the Board of Directors, the President, the Secretary, and such attorneys or agents of the Corporation as may be from time to time authorized by the Board of Directors or the President, shall have full power and authority on behalf of this Corporation to attend and to act and vote in person or by proxy at any meeting of the holders of securities of any corporation or other entity in which this Corporation may own or hold shares or other securities, and at such meetings shall possess and may exercise all the rights and powers incident to the ownership of such shares or other securities which this Corporation, as the owner or holder thereof, might have possessed and exercised if present. The President, the Secretary, or such attorneys or agents, may also execute and deliver on behalf of this Corporation powers of attorney, proxies, consents, waivers, and other instruments relating to the shares or securities owned or held by this Corporation.

14

ARTICLE VII

AMENDMENTS

The holders of shares entitled at the time to vote for the election of directors shall have power to adopt, amend, or repeal the By-Laws of the Corporation by vote of not less than a majority of such shares, and except as otherwise provided by law, the Board of Directors shall have power equal in all respects to that of the stockholders to adopt, amend, or repeal the By-Laws by vote of not less than a majority of the entire Board. However, any By-Law adopted by the Board may be amended or repealed by vote of the holders of a majority of the shares entitled at the time to vote for the election of directors.

15

Exhibit 4.3



INTEGRATED PHYSICIAN SYSTEMS, INC.

Company,

and


Trustee


INDENTURE

Dated as of ___________, 1997


____% Convertible Subordinated Debentures due 2004




Reconciliation and tie between Trust Indenture Act of 1939, as amended, and Indenture dated as of _________, 1997

Trust Indenture                                                 Indenture
  Act Section                                                     Section
---------------                                                   -------

Section 310   (a)(1) . . . . . . . . . . . . . . . . . .             609

              (a)(2) . . . . . . . . . . . . . . . . . .             609

              (a)(3) . . . . . . . . . . . . . . . . . .      Not Applicable

              (a)(4) . . . . . . . . . . . . . . . . . .      Not Applicable

              (b)  . . . . . . . . . . . . . . . . . . .          608, 610

Section 311 (a) . . . . . . . . . . . . . . . . . . . 613(a)

(b). . . . . . . . . . . . . . . . . . . . 613(b)

Section 312 (a). . . . . . . . . . . . . . . . . . . . 701, 702(a)

(b). . . . . . . . . . . . . . . . . . . . 702(b)

(c). . . . . . . . . . . . . . . . . . . . 702(c)

Section 313 (a). . . . . . . . . . . . . . . . . . . . 703(a)

(b). . . . . . . . . . . . . . . . . . . . 703(b)

(c). . . . . . . . . . . . . . . . . . . . 703(a)

(d). . . . . . . . . . . . . . . . . . . . 703(b)

(e). . . . . . . . . . . . . . . . . . . . 703(c)

Section 314 (a). . . . . . . . . . . . . . . . . . . . 704(a)

(a)(4) . . . . . . . . . . . . . . . . . . 101, 1004

(b). . . . . . . . . . . . . . . . . . . . Not Applicable

(c)(1) . . . . . . . . . . . . . . . . . . 103

(c)(2) . . . . . . . . . . . . . . . . . . 103

(c)(3) . . . . . . . . . . . . . . . . . . Not Applicable

(d). . . . . . . . . . . . . . . . . . . . Not Applicable


(e). . . . . . . . . . . . . . . . . . . . 103

Section 315 (a). . . . . . . . . . . . . . . . . . . . 601(a)

(b). . . . . . . . . . . . . . . . . . . . 602, 703(a)(6)

(c). . . . . . . . . . . . . . . . . . . . 601(b)

(d). . . . . . . . . . . . . . . . . . . . 601(c)

(d)(1) . . . . . . . . . . . . . . . . . . 601(a)(1)

(d)(2) . . . . . . . . . . . . . . . . . . 601(c)(2)

(d)(3) . . . . . . . . . . . . . . . . . . 601(c)(3)

(e). . . . . . . . . . . . . . . . . . . . 514

Section 316 (a). . . . . . . . . . . . . . . . . . . . 103

(a)(1)(A). . . . . . . . . . . . . . . . . 502, 512

(a)(1)(B). . . . . . . . . . . . . . . . . 513

(a)(2) . . . . . . . . . . . . . . . . . . Not Applicable

(b). . . . . . . . . . . . . . . . . . . . 508

(c). . . . . . . . . . . . . . . . . . . . 104(c)

Section 317 (a)(1) . . . . . . . . . . . . . . . . . . 503

(a)(2) . . . . . . . . . . . . . . . . . . 504

(b). . . . . . . . . . . . . . . . . . . . 1003

Section 318 (a). . . . . . . . . . . . . . . . . . . . 107


                                  TABLE OF CONTENTS


                                                                           Page
                                     ARTICLE ONE                           ----
                                       [TITLE]

Section 101   Rules of Construction and Definitions...........................1

              Act.............................................................2

              Affiliate.......................................................2

              Authenticating Agent............................................2

              Board of Directors..............................................2

              Board Resolution................................................2

              Business Day....................................................2

              Closing Price...................................................3

              Common Stock....................................................3

              Company.........................................................3

              Company Request.................................................3

              Corporate Trust Office..........................................3

              Corporation.....................................................3

              Default.........................................................3

              Defaulted Interest..............................................3

              Event of Default................................................3

              Exchange Act....................................................4

              Holder..........................................................4

              Indenture.......................................................4

              Interest Payment Date...........................................4

              Junior Securities...............................................4

              Maturity........................................................4

              Officer.........................................................4

              Officers' Certificate...........................................4

              Opinion of Counsel..............................................4

              Outstanding.....................................................4

              Paying Agent....................................................5

              Person..........................................................5

              Predecessor Security............................................5

              Redemption Date.................................................5

              Redemption Price................................................5

              Regular Record Date.............................................5

              Responsible Officer.............................................6

              Securities......................................................6

              Security Register...............................................6

              SEC.............................................................6

              Securityholder..................................................6

              Senior Indebtedness.............................................7

              Trustee.........................................................7

              Underwriter.....................................................7

              Vice President..................................................7

              Voting Stock....................................................8

Section 102   Compliance certificates and Opinions............................8

Section 103   Form of Documents Delivered to Trustee..........................9

Section 104   Acts of Holders.................................................9

Section 105   Notices, etc., to Trustee and the Company......................10

Section 106   Notice to Holders; Waiver......................................10

Section 107   Conflict with Trust Indenture Act..............................10

Section 108   Effect of Headings and Table of Contents.......................11

Section 109   Successors and Assigns.........................................11

Section 110   Separability...................................................11

Section 111   Benefits of Indenture..........................................11

Section 112   Governing Law..................................................11

Section 113   Legal Holidays.................................................12

                                                                            Page
                                     ARTICLE TWO                            ----
                                  FORM OF SECURITIES

Section 201   Form Generally.................................................12

Section 202   Form of Face of Security.......................................12

Section 203   Form of Reverse of Security....................................14

Section 204   Form of Trustee's Certificate of Authentication................17

Section 205   Form of Election to Convert....................................17



                                    ARTICLE THREE
                                    The Securities

Section 301   Title and Terms................................................18

Section 302   Denominations..................................................19

Section 303   Execution, Authentication, Delivery, and Dating................19

Section 304   Temporary Securities...........................................20

Section 305   Registration; Registration of Transfer and Exchange............21

Section 306   Mutilated, Destroyed, Lost, and Stolen Securities..............21

Section 307   Payment of Interest; Interest Rights Preserved.................22

Section 308   Persons Deemed Owners..........................................23

Section 309   Cancellation...................................................24

Section 310   CUSIP Numbers..................................................24

Section 311    Computation of Interest.......................................24

                                     ARTICLE FOUR
                              Satisfaction and Discharge

Section 401   Satisfaction and Discharge.....................................25

Section 402   Application of Trust Money.....................................26

Section 403   Reinstatement..................................................26


                                     ARTICLE FIVE
                                       Remedies

Section 501   Events of Default..............................................27

Section 502   Acceleration of Maturity; Rescission and Annulment.............29

Section 503   Collection of Indebtedness and Suits for Enforcement by

              Trustee........................................................30

Section 504   Trustee May File Proofs of Claim...............................31

Section 505   Trustee May Enforce Claims Without Possession of Securities....31

Section 506   Application of Money Collected.................................32

Section 507   Limitation on Suits............................................32

Section 508   Unconditional Right of Holders to Receive Principal

              and Interest and to Convert....................................33

Section 509   Restoration of Rights and Remedies.............................33

Section 510   Rights and Remedies Cumulative.................................33

Section 511   Delay or Omission Not Waiver...................................33

Section 512   Control by Holders.............................................34

Section 513   Waiver of Past Defaults........................................34

Section 514   Undertaking for Costs..........................................34

Section 515   Waiver of Stay or Extension Laws...............................35


                                     ARTICLE SIX
                                     The Trustee

              TO BE PROVIDED


                                    ARTICLE SEVEN
                  Holders' Lists and Reports by Trustee and Company

Section 701   Company to Furnish Trustee Names and Addresses of Holders......

Section 702   Preservation of Information; Communications to Holders.........

Section 703   Reports by Trustee.............................................

Section 704   Reports by Company.............................................

                                    ARTICLE EIGHT
                 Consolidation, Merger, Conveyance, Transfer or Lease

Section 801   Company May Consolidate, Etc., Only on Certain Terms...........

Section 802   Successor Substituted..........................................

Section 803   Mergers into the Company.......................................

                                     ARTICLE NINE
                               Supplemental Indentures

Section 901   Supplemental Indentures Without Consent of Holders.............

Section 902   Supplemental Indentures With Consent of Holders................

Section 903   Execution of Supplemental Indentures...........................

Section 904   Effect of Supplemental Indentures..............................

Section 905   Conformity With Trust Indenture Act............................

Section 906   Reference in Securities to Supplemental Indentures.............


                                     ARTICLE TEN
                                      Covenants

Section 1001  Payment of Principal and Interest..............................

Section 1002  Maintenance of Office or Agency................................

Section 1003  Money for Security Payments to be Held in Trust................

Section 1004  Statement by Officers as to Default............................

Section 1005  Limitation on Dividends, Redemption, Etc.......................

Section 1006  Contingency for Sinking Fund...................................

Section 1007  Payment of Taxes and Other Claims..............................

                                    ARTICLE ELEVEN
                               Redemption of Securities

Section 1101  Right of Redemption............................................

Section 1102  Applicability of Article.......................................

Section 1103  Election to Redeem; Notice to Trustee..........................

Section 1104  Selection by Trustee of Securities to be Redeemed..............

Section 1105  Notice of Redemption...........................................

Section 1106  Deposit of Redemption Price....................................

Section 1107  Securities Payable on Redemption Date..........................

Section 1108  Securities Redeemed in Part....................................

Section 1109  Conversion Arrangements on Call for Redemption.................


                                    ARTICLE TWELVE
                               Conversion of Securities

Section 1201  Conversion Privilege and Conversion Price......................

Section 1202  Exercise of Conversion Privilege...............................

Section 1203  Fractions of Shares............................................

Section 1204  Conversion Price Adjustments...................................

Section 1205  Notice of Adjustments of Conversion Price and Minimum Closing
              Price..........................................................

Section 1206  Notice of Certain Corporate Action.............................

                                   ARTICLE THIRTEEN
                             Subordination of Securities

Section 1301  Agreements to Subordinate by Company...........................

Section 1302  Distribution on Dissolution, Liquidation and Reorganization;
              Subrogation....................................................

Section 1303  No Payment in Event of Default on Senior Indebtedness..........

Section 1304  Payments Permitted.............................................

Section 1305  Authorization of Trustee to Effect Subordination...............

Section 1306  Notices to Trustee.............................................

Section 1307  Trustee as Holder of Senior Indebtedness of the Company........

Section 1308  Modification of Terms of Senior Indebtedness of the Company....

Section 1309  Certain Conversions Not Deemed Payment.........................

Section 1310  Article Applicable to Paying Agents............................

                                   ARTICLE FOURTEEN
                             Right to Require Repurchase

Section 1401  Right to Require Repurchase....................................

Section 1402  Notice; Method of Exercising Repurchase Right..................

Section 1403  Deposit of Repurchased Price...................................

Section 1404  Securities Not Repurchased on Repurchase Date..................

Section 1405  Securities Repurchased in Part.................................

Section 1406  Certain Definitions............................................

    INDENTURE, dated as of ________________, 1997, between INTEGRATED PHYSICIAN
SYSTEMS, INC., a Delaware corporation (the "Company"), and ___________________,
 a corporation organized under the laws of the State of New York
(the "Trustee").


                               RECITALS OF THE COMPANY:
                               -----------------------

The Company has duly authorized the creation of an issue of a single series of [6 to 8]% Convertible Subordinated Debentures due 2004 (herein called the "Securities") of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture.

All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows:

ARTICLE ONE

Definitions and Other Provisions
of General Application

Section 101 Rules of Construction and Definitions.

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned thereto in this Article, and words in the singular include the plural and words in the plural include the singular;

(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;

(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles then in effect;


(4) the words "herein," "hereof," and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section, or other subdivision.

(5) the word "or" is not exclusive; and

(6) the word "including" means including, without limitation.

"Act" when used with respect to any Holder, has the meaning specified in
Section 104.

"Affiliate" of any specified person means any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with such specified Person. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract, or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Authenticating Agent" means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate the Securities.

"Board of Directors" means either the Board of Directors of the Company or any committee thereof duly authorized to act on behalf of such Board of Directors.

"Board Resolution" means a copy of a resolution certified by the Secretary or Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.

"Business Day" means any day other than a Saturday or Sunday on which banking institutions in the City of New York, New York by law, regulation, or executive order are not required or authorized to close.

"Closing Price" on any Trading Day with respect to the per share price of Common Stock means the last reported sales price regular way or, in case no such reported sale takes place on such Trading Day, the average of the reported closing bid and asked prices regular way on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, on the National Stock Market, as the case may be, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the Nasdaq Stock Market, the closing bid price in the over-the-counter market as furnished by any New York Stock Exchange member firm that is selected from time to time by the Company for that purpose.

"Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution, or winding up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Section 1211, shares issuable on conversions of Securities shall include only shares of the class designated as Common Stock at the date of this


Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution,or winding-up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from such reclassifications.

"Company" means the Person designated as the "Company" in the first paragraph of this Indenture until a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, "Company" shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors.

"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board of Directors, its Chief Executive Officer, its President, a Senior Vice President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.

"Consolidated Total Assets" means, as of any date of determination, the consolidated total assets of the Company and its subsidiaries, determined in accordance with generally accepted accounting principles then in effect consistently applied.

"Corporate Trust Office" means the office of the Trustee in New York, New York, at which at any particular time its corporate trust business shall be principally administered and which at the date of this Indenture is located at One State Street, New York, New York 10004.

"corporation" means a corporation, association, company, joint stock company or business trust.

"Default" means any event which is, or after the giving of notice or the passage of time or both would be, an Event of Default.

"Defaulted Interest" has the meaning specified in Section 307.

"Event of Default" has the meaning specified in Section 501.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Holder" means a Person in whose name a Security is registered in the Security Register.

"Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof, including the provisions of the Trust Indenture Act that are deemed to be part hereof.

"Interest Payment Date" means the Stated Maturity of an installment of interest on the


Securities.

"Junior Securities" has the meaning specified in Section 1005.

"Maturity", when used with respect to any Security, means the date on which the principal amount of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, upon repurchase, or otherwise.

"Officer" means the Chief Executive Officer, the Chairman of the Board of Directors, the President, any Senior Vice President, any Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any Assistant Secretary of the Company.

"Officers' Certificate" means a certificate signed by the Chief Executive Officer, the President, or a Vice President, and by the Treasurer, Assistant Treasurer, the Secretary, or an Assistant Secretary of the Company, and delivered to the Trustee.

"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company and who shall be acceptable to the Trustee.

"Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:

(i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;

(ii) Securities for the payment or redemption of which money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

(iii) Securities which have been paid pursuant to Section 306, or in exchange for or, in lieu of which, other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent, or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the


Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.

"Paying Agent" means any Person authorized by the Company to pay the principal amount of, or interest on, any Securities on behalf of the Company.

"Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company, limited liability partnership, or government or any agency or political subdivision thereof.

"Predecessor Security" of any particular Security means the previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for, or in lieu of, a mutilated, destroyed, lost, or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost, or stolen Security.

"Redemption Date" or "redemption date" shall mean the date specified for redemption of the Securities by or pursuant to this Indenture.

"Redemption Price," when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.

"Regular Record Date" for the interest payable on any Interest Payment Date means the _________ 1 or _________ 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date.

"Responsible Officer," when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, the cashier, any assistant cashier, any senior trust officer, any trust officer or assistant trust officer, the controller or any assistant controller, or any other officer of the Trustee customarily performing functions similar to those performed by any of the above-designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of, and familiarity with, the particular subject.

"Securities" has the meaning specified in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.

"Security Register" and "Security Registrar" have the respective meanings specified in Section 305.


"SEC" means the Securities and Exchange Commission as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture, the SEC is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.

"Securityholder" means a person in whose name a security is registered on the Security Registrar's books.

"Senior Indebtedness" means (a) the principal amount of, and premium, if any, and unpaid interest (whether accruing before or after filing of any petition in bankruptcy or any similar proceedings by or against the Company and whether or not allowed as a claim in bankruptcy or any similar proceeding) on the following, whether heretofore or hereafter created, incurred, assumed, or guaranteed: (i) all indebtedness for borrowed money created, incurred, assumed, or guaranteed by the Company (other than indebtedness evidenced by the Securities and indebtedness which by the terms of the instrument creating or evidencing the same is specifically stated to be not prior in right of payment to the Securities); (ii) bankers' acceptances and reimbursement obligations under letters of credit; (iii) obligations of the Company under interest rate and currency swaps, caps, floors, collars, or similar agreements or arrangements intended to protect the Company against fluctuations in interest or currency rates; (iv) any other indebtedness evidenced by a note or written instrument; and (v) obligations of the Company under any agreement to lease, or lease of, any real or personal property, which obligations are required to be capitalized on the books of the Company in accordance with generally accepted accounting principles then in effect (other than leases which by their terms are specifically stated to be not prior in right of payment to the Securities), or guarantees by the Company of similar obligations of others; and (b) all deferrals, modifications, renewals, or extensions of such indebtedness, and any debentures, notes, or other evidence of indebtedness issued in exchange for such indebtedness or to refund the same.

"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.

"Stated Maturity," when used with respect to any Security or any installment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of interest is due and payable.

"Subsidiary" of any Person means (i) a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person, by one or more other Subsidiaries of such Person, or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof.

"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in effect on the date of this Indenture, provided, however, that in the event the Trust Indenture Act is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act as so amended.


"Trading Day" means a day during which trading in securities generally occurs on the New York Stock Exchange or, if the Common Stock is not listed on the New York Stock Exchange, on the principal other national or regional securities exchanges on which the Common Stock is then listed, or, if the Common Stock is not listed on a national or regional securities exchange, on the Nasdaq Stock Market or the principal other market on which the Common Stock is then traded.

"Trustee" means the Person identified as the "Trustee" in the first paragraph of this Indenture until such time as a successor replaces it pursuant to the applicable provisions of this Indenture and, thereafter, shall mean such successor. The foregoing sentence shall likewise apply to any subsequent such successor or successors.

"Underwriters" has the meaning specified under the heading "Underwriting" in the Company's registration statement on Form S-1 No. 333-_______ initially filed with the Securities and Exchange Commission on _____________, 1997 and in any amendments thereto.

"Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president."

"Voting Stock" of any Person means capital stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.

Section 102 Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:

(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(3) a statement that, in the opinion of each such individual, he has made such


examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(4) a statement as to whether, in the opinion of each such individual, such conditions or covenant has been complied with.

Section 103 Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give, or execute two or more applications, requests, consents, certificates, statements, opinions, or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.

Section 104 Acts of Holders.

(a) Any request, demand, authorization, direction, notice, consent, waiver, or other action provided by this Indenture to be given or taken by Holders may be embodied in, and evidenced by, one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public


or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee or the Company, as the case may be, deems sufficient.

(c) The ownership of Securities shall be proved by the Security Register.

(d) Any request, demand, authorization, direction, notice, consent, waiver, or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof, in exchange therefor, or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.

Section 105 Notices, Etc., to Trustee and the Company.

Any request, demand, authorization, direction, notice, consent, waiver, or Act of Holders or other document provided or permitted by this Indenture to be made upon, given, or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished, or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office, _______________, Attention: President, or at any other address previously furnished in writing to the Trustee by the Company.

Section 106 Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.


Section 107 Conflict With Trust Indenture Act.

If any provision hereof limits, qualifies, or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of, and govern, this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.

Section 108 Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 109 Successors and Assigns.

All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

Section 110 Separability.

In case any provision in this Indenture or in the Securities shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 111 Benefits of Indenture.

Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Indebtedness of the Company, and the Holders of Securities, any benefit or any legal or equitable right, remedy, or claim under this Indenture.

Section 112 Governing Law.

THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.

Section 113 Legal Holidays.

In any case where any Interest Payment Date, Redemption Date, Repurchase Date, or Stated Maturity of any Security or the last date on which a Holder has the right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or conversion of the Securities need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date, or Repurchase Date, or at the Stated Maturity


or on such last day for conversion, provided, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Repurchase Date, or Stated Maturity, as the case may be.

ARTICLE TWO

Form of Securities

Section 201 Form Generally.

The Securities and the Trustee's certificate of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions, and other variations as are required or permitted by this Indenture, and may have such letters, numbers, or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistent herewith, be determined by the officers executing such Securities, as evidenced by their execution thereof.

The definitive Securities shall be typewritten or printed, lithographed or engraved, or produced by any combination of these methods on steel engraved borders or may be produced in any other manner permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.

Section 202 Form of Face of Security.

INTEGRATED PHYSICIAN SYSTEMS, INC.

[6 to 8]% Convertible Subordinated Debenture Due 2004

No. $___________

Integrated Physician Systems, Inc., a Delaware corporation (herein called the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to________ , or registered assigns, the principal sum of _______Dollars on __________, 2004, and to pay interest thereon from ___________], 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on _________ 15 and ________ 15 in each year, commencing ___________ 15, 1997 at the rate of [6to 8]% per annum, until the principal hereof is paid or made available for payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the ___________ 1 or __________ 1 (whether or not a Business Day), as the case may be, next preceding each Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than


10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of, and interest on, this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, City of New York or at any other office or agency maintained by the Company for such purpose, in such coin or currency of the United States of America at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal.

Dated:                  INTEGRATED PHYSICIAN SYSTEMS, INC.



                        By:
                           ----------------------
                           Name:
                           Title:

Attest:

Section 203 Form of Reverse of Security.

This Security is one of a duly authorized issue of Securities of the Company designated as its [6 1/2 to 8]% Convertible Subordinated Debentures Due 2004 (hereinafter referred to as the "Securities"), limited in aggregate principal amount to $28,750,000.00, issued and to be issued under an Indenture, dated as of _______________], 1996 (the "Indenture"), between the Company and _____________________________, as Trustee (herein called the "Trustee," which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, and immunities thereunder of the Company, the Trustee, the holders of Senior Indebtedness of the Company, and the Holders of the Securities and the terms upon which the Securities are, and are to be, authenticated and delivered.

Subject to, and upon compliance with, the provisions of the Indenture, the Holder of this Security is entitled, at his irrevocable option, at any time and from time to time, on or before the close of business on __________ 15, 2004, or in case this Security or a portion hereof is called for redemption, through optional redemption by the Company, a sinking fund, or otherwise, then in respect of this Security or such portion hereof until and including, but (unless the Company defaults in making the payment due upon redemption) not after, the close of business on the fifth (5th) day preceding the Redemption Date, to convert this Security (or any portion of the principal amount hereof which is $1,000 or an integral multiple thereof), at the principal amount hereof, or of such portion, into fully paid and non-assessable shares (calculated as to each conversion to the nearest


1/100 of a share) of Common Stock of the Company at a conversion price equal to $_________ for each share of Common Stock (or at the current adjusted conversion price if an adjustment has been made as provided in the Indenture) by surrender of this Security, duly endorsed or assigned to the Company or in blank, to the Company at its office or agency in the Borough of Manhattan, The City of New York or at any other office or agency maintained by the Company for such purpose, accompanied by written notice to the Company that the Holder hereof elects to convert this Security, or if less than the entire principal amount hereof is to be converted, the portion hereof to be converted, and, in case such surrender shall be made during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (unless this Security or the portion thereof being converted matures prior to such Interest Payment Date or has been called for redemption on a Redemption Date within such period), also accompanied by payment in New York Clearing House or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of this Security then being converted. Subject to the aforesaid requirements for payment and, in the case of a conversion after the Regular Record Date next preceding any Interest Payment Date and on or before such Interest Payment Date, to the right of the Holder of this Security (or any Predecessor Security) of record at such Regular Record Date to receive an installment of interest (with certain exceptions provided in the Indenture), no payment or adjustment is to be made on conversion for interest accrued hereon or for dividends on the Common Stock issued on conversion. No fractions of shares or scrip representing fractions of shares will be issued on conversion, but instead of any fractional interest the Company shall pay a cash adjustment as provided in the Indenture. The conversion price is subject to adjustment as provided in the Indenture. In addition, the Indenture provides that in case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, the Indenture shall be amended, without the consent of any Holders of Securities, so that this Security, if then outstanding, will be convertible thereafter, during the period this Security shall be convertible as specified above, only into the kind and amount of securities, cash, and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which this Security might have been converted immediately prior to such consolidation, merger, or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares).

The Securities are redeemable, at the Company's option, as a whole or from time to time in part, upon not less than 45 nor more than 60 days' notice mailed to each Holder of Securities to be redeemed at his address appearing in the Security Register, on any date on or after ________, 2000 and prior to maturity, at a Redemption Price equal to 100% of the principal amount together in the case of any such redemption, with accrued but unpaid interest to the Redemption Date, except that the Securities may not be redeemed prior to Maturity unless for a period of 20 consecutive Trading Days ending on the date immediately preceding the date on which notice of the Redemption Date is given, the Closing Price per share of the Common Stock has equaled or exceeded $_______, subject to adjustment in the case of the same events which would result in an adjustment of the conversion price as provided in Section 1204 of the Indenture with any adjustments to the Closing Price to be effected in the same manner and to the same extent as provided in
Section 1204 with respect to adjustments to the conversion price. Interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities (or one or more Predecessor Securities) of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture.

If there is a Repurchase Event (as defined in the Indenture), the Company will be required to offer to purchase all Securities outstanding on a date 30 days after the Company gives notice of the Repurchase Event at a purchase price equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the date of purchase.

In the event of redemption, conversion, or repurchase of this Security in part only, a new


Security or Securities for the unredeemed, unconverted, or unrepurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.

The indebtedness evidenced by this Security is, to the extent provided in the Indenture, subordinate and subject in right of payment to the prior payment in full of all Senior Indebtedness of the Company, and this Security is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Security, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and (c) appoints the Trustee his attorney-in-fact for any and all such purposes.

If an Event of Default shall occur and be continuing, the principal amount of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture.

The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.

No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal amount of, and interest on, this Security at the times, place, and rate, and in the coin or currency, herein prescribed or to convert this Security as provided in the Indenture.

As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York or at any other office or agency maintained by the Company for such purpose, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.

The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same.

No service charge shall be made for any such registration or transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

Prior to due presentment of this Security for registration of transfer, the Company, the Trustee, and any agent for the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee, nor any such agent shall be affected by notice to the contrary.


All terms used in this Security which are defined in the Indenture shall have the meanings assigned thereto in the Indenture.

Section 204. Form of Trustee's Certificate of Authentication.

This is one of the Securities referred to in the within-mentioned Indenture.


as Trustee

By:
Authorized Officer

Section 205. Form of Election to Convert.

To Integrated Physician Systems, Inc.:

The undersigned owner of this Security hereby irrevocably exercises the option to convert this Security, or the portion below designated, into shares of Common Stock of Integrated Physician Systems, Inc. in accordance with the terms of the Indenture referred to in this Security, and directs that the shares issuable and deliverable upon conversion, together with any check in payment for fractional shares, be issued in the name of and delivered to the undersigned registered Holder hereof, unless a different name has been indicated in the assignment below. If shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. Any amount required to be paid by the undersigned on account of interest accompanies this Security.

Dated:
Portion of Security to be
converted ($1,000 or an
integral multiple thereof):
$

Signature (for conversion only)

If shares of Common Stock are to be issued and registered otherwise than to the registered Holder named above, please print or type the name and address, including zip code, and social security or other taxpayer identification number.

ARTICLE THREE

The Securities

Section 301 Title and Terms.

The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is limited to the sum of (a) $25,000,000.00 and (b) such aggregate principal amount (which may not exceed $3,750,000.00 principal amount) of Securities, if any, as shall be purchased


by the Underwriters pursuant to an over-allotment option in accordance with the terms and provisions of the Underwriting Agreement, dated ___________, 1997, among the Company and the underwriters identified therein.

The Securities shall be known and designated as the "[6 1/2 to 8]% Convertible Subordinated Debentures due 2004" of the Company. Their Stated Maturity shall be _________, 2004, and they shall bear interest at the rate of [6 1/2 to 8]% per annum, from __________, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on ____________ and ____________, commencing _________, 1997 until the principal amount thereof is paid or made available for payment.

The principal amount of, and interest on, the Securities shall be payable at the office or agency of the Company in the United States maintained for such purpose and at any other office or agency maintained by the Company for such purpose in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register.

The Securities shall be redeemable as provided in Article Eleven hereof.

The Securities shall be convertible as provided in Article Twelve hereof.

The Securities shall be subordinated in right of payment to Senior Indebtedness of the Company as provided in Article Thirteen hereof.

The Securities shall be subject to repurchase by the Company, at the option of the Holders, as provided in Article Fourteen hereof.

Section 302 Denominations.

The Securities shall be issuable only in registered form without coupons and only in denominations of $1000 and integral multiples thereof.

Section 303 Execution, Authentication, Delivery, and Dating.

The Securities shall be executed on behalf of the Company by its Chairman of the Board of Directors, its Vice Chairman of the Board of Directors, its Chief Executive Officer, its President, or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such


Securities or did not hold such offices at the date of such Securities.

At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Securities as in this Indenture provided and not otherwise.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.

Section 304 Temporary Securities.

Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed, or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions, and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.

If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities, the Company shall execute, and the Trustee shall authenticate and make available for delivery in exchange therefor, a like principal amount of definitive Securities of authorized denominations. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities.

Section 305 Registration; Registration of Transfer and Exchange.

The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office or in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided.

Upon surrender for registration of transfer of any Security at an office or agency of the


Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount.

At the option of the Holder, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Securities which the Holder making the exchange is entitled to receive.

All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Sections 304, 906, 1108, 1202, or 1402 not involving any transfer.

The Company shall not be required (i) in the case of a partial redemption of the Securities, to issue, register the transfer of, or exchange, any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of, or exchange, any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.

Section 306 Mutilated, Destroyed, Lost, and Stolen Securities.

If any mutilated Security is surrendered to the Trustee, the Company shall execute, and the Trustee shall authenticate and deliver in exchange therefor, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss, or theft of any Security and
(ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost, or stolen Security, a new Security of like tenor and principal amount and bearing a number not contemporaneously outstanding.


In case any such mutilated, destroyed, lost, or stolen Security has become, or is about to become, due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security upon compliance with the foregoing conditions.

Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security issued pursuant to this Section in lieu of any destroyed, lost, or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost, or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost, or stolen Securities.

Section 307 Payment of Interest; Interest Rights Preserved.

Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date notwithstanding the fact that such Holder was a Holder on such Regular Record Date, and such Defaulted Interest may be paid by the Company, at its election, as provided in Clause (1) or (2) below:

(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days, and not less than 10 days, prior to the date of


the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and, if so listed, upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of, or in exchange for, or in lieu of, any other Security shall carry the rights to interest accrued and unpaid, and to interest to accrue, which were carried by such other Security.

In the case of any Security which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Security whose Maturity is prior to such Interest Payment Date and any Security called for redemption on a Redemption Date within such period), interest the Stated Maturity of which is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Security that is converted, interest whose Stated Maturity is after the date of conversion of such Security shall not be payable.

Section 308 Persons Deemed Owners.

Prior to due presentment of a Security for registration of transfer, the Company, the Trustee, and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of, and (subject to Section 307) interest on, such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee, nor any agent of the Company or the Trustee shall be affected by notice to the contrary.


Section 309 Cancellation.

All Securities surrendered for payment, redemption, repurchase, registration of transfer or exchange, or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of, or in exchange for, any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of in accordance with its customary procedures and a certificate of disposition delivered to the Company, unless by Company Order, the Company directs that canceled certificates be returned to it as directed by a Company Order.

Section 310 CUSIP Numbers.

The Company in issuing the Securities may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.

Section 311 Computation of Interest.

Interest on the Securities shall be computed on the basis of a year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full monthly period for which interest in computed, will be computed on the basis of the actual number of days elapsed in such a 30-day month.

ARTICLE FOUR

Satisfaction and Discharge

Section 401 Satisfaction and Discharge of Indenture.

This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer, or exchange of Securities herein expressly provided for), and the Trustee, on demand of, and at the expense of, the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when either:

(1) (A)   all Securities theretofore authenticated and delivered (other
          than (i) Securities which have been destroyed, lost, or stolen
          and which have been replaced or paid as provided in Section 306
          and (ii) Securities the payment money for

          which has theretofore been deposited in trust or segregated and
          held in trust by the Company and thereafter repaid by the
          Company or discharged from such trust, as provided in Section
          1003) have been delivered to the Trustee for cancellation; or

    (B)   all such Securities not theretofore delivered  to the Trustee for
          cancellation (i) have become due and payable, or (ii)  will
          become due and payable at their Stated Maturity within one year,
          or  (iii) are to be called for redemption within one year under
          arrangements satisfactory to the Trustee for the giving of notice
          of redemption by the Trustee in the name, and at the expense, of
          the Company and the Company, in the case of (i), (ii) or (iii)
          above, has deposited or caused to be deposited with the Trustee
          as trust funds in trust for that purpose an amount sufficient to
          pay and discharge the entire indebtedness on such Securities not
          theretofore delivered to the Trustee for cancellation, for
          principal and interest to the date of such deposit (in the case
          of Securities which have become due and payable) or to the Stated
          Maturity or Redemption Date, as the case may be;

(2)       the Company has paid or caused to be paid all other sums payable
          hereunder by the Company; and

(3)       the Company has delivered to the Trustee an Officers' Certificate
          and an Opinion of Counsel, each stating that all conditions
          precedent herein provided for relating to the satisfaction and
          discharge of this Indenture have been complied with.

Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607, the obligations of the Trustee to any Authenticating Agent under Section 614, and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive.

Section 402 Application of Trust Money.

Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for payment of which such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of Securities subsequently converted shall be returned to the Company upon Company Request. Moneys held pursuant to this Section shall not be subject to the claims of the holders of Senior Indebtedness of the Company pursuant to Article Thirteen.


Section 403 Reinstatement.

If the Trustee or Paying Agent is unable to apply any money in accordance with Section 402 by reason of any order or judgment of any court or governmental authority enjoining, restraining, or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 401 until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 402: provided, however, that if the Company makes any payment of principal of, or interest on, any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent.

ARTICLE FIVE

Remedies

Section 501 Events of Default.

"Event of Default," wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article Thirteen or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree, or order of any court or any order, rule, or regulation of any administrative or governmental body):

(1) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or

(2) default in the payment of the principal amount of any Security when due, whether at Maturity, upon redemption, by declaration, or otherwise (except a default referred to in paragraph (4) below); or

(3) default in the deposit of any sinking fund obligation when such obligation become due or payable, and continuance of such default for a period of 30 days; or

(4) default in the payment of the Repurchase Price (as defined in Section 1401) in respect of any Security on the Repurchase Date (as defined in
Section 1401) therefor in accordance with the provisions of Article Fourteen and the continuance of such default for a period of 10 days; or

(5) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in the performance of which or the breach of which is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 60 days after there has been


given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or

(6) a default under any mortgage, indenture, or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any Subsidiary in excess of $1,000,000 either for borrowed money or representing any Senior Indebtedness of the Company, which results in such indebtedness: (i) being declared due and payable prior to the date on which it would otherwise become due and payable after the expiration of any applicable grace period or (ii) becoming due and payable prior to the date on which it would otherwise become due and payable and the holders of such indebtedness take any action to collect such indebtedness; provided, however, that if such default under such mortgage, indenture, or instrument shall be remedied or cured by the Company, or waived by the holders of such indebtedness, then the Event of Default hereunder by reason thereof shall be deemed likewise to have been thereupon remedied, cured, or waived without further action upon the part of either the Trustee or any of the Holders of the Securities; and provided, further, that the Trustee (subject to Sections 601 and 602) shall not have any rights, duties, liabilities, or responsibilities with respect to such default unless and until the Trustee shall have received written notice thereof at the Corporate Trust Office from the Company, the trustee under any such mortgage, indenture, or instrument of indebtedness or the agent of any such holder or holders or the Holder or Holders of any Outstanding Securities and provided, further, that any such default by a Subsidiary shall not constitute an Event of Default unless such Subsidiary or its property also constitutes more than 15% of the Company's Consolidated Total Assets; or

(7) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization, or other similar law or (B) a decree or order adjudging the Company or any Subsidiary thereof a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, or composition of, or in respect of, the Company or any such Subsidiary under any applicable Federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official of the Company or any such Subsidiary or of any substantive part of their respective property, or ordering the winding up or liquidation of their respective affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; provided, however, that notwithstanding anything in this clause to the contrary, any action by or against a Subsidiary of the Company or its property shall not constitute an Eventof Default unless such Subsidiary or its property constitutes 15% or more of the Company's Consolidated Total Assets; or


(8) the commencement by the Company or any Subsidiary thereof of a voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization, or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or any such Subsidiary to the entry of a decree or order for relief in respect of itself in or an involuntary case or proceeding under any applicable Federal or state bankruptcy, insolvency, reorganization, or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any such Subsidiary, or the filing by the Company or any such Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company or any such Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator, or other similar official of the Company or any such Subsidiary or of any substantial part of the property of the Company or any such Subsidiary, or the making by the Company or any such Subsidiary of an assignment for the benefit of creditors, or the admission by the Company or any such Subsidiary in writing of their inability to pay their debts generally as they become due, or the taking of corporate action by the Company or any such Subsidiary in furtherance of any such action; provided, however, that notwithstanding anything in this clause to the contrary, any action by or against a Subsidiary of the Company or its property shall not constitute an Event of Default unless such Subsidiary or its property constitutes 15% or more of the Company's Consolidated Total Assets.

The Trustee shall not be charged with knowledge of the identity of any Subsidiary of the Company unless and until the Trustee shall have received written notice thereof at its Corporate Trust Office from the Company or the Holder or Holders of any Outstanding Securities.

Section 502 Acceleration of Maturity; Rescission and Annulment.

If an Event of Default occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities and any other amounts payable hereunder to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and all accrued interest shall become immediately due and payable.

At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in this Article hereinafter, the Holders of a majority in aggregate principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if

(1) the Company has paid or deposited with the Trustee a sum sufficient to pay:

(i) all overdue interest on all Securities;


(ii) the principal of any Securities which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Securities;

(iii) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate borne by the Securities; and

(iv) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents, and counsel; and

(2) all Events of Default, other than the non-payment of the principal amount of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513.

No such rescission shall affect any subsequent default or impair any right consequent thereon.

Section 503 Collection of Indebtedness and Suits for Enforcement by Trustee.

The Company covenants that if

(1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or

(2) default is made in the payment of the principal of any Security at Maturity thereof (except for a default referred to in clause (4)), or

(3) default is made in the deposit of any sinking fund payment when due hereunder, or

(4) default is made in the payment of the Repurchase Price in respect of any Security on the Repurchase Date therefor in accordance with the provisions of Article Fourteen and such default continues for a period of 10 days,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment thereof shall be legally enforceable, interest on any overdue principal and on any overdue interest, at the rate borne by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents, and counsel.

If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon the Securities and collect the


moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company of another obligor upon the Securities, wherever situated.

If an Event of Default occurs and is continuing, the Trustee may, in its discretion, proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 504 Trustee May File Proofs of Claim.

In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property, or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator, or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents, and counsel, and any other amounts due the Trustee under
Section 607.

No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment, or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 505 Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements, and advances of the Trustee, its agents, and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

Section 506 Application of Money Collected.

Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:


FIRST:    To the payment of all amounts due the Trustee under
          Section 607; and

SECOND:   Subject to Article Thirteen, to the payment of the amounts
          then due and unpaid for principal amount of, and interest
          on, the Securities in respect of which, or for the benefit
          of which, such money has been collected, ratably, without
          preference or priority of any kind, according to the amounts
          due and payable on such Securities for principal and
          interest, respectively.

Section 507 Limitation on Suits.

No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(1) such Holder has previously given written notice to the Trustee of a continuing Event of Default;

(2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses, and liabilities to be incurred in compliance with such request;

(4) the Trustee for 60 days after its receipt of such notice, request, and offer of indemnity has failed to institute any such proceeding; and

(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities;

it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb, or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders.

Section 508 Unconditional Right of Holders to Receive Principal and Interest and to Convert.

Notwithstanding any other provision in this Indenture, the Holder of any Security shall have


the right, which is absolute and unconditional, to receive payment of the principal amount of, and (subject to Section 307) interest on, such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on the Redemption Date or Repurchase Date) and to convert such Security in accordance with Article Twelve and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder.

Section 509 Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee, and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 510 Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost, or stolen Securities in the last paragraph of
Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 511 Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 512 Control by Holders.

The Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that:

(1) such direction shall not be in conflict with any rule of law or with this Indenture;

(2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction; and


(3) subject to the provisions of Section 601, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability.

Section 513 Waiver of Past Defaults.

Subject to Section 902 hereof, the Holders of not less than a majority in principal amount of the Outstanding Securities may, on behalf of the Holders of all the Securities, waive any past default hereunder and its consequences, except a default:

(1) in the payment of the principal amount of, or interest on, any Security (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Trustee); or

(2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected.

Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.

Setion 514 Undertaking for Costs.

All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may, in its discretion, require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered, or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may, in its discretion, assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 25% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder for the enforcement of the payment of the principal amount of, or interest on, any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption or repurchase, on or after the Redemption Date or Repurchase Date) or for the enforcement of the right to convert any Security in accordance with Article Twelve.

Section 515 Waiver of Stay or Extension Laws.

The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay


or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay, or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE SIX

The Trustee

Section 601 Certain Duties and Responsibilities.

(a) Except during the continuance of an Event of Default:

(1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture.

(b) In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his own affairs.

(c) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own wilful misconduct, except that:

(1) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;

(2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;


(3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and

(4) no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(d) Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of, or affording protection to, the Trustee shall be subject to the provisions of this Section.

Section 602 Notice of Defaults.

Within 90 days after the occurrence of any default hereunder, the Trustee shall transmit by mail to all Holders, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived, provided, however, that, except in the case of a default in the payment of the principal amount of, or interest on, any Security or in the payment of any sinking fund installment, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee, or a trust committee of directors or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. For the purpose of this Section, the term "default" means any event which is, or after the giving of notice or the lapse of time, or both would become, an Event of Default.

Section 603 Certain Rights of Trustee.

Subject to the provisions of Section 601:

(a) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;

(c) whenever in the administration of this Indenture the Trustee shall deem it desirable


that a matter be proved or established prior to taking, suffering, or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;

(d) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered, or omitted by it hereunder in good faith and in reliance thereon;

(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses, and liabilities which might be incurred by it in compliance with such request or direction;

(f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to reasonable examination of the books, records, and premises of the Company, personally or by agent or attorney; and

(g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

Section 604 Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof.

Section 605 Holding of Securities.

The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar, or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Section 608 and Section 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar, or such other agent.


Section 606 Money Held in Trust.

Money held by the Trustee in trust hereunder need not be segregated from other funds, except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder, except as otherwise agreed with the Company.

Section 607 Compensation and Reimbursement.

The Company agrees:

(1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder;

(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements, and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement, or advance as may be attributable to its negligence or bad faith; and

(3) to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability, or expense incurred without negligence or bad faith on its part arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.

As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of the principal amount of, or interest on, particular Securities.

Section 608 Disqualification; Conflicting Interests.

If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.

Section 609 Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof, or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to


the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this
Section or Section 310(a)(5) of the Trust Indenture Act, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.

Section 610 Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611.

(b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company.

(d) If at any time:

(1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or

(2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or

(3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation, or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed, or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal, or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company


and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.

(f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 107. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.

Section 611 Acceptance Of Appointment By Successor.

Every successor Trustee appointed hereunder shall execute, acknowledge, and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed, or conveyance, shall become vested with all the rights, powers, trusts, and duties of the retiring Trustee; provided, that on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer, and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments required to more fully and certainly vest in, and confirm to, such successor Trustee all such rights, powers, and trusts.

No successor Trustee shall accept its appointment unless, at the time of such acceptance, such successor Trustee shall be qualified and eligible under this Article.

Section 612 Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion, or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion, or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.


Section 613 Appointment of Authenticating Agent.

The Trustee may, upon receipt of a Company Request, appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon exchange, registration of transfer, partial conversion, partial repurchase or partial redemption, or pursuant to Section 306, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof, or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or state authority. If such Authenticating Agent publishes reports of condition at least annually pursuant to law or to the requirements of said supervising or examining authority, then for the purpose of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion, or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent.

An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Company or the Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company or the Trustee, as the case may be. Upon receiving such a notice of resignation or upon such a termination, or in the case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all rights, powers, and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.

The Company agrees to pay to each Authenticating Agent from time to time reasonable


compensation for its services under this Section.

If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustees's certificate of authentication, an alternate certificate of authentication in the following form:

This is one of the Securities referred to in the within-mentioned Indenture.


as Trustee

By:

As Authenticating Agent

By:

Authorized Officer

ARTICLE SEVEN

Holders' Lists and Reports by Trustee and Company

Section 701 Company To Furnish Trustee Names And Addresses of Holders.

The Company will furnish or cause to be furnished to the Trustee:

(a) semiannually, not later than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and

(b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished;

excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar.

Section 702 Preservation Of Information; Communications To Holders.

(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as


Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.

(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.

(c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.

Section 703 Reports By Trustee.

(a) Within 60 days after [EARLIER INTEREST PAYMENT DATE] of each year, commencing with the year 1997, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act in the manner provided pursuant thereto.

(b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed or if not listed on any exchange with the appropriate division or market of the Nasdaq Stock Market, with the SEC, and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange or division or market of the Nasdaq Stock Market.

Section 704 Reports By Company.

The Company shall:

(a) File with the Trustee, within 15 days after the Company is required to file the same with the SEC, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may from time to time by rules and regulations prescribe) which the Company may be required to file with the SEC pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents, or reports pursuant to either of said Sections, then it shall file with the Trustee and the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such of the supplementary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange or on any national automated quotation system as may be prescribed from time to time in such rules and regulations;

(b) File with the Trustee and the SEC, in accordance with rules and regulations prescribed from time to time by the SEC, such additional information, documents, and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and


(c) Transmit by mail to all Holders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents, and reports required to be filed by the Company pursuant to paragraphs (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the SEC.

ARTICLE EIGHT

Consolidation, Merger, Conveyance, Transfer, or Lease

Section 801 Company May Consolidate, Etc., Only On Certain Terms.

The Company shall not consolidate with, or merge into, any other Person or convey, transfer, or lease its properties and assets substantially as an entirety to any Person, unless:

(1) the Person formed by such consolidation or into which the Company is merged or the Person which acquired by conveyance, transfer, or sale, or which leases the properties and assets of the Company substantially as an entirety shall be a corporation, partnership, or trust, organized and validly existing under the laws of the United States of America, any state thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered by the successor corporation to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal amount of, and interest on, all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with
Section 1211;

(2) immediately after giving effect to such merger, consolidation, conveyance, transfer, sale, or lease, no Event of Default, and no event which, after the giving of notice or the lapse of time, or both, would become an Event of Default, shall have happened and be continuing; and

(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, sale, or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with in all material respects. [CHECK]

For purposes of this Section and Section 802, a conveyance, transfer, sale, or lease of the properties and assets of the Company "substantially as an entirety" shall mean a conveyance, transfer, or lease of properties and assets of the Company representing 80% or more of the fair value (as determined in good faith by the Board of Directors) of all of the Company's properties and assets on the date of such conveyance, transfer, sale, or lease.


Section 802 Successor Substituted.

Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer, or lease of all or substantially all the properties and assets of the Company in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer, or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

Section 803 Mergers into the Company.

The Company shall not permit any other corporation to merge into the Company, unless, after giving effect to such merger, the conditions precedent contained in clauses (2) and (3) of Section 801 mutatis mutandis, have been complied with.

ARTICLE NINE

Supplemental Indentures

Section 901 Supplemental Indentures Without Consent of Holders.

Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:

(1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or

(2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or

(3) to secure the Securities; or

(4) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Section 1211; or

(5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided, that such action pursuant to this clause (5) shall not adversely affect the interests of the Holders of the Securities; or


(6) to comply with the requirements of the SEC in order to effect or maintain the qualification of this Indenture under the Trust Indenture Act.

Section 902 Supplemental Indentures With Consent of Holders.

With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to, or changing in any manner or eliminating any of the provisions of, this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby,

(1) change the Stated Maturity of the principal amount of, or any installment of interest on, any Security, or reduce the principal amount thereof, or reduce the rate of interest thereon, or change the place of payment where, or the coin or currency in which, any Security or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of a repurchase pursuant to Article Fourteen, on or after 10 days following the Repurchase Date), or adversely affect the right to convert any Security as provided in Article Twelve (except as permitted by Section 901(4)), or modify the provisions of this Indenture with respect to the subordination of the Securities in a manner adverse to the Holders,

(2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of the Holders of which is required for any waiver of certain defaults hereunder and their consequences provided for in this Indenture; or

(3) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; or

(4) modify or affect, in any manner adverse to the Holders, the terms and conditions of the obligations of the Company under Article Fourteen to repurchase the Securities.

It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

Section 903 Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon an Opinion of Counsel stating that the execution of such supplemental indenture is authorized


or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties, or immunities under this Indenture or otherwise.

Section 904 Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 905 Conformity With Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act.

Section 906 Reference in Securities to Supplemental Indentures.

Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.

ARTICLE TEN

Covenants

Section 1001 Payment of Principal and Interest.

The Company will duly and punctually pay the principal amount of, and interest on, the Securities in accordance with the terms of the Securities and this Indenture.

Section 1002 Maintenance of Office or Agency.

The Company will maintain in the Borough of Manhattan, City of New York, an office or agency where Securities may be presented or surrendered for payment or conversion, where Securities may be surrendered for registration of transfer or exchange, and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company initially appoints the Corporate Trust Office of the Trustee as its agency for the foregoing purposes. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain


any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices, and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices, and demands.

The Company may also from time to time designate one or more other offices or agencies (within or outside the Borough of Manhattan) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 1003 Money for Security Payments to be Held in Trust.

If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal amount of, or interest on, any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal amount and/or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents, it will, on or prior to each due date of the principal amount of and/or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Securities) in the making of any payment in respect of the Securities, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such.

The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal amount of, or interest on, any Security and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid


to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of any such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.

Section 1004 Statement by Officers as to Default.

The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, one of the signatories to which shall be the Company's principal executive officer, principal financial officer, or principal accounting officer, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, covenants, provisions, and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

Section 1005 Limitation on Dividends, Redemptions, Etc.

Neither the Company nor any Subsidiary may (i) declare or pay any dividends or make any other distribution on any Junior Securities (other than dividends or distribution payable in Junior Securities), or (ii) purchase, redeem, or otherwise acquire or retire for value any Junior Securities, except Junior Securities acquired upon conversion thereof into other Junior Securities, or
(iii) permit a Subsidiary of the Company to purchase, redeem, or otherwise acquire or retire for value any Junior Securities if, upon giving effect to such dividend, distribution, purchase, redemption, or other acquisition, a default in the payment of any interest upon any Security when it becomes due and payable or a default in the payment of the principal of (or Repurchase Price or sinking fund payment for, if any) any Security at its Maturity shall have occurred and be continuing.

The term "Junior Securities" means (i) shares of the Common Stock, (ii) shares of any other class or classes of capital stock of the Company, (iii) any other non-debt securities of the Company (whether or not such other securities are convertible into Junior Securities), or (iv) debt securities of the Company (other than Senior Indebtedness of the Company and the Securities) as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that such debt securities are not Senior Indebtedness of the Company with respect to, or do not rank pari passu with, the Securities.


Section 1006 Contingency for Sinking Fund.

If the Company provides for one or more sinking funds for securities or other similar obligations representing indebtedness for money borrowed ranking equal to or junior to the Securities, and such securities have a maturity or weighted average time to maturity which is on or prior to the Stated Maturity of the Securities, the Company will provide a sinking fund for the Securities calculated to retire that amount of Securities equal to the lesser of (i) the same percentage of outstanding Securities prior to maturity as the percentage of the principal amount of such other indebtedness to be retired prior to maturity on the same payment schedule as such other indebtedness or (ii) such amount of Securities necessary to result in the Securities having the same weighted average time to maturity as such securities or other similar indebtedness. Upon the issuance of such securities, the Company will deliver to the Trustee an Officers' Certificate setting forth the sinking fund schedule for the Securities, demonstrating that such schedule has been calculated in accordance with this Section and stating that such schedule complies with the provisions of this Section. Except as set forth herein with respect to the credit against mandatory sinking fund payments and the redemption price, the terms of the sinking fund applicable to the Securities shall, to the extent reasonably administratively acceptable to the Trustee, be the same as those applicable to the relevant indebtedness. The redemption price of the Securities in connection with any sinking fund shall be 100% of the principal amount thereof plus accrued and unpaid interest to the date fixed for redemption. The Company may, at its option, receive credit against mandatory sinking fund payments for the principal amount of (i) Securities acquired by the Company and surrendered for cancellation, (ii) Securities previously converted into Common Stock or converted into Common Stock upon the call of such Securities for redemption pursuant to the sinking fund, and (iii) Securities redeemed or called for redemption otherwise than through the operation of the sinking fund. If the Company wishes to exercise such option, it shall, not less than 60 days prior to each sinking fund payment date for the Securities, deliver to the Trustee (i) an Officers' Certificate specifying the portion of the sinking fund payment which is to be satisfied by surrendering and crediting Securities, stating the basis of such credit, and certifying that the Securities being used as a credit have not previously been so credited and (ii) any Securities to be so surrendered. Not more than 60 days before each sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1104 and cause notice of the redemption thereof to be given in the name of, and at the expense of, the Company in the manner provided in Section 1105. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1106, 1107, and 1108. All monies deposited to fund the sinking fund which are not required by the Trustee for redemption of Securities through operation of the sinking fund shall be promptly refunded to the Company.

Section 1007 Payment of Taxes and Other Claims.

The Company will pay or discharge, or cause to be paid or discharged, before the same shall become delinquent, all taxes, assessments, and governmental charges levied or imposed upon it or upon its income, profits, or property; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge, or claim whose amount, applicability, or validity is being contested in good faith by appropriate proceedings and further provided that no failure to comply with the terms of this Section shall constitute a default


hereunder until such time as a final non-appealable judgment shall have been rendered against the Company for any such taxes, assessments, or governmental charges.

ARTICLE ELEVEN

Redemption of Securities

Section 1101 Right of Redemption.

The Securities may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after ___________, 1999, at the Redemption Price specified in the form of Security hereinbefore set forth for redemptions, together with accrued and unpaid interest to the Redemption Date, except that the Securities may not be redeemed prior to maturity unless for a period of 20 consecutive Trading Days immediately preceding the date on which notice of the Redemption Date is given, the Closing Price per share of the Common Stock has equaled or exceeded $15.00 (the "Minimum Closing Price"), subject to adjustment in the case of the same events which would result in an adjustment of the conversion price as provided in Section 1204 of this Indenture with any adjustments to the Redemption Price to be effected in the same matter and to the same extent as provided in Section 1204 with respect to adjustments to the conversion price. Prior to the mailing of any notice of the foregoing redemption pursuant to Section 1105, the Company shall deliver to the Trustee an Officers' Certificate evidencing compliance with the foregoing restriction.

Section 1102 Applicability of Article.

Redemption of Securities at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article.

Section 1103 Election to Redeem; Notice to Trustee.

The election of the Company to redeem Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days, and no more than 90 days, prior to the Redemption Date fixed by the Company (unless a shorter redemption price shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed and provide a copy of the notice of redemption to be given to Holders of Securities to be redeemed pursuant to Section 1105.

Section 1104 Selection by Trustee of Securities to be Redeemed.

If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall


deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of the Securities of a denomination larger than $1,000.

If any Security selected for partial redemption is converted in part before termination of the conversion right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. The Trustee shall promptly notify the Company and the Security Registrar in writing of the Securities selected for redemption as aforesaid and, in case of any Securities selected for partial redemption as aforesaid, the principal amount thereof to be redeemed.

For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.

Section 1105 Notice of Redemption.

Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 45, nor more than 60, days prior to the Redemption Date, to each Holder of Securities to be redeemed, at such Holder's address appearing in the Security Register.

All notices of redemption shall state:

(1) the Redemption Date;

(2) the Redemption Price;

(3) if less than all the Outstanding Securities are to be redeemed, the identification (including, if relevant, CUSIP number and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed;

(4) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date;

(5) the conversion price, the date on which the right to convert the principal of the Securities to be redeemed will terminate, and the place or places where such Securities may be surrendered for conversion;

(6) the place or places where such Securities are to be surrendered for payment of the Redemption Price; and


(7) that the redemption is pursuant to the contingent sinking fund, if such is the case.

Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, upon Company Request, by the Trustee in the name and at the expense of the Company.

Section 1106 Deposit of Redemption Price.

On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date other than any Securities called for redemption on that date which have been converted prior to the date of such deposit.

If any Security called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Security shall (subject to any right of the Holder of such Security or any Predecessor Security to receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust.

Section 1107 Securities Payable on Redemption Date.

Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to the terms and the provisions of Section 307.

If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal amount shall, until paid, bear interest from the Redemption Date at the rate borne by the Security.

Section 1108 Securities Redeemed in Part.

Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized


in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to, and in exchange for, the unredeemed portion of the principal of the Security so surrendered.

Section 1109 Conversion Arrangements on Call for Redemption.

Notwithstanding anything to the contrary contained in this Indenture, in connection with any redemption of Securities, the Company, by an agreement with one or more investment bankers or other purchasers, may arrange for such purchasers to purchase all Securities called for redemption (the "Called Securities") which are either (i) surrendered for redemption or (ii) not duly surrendered for redemption or conversion prior to the close of business on fifth day prior to the Redemption Date, and to convert the same into shares of Common Stock, by the purchasers' depositing with the Trustee (acting as Paying Agent with respect to the deposit of such amount and as conversion agent with respect to the conversion of such Called Securities), in trust for the Holders of the Called Securities, on or prior to the Redemption Date in the manner agreed to by the Company and such purchasers, an amount sufficient to pay the Redemption Price, payable by the Company on redemption of such Called Securities. In connection with any such arrangement for purchase and conversion, the Trustee as Paying Agent shall pay on or after the Redemption Date such amounts so deposited by the purchasers in exchange for Called Securities surrendered for redemption prior to the close of business on the fifth day prior to the Redemption Date and for all Called Securities surrendered after such Redemption Date.
Notwithstanding anything to the contrary contained in this Article Eleven, the obligation of the Company to pay the Redemption Price of such Called Securities shall be satisfied and discharged to the extent such amount is so paid by such purchasers, provided, however, that nothing in this Section 1109 shall in any way relieve the Company of the obligations to pay such Redemption Price on all Called Securities to the extent such amount is not so paid by said purchasers. For all purposes of this Indenture, any Called Securities surrendered by the Holders for redemption, and any Called Securities not duly surrendered for redemption or conversion prior to the close of business on the fifth day prior to the Redemption Date, shall be deemed acquired by such purchasers from such Holders and surrendered by such purchasers for conversion and shall in all respects be deemed to have been converted, all as of immediately prior to the close of business on the fifth day prior to the Redemption Date, subject to the deposit by the purchasers of the above amount as aforesaid. Nothing in this
Section 1109 shall in any way limit the right of any Holder of a Security to convert his Security pursuant to the terms of this Indenture any time prior to the close of business on the fifth day preceding the Redemption Date.

ARTICLE TWELVE

Conversion of Securities

Section 1201 Conversion Privilege and Conversion Price.

Subject to, and upon compliance with, the provisions of this Article, at the option of the Holder


thereof, any Security or any portion of the principal amount thereof which is $1,000 or an integral multiple of $1,000 may be converted at the principal amount thereof, or of such portion thereof, into fully paid and nonassessable shares (calculated as to each conversion to the nearest 1/100 of a share) of Common Stock, at the conversion price, determined as hereinafter provided, in effect at the time of conversion. Such conversion right shall expire at the close of business on _____________, 2004. In case a Security or portion thereof is called for redemption, such conversion right in respect of the Security or portion so called shall expire at the close of business on the fifth day preceding the Redemption Date, unless the Company defaults in making the payment due upon redemption.

The price at which shares of Common Stock shall be delivered upon conversion (herein called the "conversion price") shall be initially $ per share of Common Stock. The conversion price shall be adjusted in certain instances as provided in paragraphs (a), (b), (c), (d), (e), and (f) of Section 1204.

In case the Company shall, by dividend or otherwise, declare or make a distribution on its Common Stock referred to in paragraph (a) or (d) of Section 1204 which does not give rise to a conversion price adjustment pursuant to paragraphs (a) or (d) of Section 1204, the Holder of each Security, upon the conversion thereof pursuant to this Article subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution shall be entitled to receive for each share of Common Stock into which such Security is converted, the portion of the evidences of indebtedness, shares of capital stock, cash, and assets so distributed applicable to one share of Common Stock, provided that, at the election of the Company (such election shall be evidenced by a Board Resolution) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined by the Board of Directors, whose determination shall be conclusive and described in a Board Resolution). If any conversion of a Security described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder of the Security so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a Board Resolution) to distribute to such Holder a due bill for the evidences of indebtedness, shares of capital stock, cash, or assets to which such Holder is so entitled, provided that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such evidences of indebtedness, shares of capital stock, cash, or assets no later than the date of payment or delivery thereof to holders of Common Stock receiving such distribution.

Section 1202 Exercise of Conversion Privilege.

In order to exercise the conversion privilege, the Holder of any Security to be converted shall surrender such Security, duly endorsed or assigned to the Company or in blank, at any office or agency maintained by the Company pursuant to Section 1002, accompanied by written notice to the Company (in the form set forth on the reverse of the Securities) at such office or agency that the Holder elects to convert such Security or, if less than the entire principal amount thereof is to be converted, the portion thereof to be converted. Securities surrendered for conversion during the


period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date shall (except for Securities whose Maturity is prior to such Interest Payment Date and Securities called for redemption on a Redemption Date within such period) be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of Securities being surrendered for conversion. Except as provided in the preceding sentence and subject to the fourth paragraph of Section 307, no payment or adjustment shall be made upon any conversion on account of any interest accrued on the Securities surrendered for conversion or on account of any dividends on the Common Stock issued upon conversion.

Securities shall be deemed to have been converted immediately prior to the close of business on the last day prior to the day of surrender of such Securities for conversion in accordance with the foregoing provisions, and at such time the rights of Holders of such Securities as Holders shall cease, and the Person or Persons entitled to receive the Common Stock issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock at such time. As promptly as practicable on or after the conversion date, the Company shall issue and shall deliver at such office or agency a certificate or certificates for the number of full shares of Common Stock issuable upon conversion, together with payment in lieu of any fraction of a share, as provided in Section 1203.

In the case of any Security which is converted in part only, upon such conversion the Company shall execute, and the Trustee shall authenticate and deliver to the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unconverted portion of the principal amount of such Security.

Section 1203 Fractions of Shares.

No fractional shares of Common Stock shall be issued upon conversion of Securities. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion thereof shall be computed on the basis of the aggregate principal amount of the Securities (or specified portions thereof) so surrendered. Instead of any fractional share of Common Stock which would otherwise be issuable upon conversion of any Security or Securities (or specified portions thereof), the Company shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the Closing Price per share of the Common Stock at the close of business on the last day prior to the day of conversion (or, if such day is not a Trading Day, on the Trading Day immediately preceding such day).

Section 1204 Conversion Price Adjustments.

The conversion price shall be subject to adjustment (without duplication) from time to time as follows:

(a) In case the Company shall declare a dividend or make a distribution on the outstanding shares of Common Stock in shares of Common Stock or shall declare or make a


dividend or other distribution on any other class of capital stock of the Company or any Subsidiary not wholly owned by the Company which dividend or distribution includes Common Stock, the conversion price in effect at the time of the record date for such dividend or distribution shall be reduced by multiplying such conversion price by a fraction of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the record date for such dividend or distribution and the denominator shall be the sum of such number of shares and the total number of shares constituting such dividend or other distribution, such adjustment to become effective immediately after the record date for such dividend. [CHECK]Any shares of Common Stock issuable in payment of a dividend shall be deemed to have been issued immediately prior to the time of the record date for such dividend for purposes of calculating the number of outstanding shares of Common Stock of the Company under subsections (c) and (d) below. For the purposes of this subsection (a), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company, but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. The Company shall not pay any dividend or make any distribution on shares of Common Stock held in the treasury of the Company. In the event that any such dividend or distribution is not paid or made, the conversion price then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to pay or make such dividend or distribution, to the conversion price which would be then in effect if such record date had not been fixed. Such adjustments shall be made successively whenever any event specified above shall occur.

(b) In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such subdivision becomes effective shall be proportionately reduced, and, conversely, in case outstanding shares of Common Stock shall each be combined into a smaller number of shares of Common Stock, the conversion price in effect at the opening of business on the day following the day upon which such combination becomes effective shall be proportionately increased, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective.

(c) In case the Company shall fix a record date for the issuance of rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after the record date mentioned below) to subscribe for or purchase shares of Common Stock (or securities convertible into shares of Common Stock) at a price per share (or having an initial conversion price per share) less than the Current Market Price (as defined in subsection (h) below) of a share of Common Stock on such record date, the conversion price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the conversion price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the number of shares of such Common Stock so offered (or the aggregate initial conversion price of the convertible securities so offered) would purchase at the Current Market Price per share, and of which the denominator shall be the sum of the number of shares of Common Stock outstanding on such record date and the number of additional shares of Common Stock offered for subscription or purchase (or into which the convertible securities so offered are initially convertible).


For the purposes of this subsection (c), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. Such adjustment shall be made successively whenever such a record date is fixed and shall become effective immediately after such record date. In the event that such rights or warrants are not so issued, the conversion price then in effect shall be readjusted, effective as of the date when the Board of Directors determines not to issue such rights or warrants, to the conversion price which would then be in effect if such record date had not been fixed.

(d) In case the Company shall fix a record date for making a distribution by dividend or otherwise to holders of shares of its Common Stock or holders (other than the Company or wholly-owned Subsidiaries) of capital stock of any Subsidiary, (i) of evidences of indebtedness of the Company or any Subsidiary of the Company, (ii) of assets (including shares of any class of capital stock, cash or other securities, but excluding any rights or warrants referred to in subsection (c) or securities referred to in subsection (e), excluding any dividend or distribution referred to in subsection (a) and excluding any dividend or distribution paid exclusively in cash out of retained or current earnings), or (iii) of rights or warrants entitling the holders thereof to receive upon payment of the consideration set forth therein shares of capital stock of the Company (excluding those referred to in subsection (c) above), in each such case the conversion price shall be adjusted so that it shall equal the price determined by multiplying the conversion price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record date multiplied by the Current Market Price per share on such record date, less the fair market value (as determined by the Board of Directors, whose determination shall be conclusive, and described in a Board Resolution) on the date of the effectiveness of such conversion price adjustment of said shares or evidences of indebtedness or assets or rights or warrants so distributed, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date multiplied by such Current Market Price per share, such reduction to become effective immediately prior to the opening of business on the day following the later of (a) the date fixed for the payment of such distribution and (b) the date 20 days after the notice relating to such distribution is given pursuant to
Section 1206(a). If the Board of Directors determines the fair market value of any distribution for purposes of this subsection (d) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the Current Market Price per share pursuant to subsection (h) of this Section.

(e) In case the Company shall issue or distribute shares of Common Stock, (excluding shares issued (i) in any of the transactions described in subsection
(a) above, (ii) upon conversion or exchange of securities (other than the Securities) convertible into, or exchangeable for, Common Stock described in subsection (f) below, (iii) to employees or consultants under the Company's 1996 Stock Option Plan, as now in effect or hereafter amended, if such shares would otherwise be included in this Section 1204(e), (iv) to the Company's employees or consultants under bona fide benefit plans, employment agreements, or consulting agreements adopted by the Company's Board of Directors and approved by its stockholders or granted at an exercise price of at least 100% of the fair market value of the shares on the date of grant whether or not approved by stockholders, if such shares would otherwise be included in this Section 1204(e) (but only to the extent that the aggregate


number of shares excluded by this subdivision (iv), and issued after the date of this Indenture, shall not exceed 10% of the Common Stock outstanding at the time of any such issuance), (v) upon exercise of rights or warrants issued to the holders of Common Stock,(vi) to acquire, or in connection with the acquisition of, all or any portion of a business as a going concern, whether such acquisition shall be effected by purchase of assets, exchange of securities, merger, consolidation, or otherwise, (vii) in connection with the entry into a medical practice or other professional practice management agreement by the Company for a term of at least 5 years, (viii) upon exercise of rights or warrants issued in a bona fide public offering pursuant to a firm commitment underwriting, but only if no adjustment is required pursuant to this Section 1204 (without regard to subsection (j) of this Section 1204) with respect to the transaction giving rise to such rights (provided, however, that in the case of any event described in Subsections (v) through
(viii) above, the Board of Directors has determined that the consideration received for such shares of Common Stock equals the Current Market Price of such Common Shares on the date of their issuance), or (ix) pursuant to an offering effected at a discount of less than 5% from the Current Market Price per share determined as provided in Section 1204(h) below) for a consideration per share less than the Current Market Price per share on the date the Company fixes the offering price of such additional shares, the conversion price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the conversion price in effect immediately prior thereto by a fraction, of which the numerator shall be the sum of the total number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares and the number of shares of Common Stock which the aggregate consideration received (determined as provided in subsection (g) below) for the issuance of such additional shares would purchase at the Current Market Price per share, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after the issuance of such additional shares. For the purposes of this subsection (e), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company, but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. Such adjustment shall be made successively whenever such an issuance is made and shall become effective immediately after such issuance.

(f) In case the Company shall issue any securities convertible into, or exchangeable for, shares of Common Stock (excluding securities issued in transactions described in subsections (c) and (d) above, or the Securities) for a consideration per share of Common Stock initially deliverable upon conversion or exchange of such securities (determined as provided in subsection (g) below) less than the Current Market Price per share in effect immediately prior to the issuance of such securities, the conversion price shall be adjusted immediately thereafter so that it shall equal the price determined by multiplying the conversion price in effect immediately prior thereto by a fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the issuance of such securities and the number of shares of Common Stock which the aggregate consideration received (determined as provided in subsection (g) below) for such securities would purchase at the Current Market Price per share, and the denominator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to such issuance and the maximum number of shares of Common Stock of the Company deliverable upon conversion of, or in exchange for, such securities at the initial conversion or exchange price or rate. For the purposes of this subsection (f), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company, but shall


include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. Such adjustment shall be made successively whenever such an issuance is made and shall become effective immediately after such issuance.

Upon the termination of the right to convert or exchange such securities, the conversion price shall forthwith be readjusted to such conversion price as would have obtained had the adjustments made upon the issuance of such convertible or exchangeable securities been made upon the basis of the delivery of only the number of shares of Common Stock actually delivered upon conversion or exchange of such securities and upon the basis of the consideration actually received by the Company (determined as provided in subsection (g) below) for such securities.

(g) For purposes of any computation respecting consideration received pursuant to subsections (e) and (f) above, the following shall apply:

(i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deductions be made for any commissions, discounts, or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith;

(ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Board of Directors (irrespective of the accounting treatment thereof), whose determination shall be conclusive, and described in a Board Resolution; and

(iii) in the case of the issuance of securities convertible into, or exchangeable for, shares of Common Stock, the aggregate consideration received therefor shall be deemed to be the sum of the consideration received by the Company for the isuance of such securities and the additional minimum consideration, if any, to be received by the Company upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in subparagraphs (i) and (ii) of this subsection (g)).

(h) For the purpose of any computation under subsections (c), (d), (e), and (f) above, the "Current Market Price" per share at any date shall be deemed to be the average of the daily Closing Prices for 30 consecutive Trading Days commencing 45 Trading Days before such date.

(i) In any case in which this Section 1204 shall require that an adjustment shall become effective immediately after a record date for an event, the Company may defer until the occurrence of such event (i) issuing to the Holder of any Security converted after such record date and before the occurrence of such event the additional shares of Common Stock issuable upon such conversion by reason of the adjustment required by such event over and above the shares of Common Stock issuable upon such conversion before giving effect to such adjustment and (ii) paying to such Holder any amount in cash in lieu of a fractional share of Common Stock pursuant to Section 1203;


provided, however, that the Company shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder's right to receive such additional shares of Common Stock, and such cash, upon the occurrence of the event requiring such adjustment.

(j) No adjustment in the conversion price need be made unless such adjustment would require an increase or decrease of at least 1% in the conversion price; provided, however, that any such adjustment which is not required to be made by reason of this subsection (j) shall be carried forward and taken into account in any subsequent adjustment.

(k) All calculations under this Section 1204 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.

(l) Notwithstanding any other provision of this Section 1204, no adjustment to the conversion price shall reduce the conversion price below the then par value per share of the Common Stock, and any such purported adjustment shall instead reduce the conversion price to such par value. The Company hereby covenants not to take any action (i) to increase the par value per share of the Common Stock other than in connection with one or more reverse stock splits or
(ii) that would or does result in any adjustment in the conversion price that, if made without giving effect to the previous sentence, would cause the conversion price to be less than the then par value share of the Common Stock; provided, however, that the covenant in this sentence shall be suspended if within 10 days of determining in good faith that such action would result in such adjustment (but no later than the Business Day following the effectiveness of such adjustment), the Company gives a notice under Section 1103 and effects the redemption referred to in such notice on the Redemption Date referred to herein, but shall be retroactively reinstated if such notice or redemption does not occur.

Section 1205 Notice of Adjustments of Conversion Price and Minimum Closing Price.

Whenever the conversion price is adjusted as provided in this Section 1204 or the Minimum Closing Price is adjusted as provided in Sections 1101 and 1204 or the Holders become entitled to receive evidences of indebtedness, shares of capital stock, cash, or assets in connection with the conversion of the Securities in accordance with the third paragraph of Section 1201 (an "Entitlement"), the Company shall promptly file with the Trustee and each Conversion Agent (i) an Officers' Certificate in the case of an adjustment pursuant to subsection (a) of this Section 1204, or (ii) both an Officers' Certificate and a certificate of a firm of independent public accountants, in the case of any other adjustment or an Entitlement, which Officers' Certificate and certificate of independent public accountants shall conform to the provisions of Section 102, in each case setting forth the conversion price and Minimum Closing Price after such adjustment or the amount and nature of such Entitlement and setting forth a brief statement of the facts requiring such adjustment or Entitlement and the computation thereof, which Officers' Certificate and certificate of the firm of independent public accountants shall be conclusive evidence of the correctness of any such adjustment or Entitlement, and promptly after such filing the Company shall mail or cause to be mailed a notice of such adjustment or Entitlement to each Securityholder at his last address as the same appears on the Security Register. Neither the Trustee nor any Conversion Agent shall be under any duty or responsibility with respect to any such Officers' Certificate or certificate except to exhibit the same to any Holder of Securities desiring inspection thereof.


Section 1206 Notice of Certain Corporate Action.

In case:

(a) the Company shall declare a dividend (or any other distribution) on the Common Stock payable otherwise than exclusively in cash; or

(b) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any other rights (excluding rights, warrants, or options issuable in connection with any employee benefit plan); or

(c) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company; or

(d) of the voluntary or involuntary dissolution, liquidation, or winding up of the Company;

then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Securities pursuant to Section 1002, and shall cause to be mailed to all Holders at their last addresses as they shall appear in the Security Register, at least 20 days (or 10 days in any case specified in clause (a) or (b) above) prior to the applicable record, effectiveness, or expiration date hereinafter specified a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, or granting of rights or warrants, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights, or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash, or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, or winding up.

Section 1207 Company to Reserve Common Stock.

The Company shall at all times reserve and keep available, free from preemptive rights, out of the authorized but unissued Common Stock, for the purpose of effecting the conversion of Securities, the full number of shares of Common Stock then deliverable upon the conversion of all outstanding Securities. All shares of Common Stock which shall be so deliverable shall be duly and validly authorized and issued, fully paid, and nonassessable.

Section 1208 Taxes on Conversions.

The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on conversion of Securities pursuant hereto. The Company


shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the Person requesting such issue has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

Section 1209 Covenant as to Common Stock.

The Company covenants that all shares of Common Stock which may be issued upon conversion of Securities will upon issue be fully paid and non-assessable and, except as provided in Section 1208, the Company will pay all taxes, liens, and charges with respect to the issue thereof.

Section 1210 Cancellation of Converted Securities.

All Securities delivered for conversion shall be delivered to the Trustee to be canceled by or at the direction of the Trustee, which shall dispose of the same as provided in Section 309.

Section 1211 Provisions in Case of Consolidation, Merger, or Sale of Assets.

Subject to any applicable right of each Holder of Securities to cause the Company to purchase his Securities upon a Repurchase Event pursuant to the provisions of Article Fourteen of this Indenture, in case of any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in any reclassification, conversion, exchange, or cancellation of outstanding shares of Common Stock) or any sale or transfer of all or substantially all of the assets of the Company, the Person formed by such consolidation or resulting from such merger or which acquires such assets, as the case may be, shall execute and deliver to the Trustee a supplemental indenture providing that the Holder of each Security then outstanding shall have the right thereafter, during the period such Security shall be convertible as specified in Section 1201, to convert such Security only into the kind and amount of securities, cash, and other property receivable, if any, upon such consolidation, merger, sale, or transfer by a holder of the number of shares of Common Stock into which such Security might have been converted immediately prior to such consolidation, merger, sale, or transfer, assuming such holder of Common Stock (i) is not a Person with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be (a "Constituent Person"), or an Affiliate of a Constituent Person and (ii) failed to exercise his rights of election, if any, as to the kind or amount of securities, cash, and other property receivable upon such consolidation, merger, sale, or transfer (provided that if the kind or amount of securities, cash, and other property receivable upon such consolidation, merger, sale, or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale, or transfer by other than a Constituent Person or an Affiliate thereof and in respect of which such rights of election shall not have been exercised ("non-electing share"), then for the purpose of this Section the kind and amount of securities, cash, and other property receivable upon such consolidation, merger, sale, or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of non-electing shares). Such supplemental indenture shall provide for adjustments which,


for events subsequent to the effective date of such supplemental indenture, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article. The above provisions of this Section shall similarly apply to successive consolidations, mergers, sales, or transfers.

Section 1212 Company to Cause Registration of Common Stock.

The Company covenants that if any shares of Common Stock required to be reserved for purposes of conversion of Securities hereunder require registration with, or approval of, any governmental authority under any Federal or State law, or listing upon any national securities exchange, before such shares may be issued upon conversion, the Company will in good faith and as expeditiously as possible endeavor to cause such shares to be duly registered, approved or listed, as the case may be.

Section 1213 Disclaimer by Trustee of Responsibility for Certain Matters.

Subject to Section 601, the Trustee shall not at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the conversion price or Minimum Closing Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture provided to be employed, in making the same. The Trustee shall not be accountable with respect to the validity, value, kind, or amount of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Security, and it makes no representation with respect thereto. The Trustee shall not be responsible for any failure of the Company to issue, transfer, or deliver any shares of Common Stock or stock certificates or other securities or property or cash upon the surrender of any Security for the purpose of conversion or, subject to Section 601, to comply with any of the covenants of the Company contained in this Article. Each conversion agent other than the Company shall have the same protection under this Section as the Trustee.

ARTICLE THIRTEEN

Subordination of Securities

Section 1301 Agreements to Subordinate by Company.

The Company, for itself, its successors, and its assigns, covenants and agrees, and each Holder of Securities, by his acceptance thereof, likewise covenants and agrees, that payment by the Company of the principal amount of, and interest on, each and all of the Securities is hereby expressly subordinated, to the extent and in the manner hereinafter set forth, in right of payment to the prior payment in full of all Senior Indebtedness of the Company.


Section 1302 Distribution on Dissolution, Liquidation, and Reorganization; Subrogation.

Upon any distribution of assets of the Company upon any dissolution, winding up, liquidation, or reorganization of the Company, whether voluntary or involuntary, in bankruptcy, insolvency, reorganization, or receivership proceedings, or upon an assignment for the benefit of creditors or any other marshaling of the assets and liabilities of the Company or otherwise (subject to the power of a court of competent jurisdiction to make other equitable provision reflecting the rights conferred in this Indenture upon the Senior Indebtedness of the Company and the holders thereof, with respect to the Securities and the holders thereof, by a lawful plan of reorganization under applicable bankruptcy law):

(a) the holders of all Senior Indebtedness of the Company shall be entitled to receive payment in full of the principal amount thereof, premium, if any, and the interest due thereon before the Holders of the Securities are entitled to receive any payment upon the principal amount of, or interest on, indebtedness evidenced by the Securities or on account of any other monetary claims, including such monetary claims as may result from rights of repurchase or rescission, under or in respect of the Securities; and

(b) any payment or distribution of assets of the Company of any kind or character, whether in cash, property, or securities, to which the Holders of the Securities or the Trustee would be entitled, except for the provisions of this Article Thirteen, shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver, or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness of the Company or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Senior Indebtedness of the Company may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the principal amount of, premium, if any, and interest on, the Senior Indebtedness of the Company, held or represented by each, to the extent necessary to make payment in full of all Senior Indebtedness of the Company remaining unpaid, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company; and

(c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property, or securities, shall be received by the Holders of the Securities or by the Trustee before all Senior Indebtedness of the Company is paid in full, such payment or distribution shall be paid over to the holders of such Senior Indebtedness of the Company, or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any such Senior Indebtedness of the Company may have been issued, ratably as aforesaid, for application to the payment of all Senior Indebtedness of the Company remaining unpaid until all such Senior Indebtedness of the Company shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness of the Company.

Subject to the payment in full of all Senior Indebtedness of the Company, the Holders of the Securities shall be subrogated to the rights of the holders of Senior Indebtedness of the Company to receive payments or distributions of cash, property, or securities of the Company applicable to


Senior Indebtedness of the Company until the principal amount of, and interest on, the Securities shall be paid in full, and no such payments or distributions to the Holders of the Securities of cash, property, or securities otherwise distributable to the holders of Senior Indebtedness of the Company shall, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the Holders of the Securities, be deemed to be a payment by the Company to, or on account of, the Securities. It is understood that the provisions of this Article Thirteen are, and are intended, solely for the purpose of defining the relative rights of the Holders of the Securities, on the one hand, and the holders of Senior Indebtedness of the Company, on the other hand. Nothing contained in this Article Thirteen or elsewhere in this Indenture or in the Securities is intended to, or shall, impair, as between the Company, its creditors other than the holders of Senior Indebtedness of the Company, and the Holders of the Securities, the obligations of the Company, which are unconditional and absolute, to pay to the Holders of the Securities the principal amount of, and interest on, the Securities as and when the same shall become due and payable in accordance with their terms, or to affect the relative rights of the Holders of the Securities and the creditors of the Company other than the holders of Senior Indebtedness of the Company, nor shall anything herein or in the Securities prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Thirteen of the holders of Senior Indebtedness of the Company in respect of cash, property, or securities of the Company received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article Thirteen, the Trustee, subject to the provisions of Section 601, shall be entitled to rely upon a certificate of the liquidating trustee or agent or other Person making any distribution to the Trustee for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness of the Company and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon, and all other facts pertinent thereto or to this Article Thirteen.

The Trustee, however, shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness of the Company. The Trustee shall not be liable to any such holder if it shall pay over or distribute to or on behalf of Holders of the Securities or the Company monies or assets to which any holder of Senior Indebtedness of the Company shall be entitled by virtue of this Article Thirteen.

Nothing in this Article Thirteen shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607.

If the Trustee or any Holder of Securities does not file a proper claim or proof of debt in the form required in any proceeding referred to above prior to thirty (30) days before the expiration of the time to file such claim in such proceeding, then the holder of any Senior Indebtedness of the Company or any trustee, representative, or agent therefor is hereby authorized, and has the right, to file an appropriate claim or claims for, or on behalf of, such Holders of Securities.


Section 1303 No Payment in Event of Default on Senior Indebtedness.

No payment by the Company on account of principal of, or interest on, the Securities, and no payment in respect of sinking fund requirements, if any, the Redemption Price, or any Repurchase Price shall be made before amounts then due for principal of, premium of, if any, and interest on, Senior Indebtedness of the Company have been made or duly provided for in money or money's worth if:
(i) there is an event of default on or under any Senior Indebtedness with respect to the payment of all or any portion of any Senior Indebtedness; or (ii) there shall exist a default in any covenant with respect to any Senior Indebtedness (other than as specified in clause (i) of this sentence) and, in such event, such default shall not have been cured or waived or shall not have ceased to exist, the Trustee and the Company shall have received written notice from the holder of such Senior Indebtedness or if there is more than one holder of such Senior Indebtedness from the trustee, representative, or agent of the holders of such Senior Indebtedness stating that no payment shall be made with respect to the Securities, and such default would permit the maturity of such Senior Indebtedness (if not already due and payable) to be accelerated, provided that no such default will prevent any payment on, or in respect of, the Securities for more than 120 days unless the maturity of such Senior Indebtedness has been accelerated, except for a payment under Article Eleven and
Section 1006 if, at the time of mailing of notice of redemption pursuant to
Section 1105 relating to such payment, there is no event of default on or under Senior Indebtedness of the Company known to the Trustee.

Section 1304 Payments Permitted.

Nothing contained in this Indenture or in any of the Securities shall (a) affect the obligations of the Company to make, or prevent the Company from making, at any time, except as provided in Sections 1302 and 1303, payments of the principal amount of, or interest on, the Securities or (b) prevent the application by the Trustee of any moneys deposited with it hereunder to the payment of, or on account of, the principal amount of, or interest on, the Securities, unless the Trustee shall have received at is Corporate Trust Office written notice of any event prohibiting the making of such payment except as provided in Section 1303 with respect to payments under Article Eleven and
Section 1006.

Section 1305 Authorization to Trustee to Effect Subordination.

Each Holder of Securities by its acceptance thereof authorizes and directs the Trustee in its behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article Thirteen and appoints the Trustee his attorney-in-fact for any and all such purposes.

Section 1306 Notices to Trustee.

Notwithstanding the provisions of this Article or any provisions of this Indenture, neither the Trustee nor any Paying Agent (other than the Company) shall be charged with the knowledge of the existence of any Senior Indebtedness of the Company or of any event which would prohibit the making of any payment of monies to or by the Trustee or such Paying Agent, unless and until the


Trustee or such Paying Agent shall have received (in the case of the Trustee, at its Corporate Trust Office) written notice thereof from the Company or from the holder of any Senior Indebtedness of the Company or from the trustee, representative, or agent for any such holder, together with proof satisfactory to the Trustee for any such holding of Senior Indebtedness of the Company or of the authority of such trustee, representative, or agent; provided, however, that if at least two Business Days prior to the date upon which by the terms hereof any such monies may become payable for any purpose (including, without limitation, the payment of either the principal amount of, or interest on, any Security) the Trustee shall not have received with respect to any such monies the notice provided for in this Section 1306, then, anything herein to the contrary notwithstanding, the Trustee shall have the full power and authority to receive such monies and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after such two Business Days prior to such date. The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee, representative, or agent on behalf of such holder) to establish that such a notice has been given by a holder of Senior Indebtedness of the Company or a trustee, representative, or agent on behalf of any such holder. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness of the Company to participate in any payment or distribution pursuant to this Article Thirteen, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness of the Company held by such Person, the extent to which such Person is entitled to participate in such payment or distribution, and any other facts pertinent to the rights of such Person under this Article Thirteen and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

Section 1307 Trustee as Holder of Senior Indebtedness of the Company.

The Trustee shall be entitled to all the rights set forth in this Article Thirteen with respect to any Senior Indebtedness of the Company at any time held by it to the same extent as any other holder of Senior Indebtedness of the Company and nothing in Section 311 of the Trust Indenture Act or in this Indenture shall be construed to deprive the Trustee of any of its rights as such holder.

Section 1308 Modification of Terms of Senior Indebtedness of the Company.

Any renewal or extension of the time of payment of any Senior Indebtedness of the Company or the exercise by the holders of Senior Indebtedness of the Company of any of their rights under any instrument creating or evidencing Senior Indebtedness of the Company, including, without limitation, the waiver of default thereunder, may be made or done all without notice to or assent from the Holders of the Securities or the Trustee.

No compromise, alteration, amendment, modification, extension, renewal, or other change of, or waiver, consent, or other action (collectively an "Action") in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants, or conditions of any indenture or other instrument under which any Senior Indebtedness of the Company is outstanding or of such Senior Indebtedness of the Company, whether or not the Action is in accordance with the provisions


of any applicable document, shall in any way alter or affect any of the provisions of this Article Thirteen or of the Securities relating to the subordination thereof.

Section 1309 Certain Conversions Not Deemed Payment.

For the purposes of this Article only, (1) the issuance and delivery of junior securities upon conversion of Securities in accordance with Article Twelve shall not be deemed to constitute a payment or distribution on account of the principal amount of, or interest on, Securities or on account of the purchase or other acquisition of Securities unless (i) such conversion would result in a change of control for purposes of Section 382 of the Internal Revenue Code and the rules and regulations promulgated thereunder, and (ii) such change in control would result in the loss of, or a limitation on, the annual availability of net operating losses to the Company for tax purposes, and (2) the payment, issuance, or delivery of cash, property, or securities (other than junior securities) upon conversion of a Security shall be deemed to constitute payment on account of the principal amount of, such Security. For the purposes of this Section, the term "junior securities" means (a) shares of any stock of any class of the Company and (b) securities of the Company which are subordinated in right of payment to all Senior Indebtedness which may be outstanding at the time of issuance or delivery of such securities to the same extent as, or to a greater extent than, the Securities are so subordinated as provided in this Article. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall impair, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Securities, the right, which is absolute and unconditional, of the Holder of any Security, to convert such Security in accordance with Article Thirteen.

Section 1310 Article Applicable to Paying Agents.

In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article Thirteen shall in such case (unless the context otherwise requires) be construed as extending to, and including, such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to, or in place of, the Trustee; provided, however, that Section 1307 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

ARTICLE FOURTEEN

Right to Require Repurchase

Section 1401 Right to Require Repurchase.

In the event that there shall occur a Repurchase Event (as defined in
Section 1406), then each Holder shall have the right, at such Holder's option, to require the Company to purchase, and upon the exercise of such right, the Company shall, subject to the provisions of Section 1303, purchase,


all or any part of such Holder's Securities on the date (the "Repurchase Date") that is 30 days after the date the Company gives notice of the Repurchase Event as contemplated in Section 1402(a) at a price (the "Repurchase Price") equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the Repurchase Date. Such right to require the repurchase of Securities shall not continue after a discharge of the Company from its obligations with respect to the Securities in accordance with Article Four.

Section 1402 Notice; Method of Exercising Repurchase Right.

(a) On or before the 15th day after the Repurchase Event, the Company, or, upon Company Request, the Trustee (in the name and at the expense of the Company), shall give notice of the occurrence of the Repurchase Event and of the repurchase right set forth herein arising as a result thereof by first-class mail, postage prepaid, to each Holder of the Securities at such Holder's address appearing in the Security Register. The Company shall at the same time also deliver a copy of such notice of a repurchase right to the Trustee.

Each notice of repurchase right shall state:

(1) the Repurchase Date;

(2) the date by which the repurchase right must be exercised;

(3) the Repurchase Price; and

(4) the instructions a Holder must follow to exercise a repurchase right.

No failure of the Company to give the foregoing notice shall limit any Holder's right to exercise a repurchase right. The Trustee shall have no affirmative obligation to determine if there shall have occurred a Repurchase Event.

(b) To exercise the repurchase right, a Holder shall deliver to the Company (or an agent designated by the Company for such purpose in the notice referred to in (a) above) and to the Trustee on or before the fifth (5th) day prior to the Repurchase Date (i) written notice of Holder's exercise of such right, which notice shall set forth the name of the Holder, the principal amount of the Security or Securities (or portion of a Security) to be repurchased, and a statement that an election to exercise the repurchase right is being made thereby, and (ii) the Security or Securities with respect to which the repurchase right is being exercised, duly endorsed for transfer to the Company.

Such written notice shall be irrevocable following the close of business on the fifth (5th) day prior to the Repurchase Date, provided, however, that the Company, in its sole and absolute discretion, may consent to the withdrawal of any Securities after such date and prior to the Repurchase Date. If the Repurchase Date falls between any Regular Record Date and the next succeeding Interest Payment Date, Securities to be repurchased must be accompanied by payment from the Holder of an amount equal to the interest thereon which the registered Holder thereof is to receive on such Interest Payment Date.


(c) In the event that a repurchase right shall be exercised in accordance with the terms hereof, the Company shall on the Repurchase Date pay or cause to be paid in cash to the holder thereof the Repurchase Price of the Security or Securities as to which the repurchase right had been exercised. In the event that a repurchase right is exercised with respect to less than the entire principal amount of a surrendered Security, the Company shall execute and deliver to the Trustee, and the Trustee shall authenticate for issuance in the name of the Holder, a new Security or Securities in the aggregate principal amount of the unrepurchased portion of such surrendered Security.

Section 1403 Deposit of Repurchased Price.

Prior to the Repurchase Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Repurchase Price of the Securities which are to be repurchased on the Repurchase Date.

Section 1404 Securities Not Repurchased on Repurchase Date.

If any Security surrendered for repurchase shall not be so paid on the Repurchase Date, the principal amount shall, until paid, bear interest to the extent permitted by applicable law from the Repurchase Date at a rate per annum borne by such Security.

Section 1405 Securities Repurchased in Part.

Any Security which is to be repurchased only in part shall be surrendered at any office or agency of the Company designated for that purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of any authorized denomination as requested by such Holder, in aggregate principal amount equal to, and in exchange for, the unrepurchased portion of the principal of the Security so surrendered.

Section 1406 Certain Definitions.

For purposes of this Article:

(a) "Fundamental Change" means the occurrence of any transaction or event in connection with which all or substantially all of the Common Stock shall be exchanged for, converted into, acquired for, or constitute the right to receive consideration (whether by means of an exchange offer, liquidation, tender offer, consolidation, merger, combination, reclassification, recapitalization, or otherwise) which is not all or substantially all common stock which is (or, upon consummation of or immediately following such transaction or event, will be) listed on a national securities exchange or approved for quotation in any Nasdaq Stock Market or any similar system of automated dissemination of quotations of securities prices. A Fundamental Change shall not include


any acquisition of Common Stock by any person or group so long as it does not result in termination of such listing or approval for quotation. For purposes of the definition of a "Fundamental Change," (i) "substantially all of the Common Stock" shall mean at least 85% of the Common Stock outstanding immediately prior to the transaction giving rise to a Fundamental Change, and
(ii) consideration shall be "substantially all common stock" if at least 80% of the fair value (as determined in good faith by the Board of Directors) of the total consideration is attributable to common stock.

(b) A "Repurchase Event" shall have occurred if a Fundamental Change shall have occurred unless (i) the current market price of the Common Stock per share (which, for the purposes of this Article, shall be deemed to be the average of the daily Closing Prices of the Common Stock for the five consecutive Trading Days before the Fundamental Change) is at least equal to the conversion price per share of the Securities in effect immediately preceding the time of such Fundamental Change, or (ii) (A) the consideration, in the transaction or event giving rise to a Fundamental Change, to the holders of Common Stock consists of
(w) cash, (x) securities (other than common stock) that are, or immediately upon issuance will be, listed on a national securities exchange or quoted in the Nasdaq National Market System, or (y) common stock that is, or immediately upon issuance will be, listed on a national securities exchange or approved for quotation in any Nasdaq Stock Market or similar system of automated dissemination of quotations of securities prices, or (z) any combination of cash and such securities, including common stock, and (B) the aggregate fair market value of such consideration (which, in the case of such securities, shall be equal to the average of the daily Closing Prices of such securities during the
10 (ten) consecutive Trading Days commencing with the sixth Trading Day following consummation of such transaction or event) is at least 105% of the conversion price of the Securities in effect on the date immediately preceding the closing date of such transaction or event.

This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.


IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.

INTEGRATED PHYSICIAN SYSTEMS, INC.

By:

Name:


Title:

Attest:


By:
Name:


Title:

Attest:


STATE OF NEW YORK             )
                   ss.:
COUNTY OF NEW YORK            )

On the day of __________, 1997, before me personally came , to me known, who, being by me duly sworn, did depose and say that he/she is the ______________ of INTEGRATED PHYSICIAN SYSTEMS, INC., one of the corporations described in and which executed the foregoing instrument; and that he/she signed his/her name thereto by authority of the Board of Directors of such corporation.

Notary Public

STATE OF NEW YORK             )
                   ss.:
COUNTY OF NEW YORK            )

On the day of __________, 1997, before me personally came , to me known, who, being by me duly sworn, did depose and say that he/she is the ______________ of ________________________________, one of the corporations described in and which executed the foregoing instrument; and that he/she signed his/her name thereto by authority of the Board of Directors of such corporation.

Notary Public


Exhibit 10.1

EMPLOYMENT AGREEMENT

AGREEMENT made this 16th day of June, 1997, by and between INTEGRATED PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with a principal place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter referred to as "Company") and SCOTT G. POLLOCK, an adult individual residing at 1627 Fairfield Road, Yardley, PA 19067, (hereinafter referred to as "Employee".)

WHEREAS, Company wishes to hire and employ Employee on the terms and conditions hereinafter set forth; and

WHEREAS, Employee wishes to accept such employment in return for the compensation set forth herein.

NOW, THEREFORE, in return for the mutual covenants and conditions set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do agree as follows:

1. Employment

Company hereby employs Employee and Employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement.

2. Duties

(a) Employee shall serve Company generally in the capacity described on Exhibit A, attached hereto and incorporated herein by this reference, and shall have such authority and responsibilities as Company may reasonably determine from time to time. Employee shall perform any other duties reasonably required by Company.

(b) Throughout the term of this Agreement, Employee shall devote his entire business working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company.

3. Term

Unless sooner terminated as herein provided, this Agreement shall be for the term set forth on Exhibit A attached hereto and incorporated herein by this reference.

4. Compensation

(a) For all of the services rendered by Employee to Company, Employee shall receive the compensation set forth on Exhibit A attached hereto, payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time.


(b) Throughout the term of this Agreement and provided that Employee shall be deemed to be a full-time employee, Employee shall be provided the health, dental, life and disability insurance benefits set forth in paragraph 4 of Exhibit "A" attached hereto, and shall be entitled to participate in the Company's 401K plan as described in paragraph 5 of Exhibit "A".

(c) Employee shall be entitled to the paid vacation set forth on Exhibit A attached hereto.

(d) During Employee's employment hereunder, Company shall reimburse Employee for all ordinary and necessary business expenses incurred by him in connection with the business of Company. Such payments shall be made by Company upon submission by Employee of vouchers itemizing such expenses in a form reasonably satisfactory to Company.

5. Disability

If Employee becomes unable to perform his/her duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness or any similar cause, and such disability continues for a period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement upon thirty (30) days written notice to Employee. In the event of such disability, Company shall pay Employee his then current compensation, including any and all accrued salary, bonus compensation and vacation pay, through the date of the commencement of Employee's entitlements under Company's long-term disability insurance policy. Thereafter, Company shall have no further obligations or liabilities to Employee hereunder.

6. Death

If Employee dies, this Agreement shall automatically terminate and all payments hereunder shall cease at the end of the month in which Employee's death shall occur and Company shall have no further obligations or liabilities hereunder to Employee's estate or legal representative or otherwise, other than the payment of any and all accrued bonus compensation and accrued vacation pay.

7. Discharge for Cause

(a) Notwithstanding the state term of employment, this Agreement and the Employee's employment may be sooner terminated by the Company for any of the following reasons:

(i) The willful failure or refusal of Employee to perform his duties as may, from time to time, be delegated to him by the Company, through the Board of Directors.

(ii) Employee's gross negligence which materially and adversely affects the business or affairs of the Company.


(iii) Any act by Employee of fraud, dishonesty or criminal wrongdoing, which materially adversely effects the Company.

(iv) Any intentional or willful breach by Employee of any material covenant of this Agreement including but not limited to the provisions regarding noncompetition and confidentiality.

All of the foregoing shall be, separately and collectively, known as "cause" for termination.

(b) The Company shall effect termination pursuant to this Section 7 by written notice to Employee specifying in reasonable detail the circumstances alleged by Company to constitute "cause" and the specific provisions of this Section 7 relied upon in effecting such termination. The date of such termination shall be the date ten (10) days after Company gives such notice of termination to Employee. If the grounds for termination are solely the grounds set forth in Section 7(a)(ii) or (iv) above, then during such ten (10) day period, Employee shall be afforded an opportunity to discuss the basis for such termination with the full Board of Directors of the Company, and Employee shall, at his election exercised in writing prior to the expiration of such ten (10) day period, be entitled to a period of not less than thirty (30) days after the date of such discussion to attempt to remedy or cure the conduct alleged to constitute such grounds and the harm caused thereby if in the good faith judgment of the Board of Directors such conduct and harm is capable of being remedied or cured within such thirty
(30) day period. If, after the expiration of such cure period, the Employee has not in the good faith judgment of the Board of Directors remedied or cured the conduct alleged to constitute such grounds and the harm caused thereby, the termination shall be effective upon notice to Employee of such adverse Board judgment.

(c) In the event of early termination of Employee's employment hereunder, for any reason, Employee shall, simultaneously with such termination, be conclusively deemed to have resigned any other position he might hold with the Company. Employee agrees to execute any and all documents reasonably requested of him by Company's Board of Directors to evidence such resignation(s).

8. Compensation Upon Termination

In the event that the Employee's employment and this Agreement is terminated by Company prior to the end of its term, for cause as is set forth in paragraph 7 hereof, Company shall pay to Employee, as severance compensation, in circumstances other than by Employee's death or disability, or other than as a result of change in control of the Company, an amount equal to two months' salary. This amount shall be in addition to all compensation earned or accrued by Employee through the last day of actual employment. In the event that Employee's employment is terminated by the Company as a result of change in control of the Company, the Company shall pay to Employee, as severance compensation, an amount equal to two times (i) Employee's base annual salary and (ii) Employee's maximum potential annual bonus compensation. After the payment of such severance compensation, Company shall have no further obligation or liability to Employee hereunder.


9. Key Man Insurance. Company shall have the right to obtain, at its sole discretion, what is commonly known as Key Man Insurance on the life of the Employee in such amount as the Company deems appropriate. Executive agrees to cooperate in all respects in the obtaining of such a policy. All expenses involved in connection with the obtaining and maintaining of such a policy shall be paid by the Company.

10. Company Property; Noncompetition

(a) All research, experiments, discoveries, inventions, improvements, materials or information, including without limitation, reports, analysis, handbooks, manuals, invoices, price lists or information, customer lists, information about costs, profits, markets, sales, pricing, methods and other business affairs including future expansion plans, or any other materials or data of any kind furnished to Employee by Company or developed by Employee on behalf of Company or at Company's direction or for Company's use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company, and Employee shall immediately deliver the same to Company at the termination of Employee's employment or at any other time if so requested by Company.

(b) During the term of this Agreement and at all times thereafter, Employee shall not use for his/her personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm association, or company other than the Company, any material referred to in subparagraph (a) above or any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or any other confidential information relating to or dealing with the business operations or activities of the Company.

(c) During the term of this Agreement and for a period of two (2) years after termination of his/her employment with Company for any reason whatsoever, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate his employment with Company.

(d) During the period of time which Employee is employed by Company pursuant to the terms of this Agreement and for a period of two (2) years thereafter, without the prior written consent of Company, Employee shall not, directly or indirectly, within a State wherein Company then does business, own, manage, operate, join, control, finance, or participate in the ownership, management, operation, control, or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or otherwise, with any enterprise, business, firm or corporation which is in competition with the Company. If Employee violates the provisions of this Paragraph 10 (d), the restrictive period set forth herein shall be extended by a period of time equal to the number of days, if any, during which the Employee is in violation of the provisions hereof.

(e) Employee hereby acknowledges and agrees that the covenants and restrictions contained in this Paragraph 10 relate to matters which are of a special, unique, and extraordinary importance to Company. Employee acknowledges that the restrictions contained in the foregoing subparagraphs are reasonable and necessary in order to protect the legitimate interests


of Company and that without such restrictions, Company would be unwilling to enter into this Agreement. Employee acknowledges that any violation of any of the terms hereof will result in irreparable injury to Company for which money damages alone will be insufficient. Accordingly, Employee agrees that Company shall be entitled to obtain from any Court of competent jurisdiction, preliminary and permanent injunctive relief for a violation or threatened violation of any such restrictions without having to prove actual damages or to post a bond. Company shall also be entitled to an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Company may be entitled in law or equity. Employee hereby waives any objections on the grounds of improper jurisdiction or venue to the commencement of an action in the state of New Jersey and agrees that effective service of process may be made upon him/her by mail under the notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT THE TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND HEREBY.

(f) It is the intent of the parties that the provisions of this Paragraph 10 be enforceable to the fullest extent permitted by law. If, however, any portion of any section of this Agreement including the restrictive covenant as set forth herein is held by a court of law to be unreasonable in any proceeding, then the period of time, the geographic area, or such other restrictions shall be reduced by the elimination or reduction of such portion thereof, so that such restrictions may be enforced in a manner that is adjudged to be reasonable.

11) Miscellaneous

(a) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in a accordance with the laws of the State of New Jersey.

(b) Indulgences, etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege, for a particular occurrence, constitute a waiver with respect to any other occurrence.

(c) Binding Nature. This Agreement shall be binding upon and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, his heirs and legal representatives.

(d) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied,


oral or written, except as herein contained. This Agreement may not be modified or amended other than by an agreement in writing, signed by the parties.

(e) Assignment. This Agreement may be assigned by Company upon thirty
(30) days written notice to Employee. Employee may not assign his duties, obligations or entitlements hereunder.

(f) Right To Independent Counsel. The parties hereto recognize that this Agreement is a legal document which may affect them adversely. Consequently, the parties acknowledge that prior to executing this Agreement they were given the opportunity to seek the advice of independent legal counsel regarding the provisions of this Agreement and their legal involvement herein. By executing this Agreement, the parties acknowledge that they have reviewed this Agreement with independent counsel or have waived their opportunity to do so.

(g) Expenses of Agreement. Each of the parties hereto shall bear its own expenses incurred in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated hereby.

(h) Notices. Any notice required to be given pursuant to the terms of this Agreement shall be in writing and sent by registered mail or nationally recognized carrier, to the parties at the following addresses:

To Company at:

Integrated Physician Systems, Inc.

615 Hope Road
Eatontown, NJ

To Employee at:

1627 Fairfield Road
Yardley, PA 19067

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

INTEGRATED PHYSICIAN SYSTEMS, INC.

Attest:                                By: /s/ Joseph F. Murray
       -----------------------------      --------------------------------

                                       EMPLOYEE:

Witness: /s/ Walter B. Dunsmore        /S/ Scott G. Pollock
        ----------------------------   ------------------------------------
                                       SCOTT G. POLLOCK


EXHIBIT "A"

EMPLOYMENT AGREEMENT BETWEEN
INTEGRATED PHYSICIAN SYSTEMS, INC. AND SCOTT G. POLLOCK

DUTIES - (Pursuant to Paragraph 2) - Employee shall occupy the office of Chief Executive Officer of the Company and shall have all duties and responsibilities attendant to such position including such duties as are set forth in the by-laws of the Company and as may be imposed by the Board of Directors of the Company from time to time. Employee shall also serve as Chief Financial Officer of the Company, and, as such, shall be responsible for all financial affairs of the Company including financial reporting. Employee shall report to and follow the directions of the Board of Directors of the Company. Employee shall serve as one of management's representatives on the Board of Directors of the Company. Employee shall be indemnified and held harmless by the Company for all acts of Employee as an officer or director of the Company in accordance with (i) the provisions set forth in the amended articles of incorporation of the Company, (ii) the provisions set forth in the by-laws of the Company, and (iii) the provisions of the directors and officers liability insurance policy to be maintained by the Company. Company shall provide Employee with copies of the articles of incorporation, the by-laws, and the insurance policy.

TERM - (Pursuant to Paragraph 3) - This Agreement shall be for a term of three years, commencing on August 1, 1997. This Agreement shall not be terminated except in accordance with its terms.

COMPENSATION - (Pursuant to Paragraph 4) -

1) Salary - For all of his services to be rendered hereunder, including his service on the Board of Directors and any committees thereof, Employee shall be paid an annual salary of Two Hundred Thousand ($200,000) Dollars during his first year of employment hereunder. Employee's compensation for the second year of employment shall be the initial annual compensation, increased by a factor equal to the prior year's inflation. Employee's compensation for the third year of employment hereunder shall be as mutually agreed upon by the parties after good faith negotiations at the end of the second employment year, provided, however, that in no event shall such third year compensation be less than the compensation paid in the second year of employment increased by factor equal to the prior year's inflation.

2) Bonus - Employee shall be entitled to an annual bonus in an amount equal to either 10%, 20%, or 30% of base compensation, depending upon the achievement, by the Company, of certain financial and operational goals, the definition of which shall be provided to Employee by the Board of Directors of the Company prior to the commencement of employment hereunder. Employee shall receive the most favorable bonus as shall have been paid to any other executive officer of the Company. Bonus compensation hereunder shall be paid to Employee within ninety (90) days of the end of the period of measurement thereof.


3) Automobile Allowance - Employee shall be paid a monthly automobile allowance in the amount of Six Hundred ($600) Dollars which is intended to represent reimbursement to Employee of all costs incurred in the operation of his automobile on Company business. The amount set forth herein shall be the maximum amount allowed to Employee for any automobile expenses.

4) Health, Dental, Disability and Life Insurance - Employee shall receive, at no cost to Employee, full coverage for Employee and his dependents, in such health, dental, accident and long-term disability insurance as shall be in force in the Company from time to time. Employee shall receive from the Company, at no cost to Employee, life insurance on the life of Employee in an amount equal to the Employee's annual salary hereunder. Employee may, subject to the provisions of the group life insurance contract, purchase additional life insurance at Employee's sole cost and expense.

5) 401 (K) Plan/Stock Option Plan - Employee shall be entitled to participate in any 401(K) or employee stock option plan adopted by the Company. The amount of contribution thereto by Company, if any, shall be at Company's sole discretion.

6) Vacation - Employee shall be entitled to four (4) weeks paid vacation during each year of employment hereunder which may be accumulated up to a maximum of eight (8) weeks during any one calendar year.


EMPLOYMENT AGREEMENT

AGREEMENT made this 1st day of April, 1997, by and between INTEGRATED PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with its principle place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter referred to as "Company") and Dennis B. Liotta, M.D., an adult individual residing at 33 High Ridge Road, Wayside, NJ 07712, (hereinafter referred to as "Employee".)

WHEREAS, Company wishes to hire and employ Employee on the terms and conditions hereinafter set forth; and

WHEREAS, Employee wishes to accept such employment in return for the compensation set forth herein.

NOW, THEREFORE, in return for the mutual covenants and conditions set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do agree as follows:

1. Employment

Company hereby employs Employee and Employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement.

2. Duties

(a) Employee shall serve Company generally in the capacity described on Exhibit A, attached hereto and incorporated herein by this reference, shall be an authorized agent of the Company, and shall have such authority and responsibilities commensurate with the position held, as Company may reasonably determine from time to time. Employee shall perform any other duties reasonably required or requested by Company.

(b) Throughout the term of this Agreement, Employee shall devote his entire business working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company.

3. Term

Unless sooner terminated as herein provided, this Agreement shall be for the term set forth on Exhibit A attached hereto and incorporated herein by this reference.


4. Compensation

(a) For all of the services rendered by Employee to Company, Employee shall receive the compensation set forth on Exhibit A attached hereto, payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time.

(b) Throughout the term of this Agreement and provided that Employee shall be deemed to be a full-time employee, Employee shall be entitled to participate in and receive the benefits of any pension, profit sharing plan, or 401K plan. Company will provide Employee and his designated dependents with Company paid health, life, accident and disability insurance in addition to any other plans or programs that are paid for other similarly situated employees of Company.

(c) Employee shall be entitled to the paid vacation set forth on Exhibit A attached hereto.

(d) During Employee's employment hereunder, and in accordance with Exhibit "A" attached hereto, Company shall reimburse Employee for all ordinary and necessary business expenses incurred by him in connection with the business of Company, including, but not limited to reimbursement for use of home telephone, home fax, and personal cellular phone. Such payments shall be made by Company upon submission by Employee of vouchers itemizing such expenses in a form reasonably satisfactory to Company.

5. Disability

If Employee becomes unable to perform his/her duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness or any similar cause, and such disability continues for a period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement upon thirty (30) days written notice to Employee. In the event of such disability, Company shall pay Employee his then current compensation, including any and all accrued salary, bonus compensation and vacation pay, through the date of the commencement of Employee's entitlements under Company's long-term disability insurance policy. Thereafter, Company shall have no further obligations or liabilities to Employee hereunder.

6. Death

If Employee dies, this Agreement shall automatically terminate and all payments hereunder shall cease at the end of the month in which Employee's death shall occur and Company shall have no further obligations or liabilities hereunder to Employee's estate or legal representative or otherwise.


7. Discharge for Cause

(a) Notwithstanding the stated term of employment, this Agreement and the Employee's employment may be sooner terminated by the Company for any of the following reasons:

(i) The willful failure, or refusal of Employee to perform his duties as may, from time to time, be delegated to him by the Company, through the President, the Chief Executive Officer, or the Board of Directors.

(ii) Employee's gross negligence or intentional failure to act which materially and adversely affects the business or affairs of the Company.

(iii) Any act by Employee of fraud, dishonesty or criminal wrongdoing.

(iv) Any intentional or willful breach by Employee of any material covenant of this Agreement including but not limited to the provisions regarding noncompetition and confidentiality.

All of the foregoing shall be, separately and collectively, known as "cause" for termination.

(b) The Company shall effect termination pursuant to this Section 7 by written notice to Employee specifying in reasonable detail the circumstances alleged by Company to constitute "cause" and the specific provisions of this Section 7 relied upon in effecting such termination. The date of such termination shall be the date ten (10) days after Company gives such notice of termination to Employee. If the grounds for termination are solely the grounds set forth in Section 7(a)(ii) or (iv) above, then during such ten (10) day period, Employee shall be afforded an opportunity to discuss the basis for such termination with the full Board of Directors of the Company, and Employee shall, at his election exercised in writing prior to the expiration of such ten (10) day period, be entitled to a period of not less than thirty (30) days after the date of such discussion to attempt to remedy or cure the conduct alleged to constitute such grounds and the harm caused thereby if in the good faith judgment of the Board of Directors such conduct and harm is capable of being remedied or cured within such thirty
(30) day period. If, after the expiration of such cure period, the Employee has not in the good faith judgement of the Board of Directors remedied or cured the conduct alleged to constitute such grounds and the harm caused thereby, the termination shall be effective upon notice to Employee of such adverse Board judgment.

(c) In the event of early termination of Employee's employment hereunder, for any reason, Employee shall, simultaneously with such termination, be conclusively deemed to have resigned any other position he might hold with the Company. Employee agrees to execute any and all documents reasonably requested of him by Company's Board of Directors to evidence such resignation(s).


8. Compensation Upon Termination.

In the event that the Employee's employment and this Agreement is terminated by Company prior to the end of its term, Company shall pay to Employee, as severance compensation, in circumstances other than by Employee's death or disability, or other than as a result of change in control of the Company, an amount equal to two months' salary. This amount shall be in addition to all compensation earned or accrued by Employee through the last day of actual employment. In the event that Employee's employment is terminated by the Company as a result of change in control of the Company, the Company shall pay to Employee, as severance compensation, an amount equal to two times (i) Employee's base annual salary and (ii) Employee's maximum potential annual bonus compensation. After the payment of such severance compensation, Company shall have no further obligation or liability to Employee hereunder.

9. Key Man Insurance. Company shall the right to obtain, at its sole discretion, what is commonly known as Key Man Insurance on the life of the Employee in such amount as the Company deems appropriate. Executive agrees to cooperate in all respects in the obtaining of such a policy. All expenses involved in connection with the obtaining and maintaining of such a policy shall be paid by the Company.

10. Company Property; Noncompetition

(a) All research, experiments, discoveries, inventions, improvements, materials or information, including without limitation, reports, analysis, handbooks, manuals, invoices, price lists or information, customer lists, information about costs, profits, markets, sales, pricing, methods and other business affairs including future expansion plans, or any other materials or data of any kind furnished to Employee by Company or developed by Employee on behalf of Company or at Company's direction or for Company's use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company, and Employee shall immediately deliver the same to Company at the termination of Employee's employment or at any other time if so requested by Company.

(b) During the term of this Agreement and at all times thereafter, Employee shall not use for his/her personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm association, or company other than the Company, any material referred to in subparagraph (a) above or any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or any other confidential information relating to or dealing with the business operations or activities of the Company.

(c) During the term of this Agreement and for a period of two (2) years after termination of his/her employment with Company for any reason whatsoever, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate his employment with Company.


(d) During the period of time which Employee is employed by Company pursuant to the terms of this Agreement and for a period of two (2) years thereafter, without the prior written consent of Company, Employee shall not, directly or indirectly, within a State wherein Company then does business, own, manage, operate, join, control, finance, or participate in the ownership, management, operation, control, or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant, or otherwise, with any enterprise, business, firm or corporation which is in direct competition with the Company. If Employee violates the provisions of this Paragraph 10(d), the restrictive period set forth herein shall be extended by a period of time equal to the number of days, if any, during which the Employee is in violation of the provisions hereof.

(e) Employee hereby acknowledges and agrees that the covenants and restrictions contained in this Paragraph 10 relate to matters which are of a special, unique, and extraordinary importance to Company. Employee acknowledges that the restrictions contained in the foregoing subparagraphs are reasonable and necessary in order to protect the legitimate interests of Company and that without such restrictions, Company would be unwilling to enter into this Agreement. Employee acknowledges that any violation of any of the terms hereof will result in irreparable injury to Company for which money damages alone will be insufficient. Accordingly, Employee agrees that Company shall be entitled to obtain from any Court of competent jurisdiction, preliminary and permanent injunctive relief for a violation or threatened violation of any such restrictions without having to prove actual damages or to post a bond. Company shall also be entitled to an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Company may be entitled in law or equity. Employee hereby waives any objections on the grounds of improper jurisdiction or venue to the commencement of an action in the state of New Jersey and agrees that effective service of process may be made upon him/her by mail under the notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT THE TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND HEREBY.

(f) It is the intent of the parties that the provisions of this Paragraph 10 be enforceable to the fullest extent permitted by law. If, however, any portion of any section of this Agreement including the restrictive covenant as set forth herein is held by a court of law to be unreasonable in any proceeding, then the period of time, the geographic area, or such other restrictions shall be reduced by the elimination or reduction of such portion thereof, so that such restrictions may be enforced in a manner that is adjudged to be reasonable.

11) Miscellaneous

(a) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the State of New Jersey.


(b) Indulgences, etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any waiver of any right, remedy, power or privilege, for a particular occurrence, constitute a waiver with respect to any other occurrence.

(c) Binding Nature. This Agreement shall be binding upon and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, his heirs and legal representatives.

(d) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. This Agreement may not be modified or amended other than by an agreement in writing, signed by the parties.

(e) Assignment. This Agreement may be assigned by Company upon thirty (30) days written notice to Employee. Employee may not assign his duties, obligations or entitlements hereunder.

(f) Right To Independent Counsel. The parties hereto recognize that this Agreement is a legal document which may affect them adversely. Consequently, the parties acknowledge that prior to executing this Agreement they were given the opportunity to seek the advice of independent legal counsel regarding the provisions of this Agreement and their legal involvement herein. By executing this Agreement, the parties acknowledge that they have reviewed this Agreement with independent counsel or have waived their opportunity to do so.

(g) Expenses of Agreement. Each of the parties hereto shall bear its own expenses incurred in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated hereby.

(h) Notices. Any notice required to be given pursuant to the terms of this Agreement shall be in writing and sent by registered mail or nationally recognized carrier, to the parties at the following addresses:

To the Employer at:

Integrated Physician Systems, Inc.
2644 Bristol Road
Warrington, PA 18976

To the Employee at:


Dennis B. Liotta, M.D.
33 High Ridge Road
Wayside, NJ 07712

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

INTEGRATED PHYSICIAN SYSTEMS, INC.

Attest:/S/ Joseph F. Murray                 By: /S/ Scott G. Pollock
       ______________________              __________________________




                                       EMPLOYEE:


Witness:/S/ Manuela E. Jackson         /S/ Dennis B. Liotta, M.D.
        ______________________         ______________________________
                                       Dennis B. Liotta, M.D.


EMPLOYMENT AGREEMENT BETWEEN INTEGRATED PHYSICIAN SYSTEMS
INC. AND DENNIS B. LIOTTA, M.D.

EXHIBIT "A"

DUTIES-(Pursuant to Paragraph 2)-Employee shall occupy the office of Executive Vice President. Employee shall serve as the Chief Operating Officer of the Company, and, as such, shall be responsible for the day to day operations of the Company. Employee shall also serve as President of Professional Medical Images, LTD., a subsidiary of the Company involved in IPA development and management services. Employee shall report to and follow the directions of the President of the Company. Employee shall serve as one of management's representatives on the Board of Directors of the Company. Employee shall be indemnified and held harmless by the Company for all acts of Employee as an officer or director of the Company in accordance with (i) the provisions set forth in the amended articles of incorporation of the Company, (ii) the provisions set forth in the by-laws of the Company, and
(iii) the provisions of the directors and officers liability insurance policy to be maintained by the Company. Company shall provide Employee with copies of the articles of incorporation, the by-laws, and the insurance policy.

TERM-(Pursuant to Paragraph 3)-This Agreement shall be for a term of three (3) years from August 1, 1997.

COMPENSATION-(Pursuant to Paragraph 4)-

Salary-For all of his services to be rendered hereunder, including his service on the Board of Directors and any committees thereof, Executive Employee shall be paid an annual salary of Two Hundred Thousand Dollars ($200,000) commencing with the closing of the Company's initial public offering. From April 1, 1997 until the closing of the Company's initial public offering, Employee's annual compensation will be One Hundred Fifty Thousand Dollars ($150,000). Employee's compensation for the second and third years of employment shall be the initial annual compensation, increased by a factor equal to the prior year's inflation.

Bonus-Employee shall be entitled to an annual bonus in an amount equal to either 10%, 20% or 30% of base compensation depending upon the achievement, by the Company, of certain financial and operational goals, the definition of which shall be provided to Employee by the Chief Executive Officer prior to the commencement of employment hereunder. Employee shall receive the most favorable bonus as shall have been paid to any other executive officer of the Company. Bonus compensation hereunder shall be paid to Employee within ninety (90) days of the end of the period of measurement thereof.


Automobile Allowance-Employee shall be paid a monthly automobile allowance in the amount of Six Hundred ($600) Dollars which is intended to represent reimbursement to Employee of all costs incurred in the operation of his automobile on Company business. The amount set forth herein shall be the maximum amount allowed to Employee for any automobile expenses.

Health, Dental, Disability and Life Insurance-Employee shall receive, at no cost to Employee, full coverage for Employee and his dependents, in such health, dental, accident and long-term disability insurance programs as shall be in force in the Company from time to time, and shall receive any such other benefits as shall be received by other employees of the Company similarly situate. Employee shall receive from the Company, at no cost to Employee, life insurance on the life of the Employee in an amount equal to Employee's annual salary hereunder. Employee may, subject to the provisions of the group life insurance contract, purchase additional life insurance at Employee's sole cost and expense.

401(K)Plan-Employee shall be entitled to participate in any 401(K) plan adopted by the company. The amount of contribution thereto by Company, if any, shall be at Company's sole discretion.

Vacation-Employee shall be entitled to four (4) weeks paid vacation during each year of employment hereunder which may be accumulated up to a maximum of eight (8) weeks during any one calendar year.


EMPLOYMENT AGREEMENT

AGREEMENT made this 8th day of June, 1997, by and between INTEGRATED PHYSICIAN SYSTEMS, INC. a Delaware business Corporation, with a principal place of business at 615 Hope Road, Eatontown, New Jersey, (hereinafter referred to as "Company") and PETER R. HEISEN, M.D., an adult individual residing at 38 Timber Knoll Drive, Washington Crossing, PA 18977,
(hereinafter referred to as "Employee".)

WHEREAS, Company wishes to hire and employ Employee on the terms and conditions hereinafter set forth; and

WHEREAS, Employee wishes to accept such employment in return for the compensation set forth herein.

NOW, THEREFORE, in return for the mutual covenants and conditions set forth herein, and for other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do agree as follows:

1. Employment

Company hereby employs Employee and Employee hereby accepts employment by Company for the period and upon the terms and conditions contained in this Agreement.

2. Duties

(a) Employee shall serve Company generally in the capacity described on Exhibit A, attached hereto and incorporated herein by this reference, and shall have such authority and responsibilities as Company may reasonably determine from time to time. Employee shall perform any other duties reasonably required by Company.

(b) Throughout the term of this Agreement, Employee shall devote his entire business working time, energy, skill and best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business and interests of Company.

3. Term

Unless sooner terminated as herein provided, this Agreement shall be for the term set forth on Exhibit A attached hereto and incorporated herein by this reference.

4. Compensation

(a) For all of the services rendered by Employee to Company, Employee shall receive the compensation set forth on Exhibit A attached hereto, payable in reasonable periodic installments in accordance with Company's regular payroll practices in effect from time to time.


(b) Throughout the term of this Agreement and provided that Employee shall be deemed to be a full-time employee, Employee shall be provided the health, dental, life and disability insurance benefits set forth in paragraph 4 of Exhibit "A" attached hereto, and shall be entitled to participate in the Company's 401K plan as described in paragraph 5 of Exhibit "A."

(c) Employee shall be entitled to the paid vacation set forth on Exhibit A attached hereto.

(d) During Employee's employment hereunder, Company shall reimburse Employee for all ordinary and necessary business expenses incurred by him in connection with the business of Company. Such payments shall be made by Company upon submission by Employee of vouchers itemizing such expenses in a form reasonably satisfactory to Company.

5. Disability

If Employee becomes unable to perform his/her duties hereunder due to partial or total disability or incapacity resulting from a mental or physical illness or any similar cause, and such disability continues for a period in excess of sixty (60) consecutive days in any one hundred and eighty
(180) day period, Company shall have the right to terminate this Agreement upon thirty (30) days written notice to Employee. In the event of such disability, Company shall pay Employee his then current compensation, including any and all accrued salary, bonus compensation and vacation pay, through the date of the commencement of Employee's entitlements under Company's long-term disability insurance policy. Thereafter, Company shall have no further obligations or liabilities to Employee hereunder.

6. Death

If Employee dies, this Agreement shall automatically terminate and all payments hereunder shall cease at the end of the month in which Employee's death shall occur and Company shall have no further obligations or liabilities hereunder to Employee's estate or legal representative or otherwise, other than the payment of any and all accrued bonus compensation and accrued vacation pay.

7. Discharge for Cause

(a) Notwithstanding the stated term of employment, this Agreement and the Employee's employment may be sooner terminated by the Company for any of the following reasons:

(i) The willful failure or refusal of Employee to perform his duties as may, from time to time, be delegated to him by the Company, through the Chief Executive Officer, or the Board of Directors.

(ii) Employee's gross negligence which materially and adversely affects the business or affairs of the Company.


(iii) Any act by Employee of fraud, dishonesty or criminal wrongdoing, which materially adversely effects the Company.

(iv) Any intentional or willful breach by Employee of any material covenant of this Agreement including but not limited to the provisions regarding noncompetition and confidentiality.

All of the foregoing shall be, separately and collectively, known as "cause" for termination.

(b) The Company shall effect termination pursuant to this Section 7 by written notice to Employee specifying in reasonable detail the circumstances alleged by Company to constitute "cause" and the specific provisions of this
Section 7 relied upon in effecting such termination. The date of such termination shall be the date ten (10) days after Company gives such notice of termination to Employee. If the grounds for termination are solely the grounds set forth in Section 7(a)(ii) or (iv) above, then during such ten
(10) day period, Employee shall be afforded an opportunity to discuss the basis for such termination with the full Board of Directors of the Company, and Employee shall, at his election exercised in writing prior to the expiration of such ten (10) day period, be entitled to a period of not less than thirty (30) days after the date of such discussion to attempt to remedy or cure the conduct alleged to constitute such grounds and the harm caused thereby if in the good faith judgment of the Board of Directors such conduct and harm is capable of being remedied or cured within such thirty (30) day period. If, after the expiration of such cure period, the Employee has not in the good faith judgment of the Board of Directors remedied or cured the conduct alleged to constitute such grounds and the harm caused thereby, the termination shall be effective upon notice to Employee of such adverse Board judgment.

(c) In the event of early termination of Employee's employment hereunder, for any reason, Employee shall, simultaneously with such termination, be conclusively deemed to have resigned any other position he might hold with the Company. Employee agrees to execute any and all documents reasonably requested of him by Company's Board of Directors to evidence such resignations(s).

8. Termination of Agreement by Employee for Cause.

(a) Employee may terminate this Agreement by written notice to Company on or before the thirtieth (30th) day after the earlier of notice of or the occurrence of the following events: (i) the giving of a title to Employee below the level of Chief Medical Officer of the Company; (ii) the assignment to Employee of any duties or a change in Employee status materially inconsistent with those set forth herein, including the removal of Employee from the Board of Directors of the Company; (iii) the Company's willful breach of any material covenant of this Agreement which breach continues ten
(10) days after written notice to Company from Employee specifying the nature of the breach and the remedy expected; or (iv) the relocation of the offices at which Employee is based to a location outside of the Philadelphia or New York metropolitan area.


(b) If Employee terminates his employment with Company for any reason specified in paragraph (a) above, in addition to any other remedies to which Employee may be lawfully entitled, Employee shall be entitled to receive severance pay as follows: (i) his then base salary paid monthly for the remainder of the Term, but in no event less than one hundred and twenty-five (125%) of such base salary for six (6) months, and (ii) the maximum possible bonus compensation in accordance with the terms of Exhibit "A" attached hereto. Furthermore, within ten (10) business days after such termination, Company shall pay to Employee a per diem amount based upon such base salary for any accrued vacation days not previously taken by Employee.

9. Compensation Upon Termination.

In the event that the Employee's employment and this Agreement is terminated by Company prior to the end of its term, for cause as is set forth in paragraph 7 hereof, Company shall pay to Employee, as severance compensation, in circumstances other than by Employee's death or disability, or other than as a result of change in control of the Company, an amount equal to two months' salary. This amount shall be in addition to all compensation earned or accrued by Employee through the last day of actual employment. In the event that Employee's employment is terminated by the Company as a result of change in control of the Company, the Company shall pay to Employee, as severance compensation, an amount equal to two times (i) Employee's base annual salary and (ii) Employee's maximum potential annual bonus compensation. After the payment of such severance compensation, Company shall have no further obligation or liability to Employee hereunder.

10. Key Man Insurance. Company shall have the right to obtain, at its sole discretion, what is commonly known as Key Man Insurance on the life of the Employee in such amount as the Company deems appropriate. Executive agrees to cooperate in all respects in the obtaining of such a policy. All expenses involved in connection with the obtaining and maintaining of such a policy shall be paid by the Company.

11. Company Property; Noncompetition.

(a) All research, experiments, discoveries, inventions, improvements, materials or information, including without limitation, reports, analysis, handbooks, manuals, invoices, price lists or information, customer lists, information about costs, profits, markets, sales, pricing, methods and other business affairs including future expansion plans, or any other materials or data of any kind furnished to Employee by Company or developed by Employee on behalf of Company or at Company's direction or for Company's use or otherwise in connection with Employee's employment hereunder, are and shall remain the sole and confidential property of Company, and Employee shall immediately deliver the same to Company at the termination of Employee's employment or at any other time if so requested by Company.

(b) During the term of this Agreement and at all times thereafter, Employee shall not use for his/her personal benefit, or disclose, communicate or divulge to, or use for the direct or indirect benefit of any person, firm association, or company other than the Company, any


material referred to in subparagraph (a) above or any information regarding the business methods, business policies, procedures, techniques, research or development projects or results, trade secrets, or any other confidential information relating to or dealing with the business operations or activities of the Company.

(c) During the term of this Agreement and for a period of two (2) years after termination of his/her employment with Company for any reason whatsoever, Employee shall not directly or indirectly induce or attempt to influence any employee of Company to terminate his employment with Company.

(d) During the period of time which Employee is employed by Company pursuant to the terms of this Agreement and for a period of two (2) years thereafter, without the prior written consent of Company, Employee shall not, directly or indirectly, within a State wherein Company then does business, own, manage, operate, join, control, finance, or participate in the ownership, management, operation, control, or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or otherwise, with any enterprise, business, firm or corporation which is in competition with the Company, other than providing consulting services to William M. Mercer, Inc. or a similar consulting firm. If Employee violates the provisions of this Paragraph 11(d), the restrictive period set forth herein shall be extended by a period of time equal to the number of days, if any, during which the Employee is in violation of the provisions hereof.

(e) Employee hereby acknowledges and agrees that the covenants and restrictions contained in this Paragraph 11 relate to matters which are of a special, unique, and extraordinary importance to Company. Employee acknowledges that the restrictions contained in the foregoing subparagraphs are reasonable and necessary in order to protect the legitimate interests of Company and that without such restrictions, Company would be unwilling to enter into this Agreement. Employee acknowledges that any violation of any of the terms hereof will result in irreparable injury to Company for which money damages alone will be insufficient. Accordingly, Employee agrees that Company shall be entitled to obtain from any Court of competent jurisdiction, preliminary and permanent injunctive relief for a violation or threatened violation of any such restrictions without having to prove actual damages or to post a bond. Company shall also be entitled to an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which Company may be entitled in law or equity. Employee hereby waives any objections on the grounds of improper jurisdiction or venue to the commencement of an action in the state of New Jersey and agrees that effective service of process may be made upon him/her by mail under the notice provisions contained in this Agreement. EMPLOYEE ACKNOWLEDGES THAT THE TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. EMPLOYEE REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND HEREBY.


(f) It is the intent of the parties that the provisions of this Paragraph 11 be enforceable to the fullest extent permitted by law. If, however, any portion of any section of this Agreement including the restrictive covenant as set forth herein is held by a court of law to be unreasonable in any proceeding, then the period of time, the geographic area, or such other restrictions shall be reduced by the elimination or reduction of such portion thereof, so that such restrictions may be enforced in a manner that is adjudged to be reasonable.

12) Miscellaneous

(a) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance and enforcement, shall be governed by and construed in accordance with the laws of the State of New Jersey.

(b) Indulgences, etc. Neither the failure nor any delay on the part of either party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege, for a particular occurrence, constitute a waiver with respect to any other occurrence.

(c) Binding Nature. This Agreement shall be binding upon and inure to the benefit of Company and its successors and assigns and shall be binding upon Employee, his heirs and legal representatives.

(d) Entire Agreement. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. This Agreement may not be modified or amended other than by an agreement in writing, signed by the parties.

(e) Assignment. This Agreement may be assigned by Company upon thirty (30) days written notice to Employee. Employee may not assign his duties, obligations or entitlements hereunder.

(f) Right to Independent Counsel. The parties hereto recognize that this Agreement is a legal document which may affect them adversely. Consequently, the parties acknowledge that prior to executing this Agreement they were given the opportunity to seek the advice of independent legal counsel regarding the provisions of this Agreement and their legal involvement herein. By executing this Agreement, the parties acknowledge that they have reviewed this Agreement with independent counsel or have waived their opportunity to do so.

(g) Expenses of Agreement. Each of the parties hereto shall bear its own expenses incurred in connection with the negotiation, preparation and execution of this Agreement and the consummation of the transactions contemplated hereby.


(h) Notices. Any notice required to be given pursuant to the terms of this Agreement shall be in writing and sent by registered mail or nationally recognized carrier, to the parties at the following addresses:

To Company at:

Integrated Physician Systems, Inc.

615 Hope Road
Eatontown, NJ

To Employee at:

38 Timber Knoll Drive,
Washington Crossing, PA 18977

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

INTEGRATED PHYSICIAN SYSTEMS, INC.

Attest: /s/ Walter B. Dunsmore         By: /s/ Scott G. Pollock
        ----------------------             -------------------------
                                           Chief Executive Officer

EMPLOYEE:

Witness:/s/ Walter B. Dunsmore         By: /s/ PETER R. HEISEN, M.D.
        ----------------------             -------------------------
                                           PETER R. HEISEN, M.D.


3) AUTOMOBILE ALLOWANCE - Employee shall be paid a monthly automobile allowance in the amount of Six Hundred ($600) Dollars which is intended to represent reimbursement to Employee of all costs incurred in the operation of his automobile on Company business. The amount set forth herein shall be the maximum amount allowed to Employee for any automobile expenses.

4) HEALTH, DENTAL, DISABILITY AND LIFE INSURANCE - Employee shall receive, at no cost to Employee, full coverage for Employee and his dependents, in such health, dental, accident and long-term disability insurance as shall be in force in the Company from time to time. Employee shall receive from the Company, at no cost to Employee, life insurance on the life of Employee in an amount equal to twice the Employee's annual salary hereunder. Employee may, subject to the provisions of the group life insurance contract, purchase additional life insurance at Employee's sole cost and expense.

5) 401(K) PLAN/STOCK OPTION PLAN - Employee shall be entitled to participate in any 401(K) or employee stock option plan adopted by the Company. The amount of contribution thereto by Company, if any, shall be at Company's sole discretion.

6) VACATION - Employee shall be entitled to four (4) weeks paid vacation during each year of employment hereunder which may be accumulated up to a maximum of eight (8) weeks during any one calendar year.


Exhibit 10.2

DRAFT 040597A

INTEGRATED PHYSICIAN SYSTEMS, INC.

1996 STOCK OPTION PLAN

ADOPTED APRIL 24, 1996

I. PURPOSE.

The purpose of the Integrated Physician Systems, Inc. 1997 Stock Option Plan (the "Plan") is to provide a means whereby selected employees, officers, directors, and consultants of Integrated Physician Systems, Inc., a Delaware corporation (the "Company"), or of any parent or subsidiary (as defined in subsection 5.7 hereof and referred to hereinafter as "Affiliates") thereof, may be granted incentive stock options and/or nonqualified stock options to purchase shares of common stock, $.01 par value (the "Common Stock") in order to attract and retain the services or advice of such employees, officers, directors, and consultants and to provide additional incentive for such persons to exert maximum efforts for the success of the Company and its Affiliates by encouraging stock ownership in the Company.

II. ADMINISTRATION.

Subject to Section 2.3 hereof, the Plan shall be administered by the Board of Directors of the Company (the "Board") or, in the event the Board shall appoint and/or authorize a committee of two or more members of the Board to administer the Plan, by such committee. The administrator of the Plan shall hereinafter be referred to as the "Plan Administrator."

The foregoing notwithstanding, in the event the Company shall register any of its equity securities pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any directors are eligible to receive options under the Plan, then with respect to grants to be made to directors: (a) the Plan Administrator shall be constituted so as to meet the requirements of Section 16(b) of the Exchange Act and Rule 16b-3 thereunder, each as amended from time to time, or (b) if the Plan Administrator cannot be so constituted, no options shall be granted under the Plan to any directors.

SECTION 2.1 PROCEDURES. The Board shall designate one of the members of the Plan Administrator as chairman. The Plan Administrator may hold meetings at such times and places as it shall determine. The acts of a majority of the members of the Plan Administrator present at meetings at which a quorum exists, or acts approved in writing by all Plan Administrator members, shall be valid acts of the Plan Administrator.

SECTION 2.2 RESPONSIBILITIES. Except for the terms and conditions explicitly set forth herein, the Plan Administrator shall have the authority, in its discretion, to determine all matters relating to the options to be granted under the Plan, including, without limitation, selection of whether an option will be an incentive stock option or a nonqualified stock option, selection of the

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individuals to be granted options, the number of shares to be subject to each option, the exercise price per share, the timing of grants and all other terms and conditions of the options. Grants under the Plan need not be identical in any respect, even when made simultaneously. The Plan Administrator may also establish, amend, and revoke rules and regulations for the administration of the Plan. The interpretation and construction by the Plan Administrator of any terms or provisions of the Plan or any option issued hereunder, or of any rule or regulation promulgated in connection herewith, shall be conclusive and binding on all interested parties, so long as such interpretation and construction with respect to incentive stock options corresponds to the requirements of Internal Revenue Code of 1986, as amended (the "Code") Section 422, the regulations thereunder, and any amendments thereto. The Plan Administrator shall not be personally liable for any action made in good faith with respect to the Plan or any option granted thereunder.

2.3 RULE 16b-3 AND SECTION 16(b) COMPLIANCE; BIFURCATION OF PLAN. It is the intention of the Company that the Plan comply in all respects with Rule 16b-3 under the Exchange Act to the extent applicable, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. If any Plan provision is later found not to be in compliance with such Rule, such provision shall be deemed null and void. The Board of Directors may act under the Plan only if all members thereof are "disinterested persons" as defined in Rule 16b-3 and further described in Section 4 hereof; and from and after the date that the Company first registers a class of equity securities under Section 12 of the Exchange Act, no director or officer or other Company "insider" subject to Section 16 of the Exchange Act may sell shares received upon the exercise of an option during the six month period immediately following the grant of the option. Notwithstanding anything in the Plan to the contrary, the Board, in its absolute discretion, may bifurcate the Plan so as to restrict, limit, or condition the use of any provision of the Plan to participants who are officers and directors or other persons subject to Section 16(b) of the Exchange Act without so restricting, limiting, or conditioning the Plan with respect to other participants.

SECTION 3. STOCK SUBJECT TO THE PLAN. The stock subject to this Plan shall be the Common Stock, presently authorized but unissued or subsequently acquired by the Company. Subject to adjustment as provided in Section 7 hereof, the aggregate amount of Common Stock to be delivered upon the exercise of all options granted under the Plan shall not exceed in the aggregate 300,000 shares as such Common Stock was constituted on the effective date of the Plan. If any option granted under the Plan shall expire, be surrendered, exchanged for another option, canceled, or terminated for any reason without having been exercised in full, the unpurchased shares subject thereto shall thereupon again be available for purposes of the Plan, including for replacement options which may be granted in exchange for such surrendered, canceled, or terminated options.

SECTION 4. ELIGIBILITY. An incentive stock option may be granted only to any individual who, at the time the option is granted, is an employee of the Company or any Affiliate thereof. A nonqualified stock option may be granted to any employee, officer, director, or consultant of the Company or any Affiliate thereof, whether an individual or an entity. Any party to whom an option

2

is granted under the Plan shall be referred to hereinafter as an "Optionee."

A director shall in no event be eligible for the benefits of the Plan unless at the time discretion is exercised in the selection of a director as a person to whom options may be granted, or in the determination of the number of shares which may be covered by options granted to the director: (a) the Board of Directors has delegated its discretionary authority over the Plan to a committee consisting solely of "disinterested persons" (as defined below) or (b) the Plan otherwise complies with the requirements of Rule 16b-3 under the Exchange Act. For purposes of this paragraph, a "disinterested person" shall mean a director (i) who was not during the one year prior to service as Plan Administrator granted or awarded equity securities pursuant to the Plan or any other plan of the Company or its Affiliates entitling the participants therein to acquire equity securities of the Company or its Affiliates except as permitted by Rule 16b-3(c)(2)(i), or (ii) who is otherwise considered to be a "disinterested person" in accordance with such Rule 16b-3(c)(2)(i) or any other applicable rules, regulations, or interpretations of the Securities and Exchange Commission.

SECTION 5. TERMS AND CONDITIONS OF OPTIONS. Options granted under the Plan shall be evidenced by written agreements which shall contain such terms, conditions, limitations, and restrictions as the Plan Administrator shall deem advisable and which are not inconsistent with the Plan. Notwithstanding the foregoing, options shall include or incorporate by reference the following terms and conditions:

5.1 NUMBER OF SHARES AND PRICE. The maximum number of shares that may be purchased pursuant to the exercise of each option, and the price per share at which such option is exercisable (the "exercise price"), shall be as established by the Plan Administrator; provided, that the Plan Administrator shall act in good faith to establish the exercise price which shall be not less than 100% of the fair market value per share of the Common Stock at the time of grant of the option with respect to incentive stock options; and provided, further, that, with respect to incentive stock options granted to greater than ten percent stockholders, the exercise price shall be as required by Section 6 hereof.

5.2 TERM AND MATURITY. Subject to the restrictions contained in Section 6 hereof with respect to granting stock options to greater than ten percent stockholders, the term of each stock option shall be as established by the Plan Administrator and, if not so established, shall be ten years from the date of its grant, but in no event shall the term of any incentive stock option exceed a ten year period. To ensure that the Company or Affiliate will achieve the purpose and receive the benefits contemplated in the Plan, any option granted to any Optionee hereunder shall, unless the condition of this sentence is waived or modified in the agreement evidencing the option or by resolution adopted by the Plan Administrator, be exercisable according to the following schedule:

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  PERIOD OF OPTIONEE'S
 CONTINUOUS RELATIONSHIP
   WITH THE COMPANY OR
 AFFILIATE FROM THE DATE            PORTION OF TOTAL OPTION
  THE OPTION IS GRANTED               WHICH IS EXERCISABLE
-------------------------           ------------------------
         1 year                                25%
         2 years                               50%
         3 years                               75%
         4 years                              100%

5.3 EXERCISE. Subject to the vesting schedule described in subsection 5.2 hereof, each option may be exercised in whole or in part; provided, that only whole shares may be issued pursuant to the exercise of any option. Subject to any other terms and conditions herein, the Plan Administrator may provide that an option may not be exercised in whole or in part for a stated period or periods of time during which such option is outstanding; provided, that the Plan Administrator may rescind, modify, or waive any such limitation at any time and from time to time after the grant date thereof. During an Optionee's lifetime, any incentive stock options granted under the Plan are personal to such Optionee and are exercisable solely by such Optionee. Options shall be exercised by delivery to the Company of notice of the number of shares with respect to which the option is exercised, together with payment of the exercise price in accordance with Section 5.4 hereof.

5.4 PAYMENT OF EXERCISE PRICE. Payment of the option exercise price shall be made in full at the time the notice of exercise of the option is delivered to the Company and shall be in cash, bank certified or cashier's check, or personal check (unless at the time of exercise the Plan Administrator in a particular case determines not to accept a personal check) for shares of Common Stock being purchased.

The Plan Administrator can determine at the time the option is granted in the case of incentive stock options, or at any time before exercise in the case of nonqualified stock options, that additional forms of payment will be permitted. To the extent permitted by the Plan Administrator and applicable laws and regulations (including, without limitation, federal tax and securities laws and regulations and state corporate law), an option may be exercised by:

(a) delivery of shares of Common Stock of the Company held by an Optionee having a fair market value equal to the exercise price, such fair market value to be determined in good faith by the Plan Administrator;

(b) delivery of a properly executed Notice of Exercise, together with irrevocable instructions to a broker, all in accordance with the regulations of the Federal Reserve Board, to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price and

4

any federal, state, or local withholding tax obligations that may arise in connection with the exercise;

(c) delivery of a properly executed Notice of Exercise, together with instructions to the Company to withhold from the shares of Common Stock that would otherwise be issued upon exercise that number of shares of Common Stock having a fair market value equal to the option exercise price.

5.5 WITHHOLDING TAX REQUIREMENT. The Company or any Affiliate thereof shall have the right to retain and withhold from any payment of cash or Common Stock under the Plan the amount of taxes required by any government to be withheld or otherwise deducted and paid with respect to such payment. No option may be exercised unless and until arrangements satisfactory to the Company, in its sole discretion, to pay such withholding taxes are made. At its discretion, the Company may require an Optionee to reimburse the Company for any such taxes required to be withheld by the Company and withhold any distribution in whole or in part until the Company is so reimbursed. In lieu thereof, the Company shall have the right to withhold from any other cash amounts due or to become due from the Company to the Optionee an amount equal to such taxes or retain and withhold a number of shares having a market value not less than the amount of such taxes required to be withheld by the Company to reimburse the Company for any such taxes and cancel (in whole or in part) any such shares of Common Stock so withheld. If required by Section 16(b) of the Exchange Act, the election to pay withholding taxes by delivery of shares of Common Stock held by any person who at the time of exercise is subject to
Section 16(b) of the Exchange Act shall be made either six months prior to the date the option exercise becomes taxable or at such other times as the Company may determine as necessary to comply with Section 16(b) of the Exchange Act. Although the Company may, in its discretion, accept Common Stock as payment of withholding taxes, the Company shall not be obligated to do so.

5.6 NONTRANSFERABILITY.

5.6.1 OPTION. Options granted under the Plan and the rights and privileges conferred hereby may not be transferred, assigned, pledged, or hypothecated in any manner (whether by operation of law or otherwise) other than by will or by the applicable laws of descent and distribution or pursuant to a qualified domestic relations order as defined in Section 414(p) of the Code, or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder, and shall not be subject to execution, attachment, or similar process. Any attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of any option under the Plan or of any right or privilege conferred hereby, contrary to the Code or to the provisions of the Plan, or the sale or levy or any attachment or similar process upon the rights and privileges conferred hereby shall be null and void ab initio. The designation by an Optionee of a beneficiary does not, in and of itself, constitute an impermissible transfer under this subsection 5.6.1.

5.6.2 STOCK. The Plan Administrator may provide in the agreement granting the option that (a) the Optionee may not transfer or otherwise dispose of shares acquired upon

5

exercise of an option without first offering such shares to the Company for purchase on the same terms and conditions as those offered to the proposed transferee or (b) upon termination of employment of an Optionee the Company shall have a six month right of repurchase as to the shares acquired upon exercise, which right of repurchase shall allow for a maximum purchase price equal to the fair market value of the shares on the termination date. The foregoing rights of the Company shall be assignable by the Company upon reasonable written notice to the Optionee.

5.7 TERMINATION OF RELATIONSHIP. If the Optionee's relationship with the Company or any Affiliate thereof ceases for any reason other than termination for cause, death, or total disability, and unless by its terms the option sooner terminates or expires, then the Optionee may exercise, for a three month period, that portion of the Optionee's option which is exercisable at the time of such cessation, but the Optionee's option shall terminate at the end of the three month period following such cessation as to all shares for which it has not theretofore been exercised, unless, in the case of a nonqualified stock option, such provision is waived in the agreement evidencing the option or by resolution adopted by the Plan Administrator within 90 days of such cessation. If, in the case of an incentive stock option, an Optionee's relationship with the Company or Affiliate thereof changes from employee to nonemployee (i.e., from employee to a position such as a consultant), such change shall constitute a termination of an Optionee's employment with the Company or Affiliate and the Optionee's incentive stock option shall terminate in accordance with this subsection 5.7.

If an Optionee is terminated for cause, any option granted hereunder shall automatically terminate as of the first discovery by the Company of any reason for termination for cause, and such Optionee shall thereupon have no right to purchase any shares pursuant to such option. "Termination for cause" shall mean dismissal for dishonesty, conviction or confession of a crime punishable by law (except minor violations), fraud, misconduct, or disclosure of confidential information. If an Optionee's relationship with the Company or any Affiliate thereof is suspended pending an investigation of whether or not the Optionee shall be terminated for cause, all Optionee's rights under any option granted hereunder likewise shall be suspended during the period of investigation.

If an Optionee's relationship with the Company or any Affiliate thereof ceases because of a total disability, the Optionee's option shall not terminate or, in the case of an incentive stock option, cease to be treated as an incentive stock option until the end of the 12 month period following such cessation (unless by its terms it sooner terminates and expires). As used in the Plan, the term "total disability" refers to a mental or physical impairment of the Optionee which is expected to result in death or which has lasted or is, in the opinion of the Company and two independent physicians, expected to last for a continuous period of 12 months or more and which causes or is, in such opinion, expected to cause the Optionee to be unable to perform his or her duties for the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Plan Administrator.

6

For purposes of this subsection 5.7, a transfer of relationship between or among the Company and/or any Affiliate thereof shall not be deemed to constitute a cessation of relationship with the Company or any of its Affiliates. For purposes of this subsection 5.7, with respect to incentive stock options, employment shall be deemed to continue while the Optionee is on military leave, sick leave, or other bona fide leave of absence (as determined by the Plan Administrator). The foregoing notwithstanding, employment shall not be deemed to continue beyond the first 90 days of such leave, unless the Optionee's reemployment rights are guaranteed by statute or by contract.

As used herein, the term "Affiliate" shall be defined as follows: (a) when referring to a subsidiary corporation, "Affiliate" shall mean any corporation (other than the Company), at the time of the granting of the option, in an unbroken chain of corporations ending with the Company, if stock possessing 50% or more of the total combined voting power of all classes of stock of each of the corporations other than the Company is owned by one of the other corporations in such chain; and (b) when referring to a parent corporation, "Affiliate" shall mean any corporation in an unbroken chain of corporations ending with the Company if, at the time of the granting of the option, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

5.8 DEATH OF OPTIONEE. If an Optionee dies while he or she has a relationship with the Company or any Affiliate thereof or within the three month period (or 12 month period in the case of totally disabled Optionees) following cessation of such relationship, any option held by such Optionee, to the extent that the Optionee would have been entitled to exercise such option, may be exercised within one year after his or her death by the personal representative of his or her estate or by the person or persons to whom the Optionee's rights under the option shall pass by will or by the applicable laws of descent and distribution.

5.9 STATUS OF STOCKHOLDER. Neither the Optionee nor any party to which the Optionee's rights and privileges under the option may pass shall be, or have any of the rights or privileges of, a stockholder of the Company with respect to any of the shares issuable upon the exercise of any option granted under the Plan unless and until such option has been exercised.

5.10 CONTINUATION OF EMPLOYMENT. Nothing in the Plan or in any option granted pursuant to the Plan shall confer upon any Optionee any right to continue in the employ of the Company or of an Affiliate thereof, or to continue to be engaged as a consultant to the Company or such Affiliate, or to interfere in any way with the right of the Company or of any such Affiliate to terminate his or her employment or other relationship with the Company at any time.

5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the requirements of
Section 422 of the Code with respect to incentive stock options and to the terms and conditions and within the limitations of the Plan, including, without limitation, Section 9.1 hereof, the Plan Administrator may modify or amend outstanding options granted under the Plan. The modification

7

or amendment of an outstanding option shall not, without the consent of the Optionee, impair or diminish any of his or her rights or any of the obligations of the Company under such option. Except as otherwise provided herein, no outstanding option shall be terminated without the consent of the Optionee. Unless the Optionee agrees otherwise, any changes or adjustments made to outstanding incentive stock options granted under the Plan shall be made in such a manner so as not to constitute a "modification" as defined in
Section 424(h) of the Code and so as not to cause any incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Section 422(b) of the Code.

5.12 LIMITATION ON VALUE FOR INCENTIVE STOCK OPTIONS. As to all incentive stock options granted under the terms of the Plan, to the extent that the aggregate fair market value (determined at the time of the grant of the incentive stock option) of the shares of Common Stock with respect to which incentive stock options are exercisable for the first time by the Optionee during any calendar year (under the Plan and all other incentive stock option plans of the Company, an Affiliate thereof or a predecessor corporation) exceeds $100,000, such options shall be treated as nonqualified stock options. The foregoing sentence shall not apply, and the limitation shall be that provided by the Code or the Internal Revenue Service, as the case may be, if such annual limit is changed or eliminated by (a) amendment of the Code or (b) issuance by the Internal Revenue Service of (i) a Revenue ruling, (ii) a Private Letter ruling to any of the Company, any Optionee, or any legatee, personal representative, or distributee of any Optionee, or
(iii) regulations.

5.13 VALUATION OF COMMON STOCK RECEIVED UPON EXERCISE.

5.13.1 EXERCISE OF OPTIONS UNDER SECTIONS 5.4(a) AND (c). The value of Common Stock received by the Optionee from an exercise under Sections 5.4(a) and 5.4(c) hereof shall be the fair market value as determined by the Plan Administrator, provided, that if the Common Stock is traded in a public market, such valuation shall be the average of the high and low trading prices or bid and asked prices, as applicable, of the Common Stock for the date of receipt by the Company of the Optionee's delivery of shares under
Section 5.4(a) hereof or delivery of the Notice of Exercise under Section 5.4(c) hereof, determined as of the trading day immediately preceding such date (or, if no sale of shares is reported for such trading day, on the next preceding day on which any sale shall have been reported).

5.13.2 EXERCISE OF OPTION UNDER SECTION 5.4(b). The value of Common Stock received by the Optionee from an exercise under Section 5.4(b) hereof shall equal the sales price received for such shares.

SECTION 6. GREATER THAN TEN PERCENT STOCKHOLDERS.

6.1 EXERCISE PRICE AND TERM OF INCENTIVE STOCK OPTIONS. If incentive stock options are granted under the Plan to employees who, at the time of such grant, own greater than ten percent of the total combined voting power of all classes of stock of the Company or any Affiliate thereof, the term of such incentive stock options shall not exceed five years and the

8

exercise price shall be not less than 110% of the fair market value of the Common Stock at the time of grant of the incentive stock option. This provision shall control notwithstanding any contrary terms contained in an option agreement or any other document. The term and exercise price limitations of this provision shall be amended to conform to any change required by a change in the Code or by ruling or pronouncement of the Internal Revenue Service.

6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining stock ownership, an employee shall be deemed to own the stock owned, directly or indirectly, by or for his or her brothers, sisters, spouse, ancestors, and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership estate, or trust shall be deemed to be owned proportionately by or for its stockholders, partners, or beneficiaries. If an employee or a person related to the employee owns an unexercised option or warrant to purchase stock of the Company, the stock subject to that portion of the option or warrant which is unexercised shall not be counted in determining stock ownership. For purposes of this Section 6, stock owned by an employee shall include all stock owned by him or her which is actually issued and outstanding immediately before the grant of the incentive stock option to the employee.

SECTION 7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number and class of shares for which options may be granted under the Plan, the number and class of shares covered by each outstanding option, and the exercise price per share thereof (but not the total price), and each such option, shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Company resulting from a split or consolidation of shares or any like capital adjustment, or the payment of any stock dividend.

7.1. EFFECT OF LIQUIDATION, REORGANIZATION, OR CHANGE IN CONTROL.

7.1.1 CASH, STOCK, OR OTHER PROPERTY FOR STOCK. Except as provided in subsection 7.1.2 hereof, upon a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of common stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, reorganization (other than mere reincorporation or creation of a holding company), or liquidation of the Company (each, an "event"), as a result of which the stockholders of the Company receive cash, stock, or other property in exchange for, or in connection with, their shares of Common Stock, any option granted hereunder shall terminate, but the time during which such options may be exercised shall be accelerated as follows:
the Optionee shall have the right immediately prior to any such event to exercise such Optionee's option in whole or in part whether or not the vesting requirements set forth in the option agreement have been satisfied.

7.1.2 CONVERSION OF OPTIONS ON STOCK FOR EXCHANGE STOCK. If the stockholders of the Company receive capital stock of another corporation ("Exchange Stock") in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger

9

have the same proportionate ownership of common stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation, or reorganization (other than mere reincorporation or creation of a holding company), all options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Company and corporation issuing the Exchange Stock, in their sole discretion, determine that any or all such options granted hereunder shall not be converted into options to purchase shares of Exchange Stock but instead shall terminate in accordance with the provisions of subsection 7.1.1 hereof. The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition, separation, or reorganization. Unless the Board determines otherwise, the converted options shall be fully vested whether or not the vesting requirements set forth in the option agreement have been satisfied.

7.2 FRACTIONAL SHARES. In the event of any adjustment in the number of shares covered by an option, any fractional shares resulting from such adjustment shall be disregarded and each such option shall cover only the number of full shares resulting from such adjustment.

7.3 DETERMINATION OF BOARD TO BE FINAL. Except as otherwise required for the Plan to qualify for the exemption afforded by Rule 16b-3 under the Exchange Act, all adjustments under this Section 7 shall be made by the Board, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding, and conclusive. Unless an Optionee agrees otherwise, any change or adjustment to an incentive stock option shall be made in such a manner so as not to constitute a "modification" as defined in Section 425(h) of the Code and so as not to cause the incentive stock option issued hereunder to fail to continue to qualify as an incentive stock option as defined in Section 422(b) of the Code.

SECTION 8. SECURITIES LAW COMPLIANCE. Shares shall not be issued with respect to an option granted under the Plan unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, any applicable state securities laws, the Securities Act of 1933, as amended (the "Act"), the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance, including, without limitation, the availability of an exemption from registration for the issuance and sale of any shares hereunder. Inability of the Company to obtain from any regulatory body having jurisdiction, the authority deemed by the Company's counsel to be necessary for the lawful issuance and sale of any shares hereunder or the unavailability of an exemption from registration for the issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares as to which such requisite authority shall not have been obtained.

As a condition to the exercise of an option, if, in the opinion of counsel for the Company, assurances are required by any relevant provision of the aforementioned laws, the Company may

10

require the Optionee to give written assurances satisfactory to the Company at the time of any such exercise (a) as to the Optionee's knowledge and experience in financial and business matters (and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters) and that such Optionee is capable of evaluating, either alone or with the purchaser representative, the merits and risks of exercising the option or (b) that the shares are being purchased only for investment and without any present intention to sell or distribute such shares. The foregoing requirements shall be inoperative if the issuance of the shares upon the exercise of the option has been registered under a then currently effective registration statement under the Act.

At the option of the Company, a stop-transfer order against any shares may be placed on the official stock books and records of the Company, and a legend indicating that the stock may not be pledged, sold, or otherwise transferred unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates in order to assure exemption from registration. The Plan Administrator may also require such other action or agreement by the Optionees as may from time to time be necessary to comply with the federal and state securities laws. NONE OF THE ABOVE SHALL BE CONSTRUED TO IMPLY AN OBLIGATION ON THE PART OF THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.

Should any of the Company's capital stock of the same class as the stock subject to options granted hereunder be listed on a national securities exchange or on the NASDAQ National Market, all stock issued hereunder if not previously listed on such exchange or market shall, if required by the rules of such exchange or market, be authorized by that exchange or market for listing thereon prior to the issuance thereof.

SECTION 9. USE OF PROCEEDS. The proceeds received by the Company from the sale of shares pursuant to the exercise of options granted hereunder shall constitute general funds of the Company.

SECTION 10. AMENDMENT AND TERMINATION.

10.1 BOARD ACTION. The Board may at any time suspend, amend, or terminate the Plan, provided, that no amendment shall be made without stockholder approval within 12 months before or after adoption of the Plan if such approval is necessary to comply with any applicable tax or regulatory requirement, including any such approval as may be necessary to satisfy the requirements for exemptive relief under Rule 16b-3 of the Exchange Act or any successor provision. Rights and obligations under any option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless the Company requests the consent of the person to whom the option was granted and such person consents in writing thereto.

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10.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board, the Plan shall terminate ten years from the earlier of (a) the date on which the Plan is adopted by the Board or (b) the date on which the Plan is approved by the stockholders of the Company. No option may be granted after such termination or during any suspension of the Plan. The amendment or termination of the Plan shall not, without the consent of the option holder, alter or impair any rights or obligations under any option theretofore granted under the Plan.

SECTION 11. EFFECTIVENESS OF THE PLAN. The Plan shall become effective upon adoption by the Board so long as it is approved by the holders of a majority of the Company's outstanding shares of voting capital stock at any time within 12 months before or after the adoption of the Plan by the Board.

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INTEGRATED PHYSICIAN SYSTEMS, INC.

[INCENTIVE][NONQUALIFIED] STOCK OPTION LETTER AGREEMENT

TO:____________________________

We are pleased to inform you that you have been selected by the Plan Administrator of the Integrated Physician Systems, Inc. (the "Company") 1997 Stock Option Plan (the "Plan") to receive a(n) [incentive][nonqualified] option for the purchase of _____ shares of the Company's common stock, $.001 par value, at an exercise price of $________ per share (the "exercise price"). A copy of the Plan is attached and the provisions thereof, including, without limitation, those relating to withholding taxes, are incorporated into this Agreement by reference.

The terms of the option are as set forth in the Plan and in this Agreement. The most important of the terms set forth in the Plan are summarized as follows:

TERM. The term of the option is ten years from date of grant, unless sooner terminated.

EXERCISE. During your lifetime only you can exercise the option. The Plan also provides for exercise of the option by the personal representative of your estate or the beneficiary thereof following your death. You may use the Notice of Exercise in the form attached to this Agreement when you exercise the option.

PAYMENT FOR SHARES. The option may be exercised by the delivery of:

(a) Cash, personal check (unless at the time of exercise the Plan Administrator determines otherwise), or bank certified or cashier's checks;

(b) Unless the Plan Administrator in its sole discretion determines otherwise, shares of the capital stock of the Company held by you having a fair market value at the time of exercise, as determined in good faith by the Plan Administrator, equal to the exercise price;

(c) Unless the Plan Administrator in its sole discretion determines otherwise, a properly executed Notice of Exercise, together with instructions to the Company to withhold from the shares that would otherwise be issued upon exercise that number of shares having a fair market value equal to the option exercise price; or

(d) Unless the Plan Administrator in its sole discretion determines otherwise, a properly executed Notice of Exercise, together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the exercise price.

TERMINATION. The option will terminate immediately upon termination for cause, as defined in the Plan, or three months after cessation of your relationship with the Company or an Affiliate

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thereof, unless cessation is due to death or total disability, in which case the option shall terminate 12 months after cessation of such relationship.

TRANSFER OF OPTION. The option is not transferable except by will or by the applicable laws of descent and distribution or pursuant to a qualified domestic relations order.

VESTING. The option is vested according to the following schedule:

  PERIOD OF OPTIONEE'S
 CONTINUOUS RELATIONSHIP
   WITH THE COMPANY OR
 AFFILIATE FROM THE DATE            PORTION OF TOTAL OPTION
  THE OPTION IS GRANTED              WHICH IS EXERCISABLE
-------------------------           ------------------------
         1 year                                25%
         2 years                               50%
         3 years                               75%
         4 years                              100%

DATE OF GRANT. The date of grant of the option is ______________________.

YOUR PARTICULAR ATTENTION IS DIRECTED TO SECTION 8 OF THE PLAN WHICH DESCRIBES CERTAIN IMPORTANT CONDITIONS RELATING TO FEDERAL AND STATE SECURITIES LAWS THAT MUST BE SATISFIED BEFORE THE OPTION CAN BE EXERCISED AND BEFORE THE COMPANY CAN ISSUE ANY SHARES TO YOU. THE COMPANY HAS NO OBLIGATION TO REGISTER THE SHARES THAT WOULD BE ISSUED UPON THE EXERCISE OF YOUR OPTION, AND IF IT NEVER REGISTERS THE SHARES, YOU WILL NOT BE ABLE TO EXERCISE THE OPTION UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AT THE PRESENT TIME, EXEMPTIONS FROM REGISTRATION UNDER FEDERAL AND STATE SECURITIES LAWS ARE VERY LIMITED AND MIGHT BE UNAVAILABLE TO YOU PRIOR TO THE EXPIRATION OF THE OPTION. CONSEQUENTLY, YOU MIGHT HAVE NO OPPORTUNITY TO EXERCISE THE OPTION AND TO RECEIVE SHARES UPON SUCH EXERCISE. IN ADDITION, YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH OPTIONS.

You understand that, during any period in which the shares which may be acquired pursuant to your option are subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (and you yourself are also so subject), in order for your transactions under the Plan to qualify for the exemption from Section 16(b) provided by Rule 16b-3, a total of six months must elapse between the grant of the option and the sale of shares underlying the option.

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Please execute the Acceptance and Acknowledgement set forth below on the enclosed copy of this Agreement and return it to the undersigned.

Very Truly Yours,

INTEGRATED PHYSICIAN SYSTEMS, INC.

By: ________________________________

Name:

Title:

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ACCEPTANCE AND ACKNOWLEDGEMENT

I, a resident of the State of _________, accept the stock option described above granted under the Integrated Physician Systems, Inc. 1996 Stock Option Plan, and acknowledge receipt of a copy of this Agreement, including a copy of the Plan. I have read and understand the Plan, including the provisions of Section 8 thereof.

Dated: __________________________

____________________________________     ____________________________________
Taxpayer I.D. Number                     Signature

By his or her signature below, the spouse of the Optionee, if such Optionee is legally married as of the date of such Optionee's execution of this Agreement, acknowledges that he or she has read this Agreement and the Plan and is familiar with the terms and provisions thereof, and agrees to be bound by all the terms and conditions of this Agreement and the Plan.

Dated: __________________________


Spouse's Signature


Printed Name

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NOTICE OF EXERCISE

The undersigned, pursuant to a(n) [incentive] [nonqualified] Stock Option Letter Agreement (the "Agreement") between the undersigned and Integrated Physician Systems, Inc. (the "Company"), hereby irrevocably elects to exercise purchase rights represented by the Agreement, and to purchase thereunder _____ shares (the "Shares") of the Company's common stock, $.001 par value ("Common Stock"), covered by the Agreement and herewith makes payment in full therefor.

1. If the sale of the Shares and the resale thereof has not, prior to the date hereof, been registered pursuant to a registration statement filed and declared effective under the Securities Act of 1933, as amended (the "Act"), the undersigned hereby agrees, represents, and warrants that:

(a) the undersigned is acquiring the Shares for his or her own account (and not for the account of others), for investment and not with a view to the distribution or resale thereof;

(b) By virtue of his or her position, the undersigned has access to the same kind of information which would be available in a registration statement filed under the Act;

(c) the undersigned is a sophisticated investor;

(d) the undersigned understands that he or she may not sell or otherwise dispose of the Shares in the absence of either (i) a registration statement filed under the Act or (ii) an exemption from the registration provisions thereof; and

(e) The certificates representing the Shares may contain a legend to the effect of subsection (d) of this Section 1.

2. If the sale of the Shares and the resale thereof has been registered pursuant to a

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registration statement filed and declared effective under the Act, the undersigned hereby represents and warrants that he or she has received the applicable prospectus and a copy of the most recent annual report, as well as all other material sent to stockholders generally.

3. The undersigned acknowledges that the number of shares of Common Stock subject to the Agreement is hereafter reduced by the number of shares of Common Stock represented by the Shares.

Very Truly Yours,


(type name under signature line)

Social Security No. ________________

Address: ____________________________


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Exhibit 10.3

ASSET PURCHASE AGREEMENT

by and among

Integrated Physician Systems, Inc.

and

IPS Physicians/__________________, P.C.

and


and


May __, 1997


INDEX

1. Purchase of Assets..........................................................

2. Purchase Price..............................................................

3. Representation and Warranties of Seller and Managing Physician..............

4. Representation and Warranties of Buyer and Affiliate........................

5. Actions of Seller Prior to Closing..........................................

6. The Closing.................................................................

7. Conditions to Buyer's Obligation to Close...................................

8. Conditions to Seller's Obligation to Close..................................

9. Conditions to Buyer's and Seller's Obligations to Close.....................

10. Brokers' Fees...............................................................

11. Patient Billing Matters; Accounts Receivable; Reconciliation................

12. Indemnification.............................................................

13. Transition..................................................................

14. No Legal or Tax Advice......................................................

15. Understanding of Nature of Securities.......................................

16. Miscellaneous...............................................................

EXHIBITS

Exhibit A - Medical Equipment................................................... Exhibit B - Furniture........................................................... Exhibit C - Contracts........................................................... Exhibit D - Convertible Subordinated Promissory Note............................ Exhibit E - Employment Agreement................................................ Exhibit F - Lease Agreement/Assignment of Lease.................................


DISCLOSURE STATEMENT

Schedule 1(c)                               Excluded Assets
Schedule 1(d)(ii)                           Excluded Employees
Schedule 3(b)                               Conflicts
Schedule 3(d)                               Liens and Encumbrances
Schedule 3(e)                               Litigation
Schedule 3(i)                               Authorizations
Schedule 3(l)                               Nonassignable Contracts
Schedule 3(n)                               Third Party Payor Claims
Schedule 3(r)                               Employee Benefits Plans
Schedule 3(s)                               Managing Physician Employees
Schedule 3(v)                               Intellectual Property
Schedule 3(y)                               Interests in Medical Ventures

SCHEDULES

Schedule I Representations and Warranties of Seller and Managing Physician

Schedule II Conditions to Buyer's Obligation to Close


ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT ("Agreement") made this ________ of May, 1997 by and among Integrated Physician Systems, Inc., a Delaware corporation (the "Buyer"); IPS Physicians/______________, P.C., a New Jersey professional corporation ("Affiliate")_________________, M.D., P.A. ("Seller") and _________________________ ,M.D., "Managing Physician").

WITNESSETH:

WHEREAS, Seller and Managing Physician operate a medical practice located at _________________ (the "Office"); and

WHEREAS, the Managing Physician is the sole shareholder of Seller; and

WHEREAS, Seller owns the accounts receivable, inventory, and other assets utilized in the medical practice, and owns or leases the furniture, equipment, and real property of the Practice; and

WHEREAS, the Buyer is in the business of owning, managing, and furnishing such assets to physician through the acquisition of physician practices and the employment of such physician through its affiliated entity, Affiliate; and

WHEREAS, in furtherance of its purposes Buyer has determined it is in its best interest to acquire the medical practice, business, and assets of the Seller (the "Practice"), on the terms and conditions described herein; and

WHEREAS, upon the terms and subject to the conditions hereinafter set forth, Seller desires to sell to Buyer the Practice; and

WHEREAS, the Managing Physician will enter into an Employment Agreement with Affiliate, pursuant to which the Managing Physician will agree to provide professional medical services in connection with the Practice.

NOW, THEREFORE, in consideration of the covenants, conditions, representations, and warranties contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:

1. Purchase of Assets

(a) Subject to the terms and conditions hereof and on the basis of and in reliance upon the covenants, agreements, representations, and warranties set forth herein, Seller hereby agrees to sell, assign, transfer, convey, set over and deliver to Buyer, and Buyer hereby agrees to purchase and to accept, all of Seller's right, title, and interest in and to the following property and

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assets of the Practice (the "Practice Assets") except the property and assets excluded under Section 1(c) ("Excluded Assets"):

(i) All assets related to the Practice, including, without limitation, all items of fixed and movable medical equipment owned by Seller (a list of which is set forth on Exhibit "A" attached hereto) (the "Equipment"); the medical and office supplies owned by Seller (the "Supplies"); and all items of office equipment and furniture owned by Seller (a list of which is set forth on Exhibit "B" attached hereto) (the "Furniture") (hereinafter collectively referred to as the "Equipment, Supplies, and Furniture");

(ii) To the extent transferable under applicable law, all currently existing patient lists, patient credit information and histories, charts, files, medical records, X-rays, and other documents and records generated in connection with Seller's Practice (the "Patient Records");

(iii) Seller's intangible property associated with the Practice, together with all of Seller's rights in and to its name and any fictitious names used in connection with the Practice, or any variations thereof, and the telephone number(s) for the Practice, to the extent assignable;

(iv) All other personal property of Seller used in the Practice, including, without limitation, prepaid items, utility and other deposits, supplier lists, all copies of all computer programs and software or interests therein or rights thereto which are used for the purpose of supporting the Practice together with the media on which such software or programs are stored, including all documentation and information relating thereto, and, to the extent assignable, all present and future causes of action and claims, including claims under warranties relating to the Practice Assets, but excluding claims for payment for medical services rendered prior to Closing as hereinafter defined (collectively referred to as "Personal Property"); and

(v) Seller's interest in and rights under all contracts, including, but not limited to, managed care agreements, governmental and private third party payor agreements, service contracts, utility contracts, licenses, leases, and agreements related to the operation of the Practice to which Seller or the Managing Physician are a party, a list of which is set forth on Exhibit "C" attached hereto ("Contracts"). Anything in this Agreement to the contrary notwithstanding, Seller is not obligated to sell, assign, transfer, or convey to Buyer, Seller's respective rights and obligations in any of the Contracts without first obtaining all necessary approvals, consents, or waivers. Seller shall use all reasonable efforts, and Buyer shall cooperate with Seller to obtain all approvals, consents, or waivers necessary to convey to Buyer such interest in and rights under all the Contracts as soon as practical; provided however, that neither Seller nor Buyer shall be obligated to pay any consideration therefor to any third party from whom such approval, consent, or waiver is requested.

(b) If Seller is conveying to Buyer an interest in the Practice Assets which is other than an interest as an owner, such as a lessee, Seller shall be deemed to have transferred all of its interests in such Practice Assets to Buyer.

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(c) Buyer and Seller agree that Buyer is not acquiring hereunder the following Excluded Assets: Seller's accounts receivable, cash, insurance policies, investments, and rights with respect thereto; any real estate; and any of the property and assets of Seller noted on Schedule 1(c) of the Disclosure Statement.

(d) Except as described in the following sentence, Buyer is not assuming any debts, liabilities, or obligations of Seller of any kind or nature whatsoever, whether known or unknown, accrued or existing, including but not limited to: tort claims asserted against Seller, Managing Physician, the Practice, and/or its employees; claims against Seller, the Practice, or Managing Physician for breach of contract, which are based on acts or omissions of Seller or Managing Physician prior to the Closing Date; obligations under any employment agreements or employee benefit plans, or to pay termination or severance pay; or any obligation or liability to any local, state, or federal government or agency thereof with respect to withholding, payroll, unemployment compensation, or similar taxes, contributions, or assessments relating to individuals who provided services on behalf of Seller or Managing Physician at the Practice prior to the Closing Date. Buyer shall assume only the following obligations:

(i) Obligations of Seller or Managing Physician under Contracts that Buyer elects to assume, but only with respect to performance that becomes due after the Closing Date;

(ii) Buyer or Affiliate agree to hire the employees of Seller on terms and conditions acceptable to Buyer, except to the extent set forth on Schedule 1(d)(ii) of the Disclosure Statement, but shall not assume any obligation or liability of Seller, Managing Physician, or any other party with respect to such employees which arose prior to the Closing Date, whether such liability or obligation is to an individual employee or to a third party. However, the hiring of any non-physician employee shall not create any continuing obligation on behalf of the Buyer or Affiliate to retain such employee. Buyer shall give each such hired non-physician employee credit for accrued vacation and sick time and Buyer will be credited with the value of such accrued vacation and sick time in connection with the reconciliation referred to in Section 11(d).

2. Purchase Price

(a) The purchase price for the Practice Assets ("Purchase Price") shall be ______ Dollars ($______). Buyer shall pay the Purchase Price by delivering to Seller at Closing (i) the amount of_____________________($______) in cash or certified funds in accordance with Section 6 hereof and
(ii)________________(___) shares of Buyers Common Stock.

(b) Buyer and Seller agree that at the Closing, they shall allocate the Purchase Price among the Equipment, Supplies, and Furniture, Patient Records, Name (if any), Contracts, and other intangible assets comprising the Practice Assets for federal and state income tax purposes, and that they each will report the transactions contemplated in this Agreement consistent with such allocation.

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3. Representations and Warranties of Seller and Managing Physician.

The Seller and the Managing Physician jointly and severally represent and warrant to Buyer as set forth in Schedule I, attached hereto and incorporated herein by reference, and further warrant that all such representations and warranties shall be true and correct as of the Closing Date.

4. Representations and Warranties of Buyer and Affiliate.

Buyer and Affiliate represent and warrant to Seller that:

(a) Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the state of Delaware and has all necessary corporate power and authority to carry on its business as presently conducted, and, subject to approval of the transactions contemplated hereby by Buyer's appropriate governing board, has full power and authority to execute, deliver, and perform this Agreement and all other agreements pertaining to the transactions contemplated hereby in accordance with their respective terms.

(b) Affiliate is a professional corporation duly organized, validly existing, and in good standing under the laws of the state of New Jersey and has all necessary corporate power and authority to carry on its business as presently conducted and subject to approval of the transactions contemplated hereby by appropriate governing boards, has full power and authority to execute, deliver, and perform this Agreement and all other agreements pertaining to the transactions contemplated hereby, in accordance with their respective terms.

(c) Neither the execution nor delivery of this Agreement, or any documents to be delivered by Buyer hereunder, nor the performance thereof, will materially breach or conflict with either Buyer's or Affiliate's Articles of Incorporation or Bylaws, any state, federal, or local law, or any of the terms, conditions, or provisions of any agreement, instrument or decree to which Buyer or Affiliate is a party or by which Buyer or Affiliate is bound, or constitute a default thereunder, or result in a termination of such agreement or instrument, and the execution and delivery of this Agreement and any other documents to be delivered hereunder will not be in violation of or conflict with any of the terms of any order, judgment, or decree applicable to Buyer or Affiliate or by which Buyer or Affiliate is bound.

(d) This Agreement has been duly authorized, executed, and delivered by Buyer and Affiliate. This Agreement is the legal, valid, and binding obligation of Buyer and Affiliate and is enforceable against the Buyer and Affiliate in accordance with its terms.

(e) There is no action, suit, or proceeding pending or, to the best of Buyer's knowledge, threatened against the Buyer which would in any way affect the ability of Buyer to enter into this Agreement, or to complete the transaction contemplated hereby.

(f) There is no action, suit, or proceeding pending or, to the best of Affiliate's knowledge, threatened against Affiliate which would in any way affect the ability of Affiliate to

4

enter into this Agreement or the Employment Agreements or to complete the transaction contemplated hereby.

5. Actions of Seller Prior to Closing

Seller and Managing Physician each covenant and agree that pending the Closing and except as otherwise agreed to in writing by Buyer that:

(a) The business of Seller shall be conducted solely in the ordinary course of business consistent with past practice;

(b) Seller and Managing Physician shall continue to maintain and service the Practice Assets in the same manner as has been its consistent past practice;

(c) Seller and Managing Physician shall use their respective best efforts to retain the services of the present employees and agents of Seller and to maintain their relationships and goodwill with the suppliers, customers, patients, and others having business relations with Seller;

(d) Seller shall not directly or indirectly sell or encumber any or any part of the Practice Assets, or initiate or participate in any discussions or negotiations or enter into any agreement to do any of the foregoing;

(e) Seller and Managing Physician shall give to Buyer and its counsel, accountants, or other representatives free and full access to and the right to inspect, during normal business hours, all of the Practice Assets, records, contracts, and other documents relating to the Practice and the Practice Assets (including all records of billings and collections) for the purpose of making such investigation of the business as Buyer shall desire to make, provided that such investigation shall not unreasonably interfere with Seller's business operations;

(f) Seller shall promptly advise Buyer in writing of the threat or commencement against Seller or the Managing Physician of any dispute, claim, action, suit, proceeding, arbitration, or investigation by, against, or affecting Seller or any of its operations, assets, or prospects, or which challenges or may affect the validity of this Agreement or the ability of Seller or the Managing Physician to consummate the transactions contemplated herein;

(g) Seller shall promptly advise Buyer in writing of any event or the existence of any fact which makes untrue, or will make untrue as of the Closing Date, any representation or warranty of Seller or Managing Physician set forth in this Agreement; and

(h) Seller shall send, or cause to be sent, within the period of time prescribed by law, all notices and/or requests for clearance required to be sent or provided to any taxing authority of the State of New Jersey with respect to the sale of any assets hereunder.

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6. The Closing
(a) The Closing of the transactions hereunder ("Closing") shall take place within ten business days of the receipt by Buyer of the proceeds from the initial public offering of its securities as contemplated in Paragraph 8(e) or on such other date as the parties shall mutually agree, but in no case later than June 30, 1997 (the "Closing Date"), at the office of Buyer or at such other location as the parties mutually agree.

(b) Seller shall deliver to Buyer at Closing the following, all of which shall be in a form satisfactory to Buyer:

(i) A Certificate of Seller and Managing Physician dated as of the Closing Date confirming that each of the representations and warranties of Seller and Managing Physician contained herein (including but not limited to the representations and warranties set forth in Schedule I) is true and correct at and as of the Closing Date and that Seller and Managing Physician shall have complied with and performed all of the agreements, covenants, and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing Date.

(ii) A letter from the Seller's accountant stating that all income and other tax returns required to be filed by the Seller relating to the Practice have been filed and all taxes shown thereon as due have been paid.

(iii) Such bills of sale with covenants of warranty, assignments, endorsements, and other good and sufficient instruments and documents of conveyance and transfer, in form reasonably satisfactory to Buyer and its counsel, as shall be necessary and effective to transfer and assign to, and vest in Buyer, all of Seller's right, title, and interest in and to the Practice Assets.

(iv) A Certificate of Good Standing as of a date within fifteen (15) days prior to the Closing Date for Seller, certified by the Secretary of State of the state of New Jersey and copies of the Resolutions of the Board of Directors and Shareholders of Seller authorizing the execution, delivery, and performance of this Agreement and other agreements and instruments referred to herein.

(v) An Employment Agreement between Managing Physician and Affiliate substantially in the form attached hereto as Exhibit "D", which shall have been duly executed by the Managing Physician.

(vi) Such other documents and instruments as Buyer may reasonably request to effectuate or evidence the transactions contemplated by this Agreement.

(c) Buyer shall deliver to Seller or the appropriate individual at Closing the following, all of which shall be in a form satisfactory to Seller:

6

(i) A Certificate of Buyer dated as of the Closing Date confirming that each of the representations and warranties of Buyer contained herein is true and correct at and as of the Closing Date.

(ii) A Certificate of Affiliate dated as of the Closing Date confirming that each of the representations and warranties of Affiliate contained herein is true and correct at and as of the Closing Date.

(iii) The payment of __________ Dollars ($______) in cash or certified funds.

(iv) The Employment Agreement, which shall have been duly executed by Affiliate and Buyer.

(v) Certificates for ________ shares of Buyers Common Stock.

(vi) Such other documents and instruments as Seller may reasonably request to effectuate or evidence the transactions contemplated by this Agreement.

(d) Seller or Managing Physician and Buyer, or those affiliates designated by Seller and Buyer, shall execute and deliver:

(i) An Assignment of Lease Agreement between Seller and Buyer for the lease of __________________ ("Assignment of Lease"). If required by the terms of such lease, Seller shall obtain the written consent of the landlord of the premises to such assignment prior to the Closing hereunder.

(ii) A duly executed and fully enforceable Lease Agreement between Buyer ("Lessee") and ____________________ ("Lessor") for the premises located and known as _______________________, with terms mutually acceptable to Lessee and Lessor.

(ii) Such other documents or instruments as Seller or Buyer shall require to effectuate the intent of this paragraph.

(e) Following the Closing Date, at Buyer's request, Seller and Managing Physician will execute, acknowledge, and deliver to Buyer such other instruments of conveyance and transfer and will take such other actions and deliver such other documents, certifications, and further assurances as Buyer may reasonably require in order to vest in Buyer good title to the Practice Assets or to otherwise effectuate the purposes of this Agreement.

7. Conditions to Buyer's Obligation to Close

Buyer shall not be obligated to close hereunder or perform any other obligations under this Agreement unless:

7

a) the conditions set forth in Schedule II, attached hereto and incorporated herein by reference, have been satisfied by Seller or Managing Physician or waived by Buyer in writing; and

b) Buyer shall have successfully completed and received the proceeds from an offering of its securities in a minimum amount of Ten Million Dollars ($10,000,000).

8. Conditions to Seller's Obligation to Close

Seller shall not be obligated to sell or transfer the Practice Assets or to perform any other obligations under this Agreement unless the following conditions have been satisfied by Buyer or waived by Seller in writing:

(a) The representations and warranties of Buyer contained herein shall be accurate, true, and correct in all material respects on the Closing Date as though restated and made again on such date, and Buyer shall have performed and complied with each of its agreements and undertakings hereunder.

(b) Affiliate shall have executed and delivered to each Managing Physician an Employment Agreement.

(c) No action, suit, or proceeding by any governmental agency or other person shall have been instituted or threatened to restrain, prohibit, or otherwise challenge the legality of the transactions contemplated hereby.

(d) Subject to the conditions and covenants of Section 6(d) and Schedule II hereto, Buyer shall have executed and delivered to Seller or Managing Physician the Assignment of Lease.

(e) Buyer shall have successfully completed and received the proceeds from an offering of its securities in a minimum amount of Ten Million Dollars ($10,000,000).

9. Conditions to Buyer's and Seller's Obligations to Close

(a) Notwithstanding any other provision of this Agreement, if there is any Change of Law (as defined below) which results in an Adverse Consequence (as defined below) prior to Closing, the parties hereto agree to cooperate in making reasonable revisions (the "Revisions") to this Agreement, including all exhibits hereto, in order to avoid such Adverse Consequence(s). If the parties fail to agree to the Revisions after sixty (60) days following written notice by either party of the Change of Law and the Adverse Consequence(s) (the "Notice"), then either party may terminate the Agreement. In the event of a Change of Law that results in an Adverse

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Consequence, the Closing Date shall be postponed, if necessary, to the first business day following such sixty (60) day period or such other date as the parties mutually agree.

(b) As used herein, "Change of Law" shall mean: (i) any new legislation enacted by the federal or any state government; (ii) any new law, rule, regulation, guideline, or new development or interpretation passed, issued, or promulgated by any governmental agency or third party payor; or (iii) any order or decree issued by any judicial or administrative body.

(c) As used herein, "Adverse Consequence" shall mean a Change of Law that prohibits, restricts, limits, or otherwise affects any party's rights or obligations hereunder in a material manner or otherwise makes it desirable for any party to this Agreement to restructure the relationship established hereunder because of material legal or financial consequences expected to result from such Change of Law.

10. Brokers' Fees

In the event that any claim is asserted by any person, firm or corporation, whether broker or otherwise, claiming a commission and/or finder's fee with respect to this Agreement resulting from any alleged act, representation, or promise of the Buyer, Buyer shall indemnify and hold harmless Seller from any such promise or claim to pay such brokers commission. In the event any such claim shall be made against Buyer resulting from any alleged act, representation, or promise of Seller or Managing Physician with respect to this Agreement, Seller and Managing Physician shall jointly and severally likewise indemnify and hold harmless Buyer from any such claim to pay such brokers commission.

11. Patient Billing Matters; Accounts Receivable; Reconciliation

(a) Commencing as of the Closing, all billing to patients or their third party payors for medical services provided in connection with the Practice shall be performed by Affiliate or its agent for its own account, and all operating expenses associated with the Practice shall be borne by Affiliate.

(b) Buyer, Affiliate, Seller, and the Managing Physician acknowledge and agree that, commencing as of Closing, Affiliate will be entitled to accounts receivable with respect to services rendered in connection with the Practice on or subsequent to the Closing Date. Buyer, Affiliate, Seller, and the Managing Physician further acknowledge and agree that all accounts receivable with respect to services rendered by the Seller and Managing Physician prior to the Closing Date shall be the property of Seller. In connection with the accounts receivable relating to services rendered by the Seller and Managing Physician prior to the Closing Date, Buyer and Affiliate shall reasonably cooperate with Managing Physician and Seller with respect to the collection of Seller's accounts receivable provided such cooperation shall not result in any material expense to Buyer or Affiliate.

(c) If Seller receives any payment (other than Managed Care Withhold Payments, as defined below) after the Closing Date from or on behalf of a patient who is indebted to both the

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Seller and Affiliate, such payment shall be credited according to the payor's instructions. If there are no instructions from payor, then the payment shall first be applied to the Seller's accounts in respect of invoices no more than one hundred twenty (120) days outstanding, and then any remaining balance shall be promptly delivered to Affiliate.

(d) Buyer, Affiliate, Seller, and Managing Physician acknowledge and agree that they shall use the best financial and accounting information available to reconcile (i) the prepaid expenses and accrued but unpaid expenses of Seller relating to the Practice and (ii) the value of the accrued vacation and sick time with which the Practice's employees hired by Buyer or Affiliate will be credited as of the Closing Date. Prepaid expenses subject to reconciliation shall be limited to prepaid malpractice insurance, utility deposits, and such other prepaid expenses as are agreed upon by the parties prior to Closing; accrued but unpaid expenses shall be limited to payment obligations outstanding on the Closing Date relating to goods and services consumed by Seller in the ordinary course of business prior to the Closing Date. If the reconciliation results in one party owing an amount of money to the other party, such amounts shall be paid over to such other party, in cash, within thirty (30) days after the Closing Date.

(e) All Managed Care Withhold Payments (as defined below) shall be allocated between Seller and Buyer based on the number of days in the relevant withhold period that each of Seller and Buyer owned the Practice. The portion of Managed Care Withhold Payments allocated to Seller shall be paid to Seller by Buyer upon receipt by Buyer or Affiliate. "Managed Care Withhold Payments" shall mean any unpaid amounts from health maintenance organizations or other managed care plans, the payment of which is contingent upon the utilization or claims history of patients that are subscribers to the managed care plans during a particular withhold period.

12. Indemnification

(a) Seller and Managing Physician, jointly and severally, shall indemnify and hold harmless Buyer, Affiliate, and their respective affiliates, officers, directors, employees, successors, and assigns from and against any and all losses, liabilities, deficiencies, penalties, interest, claims, damages, actions, suits, proceedings, settlements, judgments, losses, costs, and expenses (including reasonable attorneys' fees) arising out of, in connection with, or incident to:

(i) Any breach by Seller or Managing Physician of any covenant, promise, agreement, representation, and/or warranty contained in this Agreement or in any Exhibit hereto;

(ii) Any and all debts, liabilities, obligations, and duties of Seller or Managing Physician of any nature whatsoever, whether known or unknown, accrued or contingent, that are not expressly assumed by Buyer pursuant to this Agreement, (including but not limited to such unassumed debts, liabilities, obligations, and duties relating to the Practice that arose on or prior to the Closing Date) and any and all actions and conduct by or on behalf of Seller (including but not limited to such actions and conduct of the Managing Physician and employees or agents of Seller or the Practice occurring on or prior to the Closing date); and

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(iii) Any and all claims arising from the assertion by any third party that the entering into of this Agreement by Seller or Managing Physician is a breach of any other contract to which Seller or Managing Physician are a party.

(b) Buyer and Affiliate shall indemnify and hold harmless Seller and its officers, directors, partners, employees, successors, and assigns from and against any and all losses, liabilities, deficiencies, penalties, interest, claims, damages, actions, suits, proceedings, settlements, judgments, losses, costs, and expenses (including reasonable attorneys fees) arising out of, or in connection with, or incident to:

(i) Any breach by Buyer or Affiliate of any covenant, promise, agreement, representation and/or warranty of Buyer or Affiliate contained in this Agreement; and

(ii) Any and all debts, liabilities, obligations, and duties of Buyer or Affiliate, except those debts, liabilities, obligations, and duties: (A) for which Seller and Managing Physician are obligated to indemnify Buyer and Affiliate under Section 12(a) and (b) for which Buyer or Affiliate is vicariously liable due to the action or conduct of Seller or Managing Physician.

(iii) Any and all claims arising from the assertion by any third party that the entering into of this Agreement by Buyer is a breach of any other contract to which Buyer is a party.

(c) The indemnification obligations of Seller, Managing Physician, Buyer or Affiliate contained herein, including any rights of setoff as described herein, are not intended to waive or preclude any other claims, rights, or remedies which may exist at law (whether statutory or otherwise) or in equity with respect to the matters covered by the indemnification described herein.

13. Transition

Immediately prior to the Closing, Seller and Managing Physician shall prepare and deliver to Buyer and Affiliate a list of the names and addresses of the active and inactive patients of the Practice. Following the Closing, Seller and Managing Physician shall provide assistance to Buyer and Affiliate to assure the orderly transition of the Practice to Buyer and Affiliate.

14. No Legal or Tax Advice

Seller and Managing Physician should consult with its respective counsel, accountant, or business adviser as to legal, tax, and related matters concerning this transaction. This transaction may involve certain material federal and state consequences.

15. Understanding of Nature of Securities

Seller understands that:

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(a) The shares of Buyers Common Stock (collectively the "Securities") have not been registered under the Securities Act of 1933, as amended (the "Act") or any state securities laws and are being issued and sold in reliance upon certain of the exemptions contained in the Act and under applicable state securities laws.

(b) The Securities are "restricted securities" as that term is defined in Rule 144 promulgated under this Act.

(c) The Securities cannot be sold or transferred without registration under the Act and applicable state securities laws, or unless the Buyer receives an opinion of counsel reasonably acceptable to it (as to both counsel and the opinion) that such registration is not necessary.

(d) The Securities and any certificates issued in replacement therefore shall bear the following legends, in addition to any other legend required by law or otherwise.

"The Securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. The securities represented by this certificate have been taken by the registered owner for investment, and without a view to resale or distribution thereof, and may not be transferred or disposed of without an opinion of counsel satisfactory to the issuer that such transfer or disposition does not violate the Securities Act of 1933, as amended, or the rules and regulations thereunder."

(e) Only the Buyer can register the Securities under the Act and applicable state securities laws.

16. Miscellaneous

(a) Indulgences, Etc. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power, or privilege ("Right") under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any Right preclude any other or further exercise of the same or of any other Right, nor shall any waiver of any Right with respect to any occurrence be construed as a waiver of such Right with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

(b) Survival of Representations and Warranties. The representations, warranties, covenants, and agreements made herein by Seller, Managing Physician, and Buyer shall survive the Closing for a period of five (5) years, and notwithstanding any investigation conducted before or after the Closing or the decision of any party to complete the Closing, each party hereto shall be entitled to rely upon the representations and warranties of the other parties.

(c) Controlling Law. This Agreement and all questions relating to its validity, interpretation, performance, and enforcement shall be governed by and construed in accordance with the laws of the state of New Jersey, notwithstanding any conflict-of-laws doctrines to the

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contrary, and without the aid of any canon, custom, or rule of law requiring construction against the draftsman.

(d) Notices. All notices, requests, demands, and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given, made, and received only when personally delivered or upon actual receipt of registered or certified mail, postage prepaid, return receipt requested, or by a nationally recognized overnight courier service, addressed as set forth below:

If to Seller or Managing Physician:

With a required copy to:

[Counsel for Seller/Physicians]

If to Buyer or Affiliate:

Integrated Physician Systems, Inc.
1129 Broad Street, Suite 3
Shrewsbury, New Jersey 07702-4314

Attention: Dennis B. Liotta, M.D., MBA Chief Operating Officer

With a required copy to:

Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this paragraph for the giving of notice.

(e) Binding Nature of Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Agreement may not be assigned by Seller without the prior written consent of Buyer. Buyer may assign this Agreement in whole or in part to any person or entity controlling, controlled by, or under common control with Buyer. This Agreement shall not be construed as giving any person, other than the parties hereto and their permitted successors, heirs, and assigns, any legal or equitable right, remedy, or claim under or in respect of this Agreement or any of the provisions herein contained, this Agreement and all provisions hereof being intended to be, and being, for the sole and exclusive benefit of such parties, and permitted successors, heirs, and assigns and for the benefit of no other person or entity.

(f) Further Assurances. Each party hereto shall cooperate and take such action as may be reasonably requested by the other party in order to carry out the terms and purposes of this Agreement and the other transactions contemplated herein.

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(g) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually, or taken together, shall bear the signatures of all the parties reflected herein as the signatories.

(h) Provisions Separable. The provisions of this Agreement are independent of and separable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason one or others of them may be invalid or unenforceable in whole or in part.

(i) Entire Agreement. This Agreement, the schedules, and exhibits hereto and the documents contemplated hereby contain the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

(j) Paragraph Headings. The paragraph headings in this Agreement are for convenience only; they form no part of this Agreement and shall not affect its interpretation.

(k) Confidentiality. The terms of this Agreement are confidential and shall not be disclosed to any individual or entity by either party hereto without the express written consent of the other party, except (i) as may be required by law, (ii) as may be required in connection with audits by third party payors, government agency investigations or proceedings, or court order,
(iii) to Seller's, Managing Physician's, Buyer's, or Affiliate's professional advisors or (iv) as may be required in conjunction with the sale of Buyers securities as contemplated in Paragraph 8(e) herein.

(l) Public Announcements. Prior to the Closing, neither Buyer, Affiliate, Seller, nor Managing Physician shall make any public announcement or disclosure relating to the transactions contemplated herein without the prior written agreement of Seller and Buyer.

[THIS SPACE INTENTIONALLY LEFT BLANK]

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(m) Seller's Restriction on Practice Operation. From and after the Closing, Seller shall not engage, directly or indirectly, in the practice of medicine or the provision of medical services.

(n) Best Efforts. Seller, Managing Physician, Buyer, and Affiliate shall use their respective best efforts with respect to matters within their control to cause the transactions contemplated by this Agreement to be consummated.

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

Attest:                           Integrated Physician Systems, Inc.

                                  By:
-------------------------            ----------------------------------
                                  Dennis B. Liotta, M.D., MBA
                                  Chief Operating Officer

Attest:                           IPS Physicians/__________, P.C.

                                  By:
-------------------------            ----------------------------------

Attest:                           By:
-------------------------            ----------------------------------


Witness:
-------------------------         --------------------------

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SCHEDULE I

Representations and Warranties of Seller and Managing Physician

Seller and Managing Physician jointly and severally represent and warrant to Buyer as follows, and all such representations and warranties shall be true and correct as of the Closing Date:

(a) Seller is a professional corporation, duly organized, validly existing and in good standing under the laws of the state of New Jersey, and Seller has full power and authority to operate the Practice, own the Practice Assets and to execute, deliver, and perform this Agreement in accordance with its terms. Seller has taken all steps and will do all things appropriate and necessary to consummate the transactions contemplated herein. Seller does not own or lease properties or carry on any activities that require qualification to do business as a foreign corporation in any jurisdiction.

(b) Except as set forth in Schedule 3(b) of the Disclosure Statement, the execution and delivery of this Agreement and all related documents by Seller does not, and the consummation by Seller of the transactions contemplated hereby will not: (i) conflict with any provision of the Articles of Incorporation, By-Laws, or any shareholder agreement or other corporate documents of Seller,
(ii) violate or conflict with any applicable law, or any applicable rule, judgment, order, writ, injunction or decree of any court; (iii) violate or conflict with any applicable rule or regulation of any administrative agency or other governmental authority; or (iv) result in a breach of or a default under (or with notice or lapse of time, or both, result in a breach of or constitute a default under) any agreement, lease, indenture, instrument, or contract to which Seller is now a party or by which it is bound. Such execution, delivery, and performance will not result in the creation or imposition of any liens or other encumbrances on any of the Practice Assets in favor of third parties.

(c) Seller's execution, delivery, and performance of its obligations under this Agreement, and the consummation of the transactions contemplated herein, have been duly authorized by Seller's Board of Directors and shareholders and no other action or authorization is required by law, or otherwise. This Agreement is the legal, valid, and binding obligation of Seller and is enforceable against Seller in accordance with its terms. Managing Physician is the only shareholder of Seller and no other individual or entity has any rights with respect to the stock or ownership of Seller.

(d) Seller has good and marketable title to the Practice Assets, free and clear of all claims, security interests, encumbrances, and liens, except as set forth on Schedule 3(d) of the Disclosure Statement. At the Closing, Seller shall convey to Buyer, and Buyer shall acquire good and marketable title to the Practice Assets, free and clear of all claims, security interests, encumbrances, and liens.

(e) Other than malpractice claims described below and except as set forth of Schedule 3(e) of the Disclosure Statement, there are no actions, suits, legal, or administrative proceedings

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or governmental investigations pending or, to the best of Seller's and Physicians knowledge after the exercise of due diligence, threatened against or affecting Seller or Managing Physician, the Practice Assets, the Practice or the Office, nor are there any judgments, decrees, orders, rulings, writs, or injunctions specifically referring to Seller or Managing Physician which may adversely affect the Practice, the Office or the Practice Assets or relate in any way to the transactions contemplated by this Agreement. Seller has provided Buyer with a true, correct, and complete schedule listing all malpractice claims filed or threatened against Seller or Managing Physician within the last five years, including the names of all parties bringing the action, all named and potential defendants, a description of the claim, whether the claim is covered by insurance, the name of the insurance company, the amount of coverage, and the stage or disposition of the proceedings (e.g., settled, adjudicated, pending).

(f) The Practice Assets, whether owned or leased by Seller, (i) are in good operating condition and repair, subject to normal wear and maintenance,
(ii) are usable in the regular and ordinary course of business (iii) conform to all applicable laws, ordinances, codes, rules, and regulations, and (iv) are in compliance with all required consents, approvals, and authorizations ("Authorizations") relating to their use and operation, including but not limited to any environmental regulations. No person or entity other than Seller owns any of the Practice Assets. All Authorizations required for the operation of the Practice as currently conducted are in full force and effect without any default or violation thereunder by Seller or, to the knowledge of Seller, by any other party thereto and Seller has not received any notice of any claim or charge that Seller is or was in violation of or in default under any such Authorization.

(g) Seller or Managing Physician have maintained in full force and effect all policies of insurance applicable to Seller, Managing Physician, the Office, and the Practice, including medical malpractice insurance covering all physician of Seller (including Physicians) in at least the minimum amounts required by law, casualty insurance on the premises where the Office is located, and general liability insurance. The Seller is not in default under the requirements of any such insurance policy. All medical malpractice insurance maintained by Seller and all medical malpractice insurance maintained by Managing Physician will provide coverage through the Closing on an occurrence basis or, if on a claims made basis, will provide coverage through the Closing and Seller will obtain, prior to the Closing, at its sole cost and expense, tail coverage for the period prior to the Closing.

(h) Seller and Managing Physician have maintained the Practice and Office in compliance with all applicable federal, state, and local governmental laws, rules, and regulations, including but not limited to those relating to environmental, occupational, health, and hazardous and medical waste, those relating to the payment and withholding of taxes and those relating to third party payment programs such as Medicare, Medicaid and Blue Cross/Blue Shield as they have been in effect from time to time. Seller has used its best efforts to preserve its business and its relationship with patients, third party payors, referring physician, contractors, and others with whom Seller and Managing Physician deal. Neither Seller nor Managing Physician have received any claim or notice that the Practice is not in compliance with any of the foregoing.

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(i) Seller owns, holds, possesses or lawfully uses in the operation of the Practice all the Authorizations which are in any manner necessary for it to conduct its business as now or previously conducted or for the ownership and the use of the Practice Assets (including but not limited to laboratory or radiology permits issued by governmental agencies), and Schedule 3(i) of the Disclosure Statement contains a true and complete list of all such Authorizations. Except as set forth in Schedule 3(i) of the Disclosure Statement, the Authorizations are renewable by their term or in the ordinary course of business without the need to comply with any special qualification procedures or to pay any amount other than routine filing fees. None of such Authorizations will be adversely affected by the consummation of the transactions contemplated hereby.

(j) Seller acknowledges that there are no outstanding injunctions, fines, or judgments against Seller, any Managing Physician or the Practice which would adversely affect the Practice Assets, the Practice or the operation or maintenance of any of the foregoing.

(k) The Seller has filed and is up to date on all federal, state, local, and foreign income and other tax returns and reports required to be filed which relate to the Practice or income derived therefrom, and Seller has paid all required taxes and assessments with respect to the Practice and the Practice Assets, and no additional taxes or assessments are due and payable. Any taxes that are due or properly shown to be due on any return or report of Seller up to the date hereof have been fully and timely paid or, in the case of taxes not yet due, fully provided for on the books of account of Seller; and there are no levies, liens, or other encumbrances relating to such taxes existing or threatened or pending with respect to any asset of the Seller.

(l) Each of Exhibits A, B, and C contains a true and compete list of all Equipment, Furniture, and Contracts, respectively, used or useful in connection with the Practice. The Supplies include such medical and office supplies necessary for the continued operation of the Practice consistent with Seller's historical levels. All of the material contractual relationships, if any, relating to the Practice, including but not limited to the agreements with health maintenance organizations, preferred provider organizations and other similar managed care plans, are in full force and effect, and neither Seller nor Managing Physician is in violation or breach of any such contractual relationship. All of the contracts described in the preceding sentence are assignable without obtaining the consent of the other party thereto in accordance with the terms of the contracts and none of such contracts will be affected by the consummation of the transactions contemplated hereby, except as specifically described on Schedule 3(1) of the Disclosure Statement.

(m) Neither Seller, Managing Physician, nor any professional employee of Seller are currently or ever have been under investigation for any civil or criminal offense related to the delivery of or payment for an item or service under the Medicare, Medicaid, or any other state or federally funded programs (including but not limited to a criminal offense related to neglect or abuse of patients in connection with the delivery of a health care item or service; obstructing an investigation of any crime referred to above; or unlawful manufacture, distribution, prescription, or dispensing of a controlled substance). Neither Seller, Managing Physician, nor any professional employee of Seller has ever been determined to be a Sanctioned Person. As used

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herein, the term "Sanctioned Person" means a person who: (a) has been convicted of any offense related to the delivery of an item or service under the Medicare or New Jersey Medical Assistance programs or any other federally or state-funded program, or any other federal or state law or regulation; (b) has been required to pay a civil monetary penalty under Section 1128A of the Social Security Act or any state Medicaid Program; or (c) has been excluded from participation in the Medicare, New Jersey Medical Assistance, or any other federally or state-funded program.

(n) To the best of the Seller's knowledge, there are no known claims against Seller by any patient of Seller, insurer, or third party payor, with respect to overpayments made to Seller in connection with medical services rendered by Seller, other than disputes or claims that are immaterial and have arisen in the ordinary course of business, and except as described on Schedule 3(n) of the Disclosure Statement. Neither Seller nor Managing Physician are aware of any pending or threatened claims against Seller by any patient, insurer, or third party payor for overpayments in connection with the provision of medical services, other than disputes or claims that are immaterial and have arisen in the ordinary course of business, and except as described on Schedule 3(n) of the Disclosure Statement.

(o) With respect to any existing lease agreement governing Seller's occupancy of the Office, neither Seller nor the lessor under such lease agreement is in default of any of its obligations thereunder, nor will this transaction result in a default thereunder.

(p) Seller has provided Buyer and its designated agents and representatives with full access to all documents, books, data, financial records, and other information relating to the current and past operations of the Practice.

(q) Seller will deliver as of the Closing Date all the Patient Records of Seller to Buyer to house or otherwise store and protect. All such Patient Records must be complete and accurate to the best of the Physicians knowledge in all material respects and have been maintained in accordance with all governmental regulations.

(r) Except as described on Schedule 3(r) of the Disclosure Statement, Seller does not now sponsor, maintain, or support, nor in the past three years has it sponsored, maintained, or supported, or otherwise been a party to, in default under, or had any liability or accrued obligations, under any plan, program, fund, or arrangement, either qualified or non-qualified for federal income tax purposes, relating to its employees, whether for the benefit of a single individual or for more than one individual, and whether or not funded, including without limitation, any employee pension benefit plan (as defined in
Section 3(1) of ERISA), or any incentive, deferred compensation or other benefit or compensation arrangement for employees, their dependents, and/or their beneficiaries. Seller has complied with all applicable federal, state, and local laws and the regulations, rulings, and pronouncements issued thereunder, relating to employee benefit plans and the employment of labor, including but not limited to the provisions thereof relative to wages, hours, collective bargaining, contributions to pension or benefit plans, and payment of Social Security taxes, and seller is not liable for any arrearages of wages or any taxes or penalties for failure to comply with any of the foregoing.

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(s) The Seller acknowledges and has so informed his/her employees that all employees of Seller are employees-at-will and upon Closing of this Agreement may be terminated by Seller without penalty or liability. Except for physician listed on Schedule 3(s), the Managing Physician are the only physician employed by Seller or otherwise providing medical services on behalf of Seller at the Practice within the last twelve (12) months. Seller has no unusual or cash payment arrangements with any of Seller's employees. All employees are paid through Seller's payroll system and receive only the payments disclosed by such system.

(t) Seller shall have sole and exclusive responsibility for any duties and obligations owed to its employees, including any and all vacation, bonuses, and other benefits which have accrued prior to the Closing Date. Neither Buyer nor Affiliate are assuming any of such obligations.

(u) Managing Physician are qualified and licensed to engage in the practice of medicine in the manner engaged in by Managing Physician prior to Closing Date, without restriction or limitation.

(v) Except as otherwise described on Schedule 3(v) of the Disclosure Statement, Seller is the sole owner or has the exclusive perpetual right to use without consideration, any intellectual property (including but not limited to computer software license rights), free and clear of any lien, security interest, restriction, encumbrance or other adverse claim, and the intellectual property is sufficient for the conduct of the Practice of Seller as such as been conducted during the last five years and as it is presently conducted.

(w) No representation or warranty by Seller or Managing Physician in this Agreement nor any certificate, schedule, statement, exhibit, document, or instrument furnished or to be furnished by Buyer pursuant hereto, or in connection with the negotiation, execution or performance of this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact required to be stated herein or therein or necessary to make any statement herein or therein not misleading.

(x) Seller has delivered to Buyer true and complete copies of the following: (i) internally prepared books and records including bank statements,
(ii) federal income tax returns for the Seller for the years ended December 31, 1993, 1994, and 1995, and (iii) balance sheets and income statements of Seller for the years ended December 31, 1993, 1994, and 1995 and a balance sheet and income statement for the nine (9) month period ended September 30, 1996 (the "Financial Statements").

(y) Except for the interests identified on Schedule 3(y) of the Disclosure Statement, after the date hereof, neither Seller nor Managing Physician will have any interest or investment in any partnership, joint venture, other business organization or facility which owns, operates, or has any interest in any medical practice, medical clinic, diagnostic facility or clinical laboratory or any other entity which provides health care services. After the date hereof, Managing Physician shall make no referrals to any of the partnerships, joint ventures, business organizations, or facilities identified on Schedule 3(y), and this covenant shall survive the closing

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of the transactions contemplated hereunder for as long as Managing Physician shall be employed by Affiliate.

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SCHEDULE II

Conditions to Buyer's Obligation to Close

Buyer shall not be obligated to close hereunder or perform any other obligations under this Agreement unless the following conditions have been satisfied by Seller and Managing Physician or waived by Buyer in writing:

(a) The representations and warranties of Seller and Managing Physician shall be accurate, true, and correct in all material respects on the Closing Date as though restated and made again on such date and Seller shall have performed and complied with each of its agreements and undertakings hereunder.

(b) The Practice Assets shall not have been damaged or destroyed, reasonable wear and tear excepted, regardless of whether or not the Practice Assets have been insured against such damage or destruction, and the Office shall continue to be Seller's primary locations for the treatment of patients in connection with the Practice.

(c) The Office shall not have been damaged or destroyed.

(d) Each Managing Physician shall have executed and delivered to Affiliate and Buyer the Employment Agreement.

(e) No action, suit, or proceeding by any governmental agency or other person shall have been instituted or threatened to restrain, prohibit, or otherwise challenge the legality of the transactions contemplated hereby, or which would impair the Practice in any way.

(f) This Agreement shall have been approved by any necessary governmental authority, by the Board of Directors of Buyer and Affiliate and by the governing boards of any affiliate of the Buyer deemed reasonably necessary by counsel to Buyer.

(g) Seller shall have delivered to Buyer, prior to Closing, all required assignments to Buyer of any of the Contracts, together with any required consents for such assignments, in such form as is reasonably acceptable to counsel for the Buyer.

(h) Since the date of this Agreement or the date of the last Financial Statement, there has not been any material adverse change in the business, operations, properties, assets, prospects, working capital, or condition (financial or otherwise) of Seller and the Practice or any event, condition, or contingency that is likely to result in such a material adverse change.

(i) Seller and the Managing Physician shall have prepared and delivered to the Buyer a list of names and addresses of its active and inactive patients.

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(j) Buyer's due diligence investigation and review of Seller's Practice, business, prospects, obligations, capitalization, and properties, including, but not limited to, an evaluation of the minute books, financial records, tax returns, contracts, leases, employment agreements, employee benefit plans, all other contracts material to the operation of the Seller's businesses, compliance with laws and environmental matters shall have been completed to Buyer's sole satisfaction, and Buyer shall have notified Seller no later than ten (10) days prior to the Closing Date that it does not intend to close the transactions contemplated hereby in reliance on this condition as a result of such due diligence investigation.

(k) Seller or Managing Physician shall have delivered to Buyer a nondisturbance agreement in favor of Buyer, in form reasonably satisfactory to Buyer, from the mortgagee of the real estate in which the ______________ Office is located.

(l) Seller or Managing Physician shall have delivered to Buyer an Assignment of Lease Agreement, in form reasonably satisfactory to Buyer, for ________, if required, shall have obtained the written consent of the landlord of the _________________ Office thereto.

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Exhibit 10.4

EMPLOYMENT AGREEMENT

by and between

IPS Physicians/_______________, P.C.

and



EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT made this _______ day of May, 1997 by and between IPS Physicians/___________ P.C., a New Jersey professional corporation ("Employer") and _____________ an adult individual (the "Managing Physician").

WHEREAS, Employer is a professional corporation affiliated with Integrated Physicians Systems, Inc., ("IPS"), which desires to develop a network of primary care and specialty physicians in order to enhance the delivery of health care services as part of an integrated delivery system for health care; and

WHEREAS, on the date hereof, IPS is acquiring the medical practice (the "Practice") of Managing Physician, as contemplated by an Asset Purchase Agreement dated of even date herewith (the "Purchase Agreement") by and among IPS, Employer, Managing Physician, and Managing Physician's professional corporation, ____________ ("P.C."); and

WHEREAS, IPS's obligations to consummate the transactions contemplated by the Purchase Agreement are conditioned upon Managing Physician entering into an employment agreement with Employer to provide professional medical services through Employer on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants, agreements, and representations contained herein and in the Purchase Agreement, Employer and Managing Physician, intending to be legally bound, hereby agree as follows:

EMPLOYMENT AND DUTIES

1.1 Employment. Employer hereby employs Managing Physician, and Managing Physician hereby accepts employment, for the period and upon the terms and conditions set forth herein.

1.2 Professional Services.

(a) As set forth herein, Managing Physician shall provide his professional medical services exclusively for and on a full-time basis to the Employer. Such services shall include those which are customarily performed by physicians practicing in the specialty which Managing Physician is board certified or eligible. Managing Physician shall perform professional services in accordance with generally accepted professional standards for such services and with the standards established by the Employer. Although Managing Physician shall be considered an employee of Employer, Managing Physician shall exercise professional,

1

independent clinical judgment in the provision of medical services to all of his patients while under this Agreement without bias, compromise, or reservation.

(b) Managing Physician shall be required to provide office, weekend, evening, vacation, and after-hours call coverage during such hours as are scheduled by Employer, which schedule shall be prepared with the understanding that it is the Employers goal to reduce the weekend, evening, vacation, and after-hours call hours required by Managing Physician as the number of physician employees increases. Managing Physician shall be required to work at least the number of hours per week required of other physician employees of Employer, according to Employer's policies as amended from time to time.

(c) In providing services hereunder, Managing Physician shall report to the Medical Director of Employer for clinical matters and the Director of Employer for administrative matters, or their designees.

1.3 Administrative Services. Managing Physician acknowledges that as situations and circumstances warrant he can be called upon to perform administrative services as may be reasonably requested by Employer; provided, however, that such administrative duties shall not be of a scope and nature which materially interferes with the ability of Managing Physician to provide direct patient care services at the Practice in a manner substantially consistent with that maintained by Managing Physician prior to the sale of the Practice to IPS.

1.4 Other Duties. Managing Physician shall perform such other duties, not inconsistent with this Agreement, as may be assigned to him from time to time by Employer.

1.5 Practice Location. During the term of this Agreement, Managing Physician shall practice at the location mutually agreed upon (the "Practice Location"). Managing Physician shall practice at the given location unless
(a) the Practice Location is no longer suitable for the operation of a medical practice due to fire, condemnation, act of God or other casualty,
(b) termination of the Lease Agreement between Managing Physician and IPS for the Practice Location as a result of a default by Landlord, or
(c) Employer, after obtaining Managing Physician's consent, which shall not be unreasonably withheld, determines in good faith that maintenance of the Practice at the Practice Location will have a material adverse financial impact on Employer. Both parties will use their best efforts to address and correct the financial situation of the Practice at the Practice Location prior to relocating the Practice to a different location. During the term of this Agreement, Managing Physician shall perform his duties hereunder at such medical office or offices or other practice locations of Employer to which Managing Physician may be scheduled. Notwithstanding the foregoing, during the Initial Employment Term (as hereinafter defined), without the consent of Managing Physician, Employer shall not assign Managing Physician to any practice location outside a ten (10) mile radius of the original Practice Location.

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1.6 Record Keeping. Managing Physician shall prepare, in accordance with generally accepted medical practice the clinical record of all examinations, procedures, and other professional services rendered by Managing Physician. Managing Physician will participate in the further development of such record keeping as required to more adequately, effectively, and efficiently document the clinical course of all lives placed in his charge. The ownership and right of control of all reports, records, and supporting documents prepared by Managing Physician for the performance of all services shall vest exclusively in Employer; provided, however, Managing Physician shall have such right of authorship and responsibility for all such records, as well as access to all reports, records, and supporting documentation for purposes of reimbursement, defense of malpractice claims, and other legal compliance reasons consistent with Employer, clinical, and/or business policies. Upon termination or expiration of this Agreement, all records of patients treated by Managing Physician shall remain in the possession of Employer.

1.7 Devotion of Time and Effort. Managing Physician shall devote his best efforts exclusively for his practice of medicine with the Employer and his full working time to the performance of his duties under this Agreement.

1.8 Policies and Performance Standards. Managing Physician shall abide by all policies, procedures, and directives instituted by Employer, including those related to quality assurance, utilization review, practice protocols, clinical outcomes assessment, patient/family satisfaction and peer review, and shall comply with the performance standards to be established by the Board of Directors of Employer, (the "Performance Standards"). Managing Physician agrees to actively participate in the design, development, and implementation of all such policies, procedures, and directives that will effect him and other physicians working for Employer.

QUALIFICATIONS AND COMPLIANCE STANDARDS

2.1 Licensure; DEA Registration.

(a) Managing Physician represents and warrants that (i) he is and shall continue to be qualified and licensed to practice medicine without restriction or limitation in the state of New Jersey, and
(ii) that he is and shall continue to be registered with the Federal Drug Enforcement Administration ("DEA") and the New Jersey Controlled Drug Agency ("CDA") to prescribe controlled substances without sanction, restriction, or limitation. A sanction or restriction of the Managing Physician's license, DEA, or CDA registration, shall include, but not be limited to attachment, suspension or revocation of Managing Physician's license to practice medicine or suspension or revocation of DEA or CDA registration, including but not limited to a suspension for any period of time or any other type of disciplinary or corrective action taken by the State Board of Medical Examiners, the Health Care Financing Administration (HCFA) as it relates to Medicare or Medicaid, the imposition of a monetary fine by the appropriate state licensing or federal

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authority, or any reprimand or monetary fine or penalty imposed by any governmental authority or regulatory agency having jurisdiction over Managing Physician.

(b) Managing Physician represents and warrants that to his knowledge there are currently no investigations or proceedings pending, nor to his knowledge threatened, that could lead to a suspension, revocation, restriction, limitation, or other termination of his license to practice medicine. Upon demand Managing Physician shall produce true copies of federal DEA registration.

2.2 Medical Staff Membership.

(a) Managing Physician shall as of the effective date hereof be, and throughout the term hereof remain, a member in good standing of the Active Medical Staff of ________ Hospital or its successor with all clinical privileges and appointments appropriate and necessary to the performance of his clinical duties hereunder.

(b) Managing Physician represents and warrants that to his knowledge there are currently no investigations or proceedings pending, nor threatened, the basis of which implicates the professional competence of Managing Physician, that could lead to a suspension, revocation, restriction, limitation, or other termination of his medical staff privileges at any hospital, including his primary Hospital affiliation.

2.3 Statutes/Regulations. Managing Physician shall perform the professional and other duties provided for in this Agreement in conformity with all applicable federal, state, and local laws, statutes, and regulations.

2.4 Provider Status. Throughout the term of this Agreement, unless Managing Physician is unable to participate for reasons not related to Managing Physician's own conduct or qualifications, Managing Physician shall have and shall maintain status as a participating provider in all managed care organizations, and shall maintain or make application to accept assignment for payment under Medicare and Medicaid and any other such reimbursement programs, where and when applicable. Managing Physician shall participate in any other third party payor program, including any health maintenance organization, preferred provider organization, or other governmental or private managed care program in which Employer directs Managing Physician to participate.

2.5 Specialty Board Certification. If Managing Physician is or becomes certified by a medical specialty board, Managing Physician shall maintain such certification throughout the term of this Agreement, including complying with any applicable recertification process.

2.6 Records and Allocation Agreements. Managing Physician agrees to follow Employer's policies, procedures, and directives and to comply with all requirements of law relating to the preparation and maintenance of complete and accurate records.

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2.7 Other Professional Services. All amounts earned by Managing Physician which are from activities which are not related to the performance of professional services, and which activities do not interfere with the performance of Managing Physicians obligations under paragraph 1.2 hereunder, including but not limited to, fees, honoraria, and royalties for teaching, writing, and speaking engagements, shall belong to Managing Physician. Managing Physician shall not engage in, or commit to engage in any professional services on behalf of any patient, practice, entity, partnership or professional corporation, other than Employer.

COMPENSATION

3.1 Managing Physician Compensation. As compensation for the services to be provided by Managing Physician under this Agreement, Employer shall pay the Target Compensation (which is composed of Base Compensation plus Incentive Compensation) and Bonus Compensation, as described below.

(a) Target Compensation. .

Target Compensation for each year during the Initial Employment Term shall be allocated between Base Compensation and Incentive Compensation as follows:

Year Base Compensation Incentive Compensation Target Compensation

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

1    $                   $                        $
2    $                   $                        $
3    $                   $                        $
4    $                   $                        $
5    $                   $                        $

(i) Base Compensation. Managing Physician shall be entitled to receive and Employer shall be obligated to pay to Managing Physician Base Compensation in equal periodic installments, no less frequently than monthly, in accordance with Employer's normal payroll practices for physician employees in effect from time to time. Managing Physician shall not be required to meet any performance goals to receive such Base Compensation.

(ii) Incentive Compensation. The amount to be paid to Managing Physician as Incentive Compensation in any twelve (12) month period shall depend on the net revenue generated by Managing Physician on Employer's behalf (as defined below) during that year. If the net revenue generated by the Managing Physician during each year equals or exceeds the Revenue Goal, Managing Physician shall receive the total amount of Incentive Compensation set forth above. If the net revenue generated by Managing

5

Physician during each year is less than Managing Physician's Revenue Goal, the Incentive Compensation of Managing Physician shall be reduced by one dollar ($1) for each dollar by which Managing Physician fails to generate revenue equal to Managing Physician's Revenue Goal. Employer may periodically pay to Managing Physician throughout the year a portion of the Incentive Compensation which Employer deems reasonable given the net revenue production of Managing Physician throughout the year, subject to adjustment and reconciliation at year end to reflect actual performance.

(iii) Revenue Goal. The Revenue Goal during the initial Term shall be as follows: _________________________

(b) Bonus Compensation. Employer will pay to Managing Physician an amount equal to percent ( %) of the net revenue of Managing Physician during each employment year which is in excess of the Revenue Goal for each year ("Bonus Compensation"). Employer will pay to Managing Physician such Bonus Compensation earned for any Employment Year promptly after calculation thereof, but in no event later than ninety (90) days after the end of each year.

(c) Net Revenue. The net target revenue of Managing Physician shall mean the aggregate net revenue of Employer attributable to physician services provided personally by Managing Physician, including the aggregate amount received in periodic capitation fees, including bonuses, withhold, open status, and similar payments from each health maintenance organization, preferred provider organization, or other managed care plan compensating Employer on a capitated basis and whose enrollees have selected Managing Physician as their primary care physician. The net revenue of Managing Physician shall be determined on an accrual basis in accordance with generally accepted accounting principles. Notwithstanding, the Employer will not in any manner penalize Managing Physician for any revenue losses that are not within Managing Physician's purview of control. This would include those happenstances that will occur during the course of doing business under managed care. Such happenstances are not limited to, but will include reduction in capitation rates or loss of contract overall or in part. In this regard, Managing Physician's net target revenue will be appropriately reduced, provided that Managing Physician is not the cause for the loss of such revenue.

ALTERNATE

3.1 Managing Physician Compensation. As compensation for the services to be provided by the Managing Physician under this Agreement, Employer shall pay Managing Physician, as follows:

6

(i) Base Compensation. Managing Physician shall be entitled to receive and Employer shall be obligated to pay to Base Compensation in equal periodic installments, no less frequently than monthly, in accordance with Employee's normal payroll practices for physician employees in effect from time to time. Managing Physician shall not be required to meet any performance goals to receive such Base Compensation. Managing Physicians Base Compensation shall be _______________________ Dollars ($__________) per annum.

(ii) Increase in Managing Physician Base Compensation. In the event that the net operating income from the Practice before physician compensation ("NOI") exceeds $___________ per year, Managing Physician shall receive, as additional compensation, an amount equal to __________ (____%) Percent thereof, which amount shall be paid within ninety (90) days of the close of the fiscal year.

(iii) Decrease in Managing Physician Compensation. In the event that the net operating income from the Practice before physician compensation ("NOI") is less than $_____________ per year, Physicians Base Compensation shall be reduced by an amount equal to ____________ (_____%) Percent of such difference.

(iv) Definition of NOI. For the purposes herein, net operating income before Managing Physician compensation shall be defined to mean the amount of gross revenue remaining after deducting therefrom
(a) all ordinary costs and expenses incurred in the operation of the practice, including, by way of illustration and not by limitation, rent, utilities, telephone, insurance, payroll and benefits (excluding Physicians compensation hereunder), marketing expenses, advertising, repairs and maintenance, leases, equipment depreciation, and similar expenses, (b) bad debts and contractual allowances, and (c) depreciation and amortization

3.2 Continuing Education. Managing Physician shall be provided with an allowance of $5,000 per year for continuing medical education.

3.3 Benefits. Managing Physician shall be entitled to those Employee benefits set forth in Exhibit A. However, such benefits may be changed by Employer at any time effective upon written notice to Managing Physician if all such changes are generally applicable to all physician employees of Employer.

3.4 Billing. Employer shall bill on behalf of all professional services performed by Managing Physician. Managing Physician shall cooperate fully with Employer in facilitating such billing. In the event regulatory or third party payment programs require any or all services performed by Managing Physician to be billed in the name of or on behalf of Managing Physician, Managing Physician shall designate, authorize, and

7

appoint Employer as Managing Physician's agent and grant Employer a power of attorney to bill on behalf of Managing Physician for all services performed pursuant to this Agreement and to obtain provider number(s) to facilitate such billing. Managing Physician hereby acknowledges and agrees that except for compensation owing to Managing Physician pursuant to this Agreement, all revenues arising from the provision of Managing Physician's services shall be the sole and exclusive property of Employer. Managing Physician further acknowledges that under the terms of Managing Physician's employment only Employer is entitled to claim or receive any fees or charges for Managing Physician's services rendered up to the effective date of termination of this Agreement.

3.5 Insurance. On behalf of Managing Physician the Employer shall maintain limits of professional liability (malpractice) insurance coverage during the term of this Agreement in a form and in amounts not less than $1,000,000 per occurrence and $3,000,000 per annual aggregate. Upon termination of this Agreement, to the extent the above referenced coverage was purchased on a claims-made basis, Employer shall purchase the appropriate tail coverage for Managing Physician.

3.6 Vacation. Managing Physician shall be entitled to four (4) weeks paid vacation each year of employment hereunder.

TERM AND TERMINATION.

4.1 Term. Subject to the rights of termination provided for herein, this Agreement shall continue in effect for an initial term of five (5) years ("Initial Employment Term"), commencing on the date of the Closing of the Purchase Agreement. This Agreement shall automatically continue for a successive five (5) year term, provided that the parties, after good faith negotiations, mutually agree to Managing Physicians compensation and other employment conditions for such successive term. Each twelve (12) month period during the term of this Agreement is herein referred to as an "Employment Year"

4.2 Termination by Employer. Anything in this Agreement to the contrary notwithstanding, Employer may terminate this Agreement for any of the following reasons:

4.2.1 Upon three (3) days prior written notice from Employer to Managing Physician if Managing Physician's license to practice medicine in the state of New Jersey or DEA registration is suspended or revoked for any reason and such license or registration has not been fully reinstated to Managing Physician within ten (10) days after written notice to Managing Physician by Employer directing Managing Physician to seek such reinstatement;

4.2.2 Upon three (3) days prior written notice from Employer to Managing Physician if Managing Physician's active Medical Staff privileges at any hospital are reduced, suspended, or revoked for any reason whatsoever, and such privileges have not been fully reinstated to Managing Physician within thirty (30) days after written notice from

8

Employer to Managing Physician directing Managing Physician to seek such reinstatement;

4.2.3 Upon thirty (30) days prior written notice from Employer to Managing Physician if Managing Physician, whether due to physical or mental disability or otherwise, has not performed the duties required hereunder for at least twelve (12) consecutive weeks;

4.2.4 Upon three (3) days prior written notice from Employer to Managing Physician if Managing Physician violates any material provision of this Agreement and such violation is not remedied within thirty (30) days after an initial notice to Managing Physician specifying the violation;

4.2.5 Upon three (3) days prior written notice from Employer to Managing Physician, if Managing Physician is determined to be a Sanctioned Person. As used herein, the term "Sanctioned Person" means a person who: (a) has been convicted of any offense related to the delivery of an item or service under the Medicare or Medicaid programs or any other federally or state funded program, or any other federal or state law or regulation; (b) has been required to pay any civil monetary penalty under Section 1128A of the Social Security Act or any state Medicaid program; or (c) has been excluded from participation in the Medicare, Medicaid, or any other federally or state funded program; and

4.2.6 Automatically upon the death of Managing Physician.

In addition, nothing in this Section 4.2 shall preclude Employer from suspending Managing Physician from the performance of any or all duties normally performed by Managing Physician for any reason whatsoever; provided, however, that Employer shall be required to compensate Managing Physician fully during any such suspension until termination of this Agreement as specified in this Section 4.

4.3 Termination by Managing Physician. Anything in this Agreement to the contrary notwithstanding, Managing Physician may terminate this Agreement upon three (3) days written notice from Managing Physician to Employer if Employer violates any material provision of this Agreement and such violation is not remedied within thirty (30) days from the date of delivery by Managing Physician to Employer of written notice specifying the violation.

4.4 Effect of Termination.

(a) In the event of termination of this Agreement for any reason, Managing Physician shall only be entitled to Base Compensation for services performed to the date of termination.

(b) If this Agreement is terminated, other than pursuant to Sections
4.2.3 (relating to disability), 4.2.6 (relating to death), or
4.3 (relating to Employer breach), before the end of the Initial Employment Term or any Extended Term ("Early

9

Termination"), the Managing Physician shall: (i) no longer be entitled to any payments under this Agreement (as described in
Section 4.4(a) above) and (ii) forfeit a percentage of all amounts paid or to be paid by IPS to the P.C. and/or Managing Physician under the Purchase Agreement (the "Forfeited Amounts"). If the Forfeited Amounts are greater than the remaining unpaid amounts due to P.C. or the Managing Physician under the Purchase Agreement on the date of Early Termination, the Managing Physician shall repay to Employer within thirty (30) days of such termination the difference between the Forfeited Amounts and such unpaid amounts. The percentage of the amounts paid or to be paid by IPS pursuant to the Purchase Agreement which shall be forfeited upon Early Termination shall be as follows:

                                             Percentage to be
Date of Termination                          Forfeited
-------------------                          ------------------

During first Employment Year                 100%
During second Employment Year                 90%
During third Employment Year                  80%
During fourth Employment Year                 70%
During fifth Employment Year                  60%

In the event that this Agreement is terminated at the end of its initial five year term, or at the end of any extended term, there shall be no penalty or forfeiture as a result thereof.

Notwithstanding the foregoing, Managing Physician shall forfeit one hundred percent (100%) of the amounts paid or to be paid by IPS to the P.C. and/or to Managing Physician under the Purchase Agreement if Managing Physician voluntarily terminates his employment hereunder without providing Employer with one hundred eighty (180) days prior written notice. The foregoing shall not be construed to limit any other remedies which Employer may have upon a breach of or other default under this Agreement by Managing Physician.

NON-COMPETITION

5.1 Covenant Not to Compete.

(a) During the period of time which Managing Physician is employed by Employer pursuant to the terms of this Agreement and for a period of two (2) years thereafter, without the prior written consent of Employer and IPS, Managing Physician shall not, directly or indirectly, own, manage, operate, join, control, finance, or participate in the ownership, management, operation, control, or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant, or otherwise, with any medical practice located

10

within a ten (10) mile radius of (i) the current office of the Practice or (ii) any other office at which Managing Physician regularly provides services. In such regard, "regularly provides services" means spending more than fifty percent (50%) of Managing Physician's work hours at such office within the immediately preceding six (6) month period. If Managing Physician violates the provisions of this
Section 5.1, the restrictive period set forth herein shall be extended by a period of time equal to the number of days, if any, during which Managing Physician is in violation of the provisions hereof.

(b) At any time during a two year period subsequent to the termination of this Agreement for any reason, Managing Physician shall not solicit or induce any patient of the Practice to cease being a patient of the practice for any reason whatsoever, including but not limited to becoming a patient of Managing Physician.

(c) The restrictions of Section 5.1 shall not apply to Managing Physician during the two (2) year period after Managing Physician's employment with Employer expires or terminates if:

(i) Managing Physician terminates this Agreement pursuant to
Section 4.3 hereof;

(ii) This Agreement is terminated by Employer without cause at any time;

(iii) Employer decides not to offer to extend Managing Physician's employment with Employer for a period following the Initial Employment Term at a compensation level (including incentive compensation) that is comparable to the then current median compensation for Managing Physician's specialty as reflected in the physician compensation survey published by the Medical Group Management Association ("MGMA") for the last year of the Initial Employment Term; or

(iv) This Agreement is terminated by Employer because of Managing Physician's disability, and after Managing Physician notifies Employer that he is able to perform services again for Employer on a full-time basis, Employer fails to rehire Managing Physician for the remainder of the Initial Employment Term at a compensation level which is comparable to that which would have been received by Managing Physician during the Employment Year in which Managing Physician returns or with Employer's compensation plan (including incentive compensation) then in effect and reasonably equivalent to that of other physician employees of Employer with a similar medical specialty, similar productivity, and similar seniority.

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5.2 Remedies for Violation of Agreement Not to Compete. Managing Physician hereby acknowledges and agrees that the covenants and restrictions contained in this Section 5 relate to matters which are of a special, unique, and extraordinary importance to Employer and IPS and that without such covenants, IPS would be unwilling to purchase the Practice and Practice Assets pursuant to the Asset Purchase Agreement or consummate any of the transactions related thereto and Employer would be unwilling to enter into this Agreement, and that a violation of any of the terms hereof will result in irreparable injury to both IPS and Employer. Accordingly, Managing Physician agrees that IPS and Employer shall be entitled to preliminary and permanent injunctive relief for a violation or threatened violation of any such restrictions without having to prove actual damages or to post a bond, IPS and Employer shall also be entitled to an equitable accounting of all earnings, profits, and other benefits arising from such violation, which rights shall be cumulative and in addition to any other rights or remedies to which IPS and Employer may be entitled in law or equity. Managing Physician hereby waives any objections on the grounds of improper jurisdiction or venue to the commencement of an action in the state of New Jersey and agrees that effective service of process may be made upon him/her by mail under the notice provisions contained in Section 6.5 of this Agreement. MANAGING PHYSICIAN ACKNOWLEDGES THAT THE TERMS OF THIS AGREEMENT HAVE BEEN NEGOTIATED AT ARM'S LENGTH. THE MANAGING PHYSICIAN REPRESENTS THAT HE HAS READ THE RESTRICTIONS CONTAINED HEREIN, HAS HAD THE OPPORTUNITY TO REVIEW THEM WITH LEGAL COUNSEL, AND DOES UNDERSTAND THE FULL EXTENT AND IMPLICATION OF THE TERMS OF THIS AGREEMENT AND HEREBY KNOWINGLY AND VOLUNTARILY AGREES TO BE BOUND HEREBY.

5.3 Enforcement. It is the intent of the parties that the provisions of this
Section 5 herein be enforceable to the fullest extent permitted by law. If, however, any portion of any section of this Agreement including the restrictive covenant as set forth herein is held by a court of law to be unreasonable in any proceeding, then the period of time, the geographic area, or such other restrictions shall be reduced by the elimination or reduction of such portionthereof, so that such restrictions may be enforced in a manner that is adjudged to be reasonable.

GENERAL PROVISIONS

6.1 Assignment. The rights and obligations of Employer under this Agreement shall inure to the benefit of and be binding upon the successors and assigns of Employer. This Agreement may be assigned by Employer, without the consent of Managing Physician, to any parent, subsidiary, or affiliated entity of Employer. This Agreement, being a contract for the personal services of Managing Physician, shall not be assignable by Managing Physician.

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6.2 Waiver. No waiver of any term, provision, or condition of this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed or be construed as a further or continuing waiver of any such term, provision, or condition of this Agreement.

6.3 Severability. If any term or provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those to which it is held invalid or unenforceable shall not be affected thereby and each term and provision of the Agreement shall be valid and enforceable to the fullest extent permitted by law.

6.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of state of New Jersey.

6.5 Notices. Notices under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered or if mailed by certified, registered mail, return receipt requested, by nationally recognized overnight mail, courier, or in person as of the date of receipt to the parties hereto at the following addresses:

If to Managing Physician:



With a required copy to:



If to Employer:



With a required copy to:



6.6 Integration. This Agreement between the parties with respect to the subject matter hereof supersedes and takes the place of all prior agreements and negotiations, either oral,

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written, or implied. This Agreement may be modified only by an agreement in writing signed by both parties.

6.7 Counterparts. This Agreement may be executed in counterparts each of which shall be deemed an original and all of which together shall be one and the same instrument.

6.8 Change of Law.

(a) Not withstanding any other provision of this Agreement, if during the term hereof any Change of Law results in an Adverse Consequence (as such terms are defined below), Employer and Managing Physician agree to cooperate in making reasonable revisions to this Agreement in order to avoid such Adverse Consequence(s). If Employer and Managing Physician fail to agree to such revisions after 60 days following notice by either Party to the other requesting renegotiation, then either Party may terminate this Agreement upon 30 days further written notice.

(b) As used herein, "Change of Law" shall mean: (a) any new legislation enacted by the federal or any state government; (b) any third party payor or any governmental agency (including but not limited to the IRS or the Office of Inspector General of the Department of Health and Human Services) passes, issues or promulgates any new rule, regulation, or guideline or any interpretation of an existing law, rule, regulation, or guideline; or (c) any judicial or administrative body issues any order or decree.

(c) As used herein, "Adverse Consequence" shall mean a Change of Law that prohibits, restricts, limits, or otherwise affects either Party's rights or obligations hereunder in a material manner or otherwise makes it desirable for either Party to restructure the relationship established hereunder because of material legal or financial consequence expected to result from such Change of Law.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

                                  IPS Physicians/__________, P.A

ATTEST: ____________________      By: ________________________



WITNESS: ____________________     _____________________

                                  Managing Physician

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EXHIBIT "A"

BENEFITS

1. Healthcare Benefits Plan for Managing Physician and his/her legal dependents.

2. Prescription Card with minimum $10 co-payment.

3. Disability Insurance.

4. Optional Dental Benefit.

5. Vision Care Benefit.

6. Pension Plan - 401(K) - Employers contributions, if any, are discretionary

7. Continuing Medical Education Credit

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Exhibit 10.5

INTEGRATED PHYSICIAN SYSTEMS INC.

PRACTICE MANAGEMENT

SERVICES AGREEMENT


                             TABLE OF CONTENTS

                                                                            Page

ARTICLE 1     DEFINITIONS...............................................     2

ARTICLE 2     RELATIONSHIP OF THE PARTIES...............................     6
    2.1       Independent Relationship
    2.2       Responsibilities of the Parties
    2.3       Provider Matters
    2.4       Patient Referrals

ARTICLE 3     DUTIES OF THE POLICY BOARD................................     7
    3.1       Formation of the Policy Board
    3.2       Duties and Responsibilities of the Policy Board

ARTICLE 4     FACILITIES AND SERVICES TO BE PROVIDED BY IPS.............     8
    4.1       Facilities
    4.2       Additional Facilities
    4.3       Performance of Management Functions
    4.4       Financial Planning and Goals
    4.5       Audits and Statements
    4.6       Inventory and Supplies
    4.7       Management Services and Administration
    4.8       Executive Director
    4.9       Personnel
    4.10      Practice Expenses
    4.11      Events Excusing Performance
    4.12      Compliance with Applicable Laws
    4.13      Quality Assurance
    4.14      Ancillary Services

ARTICLE 5     OBLIGATIONS OF PROVIDER..................................     12
    5.1       Professional Services
    5.2       Medical Practice
    5.3       Employment of Physician Employees
    5.4       Professional Dues and Education Expenses
    5.5       Fees for Professional Services
    5.6       Provider Expenses
    5.7       Professional Insurance Eligibility
    5.8       Events Excusing Performance

ARTICLE 6     RESTRICTIVE COVENANTS....................................     13
    6.1       Restrictive Covenants by Provider

    6.2       Restrictive Covenants by Current Physician Stockholders and
              Physician Employees
    6.3       Restrictive Covenants by Future Physician Employees
    6.4       Enforcement

ARTICLE 7     FINANCIAL ARRANGEMENTS...................................     14
    7.1       Provider Compensation
    7.2       Draws
    7.3       Determination and Payment of Provider Compensation
    7.4       Assignment of Fees for Medical Service
    7.5       Collection of Governmental Receivables
    7.6       Collection of Non-Governmental Receivables
    7.7       Procedures Without Lockbox
    7.8       Misdirected Payments
    7.9       Representations and Warranties with respect to Accounts
              Receivable


ARTICLE 8     RECORDS.................................................      21
    8.1       Patient Records
    8.2       Records Owned by IPS
    8.3       Access to Records
    8.4       Maintenance of Records/Subcontracts

ARTICLE 9     INSURANCE AND INDEMNITY.................................      22
    9.1       Insurance to be Maintained by Provider
    9.2       Insurance to be Maintained by IPS
    9.3       Additional Insureds
    9.4       Indemnification

ARTICLE 10    TERM AND TERMINATION...................................       23
    10.1      Term of Agreement
    10.2      Extended Term
    10.3      Termination by Provider
    10.4      Termination by IPS

ARTICLE 11    GENERAL PROVISIONS.....................................       24
    11.1      Assignment
    11.2      Whole Agreement; Modification
    11.3      Notices
    11.4      Binding on Successors
    11.5      Waiver of Provisions
    11.6      Governing Law
    11.7      Severability
    11.8      Additional Documents
    11.9      Time is of the Essence
    11.10     Confidentiality

    11.11          Contract Modifications for Prospective Legal Events
    11.12          Remedies Cumulative
    11.13          No Obligation to Third Parties

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INTEGRATED PHYSICIAN SYSTEMS INC.

PRACTICE MANAGEMENT SERVICES AGREEMENT

THIS PRACTICE MANAGEMENT SERVICES AGREEMENT dated as of May, 1997, by and between INTEGRATED PHYSICIAN SYSTEMS, INC., a Delaware Corporation with its principal place of business at 2644 Bristol Road, Warrington, Pennsylvania 18976 (hereinafter "IPS") and IPS/PHYSICIANS _____________, P.C., a New Jersey professional corporation with its principal place of business at ___________________________ (hereinafter "Provider"), _______________, an adult individual with a business address at ____________ (hereinafter "Physician Stockholder"), and _______________, duly licensed physician(s), with a business address at _________________ (hereinafter "Physician Employee(s)").

RECITALS:

WHEREAS, Provider is a professional corporation which conducts a muti-specialty group medical practice (the "Practice") which provides comprehensive professional medical care to the public at several locations ("Practice Sites") in the_____________ county area; and

WHEREAS, Physician Stockholder is a duly licensed physician who owns all of the issued and outstanding common stock of Provider; and

WHEREAS, Physician Employee(s) is/are employees of Provider and render medical services at the practice Sites; and

WHEREAS, IPS is in the business of owning certain assets of and managing and operating physician practices and furnishing such medical practices with necessary facilities. equipment, personnel, supplies, and support staff; and

WHEREAS, Provider desires to engage IPS to perform such management functions and render such services which will enable Provider to devote its efforts on a concentrated and continuous basis to the rendering of medical services to its patients;

NOW THEREFORE, in consideration of the mutual covenants and agreements herein contained, Provider hereby agrees to purchase from IPS the management and support services herein described and IPS agrees to provide to Provider such management and support services on the terms and conditions set forth in this Agreement.

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ARTICLE 1

DEFINITIONS

Definitions. For purposes of this Agreement, the following definitions shall apply:

(a) "Account Debtor" means an account debtor or any other person or entity obligated in respect of an Account Receivable.

(b) "Accounts Receivable" means, with respect to the Provider, all accounts and any and all rights to payment of money or other forms of consideration of any kind now owned or hereafter acquired (whether classified under the Uniform Commercial Code ("UCC") as accounts, chattel paper, general intangibles or otherwise) for goods sold or leased or for services rendered by the Provider, including, but not limited to, accounts receivable, proceeds of any letters of credit naming the Provider as beneficiary, chattel paper insurance proceeds, contract rights, notes, drafts, instruments, documents, acceptances and all other debts, obligations and liabilities in whatever form, from any other person or entity; provided, however, that cash, checks and credit card purchases are not included in the definition of Accounts Receivable.

(c) "Assigned A/R" shall mean, with respect to the Provider, the Accounts Receivable assigned pursuant to Article 7 of this Agreement.

(d) "CHAMPUS" means the Civilian Health and Medical Program of the Uniformed Services.

(e) "Collecting Bank" means the main office of ____________________ located at___________________ or such other financial institution agreed to by IPS.

(f) "Finance Charge Rate" means a rate of interest equal to the lessor of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest allowed by applicable law from time to time in effect.

(g) "GAAP" shall mean generally accepted accounting principles as set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such entity or other practices and procedures as may be approved by a significant segment of the accounting profession. For purposes of this Agreement, GAAP shall be applied in a manner consistent with the historic practices used by IPS or Provider as applicable.

(h) "Governmental Receivables" means an Account Receivable of Provider which (i) arises in the ordinary course of business of Provider, (ii) has as its third party payor the United

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States of America or any state or any agency or instrumentality of the United States of America or any state which makes any payments with respect to Medicare or Medicaid or with respect to any other program (including CHAMPUS) established by federal or state law, and (iii) is required by federal or state law to be paid or to be made to Provider as a health care provider. Governmental Receivables shall not, however, refer to amounts payable by private insurers under contract to provide benefits under the Federal Employee Health Benefit Program.

(i) "Governmental Lockbox Account" means an account established at the Collecting Bank by Provider into which all proceeds of Providers Governmental Receivables are remitted.

(j) "IPS' Expenses" shall be the sole obligation of IPS and shall mean, pursuant to GAAP applied on a consistent basis: (i) any general and administrative expenses of IPS and other items or expenses incurred by IPS that are not incurred specifically for the purpose of providing services to Provider or are not directly attributable to Provider (or cannot be reasonably allocated to Provider), as determined by IPS , including, without limitation, salaries and benefits of executive officers of IPS, except as otherwise provided for in the definition of Provider Expenses; and (ii) all taxes of IPS, including but not limited to, state and federal income taxes and franchise taxes, but excluding state and federal employee taxes related to employees who provide services to Provider, property taxes on assets used by Provider and other taxes specifically included in Provider Expenses.

(k) "Lender" shall mean any lender to IPS that has a security interest in the Accounts Receivable from time to time.

(l) "Lockbox Agreements" means those certain agreements to be entered into between the Collecting Bank and Provider as to Governmental Receivables and the Non-Governmental Receivables, respectively, in form and substance acceptable to IPS and its legal counsel.

(m) "Main Account" means IPS operating account established at the Collecting Bank.

(n) "Medicaid" means any state program pursuant to which health care providers are paid or reimbursed for care given or goods afforded to indigent persons and administered pursuant to a plan approved by the Health Care Financing Administration under Title XIX of the Social Security Act.

(o) "Medicare" means any medical program established under Title XVIII of the Social Security Act and administered by the Health Care Financing Administration.

(p) "Non-Governmental Lockbox Account" means the account established by IPS with the Collecting Bank into which all proceeds from Providers Accounts Receivable from third party payors or patients ( other than Governmental Receivables ) are remitted.

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(q) "Non-Governmental Receivables" means any Accounts Receivable which are not Governmental Receivables.

(r) "Notification Letter" means a written notification from Provider to third party payors that all proceeds due under Providers Accounts Receivable are to be remitted to the Non-Governmental Lockbox Account or the Governmental Lockbox Account, as the case may be, with such Notification Letter to be in form acceptable to IPS and its legal counsel.

(s) "Physician Employees" shall mean only those who are doctors of medicine (including Physician Stockholders) and who are employed by Provider or are otherwise under contract with Provider to provide professional services to patients at the Practice Sites and are duly licensed to provide medical services in the State of New Jersey.

(t) "Physician Extender Employees" shall mean physician assistants, midwives, nurse practitioners and other such persons who are employees of IPS, excluding, however, all Technical Employees.

(u) "Physician Stockholders" shall mean those Physician Employees who own an interest, directly or indirectly, in the equity of Provider.

(v) "Practice Expenses" shall be the sole obligation of IPS and shall mean, pursuant to GAAP applied on a consistent basis, all operating and nonoperating expenses of Provider arising hereunder in connection with the operation of the Practice Sites, unless expressly provided otherwise herein (e.g., Provider Expenses), including but not limited to:

(i) Salaries, benefits and other direct costs of all non-physician employees working at the Practice Sites or elsewhere on behalf of Provider, excluding Technical Employees.

(ii) Obligations of Provider under leases of space and equipment for the proper and efficient operation of the Practice Sites. If IPS is the lessor of such space or equipment under Practice Site Lease Agreements and/or Practice Equipment Lease Agreements, the rental values therefor shall be clearly delineated in the lease agreement(s), for such items and shall be set at a rate equal to their fair market value regardless of the relationship between IPS and Provider;

(iii) All expenses and charges associated with the operation of the Practice Sites, including, without limitation, utilities, telephone, janitorial/maintenance, etc.;

(iv) Personal property taxes assessed against IPSs assets utilized by Provider in the Practice Sites from and after the date of this Agreement;

(v) Malpractice insurance premiums, and fire, workers compensation and general liability insurance premiums;

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(vi) The cost of any goods purchased for resale;

(vii) Direct costs of all employees or consultants of IPS engaged to provide services at or in connection with Provider or who actually provide services at or in connection with the Practice (whether or not at a Practice Site) for improved performance, such as quality assurance, materials management, purchasing programs, coding analysis and physician recruitment; provided, however, that only the portion of expenses related to such employee or consultant, that is allocable to work performed at or for the benefit of Provider shall be included in Practice Expenses, without mark up;

(viii) Reasonable expenses related to professional meetings, seminars, dues and professional licensing fees for Physician Employees ( including Physician Stockholder(s)) and Physician Extender Employees; and

(ix) Any and all other ordinary and necessary expenses incurred by Provider or IPS for the direct benefit of the Provider in carrying out their respective obligations under this Agreement.

(w) "Practice Site" shall mean any office, clinic, laboratory, or other location from which Provider renders professional medical services.

(x) "Professional Services Revenue" shall mean all fees actually recorded each month (net of any amounts reimbursed to any patient or third party payors during the applicable month and net of any adjustments for contractual allowances and reserves for uncollectible amounts based on the historical experience of Provider, as determined by IPS in its sole discretion) by or on behalf of Provider as a result of professional medical services personally furnished to patients (including but not limited to fee for service revenues, managed care payments and capitation revenues from risk contracts) and other fees or income generated by Physician Stockholder(s), Physician Employees, Physician Extender Employees and other non-physician employees, plus any revenues from the sale or provision of any goods, supplies, diagnostic tests, therapies or other ancillary services or items by Provider. References to "actually recorded" shall mean all amounts recorded in accordance with GAAP.

(y) "Provider Equipment Lease Agreement(s)" shall mean any lease for equipment utilized at a Practice Site which is entered into by and between IPS as lessor and Provider as lessee.

(z) "Provider Expenses" shall be the sole obligation of Provider and shall mean, pursuant to GAAP (as defined herein) applied on a consistent basis:
(i) federal, state or local income taxes payable by Provider and the costs of preparing federal, state or local tax returns for Provider; (ii) all compensation and other benefits payable with respect to Physician Stockholders, Physician Employees and Technical Employees (as defined herein) and all employment taxes and costs associated therewith; (iii) physician licensure fees, board certification fees and costs of membership in professional associations for Physician Stockholders, Physician Employees and Technical Employees; (iv) costs associated with legal, accounting and professional services

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incurred by or on behalf of Provider; (v) final and non-appealable judgments in excess of professional liability insurance policy limits rendered against Provider, Physician Stockholders, Physician Employees and Technical Employees, or any of them, in the performance of medical services as employees or contractors of Provider; (vi) direct personal expenses of Physician Stockholders, Physician Employees or Technical Employees of a kind which Provider has historically charged to its Physician Stockholders, Physician Employees or Technical Employees as the case may be; and (vii) costs of continuing professional education for Physician Stockholders, Physician Employees and Technical Employees.

(aa) "Provider Practice Site Lease Agreement(s)" shall mean any lease for Provider office space which is entered into by and between IPS as lessor and Provider as lessee.

(bb) "Provider Operating Account" shall mean the main bank account maintained by Provider.

(cc) "Technical Employees" shall mean those individuals who provide billable services on behalf of Provider and are employees of Provider, but are neither Physician Employees nor Physician Extender Employees.

ARTICLE 2

RELATIONSHIP OF THE PARTIES

2.1 Independent Relationship. Provider and IPS intend to act and perform as independent contractors. Notwithstanding the authority granted to IPS herein, IPS and Provider agree that Provider will retain the sole authority to direct the medical, professional and ethical aspects of its medical practice. Each party shall be responsible for and shall comply with all state and federal laws with respect to employment taxes, income tax withholding, unemployment compensation contributions and such other employment related statutes as may be applicable to that party.

2.2 Responsibilities of the Parties. As more specifically set forth herein, IPS shall provide Provider with offices, facilities, equipment, supplies, support personnel and practice management and financial advisory services. As more specifically set forth herein, Provider shall be responsible for the recruitment and hiring of physicians and all issues related to medical practice patterns and documentation thereof. Notwithstanding anything herein to the contrary, any clinical laboratory service shall be operated in full compliance with Section 6204 of the Omnibus Budget Reconciliation Act of 1989.

2.3 Provider Matters. Matters involving the internal agreements and finances of Provider, including the distribution of professional fee income among the individual Physician Stockholders (as hereinafter defined), tax planning, pension and investment planning (and expenses relating solely to these internal business matters) shall remain the sole responsibility of Provider and the individual Physician Stockholders.

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2.4 Patient Referrals. The parties agree that the benefits to Provider hereunder do not require, are not payment for, and are not contingent upon the admission, referral or any other arrangement for the provision of any item or service offered by IPS to any of Providers patients in any facility or laboratory controlled, managed or operated by IPS.

ARTICLE 3

THE POLICY BOARD

3.1 Formation of the Policy Board. The Parties hereto shall establish a Policy Board which shall be responsible for developing management and administrative policies for the overall operation of the Practice. The Policy Board shall consist of six (6) members. IPS shall designate, in its sole discretion, three (3) members of the Policy Board. Provider shall elect from among its shareholders and employed physicians, the other three (3) members of the Policy Board.

3.2 Duties and Responsibilities of the Policy Board. The Policy Board shall have the following duties and obligations:

3.2.1 Capital Improvements and Expansion. Any renovation or expansion plan and any capital equipment expenditure with respect to the Practice shall be first reviewed and approved by the Policy Board and shall be based upon economic feasibility, physician support. productivity and the then current market conditions.

3.2.2 Annual Budgets. All annual capital and operating budgets prepared by IPS, as set forth in Section 4.2 hereof, shall be subject to the review and approval of the Policy Board.

3.2.3 Advertising. All advertising and other marketing of the services performed by the Practice shall be subject to the prior review and approval of the Policy Board.

3.2.4 Patient Fees. As a part of the annual operating budget, in consultation with IPS, the Policy Board shall review and adopt a fee schedule for all physician and ancillary services rendered by the Practice.

3.2.5 Ancillary Services. The Policy Board shall approve any ancillary services provided by the Practice based upon the pricing and quality of such services.

3.2.6 Provider and Payor Relationships. Decisions regarding the establishment or maintenance of relationships with institutional health care providers and payors shall be made by the Policy Board in consultation with IPS.

3.2.7 Strategic Planning. The Policy Board shall develop long term strategic objectives.

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3.2.8 Capital Expenditures. The Policy Board shall determine the priority of major capital expenditures.

3.2.9 Physician Hiring. The Policy Board shall determine the number and type of physicians required for the efficient operation of the Practice. The approval of the Policy Board shall be required prior to any variation in the restrictive covenants contained in any employment agreement between a physician and Provider.

3.2.10 Executive Director. The selection and retention of the Executive Director pursuant to Section 4.8 by IPS shall be subject to the approval of the Policy Board. If Provider is dissatisfied with the services provided by the Executive Director, Provider shall so inform the Policy Board. IPS and the Policy Board shall in good faith determine whether the Executive Director should be terminated, counseled or assisted.

3.2.11 Grievance Referrals. The Policy Board shall consider and make final decisions on all grievances pertaining to matters not specifically addressed in this Agreement.

ARTICLE 4

FACILITIES AND ADMINISTRATIVE SERVICES TO BE PROVIDED BY IPS

4.1 Facilities. IPS hereby agrees to furnish to Provider and be responsible for the offices and facilities more fully described in Exhibit 4.1, including, but not limited to, all costs of repairs, maintenance, improvements, utilities (telephone, electric, gas, water), normal janitorial service, refuse disposal, real or personal property lease or sublease expenses, taxes, insurance and all other costs and expenses reasonably incurred in conducting the Practices during the term of this Agreement. IPS shall consult with Provider regarding the condition, use and needs for the offices, facilities and improvements.

4.2 Additional Facilities. In the event that additional physicians shall be employed by Provider, and provided that the circumstances so require, IPS shall expand the offices, facilities and improvements provided hereunder to accommodate any additional needs of the Practice. IPS shall consult with Provider regarding the need for additional offices, facilities and improvements.

4.3 Performance of Management Functions. IPS shall provide or arrange for the services set forth in this Article 4, the cost of which shall be included in Practice Expenses (hereinafter defined). IPS is hereby expressly authorized to perform its services hereunder in whatever manner it deems reasonably appropriate to meet the day to day requirements of practice operations in accordance with the general standards approved by the Policy Board, including, without limitation, performance of some of the business office functions at locations

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other than the Practice locations. Provider will not act in a manner which prevents IPS from efficiently managing the day to day operations of the Practice in a business like manner.

4.4 Financial Planning and Goals. IPS shall prepare annual capital and operating budgets reflecting, in reasonable detail, anticipated revenues and expenses, sources and uses of capital for growth in the Practice, and medical services to be rendered at the Practice. The budgets shall be presented to the Policy Board at least thirty (30) days prior to the end of the preceding fiscal year. IPS shall determine the amount and form of capital to be invested annually in the Practice and shall specify the targeted profit margin for the Practice which shall be reflected in the budget.

4.5 Audits and Statements. IPS shall prepare, after consultation with the Policy Board, annual financial statements for the operations of Provider and shall cause the annual financial statements to be audited by an independent certified public accountant selected by IPS.

4.6 Inventory and Supplies. IPS shall order and purchase for the Practice all inventory supplies and other ordinary, necessary and appropriate materials.

4.7 Management Services and Administration.

(a) Provider hereby appoints IPS as its sole and exclusive manager and administrator for all day to day business functions of the Practice. Provider agrees that the purpose and intent of this Practice Management Services Agreement is to relieve the Physician Stockholders and Physician Employees, to the maximum extent possible, of the administrative, accounting, personnel and business functions of the Practice and to have IPS assume responsibility for and be given all necessary authority to perform these functions. IPS agrees that Provider, and only Provider, will perform all medical functions of its practice. IPS will have no authority, directly or indirectly, to perform, and will not perform, any medical function. IPS may, however, advise Provider regarding the relationship between its performance of medical functions and the overall administrative and business functioning of the Practice. To the extent that they assist Provider in performing medical functions, all clinical support personnel provided by IPS shall be subject solely to the direction and supervision of Provider and in the performance of such medical functions, shall not be subject to any direction or control by, or liability to, IPS, except as may be specifically authorized by Provider.

(b) IPS shall, on behalf of Provider, bill patients and collect the professional fees for medical services rendered by Provider at the Practice Sites, for services performed outside the Practice Sites; for hospitalized patients; and for all other professional services. Provider hereby appoints IPS for the term hereof to be its true and lawful attorney-in-fact, for the following purposes: (i) to bill patients in Providers name and on its behalf;
(ii) to collect accounts receivable resulting from such billing in Providers name and on its behalf; (iii) to receive payments from Blue Shield, health and other insurance companies, prepayments from health care plans, Medicare, Medicaid and all other third party payors; (iv) to take possession of and to endorse in the name of Provider (and/or in the name of an individual physician) any notes,

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checks, money orders, insurance payments and other instruments received in payment of accounts receivable; and (v) to initiate the institution of legal proceedings in the name of Provider to collect any accounts and moneys owed to Provider; (vi) to enforce the rights of Provider as creditors under any contract or in connection with the rendering of any service; and (vii) to contest adjustments and denials by governmental agencies (or their fiscal intermediaries) as third party payors. All adjustments made for uncollectible accounts, professional courtesies and other activities that do not generate a collectible fee shall be done in a reasonable and consistent manner approved by IPS independent certified public accountants.

(c) IPS shall design, supervise and maintain custody of all files and records relating to the operation of Provider, including but not limited to accounting, billing, patient medical records, and collection records. Patient medical records shall at all times be and remain the property of Provider and shall be located at the Practice Sites so that they are readily accessible for patient care. The management of all files and records shall comply with applicable state and federal statutes. IPS shall use its best efforts to preserve the confidentiality of patient medical records and use information contained in such records only for the limited purposes necessary to perform the services set forth herein; provided however, that in no event shall a breach of said confidentiality be deemed a default under this Agreement.

(d) IPS shall supply to Provider all clerical, accounting, bookkeeping, transcription and computer services, printing, postage and duplication services, medical transcription services and all other ordinary, necessary or appropriate services for the operation of the Practice.

(e) Subject to the provisions of Section 3.2.3, IPS shall design and implement an adequate and appropriate public relations program on behalf of Provider, with appropriate emphasis on public awareness of the availability of services at the Practice Sites. The public relations program shall be conducted in compliance with applicable laws and regulations governing advertising by the medical profession.

(f) IPS shall provide the data necessary for Provider to prepare its annual income tax returns and financial statements. IPS shall have no responsibility for the preparation of Provider federal or state income tax returns other than as provided in Section 4.5(i) nor shall IPS have any responsibility for the payment of any such income taxes.

(g) IPS shall assist Provider in recruiting additional physicians, performing such administrative functions as may be appropriate such as advertising for and identifying potential candidates, checking credentials, and arranging interviews; provided however, that Provider shall interview and make the decision as to the suitability of any physician to become associated with the Provider. All physicians recruited by IPS and accepted by Provider shall be the employees of Provider and not of IPS. Subject to Section 5.3, any expenses incurred in the recruitment of physicians, including, but not limited to, employment agency fees, relocation costs and interviewing expenses shall be budgeted Practice Expenses. Such expenses shall be approved by IPS.

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(h) Subject to the direction and approval of the Policy Board, IPS shall negotiate and administer all managed care contracts on behalf of Provider.

(i) IPS shall arrange for all legal and accounting services related to Practice operations incurred traditionally in the ordinary course of business, including enforcing any physician contract containing any restrictive covenants, provided that such service shall first be approved in advance by the Executive Director.

(j) IPS will provide for the proper cleanliness of the premises, and maintenance and cleaning of the equipment, furniture and furnishings located upon such premises.

(k) IPS shall negotiate for and cause premiums to be paid with respect to the Insurance provided in Section 9.1. All premiums and deductibles with respect to such policies shall be Practice expenses.

4.8 Executive Director. Subject to the provisions of Section 3.2.11, IPS, if in its sole discretion it deems it to be prudent and necessary, shall hire and appoint an Executive Director to manage and administer all of the day to day business functions of the Practice. IPS shall determine the salary and fringe benefits of the Executive Director. At the direction of, and under the supervision and control of IPS, the Executive Director, subject to the terms of this Agreement, shall implement the policies established by the Policy Board and shall generally perform the duties and have the responsibilities of an administrator. The Executive Director shall be responsible for organizing the agenda for the meetings of the Policy Board referred to in Article 3.

4.9 Personnel. IPS shall provide physician extender employees, nursing and other non-physician professional support (other than Technical Employees) and administrative personnel, clerical, secretarial, and bookkeeping and collection personnel reasonably necessary for the conduct of the Practice. IPS shall determine and cause to be paid the salaries and fringe benefits of all such personnel. Such personnel shall be under the direction, supervision and control of IPS, with those personnel performing patient care services subject to the professional supervision of Provider. If Provider is dissatisfied with the services of any person, Provider shall consult with IPS. IPS shall in good faith determine whether the performance of that employee could be brought to acceptable levels through counsel and assistance, or whether such employee should be terminated. IPS obligations regarding staff shall be governed by the overriding principle and goal of providing the highest quality of medical care. Employee assignments shall be made in a manner which assures consistent and continued rendering of high quality medical support services and prompt availability and accessibility of individual medical support personnel to physicians, in order to develop constant, familiar and routine working relationships between individual physicians and individual members of the medical support staff. IPS shall maintain established working relationships wherever possible and IPS shall make every effort consistent with sound business practices to honor the specific requests of Provider with regard to the assignment of its employees.

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4.10 Practice Expenses. During the term of this Agreement, IPS shall be solely responsible for, and shall pay on a timely basis, when due, all Practice Expenses.

4.11 Events Excusing Performance. IPS shall not be liable to Provider for failure to perform any of the services required herein in the event of strikes, lockouts, calamities, acts of God, unavailability of supplies, or other events over which IPS has no control for so long as such events continue, and for a reasonable time thereafter.

4.12 Compliance with Applicable Laws. IPS shall comply with all applicable federal, state and local laws, regulations and restrictions in the conduct of its obligations under this Agreement.

4.13 Quality Assurance. IPS shall assist Provider in fulfilling its obligation to its patients to maintain a high quality of medical and professional services. The Physician Stockholders hereby acknowledge their obligations to each other and to the public to maintain appropriate standards of medical care.

4.14 Ancillary Services. IPS shall operate such ancillary services as are approved by the Policy Board.

ARTICLE 5

OBLIGATIONS OF PROVIDER

5.1 Professional Services. Provider shall provide professional services to patients in compliance at all times with all ethical standards, laws and regulations applying to the medical profession. Provider shall ensure that each physician associated with Provider that provides medical care to patients of Provider is licensed to do so by the State of New Jersey. In the event that any disciplinary action or medical malpractice action is initiated against any such physician, Provider shall immediately inform the Executive Director of the existence of such action and the facts and circumstances underlying the action. Provider shall establish a program which monitors the medical care delivered at the Practice Sites.

5.2 Medical Practice. Provider shall use and occupy the Practice Sites exclusively for the practice of medicine and shall comply with all applicable local rules, ordinances and standards of medical care. It is expressly acknowledged by the parties that the medical practice or practices conducted at the Practice Sites shall be conducted solely by physicians associated with Provider and no other physician or other medical practitioner shall be permitted to use or occupy the Practice Sites without the prior written consent of IPS.

5.3 Employment of Physician Employees and Technical Employees. Provider shall have complete control of and responsibility for the hiring, compensation, evaluation and termination of its Physician Employees and Technical Employees, although at the request of Provider, IPS shall consult with Provider respecting such matters. Provider shall be responsible

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for the payment of all Physician Employees and Technical Employees salaries and wages, payroll taxes, benefits and all other charges now or hereafter applicable to them. Provider shall only employ and contract with licensed physicians meeting applicable credentialing guidelines established by the Policy Board.

5.4 Professional Dues and Educational Expenses. Provider and its Physician Employees shall be solely responsible for the cost of membership in professional associations, and continuing professional education. Provider shall ensure that each of its Physician Employees participates in such continuing medical education as may be required in order for such physician to remain in compliance with all appropriate standards.

5.5 Fees for Professional Services. Provider shall be solely responsible for all legal, accounting and other professional service fees incurred by Provider.

5.6 Provider Expenses. During the term of this Agreement, Provider shall be solely responsible for, and shall pay on a timely basis, when due, all Provider Expenses.

5.7 Professional Insurance Eligibility. Provider shall cooperate with IPS in obtaining and retaining professional liability insurance; shall make certain that its Physician Employees are properly insurable; and shall participate in an ongoing risk management program.

5.8 Events Excusing Performance. Provider shall not be liable to IPS for failure to perform any of the services required herein in the event of strikes, lockouts, calamities, acts of God, unavailability of supplies, or other events over which Provider has no control, for so long as such events continue and for a reasonable period of time thereafter.

ARTICLE 6

RESTRICTIVE COVENANTS

The parties recognize that the services to be provided by IPS hereunder shall be effective only if Provider operates an active medical practice to which the physicians associated with Provider devote their full time and attention. To that end:

6.1 Restrictive Covenants by Provider. During the term of this Agreement, Provider shall not establish, operate or provide physician services at any medical office, clinic or other health care facility providing services substantially similar to those provided by Provider pursuant to this Agreement, located within 35 miles of the Practice Sites (wherever located at such time).

6.2 Restrictive Covenants by Current Physician Stockholders and Physician Employees. Provider shall obtain and enforce (subject to IPS obligations under Section 4.5(i) of this Agreement) formal agreements from its current Physician Stockholders, pursuant to which the Physician Stockholders agree not to establish, operate or provide physician services at any

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medical office, clinic or outpatient and/or ambulatory treatment or diagnostic facility providing services substantially similar to those provided by Provider within 10 miles of the Practice Sites (wherever located at such time) during the term of such agreements and for a period of two (2) years after any termination of employment with Provider. Provider shall not waive any of the provisions of such agreements.

6.3 Restrictive Covenants by Future Physician Employees. Provider shall obtain and enforce formal agreements from each of its future Physician Employees (and future Physician Stockholders) hired or contracted, pursuant to which such physicians agree not to establish, operate or provide physician services at any medical office, clinic or outpatient and/or ambulatory treatment or diagnostic facility providing services substantially similar to those provided by Provider within 10 miles of the Practice Sites (wherever located at such time) during the term of said Physician Employees employment agreement with Provider and for a period of two (2) years thereafter.

6.4 Enforcement. IPS and Provider acknowledge and agree that since a remedy at law for any breach or attempted breach of the provisions of this Article 6 shall be inadequate, either party shall be entitled to specific performance and injunctive or other equitable relief in the event of any such breach or attempted breach, in addition to all other remedies which may exist at law or equity. The parties hereto also waive any requirement for the securing or posting of any bond in connection with the obtaining of any injunctive or other equitable relief. If any provision of Article 6 relating to the restrictive period, scope of activity restricted and/or the geographic limitation described therein shall be declared by a court of competent jurisdiction to exceed the maximum time period, scope of activity restricted, or geographic area, such court deems reasonable and enforceable under applicable law, the time period, scope of activity restricted, and/or area of restriction held reasonable and enforceable by the court shall thereafter be the restrictive period, scope of activity restricted and/or the territory applicable to the restrictive covenant provisions in this Article 6. The invalidity or non-enforceability of this Article 6 in any respect shall not affect the validity or enforceability of the remainder of this Article 6 or any other provisions of this Agreement.

ARTICLE 7

FINANCIAL ARRANGEMENTS

7.1. Provider Compensation. As compensation for the services rendered at the Practice Sites, Provider shall receive compensation as set forth on Appendix "A", attached hereto and made a part hereof ("Provider Compensation"). With respect to any partial calendar years during which this Agreement is in effect, Provider Compensation shall be prorated according to the number of calendar days actually elapsed during such partial calendar year.

7.2 Draws. At the beginning of each month, IPS shall make a reasonable estimate of the amount of Provider Compensation which shall be due and payable to Provider for such months operations. IPS shall pay such estimated amount
("Estimated Provider Compensation")

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as a Draw to Provider, on or before the tenth (10th) day of each calendar month. The Estimated Provider Compensation may vary from month to month depending upon historical factors and other adjustments.

7.3 Determination and Payment of Provider Compensation.

(a) Between July 1 and July 15 of the calendar year immediately following each calendar year during the term of this Agreement, IPS shall make a determination as to the amount of the total Provider Compensation earned by Provider during the immediately preceding year. No later than each such July 15, IPS shall cause a payment to be made to Provider in an amount equal to the aggregate Provider Compensation payable with respect to such calendar year, less the aggregate sum of all Draws received by Provider pursuant to Section 7.2 during such calendar year. All Net Practice Revenues with respect to any calendar year, in excess of Provider Compensation for such calendar year, shall be the sole property of IPS, pursuant to the terms of Section 7.4(a) hereof.

(b) In the event that, after making the determination provided for in
Section 7.3(a), it is determined that the aggregate Draws by Provider under
Section 7.2 for the applicable calendar year exceed the actual amount of Provider Compensation which Provider is ultimately entitled to receive with respect to such calendar year (an "overdraft"), Provider shall pay the amount of the overdraft to IPS within thirty (30) days after receipt by Provider of written notice from IPS specifying the amount of such overdraft or, at the option of IPS, Provider shall have the amounts payable to it pursuant to Section 7.1 with respect to the next succeeding calendar year reduced by the amount of such overdraft.

In the event that Provider shall ever disagree with any determination by IPS of the total Provider Compensation for any calendar year, Provider shall have the right to review, upon reasonable notice to IPS, the documents used by IPS in determining such amounts.

7.4 Assignment of Fees for Medical Services.

(a) As compensation to IPS for all of the facilities, equipment and services rendered by it to Provider pursuant to the terms of this Agreement, and as full and complete payment therefor, Provider, Physician Stockholders, and Physician Employees hereby irrevocably assign and set over to IPS all of their rights to receive payment for the provision of medical services to patients of the Practice, including all charges which Provider or the Physician Stockholders or Physician Employees would otherwise bill and retain for their own account, and all of their rights to all other income or revenue generated by the operations of the Practice.. The parties acknowledge and agree that the compensation and benefits payable to Provider pursuant to the provisions of
Section 7.1 are intended to be in lieu of charges which Provider or its Physician Stockholders or Physician Employees would otherwise earn for the provision of medical services to patients of their medical practice. Provider shall obtain, or cause to be obtained, from each Physician Stockholder and Physician Employee, an assignment of all of his right, title and interest in and to all fees for medical services rendered to patients of the practice and all of his rights to any other income or revenue generated by the operations of the Practice.

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Provider, Physician Stockholders and Physician Employees shall endorse any payments received on account of such services to the order of IPS and shall take such other actions as may be necessary to confirm to IPS the rights set forth in this Section 7.4(a).

(b) Without limiting the generality of the foregoing, it is the intent of the parties that the assignment to IPS of the rights described in
Section 7.4(a) above shall be inclusive of the rights of Provider and the Physician Stockholders and Physician Employees to receive payment with respect to any services rendered prior to the effective date of any expiration or termination of this Agreement. Provider agrees, and shall cause each Physician Stockholder and Physician Employee to agree, that IPS shall retain the right to collect and retain for its own account any accounts receivable relating to any such services rendered prior to the effective date of any such expiration or termination ("Pre-Termination Accounts Receivable").

(c) Provider acknowledges that it is the intent of IPS to grant a security interest in the Pre-Termination Accounts Receivable to the lender(s) under its working capital line of credit facility (whether one or more, "Lender"), as in effect from time to time. Provider agrees that such security interest of the Lender is intended to be a first priority security interest and is superior to any right, title or interest which may be asserted by Provider or any Physician Stockholder or Physician Employee with respect to Pre-Termination Accounts Receivable or the proceeds thereof. Provider further agrees, and shall cause each Physician Stockholder and Physician Employee to agree, that, upon the occurrence of an event which, under the terms of such working capital credit facility, would allow the Lender to exercise its right to collect Pre-Termination Accounts Receivable and apply the proceeds thereof toward amounts due under such working capital credit facility, the Lender will succeed to all rights and powers of IPS under the powers of attorney provided for in
Section 4.7(b) above as if such Lender had been named as the attorney-in-fact therein.

(d) If, contrary to the mutual intent of IPS and Provider, the assignment of rights described in this Section 7.4 shall be deemed, for any reason, to be ineffective as an outright assignment, then Provider and each Physician Stockholder and each Physician Employee shall, effective as of the date of this Agreement, be deemed to have granted (and Provider does hereby grant, and shall cause each Physician Stockholder and Physician Employee to grant) to IPS, a first priority lien on and security interest in and to any and all interests of Provider and such Physician Stockholders and Physician Employees in any accounts receivable generated by the medical practice of Provider and its Physician Stockholders and Physician Employees or otherwise generated through the operations of the Practice, and all proceeds with respect thereto, to secure the payment to IPS of all Net Practice Revenues in excess of Provider Compensation, and this Agreement shall be deemed to be a security agreement to the extent necessary to give effect to the foregoing. Provider shall execute and deliver and cause each Physician Stockholder and Physician Employee to execute and deliver, all such financing statements as IPS may request in order to perfect such security interest, Provider shall not grant
(and shall not suffer any Physician Stockholder or Physician Employee to grant) any other lien on or security interest in or to such accounts receivable or any proceeds thereof.

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7.5. Collection of Governmental Receivables. With respect to payments on Governmental Receivables, at the request and option of IPS, Provider agrees that the following procedures shall apply:

(a) Provider shall enter into a lockbox agreement applicable to Governmental Receivables and establish a Governmental Lockbox Account. The Governmental Lockbox Account shall be an account in the name of Provider. All payments in respect of Providers Governmental Receivables are to be made directly to such account. In the event IPS exercises this option, Provider shall instruct each Account Debtor in respect of Providers Governmental Receivables to remit all such payments directly to such Governmental Lockbox Account pursuant to a Notification Letter. In addition, Provider shall attach written instructions to each invoice directing that said invoice be paid to the Governmental Lockbox Account. Provider agrees that it shall not deposit any funds other than payments of Governmental Receivables into, nor make any withdrawals from, the Governmental Lockbox Account without the prior written consent of IPS. Provider further agrees that it shall not during the term of this Agreement, terminate, modify or amend in any manner the Lockbox Agreement applicable to the Governmental Lockbox Account.

(b) In accordance with the Lockbox Agreement pertaining to Governmental Receivables, Provider shall instruct the Collecting Bank to transfer all amounts deposited in the Governmental Lockbox Account constituting collected funds to IPSs Main Account. Provider shall have no right or interest in the Main Account. Provider shall not, so long as any Assigned A/R remains unpaid, change or cancel such automatic transfer at any time, or, without the prior written consent of IPS, change either the identity of the Governmental Lockbox Account or the instructions to each Account Debtor of the related Governmental Receivable to make its payments to such Account. Any such action shall be considered a breach of this Agreement for which IPS shall be entitled to all remedies at law and in equity, including the obtaining of an injunction.

(c) Provider will cooperate with IPS and its agents in the identification of sums deposited into the Governmental Lockbox Account, which cooperation shall continue until all Assigned A/R have been collected.

(d) Provider agrees to pay, on demand, a finance charge equal to the Finance Charge Rate, on any payment of a Governmental Receivable received by Provider that is not deposited in the Governmental Lockbox Account within forty-eight (48) hours after receipt by Provider.

7.6. Collection of Non-Governmental Receivables. With respect to payments on Non-Governmental Receivables, if requested by IPS at IPSs option, Provider agrees that the following procedures shall apply:

(a) Prior to the assignment of any Non-Governmental Receivable hereunder, IPS, the Collecting Bank and Lender (if requested by Lender) shall enter into a Lockbox Agreement applicable to Non-Governmental Receivables, and IPS shall establish a Non-Governmental

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Lockbox Account. The Non-Governmental Lockbox Account shall be an account in the name of IPS. All payments in respect of Providers Non-Governmental Receivables are to be made directly to such account. In the event IPS exercises this option, Provider shall instruct each Account Debtor in respect of Providers Non-Governmental Receivables to remit all such payments directly to such Non-Governmental Lockbox Account pursuant to a Notification Letter. In addition, Provider shall attach written instructions to each invoice representing such Non-Governmental Receivables generated subsequent to the date of this Agreement instructing such third party payor or Account Debtor that payment of such invoice is to be paid to the Non- Governmental Lockbox Account. Provider agrees that it shall not deposit any funds other than payments of Non-Governmental Receivables into, nor make any withdrawals from, the Non-Governmental Lockbox Account without the prior written consent of IPS. Provider further agrees that it shall not during the term of this Agreement terminate, modify or amend in any manner the Lockbox Agreement applicable to the Non-Governmental Lockbox Account.

(b) In accordance with the Lockbox Agreement pertaining to Non-Governmental Receivables, Provider and IPS shall instruct the Collecting Bank to transfer all amounts deposited in the Governmental Lockbox Account constituting good funds to IPSs Main Account. Provider shall have no right or interest in the Non-Governmental Lockbox Account nor to the Main Account and such accounts shall be in the name of and under the control of IPS. Provider shall not, so long as any Assigned A/R remains uncollected, and in any event, during the term of this Agreement, at any time, or, without the prior written consent of IPS, change the instructions to each Account Debtor of the related Non-Governmental Receivable to make its payments to such Account. Any such action shall be considered a breach of this Agreement for which IPS shall be entitled to all remedies at law and in equity, including the obtaining of an injunction.

(c) Provider will cooperate with IPS and its agents in the identification of sums deposited into the Non-Governmental Lockbox Account, which cooperation shall continue until all Assigned A/R have been collected.

(d) Provider agrees to pay, on demand, a finance charge equal to the Finance Charge Rate, on any payment on a Non-Governmental Receivable received by Provider that is not deposited into the Non-Governmental Lockbox Account within forty-eight (48) hours after receipt by Provider.

7.7. Procedures Without Lockbox. In the event that IPS elects to forego the procedures established in Sections 7.5 and 7.6, Provider shall instruct the Collecting Bank to transfer automatically all amounts constituting collected funds in the account or accounts of Provider established for the collection of Governmental and Non-Governmental Receivables to IPSs Main Account pursuant to a standing order in form and substance acceptable to IPS and its legal counsel. Provider shall have no right or interest in IPSs Main Account and such account shall be in the name of and under the control of IPS. Provider shall not, so long as any Assigned Accounts Receivable remain unpaid, change or cancel such standing order at any time, or, without the prior written consent of IPS, change the instructions to any Account Debtor of each Governmental Receivable and Non-Governmental Receivable to make its payments to such

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account. Any such action shall be considered a breach of this Agreement for which IPS shall be entitled to all remedies at law and in equity, including the obtaining of an injunction.

7.8. Misdirected Payments. If, after the date of this Agreement, an Account Debtor shall make payment of any Assigned A/R to a location other than is provided in the Notification Letter, or Provider otherwise receives payments on Accounts Receivable that are assigned to IPS under the terms of this Agreement ("Misdirected Payments"), Provider (at its own cost and expense) shall promptly take all necessary steps to effect collection of such Misdirected Payments from any other party claiming an interest therein or having possession thereof and
(i) hold such payment in trust for IPS, (ii) segregate such payment, (iii) use its best efforts not to commingle such payment with Providers own funds or other assets, and (iv) deliver such payment no later than forty-eight (48) hours from the day of receipt to the Governmental Lockbox Account or the Non-Governmental Lockbox Account, as applicable. Provider agrees to pay, on demand, the Finance Charge Rate on any Misdirected Payment received by Provider that is not deposited in IPSs Main Account within forty-eight (48) hours after receipt by Provider.

7.9. Representations and Warranties with respect to Accounts Receivable. Provider hereby represents and warrants that with respect to the Assigned A/R, as of the date of assignment:

(a)(i) All documents and agreements relating to Assigned A/R that have been delivered to IPS are true and correct; (ii) Provider has delivered or caused to be delivered to IPS all requested supporting claim documents with respect to IPSs billing and collection of such Accounts Receivable on its behalf; and (iii) all information provided by Provider to IPS and to be set forth on the bill and supporting claims documents is true and correct, and, if any error has been made, Provider will promptly correct the same and cooperate with IPS to rebill such Accounts Receivable.

(b) The Assigned A/R are exclusively owned by Provider and there is no security interest or lien in favor of any third party, nor has there been any UCC recording or filing against Provider, as debtor, covering or purporting to cover any interest of any kind in any Accounts Receivable, except as may have been released by each party holding such adverse interest in the Accounts Receivable. With respect to the Assigned A/R and with respect to Governmental Receivables, to the extent permissible by law, all right, title and interest of Provider with respect thereto shall be vested in IPS, free and clear of any lien, security interest or encumbrance of any kind, Provider agrees to defend the same (or pay the costs and expenses incurred in undertaking such a defense on behalf of Provider) against the claims of all persons to the Assigned A/R.

(c) The Assigned A/R (i) are payable in an amount not less than their face amount, (ii) are based on an actual and bona fide rendition of services or sale of goods to the patient by Provider in the ordinary course of Provider's business, (iii) are denominated and payable only in lawful currency of the United States; and (iv) are accounts of general intangibles within the meaning of the UCC of the state in which Provider has its principal place of business, or are rights to payment under a policy of insurance or proceeds thereof, and are not evidenced by any

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instrument or chattel paper. There are no payors other than the Account Debtor identified by Provider as the payor primarily liable on any Assigned A/R.

(d) The Assigned A/R are not: (i) subject to any action, suit, proceeding or dispute (pending or threatened), set-off. counterclaim, defense, abatement, suspension, deferment, deductible, reduction or termination by the Account Debtors other than routine adjustments and disallowances made in the ordinary course of business, to the extent of such adjustments and disallowances; (ii) past or within sixty (60) days of the statutory limit for collection applicable to the Account Debtor; (iii) subject to an invoice which provides for payment more than forty-five days from the date of such invoice;
(iv) an account which arises out of a sale or other transaction by or between Provider and an Affiliate of Provider; (v) from an Account Debtor who is also a creditor of Provider; (vi) Accounts Receivable in which the Account Debtor has commenced a voluntary case, or an involuntary proceeding has been instituted, under the federal bankruptcy laws , as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or if a decree or order for relief has been entered by a court having jurisdiction in the premises in respect to the Account Debtor; (vii) an account of which the services giving rise to such Accounts Receivable have not been performed by Provider and accepted by the Account Debtor or the Accounts Receivable otherwise do not represent a final sale; (viii) is evidenced by an instrument or chattel paper unless such instrument or chattel paper is delivered to IPS with all appropriate endorsements in favor of IPS, or (ix) other than a complete bona fide transaction which requires no further act under any circumstances on the part of Provider to make the Accounts Receivable payable by the Account Debtor.

(e) Provider does not have any guaranty of, letter of credit providing support for, or collateral support for, the Assigned A/R, other than any such guaranty, letter of credit or collateral security as has been assigned to IPS, and any such guaranty, letter of cedit or collateral security is not subject to any lien in favor of any other person.

(f) The goods or services provided and reflected by the Assigned A/R have been or will be medically necessary for the patient in the opinion of Provider and the patient received such goods or services.

(g) The face amount of the Accounts Receivable for the services constituting the basis for the Assigned A/R are consistent with the usual, customary and reasonable fees charged by other similar medical service providers in Providers community for the same or similar services.

(h) Each Account Debtor with respect to the Assigned A/R (i) is not the subject of any bankruptcy, insolvency or receivership proceeding, nor is it generally unable to make payments on its obligations when due, (ii) is located in the United States, and (iii) is one of the following: (x) a party which in the ordinary course of its business or activities agrees to pay for health care services received by individuals, including without limitation, Medicare, Medicaid, governmental bodies, commercial insurance companies and nonprofit insurance companies (such as Blue Cross and Blue Shield entities) issuing health, personal injury, workers compensation or other types of insurance; (y) employers or unions which self-insure for employee or member

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health insurance, prepaid health care organizations, managed care entities, preferred provider organizations or any other similar organization or entity, or
(z) a third party payor of the types described in the definition of Governmental Receivables.

(i) Except with respect to Governmental Receivables, the insurance policy, contract or other instrument obligating an Account Debtor to make payment with respect to the Assigned A/R (i) does not contain any provision prohibiting the transfer of such payment obligation from the patient to the Provider, or from Provider to IPS, and if any such does contain such a provision, the consent of the third party to the transfer has been obtained in writing; (ii) has been duly authorized and, together with the Assigned A/R, constitutes the legal, valid and binding obligations of the Account Debtor in accordance with its terms; (iii) together with the applicable Assigned A/R, does not contravene in any material respect any requirement of law applicable thereto; and (iv) was in full force and effect and applicable to the patient at the time the services constituting the basis for the Assigned A/R were performed.

None of the foregoing representations and warranties shall be deemed to constitute a guaranty by Provider that the Assigned A/R will be collected by IPS.

ARTICLE 8

RECORDS

8.1. Patient Records. Upon termination of this Agreement, Provider shall retain all patient medical records maintained by Provider or by IPS on behalf of Provider. Provider shall, at its option, be entitled to retain copies of financial and accounting records relating to all services performed by Provider.

8.2. Records Owned by IPS. All records relating in any way to the operation of the Practice which are not the property of Provider under the provisions of
Section 8.1 above, shall at all times be the property of IPS.

8.3. Access to Records. During the term of this Agreement, and thereafter, Provider or its designee shall have reasonable access during normal business hours to the financial records of the Practice, including but not limited to, revenues,