10-K

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1997

or

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
____________to________________

Commission File Number 0-21209

                         ADVANCED HEALTH CORPORATION
            (Exact name of registrant as specified in its charter)

Delaware                            13-3893841
(State or other jurisdiction        (IRS employer identification
of incorporation)                   or organization number)

555 White Plains Road               10591
Tarrytown, New York                 (Zip code)
(Address of principal executive offices)

Registrants' telephone number, including area code: (914) 524-4200

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value

      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 


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Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] 
No [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K: [ ]

      The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant is $127,675,436, based on the closing price of
the Common Stock on March 25, 1998. As of March 25, 1998, there were 9,997,371
shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the registrant's definitive Proxy Statement for the 1998
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1997, are incorporated by
reference in Part III hereof.



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        STATEMENTS MADE OR INCORPORATED INTO THIS ANNUAL REPORT INCLUDE A
NUMBER OF FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934. FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "ANTICIPATES," "BELIEVES," "EXPECTS,"
"INTENDS," "FUTURE" AND WORDS OF SIMILAR IMPORT WHICH EXPRESS MANAGEMENT'S
BELIEF, EXPECTATIONS OR INTENT REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE SET FORTH IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES ARE
DESCRIBED IN THE SECTION ENTITLED "CERTAIN FACTORS THAT MAY AFFECT FUTURE
RESULTS" FOUND ON PAGE 33 OF THIS ANNUAL REPORT.


                                     PART I

ITEM 1.  BUSINESS

Overview

      Advanced Health Corporation (the "Company") provides a full range of
integrated management services and clinical information systems to physician
group practices, single legal entities comprised of multiple physicians, and to
physician networks, aggregations of individual physicians and physician groups
formed for the purpose of entering into contracts with third-party payors. The
Company's clinical information systems are also licensed to hospitals,
integrated delivery systems, information system companies, and other health care
organizations.

      The management services provided by the Company include physician practice
and network development, marketing, payor contracting, financial and
administrative management, clinical information management, human resource
management, and practice and network governance management. Through the
management of multi-specialty and single-specialty physician group practices and
networks, the Company focuses its management efforts on high-cost, high-volume
areas of medical care. The Company currently manages twelve multi-specialty
physician group practices and five cardiology physician group practices
comprised of 342 providers in the greater New York and Philadelphia metropolitan
areas and 15 physician networks with approximately 1,700 physicians in the
greater New York, Philadelphia and Atlanta metropolitan and surrounding areas,
and provides physician group consulting services to more than 50 physicians. The
Company developed its clinical information systems to provide physicians, at the
point of care and on a real-time basis, with patient-specific clinical and payor
information and the ability to generate patient medical orders and facilitate
the implementation of disease management programs.

      In response to the impact of the development of managed care programs on
the delivery of health care services, physician practice management companies
have emerged in recent years to manage the financial and administrative
requirements of physician organizations. More importantly, the Company believes
there exists an even greater need among physicians for clinical management
services and information systems. The Company believes that assisting physicians
in managing the clinical aspects of 


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their practices represents the greatest opportunity to enhance the quality and
reduce the cost of health care.

      The Company believes that it is well positioned to attract, organize and
manage physician group practices and networks by offering a full range of
integrated management services and clinical information systems. The Company
believes that its clinical information systems will allow physicians, at the
point of care and on a real-time basis, (i) to access patient-specific clinical
and payor information, (ii) to generate patient instructions, prescriptions and
orders for tests, specialty referrals and specialty procedures and (iii) to
access databases containing managed care and disease management protocols,
diagnostic treatment preferences and guidelines affecting medical orders. By
combining its group practice and network management services with its clinical
information systems, the Company believes it can provide physicians with
integrated solutions for managing the increased financial opportunities and
risks associated with managed care contracts while allowing physicians to
improve the quality of care.

      The Company's strategy includes (i) establishing long-term contractual
alliances with physician organizations, (ii) managing high-cost, high-volume
areas of medical care in geographic markets that offer concentrations of
physicians seeking the Company's services, (iii) providing physicians with
clinical information at the point of care, and (iv) developing strategic health
care information system ("HCIS") relationships with key industry participants.
Through its recent acquisition of Bukstel and Halfpenny Corporation, a company
involved in clinical data integration and communications, and its other
developing technologies, the Company has entered into licenses with hospitals,
integrated delivery systems, information system companies and other health care
organizations.

      The Company's predecessor, Med-E-Systems Corporation ("MES"), was
incorporated on August 27, 1993 as a clinical information systems development
company. Effective August 23, 1995, MES became a subsidiary of the Company
through a tax-free reorganization. The Company was subsequently merged with and
into Majean, Inc., a Delaware corporation, and the surviving corporation changed
its name to Advanced Health Corporation. On October 3, 1996, the Company
consummated the initial public offering (the "IPO") of its Common Stock
(including the exercise of the underwriters' over-allotment option). In the IPO,
the Company sold 2,645,000 shares of Common Stock at an initial public offering
price of $13.00 per share. On October 7, 1997, the Company completed its
follow-on offering of 2,250,000 shares of Common Stock including the
underwriters' over-allotments option. The follow-on offering generated proceeds
to the Company of approximately $46.0 million, net of underwriting expenses.



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Strategy

      The objective of the Company is to become a leading provider of integrated
management services and clinical information systems to physician organizations.
By enabling physicians to develop and efficiently manage group practices and
networks, the Company seeks to assist physicians in facilitating risk-based
managed care contracts, developing and implementing disease management programs
and monitoring and controlling health care outcomes and costs. The Company's
strategy includes (i) establishing long-term contractual alliances with
physician organizations, (ii) managing high-cost, high-volume areas of medical
care in selected geographic markets that offer concentrations of physicians
seeking the Company's services (iii) providing physicians with clinical
information at the point of care, and (iv) developing strategic HCIS
relationships with key industry participants.

Physician Practice and Network Services

      The Company provides physicians with a full range of integrated services
to form and develop group practices and networks, to manage group practice and
network operations, to develop disease management programs and to manage medical
risk. These integrated services include clinical support and administrative and
marketing services as well as point-of-care information systems and support. The
Company often initially provides physician practice and network services
pursuant to a consulting arrangement. The Company believes that its
point-of-care information systems provide physicians with the information needed
to improve the quality and reduce the cost of health care.

      In addition to providing administrative management services to physician
organizations, the Company seeks to differentiate itself by assisting physicians
in managing the clinical aspects of 


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their practices. The Company believes that its integrated management services
and clinical information systems will enhance the ability of physician group
practices and networks to implement disease management programs and to manage
practices under risk-based contracts. The Company is working to assist
physicians in developing disease-specific clinical practice guidelines and in
practicing in accordance with applicable standards of care.

      The Company markets its physician practice management and network
management services through (i) direct sales methods, (ii) consultative sales
that include providing advice on the development, consolidation and financing of
group practices and networks and (iii) cross-selling to customers of its
clinical information systems.

      The Company offers a comprehensive set of physician practice management
services, including practice formation, operations development and strategic
planning, marketing, payor contracting and management, financial and
administrative management, clinical information management, human resource
management and practice governance.

      The Company's physician network management services include network
development and strategic planning, disease management program development,
payor marketing and contracting, financial and administrative management,
clinical information management and network governance.

Clinical Information Systems

      The Company has developed clinical information systems that link physician
users at the point of care and on a real-time basis with patient data and
clinical guidelines maintained by the Company and third parties. The Company's
clinical information systems consist of proprietary software, third-party
hardware, proprietary and third-party databases and related support services.
The Company's clinical information systems are designed to allow physicians (i)
to access patient-specific clinical and payor information, (ii) to generate
patient instructions, prescriptions and orders for tests, specialty referrals
and specialty procedures and (iii) to access databases containing managed care
and disease management guidelines, diagnostic/treatment preferences and
guidelines affecting medical orders.


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      In September 1997, the Company acquired Bukstel & Halfpenny Incorporated's
("B&H") proprietary laboratory and other health care information technologies
business. These technologies expanded the Company's product and service
offerings, which provide electronic linkages between physicians and other health
care organizations. The primary acquired asset was B&H's DR. CHART system, which
links physicians with hospital-based clinical systems such as laboratory,
radiology, and pathology systems. This technology allows physicians to view
clinical results rapidly and accurately regardless of which lab or facility
produced the report.

      The Company's clinical information systems are designed to complement
existing health care information systems and to function with third-party
applications. The clinical information system connects to physician users either
through the use of a hand-held computer equipped with a wireless modem or a
desktop computer using a standard wireline modem. Access to the Company's
clinical information systems is delivered to physician users and other health
care professionals via both private and public networks, including the Internet.
The Company's product suites operate within a client/server-based open
architecture. The Company's products support HL-7 interfaces, incorporate TCP/IP
protocols for real-time data transmission and run on the Microsoft Windows
operating system and standard hardware platforms. The Company employs
proprietary processes and standard commercial security measures to ensure the
privacy of the data communication paths within its products. The Company
licenses its clinical information systems to third party health care
organizations as well as its affiliated physicians. The Company continues to
pursue strategic relationships with health care providers as well as hospital
information systems companies, physician practice management systems companies
and on-line services companies for the purpose of further developing and
marketing its information systems.

      The Company offers a broad range of clinical information systems for
physician users, presently through applications summarized as follows:

Product Name                        Product Description

Med-E-Practice(TM)                  Med-E-Practice(TM)is a clinical software
                                    program designed for use by physicians and
                                    their clinical assistants in support of
                                    clinical decision making, clinical
                                    ordering, 


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                                    record keeping and administrative
                                    management. This application can co-exist
                                    with current paper-based filing systems
                                    while supporting a migration path towards a
                                    complete electronic medical record (EMR).
                                    Additionally, Med-E-Practice(TM) allows an
                                    enterprise system to collect clinical data
                                    while working cohesively with its community
                                    providers.

Med-E-Practice(TM) allows physicians to electronically develop the core elements
of a medical record by capturing key patient data as a byproduct of their
routine patient care. A physician's orders are entered directly into
Med-E-Practice(TM), instantly creating a computerized medical record that
includes a patient's allergies, medications, and problem list.

Dr. Chart(TM)                       Dr. Chart(TM) is a clinical software
                                    application that allows physicians, nurses
                                    and other clinicians to effectively manage
                                    patient information from multiple sources,
                                    such as clinical laboratory, radiology,
                                    and pathology systems. Working in 
                                    conjunction with our CDX(TM) integration 
                                    product, Dr. Chart(TM) provides clinicians 
                                    with a common user interface to view, 
                                    annotate, 
                                    


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                                    and print patient data from various
                                    electronic information sources. 


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E-Rx                                E-Rx(TM) is the first application available
                                    to physicians under the EOS-2000(TM)
                                    umbrella. This application creates legible
                                    and complete prescriptions that are screened
                                    for clinical and financial interactions. The
                                    resulting prescription can then be printed,
                                    faxed, or sent electronically to the
                                    patient's pharmacy. The patient's
                                    medication, allergy, and problem history is
                                    automatically stored in a central server,
                                    allowing for convenient data access by any
                                    physician involved in the patient's care.


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The Company believes that the timely development of new clinical information
applications and the enhancement of existing clinical information systems are
important to its competitive position. The Company's product development
strategy is directed toward creating new applications that (i) increase the
functionality of current products by providing enhanced interfaces to
third-party systems and data repositories, (ii) expand coverage along the
continuum of clinical care, (iii) increase coverage to additional disease and
procedure groups and (iv) provide customers with a range of decision support
systems at various price points. The Company has approximately 40 professionals
dedicated to systems development.

Concentration of Revenues

      In the year ended December 31, 1997, Madison Medical - The Private
Practice Group of New York, LLP ("Madison") and the Advanced Heart Physicians &
Surgeons Network, P.C. ("AHP&S") accounted for approximately 17% and 16% of 
revenues, respectively. The Company's management services agreements generally
have an initial term of five to 30 years. Any termination or significant
deterioration of the Company's relationships with its principal


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customers could have a material adverse effect on the Company's business,
financial condition and results of operations. 

Contractual Relationships with Affiliated Physicians

      The Company typically establishes a majority-owned management service
organization ("MSO") for each physician organization it manages. The MSO is a
joint venture between the physician organization and the Company, with the
Company owning at least 51% of the equity in the MSO. The MSO enters into a
long-term management services agreement with the physician organization pursuant
to which the MSO provides group practice management or network management
services that provide both administrative and clinical support to members of the
physician organization. The MSO concurrently enters into a services agreement
with the Company pursuant to which it gains access to management services and
clinical information systems from the Company. The MSO's assets consist
primarily of its management service contracts with the physician group or
network served and its liabilities consist primarily of its obligations under
its agreement with the Company and its obligations to its employees. For certain
MSOs, a stockholders agreement is entered into among the MSO, the physician
organization and the Company. The stockholders agreement, among other things,
(i) restricts the transfer of MSO equity, (ii) provides the terms upon which,
after the occurrence of the Trigger Event (as hereinafter defined), the MSO can,
at the Company's option, be merged with and into a wholly-owned subsidiary of
the Company in a transaction in which interests of the physician groups and
networks in such MSO would be exchanged for Common Stock (the "Roll Up
Transaction") and (iii) grants to the physician organization the right to put
its equity in the MSO to the Company at a price equal to 110% of the
then-current fair market value of the shares of Common Stock that would have
otherwise been issued in the Roll Up Transaction if the Company does not
exercise its option to cause the Roll Up Transaction to occur within one year
after the occurrence of the Trigger Event. In the case of each such MSO, a
Trigger Event will occur at such time as (i) the Company is providing physician
practice management services to at least 300 physicians, (ii) the Company is
providing physician network management services to at least 2,000 physicians,
(iii) the Company has at least $75,000,000 in stockholders' equity and (iv) the
Company's Common Stock is publicly traded. The Company has reserved 548,224
shares of 


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Common Stock for issuance upon the merger of such MSOs into the Company.

      Physician Practices. The management services agreements between the MSO
and a physician practice group generally have an initial term of five to 30
years and are automatically renewable for additional terms. Such agreements
typically are subject to early termination for cause. The management services
agreements generally obligate an MSO to provide certain non-medical practice
management services to the physician practice group for a monthly fee. The fee
paid to the MSO is generally a combination of fixed fees for certain services
and percentage fees for certain services, dependent upon certain state
regulations. For risk-based contracts that the physician practice group enters
into, the management services agreement will generally provide for additional
management fees based upon savings recognized by the physician practice group
because of any cost efficiencies resulting from the MSO's performance. The fees
are set to be competitive within the geographic area in which the physician
practice group is located. A provision restricting the physician practice group
from competing against the MSO or employing the MSO's employees is generally
included in the agreement.

      Physician Networks. The management services agreements between the MSO and
a physician network generally have an initial term of at least five years and
are automatically renewable for additional terms. Such agreements typically are
subject to early termination for cause. The management services agreements
generally obligate an MSO to provide certain non-medical practice management
services to the physician network for a fee. The fee paid to the MSO for
risk-based contracts is generally a service fee equal to a specified percentage
of capitated revenues, for providing the non-medical management services. The
fees are set to be competitive within the geographic area in which the physician
network is located. In the agreement, the physician network agrees that the MSO
will be the exclusive provider of non-medical management services to the
physician network.

      Capitated and Other Fixed-Fee Arrangements. In the future, the Company
anticipates entering into managed care or capitated arrangements, either
indirectly through the assignment of managed care contracts entered into between
its affiliated physicians and third-party payors or directly through the
formation of an independent physician association ("IPA"). The Company has not
earned, recognized or recorded any such revenue through December 31, 1997. The
Company does, however, provide management services 


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to physician groups and networks that have entered into such capitated
contracts. Revenues under any managed care or capitated arrangements entered
into directly by the Company will generally be a fixed amount per enrollee.
Under such an arrangement, the Company would contract with affiliated physicians
for the provision of health care services and the Company would be responsible
for the provision of all or a portion of the health care requirements of such
enrollees.

Proprietary Rights

      The Company is relying upon the effectiveness of protection provided by a
combination of patent, trade secret and copyright laws, nondisclosure and other
contractual provisions and technological measures to protect its proprietary
position in its methodologies, databases and software. The Company has two U.S.
patent applications, which, in March 1998, were allowed by the United States
Patent and Trademark Office, and a foreign patent application having subject
matter common with both U.S. applications. The patent applications are directed
to the Company's electronic prescription management system and related
technologies. No assurance can be given that patent, trade secrets, copyright or
other intellectual property rights can be successfully asserted in any court
action. The Company also has copyrights in its software, user documentation and
databases. The copyright protection accorded to databases, however, is fairly
limited. While the arrangement and selection of data are protectable, the actual
data are not, and others are free to create databases that perform the same
function. The Company distributes its clinical information systems products
under agreements that grant customers non-exclusive licenses and generally
contain terms and conditions restricting the disclosure and use of the Company's
systems. In addition, the Company attempts to protect the secrecy of its
proprietary databases and other trade secrets and proprietary information
through confidentiality agreements with employees, consultants and third
parties.

      The Company believes that, aside from the various legal protections of its
proprietary information and technologies,


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factors such as the technological and creative skills of its personnel and
product maintenance and support are integral to establishing and maintaining its
position within the health care industry. Although the Company believes that its
products do not infringe upon the proprietary rights of third parties, there can
be no assurance that third parties will not assert infringement claims against
the Company in the future.

Competition

      The provision of physician practice and network management services is a
highly competitive business in which the Company competes for contracts with
several national and many regional and local companies. The Company also
competes with traditional managers of health care services that directly recruit
and manage physicians. Certain of the Company's competitors have access to
substantially greater financial resources than the Company. The Company believes
that competition in this industry is generally based on cost and quality of
services.

      The market for health care information systems and services is highly
competitive and rapidly changing. The Company believes that the principal
competitive factors for clinical information systems are the proprietary nature
of methodologies, databases and technical resources, the usefulness of the data
and reports generated by the software, customer service and support,
compatibility with the customer's existing information systems, potential for
product enhancement, vendor reputation, price and the effectiveness of marketing
and sales efforts.

      The Company's competitors include other providers of clinical information
systems and practice management systems. Many of the Company's competitors and
potential competitors have greater financial, product development, technical and
marketing resources than the Company, and currently have, or may develop or
acquire, substantial installed customer bases in the health care industry. In
addition, as the market for clinical information systems and practice management
systems develops, additional competitors may enter the market and competition
may intensify. While the Company believes that it will successfully
differentiate its clinical information systems from those of its competitors,
there can be no assurance that future competition will not have a material
adverse effect on the Company.

Government Regulation


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      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
believes its operations are in material compliance with applicable laws.
Nevertheless, because of the nature of the Company's relationship with physician
organizations, many aspects of the Company's business operations have not been
the subject of formal state or federal regulatory interpretations and there can
be no assurance that a review by courts or regulatory authorities of the
Company's business or that of its affiliated physician organizations 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 or the affiliated physicians' existing operations or
their expansion.

      Reimbursement. Management estimates that approximately 40% of the
revenues of the Company's affiliated physician group practices are derived from
payments made by government-sponsored health care programs (principally
Medicare, Medicaid and state reimbursement programs). Consequently, any change
in reimbursement regulations, policies, practices, interpretations or statutes
could adversely affect the operations of the Company. The federal Medicare
program has implemented a system of reimbursement of physician services, RBRVS.
The Company expects that future changes in the RBRVS fee schedule, as required
by law, and in Medicare reimbursement generally, will result, in some cases, in
a reduction and, in some cases, in an increase from historical levels in the
per-patient Medicare revenue received by certain of the physician organizations
with which the Company contracts. Reductions in the RBRVS fee schedule may have
a material adverse effect on the Company, and if adopted by other payors, could
have a further material adverse effect on the Company.

      Billing. There are state and federal civil and criminal statutes, which
impose substantial penalties, including civil and criminal fines and
imprisonment, on health care providers who 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 U.S. government for violations of its provisions. 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


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 it is in material compliance with such regulations, but regulatory authorities
may differ in their interpretations of such regulations and, in such event, the
Company might have to modify its relationship with physician organizations.
Noncompliance with such regulations by either the Company or its affiliated
physician groups could have a material adverse effect on the business, financial
condition and results of operations of the Company and subject it and affiliated
physician groups to penalties and additional costs.

      Billing Agent, and Medicare Reassignment Rules. The Company may be subject
to Medicare rules governing billing agents. These rules prohibit a billing agent
from receiving a fee based on a percentage of Medicare collections if the
billing agent collects Medicare payments for its own account, and may require
Medicare payments for the services of physicians to be made directly to the
physician providing the services or to an account opened solely in the name of
the physician or the physician's group. If an enforcement agency determines
that the physician or his group violated any of these rules, the physician
and/or his group could be excluded from the Medicare program and subject to
civil monetary penalties, and Medicare payments collected under the agency
arrangement would be subject to recoupment, all of which could have a material
adverse effect on the Company.

      In addition, the revenues of physician practices affiliated with the
Company and the Company's revenues from all insurers, including governmental
insurers, are subject to significant regulation. Some payors limit the extent to
which physicians may assign their revenues from services rendered to
beneficiaries. Under these "reassignment" rules, the Company may not be able to
require physicians to assign third-party payor revenues received from
government-sponsored payment programs unless the physicians are employees of the
Company, the Company is a health care delivery system (or physician directed
clinic), the Company is a qualified billing agent for the physicians, or other
conditions are met. In addition, governmental payment programs and certain
commercial insurers will not pay for the services of mid-level practitioners who
are supervised by physicians, unless the mid-level practitioners' services are
rendered "incident to" physician services. To meet this "incident to"
requirement, the mid-level practitioners must be either direct or leased
employees of the physician group at which they work. If an enforcement agency
determines that the Company or an affiliated physician practice has violated any
of the various "reassignment" and "incident to" rules, the affiliated physician
practice could be excluded from such payment program, payments could be
recouped, civil penalties could be imposed, and continued violations, after
notice, could result in criminal penalties.

      Corporate Practice of Medicine and Fee Splitting. The laws of many states
prohibit business corporations such as the Company from practicing medicine and
employing physicians to practice medicine. These laws forbid both direct control
over medical decisions and indirect interference, such as splitting medical fees
with physicians or controlling budgetary allotments for patient care. Laws
regarding the corporate practice of medicine vary from state to state and are
enforced by the courts and by regulatory authorities. All of the management
service agreements ("MSAs") between the Company's majority-owned MSOs and the
physician groups and networks they serve address this issue by providing that
the physician organization retains complete control over medical decisionmaking,
and that the MSO may neither interfere with the professional judgment of medical
personnel nor control, direct or supervise the provision of medical services.
Furthermore, the MSAs provide that the MSO may not perform any services or
activities which constitute the practice of medicine. For instance, the MSO has
no responsibility to make decisions regarding level of patient care,
credentialing or quality monitoring. Each MSO controlled by the Company is a
management organization whose role is to perform administrative and business
functions. Although the Company believes it is in material compliance with
regulations regarding the corporate practice of medicine, no assurance can be
given that its operations will not be challenged by regulatory authorities.

      A recent letter by the general counsel of the New York State Department of
Health has called into question commonplace practices with regard to management
services fees charged to physician practices by corporations such as the
Company. Specifically, this letter took the position that per visit fees and
billing fees based on a percentage of collections violated New York's
prohibition on fee-splitting by licensed professionals. The Company has
abandoned such percentage of collection fees in all of the new MSAs with
physicians in New York and is currently working toward modifying all of its
current MSAs in New York. 

      Furthermore, expansion of the operations of the Company to certain


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jurisdictions may require it to comply with such jurisdictions' regulations
which could lead to structural and organizational modifications of the Company's
form of relationships with physician organizations. Such changes, if any, could
have a material adverse effect on the Company's business, financial condition
and results of operations and on the price of the Common Stock. In addition, a
determination in any state that the Company is engaged in the corporate practice
of medicine or fee splitting could render any management services agreement or
Independent Practice Association ("IPA") provider agreement between the Company
and a practice in such state unenforceable or subject to modification in a
manner materially adverse to the Company.

     Fraud and Abuse Statutes. 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 which is intended
to induce business for which payment may be made under a federal health care
program. A federal health care program is any plan or program that provides
health benefits, whether directly, through insurance or otherwise, which is
funded directly, in whole or in part, by the United States government (e.g.,
Medicare, Medicaid and CHAMPUS). Excluded from the definition of federal health
care program is the Federal Employee Health Benefits Program. 


     The type of remuneration covered by the Anti-kickback Statute is very
broad. It includes not only kickbacks, bribes and rebates, but also proscribes
any such remuneration, whether made directly or indirectly, overtly or covertly,
in cash or in kind. Moreover, prohibited conduct includes not only remuneration
intended to induce referrals, but also remuneration intended to induce the
purchasing, leasing, arranging or ordering of any goods, facilities, services or
items paid for by a federal health care program. In some instances, for
example, the government may construe some of the marketing and managed care
contracting activities conducted by the Company as arranging for the referral
of patients to physician groups managed by the Company. In addition, in the
event the Company provides management services to two or more physician groups
and charges a percentage-based fee for those services, any cross-referral from
a physician in one group to a physician in another group could be deemed to
benefit the referring physician since the value of that physician's ownership
in the Company will increase if the other physician group pays a management fee
which is related to the service provided pursuant to the referring physician's
referral.

     The Anti-kickback Statute has been broadly interpreted by courts in many
jurisdictions. Read literally, the statute places at risk many business
arrangements potentially subjecting such arrangements to lengthy expensive
investigations and prosecutions initiated by federal and state government
officials. Many states, including some of those in which the Company does
business, have adopted similar prohibitions against payments intended to induce
referrals of Medicaid and other third-party payor patients. The Company believes
that, although it is receiving remuneration under the MSAs 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 it has not violated the Anti-kickback Statute. Although the
Company will assist physician groups and networks in negotiating its contracts
to provide professional services and will provide marketing and advertising
services on behalf of such groups and networks, the Company will not refer
patients to such groups and networks. Payments to the Company by such groups and
networks in connection with marketing and advertising services should not be
viewed as payments to the Company to induce referrals because the marketing
services provided by the Company are of a general nature, and are not intended
to direct patients to any  particular provider for any particular
Medicare/Medicaid covered item or service. Payments or issuances of Company
stock or stock options to physicians should also not be viewed as payments to
induce the purchase of an item or service reimbursable by Medicare or state
health care programs, and management fees paid by affiliated physician groups
and/or networks to the Company should not be viewed as payments to induce the
Company to refer patients to such groups and networks because such payments will
be consistent with the fair market value of the items or services received in
exchange. Nevertheless, because of the breadth of federal and state
anti-kickback statutes and the absence of court decisions interpreting their
application to arrangements such as those entered into by the Company, there can
be no assurance that the Company's activities will not be challenged by
regulatory authorities or that the Company's position will prevail if
challenged. Although the Company believes that it is in compliance with the
federal fraud and abuse statute, any exclusion or penalty applied to one or more
affiliated physician groups or networks due to a violation of the federal fraud
and abuse laws could have a material adverse effect upon the Company. Moreover,
the Company is not a separate provider of Medicare or state health program
reimbursed services. 

     To the extent the Company is deemed


                                       18

   19

to be either a referral source or a separate provider under its MSAs and to
receive referrals from physicians, the financial arrangements under such
agreements could be subject to scrutiny and prosecution under the Anti-kickback
Statute. Violation of the Anti-kickback Statute is a felony, punishable by
criminal fines up to $25,000 per violation and imprisonment for up to five
years; a civil monetary penalty of $50,000; and/or civil damages of not more
than three times the amount of remuneration offered, paid, solicited or received
without regard to whether any portion of such remuneration was for a lawful
purpose. In addition, the U.S. Department of Health and Human Services ("HHS")
may impose civil penalties excluding 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 provided 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 services agreements and employee relationships. Additional safe harbors
were proposed in September 1993 offering new protections under the Anti-kickback
Statute to eight activities, including referrals within group practices
consisting of active investors. Proposed amendments to clarify these safe
harbors were published in July 1994 which, if adopted, would cause substantive
retroactive changes to the 1991 regulations. The failure of an activity to
qualify under a safe harbor provision, while potentially leading to greater
regulatory scrutiny, does not render the activity illegal. Although the Company
believes that it is not in violation of the Anti-kickback Statute, its
operations may not fit within any of the existing or proposed safe harbors.

      As a component of the recently enacted Health Insurance Portability and
Accountability Act of 1996, Congress directed the Secretary of HHS to issue
advisory opinions regarding compliance with the Anti-kickback Statute. Advisory
opinions are available concerning what constitutes prohibited remuneration
within the meaning of the Anti-kickback Statute, whether an arrangement
satisfies the statutory exceptions to the Anti-kickback Statute, whether an
arrangement meets a safe harbor, what constitutes an illegal inducement to
reduce or limit services to individuals entitled to benefits covered by the
Anti-kickback Statute and whether an activity constitutes grounds for the
imposition of civil or criminal penalties under the applicable exclusion.
Advisory opinions, however, will not assess fair market value for any goods,
services or property or determine whether an individual is a bona fide employee
within the meaning of the Internal Revenue Code. The statutory language makes
clear that advisory opinions


                                       19

   20

are available for both proposed and existing arrangements. The failure of a
party to seek an advisory opinion, however, may not be introduced into evidence
to prove that the party intended to violate the Anti-kickback Statute. The
Company has not sought, and has no present intention of seeking, an advisory
opinion regarding any aspect of its current operations or arrangements with
physicians.

      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 exceptions, a
physician or a member of his or her immediate family from referring Medicare
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 group
practice. The designated health services include radiology and other diagnostic
services, radiation therapy services, physical and occupational therapy services
and providing durable medical equipment, parenteral and enteral nutrients,
equipment and supplies, prosthetics, orthotics, 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 are not in violation of Stark I or Stark II.
Stark II also applies to indirect financial arrangements. To the extent
physicians managed by the Company are determined to have an indirect financial
relationship with physicians in separate practices which are managed by the
Company, absent a Stark II exception, referrals for designated health services
between physicians in different practices could be prohibited.

      Stark II also governs a physician's ability to refer patients for
designated health services within the practices and networks that the Company
manages in light of the physician's ongoing compensation arrangements with such
practices and networks. An exception for in-office ancillary services requires
that the practices and networks meet certain structural and operational
requirements on an ongoing basis in order to bill for in-office ancillary
designated health services rendered by employed or contracted physicians. A key
feature of the in-office ancillary services exception is the Stark law's
definition of "group


                                       20

   21

practice."  In this regard, on January 9, 1998, the Health Care Financing
Administration ("HCFA") published proposed regulations interpreting the scope
and refining the application of the Stark II law. These regulations provide, in
the case of designated health services provided by a group practice, that the
overhead expenses and income from the practice must be distributed according to
methods that indicate that the practice is a unified business and not based on
each satellite office operating as if it were a separate enterprise. There can
be no assurance that the distribution methodologics used by practice groups
managed by the Company will meet the unified business requirement. A
determination that any practice group's sharing of overhead expenses and income
does not comply with Stark II would preclude physician owners of such practice
groups from referring Medicare/Medicaid patients to their practice group(s) for
certain designated health services, and could have a material adverse effect on
such group(s), and therefore the Company.

      In addition, the proposed regulations contemplate that the issuance to
physicians of stock in a company prior to such company being publicly traded
may not satisfy the Stark exception for ownership interests in publicly traded
companies. Thus, to the extent the Company becomes a provider of designated
health services, physicians who have received stock or stock options in the
Company before it became public may be precluded from making Medicare/Medicaid
referrals to the Company and, under certain circumstances, to other affiliated
medical groups, for designated health services, which could have a material
adverse impact on the Company.

      In addition, the proposed Stark II regulations present a variety of
additional modifications, clarifications and additions to the current Stark I
regulations, including changes to the definition of designated health services.
Many of these proposed changes, if finally adopted in their current or even
modified form, could have a material adverse effect on the physician groups and
networks managed by the Company, and therefore could have a material adverse
effect on the Company. It is not clear when the final Stark II regulations will
be issued in their final form.

      In the recently enacted Balanced Budget Act of 1997, Congress directed the
Secretary of HHS to issue advisory opinions as to whether a referral relating to
designated health services (other than clinical laboratory services) is
prohibited under the Stark law. The advisory opinion mechanism is authorized to
begin on or about November 3, 1997. An advisory opinion issued by the Secretary
will be binding as to the Secretary and the party or parties requesting the
opinion. The Company has no present intention to seek an advisory opinion
regarding its current operations, arrangements with physicians or the referral
activities of physicians in the practices and networks it manages.

      A number of states have enacted self-referral laws that are similar in
purpose to Stark II but which impose different restrictions on referrals from
Stark II. These various state self-referral laws have different requirements.
Some states, for example, only prohibit referrals when the physician's financial
relationship with a health care provider is based upon an investment interest.
Other state laws apply only to a limited number of designated health services
or, alternatively, to all health care services furnished by a provider. Some
states do not prohibit referrals at all, but require only that a patient be
informed of the financial relationship before the referral is made. Most of the
states in which the Company conducts business have adopted some form of
self-referral law. Many states, including Pennsylvania, have self-referral laws
that are particularly applicable to workers' compensation patients. The Company
believes that its current operations and the structure of the practices and
networks it manages are in material compliance with the self-referral laws of
the states in which such practices and networks are located.

      Under numerous federal laws, including the Federal False Claims Act (the
"False Claims Act"), the federal government is authorized to impose criminal,
civil and administrative penalties on any health care provider that files a
false claim for reimbursement from a federally funded health program (such as


                                       21

   22

Medicare or Medicaid). Recently enacted federal legislation also imposes federal
criminal penalties on persons who file false or fraudulent claims with private
insurers. While the criminal statutes are generally reserved for instances of
fraud, the civil and administrative penalty statutes are being applied by the
government in an increasingly broad range of circumstances. Civil sanctions may
be imposed if the claimant knew or should have known that billing was improper.
The government also has taken the position that claiming reimbursement for
services that are substandard is a violation of these false claims statutes if
the claimant knew or should have known that the care was substandard or rendered
under improper circumstances. Private persons may bring civil actions to enforce
the False Claims Act. Under certain lower court decisions, claims derived from
the Anti-kickback Statute or the Stark law have been deemed to be, or may under
certain circumstances be construed to be, false claims.


      PIP Regulations. HCFA has issued final regulations (the "PIP regulations")
covering the use of physician incentive plans ("PIPs") by HMOs and other managed
care contractors and subcontractors that contract to arrange for services to
Medicare and Medicaid beneficiaries ("Organizations"). Any Organization that
contracts with a physician group that places the individual physician members of
the group at substantial financial risk for the provision of services that the
group does not directly provide (e.g., if a primary care group takes risk but
subcontracts with a specialty group to provide certain services) must satisfy
certain disclosure, survey and stop-loss requirements. Under the PIP
regulations, payments of any kind, direct or indirect, to induce providers to
reduce or limit covered or medically necessary services are prohibited
("Prohibited Payments"). Further, where there are no Prohibited Payments but
there is risk sharing among participating providers related to utilization of
services by their patients, the regulations contain three groups of
requirements: (i) requirements for physician incentive plans that place
physicians at "substantial financial risk," (ii) disclosure requirements for all
Organizations with PIPs: and (iii) requirements related to subcontracting
arrangements. In case of


                                       22
   23

substantial financial risk (defined in the regulations according to several
methods, but essentially risk in excess of 25% of the maximum payments
anticipated under a plan with less than 25,000 covered lives), Organizations
must conduct enrollee surveys and ensure that all providers have specified
stop-loss protection. The violation of the requirements of the PIP regulations
may result in a variety of sanctions, including suspension of enrollment of new
Medicaid or Medicare members, or a civil monetary penalty of $25,000 for each
determination of noncompliance. In addition, because of the increasing public
concerns regarding PIPs, the PIP regulations may become a model for the industry
as a whole. Although the Company currently has no contracts that require
compliance with the PIP regulations, the new regulations, by limiting the amount
of risk that may be imposed upon physicians in certain arrangements, could have
an effect on the ability of the Company to effectively reduce the costs of
providing services, by limiting the amount of risk that may be imposed upon
physicians.

      Antitrust. Because the physician organizations managed by the Company
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 divisions of markets. In particular, the
antitrust laws have been interpreted by the Federal Trade Commission and the
United States Department of Justice to prohibit joint negotiations by
competitors of price terms in the absence of financial risk that is shared among
the competitors, other financial integration or substantial clinical integration
among the competitors. The Company intends to comply with such state and federal
laws as may affect its development of, and contracting for, integrated health
care delivery networks, but 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 operation of the Company and its
affiliated physician groups.

      Insurance Regulations. Laws in all states regulate the business of
insurance and the operation of Health Maintenance Organizations ("HMOs") HMOs.
On August 10, 1995, the National Association of Insurance Commissioners ("NAIC")
issued a report opining that certain risk-transferring arrangements may entail
the business of insurance, to which state licensure laws apply, but that
licensure laws would not apply where an unlicensed entity contracts to assume
"downstream risk" from a duly licensed health insurer or HMO for health care
provided to that carrier's enrollees. In addition, in December 1996, the NAIC
issued a report entitled "Regulation of Health Risk Bearing Entities," which
sets forth issues to be


                                       23
   24

considered by state insurance regulators when considering new regulations, and
encourages that a uniform body of regulation be adopted by the states. Certain
states have enacted statutes or adopted regulations affecting risk assumption in
the health care industry. In some states, including some of those in which the
Company does business, these statutes and regulations subject any physician or
physician network engaged in risk-based contracting, even if through HMOs and
insurance companies, to applicable insurance laws and regulations, or other laws
and regulations, which may include, among other things, providing for minimum
capital requirements and other safety and soundness requirements. Although the
NAIC's conclusions are not binding on the states, the Company believes that
additional regulation at the state level will be forthcoming in response to the
NAIC initiatives. The Company will enter into capitated contracts only with
licensed insurance companies and HMOs, and only if allowed by state law. The
Company believes that it is 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.

      Health Care Reform. As a result of the continued escalation of health care
costs and the inability of many individuals to obtain health insurance, numerous
proposals have been and may continue to be introduced in the U.S. Congress and
state legislatures relating to health care reform. There can be no assurance as
to the ultimate content, timing or effect of any health care reform legislation,
nor is it possible at this time to estimate the impact of potential legislation,
which may be material to the Company.

      Confidentiality of Patient Records. The confidentiality of patient records
and the circumstances under which such records may be released is subject to
substantial regulation under state and federal laws and regulations. Although
the Company does not currently collect aggregate clinical data for utilization
review and quality assurance purposes, it plans to develop such databases. Data
entries to these databases would delete any patient identifiers, including name,
address, hospital and physician. With respect to its electronic clinical
information systems, the Company uses a state-of-the-art security system,
including user passwords, 128-bit key encryption technology and a triple-DES
encryption algorithm, to safeguard the privacy of clinical data accessed or
transmitted on both private and public


                                       24
   25

networks, including the Internet, and will continue to employ such security
measures in the future. The Company believes that its procedures comply with the
laws and regulations regarding the collection of patient data in substantially
all jurisdictions, but regulations governing patient confidentiality rights are
evolving rapidly and are often difficult to apply. Additional legislation
governing the dissemination of medical record information has been proposed at
both the state and federal level. Furthermore, the Health Insurance Portability
and Accountability Act of 1996 requires the Secretary of HHS to recommend
legislation or promulgate regulations governing privacy standards for
individually identifiable health information and creates a federal criminal
offense for knowing disclosure or misuse of such information. These statutes and
regulations may require holders of such information to implement security
measures that may be of substantial cost to the Company. There can be no
assurance that changes to state or federal laws would not materially restrict
the ability of the Company to obtain patient information originating from
records.

      Licensure, Certificate of Need and Prescription Laws. Certain of the
ancillary services that the Company anticipates providing on behalf of the
practices and networks it manages are now, or may in the future be, subject to
licensure or certificate of need laws in various states. There can be no
assurance that the Company, or the practices or networks it manages, will be
able to obtain such licenses or certificate of need approval to the extent
required for the particular ancillary service. Each state establishes rules
related to the practice of medicine, including the method of prescribing drugs.
In addition, the federal drug enforcement administration (the "DEA") regulates
the issuance and content of prescriptions for controlled substances. The
application of these federal and state rules to the use of the electronic
prescription writing and management systems (the "Prescription Systems") varies.
Certain states in which the Company does business, such as New York, Delaware
and Tennessee, prohibit the use of the Prescription Systems while the other
states in which the Company does business, Connecticut, Georgia, New Jersey and
Pennsylvania, limit the use of the Prescription Systems and the DEA neither
specifically permits nor specifically prohibits electronic transmission of
prescription orders. The DEA is investigating the possibility of adopting a
policy regarding electronic transmission of prescription orders, such as that
used by the Prescription Systems, for controlled substances. The Company will
advise users of the Prescription Systems of the existence of these restrictions
and limitations and believes its use of the Prescription Systems will be in
compliance with


                                       25

   26

applicable state and federal laws. Modification or further clarification of
federal and state rules regarding use of the Prescription Systems in a manner
that reduces their utility may have a material adverse effect on the Company.

      FDA Regulation. Certain products, including software applications,
intended for use in the diagnosis of disease or other conditions, or in the
cure, treatment, mitigation or prevention of disease, are subject to regulation
by the Food and Drug Administration ("FDA") under the Federal Food, Drug and
Cosmetic Act of 1938, as amended (the "FDCA"). The FDCA imposes substantial
regulatory controls over the manufacturing, testing, labeling, sale,
distribution, marketing and promotion of medical devices and other related
activities. These regulatory controls can include, for example, compliance with
the following: manufacturer establishment registration and device listing;
current good manufacturing practices; FDA clearance of a premarket notification
submission or FDA approval of a premarket approval application; medical device
adverse event reporting; and prohibitions on misbranding and adulteration.
Violations of the FDCA can result in severe criminal and civil penalties, and
other sanctions, including, but not limited to, product seizure, recall, repair
or refund orders, withdrawal or denial of premarket notifications or premarket
approval applications, denial or suspension of government contracts, and
injunctions against unlawful product manufacture, labeling, promotion, and
distribution or other activities.

      In its 1989 Draft Policy Statement, the FDA stated that it intended to
exempt certain clinical decision support software products from a number of
regulatory controls. Under the 1989 Draft Policy Statement, the FDA stated that
it intended to exempt decision support software products that involve "competent
human intervention before any impact on human health occurs (e.g., where
clinical judgment and experience can be used to check and interpret a system
output)" from the following controls: manufacturer establishment registration
and device listing, premarket notification and compliance with the medical
device reporting and current good manufacturing practice regulations. In the
1989 Draft Policy Statement, the FDA stated that until it formally exempted
decision support software products from these requirements, manufacturers of
eligible decision support software products would be required to comply with
those controls.

     Since issuing the 1989 Draft Policy Statement, the FDA has not issued a
final policy on this issue and has not formally exempted any products as
discussed in the 1989 Draft Policy


                                       26
   27

Statement. The FDA has referred to the 1989 Draft Policy Statement in official
presentations regarding software regulation and in decisions and opinions
regarding the regulatory status of various products. Over the last several
years, however, the FDA has stated that it intends to issue a new policy
concerning computer products and has been increasing its efforts to develop this
policy in recent months. Under this new policy, exemptions from regulatory
controls, if any, may be based upon a product specific "risk factor" analysis.
For purposes of this analysis, the FDA may consider, among other things, the
following: (i) seriousness of the disease to be diagnosed or treated, (ii) the
time frame for use of the information, (iii) whether the data output is provided
or manipulated in a novel or non-traditional manner, (iv) whether the software
provides individualized patient care recommendations, (v) whether the mechanism
by which the software arrives at a decision is hidden or transparent and (vi)
whether the product provides new capabilities for the user. Given the FDA's
intent to issue a new policy concerning the regulation of computer software,
there can be no assurance as to the effect of such a policy, if any, upon the
regulatory status of the Company's products.

      The Company's clinical information systems are intended to assist health
care providers in analyzing economic and quality data related to patient care
and expected outcomes in order to maximize the cost-effectiveness of general
treatment plans and practice protocols. These products are not intended to
provide specific diagnostic data, results or affect the use of specific
therapeutic interventions for individual patients. As such, the Company believes
that its clinical information systems are not medical devices under the FDCA
and, thus, are not subject to the controls imposed on manufacturers of medical
devices and do not fall within the scope of the 1989 Draft Policy Statement. The
Company further believes that to the extent that its products might be
determined to be medical devices, they fall within the exemptions for decision
support systems provided by the 1989 Draft Policy Statement. The Company has not
taken action to comply with the requirements that would otherwise apply if the
Company's products were determined to be non-exempt medical devices.

      There can be no assurance that the FDA will not make a request or take
other action to require the Company to comply with any or all current or future
controls applicable to medical devices under the FDCA. There can be no assurance
that, if such a request were made or other action were taken, the Company could
comply in a timely manner, if at all, or that any failure to comply would not
have a material adverse effect on the Company's business, financial condition or
results of operations, or that


                                       27

   28
the Company would not be subjected to significant penalties or other sanctions.
There can be no assurance that the FDA will continue to permit any or all of the
exemptions provided in the 1989 Draft Policy Statement, or in a new policy
statement, if any, or that the FDA will promulgate regulations formally
implementing such exemptions. There can be no assurance that the Company's
current or future clinical information systems will qualify for future
exemptions, if any, nor can there be any assurance that any future requirements
will not have a material adverse effect on the Company's business, financial
condition or results of operations. 

     While the Company believes that it and the MSOs are in compliance with the
foregoing federal and state laws, future regulations could require the Company
to modify the form of its relationships with physician organizations. Moreover,
the violation of any such state or federal law by the Company, the MSOs or the
physician organizations managed by the Company could have a material adverse
effect on the Company.


      The health care industry is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operations
of health care industry participants. During the past several years, government
regulation of reimbursement rates in the United States health care industry has
increased. Lawmakers continue to propose programs to reform the United States
health care system, which may contain proposals to increase government
involvement in health care, lower reimbursement rates and otherwise change the
operating environment for the Company's customers. Health care industry
participants may react to these proposals by curtailing or deferring
investments, including investments in the Company's products. The Company cannot
predict what impact, if any, such factors may have on its business, financial
condition and results of operations or on the price of the common Stock.


Year 2000
       
      The Year 2000 date change issue is believed to affect virtually all
companies and organizations.  If not corrected, many long term applications
could fail or create erroneous reults by or at year 2000.  The Company is
undertaking an investigation to dertermine if
the Company's computer systems, the Company's proprietary software products,
and the computer systems of the physician practices and networks and other
third parties with which the Company does business (as they relate to the
Company) are Year 2000 compliant.  The failure of any of the foregoing matters
to be Year 2000 compliant might materially adversely affect the Company.

Employees

      As of December 31, 1997, the Company had a total of approximately 700
employees, approximately 500 of whom were employed by the MSOs, approximately 
55 of whom were employed in the Company's information systems subsidiary. None
of the Company's employees is subject to a collective bargaining agreement. The
Company has never experienced a work stoppage and believes that its employee
relations are satisfactory.                                                   


ITEM 2. PROPERTIES

      The Company currently occupies 26,302 square feet of leased office space
in Tarrytown, New York, 16,252 of square feet of leased space in Hawthorne, New
York, 4,065 square feet of leased office space in Marietta, Georgia, 8,028
square feet of leased office space in Fort Washington, Pennsylvania and 10,742
square feet of leased office and data center space in Chicago, Illinois. The


                                       28

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current lease for the Tarrytown office has an annual rental of approximately
$500,000 and expires in March 2002. The lease for the Marietta office expires in
January 2001 and has an annual rental of approximately $50,000. The lease for
the Fort Washington office expires in December 2002 and has an annual rental
of approximately $128,000. The lease for the Chicago office expires in March
2001 and has an annual rental of $184,000 for the current year. The Company
believes that these facilities are adequate for the foreseeable future.


ITEM 3. LEGAL PROCEEDINGS

      On May 22, 1997, an action captioned Benenson & Associates, Inc and
Michael J. Benenson v. Advanced Health Corporation, Advanced Health Management
Corp. f/k/a Advanced Clinical Networks Corp., Jonathan Edelson, M.D., Steven I.
Hochberg and Alan B. Masarek was filed in the United States District Court for
the Southern District of New York. The action relates to: (i) an Employment
Agreement dated April 1, 1996 between the Company and Michael J. Benenson and
(ii) an Asset Purchase Agreement dated April 1, 1996, among the Company,
Benenson & Associates, Inc. and Mr. Benenson, Plaintiffs have asserted claims
against all defendants for alleged violations of the Exchange Act, common law
fraud and fraudulent inducement, and against the Company for breach of contract.
Plaintiffs' complaint seeks both damages and equitable relief. The Company
believes that each of the plaintiffs' claims is without merit, and it intends to
defend against the action vigorously.

      On September 23, 1997, the Company commenced an action against Synetic,
Inc. ("Synetic") entitled Advanced Health Med-E-Systems Corporation v. Synetic,
Inc. in the Supreme Court of the State of New York to collect $1 million owing
by Synetic to the Company pursuant to a software license agreement dated as of
March 31, 1997, as amended (the "License Agreement"), between Synetic and the
Company, with respect to E-Rx(TM). On October 1, 1997, Synetic filed an answer
to this lawsuit and asserted various counterclaims against the Company, in which
Synetic alleges that the subject software and documentation was not timely
delivered and installed in accordance with the License Agreement. As relief,
Synetic seeks a declaratory judgment that Synetic is not obligated to make the
$1 million payment, as well as unspecified damages. The Company believes that
Synetic's defenses and counterclaims are without merit.


                                       29

   30

      From time to time, the Company is involved in litigation. Although the
actual amount of any liability that could arise with respect to any such
litigation cannot be accurately predicted, in the opinion of management, the
resolution of these matters is not expected to have material adverse effect on
the Company's business, results of operations or financial condition.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

        NONE.


                                       30

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                                     PART II

Item 5.  MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

      The Common Stock began trading on the Nasdaq National
Market under the symbol "ADVH" on October 3, 1996.

            (a)   Market Information

            The following sets forth the high and low bid price for the period
commencing January 1, 1997 through December 31, 1997 as reported by NASDAQ.
Quotations reflect interdealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions.



             Common Stock                             High           Low
                                                      ----           ---
                                                              
October 3, 1996 through December 31, 1997            $17.75        $12.50
First Quarter ended March 31, 1997                    18.25          6.625
Second Quarter ended June 30, 1997                    20.75         14.125
Third Quarter ended September 30, 1997                24.875        17.00
Fourth Quarter ended December 31, 1997                28.125        11.00


             (b)  Approximate Number of Equity Stockholders

                  Based upon information supplied from the Company's transfer
            agent, the Company believes that the number of record holders of the
            Company's equity securities as of March 25, 1998 is approximately
            250
            
                  The Company believes that the number of beneficial holders of
            the Company's Class A Common Stock as of March 25, 1998 is in excess
            of 300.

            (c)  Dividends

            The Company has not declared or paid any cash dividends on its
            capital stock since inception and does not expect to pay cash
            dividends in the foreseeable future. The Company presently intends
            to retain future earnings, if any, to finance the expansion of its
            business. The payment of any cash dividends in the future will
            depend on the Company's earnings, financial condition, results of 


                                       31
   32

            operations, capital needs and other factors deemed pertinent by the
            Company's Board of Directors, subject to laws and regulations then
            in effect.

Item 6. SELECTED FINANCIAL DATA

      The selected consolidated statement of operations data for the years ended
December 31, 1995, 1996 and 1997, and the consolidated balance sheet data as of
December 31, 1996 and 1997, are derived from the consolidated Financial
Statements of the Company included elsewhere in this Annual Report on Form 10-K,
which have been audited by Arthur Andersen LLP, independent public accountants.
The selected consolidated statement of operations data for the period from
inception (August 27, 1993) to December 31, 1993 and the selected consolidated
balance sheet data as of December 31, 1993 and 1994 are derived from the
consolidated financial statements of the Company which have been audited by
Arthur Andersen LLP, independent public accountants, but which are not included
in this Annual Report on Form 10-K. The selected consolidated financial data set
forth below is qualified by reference to, and should be read in conjunction
with, the Company's Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Annual Report on Form 10-K.



                                                Period from
                                                 inception
                                             (August 27, 1993)
                                              to December 31,       
                                                   1993         1994          1995        1996        1997
(In thousands, except per share data)

Statement of Operations Data:

                                                                                      
Revenues                                        $    --        $   379      $  1,054    $ 19,136    $ 61,006
Cost of revenues                                     --             12           340      14,265      45,636
                                                -------        -------      --------    --------    --------
Gross profit                                         --            367           714       4,871      15,370
Operating expenses                                  521          2,901         6,412       7,328       8,954
                                                -------        -------      --------    --------    --------                  
Operating (loss) income                            (521)        (2,534)       (5,698)     (2,457)      6,416
Other income (expense)                               --            (15)           (9)         15       1,144
                                                -------        -------      --------    --------    --------
Net loss before income taxes                       (521)        (2,549)       (5,707)     (2,442)      7,560
Income tax provision (benefit)                       --             --            --        (977)        402
                                                -------        -------      --------    --------    --------
Net (loss) income                               $  (521)       $(2,549)     $ (5,707)   $ (1,465)   $  7,158
                                                =======        =======      ========    ========    ========
Net (loss) income per share; 
  Basic                                         $ (0.30)       $ (1.29)     $  (1.67)   $  (0.28)   $   0.91 
                                                =======        =======      ========    ========    ========                    

  Diluted                                       $ (0.30)       $ (1.29)     $  (1.67)   $  (0.28)   $   0.81    
                                                =======        =======      ========    ========    ======== 
Common shares used in
  computing per share amounts;
  Basic                                           1,725          1,978         3,420       5,149       7,872 
                                                =======        =======      ========    ========    ======== 

  Diluted                                         1,725          1,978         3,420       5,149       8,891
                                                =======        =======      ========    ========    ========                    
                                                



                                       32

   33



                                            1995        1996     1997
(In thousands)

Balance Sheet Data:

                                                       
Cash and cash equivalents                 $ 1,464    $12,086    $ 7,534
Investments in marketable securities           --      7,390     34,082 
Certificates of deposit                       -0-        -0-      5,399
Working capital (deficit)                    (741)    26,603     61,644
Total assets                                6,462     35,400     94,358
Total debt                                    235                    26
Total stockholders' equity                  2,675     31,884     93,100


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included elsewhere in this Annual
Report on Form 10-K.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

      The Company's actual results could differ materially from its historical
results or from any forward-looking statements made or incorporated into this
Annual Report. Factors that may cause such differences include: the Company's
ability to successfully enter in to new contractual alliances with Physician
organizations and to preserve its existing contractual relationships; the
Company's ability to successfully expand its business to new markets; the
Company's ability to attract and retain qualified personnel and management;
changes in state insurance laws and related government regulations; increased
competition and growth in the medical practice management market; and other
unanticipated changes in economic conditions.

Overview

      Advanced Health Corporation (the "Company") provides a full range of
integrated management services and clinical information systems to physician
group practices, single legal entities comprised of multiple physicians, and to
physician networks, aggregations of individual physicians and physician groups
formed for the purpose of entering into contracts with third-party payors. The
Company's clinical information systems are also licensed to hospitals,
integrated delivery systems, information system companies, and other health care
organizations.



                                       33
   34
The Company generates revenues from (i) fees for managing and providing
consulting services to physician group, practices, (ii) fees for managing
physician networks and (iii) fees for use and support of its clinical
information systems, including licensed, software installation, software
integration, training and data conversion fees.                      

The Company contracts with its physician practice and network management clients
pursuant to long-term agreements with its MSOs, the financial results of such
MSOs are included in the Consolidated Financial Statements.

      The Company believes that its historical results of operations from period
to period are not comparable and that such results are not necessarily
indicative of results for any future periods because the Company was a
development stage company investing in technology development and did not
provide physician practice and network management services prior to December 11,
1995.


Results of Operations

      Year Ended December 31, 1997 and 1996

      Total revenues for the year ended December 31, 1997 increased to $61.0
million from $19.1 million in the year ended December 31, 1996, primarily as a
result of the addition of new physician group practices under management,
provision of incremental network management services and fees for the use and
support of clinical information systems. The provision of physician group
practice management and related services and network management services
accounted for approximately $48.7 million of the Company's net revenues for the
year ended December 31, 1997 as compared to $15.1 million in the year ended
December
                                         

                                       34
   35

31, 1996. The Company earned fees for the use and support of its clinical
information systems, including the recognition of license revenues and software,
systems and training revenues, of approximately $12.3 million for the year ended
December 31, 1997, as compared to $4.0 million in the year ended December 31,
1996. Of the $12.3 million of information technology revenues, approximately
$4.6 million were earned in connection with software licenses or information
management service fees with affiliated entities or with entities in which the
Company has a minority equity interest.
                                        
      Cost of revenues for the year ended December 31, 1997 increased to $45.6
million from approximately $14.3 million for the year ended December 31, 1996.
The increase in cost of revenues related primarily to the expenses outsourced to
the Company from physician group practices under management.

      Operating expenses for the year ended December 31, 1997 increased to $9.0
million from $7.3 million for the year ended December 31, 1996 and included
approximately $.7 million and $2.8 of research and development costs
respectively. The increase in operating expenses related to the increased
provision of physician group practice management and related services.

      For the year ended December 31, 1997, the Company also earned interest
income in the amount of $1.2 million from investments in marketable securities
as a result of the investment proceeds from the IPO and follow-on offerings. The
Company earned interest income in the amount of $.2 million from investments in
marketable securities as a result of the investment of proceeds from the IPO for
the comparable period ended December 31, 1996. The Company incurred interest
expense of approximately $.2 million for the period ending December 31, 1996,
which related primarily to interest on $5.0 million of then outstanding
indebtedness bearing interest at 8% per annum ($3.0 million), 9% per annum
($2.0 million) and interest on capital lease obligations.

      An income tax benefit of approximately $1.0 million was recorded in 1996
as a result of the Company's determination, based on profitable fourth quarter
operations, that the related deferred income tax asset would be realized through
the generation of taxable income in the future. 

      The net income for the year ended December 31, 1997 was $7.2 million
compared to a loss of $1.5 million for the year ended December 31, 1996 due to
the factors describe above.

      Year Ended December 31, 1996 and 1995

      Total revenues for the year ended December 31, 1996 increased to $19.1
million from $1.1 million in the year ended December 31, 1995,


                                       35
   36
primarily as a result of the addition of new physician group practices under
management, provision of incremental network management services and fees for
the use and support of its clinical information systems. The Company began to
provide physician network management services in September 1995 and physician
group practice management and related services in December 1995. The provision
of physician group practice management and related services and network
management services accounted for approximately $15.1 million of the Company's
net revenue in the year ended December 31, 1996 as compared to $.7 million for
the comparable period ended December 31, 1995. The Company earned fees for the
use and support of its clinical information systems, including the recognition
of license revenues and software systems, and from revenues of approximately
$4.0 million for the year ended December 31, 1996, as compared to $.4 million
for the comparable period ended December 31, 1995.

     Operating expenses for the year ended December 31, 1996 increased to $7.3
million from $6.4 million for the year ended December 31, 1995. The increase in
operating expenses was due to the increases in staffing and general corporate
expenses required to fund the Company's transition from a development stage
company involved in the development of clinical information systems to a full
service physician practice and network management company.

     The net loss for the year ended December 31, 1996 was $1.5 million
compared to a loss of $5.7 million for the year ended December 31, 1995.
 
Liquidity and Capital Resources

      At December 31, 1997, the Company had aggregate cash, cash equivalents,
certificates of deposit and marketable securities of $47.0 million, compared
to $19.5 million at December 31, 1996.


      The cash flow from operations in 1997 was $3.6 million versus a net use of
cash of $9.8 million in 1996. This increase in net cash from operations resulted
primarily from an $8.6 million increase in net income. Net cash used in
investing activities grew from $9.7 million in 1996 to $55.4 million in 1997.
This increase was due to several factors, including the investment in
marketable securities of the proceeds of the Company's follow-on equity
offering, the acquisition of Bukstel & Halfpenny, a company that develops and
provides software that links physicians with hospital-based clinical systems
such as laboratory, radiology and pathology systems, a minority investment in
Patient Care Dynamics, a compnay that provides an integrated family of
technology-based patient care support systems and services to physicians, a
minority investment and loan to ACRM, an organization that will provide
advanced cardiovascular research management, a minority investment in Caresoft,
a developer of disease management tools, and capitalized software development
costs.             
                 
      Cash flow from financing activities grew to $47.2 million in 1997 from
$30.2 million in 1996. The net cash provided by financing activities in 1997 was
primarily attributable to the Company's public offering of Common Stock in
October 1997, which raised net proceeds of $46.0 million.

                                       36
   37

      The Company's operating plan for 1998 includes continued development of
the Company's integrated management services and clinical information systems.
The principal categories of expenditures include further development of the
Company's clinical information systems, as well as ongoing business development
and marketing. The Company believes that the net proceeds of the follow-on
equity offering together with other, cash and investments on hand, interest
income and revenues from operations will be sufficient to fund planned
operations of the Company through at least mid 1999. 

      During January and February 1997, the Company loaned $2 million to
Madison, a physician practice it currently manages, secured by the physicians'
49% ownership interest in its MSO. The loan bears interest at prime plus 2
percent and is to be repaid in 12 equal monthly installments beginning January
1998. Furthermore, the Company provided a letter of credit on behalf of Madison
that expires January 8, 1998, in the amount of $1.8 million by depositing
restricted cash with the lending institution that issued the letter of credit.
The Company has no other planned material capital expenditures or other capital
commitments.

      From time to time in the ordinary course of its business, the Company
evaluates possible acquisitions of businesses, products and technologies that
are complementary to those of the Company. 

      Under certain specified circumstances, the Company has the option to cause
certain MSOs to be merged with and into a wholly-owned subsidiary of the Company
in a transaction in which the interests of the physician groups and networks in
such MSOs would be exchanged for Common Stock of the Company. The Company has
reserved 548,224 shares of Common Stock for issuance upon consummation of the
Roll Up Transaction, all of which will be issued if the Company effects the Roll
Up Transaction. In addition, certain of the physician groups and networks
managed by the Company have rights to require the Company to purchase all or
part of such physicians' interest in their respective MSO in the event that the
Company does not consummate the Roll Up Transaction within one year after the
satisfaction of specified conditions. There can be no assurance that the Company
will have the financial resources to purchase such interests in accordance with
its obligations at the time any such rights are exercised, or that the 


                                       37

   38


Company would be able to obtain financing on satisfactory terms or conditions,
if at all, to purchase such interests. In addition, pursuant to its agreement
with one of its physician group practice clients, the Company has agreed, under
certain circumstances, to advance funds to such group practice to finance
working capital. To date, the Company has not made any advances to such group
practice under the agreement and it does not expect to do so in the future.

YEAR 2000

        The Year 2000 date change issue is believed to affect virtually all
companies and organizations. If not corrected, many computer applications could
fail or create erroneous results by or at the year 2000. The Company has not
completed its assessment of compliance issues for the Companys' proprietary
software products, for its computer systems (both hardware and software), for
equipment ancillary to the Company's business that contains computers or
computer chips, for the  computer systems of other entities with which the
Company does business. The Company has also not determined the cost of these
compliance issues or the time it will take to complete compliance.

        The Company expects to complete its full assessment of the Year 2000
issue no later than December 31, 1998, which is prior to any anticipated impact
on its operting systems. As part of the Year 2000 assessment, the Company
expects to communicate with all of its physician practices and networks, as
well as suppliers and third parties with which the Company does business, to
determine the extent to which the Company's interface systems are vulnerable to
those parties' failure to remedy their Year 2000 issues. There is no guarantee
that the systems of other companies on which the Compnay relies will be
corrected in a timely manner or that the failure to correct will not have a
material adverse effect on the Company's systems. Year 2000 modifications and
assessments are based on managements' best estimates, which were derived
utilizing numerous assumptions of future events, including availability of
certain resources and other factors. However, there can be no guarantee the
estimates and assessments will be achieved or come to pass, and actual results
could differ materially from those anticipated.

                                       38
   39

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                              Financial Statements

Report of Independent Public Accountants                                 F-1
Consolidated Balance Sheets as of December 31, 1996 and 1997             F-2
Consolidated Statements of Operations for the three years ended             
  December 31, 1997                                                      F-3
Consolidated Statements of Stockholders' Equity for the three     
  years ended December 31, 1997                                          F-4
Consolidated Statements of Cash Flows for the three years ended 
  December 31, 1997                                                      F-5
Notes to Consolidated Financial Statements                               F-6

                          Financial Statement Schedules

      All schedules, other than those disclosed, have been omitted because they
are not applicable or not required or because the required information is
included in the Consolidated Financial Statements or notes thereto.           

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

      None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997, and delivered to stockholders in connection with the 1998 Annual Meeting
of Stockholders, captioned "Election of Directors," "Executive Officers" and
"Disclosure Pursuant to Section 16 of the Exchange Act."

ITEM 11. EXECUTIVE COMPENSATION


                                       39
   40

      The information called for by this item is incorporated herein by
reference to the sections of the definitive Proxy Statement to be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997, and delivered to stockholders in connection with the 1998 Annual Meeting
of Stockholders, captioned "Meetings of the Board of Directors and Committees of
the Board of Directors; Compensation of Directors" and "Executive Compensation
and Related Information."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information called for by this item is incorporated herein by
reference to the section of the definitive Proxy Statement to be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997, and delivered to stockholders in connection with the 1998 Annual Meeting
of Stockholders, captioned "Security Ownership of Certain Beneficial Owners,
Directors and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information called for by this item is incorporated herein by
reference to the section of the definitive Proxy Statement to be filed with the
Securities and Exchange Commission not later than 120 days after December 31,
1997, and delivered to stockholders in connection with the 1998 Annual Meeting
of Stockholders, captioned "Certain Transactions."

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

      (a)   Documents Filed as Part of the Report

            1.    Financial Statements

                  The financial statements listed under Item 8 are filed as part
            of this report.

            2.    Financial Statement Schedules


                                       40
   41

                  Certain schedules have been omitted because they are either 
            not applicable or the required information has been disclosed in the
            financial statements or notes thereto.

            3.    Exhibits

                  The exhibits listed on the accompanying Exhibit Index are
            filed as part of this report or incorporated by reference herein.

      (b)   Reports on Form 8-K

            No Current Reports on Form 8-K were filed by the registrant during
      the fourth quarter of the year ended December 31, 1997.

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1998.

                                          ADVANCED HEALTH CORPORATION

                                          By /s/ Jonathan Edelson
                                          ------------------------
                                          Jonathan Edelson, M.D.
                                          Chairman of the Board and
                                          Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

    Signature                    Title                               Date


/s/ Jonathan Edelson     Chairman of the Board, Chief            March 30, 1998
- --------------------     Executive Officer and Director 
Jonathan Edelson, M.D    (Principal Executive Officer)    


                                       41
   42

/s/ Steven Hochberg      Vice-Chairman and Director              March 30, 1998
- --------------------     
Steven Hochberg

/s/ Alan B. Masarek      President and Chief Operating           March 30, 1998
- --------------------     Officer
Alan B.Masarek

/s/ Michael W. Rogers    Executive Vice-President, Corporate     March 30, 1998
- --------------------     Development and Chief Financial Officer
Michael W. Rogers        (Principal Financial and Accounting
                         Officer)

/s/ James T. Carney      Director                                March 30, 1998
- --------------------     
James T. Carney

/s/ Barry Kurokawa       Director                                March 30, 1998
- --------------------     
Barry Kurokawa

/s/ Jonathan Lieber      Director                                March 30, 1998
- --------------------     
Jonathan Lieber


                                       42
   43

                                  EXHIBIT INDEX

Exhibit No. Description of Exhibit                                         Page

**3.1       Restated Certificate of Incorporation of the Registrant

**3.2       By-laws of the Registrant

+**10.1     Management Services Agreement dated as of December 11, 1995,
            between Madison Medical -- The Private Practice Group of New
            York, L.L.P. and Uptown Physician Management, Inc.

**10.2      Stockholders' Agreement dated as of December 11, 1995, among
            Uptown Physician Management, Inc. and certain stockholders

+**10.3     Management Services Agreement dated as of August 7, 1995,
            among Advanced Heart Institute of New York, P.C., Valavanur A.
            Subramanian, M.D., Jeffrey Moses M.D. and Majean Sub 2, Inc.

+**10.4     Management Services Agreement dated as of July 1, 1996,
            between Specialist Physicians Management, Inc. and Cardiology
            First of New Jersey, P.A.

**10.5      Stockholders' Agreement dated as of July 1, 1996 among
            Specialist Physicians Management, Inc., Specialist Physicians
            MSO, L.L.C. and Advanced Health Management Corporation.

+**10.6     Management Services Agreement dated as of July 1, 1996 between
            Diamond Physician Management, Inc. and Long Island
            Interventional Cardiology.

**10.7      Tarrytown, New York Office Lease Agreement dated November 30,
            1995, between Tarrytown Corporate Center IV, L.P. and the
            Registrant.

**10.8      First Amendment to Lease Agreement between Reckson Operating
            Partnership, LP, as Owner, and the Registrant, as Tenant

**10.9      Chicago Office Lease Agreement dated December 8, 1995, between
            Adams Family, L.L.C. and the Registrant


                                    43
   44

*10.10      Fort Washington Lease Agreement dated November 13, 1997,
            between Comdrive Associates, L.P. and Registrant as Tenant

*10.11      Hawthorne Lease Agreement dated January 8, 1998, between
            United Parcel Service, Inc. and Registrant as Tenant

**10.12     Form of Director Indemnification Agreement

**10.13     Employment Agreement between the Registrant and Jonathan
            Edelson, M.D.

**10.14     Employment Agreement between the Registrant and Steven
            Hochberg

**10.15     Employment Agreement between the Registrant and Alan B.
            Masarek

**10.16     Employment Agreement between the Registrant and Robert Alger

*10.17      Employment Agreement between the Registrant and Michael P.
            Rogers

**10.18     Amended and Restated Advanced Health Corporation 1995 Stock
            Option Plan

**10.19     Employee Stock Purchase Plan

*11.1       Earnings Per Common Share Computation

**21        List of Subsidiaries

*23.2       Consent of Arthur Andersen LLP

*27         Financial Data Schedule

*     Filed herewith.
**    Filed as an exhibit to the Registrant's Registration Statement on Form
S-1, as amended (Registration No. 333-06283), Registrant's Registration
Statement on Form S-1, as amended (Registration No. 333-35115), and
Registrant's Form 10-K, dated March 30, 1997 incorporated herein by reference.


                                    44
   45

+ Portions of such exhibit have been deleted therefrom pursuant to Rule 406
promulgated under the Securities Act of 1933, as amended, and confidential
treatment has been granted therefor.


                                    45


   46

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Advanced Health Corporation:

We have audited the accompanying consolidated balance sheets of Advanced Health
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1997, and the related consolidated statements of operations, shareholders'
equity and cash flows for the three years ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Health Corporation and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the three years ended December 31, 1997 in
conformity with generally accepted accounting principles.


                                                   ARTHUR ANDERSEN LLP

New York, New York
March 19, 1998


                                      F-1
   47

                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)



                                                                                   December 31,
                                                                               --------------------
                              ASSETS                                             1996        1997
                              ------                                             ----        ----
                                                                                          
CURRENT ASSETS:
   Cash and cash equivalents                                                   $ 12,086    $  7,534
   Certificates of deposit                                                           --       5,399
   Investments in marketable securities                                           7,390      34,082
   Accounts receivable, net                                                       8,637      11,059
   Deferred income taxes                                                            977       4,092
   Other current assets                                                             829         736
                                                                               --------    --------
         Total current assets                                                    29,919      62,902

PROPERTY AND EQUIPMENT, net                                                       2,053       3,664

INTANGIBLE ASSETS, net                                                            1,858       9,415

INVESTMENTS IN AFFILIATES                                                            --       7,000

OTHER ASSETS                                                                      1,570      11,377
                                                                               --------    --------
         Total assets                                                          $ 35,400    $ 94,358
                                                                               ========    ========

               LIABILITIES AND SHAREHOLDERS' EQUITY
               ------------------------------------

CURRENT LIABILITIES:
   Accounts payable and accrued expenses                                       $  2,864    $    933
   Other current liabilities                                                        452         325
                                                                               --------    --------
            Total current liabilities                                             3,316       1,258

DEFERRED REVENUE                                                                    200          --
                                                                               --------    --------
         Total liabilities                                                        3,516       1,258
                                                                               ========    ========
COMMITMENTS

SHAREHOLDERS' EQUITY:
   Preferred stock, $.01 par value; 5,000,000 shares authorized;
     0 shares issued and outstanding, respectively                                   --          --
   Common stock, $.01 par value; 15,000,000 shares authorized; 7,166,941 and
     9,869,719 shares issued and outstanding, respectively                           72          99
   Additional paid-in capital                                                    42,069      95,976
   Accumulated deficit                                                          (10,242)     (3,084)
   Net unrealized gain on marketable securities, net of deferred
     income taxes                                                                    60         184
   Less:  Treasury stock, at cost; 8,937 shares, respectively                       (75)        (75)
                                                                               --------    --------
         Total shareholders' equity                                              31,884      93,100
                                                                               --------    --------
         Total liabilities and shareholders' equity                            $ 35,400    $ 94,358
                                                                               ========    ========


              The accompanying notes are an integral part of these
                          consolidated balance sheets.


                                      F-2
   48

                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)



                                              For the Years Ended December 31,
                                            -----------------------------------
                                               1995          1996        1997
                                               ----          ----        ----
                                                                   
REVENUES                                    $   1,054    $  19,136    $  61,006

COST OF REVENUES                                  340       14,265       45,636
                                            ---------    ---------    ---------

       Gross profit                               714        4,871       15,370

OPERATING EXPENSES                              6,412        7,328        8,954
                                            ---------    ---------    ---------

       Operating (loss) income                 (5,698)      (2,457)       6,416

INTEREST EXPENSE                                   (9)        (164)         (11)

INTEREST INCOME                                    --          179        1,155
                                            ---------    ---------    ---------

       Net (loss) income before income taxes   (5,707)      (2,442)       7,560

INCOME TAX (BENEFIT) PROVISION                     --         (977)         402
                                            ---------    ---------    ---------

       Net (loss) income                    $  (5,707)   $  (1,465)   $   7,158
                                            =========    =========    =========

PER SHARE INFORMATION:
  Net (loss) income per share:
   Basic                                    $    (1.67)   $   (0.28)   $    0.91
                                            ==========    =========    =========
   Diluted                                  $    (1.67)   $   (0.28)   $    0.81
                                            ==========    =========    =========

  Common shares used in computing per
  share amounts:
   Basic                                     3,419,638    5,149,207    7,872,204
                                            ==========   ==========   ==========
   Diluted                                   3,419,638    5,149,207    8,890,856
                                            ==========   ==========   ==========


                 The accompanying notes are an integral part of
                         these consolidated statements.


                                      F-3
   49

                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)



                                                                                                                     Unrealized
                                                                 Additional        Common Stock                       Gain On
                                              Common Stock        Paid-in     Subscriptions Receivable  Accumulated  Marketable
                                         ---------------------                ------------------------
                                           Shares    Par Value    Capital       Shares       Amount       Deficit    Securities
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
                                                                                                       
BALANCE, December 31, 1994               2,051,539   $      20   $   2,728      185,893    $      (3)   $  (3,070)   $      -- 
  Issuance of Common Stock                  50,641           1          (1)          --           --           --           -- 

  Issuance of Series C convertible
   Preferred Stock                         178,743           2       1,498           --           --           --           -- 
  Issuance of common stock in private
   placement                                79,780           1         624           --           --           --           -- 
  Redemption of common stock
   subscriptions                                --          --          --     (185,893)           3           --           -- 
  Exercise of stock options                885,279           9          11           --           --           --           -- 

  Common stock issued for acquisitions     649,753           7       1,629           --           --           --           -- 
  Issuance of Series D Convertible
   Preferred Stock                         595,535           6       4,992           --           --           --           -- 
  Repurchase of treasury stock                  --          --          --           --           --           --           -- 
  Net loss                                      --          --          --           --           --       (5,707)          -- 
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, December 31, 1995               4,491,270          46      11,481           --           --       (8,777)          -- 
  Common stock issued for acquisition        8,937          --          45           --           --           --           -- 
  Exercise of stock options                 21,734          --          86           --           --           --           -- 
  Issuance of common stock in public
   offering, net of expenses of $3,922   2,645,000          26      30,457           --           --           --           -- 
  Unrealized gain on marketable
   securities, net of deferred income
   taxes of $40                                 --          --          --           --           --           --           60
  Net loss                                      --          --          --           --           --       (1,465)          -- 
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, December 31, 1996               7,166,941          72      42,069           --           --      (10,242)          60
  Issuance of common stock, net of
  expenses of $4,102                     2,250,000          22      45,939           --          --          --             --
  Exercise of stock options                352,614           4       1,249           --          --          --             --
  Common stock issued for
  acquisitions                             100,164           1       3,759           --          --          --             --
  Unrealized gain on marketable
  securities, net of deferred income
  taxes of $79                                  --          --          --           --           --           --          124
  Income tax benefit from exercise
  of stock options                              --          --       2,960           --           --           --           -- 
  Net income                                    --          --          --           --           --        7,158           -- 
                                         ---------   ---------   ---------    ---------    ---------    ---------    ---------
BALANCE, December 31, 1997               9,869,719   $      99   $  95,976    $      --    $      --    $  (3,084)   $     184
                                         =========   =========   =========    =========    =========    =========    =========


                                             Treasury Stock   
                                         ---------------------
                                           Shares      Amount       Total     
                                         ---------   ---------    ---------
                                                               
BALANCE, December 31, 1994                      --   $      --    $    (325)
  Issuance of Common Stock                      --          --           --

  Issuance of Series C convertible    
   Preferred Stock                              --          --        1,500
  Issuance of common stock in private
   placement                                    --          --          625
  Redemption of common stock
   subscriptions                                --          --            3
  Exercise of stock options                     --          --           20
  Common stock issued for acquisitions          --          --        1,636
  Issuance of Series D Convertible
   Preferred Stock                              --          --        4,998
  Repurchase of treasury stock               8,937         (75)         (75)
  Net loss                                      --          --       (5,707)
                                         ---------   ---------    ---------
BALANCE, December 31, 1995                   8,937         (75)       2,675
  Common stock issued for acquisition           --          --           45
   Exercise of stock options                    --          --           86
  Issuance of common stock in public
   offering, net of expenses of $3,922          --          --       30,483
  Unrealized gain on marketable
   securities, net of deferred income
   taxes of $40                                 --          --           60
  Net loss                                      --          --       (1,465)
                                         ---------   ---------    ---------
BALANCE, December 31, 1996                   8,937         (75)      31,884
  Issuance of common stock, net of
   expenses of $4,102                                                45,961    
  Exercise of stock options                                           1,253
  Common stock issued for
   acquisitions                                                       3,760
  Unrealized gain on marketable
   securities, net of deferred income                                   
   taxes of $79                                 --          --          124
  Income tax benefit from exercise of
  exercise of stock options                     --          --        2,960 
  Net income                                    --          --        7,158
                                         ---------   ---------    ---------
BALANCE, December 31, 1997                   8,937   $     (75)   $  93,100
                                         =========   =========    =========


                   The accompanying notes are an integral part
                       of these consolidated statements.


                                      F-4
   50

                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



                                                        For the Years Ended December 31,
                                                        --------------------------------
                                                          1995        1996        1997
                                                        --------    --------    --------
                                                                            
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net (loss) income                                     $ (5,707)   $ (1,465)   $  7,158
  Adjustments to reconcile net (loss) income to net
   cash used in operating activities-
   Depreciation and amortization                             457         890       1,471
   Deferred income taxes                                      --        (977)         --
   Allowance for doubtful accounts                            --         210         450
   Changes in operating assets and liabilities-
     Accounts receivable                                  (1,021)     (7,826)     (2,872)
     Other current assets                                   (396)       (426)         93
     Other assets                                            (33)       (310)       (400)
     Accounts payable, accrued expenses and other               
       current liabilities                                 1,274       1,162      (2,058)
     Due to affiliate                                       (376)         --          --
     Deferred revenue                                      1,500      (1,100)       (200)
                                                        --------    --------    --------
         Net cash (used in) provided by
           operating activities                          (4,302)     (9,842)      3,642
                                                        --------    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Minority investment in affiliated entities                  --          --      (7,000)
  Issuance of note receivable from affiliate                (500)         --      (2,500)
  Proceeds from repayment of note receivable from
   affiliate                                                 500          --          --
  Other assets                                                --      (1,130)     (6,907)
  Investments in certificates of deposit                      --          --      (5,399) 
  Investments in marketable securities                        --      (7,290)    (26,692)
  Intangible assets                                           --          --      (4,021)
  Cash paid for acquisitions                                (150)         --        (306)
  Purchases of property and equipment, net                  (882)     (1,296)     (2,552)
                                                        --------    --------    --------
         Net cash used in investing activities            (1,032)     (9,716)    (55,377)
                                                        --------    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES:
  (Repayment of) loan payable related to acquisition         (50)        (94)        --
  Net proceeds from sale and issuance of common stock        628      30,483      45,961   
  Net proceeds from exercise of stock options                 20          86       1,254
  Net proceeds from promissory notes                          --       5,000          --
  Repayment of promissory notes                               --      (5,000)         --
  Purchase of treasury stock                                 (75)         --          --
  Net proceeds from issuance of Series C Convertible
   Preferred Stock                                         1,500          --          --
  Net proceeds from issuance of Series D Convertible
   Preferred Stock                                         4,998          --          --
  Repayment of capital lease obligations                    (230)       (295)        (32)
                                                        --------    --------    --------
         Net cash provided by financing activities         6,791      30,180      47,183
                                                        --------    --------    --------
         Net change in cash and cash equivalents           1,457      10,622      (4,552)

CASH AND CASH EQUIVALENTS, beginning of year                   7       1,464      12,086
                                                        --------    --------    --------
CASH AND CASH EQUIVALENTS, end of year                  $  1,464    $ 12,086    $  7,534
                                                        ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the year for:
   Interest                                             $     21    $    160    $     11
                                                        ========    ========    ========
   Income taxes                                         $     15    $     36    $    248
                                                        ========    ========    ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
  ACTIVITIES:
   Capital lease obligations incurred                   $    281    $     58    $     --
                                                        ========    ========    ========
   Fair market value of common stock issued for
    acquisitions                                        $  1,636    $     45    $  3,760
                                                        ========    ========    ========
   Unrealized gain on marketable securities             $      -    $    100    $    297
                                                        ========    ========    ========
   Loan payable issued for acquisition                  $    150    $     23    $     --
                                                        ========    ========    ========


              The accompanying notes are an integral part of these
                            consolidated statements.


                                      F-5
   51

                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1997
                 (in thousands, except share and per share data)

1. ORGANIZATION AND BUSINESS:

The Company

Advanced Health Corporation ("AHC") and subsidiaries (collectively, the
"Company") provide physician groups and networks with professional practice and
network management services and clinical information systems and services. The
Company's wholly-owned subsidiary was incorporated on August 27, 1993 as
Med-E-Systems Corporation, and was engaged at inception to design and develop
clinical information systems for physician users. Effective August 1995,
Med-E-Systems Corporation became a wholly-owned subsidiary of AHC, an entity
incorporated in March 1995, through a stock-for-stock transfer in which
preferred and common shareholders of Med-E-Systems Corporation exchanged their
interests for the same amounts and classes of preferred and common stock in AHC
as those then outstanding in Med-E-Systems Corporation. The Company was
subsequently merged with and into Majean, Inc. (Note 3), a Delaware corporation,
and the surviving corporation changed its name to Advanced Health Corporation.

The Company operates in a highly-regulated environment in which its sources of
revenues are dependent on the Company's ability to successfully negotiate with
third parties for its various services. Currently, the Company depends on
revenue generated by a limited number of customers, including physician groups
and networks which are under long-term contracts.

Formation of Management Service Organizations

The Company has established Management Service Organizations ("MSOs") by forming
majority owned subsidiaries to facilitate the provision of management services
to physician practice and network clients.

In the three years ended December 31, 1997, the Company obtained a 51% interest
in each of one, five and eight newly formed MSOs, respectively, whereby the
Company acquired these interests as part of the formation of the MSOs and
concurrent with the signing of long-term management services agreements between
the MSOs and physician practices.

In forming these MSOs, the Company conveyed 49% interests (Note 3) to the
physician practice or network in exchange for the execution of the long-term
management services agreements described above. The Company records the fair
value of these arrangements, which is, in the opinion of management, more
readily determinable than the 49% MSO interest conveyed. These intangible
assets, which are not material, will be amortized over the life of the related
contracts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of AHC
and its wholly-owned subsidiaries, Advanced Health Management Corporation
("AHM"), Advanced Health Med-E-Systems 


                                      F-6
   52

Corporation ("MES"), Bukstel & Halfpenny, Inc. ("B&H") and the MSOs discussed in
Note 1. The consolidated financial statements for 1995 include the results of
operations of the Company, including other entities formed or acquired from
their formation or acquisition during those years, through December 31, 1995.
The structure of the Company's wholly or majority-owned MSOs presently provides
for the Company to receive activity-based fee income from the MSOs for
management services provided, and reimbursement from the MSOs for certain
expenses incurred, with the result being that there are no profits in the MSO
entity for which a minority interest is required to be calculated. Accordingly,
the consolidated financial statements do not reflect any minority interest in
the operations of the MSOs. In the event that profits remain in MSO entities in
the future, minority interests will be reflected in the Company's consolidated
financial statements. All intercompany accounts and transactions have been
eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
specifically for the useful lives of capitalized software costs and intangible
assets, that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

Operating revenues are generated from three principal sources:

(a) Physician Practice Revenues: A physician group practice is a single legal
entity comprised of multiple physicians. Through its majority or wholly-owned
consolidated MSOs, the Company enters into management services agreements with
physician group practices, whereby such physician practices outsource their
non-medical and administrative functions to the MSO. Activity-based fees are
generated by the MSO through the provision of these outsourced services as well
as certain additional management, marketing and information services. Fees for
such services are either fixed or based on the level of services provided, as
negotiated in the Company's various agreements for the provision of services,
and are recognized monthly or as these services are rendered, respectively,
based on the terms of the related agreements. The Company's contracts with its
physician group practices also include pre-determined incentives which are
earned and recognized as revenue in the event that the Company is successful in
reducing a physician group practice's administrative overhead as a percentage of
collections.

(b) Physician Network Revenues: A physician network is an aggregation of
individual physicians and physician groups formed for the purpose of entering
into contracts with third-party payors. A physician network enters into a
contract with a third-party payor pursuant to which the physicians comprising
the network agree to provide medical services to network enrollees in return for
a fixed per enrollee fee, known as "capitated" payments, or for a fixed fee paid
only on an as incurred basis, known as "case rate" payments. The physician
network then enters into a management services agreement with the Company's
majority-owned, consolidated MSO, pursuant to which the aggregate capitated or
case rate payments are assigned to the MSO. From these payments, the MSO pays a
fixed percentage of the capitated or case rate premium to fund all
administrative and management services required under the contract. After
payment of such administrative and management expenses, the MSO pays the network
physicians in return for the physicians' provision of medical services to
medical enrollees. Such payments are limited, in the aggregate, to the monies
remaining in the MSO after payment of 


                                      F-7
   53

administrative and management expenses. The Company has not earned, recognized
or recorded any capitated revenues, and only nominal case rate revenues, in the
three years ended December 31, 1997.

(c) Information Systems and Services Revenue: The Company's current business
strategy for providing integrated physician practice and network management
services includes licensing its information systems and services as a means of
ultimately providing a full range of services. In order to generate operating
funds and demonstrate the uses of its systems and development capabilities, the
Company has licensed, and may continue to license, certain components of its
software to third parties.

The Company recognizes revenue from the licensing of its information systems and
services (upon installation and acceptance), and from the licensing of its
software to third parties (upon delivery). Certain of these third parties
provide payment in advance for the development and installation of software,
databases and systems. The Company accounts for these advance payments as
deferred revenue when received, and recognizes revenue ratably over the period
of time during which the software is delivered and services are performed. In
December 1991, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") 91-1, "Software Revenue Recognition". The
Company's revenue recognition policy is in compliance with the provisions of the
SOP.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of trade receivables from the provision of
management services to physician practices and networks and information systems
and services rendered. The Company has recorded these items in its consolidated
financial statements based on their respective fair values.

Cash and Cash Equivalents

Cash and cash equivalents include cash and highly liquid investments with
original maturities of three months or less when purchased. Included in the
balance at December 31, 1997 is a certificate of deposit that was pledged as
collateral on an outstanding letter of credit related to one of the Company's
management service agreements (Note 4).

Certificates of Deposit

Certificates of deposit consist of a series of time deposits with maturities
greater than three months to one year from December 31, 1997.

Investments in Marketable Securities

The Company accounts for investments in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". In accordance with this pronouncement, the
investment and debt securities held by the Company and included in the
accompanying consolidated balance sheets that may be sold in response to changes
in interest rates, prepayments, and other factors have been classified as
available-for-sale. Such securities are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
shareholders' equity (on an after-tax basis). Gains and losses on the
disposition of securities are recognized on the specific identification method
in the period in which they occur.


                                      F-8
   54

Property and Equipment

Property and equipment, consisting primarily of electronic data processing
equipment, are stated at cost and depreciated on a straight-line basis over the
useful lives of the assets (3 to 5 years). Equipment held under capital leases
is amortized utilizing the straight-line method over the lesser of the term of
the lease or the estimated useful life of the asset.

Capitalized Software Costs

The Company develops computer software, which is marketed to third parties.
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as incurred
until technological feasibility is established. Any additional development costs
are capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Amortization of
such costs is provided using the straight-line basis over the estimated economic
life of the products (5 years). The Company performs an annual review of the
recoverability of such capitalized software costs. At the time a determination
is made that capitalized amounts are not recoverable based on estimated cash
flows to be generated from the applicable software, any remaining capitalized
amounts are expensed. Capitalized software costs were $1,130 and $6,037,
respectively for the two years ended December 31, 1997, and are included in
other assets in the accompanying consolidated balance sheets.

Computer software amortization charged to expense aggregated $25, $28 and $300,
respectively, for each of the three years ended December 31, 1997.

Intangible Assets

Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, covenants not-to-compete and management contracts
are included in intangible assets and are presently being amortized over periods
of 4 to 30 years on a straight-line basis. These amortization periods are
evaluated by management on a continuing basis, and will be adjusted if the lives
of the related intangible assets are impaired.

Accounting for Long-Lived Assets

The Company accounts for long-lived assets under the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable intangibles to be disposed of. This
statement was adopted by the Company in 1996 and the effect of the adoption was
not material to the Company's consolidated financial statements.

Investments in Affiliates

Investments in affiliates represent purchased interest of less than 20% and is
accounted for on the cost method. The Company reviews these investments for
impairment whenever events or changes in circumstances indicate that the
carrying amounts of the assets may not be recoverable.

Research and Development

Research and development costs are expensed as incurred by the Company. Research
and development expense aggregated $3,157, $2,843 and $770, respectively, for
the three years ended December 31, 1997.


                                      F-9
   55

Income Taxes

The Company accounts for income taxes under SFAS No. 109, "Accounting for Income
Taxes", which requires recognition of deferred tax liabilities and assets for
the estimated future tax effects of events that have been recognized in the
financial statements or income tax returns. Under this method, deferred tax
liabilities and assets are determined based on (1) differences between the
financial accounting and income tax bases of assets and liabilities, and (2) net
operating loss carry-forwards, using enacted tax rates in effect for the years
in which the differences and carry-forwards are expected to reverse and be
utilized, respectively (Note 13).

Net Income (Loss) Per Common Share

Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share". Basic net income (loss) per common share ("Basic EPS") is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding. Diluted net income (loss) per common share ("Diluted EPS") is
computed by dividing net income (loss) by the weighted average number of common
shares and dilutive potential common shares then outstanding. SFAS No. 128
requires the presentation of both Basic EPS and Diluted EPS on the face of the
consolidated statements of operations. The impact of the adoption of this
statement was not material to all previously reported EPS amounts.

A reconciliation between the numerator and denominator of Basic EPS and Diluted
EPS is as follows:



                                                                      Net Income
                                                                      (Loss) Per
                                                 Net Income   Common    Common
                                                   (Loss)     Shares    Share
                                                   ------     ------    -----
                                                                   
For the Year Ended December 31, 1995
Basic EPS
  Net loss attributable to common stock          $  (5,707)  3,419,638  $(1.67)
  Effect of dilutive securities: stock options          --          --     --
                                                 ---------   ---------  -----

Diluted EPS
  Net loss attributable to common stock          $  (5,707)  3,419,638  $(1.67)
                                                 =========   =========  =====

For the Year Ended December 31, 1996
Basic EPS
  Net loss attributable to common stock          $  (1,465)  5,149,207  $(0.28)
  Effect of dilutive securities: stock
   options and warrants                                 --          --     --
                                                 ---------   ---------  -----

Diluted EPS
  Net loss attributable to common stock          $  (1,465)  5,149,207  $(0.28)
                                                 =========   =========  =====

For the Year Ended December 31, 1997
Basic EPS
  Net income attributable to common stock        $   7,158   7,872,204  $0.91
  Effect of dilutive securities: stock
   options and warrants                                 --   1,018,652  (0.10)
                                                 ---------   ---------  -----

Diluted EPS
  Net income attributable to common stock and
   assumed options exercises                     $   7,158   8,890,856  $0.81
                                                 =========   =========  =====


Diluted EPS for 1995 and 1996 does not include the impact of stock options and
warrants then outstanding as the effect of their inclusion would be
anti-dilutive.


                                      F-10
   56

Stock-Based Compensation

In 1996, the Company adopted the provisions of SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"), and elected to continue the
accounting set forth in Accounting Principles Board No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") and to provide the necessary pro-forma
disclosures as if the fair value method had been applied (Note 12).

New Accounting Pronouncements

On October 27, 1997, the AICPA issued SOP 97-2 "Software Revenue Recognition".
This new SOP supersedes SOP 91-1. SOP 97-2 applies to all entities that earn
revenue by licensing, selling, leasing or otherwise marketing computer software.
It does not apply to revenue earned on products or services when the software
contained in those products or services is incidental to the products or
services as a whole. SOP 97-2 requires that revenue be allocated to each product
or service upon a high threshold of "vendor-specific objective evidence" and
deferred until all of the following four criteria are met for that particular
product or service: (1) persuasive evidence of an agreement must exist, (2)
delivery must have occurred, (3) the vendor's fee must be fixed or determinable,
and (4) collectibility must be probable. The SOP is effective for all
transactions entered into in fiscal years beginning after December 15, 1997.
Earlier application is acceptable, but must commence at the beginning of either
(a) a fiscal year, or (b) an interim period. The provisions of SOP 97-2 are to
be adopted on a prospective basis. Retroactive application is prohibited. The
Company does not expect the adoption of SOP 97-2 to have a material effect on
its consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current
year's presentation.

3. ACQUISITION OF BUSINESSES:

Acquisitions

The transaction with Majean, Inc. described in Note 1 was accounted for as a
purchase through the issuance of 543,564 shares of the Company's stock to the
shareholders of Majean, Inc., who were not previously affiliated with the
Company, for an aggregate purchase price of $1,368. Additionally, options to
purchase 283,010 shares of common stock at $.0112 per share were issued as part
of this transaction. These options are only exercisable, as contingent
consideration, upon the achievement of certain capitalization levels related to
regulatory requirements. The entire purchase price of this acquisition has been
allocated to intangible assets in the accompanying consolidated balance sheets,
as will any contingent consideration which arises due to the option described
above, based on a twenty-year contract with a MSO, which was contributed to
Majean, Inc. by its shareholders upon its formation immediately prior to the
transaction. Accordingly, this intangible asset is being amortized over a period
of twenty-years.

In 1997, as a result of the achievement of certain targeted operating goals, as
defined in previous purchase agreements, certain related parties exercised
warrants for 72,196 shares of the Company's common stock valued at $1,354, which
represents the difference between the market value of the stock at the date of
exercise ($23.13 per share) and the value at the date of grant ($4.38 per share)
and the Company issued 33,966 shares of common stock at a value of $21 per share
for a total value of $713. These amounts have been recorded as adjustments to
the original purchase prices and accordingly included in intangible assets as
goodwill in the accompanying consolidated balance sheet.


                                      F-11
   57
During 1997, the Company acquired certain assets of a B&H clinical information
technology company for $306 in cash, 66,201 shares of common stock ($21.81 per
share) and options for the purchase of 12,012 shares ($21 per share) of the
Company's common stock, for an aggregate purchase price of $2,000. Furthermore,
the B&H purchase agreement calls for the issuance of an additional 114,613
shares of common stock, as contingent consideration.

The Company records the effect of the contingent consideration, if any, related
to these acquisitions based upon the provisions of Emerging Issues Task Force
Issue 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of
an Acquired Company in a Purchase Business Combination", which sets forth the
criteria for determining the allocation of contingent consideration as either
additional purchase price or compensation expense. These criteria provide for
the recognition of contingent consideration, as opposed to compensation expense,
upon the exercisability, if any, of such options and warrants where relevant
facts and circumstances, such as continued employment of the sellers, components
of the selling shareholder group, reasons for contingent payments and other
agreements and issues, indicate that such accounting is warranted. Management of
the Company believes that the terms of the acquisitions described above meet the
criteria for recognition of contingent consideration.

These acquisitions described above were valued based on, as applicable, either
public trading values or on management's estimate of the fair value of common
stock at the date of acquisition, which was determined by the Company's
management by comparisons to (i) arms-length transactions with unrelated
third-parties for the same or similar securities and (ii) an independent
third-party appraisal. Costs and the pro forma effects of these transactions
have not been presented, as the results are immaterial to the Company's
consolidated financial statements taken as a whole.

The stockholders agreements for these MSOs and those MSOs which were formed as
described in Note 1, among other issues, (i) restrict the transfer of MSO
equity, (ii) provide the terms upon which the MSO can, at the Company's option,
be merged with and into a wholly-owned subsidiary of the Company in a
transaction in which the physician practice or network will receive stock of the
Company in exchange for shares in the MSO, and (iii) grant to the physician
practice or network the right to put its equity share in the MSO to the Company
within one year of the Company's satisfaction of certain specified targets if
the Company has not called its right to acquire those interests within that
period. The agreements provide that these call transactions will be paid in the
Company's common stock, and put transactions will be paid in cash, and that
either transaction, if effected, would be based on an agreed-upon amount at the
time of the transaction. The Company will, in the event that these transactions
take place, account for such transactions as purchases at the agreed-upon fair
market value of the MSO interest being purchased.


                                      F-12
   58
4. RELATED PARTY TRANSACTIONS:

Transactions with Officers

In accordance with the Company's Senior Executive Loan Policy, which is
administered by the Compensation Committee of the Board of Directors, the
Company has made loans to certain senior executives of the Company aggregating
$430 and $780, which are included in other assets in the accompanying
consolidated balance sheets as of December 31, 1996 and 1997, respectively.
These loans are due three years from the loan date with interest payable monthly
at a rate of 6% per annum.

Transactions with MSOs

In December 1996, one of the MSOs purchased accounts receivable from a physician
practice, under the terms of its management services agreement, for an aggregate
amount of $4,501, which is included in accounts receivable in the accompanying
consolidated balance sheet as of December 31, 1996. In accordance with the
agreement, all purchased accounts receivable outstanding after ninety days from
the purchase date are to be sold back to the physician practice at face value.
In the event that the physician practice is unable to repurchase the
receivables, the aggregate outstanding amount is converted to a loan which is
collateralized by outstanding shares of the Company held by the shareholders of
the physician practice.

During 1996, a separate MSO made advances aggregating $600, in the ordinary
course of business, to a physician practice with which the MSO has a long-term
management services agreement. These advances were satisfied subsequent to
December 31, 1996, as the physician practice simultaneously assigned certain
accounts receivable to the MSO to satisfy the advances and sold additional
accounts receivable to the MSO. This amount is included in other current assets
in the accompanying consolidated balance sheet as of December 31, 1996. This
amount was paid in full during 1997.

In June 1997, in connection with an amendment to the management services
agreement with Madison, the Company exchanged approximately $3.8 million of
accounts receivable from Madison for an increase in the fees payable by Madison,
an increase in the term of the management services agreement from 20 to 30 years
and the elimination of Madison's right to terminate the agreement, without
cause, prior to the end of the tenth year of the term. This consideration has
been allocated to management contracts and will be amortized over the remaining
life of the related contract, as amended.

Loans to Affiliates

During 1997, the Company loaned $2,000 to Madison Medical - The Private Practice
Group of New York, L.L.P. ("Madison") at the prime rate plus 2%, not to exceed
10%, with interest payable monthly and the outstanding principal payable in
twelve monthly installments beginning in January 1998. In connection with this
loan, the Company has guaranteed a letter of credit to Madison, in the amount
$1,727, by depositing and restricting cash in the same amount in a certificate
of deposit with the same financial institution providing that letter of credit.
These obligations are secured by the 49% ownership interest in Uptown Physician
Management, Inc., an MSO in which the Company has a 51% interest. This amount is
included in other assets from affiliates in the accompanying consolidated
balance sheet.

In connection with an investment in ACRM, Inc. ("ACRM") (Note 8), the Company
loaned ACRM $2,500 at 7% interest, with interest payable monthly and the
outstanding principal payable in full in December 1999.


                                      F-13

   59
Management of the Company believes that these related party transactions were
effected on terms which approximate fair market value

5. INVESTMENTS IN MARKETABLE SECURITIES:

The carrying amounts, gross unrealized gains and losses and estimated market
values of investment securities are summarized as follows:



                                              December 31, 1997
                            ----------------------------------------------------
                                            Gross        Gross      Estimated
                              Carrying    Unrealized   Unrealized     Market
                               Amount       Gains       (Losses)      Value
                               ------       -----       --------      -----
                                                             
     Treasury bills           $ 19,500      $ 215        $    -      $19,715
     Commercial paper            2,000          -             -        2,000
     U.S. Government and                                    
      agencies                   9,793         85             -        9,878
     Corporate bonds             2,492          -            (3)       2,489
                            ----------   --------     ----------   ---------
                              $ 33,785      $ 300        $   (3)     $34,082
                              ========      =====        =======     =======




                                              December 31, 1996
                            ----------------------------------------------------
                                            Gross        Gross      Estimated
                              Carrying    Unrealized   Unrealized     Market
                               Amount       Gains       (Losses)      Value
                               ------       -----       --------      -----
                                                             
     Commercial paper         $  7,290      $ 100        $    -      $ 7,390
                              ========      =====        ======      =======


The carrying amount and estimated market value of investment securities at
December 31, 1997, by contractual maturity, are :



                                                  Estimated
                                      Carrying      Market
                                       Amount       Value
                                      --------     --------
                                                  
     Due in one year or less          $ 31,293     $ 31,593
     Due after one year through two
      years                              2,492        2,489
                                      --------     --------
                                      $ 33,785     $ 34,082
                                      ========     ========


Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.

6. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:



                                                        December 31,
                                                     -------------------
                                                      1996         1997
                                                     ------       ------
                                                               
      Computer equipment and software                $2,276       $4,484
      Equipment under capital leases                    471          471
      Furniture and fixtures                            272          615
      Leasehold improvements                             43           43
                                                     ------       ------
                                                      3,062        5,613

      Less:  Accumulated depreciation and
       amortization                                   1,009        1,949
                                                     ------       ------
      Property and equipment, net                    $2,053       $3,664
                                                     ======       ======



                                      F-14
   60
Depreciation and amortization aggregated $397, $782 and $940, respectively, for
the three years ended December 31, 1997.

7. INTANGIBLE ASSETS:

Intangible assets consist of the following:



                                                       December 31,
                                                 -----------------------
                                                    1996          1997
                                                    ----          ----
                                                               
       Management contracts                        $ 1,368       $ 5,131
       Goodwill                                        619         4,644
       Covenants not-to-compete                         20            20
                                                   -------       -------
                                                     2,007         9,795

       Less:  Accumulated amortization                 149           380
                                                   -------       -------
                                                   $ 1,858       $ 9,415
                                                   =======       =======


Amortization aggregated $42, $108 and $231, respectively, for the three years
ended December 31, 1997.

8. INVESTMENTS IN AFFILIATES:

Investments in affiliates consist of the following:



                                               December 31, 1997
                                               -----------------
                                                      
       PatientCare Dynamics, LLC (a)                $  5,000
       ACRM(b)                                         1,000
       Caresoft (c)                                      500
       Peachstate Eye Care, LLC (d)                      500
                                                    ========
                                                    $  7,000
                                                    ========


      (a)   On December 30, 1997, the Company purchased Class B Shares and a
            Warrant equal to $5,000 of PatientCare Dynamics, LLC, a corporation
            that, among other things, provides technology based support systems
            and services to health care professionals.

      (b)   On September 30, 1997, the Company paid $1,000 for 9.9% preferred
            stock ownership of ACRM, a corporation that provides advanced
            cardiovascular research management.

      (c)   In June 1997, the Company purchased $500 of Series A Preferred Stock
            issued by Caresoft, Inc., a corporation that, among other things,
            develops chronic disease and patient compliance software.

      (d)   On November 14, 1997, the Company paid $500 for a 15% interest in
            Peachstate Eye Care, LLC ("Peachstate"), a corporation engaged in
            the business of delivery eye and vision care. The Company has the
            right to purchase the remaining membership interest, or be required
            by Peachstate to purchase the remaining membership interest, in
            future years, as stipulated in the Membership Interest Purchase
            Agreement.

Each of these investments is accounted for under the cost method of accounting
for investments.


                                      F-15

   61
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:



                                                  December 31, 1996     
                                                  -----------------     
                                                                  
       Accounts payable                                   $ 1,968            
       Public stock offering expenses                         245            
       Other                                                  651            
                                                          -------         
             Total accounts payable and accrued
                expenses                                  $ 2,864         
                                                          =======         


The Company had no individual accrued expenses in excess of 5% of current
liabilities as of December 31, 1997.

10. OTHER CURRENT LIABILITIES:

Other current liabilities consist of the following:



                                                       December 31,
                                                   ---------------------
                                                    1996          1997
                                                    ----          ----
                                                               
       Deferred revenue                            $   200       $   200
       Capital lease obligations                       212            46
       Other                                            40           119
                                                   -------       -------
                                                   $   452       $   365
                                                   =======       =======


11. BRIDGE FINANCING:

Bridge Financing

On February 28, 1996, the Company entered into an agreement to issue three 8%
promissory notes to an investor for an aggregate amount of $3,000. The Company
issued one promissory note and received $1,500 upon the closing, issued a second
promissory note and received $750 at the second closing date, April 26, 1996,
and issued a third promissory note and received the remaining $750 on the third
closing date, June 28, 1996. Each note was due on the earlier of the initial
public offering of the Company's securities or one year from the respective
closing dates. Interest was due quarterly on each of the notes.

In addition, the investor received warrants to purchase 16,757 shares of common
stock of the Company at $16.78 per share which expire on June 28, 2001. The
exercise price of $16.78 per share was, in the opinion of management, greater
than the fair market value of such shares at the date the warrants were issued.
The investor also received 8,937 contingent warrants to purchase the Company's
stock at $8.39 per share. These contingent warrants were to be exercisable
during the period from January 1, 1997 through June 28, 2001 if payment had not
been made on the notes by the agreed-upon payment dates described above or if an
initial public offering was not consummated prior to January 1, 1997; however,
when payments on the notes were made by the specified dates, these contingent
warrants were canceled.


                                      F-16

   62
The Company also entered into an agreement with the owners of the Company's
Series D Convertible Preferred Stock and related warrants (Note 12) for
additional bridge financing in the amount of approximately $2,000. This
financing was unsecured, bore interest at 9% and expired on the earlier of the
consummation of an initial public offering or July 31,1997. On June 19, 1996,
the Company issued three promissory notes in the aggregate principal amount of
$1 million and on August 13, 1996, the Company issued three additional
promissory notes in the aggregate principal amount of $1,000 under this
agreement.

12. SHAREHOLDERS' EQUITY:

Common Stock

(a)   In 1995, the Company sold 79,780 common shares pursuant to a private
      placement agreement dated April 21, 1995 for an aggregate of $625. In
      accordance with this agreement, the holders of these shares have the
      right, on two occasions, to participate on a "piggy-back" basis in a
      registration by the Company under the Securities Act of 1933, as amended,
      subject to certain restrictions, for a period ending on September 30,
      2000, and commencing twelve months from the closing of an initial public
      offering of the securities of the Company.

(b)   In October 1996, the Company completed an initial public offering of its
      common stock. The offering included the sale of 2,300,000 shares of common
      stock (on a basis which reflected the reverse split described below) at
      $13 per share plus an underwriters' overallotment of 345,000 shares. Total
      net proceeds from this offering were $30,483.

(c)   In October 1997, the Company completed a second public offering of its
      common stock. The offering included the sale of 2,000,000 shares of common
      stock by the Company and 500,000 shares of common stock by existing
      shareholders, at $22.25 per share plus an underwriters' overallotment of
      750,000. Total net proceeds to the Company from this offering were
      $45,961.

Preferred Stock

Prior to the initial public offering, the Company had 2,000,000 shares of
authorized Preferred Stock with a par value of $.01 per share, of which 971,800
shares had been designated and issued as Series A Convertible Preferred Stock
and 282,900 shares had been designated and issued as Series B Convertible
Preferred. In January 1995, the Company authorized and sold 200,000 shares of
Series C Convertible Preferred Stock for $1,500 pursuant to a Private Placement
Agreement. In August 1995, the Company authorized and sold 666,360 shares of
Series D Convertible Preferred Stock for $4,998 pursuant to a Private Placement
Agreement. All of the above shares are not redeemable.

Each individual share of Series A, B, C and D Convertible Preferred Stock was
convertible into 1.5 common shares at the holder's option, subject to adjustment
for antidilution. Subject to certain provisions, registration rights, as defined
in the agreement, may be exercised after the earlier of (1) August 23, 1999, or
(2) the effective date of the first registration statement for a public offering
of securities of the Company. Holders of Series B, C and D Convertible Preferred
Stock have voting rights. Furthermore, holders of Series D Convertible Preferred
Stock have the right to purchase 446,858 shares of Class D Convertible Preferred
Stock at $8.39 per share.

Pursuant to the terms of the Series A, B, C and D Convertible Preferred Stock,
these securities were converted, on a 1.5 to 1 share basis, to common stock
immediately prior to the effective date of the initial public offering.


                                      F-17
   63

Stock Splits

In January 1995, the Company authorized a 100 for 1 stock split on its Series A
and B Preferred Stock and a 100 for 1 stock split on the common stock sold in
1993. In April 1996, the Company authorized a 1.5 for 1 stock split on its
common stock in the form of a stock dividend.

In connection with the initial public offering, the Company effected a
recapitalization whereby the presently outstanding common stock (including
converted Series A, B, C and D Convertible Preferred Stock) was converted to
shares of common stock on a .59581 to 1 share basis.

All information in the accompanying consolidated financial statements and
footnotes has been retroactively restated to give effect to these transactions.

Stock Options

During 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan")
for the purpose of granting incentive stock options to employees, officers or
directors of, or consultants or advisors to, the Company, provided that
incentive stock options may only granted to individuals who are employees of the
Company. Options granted under the 1995 Plan typically vest annually over a
three-year period and expire ten years from the date of grant. The Company
reserved 1,500,000 shares of common stock for issuance under the 1995 Plan.

The Company also adopted the Advanced Health Corporation Employee Stock Purchase
Plan (the "Employee Plan") during 1996 in order to allow the employees of the
Company to acquire a proprietary interest in the Company through the purchase of
the Company's common stock. Under the Employee Plan, eligible employees will be
granted options to purchase shares of common stock through regular payroll
deductions. The total number of shares of common stock that are authorized for
issuance under the Employee Plan is 1,200,000. No shares have been issued under
the Employee Plan.

The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.

Had compensation cost for these plans been determined consistent with SFAS No.
123, the Company's net income (loss) and basic net income (loss) per share would
have been changed to the following pro forma amounts:



                                                    1995        1996       1997
                                                  --------    --------    ------
                                                                 
Net income (loss):                  As Reported   $ (5,707)   $ (1,465)   $7,158
                                    Pro Forma       (5,898)     (1,850)    4,370
                                    
Basic net income (loss) per share:
                                    As Reported   $   (1.68)  $   (0.26)  $  .91
                                    Pro Forma         (1.71)      (0.33)     .56


Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.


                                      F-18
   64

A summary of the status of the 1995 Plan at December 31, 1996 and 1997, and
changes during the years then ended, is presented in the table and narrative
below:



                                              1996                   1997
                                     ----------------------   ------------------
                                                  Wtd. Avg.            Wtd. Avg.
                                       Shares     Ex Price    Shares   Ex Price
                                     ----------------------   ------------------
                                                             
Outstanding at beg. of year            888,916      $ 0.17      804,444  $ 1.31
Grant                                  154,733        6.77    1,775,895   16.85
Exercised                              (21,734)       3.71     (352,005)   3.95
Forfeited                             (217,471)       4.17     (140,007)   8.07
                                     ---------                ---------
Outstanding at end of year             804,444        1.31    2,088,327   13.72
                                     =========                =========
Exercisable at end of year             306,511         N/A      282,583    3.03
                                     =========                =========
Weighted average fair value of
  options granted                       $ 3.54         N/A       $ 8.52


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997, respectively: risk-free interest
rates of 6.2%; expected dividend yields of 0%; expected lives of 3 years;
expected stock price volatility of 74%.

13. INCOME TAXES:

Income tax provision (benefit) consists of the following:



                                                 Years Ended December 31,
                                          ------------------------------------
                                             1995         1996        1997
                                             ----         ----        ----
                                                               
Federal:
  Current                                    $     -      $    -       $   -
  Deferred                                         -        (757)      2,556
State and Local:
  Current                                          -           -           -
  Deferred                                         -        (220)        451
  Adjustment to valuation allowance
   related to opening net deferred tax
   assets                                          -           -      (2,605)
                                             -------     -------      ------
     Total income tax provision (benefit)    $     -      $ (977)     $  402
                                             =======     =======      ======


A reconciliation of the difference between the statutory Federal income tax rate
and the Company's effective tax rate for the years ended December 31, 1995,
1996, and 1997 are as follows:



                                                      1995      1996      1997
                                                      ----      ----      ----
                                                                  
     Tax provision (benefit) at statutory
       rate                                             34%       34%       34%
     State and local taxes                               6%        6%        6%
     Loss without benefit                              (40%)      --        --
     Change in valuation allowance for
       opening net deferred tax assets                  --       (40%)     (35%)
                                                      ----      ----      ----
                                                        --        --         5%
                                                      ====      ====      ====



                                      F-19
   65

The tax effects of temporary differences that give rise to a significant portion
of the deferred income tax asset, net, at December 31, 1997 and 1996 are as
follows:



                                                          December 31,
                                                    -----------------------
                                                       1996          1997
                                                       ----          ----
                                                                  
     Net operating loss carryforward                  $ 3,511       $ 2,132
     Exercise of stock options                             --         1,360
     Allowance for doubtful accounts                       84           264
     Amortization                                         380           238
     Deferred revenue                                     160            80
     Other                                                (11)           18
                                                      -------       -------
                                                        4,124         4,092
   Less: Valuation allowance                           (3,147)            -
                                                      -------       -------
           Total current deferred income taxes, net   $   977       $ 4,092
                                                      =======       =======
                                       

At December 31, 1997, the Company had net operating loss carryforwards ("NOLs")
available to offset taxable income of approximately $4,900 expiring in varying
amounts through 2011. In 1997, management of the Company determined that, more
likely than not, its previously-reserved deferred tax assets would be realized
and, accordingly, reduced the related valuation allowance. The reduction in the
valuation allowance is included in the income tax provision in the accompanying
consolidated statement of operations for 1997. The determination that the net
deferred tax asset of $4,092 at December 31, 1997 is realizable is based on the
Company's profitability during 1997. Deferred tax assets of approximately
$1,360, all of which are related to tax benefits associated with the exercise of
stock options, did not result in a tax benefit in the accompanying consolidated
statements of operations but, rather, increase additional paid in capital.

14. COMMITMENTS:

The Company leases certain office space for its operations. Leases for this
space expire through 2002 and call for annual rent, with immaterial escalations
through the end of the leases.

The Company has also entered into several operating leases for office equipment.

Future minimum payments for operating leases at December 31, 1997 are as
follows:



       Year ending December 31,
       ------------------------
                                        
       1998                            $   969
       1999                              1,158
       2000                                787
       2001                                820
       2002 and thereafter                 239


Rent expense was $126, $630 and $443, respectively, for the three years ended
December 31, 1997.


                                      F-20
   66

Employment Agreements

During 1997, the Company entered into employment agreements with the following
four employees: (1) the Chairman of the Board and Chief Executive Officer, (2)
Vice Chairman and Director, (3) President and Chief Operating Officer and (4)
Executive Vice President and Chief Information Officer. The employment
agreements provide for initial base salaries of $220, $220, $200, and $174
respectively. The employees are also entitled to receive discretionary bonuses.
The employment agreements provide for a three-year term that is automatically
renewable for successive one-year terms unless either party gives prior written
notice of its intent not to renew.

15. LITIGATION:

On May 22, 1997, a shareholder commenced an action against the Company and
certain of its executives in the United States District Court for the Southern
District of New York. The action relates to: (i) employment Agreement dated
April 1, 1996 between the Company and the shareholder and (ii) an Asset Purchase
Agreement dated April 1, 1996, among the Company, the shareholder, and a company
previously owned by the shareholder. Plaintiffs have asserted claims against all
defendants for alleged violations of the Exchange Act, common law fraud and
fraudulent inducement, and against the Company for breach of contract.
Plaintiffs' complaint seeks both damages and equitable relief. The Company
believes that each of the plaintiffs' claims is without merit, and it intends to
defend against the action vigorously.

On September 23, 1997, the Company commenced an action against a customer to
collect $1,000 owed by the customer to the Company pursuant to a software
license agreement dated as of March 31, 1997, as amended (the "License
Agreement"), between the customer and the Company. On October 1, 1997, the
customer filed an answer to this lawsuit and asserted various counterclaims
against the Company, in which the customer alleges that the subject software and
documentation was not timely delivered and installed in accordance with the
License Agreement. As relief, the customer seeks a declaratory judgment that the
customer is not obligated to make the $1,000 payment, as well as unspecified
damages. The Company believes that the customer defenses and counterclaims are
without merit.

From time to time, the Company is involved in litigation. Although the actual
amount of any liability that could arise with respect to any such litigation
cannot be accurately predicted, in the opinion of management, the resolution of
these matters is not expected to have material adverse effect on the Company's
business, results of operations or financial condition.


                                      F-21
   67


                                                       SUPPLEMENTAL SCHEDULE II





                                                                      (in thousands)

                                                                            Additions
                                                                            ----------
                                                    Balance at    Charged to      Charged to                         Balance at
                                                     beginning      cost and         other                             end
           Description                               of period      expenses        accounts      Deductions          of period
- ---------------------------------------------------------------------------------------------------------------------------------
                                                                                                     
December 31, 1995 Allowance for Doubtful Accounts    $      -     $         -     $          -     $          -     $          -
             1996 Allowance for Doubtful Accounts    $      -     $       210     $          -     $          -     $        210
             1997 Allowance for Doubtful Accounts    $    210     $       450     $          -     $          -     $        660
                                                     =============================================================================























                                     S-2

   68
             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Advanced Health Corporation:

     We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Advanced Health Corporation included
in this annual report on Form 10-K and have issued our report thereon dated
March 19, 1998. Our audits were made for the purpose of forming an opinion on
the basic consolidated financial statements taken as a whole. This schedule is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected  to the auditing procedures
applied in our audits of the basic  consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.   


                                                ARTHUR ANDERSEN LLP


New York, New York
March 19, 1998









                                     S-1
   69

                                  EXHIBIT INDEX

Exhibit No. Description of Exhibit                                         Page

**3.1       Restated Certificate of Incorporation of the Registrant

**3.2       By-laws of the Registrant

+**10.1     Management Services Agreement dated as of December 11, 1995,
            between Madison Medical -- The Private Practice Group of New
            York, L.L.P. and Uptown Physician Management, Inc.

**10.2      Stockholders' Agreement dated as of December 11, 1995, among
            Uptown Physician Management, Inc. and certain stockholders

+**10.3     Management Services Agreement dated as of August 7, 1995,
            among Advanced Heart Institute of New York, P.C., Valavanur A.
            Subramanian, M.D., Jeffrey Moses M.D. and Majean Sub 2, Inc.

+**10.4     Management Services Agreement dated as of July 1, 1996,
            between Specialist Physicians Management, Inc. and Cardiology
            First of New Jersey, P.A.

**10.5      Stockholders' Agreement dated as of July 1, 1996 among
            Specialist Physicians Management, Inc., Specialist Physicians
            MSO, L.L.C. and Advanced Health Management Corporation.

+**10.6     Management Services Agreement dated as of July 1, 1996 between
            Diamond Physician Management, Inc. and Long Island
            Interventional Cardiology.

**10.7      Tarrytown, New York Office Lease Agreement dated November 30,
            1995, between Tarrytown Corporate Center IV, L.P. and the
            Registrant.

**10.8      First Amendment to Lease Agreement between Reckson Operating
            Partnership, LP, as Owner, and the Registrant, as Tenant

**10.9      Chicago Office Lease Agreement dated December 8, 1995, between
            Adams Family, L.L.C. and the Registrant


   70

*10.10      Fort Washington Lease Agreement dated November 13, 1997,
            between Comdrive Associates, L.P. and Registrant as Tenant

*10.11      Hawthorne Lease Agreement dated January 8, 1998, between
            United Parcel Service, Inc. and Registrant as Tenant

**10.12     Form of Director Indemnification Agreement

**10.13     Employment Agreement between the Registrant and Jonathan
            Edelson, M.D.

**10.14     Employment Agreement between the Registrant and Steven
            Hochberg

**10.15     Employment Agreement between the Registrant and Alan B.
            Masarek

****10.16   Employment Agreement between the Registrant and Robert Alger

*10.17      Employment Agreement between the Registrant and Michael P.
            Rogers

**10.18     Amended and Restated Advanced Health Corporation 1995 Stock
            Option Plan

**10.19     Employee Stock Purchase Plan

**11.1      Earnings Net Loss Per Common Share Computation

**21        List of Subsidiaries

*23.2       Consent of Arthur Andersen LLP

*27         Financial Data Schedule

*     Filed herewith.
**    Filed as an exhibit to the Registrant's Registration Statement on Form
S-1, as amended (Registration No. 333-06283), Registrant's Registration
Statement on Form S-1, as amended (Registration No. 333-35115), and
Registrant's Form 10-K, dated March 30, 1997 incorporated herein by reference.
+ Portions of such exhibit have been deleted therefrom pursuant to Rule 406
promulgated under the Securities Act of 1933, as amended, and confidential
treatment has been granted therefor.

EX-10.10

   1


                               AGREEMENT OF LEASE


                                     BETWEEN

                            COMDRIVE ASSOCIATES, L.P.

                                   AS LANDLORD


                                       AND


                           ADVANCED HEALTH CORPORATION

                                    AS TENANT
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                                  OFFICE LEASE


      LEASE made this 13th day of November, 1997 by and between Comdrive
Associates, L.P. (hereinafter called "Landlord"), and Advanced Health
Corporation a Delaware Corporation (hereinafter called "Tenant").

                                WITNESSETH, THAT:

      1. DEMISED PREMISES. Landlord, for the term and subject to the provisions
and conditions hereof, leases to Tenant and Tenant accepts from Landlord, the
space consisting of approximately 8.028 rentable square feet on the ____ floor
known as Suite _______ (hereinafter referred to as the "Demised Premises") of
the building known as 401 Commerce Drive located in Fort Washington, Upper
Dublin Township, Pennsylvania (hereinafter referred to as the "Building"), and
more particularly described by the cross-hatched area on the floor plans annexed
herein as Exhibit "A", to be used by Tenant for the purpose of Office and for no
other purpose.

      2. TERM. Tenant shall use and occupy the Demised Premises for a term of
Five (6) years and Zero (0) months, commencing on the First day of January, 1998
and ending on the Thirty First day of December, 2002 unless sooner terminated as
herein provided.

      3. MINIMUM RENT.

            (a) See Rent Rider attached. The first installment to be payable on
the execution of this Lease and subsequent installments to be payable on the
first day of each successive month of term hereof following the first month of
such terms.

            (b) If the term of this Lease begins on a day other than the first
day of a month, rent from such day until the first day of the following month
shall be prorated at the rate of one-thirtieth of the fixed monthly rental for
each day of the first full calendar month of the term hereof (and, in such
event, the installment of rent paid at execution hereof shall be applied to the
rent due for the first full calendar month of the term hereof).

            (c) All rent and other sums due to Landlord hereunder shall be
payable to Comdrive Associates, LP. and mailed to the office of Landlord at
Equivest Management Company P.O. Box 13700, Philadelphia, Pennsylvania,
19191-1062, or to such other party or at such other address as Landlord may
designate, from time to time, by written notice to Tenant, without demand and
without deduction, set-off or counterclaim (except to the extent demand or
notice shall be expressly provided for herein).

            (d) If Landlord, at any time or times, shall accept said rent or any
other sum due to it hereunder after the same, shall become due and payable such
acceptance shall not excuse delay upon subsequent occasions, or constitute or be
construed as, a waiver of any of Landlord's rights hereunder.


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      4. ESCALATION IN TAXES, OPERATING COSTS, COSTS OF LIVING: COST OF
ELECTRICITY.

(A) Definitions. As used in this Section 4, the following terms shall be defined
as hereinafter set forth.

            (i) "Taxes" shall mean all real estate taxes and assessments,
general and special, ordinary or extraordinary, foreseen or unforeseen, imposed
upon the Building or with respect to the ownership thereof and the parcel of
land appurtenant thereto. If, due to a future change in the method of taxation,
any franchise, income, profit or other tax, however designated, shall be levied
or imposed in substitution in whole or in part, for (or in lieu of) any tax
which would otherwise be included within the defined herein.

            (ii) "Base Year Operating Expenses" shall be $4.00 per square foot.

            (iii) "Tenant's Fraction" shall be a fraction, the numerator of
which is the Demised Rentable Square Feet and the denominator of which is the
Rentable Square Feet in the Building. 8,028/45,000

            (iv) (a) Operating Expenses" shall mean except as hereinafter
limited, Landlord's actual out-of-pocket expenses in respect of the operation,
maintenance and management of the Building (after deducting any reimbursement,
discount, credit, reduction or other allowance received by Landlord) and shall
include, without limitation: (1) wages and salaries (and taxes imposed upon
employers with respect to such employed by Landlord for rendering service in the
normal operation, cleaning, maintenance, and repair of the Building; (2)
contract costs of contractors hired for the operation, maintenance and repair of
the Building; (3) the cost of steam, electricity, water and sewer and other
utilities (except for electricity, which is separately charged by Landlord as
herein provided) chargeable to the operation and maintenance of the Building;
(4) cost of insurance for the Building including fire and extended coverage,
elevator, boiler, sprinkler leakage, water damage, public liability and property
damage, plate glass, and rent protection, but excluding any charge for increased
premiums due to acts or omissions of other occupants of the Building or because
of extra risk which are reimbursed to Landlord by such other occupants; (5)
supplies; and (6) reasonable legal and accounting expenses; (7) Taxes (8)
management expense.

The term "Operating Expenses" shall not include: (1) the cost of redecorating or
repairing not provided on a regular basis to tenants of the Building; (2) the
cost of any repair or replacement item which, by standard accounting practice,
should be capitalized; (3) any charge for depreciation, interest or rents paid
or incurred by Landlord; (4) any charge for Landlord's income tax, excess profit
taxes, franchise taxes or similar taxes on Landlord's business; (5) commissions.


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                  (b) In determining Operating Expenses for any year, if less
than ninety-five percent (95%) of the Building rentable area shall have been
occupied by tenants at any time during such year, Operating Expenses shall be
deemed for such year to be an amount equal to the like expenses which Landlord
reasonably determines would normally be incurred had such occupancy been
ninety-five percent (95%) throughout such year, provided base year is increased
to ninety five percent (95%).

                  (c) If, after the Base Year for Operating Expenses, Landlord
shall eliminate any component of Operating Expenses, as a result of the
introduction of a labor saving device or other capital improvement, the
corresponding item of Operating Expenses shall be deducted from the Operating
Expenses expended by Landlord in said Base Year for purposes of calculating
Tenant's Proportionate Share of any increased Operating Expenses.

            (v) "Demised Rentable Square Feet" shall mean 8.028 square feet.

            (vi) "Rentable Square feet in the Building" shall mean 45.000 square
feet.

(B) Escalation of Operating Expenses.

            (i) For and with respect to each calendar year of the term of this
Lease (and any renewals or extensions thereof) subsequent to the Base Year for
Operating Expenses there shall accrue, as additional rent, an amount equal to
the product obtained by multiplying the Tenant's Fraction by the amount of the
increase, if any, of Operating Expenses for such year over the Base Year
Operating Expenses (appropriately prorated for any partial calendar year
included within the beginning and of the term).

            (ii) Landlord shall furnish to Tenant as soon as reasonably possible
after the beginning of each calendar year of the term hereof subsequent to the
Base Year for Operating Expenses, in the event Tenant over pays operating
pass-through, Landlord will promptly reimburse Tenant:

                  (a) A statement (the "Expense Statement":) setting forth (1)
Operating Expenses for the previous calendar year, and (2) Tenant's Fraction of
the Operating Expenses for the previous calendar year and

                  (b) A statement of Landlord's good faith estimate of Operating
Expenses, and the amount of Tenant's Fraction thereof (the "Estimated Share"),
for the current calendar year.

            (iii) Beginning with the next installment of minimum rent due after
delivery of the foregoing statements to Tenant, Tenant shall pay to Landlord, on
account of its share of Operating Expenses (or Landlord shall pay to Tenant, if
the following quantity is negative):

                  (a) One-twelfth of the Estimated Share multiplied by the
number of full or partial calendar months elapsed during the current calendar
year up to and including the month payment is made, plus any amounts due from
Tenant to Landlord on account of Operating Expenses for prior periods of time,
less:


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                  (b) The amount, if any, by which the aggregate of payments
made by Tenant on account of Operating Expenses for the previous calendar year
exceed those actually due as specified in the Expense Statement.

            (iv) On the first day of each succeeding month up to the time Tenant
shall receive a new Expense Statement and statement of Tenants Estimated Share,
Tenant shall pay to Landlord, on account of its share of Operating Expenses,
one-twelfth of the then current Estimated Share. Any payment due from Tenant to
Landlord, or any refund due from Landlord to Tenant, on account of Operating
Expenses not yet determined as of the expiration of the term hereof shall be
made within twenty (20) days after submission to Tenant of the next Expense
Statement.

      5. UTILITIES SEPARATELY CHARGED TO DEMISED PREMISES. Tenant shall be
responsible for all utilities (including gas and electric) which are consumed
within the Demised Premises. If a separate meter is installed, Tenant shall pay
for the consumption of such utilities based on its metered usage. if no meter is
installed, Tenant shall pay a pro-rata share of any utility charges covering the
Demised Premises and other areas of the Building which pro-rata share shall be
based on the percentage which the Demised Rentable Square Feet bears to the
square footage of the areas of the Building serviced by such utility. Tenant
shall pay utility bills within ten (10) days after the receipt and non-payment
or late payment of such bills shall be considered a default under this Lease.
Landlord warrants that this building is submetered and submeters are in good
working order.

      6. SECURITY DEPOSIT. As additional security for the full and prompt
performance by Tenant of the terms and covenants of this Lease, Tenant has
deposited with the Landlord the sum of Eleven Thousand One Hundred Five Dollars
and Forty Cents ($11,105.40) which shall not constitute rent for any month
(unless so applied by Landlord on account of Tenant's default). Tenant shall,
upon demand, restore any portion of said security deposit, which may be applied
by Landlord to the cure of any default by Tenant hereunder. To the extent that
Landlord has not applied said sum on account of a default, the security deposit
shall be returned (without interest) to Tenant promptly at termination of this
Lease.

      7. SERVICES. Landlord agrees that it shall:

            (a) Provide passenger elevator service to the Demised Premises
during all days with one (1) elevator subject to call at all other times. Tenant
and its employees and agents shall have access to the Demised Premises at all
times, subject to compliance with such security measures as shall be in effect
for the Building.

            (b) Provide water for drinking, lavatory and toilet purposes drawn
through fixtures installed by Landlord; and


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            (c) Furnish the Demised Premises with electric for heating, hot and
chilled water and air-conditioning. Tenant shall not install or operate in the
Demised Premises any electrically operated equipment or other machinery, other
than typewriters, computers, telecommunication equipment, adding machine and
other machinery and equipment normally used in modern offices, or any plumbing
fixtures, without first obtaining the prior written consent of the Landlord
which will not be unreasonably withheld. Landlord may condition such consent
upon the payment by Tenant of additional rent as compensation for the additional
consumption of water and/or electricity occasioned by the operation of said
equipment, fixtures, or machinery.

Tenant, at Tenant's sole expense, shall be responsible for the installation,
maintenance, and use of any equipment of any kind or nature whatsoever which
would or might necessitate any changes, replacements, or additions to the water
system, plumbing system, heating system, air-conditioning system, or the
electrical system servicing the Demised Premises or any other portion of the
Building without the prior written consent of the Landlord which shall not be
unreasonably withheld, and in the event such consent is granted, such
replacement, changes or additions shall be paid for by Tenant. It is understood
that Landlord does not warrant that any of the services referred to in this
Section 7 will be free from interruption from causes beyond the reasonable
control of Landlord. No interruption of service shall ever be deemed an eviction
or disturbance of Tenant's use and possession of the Demised Premises or any
part thereof or render Landlord liable to Tenant for damages by abatement or
rent or otherwise relieve Tenant from performance of Tenant's obligations under
this Lease, unless Landlord, after reasonable notice, shall willfully and
without cause fail or refuse to take action within its control. Landlord
represents and warrants that everything within the Building is within the
control of the Landlord. In the event after Tenant notifies Landlord that
services have been interrupted for a period of two (2) days, rent shall abate
one (1) day for every day that services remain interrupted.

      8. CARE OF DEMISED PREMISES. Tenant agrees, on behalf of itself, its
employees and agents that it shall:

            (a) Comply at all times with any and all federal, state and local
statutes, regulations, ordinances, and other requirements of any of the
constituted public authorities relating to its use and occupancy of the Demised
Premises except for major and structural alterations.

            (b) Give Landlord access to the Demised Premises at all reasonable
times, without charge or diminution of rent, to enable Landlord (i) to examine
the same and to make such repairs, additions and alterations as Landlord may be
permitted to make hereunder or as Landlord may deem reasonably advisable for the
preservation of the integrity, safety and good order of the Building or any part
thereof; and (ii) upon reasonable notice during business hours, to show the
Demised Premises to prospective mortgagees and purchasers and, during the three
(3) months prior to expiration of the term, to prospective tenants;

            (c) Keep the Demised Premises in good order and condition and
replace all glass broken by Tenant, its agents, employees or invitees with glass
of the same quality as that broken, except for glass broken by fire and extended
coverage type risks, or by Landlord, and commit no waste in the Demised
Premises;


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            (d) Upon the termination of this Lease in any manner whatsoever,
remove Tenant's goods effects and those of any other person claiming under
Tenant, and quit and deliver up the Demised Premises to Landlord peaceably and
quietly in as good order and condition at the inception of the term of this
Lease or as the same hereafter may be improved by Landlord or Tenant, reasonable
use and wear thereof damage from fire and extended coverage type risks, and
repairs which are Landlord's obligation excepted. Goods and effects not removed
by Tenant at the termination of this Lease, however terminated, shall be
considered abandoned and Landlord may dispose of and/or store the same as it
deems expedient, the cost thereof to be charged to Tenant;

            (e) Not place signs on the Demised Premises except on doors and then
only of a type and with lettering and text approved by Landlord. Identification
of Tenant and Tenant's location shall be provided in a directory in the Building
Lobby;

            (f) Not overload, damage or deface the Demised Premises or do any
act which might make void or voidable any insurance on the Demised Premises or
the Building or which may reasonably render an increased or extra premium
payable for insurance (and without prejudice to any right or remedy of Landlord
regarding this subparagraph, Landlord shall have the right to collect from
Tenant, upon demand, any such increase or extra premium). Tenant shall maintain
at its own sole cost adequate insurance coverage for all of its equipment,
furniture, supplies and fixtures and provide Landlord with certificates
evidencing such coverage;

            (g) Not make any alteration of or addition to the Demised Premises
without the prior written approval of Landlord (except for work of a decorative
nature);

            (h) Not install or authorize the installation of any coin operated
vending machine, except for the dispensing of cigarettes, coffee, and similar
items to the employees of Tenant for consumption upon the Demised Premises: and

            (i) Observe the rules and regulations annexed hereto as Exhibit "C",
as Landlord may from time to time amend the same for the general safety, comfort
and convenience of Landlord, occupants and tenants of the Building.

      9. SUBLETTING AND ASSIGNING. Tenant shall not assign this Lease or sublet
all or any portion of the Demised Premises without first obtaining Landlord's
prior written consent which can not be unreasonable withheld thereto. If such
consent is given, it will not release Tenant from its obligations hereunder and
which will not be deemed a consent to any further subletting or assignment. If
Landlord consents to any such subletting or assignment it shall nevertheless be
a condition to the effectiveness thereof that a fully executed copy of the
sublease or assignment be furnished to Landlord and that any assignee assume in
writing all obligations of Tenant hereunder, Tenant shall not mortgage or
encumber this Lease.


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      10. DELAY IN POSSESSION. If Landlord shall be unable to deliver possession
of the Demised Premises to Tenant on the date specified for commencement of the
term hereof because of the holding over or retention of possession of any tenant
or occupant, or if repairs improvements or decoration of the Demised Premises
are not completed, or for any other reason, Landlord shall not be subject to any
liability to Tenant. Under such circumstances, the rent reserved and covenanted
to be paid herein shall not commence until possession of Demised Premises is
given and no such failure to give possession shall in any other respect affect
the validity of this Lease or any obligation to extend the term of this Lease.
In such event that substantial completion of Tenant Improvements have not been
completed by December 31, 1997 subject that Leases and Exhibit A are executed by
November 13, 1997, Tenant will receive one days rent abatement for each day that
Tenant is delayed occupancy beyond December 31, 1997. Substantial completion
shall be defined herein as follows: Landlord shall have received a Certificate
of Occupancy and Tenant and Landlord shall be reviewing punchlist items
relating to the completion of Tenant improvements within Demised Premises. In
the event that Landlord has not met substantial completion by January 31, 1998,
Tenant will have the Option to Terminate this Lease with written notice to
Landlord.

      11. FIRE OR CASUALTY. In case of damage to the Demised Premises or the
Building by fire or other casualty, Tenant shall give immediate notice thereof
to Landlord. Landlord shall thereupon cause the damage to be repaired with
reasonable speed, subject to delays, which may arise by reason of adjustment of
loss under insurance policies and for delays beyond the reasonable control of
Landlord. To the extent and for the time that the Demised Premises are thereby
rendered untenantable, the rent shall proportionately abate.

In the event the damage shall be so extensive that Landlord shall decide not to
repair or rebuild, or if any mortgagee, having the right to do so shall direct
that the insurance proceeds are to be applied to reduce the mortgage debt rather
than to the repair of such damage, this Lease shall, at the option of Landlord,
exercisable by written notice to Tenant given within thirty (30) days after
Landlord is notified of the casualty, be terminated as of a date specified in
such notice (which shall not be more than ninety (90) days thereafter), and the
rent (taking into account any abatement as aforesaid) shall be adjusted to the
termination date. Thereafter, Tenant shall promptly vacate the Demised Premises.

      12. LIABILITY. Tenant agrees that Landlord and its building manager and
their officers, employees and agents shall not be liable to Tenant, and Tenant
hereby releases said parties, for any personal injury or damage to or loss of
personal property in the Demised Premise from any cause whatsoever unless such
damage, loss or injury is the result of the gross negligence or willful acts of
Landlord, its building manager, or their officers, employees or agents, and
Landlord and its building manager and their officers or employees shall not be
liable to Tenant for any such damage or loss whether or not the result of their
willful and gross negligence to the extent Tenant is compensated therefor by
Tenant's insurance. Tenant shall and does hereby indemnify and hold Landlord
harmless of and from all loss or liability incurred by Landlord in connection
with any failure of Tenant to fully perform its obligations under this Lease and
in connection with any personal injury or damage of any type or nature occurring
in or resulting out of Tenant's use of the Demised Premises, unless due to
Landlord's fault.


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      13. EMINENT DOMAIN. If the whole or a substantial part of the Building
shall be taken or condemned for a public or quasi-public use under an statute or
by right of eminent domain or private purchase in lieu thereof by any competent
authority, Tenant shall have no claim against Landlord and shall not have any
claim or right to any portion of the amount that may be awarded as damages or
paid as a result of any such condemnation or purchase; and all right of the
Tenant to damages therefore are hereby assigned by Tenant to Landlord. The
foregoing shall not, however, deprive Tenant of any separate award for moving
expenses or for any other award which would not reduce the award payable to
Landlord. Upon the date the right to possession shall vest in the condemning
authority, this Lease shall cease and terminate with rent adjusted to such date,
and Tenant shall have no claim against Landlord for the value of any unexplored
term of this Lease.

      14. INSOLVENCY.

            (a) The appointment of a receiver or trustee to take possession of
all or a portion of the assets of Tenant, or (b) an assignment by Tenant for the
benefit of creditors, or (c) the Institution by or against Tenant of any
proceedings for bankruptcy or reorganization under any state or federal law
(unless in the case of involuntary proceedings, the same shall be dismissed
within thirty (30) days after institution), or (d) any execution issued against
Tenant which is not stayed or discharged within fifteen (15) days after issuance
of any execution sale of the assets of Tenant, shall constitute a breach of this
Lease by Tenant. Landlord in the event of such a breach, shall have, without
need of further notice, the rights enumerated in Section 15 herein.

      15. DEFAULT.

            (a) If Tenant shall fail to pay rent or any other sum payable to
Landlord five (5) business days with written notice from date due, or if Tenant
shall fall to perform or observe any of the other covenants, terms or conditions
contained in this Lease within fifteen (15) days (or such longer period as is
reasonably required to correct any such default, provided Tenant promptly
commences and diligently continues to effectuate a cure), but in any event
within thirty (30) days after written notice thereof by Landlord, or if any of
the events specified in Section 14 occur, or if Tenant vacates or abandons the
Demised Premises during the term hereof or removes or manifests an intention to
remove any of Tenant's goods or property therefrom other than in the ordinary
and usual course of Tenant's business, then and in any of said cases
(notwithstanding any former breach of covenant or waiver thereof in a former
instance), Landlord, in addition to all other rights and remedies available to
it by law or equity or by any other provisions hereof, may at any time
thereafter, Tenant however with written notice to Landlord which can not be
unreasonably withheld may vacate Demised Premises and this will not constitute
Default of this Lease:

                  (i) upon three (3) days notice to Tenant, declare to be
immediately due and payable, the rent and other charges herein reserved for the
balance of the term of this Lease (taken without regard to any early termination
of said term on account of default), a sum equal to the Accelerated Rent
Component (as hereinafter defined), and Tenant shall remain liable to Landlord
as hereinafter provided: and/or


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                  (ii) whether or not Landlord has elected to recover the
Accelerated Rent Component, terminate this Lease on at least five (5) days
notice to Tenant and, on the date specified in said notice, this Lease and the
term hereby demised and all rights of Tenant hereunder shall expire and
terminate and Tenant shall thereupon quit and surrender possession of the
Demised Premises to Landlord in the condition elsewhere herein required and
Tenant shall remain liable to Landlord as hereinafter provided.

            (b) For purposes herein, the Accelerated Rent Component shall mean
the present value aggregate of:

                  (i) all rent and other charges, payments, costs and expenses
due from Tenant to Landlord and in areas at the time of the election of Landlord
to recover the Accelerated Rent Component;

                  (ii) the minimum rent reserved for the then entire unexpired
balance of the term of this Lease (taken without regard to any early termination
of the term by virtue of any default), plus all other charges, payments, costs
and expenses herein agreed to be paid by Tenant up to the end of said term which
shall be capable of precise determination at the time of Landlord's election to
recover the Accelerated Rent Component; and

                  (iii) Landlord's good faith estimate of all charges, payments,
costs and expenses herein agreed to be paid by Tenant up to the end of said term
which shall not be capable to precise determination as aforesaid (and for such
purposes no estimate of any component of the additional rent to accrue pursuant
to the provisions of Section 4 hereof shall be less than the amount which would
be due if each such component continued at the highest monthly rate or amount in
effect during the twelve (12) months immediately preceding the default).

            (c) In any case in which this Lease shall have been terminated, or
in any case in which Landlord shall have elected to recover the Accelerated Rent
Component and any portion of such sum shall remain unpaid, Landlord may without
further notice, enter upon and repossess the Demised Premises, by force, summary
proceedings, ejectment or otherwise, and may dispossess Tenant and remove Tenant
and all other persons and property from the Demised Premises and may have, hold
and enjoy the Demised Premises and the rents and profits therefrom. Landlord
may, in its own name, as agent for Tenant, if this Lease has not been
terminated, or in its own behalf, if this Lease has been terminated, relet the
Demised Premises or any part thereof for such term or terms (which may be
greater or less than the period which would otherwise have constituted the
balance of the term of this Lease) and on such terms (which may include
concessions of free rent) as Landlord in its sole discretion may determine.
Landlord may, in connection with any such reletting, cause the Demised Premises
to be decorated, altered, divided, consolidated with other space or otherwise
changed or prepared for reletting. No reletting shall be deemed a surrender and
acceptance of the Demised Premises.


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            (d) Tenant shall, with respect to all periods of time up to and
including the expiration of the term of this Lease (or what would have been the
expiration date in the absence of default or breach) remain liable to Landlord
as follows:

                  (i) In the event of termination of this Lease on account of
Tenant's default or breach, Tenant shall remain liable to Landlord for damages
equal to the rent and other charges payable under this Lease by Tenant as if
this Lease were still in effect, less the net proceeds of any reletting after
deducting all costs incident thereto (including without limitation all
repossession costs, brokerage and management commission, operating and legal
expenses and fees, alteration costs and expenses of preparation for reletting
(and to the extent such damages shall not have been recovered by Landlord by
virtue of payment by Tenant of the Accelerated Rent Component (but without
prejudice to the right of Landlord to demand and receive the Accelerated Rent
Component), such damages shall be payable to Landlord monthly upon presentation
to Tenant of a bill for the amount due.

                  (ii) In the event and so long as this Lease shall not have
been terminated after default or breach by Tenant, the rent and all other
charges payable under this Lease shall be reduced by the net proceeds of any
reletting by Landlord (after deducting all costs incident thereto as above set
forth) and by any portion of the Accelerated Rent Component paid by Tenant to
Landlord, and any amount due to Landlord shall be payable monthly upon
presentation to Tenant of a bill for the amount due.

            (e) In the event Landlord shall, after default or breach by Tenant,
recover the Accelerated Rent Component from Tenant and it shall be determined at
the expiration of the term of this Lease (taken without regard to early
termination for default) that a credit is due Tenant because the net proceeds of
reletting, as aforesaid, plus amounts paid to Landlord by Tenant exceed the
aggregate of rent and other charges accrued in favor of Landlord to the end of
said term, Landlord shall refund such excess to Tenant, without interest,
promptly after such determination.

            (f) Landlord shall in no event be responsible or liable for any
failure to relet the Demised Premises or any part thereof, or for any failure to
collect any rent due upon a reletting. Landlord will use reasonable efforts to
relet Demised Premises.

            (g) As an additional and cumulative remedy of Landlord in the event
of termination of this Lease by Landlord following any breach or default by
Tenant, Landlord, at its option, shall be entitled to recover damages for such
breach in an amount equal to the Accelerated Rent Component (determined from and
after the date of Landlord's election under this subsection (g) less the fair
rental value of the Demised Premises for the remainder of the term of this Lease
(taken without regard to the early termination) and such damages shall be
payable by Tenant upon demand. Nothing contained in this Lease shall limit or
prejudice the right of Landlord to prove and obtain as damages incident to a
termination of this Lease, in any bankruptcy reorganization or other court
proceedings, the maximum amount allowed by any statute or rule of law in effect
with such damages are to be proved.

            (h) In the event of any default occurrence by which Landlord shall
have the rights and remedies specified in this Section 15:


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                  (i) Tenant hereby authorizes and empowers any prothonotary or
attorney of any court of record to appear for Tenant and to Confess Judgment
against Tenant (whether by Complaint to Confess Judgment or otherwise) in favor
of Landlord for any amount due to Landlord hereunder (including without
limitation the Accelerated Rent Component), together with interest and costs and
an attorney's commission of five percent (5%) of the amount due;

                  (ii) For the purpose of obtaining possession of the Demised
Premises, Tenant hereby authorizes and empowers any prothonotary or attorney of
any court of record to appear for Tenant and to file in any court an agreement
for entering an amicable action and judgment in ejectment for recovery of
possession, and/or to confess judgment for possession against Tenant and those
claiming by, through or under Tenant in favor of Landlord by Complaint to
Confess Judgment or otherwise, and Tenant agrees that upon such entry or
judgment a writ of possession for the Demised Premises may forthwith issue; and

            (i) Tenant hereby waives all errors and defect of a procedural
nature in any proceedings brought against it by Landlord under this Lease.
Tenant further waives the right to any notices to quit as may be specified in
the Landlord and Tenant Act of Pennsylvania, as amended, and agrees that five
(5) days notice shall be sufficient in any case where a longer period may be
statutorily specified.

            (j) If rent or any other sum due from Tenant to Landlord shall be
over due for more than five (5) days alter notice from Landlord, it shall
thereafter bear interest at the rate of twenty percent (20%) per annum (or, if
lower, the highest legal rate) until paid.

      16. SUBORDINATION. This lease is and shall be subject and subordinate to
all the terms and conditions of all underlying mortgages and to all ground or
underlying leases of the entire Building which may now or hereafter be secured
upon the Building, and to all renewals, modifications, consolidations,
replacements and extensions thereof. This clause shall be self-operative and no
further instrument of subordination, Tenant shall execute, within fifteen (15)
days after request, any certificate that Landlord may reasonably require
acknowledging such subordination. Notwithstanding the foregoing, the party
holding the instrument to which this Lease is subordinate shall have the right
to recognize and preserve this Lease in the event of any foreclosure sale or
possessory action, and in such case this Lease shall continue in full force and
effect at the option of the party holding the superior lien, and Tenant shall
attorn to such party and shall execute, acknowledge and deliver any instrument
that has for its purpose and effect the confirmation of such attornment.

      17. NOTICES. All bills, statements, notices or communications which
Landlord may desire or be required to give to Tenant shall be deemed
sufficiently given or rendered if in writing and or sent by registered, or
certified mail or overnight delivery service addressed to Tenant at the Building
with a copy sent to Advanced Health General Counsel at 555 White Plains Road,
5th Floor, in Tarrytown, NY 10591, and the time of the giving of such notice or
communication shall be deemed to be the time when the same is delivered to
Tenant or deposited in the mail, as the case may be. Any notice by Tenant to
Landlord must be served by registered, certified mall or national overnight
delivery addressed to Landlord at the address where the last previous rental
hereunder was payable, or in the case of subsequent change upon notice given, to
the latest address furnished.


                                   Page - 12
   13

      18. HOLDING-OVER. Should Tenant continue to occupy the Demised Premises
after expiration of the term of this Lease or any renewal or renewals thereof,
or after a forfeiture incurred, such tenancy shall (without limitation of any of
Landlord's rights or remedies therefor) be one at sufferance from month to month
at a minimum monthly rental equal to 125% the rent payable for the last month of
the term of this Lease.

      19. MISCELLANEOUS.

            (a) Landlord and Tenant hereby represent and warrant that they have
not employed any broker or agent as its representative in the negotiation for or
the obtaining of this Lease, and agrees to indemnify and hold Landlord harmless
from any and all cost or liability for compensation claimed by any broker or
agent with whom it has dealt.

            (b) The word "Tenant" as used in this Lease shall be construed to
mean tenants in all cases where there is more than one tenant, and the necessary
grammatical changes required to make the provisions hereof apply to
corporations, partnerships or individuals, men or women, shall in all cases be
assumed as though in each case fully expressed. This Lease shall not inure to
the benefit of any assignee, heir, legal representative, transferee or successor
of Tenant except upon the express written consent or election of Landlord.
Subject to the foregoing limitation, each provision hereof shall extend to and
shall, as the case may require, bind and inure to the benefit of Tenant and its
heirs, legal representatives, successors and assigns.

            (c) The term "Landlord" as used in this Lease means the fee owner of
the Building or, if different, the party holding and exercising the right, as
against all others (except space Tenants of the Building) to possession of the
entire Building. Landlord above-named represents that it is the holder of such
rights as of the dale of execution hereof. In the event of the voluntary
transfer of such ownership or right to a successor-in-interest of Landlord,
Landlord shall be freed and relieved of all liability and obligation hereunder
which shall thereafter accrue (and, as to any unapplied portion of Tenant's
security deposit, Landlord shall be relieved of all liability therefor upon
transfer of such portion to its successor in interest provided such successor
assumes the Lease in writing) and Tenant shall look solely to such successor in
interest for the performance of the covenants and obligations of the Landlord
hereunder (either in terms of ownership or possessory rights). The successor in
interest shall not (i) be liable for any previous act or omission of a prior
landlord; (ii) be subject to any rental offsets or defenses against a prior
landlord; (iii) be bound by any amendment of this Lease made without its written
consent, or by payment by Tenant of rent in advance in excess of one (1) month's
rent; or (iv) be liable for any security not actually received by it. Subject to
the foregoing, the provisions hereof shall be binding upon and inure to the
benefit of the successors and assigns of Landlord. Notwithstanding anything to
the contrary contained in this Lease, any liability of Landlord, its agents,
partners or employees, arising out of or in respect of this Lease, the Demised
Premises or the Building, and if Landlord shall default in the performance of
Landlord's obligation under this Lease or otherwise Tenant shall look solely to
the equity of Landlord in its interest in the Building.

            (d) Tenant agrees to execute a memorandum of this Lease in the form
submitted by Landlord, which may be recorded by Landlord. Tenant also agrees to
execute any assignment of this Lease by Landlord, evidencing its consent to such
assignment.


                                   Page - 13
   14

      20. LANDLORD IMPROVEMENT. Landlord shall, in a good and workmanlike
manner, cause the Demised Premises to be completed in accordance with the plans
approved by Landlord and Tenant pursuant to Exhibit "A" hereof, reserving the
right to: (a) make substitutions of material of equivalent grade and quality
when and if any specified material shall not be readily and reasonably
available; (b) make changes necessitated or by conditions met during the course
of construction, provided that Tenant's approval of any substantial change (and
any reduction of cost incident thereto) shall first be obtained (which approval
shall not be reasonably withheld so long as there shall be general conformity
with said working drawings).

      21. WAIVER OF SUBROGATION. Each party hereto hereby waives any and every
claim which arises or which may arise in its favor and against the other party
hereto during the term of this Lease, or any extension or renewal thereof, for
any and all loss of, or damage to, any of its property located within or upon or
constituting a part of the Building. Each party agrees to request its insurers
to issue policies containing such provisions and if any extra premium is payable
therefor, the party which would benefit from the provision shall have the option
to pay such additional premium in order to obtain such benefit.

      22. RENT TAX. If, during the term of this Lease or any renewal or
extension thereof, any tax is imposed upon the privilege of renting or occupying
the Demised Premises or upon the amount of rentals collected therefor, Tenant
will pay each month, as additional rent, a sum equal to such tax or charge that
is imposed for such month, but nothing in this Lease shall be taken to require
Tenant to pay any income, estate, inheritance or franchise tax imposed upon
Landlord.

      23. PRIOR AGREEMENT, AMENDMENTS. Neither party hereto has made any
representations nor promises except as contained herein or in some further
writing signed by the party making such representation or promise. No other
agreement hereinafter made shall be effective to change, modify, discharge or
effect an abandonment of this Lease, in whole or in part, unless such agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought. Tenant agrees to execute any
amendment to this Lease required by a mortgagee of the Building, which amendment
does not materially adversely affect Tenant's rights or obligation hereunder.

      24. CAPTIONS. The captions of the paragraphs in this Lease are inserted
and included solely for convenience and shall not be considered or given any
effect in construing the provisions hereof.

      26. MECHANIC'S LIEN. Tenant shall, within thirty (30) days after notice
from Landlord, discharge any mechanic's lien for materials or labor claimed to
have been furnished to the Demised Premises on Tenant's behalf (except for work
contracted for by Landlord) and shall indemnify and hold harmless Landlord from
any loss incurred in connection therewith.

      26. LANDLORD'S RIGHT TO CURE. Landlord may (but shall not be obligated),
on five (5) days notice to Tenant (except that no notice need be given in case
of emergency) cure on behalf of Tenant any default hereunder by Tenant, and the
cost of such cure (including any attorney's fees incurred) shall be deemed
additional rent payable upon demand.


                                   Page - 14
   15

      27. PUBLIC LIABILITY INSURANCE. Tenant shall at all times during the term
hereof maintain in full force and effect with respect to the Demised Premises
and Tenant's use thereof, comprehensive public liability insurance, naming
Landlord as an additional insured, covering injury to person in amounts at least
equal to One Million ($1,000,000) Dollars combined single limit bodily injury
and property. Tenant shall lodge with Landlord duplicate originals or
certificates of such insurance at or prior to the commencement date of the term
hereof, together with evidence of paid-up premiums, and shall lodge with
Landlord renewals thereof at least fifteen (15) days prior to expiration.

      28. ESTOPPEL STATEMENT. Tenant shall from time to time, within twenty (20)
days after request by Landlord, execute, acknowledge and deliver to Landlord a
statement certifying that this Lease is unmodified and in full force and effect
(or that the same is in full force and effect as modified, listing any
instruments or modifications), the dates to which rent and other charges have
been paid, and whether or not, to the best of Tenant's knowledge, Landlord is in
default or whether Tenant has any claims or demands against Landlord (and, if
so, the default, claim and/or demand shall be specified).

      29. ADA COMPLIANCE. Landlord shall pay all the costs, expenses, fines,
penalties and damages which may be imposed upon Landlord or Tenant by reason of
or arising out of Landlord's failure to fully comply with all legal
requirements which shall impose any violation, order or duty upon Landlord or
Tenant with respect to Leased Premises or the use or occupation thereof. The
legal requirements shall mean laws, statutes and ordinances, and the orders,
rules and regulations, directives and requirements of governmental and official
agencies, including without limitation, The Americans With Disabilities Act of
1990, whether now or hereafter in force, which may be applicable to the Leased
Premises, any part thereof, and areas adjacent thereto.

      30. ENVIRONMENTAL COMPLIANCE.

            A. Tenant hereby covenants and agrees to use and occupy the Demised
Premises and to conduct its business and operations thereupon in substantial
compliance with all applicable material statutes, codes, rules, regulations, and
ordinances as they may change from time to time pertaining to the protection of
the environment and to hazardous substances and hazardous wastes as those terms
may be defined from time to time in such statutes, codes, rules, regulations,
and ordinances ("Environmental Laws") provided Tenant is not responsible to make
any structural alterations.

            B. Tenant shall promptly provide Landlord with copies of all
correspondence from or to the U.S. Environmental Protection Agency, the
Pennsylvania Department of Environmental Resources or any other federal, state
or local governmental agency which pertains to the Demised Premises regarding
but not limited to the following: (1) Tenant's compliance with the Environmental
Laws; (2) any permits which Tenant may be required to obtain pursuant to the
Environmental Laws; (3) any release or threat of release of a hazardous
substance or hazardous waste which has occurred in the Demised Premises.

            C. Tenant shall immediately notify Landlord of its receipt of any
notices of alleged violations of the Environmental Law from any other party
including but not limited to governmental agencies including requests for
information.


                                   Page - 15
   16

            D. In the event of any "Release" of a "Hazardous Substance" or
"Hazardous Waste" as those terms are defined in any of the Environmental Laws, ~
release requires notification of any governmental agency, Tenant shall
immediately Landlord of the release.

            E. At any time during the term hereof, Landlord shall have a right
to enter upon the Demised Premises, upon reasonable notice and during business
hours unless Tenant is in Default, to inspect the Demised Premises and to
evaluate Tenant's compliance with the Environmental Laws. Such right of access
shall include a right to review Tenant's records pertaining to compliance with
the Environmental Laws. Tenant hereby agrees to cooperate with Landlord in any
such inspection and evaluation.

            F. Tenant during the term of the Lease and Landlord prior to Lease
commencement hereby agree to indemnify, defend and hold each other harmless from
and against any and all claims, demands, judgments, suits, liens, actions, and
other proceedings, arising out of or relating to the removal, remediation,
corrective action or clean up of any hazardous waste or hazardous substance as
defined in the Environmental Laws or any other proceedings or actions
threatened, or brought for the enforcement of any Environmental Laws now or
hereafter applicable to the Demised Premises and resulting from or arising out
of Tenant's use, operation, and occupation thereof during the term of this
Lease. Such indemnification shall include but not be limited to costs of
investigation, engineering fees, attorney's fees, costs of remediation and clean
up and future site maintenance.

            G. All of the terms and conditions of this Section shall survive the
termination of this Lease Agreement for so long as any liability may arise under
the Environmental Laws with respect to the Demised Premises.

      31. RIGHT OF FIRST OFFER ON CONTIGUOUS SPACE. As contiguous space becomes
available, Landlord will notify Tenant of all availabilities and present Tenant
with a Lease Proposal outlining the terms and conditions to which Landlord would
enter into a Lease Expansion with Tenant. Upon Tenant's acceptance, Landlord and
Tenant will execute a Lease Expansion Amendment outlining the agreed upon terms
and conditions.

      32. The Lease between Lee Park Investors, L.P. and Bukstel and Halfpenny,
Inc. will be terminated as of December 31, 1997 unless Bukstel and Halfpenny,
Inc. is in Default of their Lease Agreement. In the event that Tenant
Improvements are not completed in the Demised Premises in 401 Commerce Drive
Bukstel and Halfpenny, Inc. will be able to stay in Demised Premises in Lee Park
without incurring any hold-over penalties.


                                   Page - 16
   17

      IN WITNESS WHEREOF, the parties hereto have executed this Lease or caused
this Lease to be executed by their duly authorized representatives the day and
year first above written.

                                         LANDLORD:  COMDRIVE ASSOCIATES, L.P.

                                         BY: /s/ [illegible]
                                            ----------------

                                         DATE: 11/20/97

                                         TENANT:  ADVANCED HEALTH CORPORATION

                                         BY: /s/ [illegible]
                                            ----------------
                                            Vice President Finance

                                         DATE:   11/13/97


                                   Page - 17
   18

                                  SCHEDULE "A"

                                   RENT RIDER



                     PERIOD                     MONTHLY      ANNUALLY
                     ------                     -------      --------
                                                      
         January 1, 1998 -- March 2, 1998         -0-          -0-
         March 3, 1998 -- March 31, 1998      $ 10,388.92      N/A
        April 1, 1998 -- December 31, 1998    $ 11,105.40      N/A 
       January 1, 1999 -- December 31, 1999   $ 11,105.40   $133,264.80 
       January 1, 2000 -- December 31, 2000   $ 11,105.40   $133,264.80 
       January 1, 2001 -- December 31, 2001   $ 11,105.40   $133,264.80 
       January 1, 2002 -- December 31, 2002   $ 11,105.40   $133,264.80



                                   Page - 18
   19

                                   EXHIBIT "C"

                         BUILDING RULES AND REGULATIONS

      1. The sidewalks, entryways, passages, corridors, stairways and elevators
shall not be obstructed by any of the tenants, their employees or agents, or
used by them for purposes other than ingress or egress to and from their
respective suites. All safes or other heavy articles shall be carried up or into
the leased premises only at such times and in such manner as shall be prescribed
by the Landlord and the Landlord shall in all cases have the right to specify a
maximum weight and proper position or location of any such safe or other heavy
article. The Tenant shall pay any damage done to the Building by taking in or
removing any safe or from overloading any floor in any way. The Tenant shall pay
for the cost of repairing or restoring any part of the Building, which shall be
defaced or injured by a tenant, its agents or employees.

      2. Each Tenant will refer all contractors, contractor's representatives
and installation technicians rendering any service on or to the leased premises
for the tenant to Landlord for Landlord's approval and supervision before
permanence of any contractual service. This provision shall apply to all work
performed in the Building, including installation of telephones, telegraph
equipment, electrical devices and attachments and installations of any nature
affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any
other physical portion of the Building.

      3. No, sign, advertisement or notice shall be inscribed, painted or
affixed on any part of the inside or outside of the Building unless of such
color, size and style and in such place upon or in the Building as shall first
be designated by Landlord; there shall be no obligation or duty on Landlord to
allow any sign, advertisement or notice to be inscribed, painted or affixed on
any part of the inside or outside of the Building except as specified in a
tenant's lease. Signs on or adjacent to doors shall be in color, size and style
approved by Landlord, the cost to be paid by the tenants. Landlord will provide
a directory in a conspicuous place, with the names of tenants, Landlord will
make any necessary revision in this within a reasonable time after notice from
the tenant of an error or of a change making revision necessary. No furniture
shall be placed in front of the Building or in any lobby or corridor without
written consent of Landlord.

      4. No tenant shall do or permit anything to be done in its leased
premises, or bring to keep anything therein, which will in any way increase the
rate of fire insurance on the Building, or on property kept therein, or obstruct
or interfere with the rights of other tenants, or in any way injure or annoy
them, or conflict with the laws relating to fire prevention and safety, or with
any regulations of the fire department, or with any rules or ordinances of any
Board of Health or other governing bodies having jurisdiction over the Building.

      5. The janitor of the Building may at all times keep a pass-key, and he
and other agents of the Landlord shall at all times, be allowed admittance to
the leased premises for purposes permitted in Tenant's lease.


                                   Page - 19
   20

      6. No additional locks shall be placed upon any doors without the written
consent of the Landlord with consent shall be unreasonably withheld. All
necessary keys shall be furnished by the Landlord, and the same shall be
surrendered upon the termination of this Lease, and the Tenant shall then give
the Landlord or his agents explanation of the combination of all locks upon the
doors of vaults.

      7. The water closets and other water fixtures shall not be used for any
purpose other than those for which they were constructed, and any damage
resulting to them from misuse or abuse by a tenant or its agents, employees or
invitees, shall be borne by the Tenant.

      8. No person shall disturb the occupants of the Building by the use of any
musical instruments; the making or transmittal of noises which are audible
outside the leased premises, or any unreasonable use. No dogs or other animals
or pets of any kind will be allowed in the Building.

      9. No bicycles or similar vehicles will be allowed in the building.

      10. Nothing shall be thrown out the windows of the building or down the
stairways or other passages.

      11. Tenants shall not be permitted to use or to keep in the Building any
kerosene, camphene, burning fluid or other illuminating materials.

      12. If any tenant desires telegraphic, telephonic or other electric
connections, Landlord or its agents will direct the electricians as to what and
how the wires may be introduced, and without such directions no boring or
cutting for wires will be permitted.

      13. If a tenant desires shades, they must be of such shape, color,
materials and make as shall be prescribed by Landlord. No outside awning shall
be permitted.

      14. No portion of the Building shall be used for the purposes of lodging
rooms or for any immoral or unlawful purposes.

      15. No tenant shall store anything outside the building or in any common
areas in the building.


                                   Page - 20
   21

                               [GRAPHIC OMITTED]

                                  EXHIBIT "A"

                      BUKSTELL & HALFPENNY/ADVANCED HEALTH
                      TENANT FITOUT AT 401 COMMERCE DRIVE

EX-10.11

   1

                       STANDARD FORM OF SUBLEASE AGREEMENT


            SUBLEASE made between United Parcel Service, Inc., a New York
corporation with offices at 55 Glenlake Parkway, NE, Atlanta, GA 30328
("SUBLESSOR"), and Advanced Health Corporation, a Delaware corporation with
offices at 555 White Plains Road, Tarrytown, NY 10591 hereinafter ("SUBLESSEE")

                              PRELIMINARY STATEMENT


            SUBLESSOR has leased, as Tenant, from Robert Martin-Eastview North
Co., as Landlord, ("Overlandlord") premises in the building located at 15
Skyline Drive, Hawthorne, County of Westchester, New York (the "Demised
Premises") pursuant to a certain lease dated September 4, 1990 (the "Lease") as
amended by First Amendment dated August 23, 1995 and by Second Amendment dated
March 10, 1997 (hereinafter the Lease, First Amendment and Second Amendment are
referred to as the "Major Lease"); and

            SUBLESSOR desires to sublet to SUBLESSEE and SUBLESSEE desires to
hire from SUBLESSOR approximately 16,252 square feet of the Demised Premises;
and

            It is agreed as follows:

      1. SUBLEASE. SUBLESSOR sublets to SUBLESSEE a portion of the Demised
Premises consisting of approximately 16,252 square feet as shown on the floor
plan annexed hereto as Exhibit A (the "Sublet Premises"), for general office use
and for no other purpose.

      2. TERM. The term of this sublease ("Sublease Term") shall commence on
January 15, 1998 and expire on October 30, 2000, or such earlier date upon which
the Sublease Term expires or terminates pursuant to the provisions of this
sublease or pursuant to law.
   2

      3. RENT. The rent for the Sublease Term shall be $240,204.56 per annum and
shall be payable monthly, in advance, on the first (1st) day of each calendar
month commencing on June 1, 1998, in equal monthly installments of Twenty
Thousand Seventeen Dollars and 05/00 ($20,017.05), except that the installment
for the first month of the Sublease Term shall be payable upon the execution
hereof. SUBLESSEE shall pay as additional rent to SUBLESSOR on demand 85.08% of
any payments or expenses required to be made by Tenant under the Major Lease
which relate to the Sublet Premises. All payments called for under this sublease
shall be made by SUBLESSEE to SUBLESSOR without notice, demand, setoff or
deduction, at SUBLESSOR'S office or at such other address as SUBLESSOR may
designate. All Base Rent and additional rent and all other sirs payable by
SUBLESSEE under this Sublease are referred to collectively herein as "Rent" or
"rent" and shall be collectible by SUBLESSOR as rent. SUBLESSEE shall reimburse
SUBLESSOR on demand for increases in real estate taxes (Section 45 of the Major
Lease) and for increases in common area maintenance charge (Section 46 of the
Major Lease) over the base year of January 1, 1997 through December 30, 1997.

      4. SUBORDINATION TO MAJOR LEASE. This sublease is subordinate to, and
SUBLESSEE accepts this sublease subordinate to, the Major Lease and the matters
to which the Major Lease is subordinate. This sublease is also subordinate to,
and SUBLESSEE accepts this sublease subordinate to, any amendments to the Major
Lease hereafter made between Overlandlord and SUBLESSOR. The Major Lease is
represented by SUBLESSOR to be the full agreement by the Overlandlord and
SUBLESSOR. Copies of the documents comprising the Major Lease have been
delivered to and reviewed by SUBLESSEE. SUBLESSEE acknowledges that SUBLESSOR
cannot convey to SUBLESSEE any greater estate than SUBLESSOR has been granted
pursuant to the Major Lease.

      The provisions of the Major Lease are incorporated herein by


                                      -2-
   3

reference with the same force and effect as if they were tally set forth herein,
except as otherwise specifically provided herein.

      SUBLESSEE covenants that SUBLESSEE will not do anything in or with respect
to the Sublet Premises or omit to do anything which SUBLESSEE is obligated to do
under the terms of the sublease which would constitute a default under the Major
Lease or might cause the Major Lease or the rights of SUBLESSOR as tenant
thereunder to be cancelled, terminated or forfeited or might make SUBLESSOR
liable for any damages, claims or penalties. SUBLESSEE covenants to assume and
perform all of the liabilities and obligations of Tenant under the Major Lease.
SUBLESSEE shall hold SUBLESSOR harmless of and indemnify SUBLESSOR from all
liability, judgments, costs, damages, claims, or demands, including reasonable
attorney's fees, arising out of SUBLESSEE's failure to comply with or perform
SUBLESSOR's obligations under both the Major Lease and this Sublease. If
Subtenant fails to pay any Rent as required in this Sublease or fails to perform
any of Tenant's obligations under the terms of the Major Lease, SUBLESSOR shall
have the same rights and remedies as the Landlord has under the Major Lease for
default in the event that SUBLESSEE breaches any of the terms and conditions of
this Sublease including but not limited to any action or omission which causes a
default under the Major Lease. Notwithstanding anything to the contrary herein,
SUBLESSOR shall have any other rights and remedies available to SUBLESSOR in
law or equity in the event of SUBLESSEE's default.

      5. DAMAGE OR INJURY. Overlandlord and SUBLESSOR shall not be liable for
any damage to property or injury to persons, sustained by SUBLESSEE or others,
caused by conditions or activities on the Sublet Premises. SUBLESSEE shall
indemnify the Overlandlord and SUBLESSOR against all claims arising therefrom
and shall carry insurance as required to be carried by Tenant by the Major Lease
naming the Overlandlord and SUBLESSOR as additional insureds.


                                      -3-
   4

      6. REPAIRS BY OVERLANDLORD. SUBLESSEE shall look only to SUBLESSOR for
any services to be furnished to SUBLESSEE in accordance with this sublease.
SUBLESSOR shall use its reasonable efforts to obtain for SUBLESSEE any services
which are the obligation of Overlandlord. SUBLESSOR shall have no obligations
whatsoever to repair and maintain the Sublease Premises or any part thereof or
equipment therein, whether structural or nonstructural. SUBLESSOR shall not be
liable to SUBLESSEE for injury or damage that may result from any defect in the
construction or condition

      7. ALTERATIONS. Except as set forth in insert 2 of page 1A of the Major
Lease, SUBLESSEE shall not make any alterations, additions or improvements upon
or to the Sublet Premises without the prior written consent of SUBLESSOR and
Overlandlord. Any permitted alterations, additions and improvements shall be
made at the sole cost of SUBLESSEE and shall become the property of SUBLESSOR
and shall remain on and be surrendered with the Sublet Premises at the
termination of this sublease. SUBLESSEE shall deliver up the same, at the
expiration or sooner termination of the term of this sublease, in as good
condition as they are now in, ordinary wear, fire and other unavoidable
casualties excepted.

      8. ACCESS. At all reasonable hours and upon reasonable notice to
SUBLESSEE, the Sublet Premises shall be open to Overlandlord and SUBLESSOR,
their agents and representatives for inspecting or for repairs, additions or
alterations by either party.

      9. BROKER. SUBLESSEE warrants and represents that it has dealt with no
broker or any other person who would legally claim to be entitled to receive a
brokerage commission or finder's or consultant's fee with respect to this
transaction except KOLL/CB COMMERCIAL and MACK-CALI REALTY L.P.. SUBLESSEE shall
indemnify


                                      -4-
   5

SUBLESSOR and Overlandlord against the claim of any person, firm or corporation
arising out of any inaccuracy or alleged inaccuracy of the above representation.

      10. SUBLESSEE'S COVENANTS. SUBLESSEE covenants with SUBLESSOR to hire said
premises and to pay the rent therefore as aforesaid, that it will commit no
waste, nor suffer the same to be committed thereon, nor injure nor misuse the
same; and also that it shall not make alterations therein, nor use the same for
any purpose but that hereinbefore authorized. SUBLESSEE has inspected the Sublet
Premises and accepts same in their present condition, without any warranties or
representations (express or implied) being relied upon and is relying upon its
own inspection. SUBLESSEE further covenants that this sublease shall not be
assigned, encumbered or otherwise transferred, the Sublet Premises shall not be
further sublet by SUBLESSEE, in whole or in part, and SUBLESSEE shall neither
suffer nor permit any of the Sublet Premises to be used or occupied by others
without the prior consent of Overlandlord in each instance.


      11. DEFAULT BY SUBLESSOR/Overlandlord UNDER MAJOR LEASE. In the event of a
default by SUBLESSOR under the Major Lease which results in termination of such
lease, this sublease shall, at the option of the Overlandlord, remain in full
force and effect and the SUBLESSEE shall attorn to and recognize Overlandlord as
Landlord hereunder and shall promptly upon such Overlandlord's request, execute
and deliver all instruments necessary or appropriate to confirm such attornment
and recognition. The SUBLESSEE hereunder hereby waives all rights under any
present or future law or otherwise to elect, by reason of the termination of the
Major Lease, to terminate this sublease or surrender possession of the premises
demised hereby.

      SUBLESSEE agrees to release SUBLESSOR, its successors, and


                                      -5-
   6

assigns of liability, with respect to any and all damages, claims, losses,
liabilities and expenses of any kind, including but not limited to legal and
consulting expenses, incurred by SUBLESSEE, its successors or assigns, or which
are asserted against or imposed upon SUBLESSEE, its successors or assigns, by
any other party arising out of or in connection with Overlandlord's breach of,
or misrepresentation in, any provision of the Major Lease.

      12. CONSENT. No rights are conferred upon SUBLESSEE until (i) this
sublease has been signed by SUBLESSOR and an executed copy has been delivered to
SUBLESSEE and (ii) the consent of Overlandlord has been obtained. SUBLESSOR
shall promptly after the execution of this sublease by both SUBLESSOR and
SUBLESSEE submit this sublease to Overlandlord for its consent. If the
Overlandlord refuses to grant consent or if the Major Lease is cancelled for any
reason whatsoever prior to the first day of the Sublease Term, all sins received
hereunder by SUBLESSOR shall be returned to SUBLESSEE without interest and
without any further liability on the part of the SUBLESSOR and this sublease
shall be deemed void and of no effect.

      13. PARKING. Subtenant shall be entitled to the non-exclusive use of a
total of sixty (60) parking spaces at no cost to Subtenant.

      14. SECURITY DEPOSIT. SUBLESSEE agrees to deposit with Landlord upon
execution of this Sublease, a Security Deposit equal to $40,034.10, which sum
shall be held by SUBLESSOR, without obligation for interest, as security for the
performance of SUBLESSEE's covenants and obligations under this Sublease. The
Security Deposit is not an advance rental deposit or a measure of damages
incurred by SUBLESSOR in case of SUBLESSEE's default. Upon the occurrence of any
event of default by SUBLESSEE, SUBLESSOR may, from time to time, without
prejudice to any other remedy provided herein or provided by law, use such fund
to the


                                      -6-
   7

extent necessary to make good any arrears of Rent or other payments due to
SUBLESSOR hereunder, and any other damage, injury, expense or liability caused
by such event of default, and SUBLESSEE shall pay to SUBLESSOR, on demand, the
amount so applied in order to restore the Security Deposit to its original
amount. Although the Security Deposit shall be deemed the property of SUBLESSOR,
any remaining balance of such deposit shall be returned by SUBLESSOR to
SUBLESSEE at such time after termination of this Sublease that all of
SUBLESSEE's obligations under this Sublease have been fulfilled. SUBLESSOR may
use and commingle the Security Deposit with other funds of SUBLESSOR.

      15. NOTICE. All notices or other communications required or permitted
hereunder shall be in writing and shall be effective upon receipt whether
delivered by personal delivery or UPS Next Day Air, or sent by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective parties as follows:

            Notices to SUBLESSOR:        United Parcel Service
                                         55 Glenlake Parkway, NE
                                         Atlanta, GA 30328
                                         ATTN:   Real Estate Department

            With a copy to:              United Parcel Service
                                         643 43rd Street
                                         New York, New York 10036
                                         ATTN:   Region Real Estate Manager

            If to SUBLESSEE:             Advanced Health Corporation
                                         555 White Plains Road
                                         Tarrytown, NY 10591
                                         ATTN: Jeffrey Sauerhoff


                                      -7-
   8

      Notices shall be deemed received upon the earlier of (a) if personally
delivered or via UPS NEXT DAY AIR, the date of delivery to the address of the
person to receive such notice, or (b) if mailed, upon the date of receipt as
disclosed on the return receipt. Notice of change of address shall be given
written notice in the manner detailed in this paragraph. Rejection or other
refusal to accept or the inability to deliver because of changed address of
which no notice was given shall be deemed to constitute receipt of the notice,
demand, request or communication sent.

      16. UTILITIES. SUBLESSEE shall pay directly for all water, gas, heat, air
conditioning, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or from the Sublet Premises, together with any
taxes, penalties, surcharges or the like pertaining thereto, and maintenance
charges for utilities and shall furnish all electric light bulbs, ballasts and
tubes.

      17. Entire Agreement. This Sublease contains the whole agreement between
the parties, There are no understandings between the parties regarding the
Sublease except those contained in this Sublease. This Sublease cannot be
amended except by a writing executed by both parties and consented to in writing
by Overlandlord.

            IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals this 8th day of January, 1998.

                                         UNITED PARCEL SERVICE, INC.
                                         As SUBLESSOR

                                         By: /s/ [illegible]
                                             ---------------------
                                             Vice President


                                      -8-
   9

                                         ADVANCED HEALTH CORPORATION
                                         As SUBLESSEE  


                                         By: /s/ Jeffrey M. Sauerhoff
                                             ------------------------
                                         Title: Vice President
                                                ---------------------


                  CONSENT BY MID-WESTCHESTER REALTY ASSOCIATES, L. P.
MID-WESTCHESTER REALTY ASSOCIATES L.P. HEREBY consents to the above sublease.

                                         MID-WESTCHESTER REALTY ASSOCIATES. L.P.
                                         As OVERLANDLORD


                                         By:  Cali Sub VI Inc., general partner
                                         By: /s/ [illegible]
                                             ------------------------
                                         Title: Vice President
                                                ---------------------


                                      -9-

EX-10.17

   1
                                                                  EXECUTION COPY


                              EMPLOYMENT AGREEMENT dated as of 
                              January 21, 1998, between ADVANCED HEALTH 
                              CORPORATION, a Delaware corporation (the 
                              "Company"), and MICHAEL W. ROGERS (the Employee").


     The Company desires to formalize the employment arrangements between the
Company and the Employee and to continue to employ the Employee as the Executive
Vice President - Chief Financial and Corporate Development Officer of the
Company and the Employee desires to accept such continued employment by the
Company, on the terms and subject to the conditions hereinafter set forth.

     NOW, THEREFORE, in consideration of the mutual covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:

     1. Employment. The Company hereby employs the Employee, and the Employee
hereby accepts employment by the Company, upon the terms and subject to the
conditions hereinafter set forth.

     2. Term. The employment of the Employee hereunder shall be for the
four-year period commencing on February 16, 1998, and ending on February 16,
2002 (the "Base Term"). The Base Term shall automatically renew for consecutive
one-year terms (each, a "Renewal Term" and together with the Base Term
collectively, the "Employment Period") unless either the Company or the Employee
gives the other party hereto at least 90 days' prior written notice before the
end of the Employment Period of its intent not to renew this Agreement.

     3. Duties. The Employee shall be employed as the Executive Vice President
- -- Chief Financial and Corporate Development Officer of the Company or in such
other position as the Company and the Employee shall agree in writing. The
Employee shall perform such duties and services as are appropriate and
commensurate with the Employee's position as Executive Vice President -- Chief
Financial and Corporate Development Officer of the Company and would otherwise
be consistent in stature and prestige with the position of Executive Vice
President -- Chief Financial and Corporate Development Officer of a corporation
with similar operations as the Company, as the same may be assigned to him from
time to time by the Board of Directors of the Company (the "Board").

     4. Time to be Devoted to Employment; Place of Employment. (a) Except for
twenty-two days of paid time off per year (in addition to public holidays) and
absences due to temporary illness, during the Employment Period the Employee
shall devote substantially all of his business time, attention and energies to
the business and affairs of the Company.

     (b) During the Employment Period, the Employee shall not be engaged in any
other business activity which conflicts with the duties of the Employee
hereunder, whether or not such activity is pursued for gain, profit or other
pecuniary advantage.

     (c) During the Employment Period, the Company shall maintain its primary
business location in the greater New York City metropolitan area and the
Employee shall not be required to relocate outside such area without his written
consent.

                                       1
   2

     5. Compensation; Reimbursement. (a) Commencing on February 16, 1998, and
continuing during the Employment Period, the Company (or at the Company's
option, any subsidiary or affiliate thereof) shall pay to the Employee an annual
salary (the "Base Salary") of not less than $190,000, payable in such
installments as is the policy of the Company with respect to its senior
executive officers. Such Base Salary will be reviewed at least annually and may
be increased by the Board (or, if such authority shall be delegated by the Board
to the Compensation Committee thereof, then by such Committee) in its sole
discretion. The Employee will be reimbursed $600 per month for car allowance.

     (b) The Employee will be eligible to participate in the Employer's annual
bonus program in accordance with the provisions of that plan. The bonus
opportunity for the Employee is up to 30% of base salary, prorated in the first
year of employment for the Employee's date of hire. Payment of bonus is
dependent upon company performance and the Employee's individual performance of
pre-established goals, and is payable in cash.

     (c) Following the expiration or termination of this Agreement for any
reason, the Employee shall have the right to maintain any (i) health and life
insurance benefits provided by the Company to the extent provided under
applicable law and (ii) any life insurance benefits provided by the Company so
long as the Employee makes the premium payments relating to such life insurance.

     (d) During the Employment Period and to the extent available to employees
of the Company, the Employee shall be entitled to participate in all of the
Company's benefit plans, pension and retirement plans, life insurance,
hospitalization and surgical and major medical coverages, sick leave, vacation
and holiday policies, long-term disability coverage and such other fringe
benefits enjoyed by other employees at substantially the same employment level
as the Employee.

     (e) The Company shall reimburse the Employee, in accordance with the
practice from time to time for other employees of the Company, for all
reasonable and necessary travelling expenses, disbursements and other reasonable
and necessary incidental expenses incurred by him for or on behalf of the
Company in the performance of his duties hereunder upon presentation by the
Employee to the Company of appropriate vouchers.

     (f) The Company shall reimburse the Employee for reasonable relocation
expenses incurred by the Employee in order to relocate to the greater New York
City metropolitan area (the "Relocation Expenses"), including expenses relating
to housing search visits to the greater New York City metropolitan area for the
Employee and the Employee's spouse, temporary living expenses in the greater New
York metropolitan area through May 16, 1998, packing and moving of the
Employee's and the Employee's family's goods, closing costs in connection with
the purchase of a house upon relocation to the greater New York City
metropolitan area and real estate commissions incurred in connection with the
sale of the Employee's house in Winchester, Massachusetts; provided that the
Company shall not be obligated to reimburse the Employee more than $55,000 in
the aggregate for all Relocation Expenses, excluding housing search visits to
the greater New York City metropolitan area. All Relocation Expenses shall be
approved in advance by another officer of the Company. The Employee shall be
fully relocated to the greater New York City metropolitan area as of May 16,
1998. Prior to May 16, 1998, the Company shall reimburse the Employee for the
expenses incurred by the Employee in connection with the Employee's trips to and
from Winchester, Massachusetts. The Employer will grant an additional
"gross-up-payment" of all expenses paid which are not tax deductible under the
Internal Revenue Code. The "gross-up-payment" will be calculated as a percentage
of applicable expenses based on the Employee's annualized base salary at the
time the Employee's move is completed.


                                       2
   3

     6. Involuntary Termination. (a) If the Employee is incapacitated or
disabled by accident, sickness or other cause so as to render him mentally or
physically incapable of performing the services required to be performed by him
under this Agreement for a period of 90 days or longer during any six-month
period (such condition being herein referred to as a "Disability"), prior to the
Employee resuming the performance of his duties as contemplated herein, the
Company may terminate the employment of the Employee under this Agreement (an
"Involuntary Termination"). Until the Company or the Employee shall have
terminated the Employee's employment hereunder, the Employee shall be entitled
to receive his compensation and other benefits as set forth in this Agreement
notwithstanding any such physical or mental disability.

     (b) If the Employee dies during the Employment Period, his employment
hereunder shall be deemed to cease as of the date of his death, and the
termination of his employment occasioned thereby shall be deemed an Involuntary
Termination.

     (c) In the event of Involuntary Termination as provided in Section 6(a) and
(b), all stock options granted to the Employee by the Company shall become
immediately vested as of the date of such event.

     7. Termination for Cause. The Company may terminate the Employee's
employment hereunder for "Cause" (a "Termination for Cause"). For purposes of
this Agreement, "Cause" shall be limited to:

                    (i) the willful and continued failure by the Employee
               substantially to perform the duties described in Section 3 (other
               than any failure resulting from an illness or other similar
               incapacity or disability), for 30 days after a written demand for
               performance is delivered to the Employee on behalf of the Board
               that specifically identifies the manner in which it is alleged
               that the Employee has not substantially performed his duties;

                    (ii) the commission by the Employee of misappropriation of
               funds, properties or assets of the Company, sexual harassment of
               employees of the Company, chronic alcoholism or drug addiction,
               slander or libel concerning the Company or a material tort
               relating to his office or employment with the Company that has a
               material adverse effect on the Company; or

                    (iii) the Employee's conviction of a crime constituting a
               felony.

     8. Termination Without Cause. (a) The Company may terminate the employment
of the Employee hereunder at any time during the Employment Period without
"Cause" and (b) the Employee may terminate his employment hereunder at any time
during the Employment Period in the event of the willful and continued failure
by the Company to perform its obligations hereunder for 30 days after a written
demand for performance is delivered to the Board on behalf of the Company by the
Employee that specifically identifies the manner in which it is alleged that the
Company has not performed its obligations (each, a "Termination Without Cause").
It is expressly acknowledged and agreed that nonrenewal of this Agreement as
contemplated by Section 2 shall not constitute a Termination Without Cause.

     9. Voluntary Termination. Any termination of the employment of the Employee
hereunder otherwise than as a result of an Involuntary Termination, a
Termination For Cause or a Termination Without Cause shall be deemed to be a
"Voluntary Termination." A Voluntary Termination shall be deemed to be effective
immediately upon written notice of such termination to the Company.



                                       3
   4

     10. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if (a) there shall be
consummated (x) any consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to which shares of
the common stock of the Company (the "Common Stock") would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Common Stock immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation immediately
after the merger, or (y) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all, or substantially all,
of the assets of the Company; or (b) the stockholders of the Company approve any
plan or proposal for the liquidation or dissolution of the Company; or (c) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of
30% or more of the Company's outstanding Common Stock; or (d) during any period
of two consecutive years, individuals who at the beginning of such period
constitute the entire Board of Directors shall cease for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Company's stockholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period. If the Employee is Terminated Without
Cause or Terminates With Good Reason within six months of a Change in Control,
all stock options granted to the Employee by the Company shall become
immediately vested as of the date of such event. For the purpose of this Section
10, "Good Reason" shall mean (i) a reduction in the level of the Employee's
compensation without the Employee's written consent, or (ii) a material
diminishment in the Employee's authority or responsibilities.

     11. Effect of Termination of Employment. (a) Upon the termination of the
Employee's employment hereunder pursuant to a Voluntary Termination or a
Termination For Cause, neither the Employee nor his beneficiary or estate shall
have any further rights or claims against the Company under this Agreement
except to receive:

                    (i) any unpaid portion of the Base Salary provided for in
               Section 5(a), computed on a pro rata basis to the date of
               termination;

                    (ii) cash compensation equal to the product of (A) the
               number of days of accrued paid time off, if any, accumulated by
               the Employee to the effective date of termination divided by the
               total number of work days per annum for which the Employee
               receives a Base Salary multiplied by (B) the Base Salary; and

                    (iii) reimbursement for any expenses for which the Employee
               shall not have theretofore been reimbursed as provided in Section
               5(e) and (f).

     (b) Upon the termination of the Employee's employment hereunder pursuant to
an Involuntary Termination, neither the Employee nor his beneficiary or estate
shall have any further rights or claims against the Company under this Agreement
except the right (i) to receive a termination payment equal to that provided for
in Section 11(a) hereof and (ii) to receive a cash severance payment in an
aggregate amount equal to the cash compensation received by the Employee during
the 3-month period immediately prior to the effective date of the Involuntary
Termination, payable in equal monthly installments.

     (c) Upon the termination of the Employee's employment hereunder pursuant to
a Termination Without Cause, neither the Employee nor his beneficiary or estate
shall have any further rights or claims against the Company under this Agreement
except the right (i) to receive a termination payment equal to the 



                                       4
   5

amount provided for in Section 11(a) hereof and (ii) to receive a cash severance
payment in an aggregate amount equal to the cash compensation received by the
Employee during the 6-month period immediately prior to the effective date of
the Termination Without Cause, payable in equal monthly installments; provided,
however, that in the event that the Employee obtains full-time employment of
comparable scope and duties to the Employee's current position with the Company
during the 6-month period following the Termination Without Cause or Termination
For Good Reason, then the severance payments contemplated by clause (ii) above
shall terminate on the later of (A) the date when the Employee commences such
employment and (B) the six-month anniversary of the effective date of the
Termination Without Cause. Notwithstanding the foregoing, upon Termination
Without Cause or Termination for Good Reason within six months of a Change In
Control, as defined in Section 10 herein, such cash severance payment referred
to in Section 11(c)(ii) shall be 12 months subject to modification for
comparable employment described in this paragraph.

     12. Non-Competition; Non-Disclosure of Information. (a) Except as provided
in Section 12(d) below, the Employee shall not, for a period of one year
following the termination of the Employment Period, (i) directly or indirectly
engage in any Competitive Business (as defined below), whether such engagement
shall be as an employee, employer, owner, consultant, partner or other
participant in any Competitive Business, (ii) assist others in engaging in any
Competitive Business in the manner described in the foregoing clause (i), (iii)
induce employees of the Company to terminate their employment with the Company
or engage in any Competitive Business or (iv) induce customers or vendors of the
Company to alter or terminate their business relationship with the Company;
provided, however, that the Employee may own directly or indirectly, solely as a
passive investment, securities of any Competitive Business traded on any
national securities exchange if the Employee is not a controlling person of, nor
a member of a group which controls such person and does not, directly or
indirectly, own 5% or more of any class of securities of such person. As used
herein, the term "Competitive Business" shall mean any business which, directly
or indirectly, competes with the Company in the business of primarily providing
physician practice management, physician network management and/or clinical
information technology to or for physicians to physician groups and physician
networks consisting, at any time during the one year period following the
termination of the Employment Period, of greater than three physicians;
provided, however, that a business conducted directly by the Employee which
provides physician practice management, physician network management and/or
clinical information technology to or for physician groups consisting of three
or fewer physicians shall not be deemed to be a "Competitive Business".

     (b) The Employee understands that the foregoing restrictions may limit his
ability to earn a livelihood in a Competitive Business, but he nevertheless
believes that he has received and will receive sufficient consideration and
other benefits in connection with his employment to clearly justify such
restrictions which, in any event, the Employee does not believe would prevent
him from earning a living. Nothing herein contained shall prohibit the Employee
from engaging in a business that is not a Competitive Business.

     (c) The Employee agrees that he will not, at any time during or after the
Employment Period, disclose to any person, firm, corporation or other entity,
except as required by law, any secret or confidential information concerning the
business, clients or affairs of the Company or any subsidiary or affiliate
thereof for any reason or purpose whatsoever other than in furtherance of the
Employee's work for the Company nor shall the Employee make use of any of such
secret or confidential information for his own purpose or for the benefit of any
person, firm, corporation or other business entity except the Company or any
subsidiary or affiliate thereof.

     13. Company Right to Inventions. The Employee shall promptly disclose,
grant and assign to the Company for its sole use and benefit any and all
inventions, improvements, technical information, methods and suggestions
relating in any way to the business of providing physician practice management,



                                      5
   6


physician network management and/or clinical information technology to or for
physicians, which he may develop or acquire during the period of the Employee's
employment with the Company prior to any termination of employment (whether or
not during usual working hours), together with all patent applications, patents,
copyrights and reissues thereof that may at any time be granted for or upon any
such invention, improvement, technical information or method. In connection
therewith:

          (a)  the Employee shall without charge, but at the expense of the
               Company, promptly at all times hereafter execute and deliver such
               applications, assignments, descriptions and other instruments as
               may be reasonably necessary or proper in the reasonable opinion
               of the Company to vest title to any such inventions,
               improvements, technical information, methods, patent
               applications, patents, copyright applications, copyrights or
               reissues of any thereof in the Company and to enable it to obtain
               and maintain the entire right and title thereto throughout the
               world; and

          (b)  the Employee shall render to the Company at its expense
               (including a reasonable payment for the time involved in case he
               is not then in its employ) all such assistance as it may
               reasonably require in the prosecution of applications for said
               patents, copyrights or reissues thereof, in the prosecution or
               defense or interferences which may be declared involving any said
               applications, patents or copyrights and in any litigation in
               which the Company may be involved relating to any such patents,
               copyrights, inventions, improvements, technical information or
               methods.

     14. Enforcement. It is the desire and intent of the parties hereto that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision of this
Agreement shall be adjudicated to be invalid or unenforceable, such provision
shall be deemed amended to delete therefrom the portion thus adjudicated to be
invalid or unenforceable, such amendment to apply only with respect to the
operation of such provision in the particular jurisdiction in which such
adjudication is made; provided, however, that if any one or more of the
provisions contained in this Agreement shall be adjudicated to be invalid or
unenforceable because such provision is held to be excessively broad as to
duration, geographical scope, activity or subject, such provision shall be
deemed amended by limiting and reducing it so as to be valid and enforceable to
the maximum extent compatible with the applicable laws of such jurisdiction,
such amendment to apply only with respect to the operation of such provision in
the particular jurisdiction in which such adjudication is made.

     15. Remedies; Survival. (a) The Employee acknowledges and understands that
the provisions of this Agreement are of a special and unique nature, the loss of
which cannot be accurately compensated for in damages by an action at law, and
that the breach of the provisions of this Agreement would cause the Company
irreparable harm. In the event of a breach by the Employee of the provisions of
Section 12 or 13 hereof, the Company shall be entitled to an injunction
restraining him from such breach. Nothing herein contained shall be construed as
prohibiting the Company from pursuing any other remedies available for any
breach of this Agreement.

     (b) Notwithstanding anything contained in this Agreement to the contrary,
the provisions of Sections 12, 13, 14 and this Section 15 shall survive the
expiration or other termination of this Agreement until, by their terms, such
provisions are no longer operative.

     (c) It is understood and agreed that the provisions of Sections 12 and 13
of this Agreement are separate and distinct from any other agreement between the
parties hereto. Accordingly, in the event of a breach of such provisions, the
breaching party shall only be held responsible for damages arising under such


                                       6
   7

provisions and not for any damages which may be claimed to arise under or with
respect to any other agreement that is not separately breached.

     16. Notices. Notices and other communications hereunder shall be in writing
and shall be delivered personally or sent by air courier or first class
certified or registered mail, return receipt requested and postage prepaid,
addressed as follows:

                                    If to the Employee:

                                    Michael W. Rogers
                                    6 Birch Lane
                                    Winchester, MA  01890

                                    If to the Company:

                                    Advanced Health Corporation
                                    555 White Plains Road, Fifth Floor
                                    Tarrytown, New York 10591
                                    Attention: President and COO


or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All notices and
other communications hereunder shall be deemed to have been given on the date of
delivery if personally delivered; on the business day after the date when sent
if sent by air courier; and on the third business day after the date when sent
if sent by mail, in each case addressed to such party as provided in this
Section 16.

     17. Binding Agreement. This Agreement shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees and devisees. If the Employee
should die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the beneficiary
designated by the Employee in a writing delivered to the Company, or if there be
no such designated beneficiary, to his estate.

     18. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York applicable to
contracts made and to be performed wholly therein.

     19. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement by the other party must be in writing and shall not
operate or be construed as a waiver of any subsequent breach by such other
party.

     20. Entire Agreement; Amendments; Execution. This Agreement and the other
agreements referred to herein contain the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements or
understandings among the parties with respect thereto. This Agreement may be
amended only by an agreement in writing signed by the parties hereto. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original document but all of which shall constitute but one agreement.

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

                                    7
   8


     22. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

     23. Assignment. With respect to the Employee, this Agreement is personal in
its nature and the Employee shall not assign or transfer this Agreement or any
rights or obligations hereunder. The Company may in its sole discretion assign
or otherwise transfer this Agreement and the provisions hereof (including,
without limitation, Sections 12, 13 and 14) shall inure to the benefit of, and
be binding upon, each successor of the Company, whether by merger,
consolidation, transfer of all or substantially all assets, or otherwise.




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

                                        ADVANCED HEALTH CORPORATION

                                        By: /s/ Alan B. Masarek
                                            ------------------------
                                        Name: Alan B. Masarek
                                        Title: President


                                        By:  /s/ Michael W. Rogers
                                             -----------------------
                                                 Michael W. Rogers




                                       8

EX-23.2

   1

                                                                  EXHIBIT 23.02

                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement Files No. 333-16919 and 333-16921.


                                                   ARTHUR ANDERSEN LLP

New York, New York
March 30, 1998

EX-27

 

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