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, 1998

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 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: [ ] 
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         The aggregate market value of the shares of Common Stock held by
non-affiliates of the registrant is $42,644,126, based on the closing price
of the Common Stock on March 12, 1999. As of March 12, 1999, there were
10,431,129 shares of Common Stock outstanding.


DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the registrant's definitive Proxy Statement for the 1999
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission within 120 days after December 31, 1998, are incorporated by
reference in Part III hereof.


         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.
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS AS TO INDUSTRY TRENDS, FUTURE
ECONOMIC PERFORMANCE, ANTICIPATED PROFITABILITY, ANTICIPATED REVENUES AND
EXPENSES, AND PRODUCTS OR SERVICE LINE GROWTH MAY BE SIGNIFICANTLY IMPACTED BY
CERTAIN RISKS AND UNCERTAINTIES SET FORTH HEREIN, INCLUDING, BUT NOT LIMITED TO,
FAILURE OF THE CLINICAL E-COMMERCE INDUSTRY TO DEVELOP AT ANTICIPATED RATES,
FAILURE OF THE COMPANY'S CLINICAL INFORMATION TECHNOLOGY PRODUCTS AND SERVICES
TO GAIN SIGNIFICANT MARKET ACCEPTANCE, FAILURE TO MEET OPERATING OBJECTIVES OR
TO EXECUTE THE OPERATING PLAN, FAILURE TO SUCCESSFULLY RESTRUCTURE THE COMPANY'S
BUSINESS UNITS, COMPETITION AND OTHER ECONOMIC FACTORS. NO ASSURANCES CAN BE
GIVEN AS TO THE OUTCOME OF ANY PENDING LAWSUITS AGAINST THE COMPANY. SEE ALSO
ITEM 1 "RISKS AFFECTING THE COMPANY'S BUSINESS."

                                     PART I

ITEM 1.  BUSINESS

Overview

         Advanced Health Corporation, d/b/a AHT Corporation (the "Company"), is
a provider of enabling technologies, including Internet-based applications, for
electronic commerce


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("e-commerce") and communications among physicians and other healthcare
providers and organizations.

         The Company's products principally focus on laboratory and prescription
connectivity and transaction processing, including, within the laboratory suite
of applications, Dr. Chart(R), Dr. Chart Web(TM), Compliance Monitor(TM),
CDR(TM), and CDX(TM), and its electronic prescription writing product, E-Rx
Net(TM).

         The Company's products take an incremental approach to practice
automation, with the goal of enabling the physician and office staff adoption of
technology. The Company believes that its products are relatively easy to use
and do not require radical changes in the healthcare provider's workflow or the
physician's practice style generally.

Dr. Chart(R) Laboratory Products

         The Company's Dr. Chart(R) products allow laboratories to receive
orders online and to distribute test results online back to the ordering
provider. A large part of a clinical laboratory's day-to-day operation is
comprised of receiving and processing paper-based orders from providers and then
distributing paper-based reporting of the test results performed back to the
provider. These test results play a large role in the provider's decisions on
current treatment options. Consequently, the more data-rich and timely a test
result can be delivered, the sooner and better informed a medical decision can
be made thus increasing the efficiency of the ordering and results communication
process for both the providers and the laboratory.

         The Company's laboratory transaction management software suite serves
to effectively manage test data dictionaries, other laboratory interfaces, and
other sources of information, integrating disparate healthcare institutions and
providing connectivity to community-based providers within an integrated
delivery system. The Company's multi-system interfaces integrate provider
workflow by creating connectivity to practice management systems, and hospital
information systems.

E-Rx Net(TM) Prescription Product

         The Company's electronic prescription writing product, E-Rx Net(TM), is
designed to address the problems and issues affecting prescription benefit
management, including, but not limited to, illegible prescriptions;
prescriptions with the potential for adverse drug reactions, one of the leading
causes of death in the United States; prescriptions that are not preferred or
covered by standard insurance plans; the cost of manual order entry at the
pharmacy; and the cost of telephone and written communication with providers and
office staff regarding prescriptions, resulting in additional labor expense and
lost time by both pharmacies and providers' offices.

         E-Rx Net(TM) automates the prescription writing process, from
formulating the initial prescription order to checking for the potential for
drug interactions to checking for preferences for health insurance coverage to
printing, and in some cases, 


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transmitting electronically, the prescription, to the pharmacy. The Company's
prescription transaction service has the potential in some cases to replace both
the paper prescription and the phone calls regarding prescriptions with an
efficient online transaction with the provider's clinical management system,
which potentially saves both time and labor from the ordering process, as well
as providing more accurate and informative orders. The Company's information
system interfaces integrate provider workflow by creating connectivity to
prescription benefit management information systems.

Physician Practice and Network Management Services

         The Company historically offered comprehensive physician practice and
network management and consulting services to physician practices, physician
networks, hospitals, and other healthcare organizations. However, as described
below, it is no longer the Company's primary business. The Company's services
have included practice formation, operations development and strategic planning,
and management, financial and administrative management, clinical information
management, human resource management, and practice governance. The Company has
provided physicians with consulting services to form and develop group practices
and networks, to manage group practice and network operations, to develop
disease management programs and to assist in the management of medical risk.

         In November 1998, the Company announced that it had decided to focus
its strategy toward healthcare e-commerce away from physician practice and
networking management and consulting services for healthcare organizations. In
March 1999, the Company announced its intention to divest its physician practice
management and consulting services prior to the end of the Company's fiscal
second quarter, which may include selling certain of the Company's assets
currently used in connection with the operation of its physician practice and
network management unit. Nevertheless, until such time as and when the Company
implements its strategic alternatives regarding this line of business, the
Company will need to continue to operate this business unit within a highly
competitive environment. See discussion below concerning the current physician
practice and network management industry environment. In light of the
competitive nature in which this unit currently operates, no assurance can be
given that the Company's efforts to identify and implement its strategic
alternatives will be successful.

         The Company was incorporated in the State of Delaware on June 20, 1995
under the name Majean, Inc. On August 24, 1995, the Company changed its name to
Advanced Health Corporation, subsequent to a merger pursuant to which a Delaware
corporation of the same name merged with and into the Company. On February 1,
1999 the Company filed a Registration of Trade Names in Delaware to do business
under the name of AHT Corporation. Stockholders will vote on a proposal to
change the Company's corporate name to AHT Corporation at the June 1999 Annual
Meeting of Stockholders. Advanced Health Technologies Corporation, a
wholly-owned subsidiary of Advanced Health Corporation, was incorporated in the
State of Delaware on August 27, 1993 under the name Med-E-Mail Corporation.


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         The Company's executive offices are located at 555 White Plains Road,
Tarrytown, New York, 10591, and its telephone number is (914) 524-4200. The
Company's Internet address is www.ahtech.com.


Clinical Information Systems

         The Company has developed enabling technologies, including
Internet-based applications, for e-commerce and communications among physicians
and other healthcare providers and organizations. The Company's clinical
information systems consist of proprietary software, third-party hardware,
proprietary and third-party databases, and related support services. They are
designed to complement existing healthcare information systems and to function
with third-party applications. The clinical information system connects to
physician users through desktop computers using standard communication methods.
Access to the Company's clinical information systems is delivered to physician
users and other healthcare professionals via both private networks and
Intranets. The Company's clinical information systems are designed to allow
physicians to (i) access patient-specific clinical and payor information, (ii)
generate prescriptions and orders for laboratory tests, patient education, and
summaries of patient prescription and laboratory results history, and (iii)
access databases containing managed care, disease management, health insurance,
or diagnostic/treatment preferences.

         The Company's products operate within a client/server-based open
architecture. The Company's products support HL-7 interfaces, incorporate TCP/IP
and Microsoft NT 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
safeguard the privacy of clinical data accessed or transmitted on both private
and public networks, including the Internet and the data communication paths
within its products, including user passwords, 40 to 128-bit key encryption
technology, and a triple-DES encryption algorithm. The Company expects to
continue to employ industry standard security measures in the future.

         The Company licenses its clinical information systems to third party
healthcare organizations, principally laboratories and prescription benefit
management companies. The Company continues to pursue strategic relationships
with healthcare 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 its clinical information systems for provider users,
and for laboratory and prescription clinical applications, summarized as
follows:


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Product Name               Product Description

Laboratory


Dr. Chart(R)               Dr. Chart(R)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(R)provides
                           clinicians with a common user interface to view and
                           print patient data from various electronic
                           information sources. Dr. Chart(R) combines both
                           inpatient and outpatient care data, which gives the
                           caregiver a complete picture of the patient's
                           clinical history.

Dr. Chart Web(TM)          Dr. Chart(R) is also web-enabled, making the clinical
                           information available to a provider with a PC and a
                           web browser in a secure Intranet environment. 

Compliance Monitor(TM)     Compliance Monitor(TM) utilizes simple dialogues to
                           generate a warning to the provider when an order
                           links an inappropriate diagnosis with a single or
                           group of procedure codes. The application also
                           generates an Advance Beneficiary Notice to support
                           compliance with Health Care Finance Administration
                           ("HCFA") regulations.

Prescription

E-Rx Net(TM)               E-Rx Net(TM) is a web-enabled product that creates
                           legible and complete prescriptions that are screened
                           for clinical and insurance preferences. The resulting
                           prescription can then be printed, and in some cases,
                           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 efficient data access by a
                           physician involved in the patient's care.


Industry and Competition

         The healthcare industry generates billions of clinical and financial
transactions each year, including, but not limited to, prescriptions, lab orders
and results, radiology orders and results, medical claims, eligibility
inquiries, encounters and referrals. While most direct healthcare spending takes
place outside of the doctor's office, physicians control an estimated 80% of the
medical dollar through 


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their decisions. The growth of managed care has forced participants to become 
more efficient and sophisticated, while also demanding more information and
increasing administrative requirements. Many of the inefficiencies in healthcare
result from poor information exchange among participants, which include
patients, providers, payors, and other trading partners. For physicians to meet
the clinical and financial demands of managed care, the Company believes that
moving patient-centered clinical and financial data electronically all along the
continuum of care will become a business requirement. As an inexpensive,
ubiquitous, and flexible technology, the Internet and secure intranets can be
used to facilitate timely and accurate flow of information between the various
participants in the healthcare system, within the rules promulgated by HCFA, The
Health Insurance Portability and Accountability Act of 1996, and other various
state statutes and regulations.

         Pharmacies, labs, payors, and managed care organizations are eager to
enhance healthcare e-commerce, in order to reduce administrative costs while not
compromising quality of care. For example, a physician who enters an electronic
prescription could be warned about a patient's drug allergies or a potential
drug interaction. The appropriate change could be made before the patient leaves
the office, limiting the chance of misunderstanding and eliminating the need for
additional administrative work. Over time, the patient's transactional data
could be aggregated to create a basic electronic medical record that the
physician could access, saving time and reducing the costs associated with lost
records and neglected information. The Company believes that the combination of
the size of the healthcare market, the changes currently affecting the
healthcare market, and the relative lack of automation in such market creates
significant business opportunities for companies like the Company, in the
healthcare e-commerce industry.

         The market for healthcare 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. In addition, as the market for clinical information
systems develops, additional competitors may enter the market and competition
may intensify. The area of healthcare e-commerce transaction networks has been
targeted by many companies. The Company is also aware that other e-commerce
transaction processing companies have targeted this industry as a growth market,
and that those companies could in the future utilize their networks to process
electronic healthcare e-commerce transactions. Certain of these companies have
announced pilot programs.

         The Company believes that its ability to compete successfully in the
healthcare e-commerce market will depend upon its ability to offer a variety of
integrated products and services and to implement sales and marketing strategies
that bring its products and 


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services to the attention of its potential customer base. 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; and (ii) expanding access to
third-party systems and data repositories. The Company has approximately 20
professionals dedicated to systems development.

Risks Affecting the Company's Business

         The Company's future success depends in significant part upon the
continued service of its key technical and senior management personnel and its
continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel is intense and there can be
no assurance that the Company can retain its key managerial and technical
employees or that it can attract, assimilate or retain other highly qualified
technical and managerial personnel in the future. The Company depends on its
technical and implementation personnel. The Company's technical sales personnel
typically support sales. The Company's ability to expand sales and enter into
new vertical markets could be affected by a shortage of qualified technical
sales support personnel. The Company depends on its trained implementation
personnel or those of independent consultants to implement our software. A
shortage in the number of trained implementation personnel could limit the
Company's ability to implement its software on a timely and effective basis.
Delayed or ineffective implementation of our software may limit the Company's
ability to expand its revenues and may result in customer dissatisfaction and
damage to the Company's reputation. Any of these events could seriously impair
the Company's business, operating results and financial condition.

        Software programs are, by their nature, complex and have the potential
to contain undetected errors or "bugs." Despite testing, bugs may be discovered
only after the Company's product has been installed and used by customers. The
Company has on occasion experienced delays in the scheduled introduction of new
and enhanced products because of bugs. Undetected errors could result in adverse
publicity, loss of revenues, litigation, liability, delay in market acceptance
or claims against us by customers, any of which could seriously damage our
business, operating results and financial condition.

        The majority of the Company's e-commerce revenues come from its
laboratory reporting products. Therefore, a significant new entrant into the
e-commerce market or a significant expansion by an existing competitor could
have an adverse effect on the Company's business. As more fully described under
Item 3 Legal Proceedings, the Company is currently subject to a temporary
restraining order ("TRO") in connection with the Dr. Chart(R) software and
related products. Although the Company has asked the Court to vacate the TRO and
to dismiss the B&H lawsuit, there can be no assurance as to when or if the TRO
will be vacated or whether any preliminary or permanent injunctive relief may in
the future be granted providing similar or additional constraints. The continued
existence of the TRO, or similar preliminary or permanent injunctive relief,
could have a material adverse effect on the Company.


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         The market for the Company's products is characterized by frequent new
product introductions and enhancements, rapid technological advances and rapid
changes in customer requirements and preferences. Accordingly, the Company's
future success will depend on its ability to enhance its existing products and
to develop and market new products on a timely basis that respond to evolving
customer requirements, achieve market acceptance and keep pace with
technological developments. There can be no assurance that the Company will be
successful in developing, introducing on a timely basis and marketing such
products or enhancements; that its software will not contain errors that would
delay product introduction, shipment or implementation; or that any such new
products or enhancements will be accepted by the market. Because the Company's
products are important to the successful operation of its customers' managed
care organizations, errors or delays in product development and enhancement may
have a material adverse effect on the continued market acceptance of the
Company's products and may expose the Company to claims from customers and third
parties.

        The Company faces competition from many healthcare information systems
companies and other technology companies, including Proxymed and Healtheon. Many
of its competitors are significantly larger and have greater financial resources
than the Company and have established reputations for success in implementing
healthcare information service systems. Many companies, including companies
developing new technologies utilizing an Internet-based system, have targeted
the healthcare e-commerce transaction industry for growth.

Strategy

         The objective of the Company is to become a leading provider of
Internet-based clinical e-commerce among both providers and healthcare
organizations. By enabling providers and healthcare organizations to manage the
collection, integration, and distribution of clinical information from disparate
sources more effectively, the Company seeks to help providers and healthcare
organizations meet medical necessity guidelines, manage patient care more
effectively, analyze clinical utilization patterns, perform patient profiling,
improve patient education, and improve delivery of care to patients.

        The Company's competitive strengths include (i) leading position in
technology for the electronic management of laboratory orders and results; (ii)
well-recognized customer base of approximately 50 healthcare organizations,
including some of the largest hospital systems in the US and the largest
prescription benefit manager in the US; and (iii) intellectual property that
includes system interfaces to connect the Company's product to existing "legacy"
information systems, and two patents for the electronic management of
prescriptions in the physician's office.

         The Company has taken an incremental approach to practice automation.
The Company gains entry to the practice through its line of laboratory products.
The Company believes its laboratory products provide high value, are easy to
use, and encourage the physician and his/her office staff to access the computer
to manage 


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laboratory orders and results. A position on the physician's "desktop" is
necessary to capture the physician's orders electronically and is critical to
being a leader in the e-commerce industry. The Company plans to expand its
application offerings to the physician who is already using the computer for
laboratory orders and results to incrementally increase automation of the
clinical workflow.

         The Company's strategy is to:

                  -        Use the Company's understanding of physician
                           technology adoption for key clinical transactions.

                  -        Create additional distribution channels to penetrate
                           physician offices and further secure a position on
                           the physician's desktop.

                  -        Gain additional strategic, industry-leading
                           customers.

                  -        Provide high levels of service to a national
                           physician and healthcare organization customer base.

                  -        Gain critical mass through organic growth and
                           acquisitions.

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 issued U.S. patent applications by the United States Patent and
Trademark Office, and a foreign patent application having subject matter common
with both U.S. applications. The patents 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, 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 healthcare
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.


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Government Regulation

         As a participant in the healthcare 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 and the uncertainty of new regulations, 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 healthcare regulatory
environment will not change so as to restrict the Company's or the affiliated
physicians' existing operations or their expansion.

         Electronic Transmission of Prescriptions: A primary feature of the
Company's products and services is the ability to electronically transmit
(either by computer-to-facsimile or computer-to-computer) prescriptions from a
doctor's office to a pharmacy. The ability of a pharmacist to fill an
electronically transmitted prescription is governed by federal and state law.
The United States Drug Enforcement Agency ("DEA") regulates the issuance and
content of prescriptions for controlled substances. The United States Congress
has approved the dispensing of prescriptions transmitted via facsimile of
original, signed prescriptions for controlled substances other than for Schedule
II drugs (narcotics). Neither Congress nor the DEA has addressed publicly
electronic transmission of computer-generated prescriptions for controlled
substances. 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. No assurance can be given
that Congress or the DEA will accept the method of transmitting prescriptions by
electronic means for controlled substances in the future.

         The application of state rules to the use of the electronic
prescription writing and management systems (the "Prescription Systems") varies.
Additionally, other state laws that may affect the Company's ability to sell its
products in certain states include certain state requirements that require
licensure as either a doctor or a pharmacy in order for a third party to send or
receive a prescription. A common carrier, such as a telephone company, is often
excluded from such requirements. The Company's ability to market in such states
would depend upon each state's willingness to deem the Company to be a common
carrier of such prescriptions, the assurance of which cannot be given.
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") as medical devices under the Federal
Food, Drug and Cosmetic Act of 1938, as 


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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 pre-market notification submission or FDA approval of a
pre-market 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 pre-market notifications or pre-market 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 For the Regulation of Computer Products ("Draft Policy"), the
FDA stated their policy regarding the regulation of software products, including
its intent to exempt certain clinical decision support software products from a
number of regulatory controls. Under the Draft Policy, the FDA stated that it
intended to exempt certain 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, pre-market notification, and compliance with
the medical device reporting and current good manufacturing practice
regulations. In the Draft Policy, 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 Draft Policy, the FDA has not issued a final policy
on this issue, not formally exempted any products as discussed in the Draft
Policy, and has regulated additional software products. The FDA has referred to
the Draft Policy 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 being considered,
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, which policy may or may not
conform to FDA's current reasoning, 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
healthcare providers in analyzing economic and quality data related to patient
care and expected 


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outcomes in order to maximize the cost-effectiveness of general treatment plans
and practice protocols. These products are not intended to generate the primary
source of specific diagnostic data, result 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,
or, if medical devices not actively regulated by the FDA at this time, and,
thus, are not subject to many, if any, of the controls imposed on manufacturers
of medical devices. The Company further believes that to the extent that its
products might be determined to be medical devices, and not otherwise exempt
from regulation, they fall within the exemptions for decision support systems
provided by the Draft Policy. 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 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 Draft Policy, 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.

         Confidentiality of Medical Information: 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.
These federal and state laws and regulations govern both the disclosure and the
use of confidential patient medical record information. Although compliance with
these laws and regulations is at present principally the responsibility of the
hospital, physician, managed care organization, or other healthcare provider,
regulations governing patient confidentiality rights are evolving rapidly.

         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 networks, including the Internet, and will continue to employ such
security measures in the future. The Company believes that its procedures
currently 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.


                                       13
   14
         Each state has various laws protecting the confidentiality of patient
medical information, including laboratory and prescription information. Although
it is not uncommon for a third party to have access to such information, in most
states, such third party has an obligation to maintain the confidentiality of
such information and could be subject to liability if that obligation is
breached. Although, as discussed above, the Company has procedures to maintain
the confidentiality of the information it receives, there can be no assurance
that inadvertent disclosure of information will not occur to the detriment of
the Company's business.

         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
and to implement security and electronic signature standards for the electronic
transmission of medical information by prior to August 1999. In August 1998,
Secretary Shalala proposed such standards, although they have not yet been
adopted in final form. When adopted in final form, such regulations could
require the Company to expend substantial additional resources to comply with
the revised standards. 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 of healthcare providers to submit
information from patient records using the Company's applications.

         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 healthcare 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 healthcare providers who fraudulently or wrongfully bill
governmental or other third-party payors for healthcare 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 


                                       14
   15
reimbursement rules affect the structure of physician billing arrangements. The
Company believes 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 is 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 healthcare 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.

         On December 18, 1998, the Office of the Inspector General of the
Department of Health and Human Services (the "OIG") issued a notice providing
guidance to third-party billing companies concerning compliance by such
companies and their provider customers with applicable federal rules and
regulations associated with proper coding, billing and related procedures. Risk
areas in which the OIG focused attention included, among others, billing for
services or items that have not been documented, duplicate billing, unbundling,
upcoding, computer software programs that encourage billing 


                                       15
   16
personnel to enter data in fields indicating services were rendered though not
actually performed or documented and other kinds of abusive activities. While
the adoption of applicable compliance plans is voluntary, adoption of such plans
may be helpful in avoiding criminal and civil prosecution under various state
and federal statutes. The Company has taken steps to develop and adopt
appropriate procedures as well as a compliance plan in an effort to comply and
to cause its customers to comply with applicable billing rules, and the Company
believes that it is in material compliance with such rules. There can be no
assurance, however, that the Company's activities or the activities of its
customers will not be challenged or scrutinized by governmental authorities or
third party payors, the effect of which could have a material adverse effect on
the business, financial condition and results of operations of the Company.

         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.

                  Recently, the Florida Board of Medicine ruled that
percentage-based management fees paid by physicians to management companies for
marketing and other practice enhancement services constitute an improper fee
splitting arrangement under Florida law and may violate the Florida
anti-referral law. Similarly, the New York Department of Health has taken the
position that management and billing service fees based on a percentage of
collections violates New York's prohibition against fee splitting by licensed
professionals. In addition, the OIG has raised similar questions under the
federal anti-kickback statute concerning management and billing fees calculated
in a manner that is based on revenues. See discussion below of the Inspector
General's advisory opinion issued in April, 1998.

         All of the management service agreements ("MSAs") between the Company,
or the Company's majority-owned MSOs, and the physician groups and networks they
serve address these issues by providing that the physician organization retains
complete control over medical decision making, and neither the Company nor the
MSO may interfere with the professional judgment of medical personnel or
control, direct or supervise the provision of medical services.

         Furthermore, the MSAs provide that the Company or MSO, as the case may
be, may not perform any services or activities that constitute the practice of
medicine. The role of the Company is as a management or consulting organization
to perform administrative and business functions. In addition, 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. 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.


                                       16
   17
         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 healthcare
program. A federal healthcare 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
healthcare 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 healthcare 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. In addition, on April 15, 1998, the OIG issued an advisory opinion
(the "Advisory Opinion") in which it found that a proposed management services
agreement between a physician practice management company and a physician
practice, which included a percentage of net practice revenues as a component of
the management fee, may involve illegal payments under the federal anti-kickback
statute. Although the Advisory Opinion provides valuable insight into areas of
governmental concern, it is only applicable to, and cannot be relied upon by
anyone other than, the individual requesting the opinion and is limited to its
specific facts.

         The arrangement addressed in the Advisory Opinion involved a management
company providing a physician practice with certain management services which
included, in addition to standard management services, "direct marketing"
services and establishing a network to which the physician would be required to
refer his patients. As part of the management company's compensation, it would
receive a percentage of the practice's net revenues (a term that was not
defined).


                                       17
   18
         The OIG concluded that these features of the arrangement "may include
prohibited remuneration" under the federal anti-kickback statute. The OIG
determined that while the agreement "may" be problematic, a definitive
conclusion would require a determination of the parties' intent, which is beyond
the scope of the advisory opinion process. Additionally, the Advisory Opinion
reiterated the OIG's longstanding concern that percentage billing arrangements
could increase the risk of upcoding and similarly abusive billing practices, and
could incentivise the billing agent to influence providers to overutilize
services.

         The Company's management and consulting agreements are factually
distinct from the arrangement reviewed by the OIG. The Company does not engage
in any "direct marketing" activity on behalf of the physician practices it
manages. Additionally, the Company does not set up networks to which physicians
managed by the Company are required to refer. Furthermore, for there to be a
violation of the federal anti-kickback statute, there must be an intent to
induce referrals. The intent of the Company's agreements with its physician
customers is to be paid fair market value for management services that reduce
the practice's administrative burdens, and free physicians to focus more of
their time on the quality of patient care delivered. The Company does not intend
to induce or arrange for referrals through the provision of its management
services. Rather, the Company assists its managed practices in monitoring the
appropriateness of services through utilization review and other programs.

         In general, 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
healthcare 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 


                                       18
   19
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 to be either a referral source or a
separate provider under its MSAs, 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.
Notwithstanding the availability of advisory opinions from the OIG, 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.

         Physician Self-Referral Laws:  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 


                                       19
   20
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 that 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 practice." In this regard, on January 9, 1998, the
Healthcare Financing Administration ("HCFA") published proposed regulations
interpreting the scope and refining the application of the Stark II law and has
issued one advisory opinion analyzing certain components of the group practice
definition. These proposed 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.


                                       20
   21
         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.

         Notwithstanding the availability of advisory opinions from HCFA
regarding provisions of the Stark law, 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 healthcare provider is based upon an investment interest.
Other state laws apply only to a limited number of designated health services
or, alternatively, to all healthcare 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, however, there can
be no assurance that the Company's activities will not be challenged or
scrutinized by governmental authorities, the effect of which could have a
material adverse effect on the business, financial conditions, and results of
operations of the Company.

         False Claims: 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 healthcare provider
that files a false claim for reimbursement from a federally funded health
program (such as 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.


                                       21
   22
         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 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 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
healthcare 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 


                                       22
   23
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 healthcare 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
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 healthcare 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 healthcare 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.

         Licensure; Certificate of Need: 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.

         Healthcare Reform: As a result of the continued escalation of
healthcare costs and the inability of many individuals to obtain health
insurance, numerous proposals have been and continue to be introduced in the
U.S. Congress and state legislatures relating to healthcare reform, which may
contain proposals to increase government involvement in healthcare, lower
reimbursement rates and otherwise change the operating environment for the
Company's customers. There can be no assurance as to the ultimate content,
timing, or effect of any healthcare reform legislation, nor is it possible at
this time to estimate the impact of potential legislation, which may be material
to the Company.

Employees

As of March 31, 1999, the Company had a total of approximately 46 employees in
continuing operations and approximately 110 employees associated with
discontinued operations. The Company is not and never has been a party to a
collective bargaining agreement. The Company has never experienced a work
stoppage and believes that its employee relations are satisfactory.


                                       23
   24
ITEM 2.  PROPERTIES

         The Company currently leases 26,302 square feet of office space in
Tarrytown, New York, 17,552 square feet of which it occupies, and 8,750 square
feet of which it sublets. The Company is responsible for an annual rent of
approximately $500,000, which includes the sublet portion that generates
approximately $160,000 of rental income. Both the lease and the sublease expire
March 2002. The Advanced Health Management subsidiary occupies 4,065 square feet
of leased office space in Marietta, Georgia. The lease expires January 2001, and
has annual rent of approximately $50,000. The Advanced Health Technologies
subsidiary occupies 8,028 square feet of leased office space in Fort Washington,
which expires December 2002 and has an annual rent of approximately $128,000.
The Integrated Medical Management subsidiary occupies 13,014 square feet in
Malvern, Pennsylvania. The annual rent is approximately $200,000 and the lease
term expires June 2004.

ITEM 3.  LEGAL PROCEEDINGS

         On September 23, 1997, the Company commenced an action in the Supreme
Court of the State of New York against Synetic, Inc. ("Synetic") entitled
Advanced Health Med-E-Systems Corporation v. Synetic, Inc. to collect $1 million
owing by Synetic to the Company pursuant to a software license agreement. On
October 1, 1997, Synetic filed an answer to this lawsuit and asserted various
counterclaims against the Company, in which Synetic alleged that the subject
software and documentation was not timely delivered and installed in accordance
with the License Agreement. As previously announced, the parties settled their
dispute in January 1999, and all claims have been dismissed with prejudice.

         From July 1 through August 17, 1998, eleven putative class actions were
filed in the United States District Court for the Southern District of New York,
all of which have been consolidated under the caption In re Advanced Health
Corporation Securities Litigation. The consolidated complaint, filed in February
1999, seeks, among other remedies, certification as a class action and
unspecified damages resulting from defendants' alleged violations of federal
securities laws. The consolidated complaint alleges that the Company and its
current or former officers or directors, Jonathan Edelson, M.D., Steven
Hochberg, Alan B. Masarek, Robert Alger and Michael W. Rogers are liable for
certain misrepresentations and omissions regarding, among other matters, the
Company's operations, performance, and financial condition. The litigation is
still in the preliminary stages, and the Company believes that the plaintiffs'
claims are without merit and intends to defend against the action vigorously.
 
         On September 16, 1998, Bukstel & Halfpenny, Inc. ("B&H") commenced an
action in the Supreme Court of the State of New York entitled Bukstel &
Halfpenny, Inc. v. Advanced Health Corporation. In addition to the Company, the
complaint names as defendants Advanced Health Med-E-Systems Corporation,
Advanced Health Bukstel & Halfpenny Corporation, Jonathan Edelson, M.D., Alan
Masarek, and Michael W. Rogers. 


                                       24
   25
The Complaint asserts violations of the federal securities laws, common law
fraud and other common law claims in connection with the Company's September 17,
1997 purchase of certain assets from B&H, and seeks rescission of the asset
purchase agreement or unspecified damages. On October 30, 1998, B&H obtained an
order to show cause and temporary restraining order, which temporarily prevents
the Company from transferring certain software source code to Mayo Medical
Laboratories and from including certain "software escrow" provisions in certain
software licensing agreements for the Dr. Chart(R), Clinical Data
Repository(TM), Clinical Data Exchange(TM) and Application Interface Engine(TM)
products (the "TRO"). On November 17, 1998, the Court held a hearing on the
Company's motion to dismiss the complaint and for sanctions on plaintiff's
motion for expedited discovery and a preliminary injunction. No decision has
been rendered to date. The Company believes that the plaintiffs' claims are
without merit and intends to defend against the action vigorously.

         On December 12, 1998, the Company commenced an action in the Supreme
Court of the State of New York against Madison Medical - The Private Practice
Group of New York, L.L.P. ("Madison") entitled Advanced Health Corporation v.
Madison Medical - the Private Practice Group of New York, L.L.P. The Company
seeks to collect $2 million plus interest owing by Madison to the Company
pursuant to a Promissory Note executed by Madison in favor of the Company. On
January 15, 1999, the Company, through its majority owned subsidiary, Uptown
Physician Management, Inc. ("Uptown") commenced an American Arbitration
Association arbitration proceeding against Madison entitled Uptown Physician
Management, Inc. v. Madison Medical -- the Private Practice Group of New York,
L.L.P. to collect $2.1 million in fees owed pursuant to a management services
agreement between the parties. Madison has asserted a defense in the action and
a counterclaim in the arbitration seeking $2.4 million in damages based on the
Company's and Uptown's alleged breaches of the management services agreement. On
March 31, 1999, the Company announced a settlement with Madison of both disputes
for an aggregate payment to the Company of approximately $2.5 million, $700,000
of which is to be paid by April 30, and the remaining $1.8 million plus interest
to be paid in installments over time.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

         No matters were submitted to a vote of securityholders during the
fourth quarter of the fiscal year ended December 31, 1998.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The Common Stock began trading on the Nasdaq National Market under the
symbol "ADVH" on October 3, 1996, and on February 1, 1999, changed its symbol to
"AHTC."

         (a)      Market Information

         The following sets forth the high and low bid price for the period
commencing January 1, 1998 through December 31, 1998 as reported by NASDAQ. 


                                       25
   26
Quotations reflect inter dealer prices without retail mark-up, mark-down, or
commission, and may not represent actual transactions.



                  Common Stock                               High               Low 
                                                                              
January 1, 1998 through December 31, 1998                    $18.813            $ 1.063
First Quarter ended March 31, 1998                            18.813             12.250
Second Quarter ended June 30, 1998                            17.375              5.250
Third Quarter ended September 30, 1998                         5.375              1.063
Fourth Quarter ended December 31, 1998                         2.813              1.188


         (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 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 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 five years ended
December 31, 1998, and the consolidated balance sheet data as of December 31,
1998, 1997, and 1996 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 and balance sheet data for the
periods ending December 31, 1994 to December 31, 1998 are derived from the
consolidated financial statements of the Company which have been audited by
Arthur Andersen LLP, independent public accountants. 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.


                                       26
   27


(In thousands except per share data)                                1994           1995          1996           1997          1998
                                                                    ----           ----          ----           ----          ----
                                                                                                                  
REVENUE                                                          $     379     $    1,054    $    2,657     $   11,910    $    3,530
COST OF REVENUES                                                        12            340           799          1,030         1,942
                                                                 -------------------------------------------------------------------
             Gross profit                                              367            714         1,858         10,880         1,588
OPERATING EXPENSES                                                   2,900          6,412         6,042          5,169        14,133
RESTRUCTURING CHARGES                                                    -              -             -              -         7,645
                                                                 -------------------------------------------------------------------
             Operating (loss) income                               (2,533)        (5,698)       (4,184)          5,711      (20,190)
OTHER INCOME, Net                                                     (15)            (8)            15          1,144         2,073
                                                                 -------------------------------------------------------------------
             Net (loss) income from continuing operations
                before income taxes                                (2,548)        (5,706)       (4,169)          6,855      (18,117)
INCOME TAX PROVISION (BENEFIT)                                           -              -       (1,668)            365         4,722
                                                                 -------------------------------------------------------------------
             Net (loss)/income from continuing operations          (2,548)        (5,706)       (2,501)          6,490      (22,839)
DISCONTINUED OPERATION:
             (Loss) income from discontinued operations                  -              -         1,036            668      (29,280)

       (Loss) on disposal of discontinued operations                                                                 -      (23,074)
                                                                 ==================================================================
             Net (loss) income                                   $ (2,548)    $   (5,706)   $   (1,465)     $    7,158   $  (75,193)
                                                                 ==================================================================

PER SHARE INFORMATION                                           
       Basic net (loss) income  per share:
             (Loss) income from continuing operations              ($1.03)        ($1.47)       ($0.48)          $0.82       ($2.27)
             (Loss) income from discontinued operations                  -              -         0.20           $0.09       ($2.90)
             (Loss) on disposal of discontinued operations               -              -             -              -       ($2.29)
                                                                 ==================================================================
                  Basic net (loss) income per share                ($1.03)        ($1.47)       ($0.28)          $0.91       ($7.46)
                                                                 ==================================================================
       Diluted net (loss) per share:
             (Loss) income from continuing operations              ($1.03)        ($1.47)       ($0.48)          $0.73       ($2.27)
             (Loss) income from discontinued operations             $0.00          $0.00         $0.20           $0.08       ($2.90)
             (Loss) on disposal of discontinued operations               -              -             -              -       ($2.29)
                                                                 ==================================================================
                  Diluted net (loss) income per share              ($1.03)        ($1.47)       ($0.28)          $0.81       ($7.46)
                                                                 ==================================================================
Common shares used in computing per share amounts:
       Basic                                                        2,482          3,893         5,149          7,872        10,085
       Diluted                                                      2,482          3,893         5,149          8,891        10,085



 
(In thousands)                                                                            1996           1997          1998
                                                                                          ----           ----          ----
                                                                                                        


                                       27


   28
                                                                                                        
Balance Sheet Data

Cash and cash equivalents                                                             $   12,086     $    7,534    $    9,269
Investments in marketable securities                                                       7,390         34,082         6,972
Certificates of deposit                                                                        -          5,399         2,580
Working capital                                                                           26,603         61,644         7,779
Total assets                                                                              35,400         94,358        44,634
Total debt                                                                                     -              -           809
Total Stockholders' equity                                                                31,884         93,100        29,890




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, but
are not limited to, failure of the clinical e-commerce industry to develop at
anticipated rates, failure of the Company's clinical information technology
products and services to gain significant market acceptance, failure to meet
operating objectives or to execute the operating plan, failure to successfully
restructure the Company's business units, competition and other economic
factors.

OVERVIEW

         Advanced Health Corporation (the "Company") develops and provides
clinical information systems and health care information technology solutions
for use by integrated delivery systems, hospitals, and other health care
organizations. The Company generates revenues from fees for the use and support
of its clinical information systems, including license, software installation,
software integration, training and data conversion fees.

         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 has
restructured its continuing business operations, acquired new technology to
develop and market and has discontinued the development and marketing of
certain products from its product line, and is marketing its products to
different customers.

         For the year ended December 31, 1998, the Company reported a net loss
from continuing operations of $22.8 million and a net loss from discontinued
operations of $52.4 million, for a total net loss of $75.2 million. Included in
the net loss from continuing operations is $7.6 million of restructuring
charges of which $6.2 million is non-cash. The Company 


                                       28
   29
announced plans to divest its practice management services unit in order to
enable the Company to devote its full resources to expanding its Internet-based
laboratory and prescription transaction management business. The restructuring
action described below contains forward-looking statements that may be
significantly impacted by certain risks and uncertainties, including failure to
meet operating objectives or to execute the operating plan and failure to
successfully restructure the Company's business.

         The Company's restructuring of its information technology unit
includes placing increased emphasis on product development and sales in areas
such as electronic laboratory and prescription management. The Company intends
to limit product development efforts that do not benefit its work on electronic
laboratory and prescription management. Further, the Company will be
redirecting its sales efforts to develop distribution channels including
Internet portals and increase sales for its product lines that offer laboratory
and prescription functionality. Sales efforts will be focused on strategic
sales initiatives that emphasize long-term, recurring revenue streams rather
than large, one-time revenue events so as to better position the Company to
benefit from what it believes is the rapidly gaining importance of e-commerce.
At December 31, 1998, the Company had a contract backlog of approximately $1.2
million of revenue that the Company expects to recognize in 1999. 

RESULTS FROM CONTINUING OPERATIONS 
YEAR ENDED DECEMBER 31, 1998 AND 1997

         Total revenue from continuing operations for the year ended December
31, 1998 decreased to $3.5 million from $11.9 million in the comparable period
ended December 31, 1997, primarily as a result of a change in the Company's
strategy to market and support only its core product offerings of laboratory
and prescription software rather than seeking large, one-time software sales or
licensing from other system offerings. The Company earned these fees for the
use and support of its clinical information systems, including the recognition
of non-recurring license revenues and software and training revenues.

         Cost of revenues for the year ended December 31, 1998 increased to
$1.9 million from $1.0 million for the comparable period ended December 31,
1997. The increase in cost of revenues related primarily to an increase in
direct costs including amortization of capitalized research and development
costs prior to write-off of these assets, and expenses related to the revenue
generated by Bukstel & Halfpenny, which the Company acquired in September 1997.

         Operating expenses for the year ended December 31, 1998 increased to
$14.1 million from $5.2 million for the comparable period ended December 31,
1997 and included non-recurring expenses and non-capitalized software
development costs of approximately $5.6 million. The Company is not
capitalizing any software development costs and has not capitalized any such
costs since the quarter ended March 31, 1998. Further, the Company decided to
focus its technology sales efforts around its laboratory and prescription
software products and as a result of this action, software development assets
related to other products, amounting to $6.2 million, were determined to be
unrealizable and the remaining net value of these assets was charged to
restructuring. Since that determination, the Company is not capitalizing any
such costs but is treating them as period costs which are included in operating
expenses in the Company's


                                       29
   30
consolidated financial statements. The above referenced write-off left $.4
million remaining in unamortized capitalized software development costs relating
to laboratory and prescription software products. The increase in expenses also
reflect costs related to the operations of B & H which the Company acquired in
September 1997 and other charges as described above.

         Restructuring charges for the year ended December 31, 1998 amounted to
approximately $7.6 million and represent amounts primarily associated with the
write-down of capitalized software assets as explained above. The remaining $1.4
million of the $7.6 million restructuring charge relates primarily to facility
closures and personnel reductions.

         Other income, net for the year ended December 31, 1998, was $2.1
million as compared to $1.1 million for the year ended December 31, 1997 and
related primarily to interest earned from investments in marketable securities
as a result of the investment of proceeds from the Company's 1997 follow-on
public offering and operating cash.

         Provision for income taxes includes payments made for state and local
income taxes based on amounts other than taxable income, and a charge of $4.1
million to record a valuation allowance against prior year deferred tax assets,
as it is more likely than not that these assets will not be realized.

         The net loss from continuing operations for the year ended December 31,
1998 was $22.8 million compared to net income of $6.5 million for the year ended
December 31, 1997 due to the factors described above.

RESULTS OF DISCONTINUED OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND 1997

         In January 1999, the Company's Board of Directors approved a plan to
divest its practice management services unit. Prior to this action, the Company
had restructured this unit into an outsourcing services company designed to
provide professional services to the healthcare industry that would selectively
contract with customers that would potentially generate increased profitability.
For the year ended December 31, 1998, the Company reported a net loss from
discontinued operations net of income taxes of $29.3 million and an estimated
loss of $23.1 million from the anticipated disposition of the management
services unit of which $16.0 million is non-cash for each of the discontinued
operations and disposition, compared to $.7 million for the comparable period
ending December 31, 1997. The Company's historical financial information has
been restated to report the results of the discontinued operation on a
consistent basis for the years ended December 31, 1998, 1997 and 1996.

LIQUIDITY AND CAPITAL RESOURCES

         At December 31, 1998, the Company had aggregate cash, cash equivalents,
certificates of deposit and marketable securities of $18.8 million, compared to
$47.0 million at December 31, 1997.

         At December 31, 1998, the Company had negative cash flow from its
operating activities of ($10.2) million, compared with a positive $4.7 million
at December 31, 1997. This decrease in net cash flows from continuing operations
was due to a $82.4 million decrease in net income. Accounts payable, accrued
expenses and other current liabilities increased 


                                       30
   31
$3.9 million due principally to certain non-recurring expenses and restructuring
charges. Net cash provided by investing activities from continuing operations
was $27.7 million for the year ended December 31, 1998, principally attributable
to the net proceeds from investments in marketable securities, an additional
investment ($5.0 million) in an affiliated entity in which the Company
previously had a minority interest, and increased capitalized software
development costs (other assets) during the first quarter of 1998 ($1.1 million,
net of amortization). Net cash (used in) investing activities was ($46.9)
million for the comparable period ended December 31, 1997, resulting from the
investment in marketable securities of the proceeds of the Company's follow-on
equity offering, a minority investment in Patient Care Dynamics, (a company that
provides an integrated family of technology-based patient care support systems)
and the purchase of property and equipment. Net cash provided by financing
activities from continuing operations was $.4 million for the year ended
December 31, 1998, principally attributable to net proceeds from the exercise of
incentive stock options offset by the purchase of treasury stock under the
Company's stock repurchase program. Net cash provided by financing activities
for the year ended December 31, 1997 was $47.2 million, and related primarily to
the Company's follow-on public offering of Common Stock in October 1997, which
raised net proceeds of $46.0 million.

         The Company's operating plan for 1999 includes divesting the practice
management services unit and the continued development of the Company's
electronic laboratory and prescription management products as described above.
The principal categories of expenditures include research and development of the
Company's electronic laboratory and prescription management products as well as
ongoing business development and marketing. The Company believes that its cash
and investments on hand, interest income and revenues from operations will be
sufficient to fund planned operations of the Company through the end of 2000.
The Company has no other planned material capital expenditures or 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 complimentary to those of the Company.


YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
coded to accept only two digit dates. Such systems may not be able to
distinguish 20th century dates. To address these and any other Year 2000
operational issues which may affect the Company and its customers, the Company
has designated a Year 2000 project manager who is primarily responsible for 
implementing the Company's Year 2000 project plan.

         The Company's Year 2000 project plan consists of four phases:
assessment, remediation, validation, and distribution. The primary purpose of
the assessment phase is to list and analyze the inventory of our products sold
and supported. Major issues encountered during this phase are the identification
of programming languages used, source code, and third-party libraries used in a
product. The remediation phase calls for code modification. The validation phase
is where the remediated products are tested and submitted for independent
verification and validation. The Company's remediated products are provided to
our customers during the distribution phase.

         Products and Services: For the Company's products and services, the
assessment phase is complete and remediation is in progress. During the
remediation process, third party vendors whose proprietary tools and library
products are incorporated into the Company's products are being contacted in
order for the Company to determine third party Year 2000 compliance status. The
Company has taken action where required in accordance with instructions provided
by the third party vendors. The Company expects that all of its software
products will be Year 2000 compliant by July 1, 1999.

         Internal Systems, Vendors and Suppliers: The Company is engaged in the
assessment phase for its internal administrative systems. Its project plan calls
for completion of Year 2000 compliance for administrative systems by the end of
the third quarter of 1999. A group has been designated and assigned the task of
notifying all of the clinical transaction processing partners by the end of the
second quarter of 1999 in order assess their Year 2000 readiness.

         Costs: The Company estimates that the final remediation and testing
phase for the Company's products will cost approximately $.3 million. The
Company does not have a current estimate for the cost of remediation of
administrative systems. The Company believes that the bulk of any costs will be
borne by the suppliers of such systems.

   32
         Contingency Plan: The Company is assessing the "worst case scenarios"
that it believes are within its control, excluding power and communications.
With internal date formatting, storage, and calculation being the key issues to
the Company and its customers, the Company's focus is concentrated on strict
date format and storage enforcement with the portions of our products that
require data entry and data storage. Although the Company will recommend the use
of its "YYYY" (four digit year format) at all times, the Company plans to retain
a feature that allows a customer the option to configure the data entry system
to accept "YY" (two digit year format) to be interpreted as "19YY" to speed data
entry. This option has no impact on how dates are stored in the internal system
or on how math is performed against dates. All dates are stored and all date
math is done with a four digit year.

         Although there is no assurance that third party systems owned and used
by the customer are Year 2000 compliant, it is important to state that by
design, the Company's lab order and resulting products interface with legacy
hospital and lab information systems. The Company's backend systems act as a
conduit - moving data from one third party system to another - therefore relying
totally on the accuracy and Year 2000 compliance of the legacy data which the
Company "moves".

         During the second quarter of 1999, the Company will be formulating and
documenting scenarios for its customer service representatives to utilize in
preparation for potential hardware and software issues relating to Year 2000.
The Company plans to have a documented business continuity plan to cover
conceivable concerns including our products and services, alternative vendors
and suppliers, and staffing issues to assure coverage immediately before and
after the millennium. However, due to the general uncertainty inherent in the
Year 2000 concern, there can be no assurance that all Year 2000 problems will be
foreseen and corrected on a timely basis.

         Forward-Looking Statements: The foregoing Year 2000 discussion and the
information contained herein are provided as a "Year 2000 Readiness Disclosure"
as defined in the Year 2000 Information and Readiness Act of 1998 (Public Law
105-271, 112 Stat. 2386) enacted on October 19, 1998 and contain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements, including without limitation,
anticipated costs and the dates by which the Company expects to complete certain
actions, are based on management's best current estimates, which were derived
utilizing numerous assumptions about future events, including the continued
availability of certain resources, representations received from third parties
and other factors. However, there can be no guarantee that these estimates will
be achieved, and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the ability to identify and remediate all relevant systems, results
of Year 2000 testing, adequate resolution of Year 2000 issues by governmental
agencies, businesses and other third parties who are outsourcing service
providers, suppliers and vendors of the Company, unanticipated system costs, the
adequacy of and the ability to implement contingency plans and uncertainties.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

          Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                       31
   33
                              FINANCIAL STATEMENTS

                                                                                
Report of Independent Public Accountants...........................................F-1 
Consolidated Balance Sheets as of December 31, 1997 and 1998 ......................F-2
Consolidated Statements of Operations for the three years ended December 31, 1998  F-3 
Consolidated Statements of Stockholders' Equity for the three years ended December 
31, 1998 ..........................................................................F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1998  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
31,1998, and delivered to stockholders in connection with the 1999 Annual
Meeting of Stockholders, captioned "Election of Directors," "Executive Officers"
and "Disclosure Pursuant to Section 16 of the Exchange Act."

ITEM 11. EXECUTIVE COMPENSATION

     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
31,1998, and delivered to stockholders in connection with the 1999 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 


                                       32
   34
Commission not later than 120 days after December 31,1998, and delivered to
stockholders in connection with the 1999 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, 1998, and
delivered to stockholders in connection with the 1999 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.
                  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

     The registrant filed no Current Reports on Form 8-K during the fourth
quarter of the year ended December 31, 1998.


                                       33
   35
                                   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, 1999.

                                       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, 1999 
Jonathan Edelson, MD                Executive Officer and Director
                                    (Principal Executive Officer)

/s/ Jeffrey M. Sauerhoff            Chief Financial Officer                        March 30, 1999
                                    (Principal Financial and
Jeffrey M. Sauerhoff                Accounting Officer)


/s/ James T. Carney                 Director                                       March 30, 1999 
James T. Carney

/s/ Barry Kurokawa                  Director                                       March 30, 1999
Barry Kurokawa

/s/ Arthur M. Southam               Director                                       March 30, 1999
Arthur M. Southam, MD



                                       34
   36
                                  EXHIBIT INDEX



Exhibit No.       Description of Exhibit
- - -----------       ----------------------

               
**3.1             Restated Certificate of Incorporation of the Registrant

**3.2             By-laws of the Registrant

**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 Reckon Operating Partnership, LP, as Owner, and the Registrant, as
                  Tenant

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

**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            Malvern Lease dated October 6, 1997

*10.13            Tarrytown Sublease

**10.14           Form of Director Indemnification Agreement

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

**10.16           Employment Agreement between the Registrant and Robert Alger

*10.17            Employment Agreement between the Registrant and Jeffrey M. Sauerhoff

*10.18            Employment Agreement between the Registrant and Eddy W. Friedfeld

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

**10.20           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



                                       35
   37
*        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.


                                       36

   38
                    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, 1997
and 1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the three years ended December 31, 1998. 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, 1997 and 1998, and the results of their
operations and their cash flows for the three years ended December 31, 1998 in
conformity with generally accepted accounting principles.




                                                    ARTHUR ANDERSEN LLP



New York, New York
March 31, 1999


                                      F-1
   39
                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)



                                                                                             December 31,
                                                                                        ----------------------
                           ASSETS                                                         1997         1998
                           ------                                                       ---------    ---------
CURRENT ASSETS:
                                                                                                     
    Cash and cash equivalents                                                           $   7,534    $   9,269
    Certificates of deposit                                                                 5,399        2,580
    Investments in marketable securities                                                   34,082        6,972
    Accounts receivable, net                                                                2,006          320
    Deferred income taxes                                                                   4,092           --
    Other current assets                                                                      613          362
    Current assets of discontinued operations                                               9,176        2,065
                                                                                        ---------    ---------
              Total current assets                                                         62,902       21,568

PROPERTY AND EQUIPMENT, net                                                                 3,333        2,565

GOODWILL, net                                                                               1,678        1,861

INVESTMENTS IN AFFILIATES                                                                   9,000       14,000

OTHER ASSETS                                                                                6,877        2,001

NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS                                              10,568        2,639
                                                                                        ---------    ---------
              Total assets                                                              $  94,358    $  44,634
                                                                                        =========    =========

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

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                               $     450    $   3,610
    Other current liabilities                                                                 133          875
    Current liabilities of discontinued operations                                            675        9,304
                                                                                        ---------    ---------
              Total current liabilities                                                     1,258       13,789

DEFERRED REVENUE                                                                               --          250
LIABILITIES FROM DISCONTINUED OPERATIONS                                                       --          705
                                                                                        ---------    ---------
              Total liabilities                                                             1,258       14,744
                                                                                        ---------    ---------

COMMITMENTS AND CONTINGENCIES (Notes 1 and 15)

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; 9,869,719 and
      10,424,127 shares issued and outstanding, respectively                                   99          103
    Additional paid-in capital                                                             95,976      108,450
    Accumulated deficit                                                                    (3,084)     (78,277)
    Net unrealized gain on marketable securities, net of deferred income taxes                184            3
    Less:  Treasury stock, at cost; 8,937 and 153,937 shares, respectively                    (75)        (389)
                                                                                        ---------    ---------
              Total shareholders' equity                                                   93,100       29,890
                                                                                        ---------    ---------
              Total liabilities and shareholders' equity                                $  94,358    $  44,634
                                                                                        =========    =========


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


                                      F-2
   40
                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except share and per share data)



                                                                      For the Years Ended December 31,
                                                                --------------------------------------------
                                                                    1996            1997            1998
                                                                ------------    ------------    ------------
                                                                                                
REVENUES                                                        $      2,657    $     11,910    $      3,530

COST OF REVENUES                                                         799           1,030           1,942
                                                                ------------    ------------    ------------
          Gross profit                                                 1,858          10,880           1,588

OPERATING EXPENSES                                                     6,042           5,169          14,133
RESTRUCTURING CHARGES                                                     --              --           7,645
                                                                ------------    ------------    ------------
          Operating (loss) income                                     (4,184)          5,711         (20,190)

INTEREST EXPENSE                                                        (164)            (11)            (20)

INTEREST INCOME                                                          179           1,155           2,093
                                                                ------------    ------------    ------------
          Net (loss) income from continuing operations before
            income taxes                                              (4,169)          6,855         (18,117)

INCOME TAX PROVISION (BENEFIT)                                       (1,668)            365           4,722
                                                                ------------    ------------    ------------
          Net (loss) income from continuing operations                (2,501)          6,490         (22,839)
                                                                ------------    ------------    ------------

DISCONTINUED OPERATIONS:
   (Loss) income from discontinued operations (Note 2)                 1,036             668         (29,280)
   (Loss) on disposal of discontinued operations (Note 2)                 --              --         (23,074)
                                                                ------------    ------------    ------------
          Net (loss) income                                     $     (1,465)   $      7,158    $    (75,193)
                                                                ============    ============    ============

PER SHARE INFORMATION:
   Basic net (loss) income per share:
     (Loss) income from continuing operations                   $      (0.48)   $       0.82    $      (2.27)
     (Loss) income from discontinued operations                         0.20            0.09           (2.90)
     (Loss) on disposal of discontinued operations                        --              --           (2.29)
                                                                ------------    ------------    ------------
          Basic net (loss) income per share                     $      (0.28)   $       0.91    $      (7.46)
                                                                ============    ============    ============

   Diluted net (loss) per share:
     (Loss) income from continuing operations                   $      (0.48)   $       0.73    $      (2.27)
     (Loss) income from discontinued operations                         0.20            0.08           (2.90)
     (Loss) on disposal of discontinued operations                        --              --           (2.29)
                                                                ------------    ------------    ------------
          Diluted net (loss) income per share                   $      (0.28)   $        .81    $      (7.46)
                                                                ============    ============    ============

   Common shares used in computing per share amounts:
     Basic                                                         5,149,207       7,872,204      10,085,407
                                                                ============    ============    ============
     Diluted                                                       5,149,207       8,890,856      10,085,407
                                                                ============    ============    ============



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


                                      F-3
   41
                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (in thousands, except share data)



                                                                                                                         Unrealized
                                                                                                                         Gain (Loss)
                                                                          Common Stock          Additional                   On     
                                                                    ------------------------    Paid-in     Accumulated  Marketable 
                                                                      Shares      Par Value     Capital      Deficit     Securities 
                                                                    ----------    ----------   ----------   ----------   ---------- 
                                                                                                                  
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

  Exercise of stock options                                            199,553             1        1,283           --           -- 
  Common stock issued for acquisitions                                 354,855             3        4,891           --           -- 
  Stock options granted for acquisition                                     --            --        6,300           --           --
  Repurchase of treasury stock                                              --            --           --           --           -- 
  Unrealized loss on marketable securities, net of deferred income
    taxes of $0                                                             --            --           --           --         (181)
  Net loss                                                                  --            --           --      (75,193)          -- 
                                                                    ----------    ----------   ----------   ----------   ---------- 
BALANCE, December 31, 1998                                          10,424,127    $      103   $  108,450   $  (78,277)  $        3 
                                                                    ==========    ==========   ==========   ==========   ========== 




                                                                    
                                                                    
                                                                             Treasury Stock
                                                                       -------------------------
                                                                         Shares         Amount          Total
                                                                       ----------     ----------     ----------
                                                                                                   
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 stock options                            --             --          2,960
  Net income                                                                   --             --          7,158
                                                                       ----------     ----------     ----------
BALANCE, December 31, 1997                                                  8,937           (75)         93,100

  Exercise of stock options                                                    --            --           1,284
  Common stock issued for acquisitions                                         --            --           4,894
  Stock options granted for acquisition                                        --            --           6,300
  Repurchase of treasury stock                                            145,000          (314)          (314)
  Unrealized loss on marketable securities, net of deferred income
    taxes of $0                                                                --             --           (181)
  Net loss                                                                     --             --        (75,193)
                                                                       ----------     ----------     ----------
BALANCE, December 31, 1998                                                153,937     $     (389)    $   29,890
                                                                       ==========     ==========     ==========


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


                                      F-4
   42
                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)



                                                                                     For the Years Ended December 31,
                                                                                    ----------------------------------
                                                                                      1996         1997         1998
                                                                                    --------     --------     --------
                                                                                                           
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net (loss) income from continuing operations                                     $ (2,501)    $  6,490     $(22,839)
   Adjustments to reconcile net (loss) income to net cash used in operating
      activities-
     Depreciation and amortization                                                       776        1,123        2,477
     Deferred income taxes                                                              (977)          --        4,092
     Allowance for doubtful accounts                                                     210          450          553
     Changes in operating assets and liabilities-
       Accounts receivable                                                              (749)      (1,330)       1,133
       Other current assets                                                             (436)         205          251
       Accounts payable, accrued expenses and other current liabilities                1,071       (2,024)       3,918
       Deferred revenue                                                               (1,300)        (200)         250
                                                                                    --------     --------     --------
              Net cash used in operating activities of continuing operations          (3,906)       4,714      (10,165)
                                                                                    --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Minority investment in affiliated entities                                             --       (9,000)      (5,000)
   Other assets                                                                       (1,291)      (5,307)       4,876
   Investments in certificates of deposit, net                                            --       (5,399)       2,819
   Investments in marketable securities, net                                          (7,390)     (26,692)      27,110
   Intangible assets                                                                      --         (317)      (1,495)
   Purchases of property and equipment, net                                           (1,258)      (2,246)        (592)
                                                                                    --------     --------     --------
              Net cash used in investing activities of continuing operations          (9,939)     (48,961)      27,718
                                                                                    --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net proceeds from sale and issuance of common stock                                30,483       45,961           --
   Net proceeds from exercise of stock options                                            86        1,254          759
   Net proceeds from promissory notes                                                  5,000           --           --
   Repayment of promissory notes                                                      (5,000)          --           --
   Purchase of treasury stock                                                             --           --         (314)
   Repayment of capital lease obligations                                               (138)          -- 
                                                                                    --------     --------     --------
              Net cash provided by financing activities of continuing operations      30,431       47,215          445
                                                                                    --------     --------     --------
              Net cash (used in) discontinued operations                              (5,964)      (7,520)     (16,263)
                                                                                    --------     --------     --------
              Net change in cash and cash equivalents                                 10,622       (4,552)       1,735

CASH AND CASH EQUIVALENTS, beginning of year                                           1,464       12,086        7,534
                                                                                    --------     --------     --------
CASH AND CASH EQUIVALENTS, end of year                                              $ 12,086     $  7,534     $  9,269
                                                                                    ========     ========     ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the year for:
     Interest                                                                       $    160     $     11     $    100
                                                                                    ========     ========     ========
     Income taxes                                                                   $     36     $    248     $    648
                                                                                    ========     ========     ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
   Capital lease obligations incurred                                               $     58     $     --     $     --
                                                                                    ========     ========     ========
   Fair market value of common stock issued for acquisitions                        $     45     $  3,760     $  5,415
                                                                                    ========     ========     ========
   Unrealized gain (loss) on marketable securities                                  $    100     $    297     $   (181)
                                                                                    ========     ========     ========
   Loan payable issued for acquisition                                              $     23     $     --     $     --
                                                                                    ========     ========     ========



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


                                      F-5
   43
                  ADVANCED HEALTH CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1998
                 (in thousands, except share and per share data)


1.       ORGANIZATION AND BUSINESS:

Advanced Health Corporation and subsidiaries (d/b/a "AHT Corporation"
collectively, the "Company" or "AHT"), a Delaware corporation, was formerly a
provider of primarily professional practice and network management services to
physician groups and networks (Note 2). The Company has decided to refocus its
business to be a provider of enabling technologies, including Internet-based
applications, for electronic commerce ("e-commerce") and communications among
physicians and other healthcare providers and organizations. The Company's
clinical information systems consist of proprietary software, third-party
hardware, proprietary and third-party databases, and related support services.
Such systems are designed to complement existing healthcare information systems
and to function with third-party applications. On February 1, 1999 the Company
filed a Registration of Trade Names in Delaware to do business under the name of
AHT Corporation.The Company intends to change its corporate name contingent upon
stockholder approval.

2.       DISCONTINUED OPERATIONS:

In January 1999, the Company's Board of Directors approved a plan to seek
strategic alternatives for the disposal of the Company's physician practice
management line of business, which had been its primary business operation. This
determination was made due to the fact that this business operation was deemed
to be no longer core to the Company's strategy of focusing on healthcare
e-commerce. Accordingly, the results of the physician practice management
business has been accounted for as discontinued operations and the accompanying
consolidated financial statements presented herein have been restated to report
separately the net assets, net liabilities, operating results net cash flows and
of this discontinued operation. Until such time as and when the Company disposes
of this line of business, the Company will need to continue to operate this
business unit and has accrued for estimated losses of $2,700 to be incurred
until the expected disposal date. The loss from discontinued operations
reflected in the consolidated statement of operations includes the write-down of
the assets of the physician practice management operations to estimated net
realizable values and the estimated costs of disposing of this discontinued
operation, less the expected tax benefits applicable thereto.

Summarized financial information for the discontinued operation is as follows:



                                         Years Ended December 31,
                                     --------------------------------
                                       1996        1997        1998
                                     --------    --------    --------
                                                         
Revenue                              $ 16,480    $ 50,887    $ 57,979
                                     ========    ========    ========
(Loss) income before income taxes    $  1,727    $    705    $(29,280)
Income tax provision (benefit)            691          37          --
                                     --------    --------    --------
         Net (loss) income           $  1,036    $    668    $(29,280)
                                     ========    ========    ========



                                      F-6
   44
No benefit for income taxes has been reflected for 1998 in the above table as
the Company has recorded a full valuation allowance against the related deferred
tax assets due to the uncertainty of the realization of these assets.



                                                          December 31,
                                                     ---------------------
                                                       1997         1998
                                                     --------     --------
                                                                 
Accounts receivable, net                             $  9,053     $  1,427
Other current assets                                      123          638
                                                     --------     --------
         Total current assets                           9,176        2,065
                                                     --------     --------

Property, plant and equipment                             331          831
Other assets                                           10,237        1,808
                                                     --------     --------
         Total non-current assets                      10,568        2,639
                                                     --------     --------

Current liabilities                                      (675)      (9,304)
Non-current liabilities                                    --         (709)
                                                     --------     --------
         Net assets (liabilities) of discontinued
             operations                              $ 19,069     $ (5,309)
                                                     ========     ========


Management Service Organizations

The Company previously established Management Service Organizations 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, 1998, the Company obtained a 51% interest
in each of five, eight and one 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 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.

The structure of the Company's wholly or majority-owned MSOs 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 income (loss)
from discontinued operations does 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. As a result of the Company's decision to refocus its
business operations, it is unlikely that there will be future profits in the
MSOs.

All intercompany accounts and transactions have been eliminated in
consolidation. The results of operations, assets and liabilities attributable to
the MSOs are included in discontinued operations in the accompanying
consolidated financial statements.


                                      F-7
   45
The stockholders agreements for these MSOs, 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. As of December 31, 1998, the Company had not met the
specified targets. 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. As a result
of the Company's decision to refocus its business operations it is unlikely that
these transactions will take place in the future.

Revenues from Discontinued Operations

The Company's revenues from discontinued operations consist primarily of
revenues from the provision of physician and network management services. 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.

Acquisitions from Discontinued Operations

In connection with a 1995 acquisition agreement, the Company issued options to
purchase 283,010 shares of common stock at $.0112 per share. 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 included in
non-current assets from discontinued operations in the accompanying consolidated
balance sheets. The Company reached the stated capitalization level and
therefore the stock options became exercisable. As a result, the Company
recorded a $6,300 purchase price adjustment, which represents the fair market
value of the stock options on the date they became exercisable. The remaining
net intangible assets relating to this acquisition were subsequently charged to
loss from discontinued operations in the accompanying statement of operations.

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 were recorded as adjustments to the
original purchase prices and included in non-current assets from discontinued
operations in the accompanying consolidated balance sheets.


                                      F-8
   46
During 1998, the Company acquired all of the outstanding stock of Integrated
Medical Management, Inc. ("IMM"), a physician practice management organization,
for $1,520 in cash and 354,855 shares of common stock ($13.79 per share), for an
aggregate purchase price of approximately $6,400. Furthermore, the IMM purchase
agreement calls for the issuance of additional shares of common stock, as
contingent consideration based upon certain targets. The Company also entered
into an employment agreement with a former shareholder of IMM for an annual base
salary of $170 through December 2000. As a result of this acquisition, the
Company recorded the excess purchase price over net liabilities acquired of
$8,570, as goodwill. The results of operations, net assets and resulting
goodwill from this entity are included within the discontinued operations in
the accompanying consolidated financial statements.

Subsequent to December 31, 1998, the Company and IMM's former shareholders
amended the contingent consideration provision in the acquisition agreement, as
a result of the Company's intention to dispose of its physician practice
management businesses. Pursuant to the amended agreement, the Company has agreed
to pay $1,300 to the former shareholders and the former shareholders have agreed
to forfeit their rights to certain of their respective common stock options. The
$1,300 payment is guaranteed and the timing of such payment is based upon the
occurrence of certain events detailed in the settlement agreement. The Company
has recorded a charge for such amount in the results from discontinued
operations for the year ended December 31, 1998.

Madison Medical - The Private Practice Group of New York, L.L.P.

In June 1997, in connection with an amendment to the management services
agreement with Madison Medical - The Private Practice Group of New York, L.L.P.
("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. Management of the Company believes
that this related party transaction was effected on terms, which approximate
fair market value.

During 1997, the Company loaned $2,000 to Madison under a note agreement.
Further, the Company has guaranteed a letter of credit in favor of Madison, in
the amount of $1,916, by depositing and restricting cash in the same amount
with the same financial institution providing that letter of credit. In
December 1998 the Company commenced an action against Madison to collect the
$2,000 loan.

On January 15, 1999, the Company commenced an American Arbitration Association
arbitration proceeding against Madison to collect $2,100 in fees owed pursuant
to a management services agreement between the parties. Madison has asserted a
defense in the action and a counterclaim in the arbitration seeking $2,400 in
damages based on the Company's and Uptown's alleged breaches of the management
services agreement. 

These actions were settled on March 31, 1999, and in management's opinion, the 
resolution of these matters will not have a materially adverse effect on the 
Company's consolidated financial statements.


                                      F-9
   47
Loans to Affiliates

During 1998, the Company loaned $2,000 to a physician, who was a principal in
one of the physician practices with which the Company maintained a management
services agreement, at 10% interest and payable in full on December 31, 1998.
The physician subsequently informed the Company of his inability to repay the
loan and as a result the Company agreed to restructure the loan. The
restructuring did not have a materially adverse effect on the Company's
consolidated financial statements.

Litigation and Disputes from Discontinued Operations

On May 22, 1997, certain shareholders 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. This action was settled in 1998
and under the terms of the settlement agreement, the Company made a payment of
$540 and all claims were dismissed with prejudice. This payment was offset by
$150 received under the terms of the Company's corporate insurance policy.

In January 1999, a physician practice client of the Company who was in
bankruptcy, filed an adversary proceeding in United States Bankruptcy Court,
District of New Jersey, entitled "Millennium Management Group, P.C.
("Millennium") v. Advanced Health and Millennium Physician Management, Inc."
asserting claims for breach of fiduciary duty, breach of contract and conversion
based on the management services agreement among the parties. The complaint
seeks the return of certain property allegedly belonging to Millennium in
exchange for a lien against the assets of Millennium that is senior to all
claims other than Millennium's bank debt, as Millennium owes certain monies to
the Company. The Company filed an answer to such complaint. The action is still
in the preliminary stages, and the Company believes that Millennium's claims
are without merit and intends to defend against them vigorously.

 In September 1998, the Company received notice from Advanced Heart Physicians
and Surgeons Network, P.C. ("Advanced Heart") that Advanced Heart was dissolving
due to irreconcilable differences. Advanced Heart claims that under the terms of
the management services agreement between Advanced Heart and the Company, this
action would cause the management services agreement to be terminated, the
Company would be required to refund certain fees previously received from
Advanced Heart and the Company would be required to repurchase certain
outstanding common shares of the Company held by one of the principals of
Advanced Heart. Subsequent to December 31, 1998, the management services
agreement was terminated, however, no settlement has been reached or complaint
filed regarding the other claims made by Advanced Heart.

In December 1998, the Philadelphia Cardiology Group P.C. ("PCG") served the
Company with a notice of default and termination under the management services
agreement. In management's opinion, the resolution of this matter will not have
a materially adverse effect on the Company's consolidated financial statements.
No complaint has been filed by either party at this time.


                                      F-10
   48
3.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Consolidation

The accompanying consolidated financial statements include the accounts of AHT
and its wholly-owned subsidiaries, Advanced Health Management Corporation
("AHM"), Advanced Health Technologies Corporation (f/k/a Advanced Health Med-E
Systems Corporation), Advanced Health Bukstel & Halfpenny Corporation and its
majority owned Management Service Organizations ("MSOs") discussed above. All
intercompany 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, but not limited to, the useful lives of capitalized software
costs and intangible assets, and the loss on disposal of discontinued operations
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company's revenue from continuing operations is generated from the sale and
licensing of its software to third parties.

The Company recognizes revenue in accordance with the newly issued Statement of
Position ("SOP") 97-2 "Software Revenue Recognition". This new SOP supersedes
SOP 91-1 "Software Revenue Recognition". 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.
Retroactive application was prohibited. The adoption of SOP 97-2 did not have a
material effect on the Company's consolidated financial statements. Prior to
1998, the Company recorded revenues in compliance with the provisions of SOP
91-1.

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 and 1998 are one and four certificates of deposit
totaling $1,727 and $2,580, respectively, that were pledged as collateral on
outstanding letters of credit related to the Company's management service
agreements previously discussed.

Certificates of Deposit

Certificates of deposit consist of a series of time deposits with maturities
from three to twelve months.


                                      F-11
   49
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.

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, as determined. 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. All previously capitalized software costs were
charged to restructuring charges during 1998 (Note 4).

Computer software amortization charged to expense aggregated $28, $300 and
$1,054, respectively, for each of the three years ended December 31, 1998.

Goodwill

Goodwill, which represents the excess of the purchase price over the fair value
of the net assets acquired, and covenants not-to-compete are included in
intangible assets and are presently being amortized over a period of 20 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. Amortization was $0, $187 and $96, respectively, for
the three years ended December 31, 1998.

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.
Management has performed a review of all long-lived assets and has determined
that there are impairments of the respective carrying values of certain
long-lived assets as of December 31, 1998 (Notes 2 and 4).


                                      F-12
   50
Investments in Affiliates

Investments in affiliates represent purchased interests of less than 20% and are
accounted for on the cost method. Annually, the Company reviews these
investments for impairment or 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 $2,843, $770 and $2,400, respectively, for
the three years ended December 31, 1998.

Fair Value of Financial Instruments 

The carrying amounts of cash and cash equivalents, accounts receivable, amounts
due from affiliates and accounts payable approximate fair value due to the
short-term maturity of these instruments. The carrying amounts of capital lease
obligations, including current portions, approximate fair value.

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. Accordingly, per share data for the year
ending December 31, 1996 has been restated to conform with SFAS No. 128.

Shares used in calculating Basic and Diluted EPS are reconciled as follows:



                                                               1996          1997          1998
                                                            ----------    ----------    ----------
                                                                                      
         Average shares outstanding for basic net (loss)
           income per share                                  5,149,207     7,872,204    10,085,407
         Diluted effect of stock options and warrants               --     1,018,652            --
                                                            ----------    ----------    ----------
         Weighted average shares outstanding for diluted
           net (loss) income per share                       5,149,207     8,890,856    10,085,407
                                                            ==========    ==========    ==========


Diluted EPS for 1996 and 1998 does not include the impact of 804,444 and
1,460,607 stock options respectively, then outstanding, as the
effect of their inclusion would be anti-dilutive.


                                      F-13
   51
Stock-Based Compensation

The Company has elected to follow 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 13).


Comprehensive Income 

During 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive Income,"
which established standards for reporting and displaying comprehensive income
and its components in a financial statement that is displayed with the same
prominence as other financial statements. The components of comprehensive income
are as follows:



                                                                 For the Years Ended
                                                          ---------------------------------
                                                            1996         1997        1998
                                                          --------     --------    --------
                                                                                
      Net (loss) income                                   $ (1,465)    $  7,158    $(75,193)
      Unrealized (loss) gain on marketable  securities          60          124        (181)
                                                          --------     --------    --------
           Comprehensive (loss) income                    $ (1,405)    $  7,282    $(75,374)
                                                          ========     ========    ========


Concentration of Credit Risk

Financial instruments, which subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents, certificates of deposit,
marketable securities and trade accounts receivable. The Company maintains cash
and cash equivalents, certificates of deposit and marketable securities with
various financial institutions. The Company performs periodic evaluations of the
relative credit standing of these institutions. The Company's clients are
concentrated in the United States. The Company performs ongoing credit
evaluations, generally does not require collateral and establishes an allowance
for doubtful accounts based upon factors surrounding the credit risk of
customers, historical trends and other information.

New Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information." This
statement establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. This statement is effective
for financial statements for periods beginning after December 15, 1997 and need
not be applied to interim periods in the initial year of application.
Comparative information for earlier years presented is to be restated. The
adoption of this statement did not have a material impact on the Company's
results of consolidated operations, financial position or cash flows.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging", which establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Company does not expect the adoption
of this standard to have a material effect on the Company's results of
consolidated operations, financial position or cash flows.


                                      F-14
   52
Reclassifications

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


4.       RESTRUCTURING CHARGES:

During the third and fourth quarters of 1998, the Company recorded total
restructuring charges of $7,648 relating to the Company's information technology
line of business. Included in this total are non-cash write-downs of capitalized
software of $6,160, facility closure costs of $281, non-cash write-downs of
property, plant and equipment of $70 and severance and other employee related
costs of $1,137. As of December 31, 1998, payments of $819 have been made for
these charges. The Company anticipates that all of the remaining restructuring
costs will be paid in 1999. The charge for capitalized software represents the
write-down of certain of the Company's proprietary software to the net
realizable value as a result of management's decision to no longer market and
support this software. The facility closure costs represent the loss on the
closure of an office used for the development and sale of one of the Company's
clinical information systems lines of software. The charge for property, plant
and equipment represents the write-down to the net realizable value of computer
equipment, furniture and fixtures no longer needed in the Company's restructured
operations. The severance and other employee related costs provide for the
reduction of approximately 45 employees related to the facility closure and
streamlining of operations related to cost reduction initiatives.

5.       ACQUISITION OF BUSINESSES:

During 1997, the Company acquired certain assets of Bukstel &Halfpenny, Inc.
("B&H"), a 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 ($21.00 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. See Note 16 for discussion of litigation relating to the above
purchase agreement.

The Company records the effect of the contingent consideration, if any, related
to this acquisition 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.

The common stock issued in connection with these acquisitions described above
was 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.


                                      F-15
   53
6.       RELATED PARTY TRANSACTIONS:

Software Licensing Agreements

During 1997 and 1998, the Company entered into two separate software licensing
agreements with a company in which AHT holds a preferred stock investment (Note
9(a)). The Company recognized $2,500 of licensing revenue from each transaction
for each of the years ended December 31, 1997 and 1998, respectively. No amounts
are due under these agreements.

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
$780 and $1,570, which are included in other assets in the accompanying
consolidated balance sheets as of December 31, 1997 and 1998, respectively.
These loans are due three years from the loan date with interest at a rate of 6%
per annum.

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

7.       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, 1998
                                           --------------------------------------------------------
                                                            Gross            Gross        Estimated
                                           Carrying       Unrealized      Unrealized        Market
                                            Amount          Gains          (Losses)         Value
                                            ------          ------          ------          ------
                                                                                 
      Commercial paper                      $2,200          $   --          $   --          $2,200
      U.S. Government and agencies           2,015              --              --           2,015
      Corporate bonds                        2,754               3              --           2,757
                                            ------          ------          ------          ------
                                            $6,969          $    3          $   --          $6,972
                                            ======          ======          ======          ======
                                                          



                                                          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
                                      ========        ========         ========         ========
                                                         

All investment securities held as of December 31, 1998 are due in one year or
less.

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.


                                      F-16
   54
8.       PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:



                                                       December 31,
                                                    -----------------
                                                     1997      1998
                                                    ------    ------
                                                           
Computer equipment and software                     $3,829    $4,223
Equipment under capital leases                         471       438
Furniture and fixtures                                 723       632
Leasehold improvements                                  43        62
                                                    ------    ------
                                                     5,066     5,355

Less:  Accumulated depreciation and amortization     1,733     2,790
                                                    ------    ------
Property and equipment, net                         $3,333    $2,565
                                                    ======    ======


Depreciation and amortization aggregated $793, $753 and $1,178, respectively,
for the three years ended December 31, 1998.


9.       INVESTMENTS IN AFFILIATES:

Investments in affiliates consist of the following:



                                    December 31,
                                 ------------------
                                  1997       1998
                                 -------    -------
                                          
PatientCare Dynamics, LLC (a)    $ 5,000    $10,000
ACRM, Inc. (b)                     3,500      3,500
Caresoft, Inc. (c)                   500        500
                                 -------    -------
                                 $ 9,000    $14,000
                                 =======    =======


(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. In 1998, the Company purchased
         additional Class B Shares and a Warrant equal to $5,000. As of December
         31, 1998, the Company owns approximately 18.8% of PCD and has therefore
         accounted for this investment under the cost method.

(b)      On September 30, 1997, the Company paid $1,000 for 9.9% preferred stock
         ownership of ACRM, Inc., a corporation that provides advanced
         cardiovascular research management. In 1997, the Company loaned $2,500
         to ACRM under a loan agreement. In July 1998, the preferred stock
         interest and the loan were converted into a $3,500 newly issued
         convertible debenture, bearing interest at 6.0% per annum and payable
         in full on July 1, 2003. The debenture can be redeemed or converted as
         follows:


                                      F-17
   55
         (1)      ACRM may redeem the debenture upon the occurrence of certain
                  "triggering events" (as defined) for the greater of (i) the
                  then fair market value of the debenture or (ii) $1,000;

         (2)      ACRM may at any time, convert the debenture into an amount
                  equal to 15% of ACRM's then outstanding common stock on a
                  fully diluted basis; and

         (3)      AHT may redeem the debenture, during the period of February 1,
                  1999 through February 1, 2000, for a redemption price of
                  $1,000.

         As of December 31, 1998, none of the above "triggering events" have
         occurred. This debenture is included in other assets in the
         accompanying consolidated balance sheets.

    (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. As of
         December 31, 1998, the Company owns less than 20% of Caresoft, Inc. and
         has therefore accounted for this investment under the cost method.

10.      ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:



                                                          December 31,
                                                        ----------------
                                                         1997      1998
                                                        ------    ------
                                                               
Professional fees                                       $   --    $1,996
Accounts payable                                           446       441
Other                                                        4     1,173
                                                        ------    ------
         Total accounts payable and accrued expenses    $  450    $3,610
                                                        ======    ======


11.      OTHER CURRENT LIABILITIES:

In connection with an acquisition in 1998 (Note 2), the Company assumed amounts
due from a $1,000 line of credit with a bank, which bears interest at prime plus
1.25%. As of December 31, 1998, there was $809 outstanding on the line of
credit. Subsequent to year end the Company extended the due date of the
outstanding amount to September 30, 1999 at which time the full amount is due.
In connection with the extension, the Company has pledged a $650 certificate of
deposit as collateral.


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 underwriter' overallotment of 345,000
         shares. Total net proceeds from this offering were $30,483.


                                      F-18
   56
(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 underwriter'
         overallotment of 750,000. Total net proceeds to the Company from this
         offering were $45,961.

Stock Splits 

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 Repurchase Program

In September 1998, the Board of Directors approved a plan to repurchase up to
3,500,000 shares of the Company's outstanding common stock. The plan provides
that the shares may be repurchased at the discretion of the Company's senior
management over a period of up to six months. As of December 31, 1998, the
Company had repurchased 145,000 shares of treasury stock for total payments of
$314 under this plan.

Stock Options

The Company maintains 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 be 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 maintains the Advanced Health Corporation Employee Stock
Purchase Plan (the "Employee Plan") 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.

In August 1998, the Company canceled and reissued all then outstanding employee
stock options, which had an exercise price above $5.05. Employees whose options
were canceled, received an amount equal to 75% of their previous option grants.
The new options were granted at an exercise price of $2.50 per share, which was
equal to or above the then fair market value of the Company's common stock.

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


                                      F-19
   57
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:



                                                            1996            1997             1998
                                                          ---------       --------        ----------
                                                                              
     Net (loss) income:                   As Reported     $ (1,465)       $  7,158        $ (75,193)
                                          Pro Forma         (1,850)          4,370          (81,557)

     Basic net (loss) income per share:   As Reported     $  (0.26)       $    .91        $   (7.46)
                                          Pro Forma          (0.33)            .56            (8.11)


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.

A summary of the status of the 1996 Plan at December 31, 1997 and 1998, and
changes during the years then ended, is presented in the table and narrative
below:



                                                       1997                     1998
                                             -----------------------  -----------------------
                                                           Wtd. Avg.                Wtd. Avg.
                                               Shares      Ex Price     Shares      Ex Price
                                             ----------     ------    ----------     ------
                                                                           
   Outstanding at beg. of year                  804,444     $ 1.31     2,088,327     $13.72
   Granted                                    1,775,895      16.85     1,298,718       2.81
   Exercised                                   (352,005)      3.95      (199,553)      5.35
   Forfeited                                   (140,007)      8.07    (1,726,885)     10.34
                                             ----------               ----------
   Outstanding at end of year                 2,088,327      13.72     1,460,607       2.53
                                             ==========               ==========   
   Exercisable at end of year                   282,583       3.03     1,205,511       2.53
                                             ==========               ==========   
   Weighted average fair value of options
     granted                                 $     8.52        N/A    $     2.53        N/A


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 1997 and 1998, respectively: risk-free interest
rates of 6.2% and 5.42%; expected dividend yields of 0%; expected lives of 3
years; expected stock price volatility of 74% and 154%, respectively.

13.      INCOME TAXES:

Income tax provision (benefit) consists of the following:



                                                            Years Ended December 31,
                                                       ----------------------------------
                                                         1996         1997         1998
                                                       --------     --------     --------
                                                                             
      Federal:
        Current                                        $     --     $     --     $    536
        Deferred                                           (757)       2,556      (19,291)
      State and Local:
        Current                                              --           --           95
        Deferred                                           (220)         451       (3,404)
      Adjustment to valuation allowance for opening
          net deferred tax assets                            --       (2,605)       4,092
      Valuation allowance for 1998 net deferred tax
          assets                                             --           --       22,694
                                                       --------     --------     --------
             Total income tax provision (benefit)      $   (977)    $    402     $  4,722
                                                       ========     ========     ========



                                      F-20
   58
A reconciliation of the difference between the statutory Federal income tax rate
and the Company's effective tax rate for the three years ended December 31, 1998
are as follows:



                                                                       1996     1997     1998
                                                                       ----     ----     ----
                                                                                
Tax provision (benefit) at statutory rate                                 34%      34%      34%
State and local taxes                                                      6%       6%       6%
Adjustment to valuation allowance for
    opening net deferred tax assets                                      --       --         6%
Valuation allowance for net deferred tax
    assets                                                              (40)%    (35)%    (40)%
                                                                        -----    -----    -----
                                                                         -- %       5%       6%
                                                                        =====    =====    =====


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 1998 are as
follows:



                                                    December 31,
                                               --------------------
                                                 1997        1998
                                               --------    --------
                                                          
  Net operating loss carryforward              $  3,492    $ 16,011
  Accrued expenses                                   --       4,666
  Allowance for doubtful accounts                   264       2,549
  Amortization                                      238       1,746
  Exercise of stock options                          --         577
  Deferred revenue                                   80          --
  Other                                              18        (326)
                                               --------    --------
                                                  4,092      25,223
Less:  Valuation allowance                           --     (25,223)
                                               --------    --------
           Total deferred income taxes, net    $  4,092    $     --
                                               ========    ========


At December 31, 1998, the Company had net operating loss carryforwards ("NOLs")
available to offset taxable income of approximately $2,235 and $13,776 expiring
in varying amounts through 2013 and 2018. 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 provision
for income taxes in the accompanying consolidated statement of operations for
1997. The determination that the net deferred tax asset of $4,092 at December
31, 1997 was realizable, was based on the Company's profitability during 1997.
Based upon the Company's results of operations for the year ended December 31,
1998, the Company determined that more likely than not, its deferred tax assets
would not be realized and recorded a full valuation allowance against such
assets. The provision for income taxes for the year ended December 31, 1998
represents the charge for the valuation allowance for prior year deferred tax
assets. Deferred tax assets of approximately $1,360 for the year ended December
31, 1997, 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, an increase to 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.


                                      F-21
   59
The Company has also entered into several operating leases for office equipment.

Future minimum payments for operating leases at December 31, 1998 are as
follows:



           Year ending December 31,
           ------------------------
                                                               
           1999                                           $     1,313
           2000                                                 1,097
           2001                                                   838
           2002                                                   476
           2003 and thereafter                                    340


Rent expense was $630, $443 and $299, respectively, for the three years ended
December 31, 1998.

Employment Agreements

The Company maintains employment agreements with certain named executives. The
employment agreements provide for aggregate annual base salaries of $855. These
executives are also entitled to receive discretionary bonuses. The employment
agreements provide for a four-year term that is automatically renewable for
successive one-year terms unless either party gives prior written notice of its
intent not to renew. In addition, pursuant to the severance terms of an
employment agreement, the Company is obligated to make payments totaling $500
over the next two years to a former executive.

15.      LITIGATION AND DISPUTES:

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 sought a declaratory judgment that
the customer is not obligated to make the $1,000 payment, as well as unspecified
damages. This action was settled in January 1999, all claims were dismissed with
prejudice and the settlement did not have a materially adverse effect on the
Company's consolidated financial statements.

From July 1 through August 17, 1998, eleven putative class actions were filed in
the United States District Court for the Southern District of New York, all of
which have been consolidated under the caption "In re Advanced Health
Corporation Securities Litigation". The amended consolidated complaint seeks,
among other remedies, certification as a class action and unspecified damages
resulting from defendants' alleged violations of federal securities laws. The
amended consolidated complaint alleges that the Company and certain of its
current or former officers or directors are liable for certain
misrepresentations and omissions regarding, among other matters, the Company's
operations, performance, and financial condition. The litigation is still in the
preliminary stages, and the Company believes that the plaintiffs' claims are
without merit and intends to defend against the action vigorously.


                                      F-22
   60
On September 16, 1998, B&H commenced an action in the Supreme Court of the State
of New York entitled "Bukstel & Halfpenny, Inc. v. Advanced Health Corporation".
In addition to the Company, the complaint names as defendants Advanced Health
Med-E-Systems Corporation, Advanced Health Bukstel & Halfpenny Corporation and
certain current or former officers or directors of the Company. The Complaint
asserts violations of the federal securities laws, common law fraud and other
common law claims in connection with the Company's September 17, 1997 purchase
of certain assets from B&H, and seeks rescission of the asset purchase agreement
or unspecified damages. On October 30, 1998, B&H obtained an order to show cause
and temporary restraining order, which temporarily prevents the Company from
transferring certain software code to a certain customer and from including
certain "software escrow" provisions in certain software licensing agreements.
The litigation is still in the preliminary stages, and the Company believes that
the plaintiffs' claims are without merit and intends to defend against the
action vigorously.

From time to time, the Company is involved in other 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 a material adverse effect on
the Company's business, results of operations or financial condition.


                                      F-23
   61
              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
31, 1999. 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 31, 1999


                                       S-1
   62
                            SUPPLEMENTAL SCHEDULE II

                                 (in thousands)




                                                                       Additions
                                                         -------------------------------
                                         Balance at                           Charged to
                                        Beginning of     Charged to Cost        Other                       Balance at End
                Description                Period          and Expenses        Accounts      Deductions       of Period
- - --------------------------------------------------------------------------------------------------------------------------
                                                                                              
December 31,
1996 Allowance for Doubtful Accounts        $ --               $210              $ --         $   --            $210
1997 Allowance for Doubtful Accounts        $210               $450              $ --         $   --            $660
1998 Allowance for Doubtful Accounts        $660               $ --              $ --         $ (630)           $ 30

                                                     

                                       S-2

EX-10.12

   1
                                                                   Exhibit 10.12



                               AGREEMENT OF LEASE

                                     BETWEEN


                               ROUSE & ASSOCIATES-
                  55 VALLEY STREAM PARKWAY LIMITED PARTNERSHIP
                                  ("LANDLORD")

                                       AND

                          INTEGRATED MEDICAL MANAGEMENT
                                   ("TENANT")

                                       FOR

                                    SUITE 200
                            55 VALLEY STREAM PARKWAY
                          GREAT VALLEY CORPORATE CENTER
                                MALVERN, PA 19355
   2
                                 LEASE AGREEMENT
                              (Multi-Tenant Office)

INDEX
SECTION                                                                     PAGE
- - -------                                                                     ----

1.        Summary of Terms and Certain Definitions............................1
2.        Premises............................................................2
3.        Acceptance of Premises..............................................2
4.        Use; Compliance.....................................................2
5.        Term................................................................2
6.        Minimum Annual Rent.................................................3
7.        Operation of Property; Payment of Expenses..........................3
8.        Signs...............................................................4
9.        Alterations and Fixtures............................................5
10.       Mechanics' Liens....................................................5
11.       Landlord's Right to Relocate Tenant; Right of Entry.................5
12.       Damage by Fire or Other Casualty....................................5
13.       Condemnation........................................................6
14.       Non-Abatement of Rent...............................................6
15.       Indemnification of Landlord.........................................6
16.       Waiver of Claims....................................................6
17.       Quiet Enjoyment.....................................................6
18.       Assignment and Subletting...........................................6
19.       Subordination; Mortgagee's Rights...................................7
20.       Recording; Tenant's Certificate.....................................7
21.       Surrender; Abandoned Property.......................................8
22.       Curing Tenant's Defaults............................................8
23.       Defaults - Remedies.................................................8
24.       Representations of Tenant...........................................9
25.       Liability of Landlord...............................................9
26.       Interpretation; Definitions........................................10
27.       Notices............................................................10
28.       Security Deposit...................................................11
   3
RIDER
- - -----

29.  PA Additional Remedies..................................................R-1

30.  Tenant Improvements; Landlord Allowance.................................R-2

31.  Amendment to Article 1 (d)(ii) "Estimated Operating Expenses"...........R-3

32.  Amendment to Article 7 "Operating of Property; Payment of Expenses".....R-3

33.  Amendment to Article 4 "Use; Compliance"................................R-3
   4
     THIS LEASE AGREEMENT is made by and between Rouse & Associates-55 Valley
Stream Parkway Limited Partnership a Pennsylvania limited partnership
("LANDLORD") with its address at 65 Valley Stream Parkway, Suite 100, Malvern,
Pennsylvania 19355 and Integrated Medical Management, a Corporation organized
under the laws of Pennsylvania ("TENANT") with its address at 50 Valley Stream
Parkway, Malvern, PA 19355 and is dated as of the date on which this lease has
been fully executed by Landlord and Tenant.

1.   SUMMARY OF TERMS AND CERTAIN DEFINITIONS.

     (a) "PREMISES":     Approximate rentable square feet:  13,014
         (Section 2)     Suites:  200

     (b) "BUILDING":     Approximate rentable square feet:  40,057
         (Section 2)     Address: 55 Valley Stream Parkway
                                  Malvern, PA 19355

     (c) "TERM":         Seventy Nine (79) months plus any partial month from
         (Section 5)     the Commencement Date until the first day of the first
                         full calendar month during the term

          (i)  "COMMENCEMENT DATE": November 15, 1997

          (ii) "EXPIRATION DATE": See Section 5

     (d) MINIMUM RENT (SECTION 6) & OPERATING EXPENSES (SECTION 7)

          (i)  "MINIMUM ANNUAL RENT": $83,100.00 (Eighty Three Thousand One
               Hundred and 00/100 Dollars), payable in monthly installments of
               $6,925.00, increased as follows:



LEASE YEAR       ANNUAL        MONTHLY       LEASE YEAR          ANNUAL           MONTHLY
- - ----------       ------        -------       ----------          ------           -------
                                                              
     2        $185,709.78     $15,475.81         5           $202,888.26     $16,907.36
     3        $191,175.66     $15,931.31         6           $209,004.84     $17,417.07
     4        $196,901.82     $16,408.48     Mos. 73-80           N/A        $17,937.63


          (ii) Estimated "ANNUAL OPERATING EXPENSES": $94,872.06 (Ninety Four
               Thousand Eight Hundred Seventy Two and 06/100), payable in
               monthly installments of $7,906.01 (Seven Thousand Nine Hundred
               Six and 01/100 Dollars), subject to adjustment. (See Article 31)

(e) "PROPORTIONATE SHARE" (Section 7(a)): 32.5% (Ratio of approximate rentable
                                          square feet in the Premises to
                                          approximate rentable square feet in
                                          the Building)

(f) "USE" (Section 4): General office purposes (excluding any "place of public
accommodation")

(g) "SECURITY DEPOSIT"  (Section 28): $16,000.00

(h) CONTENTS: This lease consists of the Index, pages 1 through 11 containing
              Sections 1 through 28 and the following, all of which are attached
              hereto and made a part of this lease:

         Rider with Section 29 through 33

         Exhibits:         "A" - Plan showing Premises
                           "B" - Commencement Certificate Form
                           "C" - Building Rules
                           "D" - Cleaning Schedule
                           "E" - Estoppel Certificate Form


                                       1
   5
2.   PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises as shown on attached Exhibit "A" within the Building ( )
Building and the lot on which it is located (the "PROPERTY"), together with the
non-exclusive right with Landlord and other occupants of the Building to use all
areas and facilities provided by Landlord for the use of all tenants in the
Property including any lobbies, hallways, driveways, sidewalks and parking,
loading and landscaped areas (the "COMMON AREAS").

3.   ACCEPTANCE OF PREMISES. Tenant has examined and knows the condition of the
Property, the zoning, streets, sidewalks, parking areas, curbs and access ways
adjoining it, visible easements, any surface conditions and the present uses,
and Tenant accepts them in the condition in which they now are, without relying
on any representation, covenant or warranty by Landlord. Tenant and its agents
shall have the right, at Tenant's own risk, expense and responsibility, at all
reasonable times prior to the Commencement Date, to enter the Premises for the
purpose of taking measurements and installing its furnishings and equipment;
provided that the Premises are vacant and Tenant obtains Landlord's prior
written consent.

4.   USE; COMPLIANCE.

     (a) PERMITTED USE. Tenant shall occupy and use the Premises for and only
for the Use specified in Section 1(f) above and in such a manner as is lawful,
reputable and will not create any nuisance or otherwise interfere with any other
tenant's normal operations or the management of the Building. Without limiting
the foregoing, such Use shall exclude any use that would cause the Premises or
the Property to be deemed a "place of public accommodation" under the Americans
with Disabilities Act (the "ADA") as further described in the Building Rules
(defined below). All Common Areas shall be subject to Landlord's exclusive
control and management at all times. Tenant shall not use or permit the use of
any portion of the Common Areas for other than their intended use.

     (b) COMPLIANCE. From and after the Commencement Date, Tenant shall comply
promptly, at its sole expense, (including making any alterations or
improvements) with all laws (including the ADA), ordinances, notices, orders,
rules, regulations and requirements regulating the Property during the Term
which impose any duty upon Landlord or Tenant with respect to Tenant's use,
occupancy or alteration of, or Tenant's installations in or upon, the Property
including the Premises, (as the same may be amended, the "LAWS AND
REQUIREMENTS") and the building rules attached as Exhibit "C", as amended by
Landlord from time to time, (the "BUILDING RULES"). Provided, however, that
Tenant shall not be required to comply with the Laws and Requirements with
respect tot he footings, foundations, structural steel columns and girders
forming a part of the Property unless the need for such compliance arises out of
Tenant's use, occupancy or alteration of the Property, or by any act or omission
of Tenant or any employees, agents, contractors, licensees or invitees
("AGENTS") of Tenant. With respect to Tenant's obligations as to the property,
other than the Premises, at Landlord's option and at Tenant's expense, Landlord
may comply with any repair, replacement or other construction requirements of
the Laws and Requirements and Tenant shall pay to Landlord all costs thereof as
additional rent.

     (c) ENVIRONMENTAL. Tenant shall comply, at its sole expense, with all Laws
and Requirements as set forth above, all manufacturers' instructions and all
requirements of insurers relating to the treatment, production, storage,
handling, transfer, processing, transporting, use, disposal and release of
hazardous substances, hazardous mixtures, chemicals, pollutants, petroleum
products, toxic or radioactive matter (the "RESTRICTED ACTIVITIES"). Tenant 
shall deliver to Landlord copies of all Material Safety Data Sheets or other 
written information prepared by manufacturers, importers or suppliers of any 
chemical and all notices, filings, permits and any other written 
communications from or to Tenant and any entity regulating any Restricted 
Activities.

     (d) NOTICE. If at any time during or after the Term, Tenant becomes aware
of any inquiry, investigation or proceeding regarding the Restricted Activities
or becomes aware of any claims, actions or investigations regarding the ADA,
Tenant shall give Landlord written notice, within 5 days after first learning
thereof, providing all available information and copies of any notices.

5.   TERM. The Term of this lease shall commence on the Commencement Date and
shall end at 11:59 p.m. on the last day of the Term (the "EXPIRATION DATE"),
without the necessity for notice from either party, unless sooner terminated in
accordance with the terms hereof. At Landlord's request, Tenant shall confirm
the Commencement Date and Expiration Date by executing a lease commencement
certificate in the form attached as Exhibit "B".

6.   MINIMUM ANNUAL RENT. Tenant agrees to pay to Landlord the Minimum Annual
Rent in equal monthly installments in the amount set forth in Section 1(d) (as
increased at the beginning of each lease year as set forth in Section 1(d)), in
advance, on the first day of each calendar month during the Term, without
notice, demand or setoff, at Landlord's address designated at the beginning of
this lease unless Landlord designates otherwise; provided that rent for the
first full month shall be paid at the signing of this lease. If the Commencement
Date falls on a day other than the first day of a calendar month, the rent shall
be apportioned pro rata on a per diem basis for the period from the Commencement
Date until the first day of the following calendar month and shall be paid on or
before the Commencement Date. As used in this lease, the term "lease year" means
the period from the Commencement Date


                                       2
   6
through the succeeding 12 full calendar months (including for the first lease
year any partial month from the Commencement Date until the first day of the
first full calendar month) and each successive 12 month period thereafter during
the Term.

7.   OPERATION OF PROPERTY; PAYMENT OF EXPENSES.


     (a) PAYMENT OF OPERATING EXPENSES. Tenant shall pay to Landlord the Annual
Operating Expenses in equal monthly installments in the amount set forth in
Section 1(d) (prorated for any partial month), from the Commencement Date and
continuing throughout the Term on the first day of each calendar month during
the Term, as additional rent, without notice, demand or setoff, provided that
the monthly installment for the fist full month shall be paid at the signing of
this lease. Landlord shall apply such payments to the annual operating costs to
Landlord of operating and maintaining the Property during each calendar year of
the Term, which costs may include by way of example rather than limitation:
insurance premiums, fees, impositions, costs for repairs, maintenance, service
contracts, management and administrative fees, governmental permits, overhead
expenses, costs of furnishing, water, sewer, gas, fuel, electricity, other
utility services, janitorial service, trash removal, security services,
landscaping and grounds maintenance, and the costs of any other items
attributable to operating or maintaining any or all of the Property excluding
any costs which under generally accepted accounting principles are capital
expenditures; provided, however, that annual operating costs also shall include
the annual amortization (over an assumed useful life of ten years) of the costs
(including financing charges) of building improvements made by Landlord to the
Property that are required by any governmental authority or for the purpose of
reducing operating expenses or directly enhancing the safety of tenants in the
Building generally. The amount of the Annual Operating Expenses set forth in
Section 1(d) represents Landlord's estimate of Tenant's share of the estimated
operating costs during the first calendar year of the Term on an annualized
basis; from time to time Landlord may adjust such estimated amount if the
estimated operating costs increase. Tenant's obligation to pay the Annual
Operating Expenses pursuant to this Section 7 shall survive the expiration or
termination of this lease.

         (i) COMPUTATION OF TENANT'S SHARE OF ANNUAL OPERATING COSTS. After the
end of each calendar year of the Term, Landlord shall compute Tenant's share of
the annual operating costs described above incurred during such calendar year by
(A) calculating an appropriate adjustment, using generally accepted accounting
principles, to avoid allocating to Tenant or to any other tenant (as the case
may be) those specific costs which Tenant or any other tenant has agreed to pay;
(B) calculating an appropriate adjustment, using generally accepted accounting
principles, to avoid allocating to any vacant space those specific costs which
were not incurred for such space; and (C) multiplying the adjusted annual
operating costs by Tenant's Proportionate Share.

         (ii) RECONCILIATION. By April 30th of each year (and as soon as
practical after the expiration or termination of this lease or at any time in
the extent of a sale of the Property), Landlord shall provide Tenant with a
statement of the actual amount of such annual operating costs for the preceding
calendar year or part thereof. Landlord or Tenant shall pay to the other the
amount of any deficiency or overpayment then due from one to the other or, at
Landlord's option, Landlord may credit Tenant's account for any overpayment.
Tenant shall have the right to inspect the books and records used by Landlord in
calculating the annual operating costs within 60 days of receipt of the
statement during regular business hours after having given Landlord at least 48
hours prior written notice; provided, however, that Tenant shall make all
payments of additional rent without delay, and that Tenant's obligation to pay
such additional rent shall not be contingent on any such right.

     (b) IMPOSITIONS. As used in this lease the term "impositions" refers to all
levies, taxes (including sales taxes and gross receipt taxes) and assessments,
which are applicable to the Term, and which are imposed by any authority or
under any law, ordinance or regulation thereof, or pursuant to any recorded
covenants or agreements, and the reasonable cost of contesting any of the
foregoing upon or with respect to the Property or any part thereof, or any
improvements thereto. Tenant shall pay to Landlord with the monthly payment of
Minimum Annual Rent any imposition imposed directly upon this lease or the Rent
(defined in Section 7(g)) or amounts payable by any subtenants or other
occupants of the Premises, or against Landlord because of Landlord's estate or
interest herein.

         (i) Nothing herein contained shall be interpreted as requiring Tenant
to pay any income, excess profits or corporate capital stock tax imposed or
assessed upon Landlord, unless such tax or any similar tax is levied or assessed
in lieu or assessed in lieu of all or any part of any imposition or an increase
in any imposition.

         (ii) If it shall not be lawful for Tenant to reimburse Landlord for any
of the impositions, the Minimum Annual Rent shall be increased by the amount of
the portion of such imposition allocable to Tenant unless prohibited by law.

(c)  INSURANCE.

         (i) PROPERTY. Landlord shall keep in effect insurance against loss or
damage to the Building or the Property by fire and such other casualties as may
be included within fire, extended coverage and special form insurance covering
the full replacement


                                       3
   7
cost of the Building (but excluding coverage of Tenant's personal property in,
and any alterations by Tenant to, the Premises), and such other insurance as
Landlord may reasonably deem appropriate or as may be required from time-to time
by any mortgage.

         (ii) LIABILITY. Tenant, at its own expense, shall keep in effect
comprehensive general public liability insurance with respect to the Premises
and the property, including contractual liability insurance, with such limits of
liability for bodily injury (including death) and property damage as reasonably
may be required by Landlord from time to time, but not less than a combined
single limit of $1,000,000 per occurrence and a general aggregate limit of not
less than $2,000,000 (which aggregate limit shall apply separately to each of
Tenant's locations if more than the Premises); however, such limits shall not
limit the liability of Tenant hereunder. The policy of comprehensive general
public liability insurance also shall name Landlord and Landlord's agent as
insured parties with respect to the Premises, shall be written on an
"occurrence" basis and not on a "claims made" basis, shall provide that it is
primary with respect to any policies carried by Landlord and that any coverage
carried by Landlord shall be excess insurance, shall provide that it shall not
be cancelable or reduced without at least 30 days prior written notice to
Landlord and shall be issued in form satisfactory to Landlord. The insurer shall
be a responsible insurance carrier which is authorized to issue such insurance
and licensed to do business in the state in which the Property is located and
which has at all times during the Term a rating of no less than A VII in the
most current edition of Best's Insurance Reports. Tenant shall deliver to
Landlord on or before the Commencement Date, and subsequently renewals of, a
certificate of insurance evidencing such coverage and the waiver of subrogation
described below.

         (iii) WAIVER OF SUBROGATION. Landlord and Tenant shall have included 
in their respective property insurance policies waivers of their respective
insurers' right of subrogation against the other party. If such a waiver should
be unobtainable or unenforceable, then such policies of insurance shall state
expressly that such policies shall not be invalidated if, before a casualty, the
insured waives the right of recovery against any party responsible for a
casualty covered by the policy.

         (iv)  INCREASE OF PREMIUMS. Tenant agrees not to do anything or fail 
to do anything which will increase the cost of Landlord's insurance or which 
will prevent Landlord from procuring policies (including public liability) from 
companies and in a form subsidiary to Landlord. If any breach of the preceding 
sentence by Tenant causes the rate of fire or other insurance to be increased, 
Tenant shall pay the amount of such increase as additional rent promptly upon 
being billed.

     (d)  REPAIRS AND MAINTENANCE; COMMON AREAS: BUILDING MANAGEMENT.

          (i)  Tenant at its sole expertise shall maintain the Premises in a 
neat and orderly condition.

          (ii) Landlord, shall make all necessary repairs to the Premises, the 
Common Areas and any other improvements located on the Property, provided that 
Landlord shall have no responsibility to make any repair until Landlord 
receives written notice of the need for such repair. Landlord shall operate and 
manage the Property and shall maintain all Common Areas and any paved areas 
appurtenant to the Property in a clean and orderly condition. Landlord reserves 
the right to make alterations to the Common Areas from time to time.

          (iii) Notwithstanding anything herein to the contrary, repairs and
replacements to the Property including the Premises made necessary by Tenant's
use, occupancy or alteration of, or Tenant's installation in or upon the
Property or by any act or omission of Tenant or its Agents shall be made at the
sole expense of Tenant to the extent not covered by any applicable insurance
proceeds paid to Landlord. Tenant shall not bear the expense of any repairs or
replacements tot he Property arising out of or caused by any other tenant's use,
occupancy or alteration of, or any other tenant's installation in or upon, the
Property or by any act or omission of any other tenant or any other tenant's
Agents.

     (e) UTILITIES.

         (i) Landlord will furnish the Premises with electricity, heating and
air conditioning for the normal use and occupancy of the Premises as general
offices between 8:00 a.m. and 6:00 p.p., Monday through Friday (legal holidays
excepted). If Tenant shall require electricity or install electrical equipment
including but limited to electrical heating, refrigeration equipment, electronic
data processing machines, or machines or equipment using current in excess of
110 volts, which will in any way increase the amount of electricity usually
furnished for use as general office space, or if Tenant shall attempt to use the
Premises in such a manner that the services to be furnished by Landlord would be
required during periods other than or in addition to business hours referred to
above, Tenant will obtain Landlord's prior written approval and will pay for the
resulting additional direct expense, including the expense resulting from the
installation of such equipment and meters, as additional rent promptly upon
being billed. Landlord shall not be responsible or liable for any interruption
in utility service, nor shall such interruption affect the continuation or
validity of this lease.


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   8
         (ii) If at any time utility services supplied to the Premises are
separately metered, the cost of installing Tenant's meter and the cost of such
separately metered utility service shall be paid by Tenant promptly upon being
billed.

     (f) JANITORIAL SERVICES. Landlord will provide Tenant with trash removal
and janitorial services pursuant to a cleaning schedule attached as Exhibit "D".

     (g) "RENT". The term "RENT" as used in this lease means the Minimum Annual
Rent, Annual Operating Expenses and any other additional rent or sums payable by
Tenant to Landlord pursuant to this Lease, all of which shall be deemed rent for
purposes of Landlord's rights and remedies with respect thereto. Tenant shall
pay all Rent to Landlord within 30 days after Tenant is billed, unless otherwise
provided in this lease, and interest shall accrue on all sums due but unpaid.

8.   SIGNS. Landlord, at Landlord's expense, will place Tenant's name and suite
number on the Building standard sign and on or beside the entrance door to the
Premises. Except for signs which are located wholly within the interior of the
Premises and not visible from the exterior of the Premises, no sign shall be
placed on the Property without the prior written consent of the Landlord. All
signs installed by the Tenant shall be maintained by Tenant in good condition
and Tenant shall remove all such signs at the termination of this lease and
shall repair any damage caused by such installation, existence or removal.

9.   ALTERATIONS AND FIXTURES.

     (a) Subject to Section 10, Tenant shall have the right to install its trade
fixtures in the Premises, provided that no such installation or removal thereof
shall affect any structural portion of the Property nor any utility lines,
communications lines, equipment or facilities in the Building serving any tenant
other than Tenant. At the expiration or termination of this lease, and at the
option of Landlord or Tenant, Tenant shall remove such installation(s) and, in
the event of such removal, tenant shall repair any damage caused by such
installation or removal; if Tenant, with Landlord's written consent, elects not
to remove such installation(s) at the expiration or termination of this lease,
all such installations shall remain on the Property and become the property of
the Landlord without payment by Landlord.

     (b) Except for non-structural changes which do not exceed $5000 in the
aggregate, Tenant shall not make or permit to be made any alterations to the
Premises without Landlord's prior written consent. Tenant shall pay the costs of
any required architectural/engineering reviews. In making any alterations, (I)
Tenant shall deliver to Landlord the plans, specifications and necessary
permits, together with certificates evidencing that Tenant's contractors and
subcontractors have adequate insurance coverage naming Landlord and Landlord's
agent as additional insureds, at least 10 days prior to commencement thereof,
(ii) such alterations shall not impair the structural strength of the Building
or any other improvements or reduce the value of the Property or affect any
utility lines, communications lines, equipment or facilities in the Building
serving any tenant other than Tenant, (iii) Tenant shall comply with Section 10
and (iv) the occupants of the Building and of any adjoining property shall not
be disturbed thereby. All alterations to the Premises by the Tenant shall be the
property of Tenant until the expiration or termination of this lease; at that
time all such alterations shall remain on the Property and become the property
of Landlord without payment by Landlord unless Landlord gives written notice to
Tenant to remove the same, in which event Tenant will remove such alterations
and repair any resulting damage. At Tenant's request prior to Tenant making any
alterations, Landlord shall notify Tenant in writing, whether Tenant is required
to remove such alterations at the expiration or termination of this lease.

10.  MECHANICS' LIENS. Tenant shall pay promptly any contractors and materialmen
who supply labor, work or materials to Tenant at the Property and shall take all
steps permitted by law in order to avoid the imposition of any mechanic's lien
upon all or any portion of the Property. Should any such lien or notice of lien
be filed for work performed for Tenant other than by Landlord, Tenant shall bond
against or discharge the same within 5 days after Tenant has notice that the
lien or claim is filed, regardless of the validity of such lien or claim.
Nothing in this lease is intended to authorize Tenant to do or cause any work to
be done or materials to be supplied for the account of Landlord, all of the same
to be solely for tenant's account and at Tenant's risk and expense. Throughout
this lease the term "mechanic's lien" is used to include any lien, encumbrance
or charge levied or imposed upon all or any portion of, interest in or income
from the Property on account of any mechanic's, laborer's, materialman's or
construction lien or arising out of any debt or liability to or claim of any
contractor, mechanic, supplier, materialman or laborer and shall include any
mechanic's notice of intention to file a lien given to Landlord or Tenant, any
stop order given to Landlord or tenant, any notice of refusal to pay naming
Landlord or Tenant and any injunctive or equitable action brought by any person
claiming to be entitled to any mechanic's lien.

11.  LANDLORD'S RIGHT TO RELOCATE TENANT; RIGHT OF ENTRY.

     (a) Landlord may cause Tenant to relocate from the Premises to a comparable
space ("RELOCATION SPACE") within the Building by giving written notice to
Tenant at least 60 days in advance, provided that Landlord shall pay all
reasonable costs of


                                       5
   9
such relocation. Such a relocation shall not terminate, modify or otherwise
affect this lease except that "Premises" shall refer to the Relocation Space
rather than the old location identified in Section 1(a).

     (b) Tenant shall permit Landlord and its Agents to enter the Premises at
all reasonable times following reasonable notice (except in the event of an
emergency), for the purposes of inspection, maintenance or making repairs,
alterations, or additions as well as to exhibit the Premises for the purpose of
sale or mortgage and, during the last 12 months of the Term, to exhibit the
Premises to any prospective tenant. Landlord will make reasonable efforts not to
inconvenience Tenant in exercising the foregoing rights, but shall not be liable
for any loss of occupation or quiet enjoyment thereby occasioned.

12.  DAMAGE BY FIRE OR OTHER CASUALTY.

     (a) If the Premises or Building shall be damaged or destroyed by fire or
other casualty, Tenant promptly shall notify Landlord and Landlord, subject to
the conditions set forth in this Section 12, shall repair such damage and
restore the Premises to substantially the same condition in which they were
immediately prior to such damage or destruction, but not including the repair,
restoration or replacement of the fixtures or alterations installed by Tenant.
Landlord shall notify Tenant in writing, within 30 days after the date of the
casualty, if Landlord anticipates that the restoration will take more than 180
days from the date of the casualty to complete; in such event, either Landlord
or Tenant may terminate this lease effective as of the date of casualty by
giving written notice to the other within 10 days after Landlord's notice.
Further, if a casualty occurs during the last 12 months of the Term or any
extension thereof, Landlord may cancel this lease unless Tenant has the right to
extend the Term for at least 3 more years and does so within 30 days after the
date of the casualty.

     (b) Landlord shall maintain a 12 month rental coverage endorsement or other
comparable form of coverage as part of its fire, extended coverage and special
form insurance. Tenant will receive an abatement of its Minimum Annual Rent and
Annual Operating Expenses to the extent the Premises are rendered untenantable
as determined by the carrier providing the rental coverage endorsement.

13.  CONDEMNATION.

     (a) TERMINATION. If (I) all of the Premises are taken by condemnation or
otherwise for any public or quasi-public use, (ii) any part of the Premises is
so taken and the remainder thereof is insufficient for the reasonable operation
of Tenant's business, or (iii) any of the Property is so taken, and in the
Landlord's opinion, it would be impractical or the condemnation proceeds are
insufficient to restore the remainder of the property, then this lease shall
terminate and all unaccrued obligations hereunder shall cease as of the day
before possession is taken by the condemnor.

     (b) PARTIAL TAKING. If there is a condemnation and this lease has not been
terminated pursuant to this Section, (I) Landlord shall restore the Building and
the improvements which are part of the Premises to a condition and size as
nearly comparable as reasonably possible to the condition and size thereof
immediately prior to the date upon which the condemnor took possession and (ii)
the obligations of Landlord and tenant shall be unaffected by such condemnation
except that there shall be an equitable abatement of the Minimum Annual Rent
according to the rental value of the Premises before and after the date upon
which the condemnor took possession and/or the date Landlord completes such
restoration.

     (c) AWARD. In the event of a condemnation affecting Tenant, Tenant shall
have the right to make a claim against the condemnor for moving expenses and
business dislocation damages to the extent that such claim does not reduce the
sums otherwise payable by the condemnor to Landlord. Except as aforesaid and
except as set forth in (d) below, Tenant hereby assigns all claims against the
condemnor to Landlord.

     (d) TEMPORARY TAKING. No temporary taking of the Premises shall terminate
this lease or give Tenant any right to any rental abatement. Such a temporary
taking will be treated as if Tenant had sublet the Premises to the condemnor and
had assigned the proceeds of the subletting to Landlord to be applied on account
of Tenant's obligation hereunder. Any award for such a temporary taking during
the Term shall be applied first, to Landlord's costs of collection and, second,
on account of sums owing by Tenant hereunder, and if such amounts applied on
account of sums owing by Tenant hereunder should exceed the entire amount owing
by Tenant for the remainder of the Term, the excess will be paid to Tenant.

14.  NON-ABATEMENT OF RENT. Except as otherwise expressly provided as to damage
by fire or other casualty in Section 12 (b) and as to condemnation in Section
13(b), there shall be no abatement or reduction of the Rent for any cause
whatsoever, and this lease shall not terminate, and Tenant shall not be entitled
to surrender the Premises.

15.  INDEMNIFICATION OF LANDLORD. Subject to Sections 7(c)(iii) and 16, Tenant
will protect, indemnify and hold harmless Landlord and its Agents from and
against any and all claims, actions, damages, liability and expense (including
fees of attorneys, investigators


                                       6
   10
and experts) in connection with loss of life, personal injury or damage to
property in or about the Premises or arising out of the occupancy or use of the
Premises by Tenant or its Agents or occasioned wholly or in part by any act or
omission of Tenant or its Agents, whether prior to, during or after the Term,
except to the extent such loss, injury or damage was caused by the negligence of
Landlord or its Agents. In case any action or proceeding is brought against
Landlord and/or its Agents by reason of the foregoing, Tenant, at its expense,
shall resist and defend such action or proceeding, or cause the same to be
resisted or defended by counsel (reasonably acceptable to Landlord and its
Agents) designated by the insurer whose policy covers such occurrence or by
counsel designated by Tenant and approved by Landlord and its Agents. Tenant's
obligations pursuant to this Section 15 shall survive the expiration or
termination of this lease.

16.  WAIVER OF CLAIMS. Landlord and Tenant each hereby waives all claims for
recovery against the other for any loss or damage which may be inflicted upon
the property of such party even if such loss or damage shall be brought about by
the fault or negligence of the other party or its Agents; provided, however,
that such waiver by Landlord shall not be effective with respect to any
liability of Tenant described in Sections 4(c) and 7(d)(iii).

17.  QUIET ENJOYMENT. Landlord covenants that Tenant, upon performing all of its
covenants, agreements, and conditions of this lease, shall have quiet and
peaceful possession of the Premises as against anyone claiming by or through
Landlord, subject, however, to the exceptions, reservations and conditions of
this lease.

18.  ASSIGNMENT AND SUBLETTING.

     (a) LIMITATION. Tenant shall not transfer this lease, voluntarily or by
operation of law, without the prior written consent of Landlord which shall not
be withheld unreasonably. However, Landlord's consent shall not be required in
the event of any transfer by Tenant to an affiliate of Tenant which is at least
as creditworthy as Tenant as of the date of this lease and provided Tenant
delivers to Landlord the instrument described in Section (c)(iii) below,
together with a certification of such creditworthiness by Tenant and such
affiliate. Any transfer not in conformity with this Section 18 shall be void at
the option of Landlord, and Landlord may exercise any or all of its rights under
Section 23. A consent to one transfer shall not be deemed to be a consent to any
subsequent transfer. "Transfer" shall include any sublease, assignment, license
or concession agreement, change in ownership or control of Tenant, mortgage or
hypothecation of this lease or Tenant's interest therein or in all or a portion
of the Premises.

     (b) OFFER TO LANDLORD. Tenant acknowledges that the terms of this lease,
including the Minimum Annual Rent, have been based on the understanding that
Tenant physically shall occupy the Premises for the entire term. Therefore, upon
Tenant's request to transfer all or a portion of the Premises, at the option of
Landlord, Tenant and Landlord shall execute an amendment to this lease removing
such space from the Premises, Tenant shall be relieved of any liability with
respect to such space and Landlord shall have the right to lease such space to
any party, including Tenant's proposed transferee.

     (c) CONDITIONS. Notwithstanding the above, the following shall apply to any
transfer, with or without Landlord's consent:

         (i)   As of the date of any transfer, Tenant shall not be in default
under this lease nor shall any act or omission have occurred which would
constitute a default with the giving of notice and/or the passage of time.

         (ii)  No transfer shall relieve Tenant of its obligation to pay the
Rent and to perform all its other obligations hereunder. The acceptance of Rent
by Landlord form any person shall not be deemed to be a waiver by Landlord of
any provision of this lease or to be a consent to any transfer.

         (iii) Each transfer shall be by a written instrument in form and
substance satisfactory to Landlord which shall (A) include an assumption of
liability by any transferee of all Tenant's obligations and the transferee's
ratification of and agreement to be bound by all the provisions of this lease,
(B) afford Landlord the right of direct action against the transferee pursuant
to the same remedies as are available to Landlord against Tenant and (c) be
executed by Tenant and the transferee.

         (iv)  Tenant shall pay, within 10 days of receipt of an invoice which
shall be no less than $250, Landlord's reasonable attorneys' fees and costs in
connection with the review, processing, and documentation of any transfer for
which Landlord's consent is requested.

19.  SUBORDINATION; MORTGAGEE'S RIGHTS.

     (a) This lease shall be subordinate to any first mortgage or other primary
encumbrance now or hereafter affecting the Premises. Although the subordination
is self-operative, within 10 days after written request, Tenant shall execute
and deliver any further instruments confirming such subordination of this lease
and any further instruments of attornment that may be desired by any such
mortgagee or Landlord. However, any mortgagee may at any time subordinate its
mortgage to this lease, without Tenant's consent,


                                       7
   11
by giving written notice to Tenant and thereupon this lease shall be deemed
prior to such mortgage without regard to their respective dates of execution and
delivery; provided, however, that such subordination shall not affect any
mortgagee's right to condemnation awards, casualty insurance proceeds,
intervening liens or any right which shall arise between the recording of such
mortgage and the execution of this lease.

     (b) It is understood and agreed that any mortgagee shall not be liable to
tenant for any funds paid by Tenant to Landlord unless such funds actually have
been transferred to such mortgagee by Landlord.

     (c) Notwithstanding the provisions of Sections 12 and 13 above, Landlord's
obligation to restore the Premises after a casualty or condemnation shall be
subject to the consent and prior rights of Landlord's first mortgagee.

20.  RECORDING; TENANT'S CERTIFICATE. Tenant shall not record this lease or a
memorandum thereof without Landlord's prior written consent. Within 10 days
after Landlord's written request from time to time:

     (a) Tenant shall execute, acknowledge and deliver to Landlord a written
statement certifying the Commencement Date and Expiration date of this lease,
that this lease is in full force and effect, and has not been modified and
otherwise as set forth in the form of estoppel certificate attached as Exhibit
"E" or with such modification as may be necessary to reflect accurately the
stated facts and/or such other certifications as may be requested by a mortgagee
or purchaser. Tenant understands that its failure to execute such documents may
cause Landlord serious financial damage by causing the failure of a financing or
sale transaction.

     (b) Tenant shall furnish to Landlord, Landlord's mortgagee, prospective
mortgagee or purchaser reasonably requested financial information.

21.  SURRENDER; ABANDONED PROPERTY.

     (a) Subject to the terms of Sections 9(b), 12(a) and 13(b), at the
expiration or termination of this lease, Tenant promptly shall yield up in the
same condition, order and repair in which they are required to be kept
throughout the Term, the Premises and all improvements thereto, and all fixtures
and equipment servicing the Building, ordinary wear and tear excepted.

     (b) Upon or prior to the expiration or termination of this lease, Tenant
shall remove any personal property from the Property. Any personal property
remaining thereafter shall be deemed conclusively to have been abandoned, and
Landlord, at tenant's expense, may remove, store, sell, or otherwise dispose of
such property in such manner as Landlord may see fit and/or Landlord may retain
such property as its property. If any part thereof shall be sold, then Landlord
may receive and retain the proceeds of such sale and apply the same, at its
option, against the expenses of the sale, the cost of moving and storage and any
rent due under this lease.

     (c) If Tenant, or any person claiming through Tenant, shall continue to
occupy the Premises after the expiration or termination of this lease or any
renewal thereof, such occupancy shall be deemed to be under a month-to-month
tenancy under the same terms and conditions set forth in this lease, except that
the monthly installment of the Minimum Annual Rent during such continued
occupancy shall be double the amount applicable to the last month of the term.
Anything to the contrary notwithstanding, any holding over by tenant without
Landlord's prior written consent shall constitute a default hereunder and shall
be subject to all the remedies available to Landlord.

22.  CURING TENANT'S DEFAULTS. If Tenant shall be in default in the performance
of any of its obligations hereunder, Landlord, without any obligation to do so,
in addition to any other rights it may have in law or equity, may elect to cure
such default on behalf of Tenant after written notice (except in the case of
emergency) to Tenant. Tenant shall reimburse Landlord upon demand for any sums
paid or costs incurred by Landlord in curing such default, including interest
thereon from the respective dates of Landlord's incurring such costs, which sums
and costs together with interest shall be deemed additional rent.

23.  DEFAULTS - REMEDIES.

     (a) DEFAULTS. It shall be an event of default:

         (i)   If Tenant does not pay in full when due any and all rent;

         (ii)  If Tenant fails to observe and perform or otherwise breaches any
other provision of this lease;


                                       8
   12
         (iii) If Tenant abandons the Premises, which shall be conclusively
presumed if the Premises remain unoccupied for more than 10 consecutive days, or
removal or attempts to remove Tenant's goods or property other than in the
ordinary course of business; or

         (iv) If Tenant becomes insolvent or bankrupt in any sense or makes a
general assignment for the benefit of creditors or offers a settlement to
creditors, or if a petition in bankruptcy or for reorganization or for an
arrangement with creditors under any federal or state law is filed by or against
Tenant, or a bill in equity or other proceeding for the appointment of a
receiver for any of Tenant's assets is commenced, or if any of the real or
personal property of Tenant shall be levied upon; provided, however, that any
proceeding brought by anyone other than Landlord or Tenant under any bankruptcy,
insolvency, receivership or similar law shall not constitute a default until
such proceeding has continued unstayed for more than 60 consecutive days.

     (b) REMEDIES. Then, and in any such event, Landlord shall have the
following rights:

         (i)   To charge a late payment fee equal to the greater of $100 or 5%
of any amount owed to Landlord pursuant to this lease which is not paid within 5
days after the due date.

         (ii)  To enter and repossess the Premises, by breaking open locked
doors if necessary, and remove all persons and all or any property therefrom, by
action at law or otherwise, without being liable for prosecution or damages
therefor, and Landlord may, at Landlord's option, make alterations and repairs
in order to relet the Premises and relet all or any part(s) of the Premises for
tenant's account. Tenant agrees to pay to Landlord on demand any deficiency that
may arise by reason of such reletting. In the event of reletting without
termination of this lease, Landlord may at any time thereafter elect to
terminate this lease for such previous breach.

         (iii) To accelerate the whole or any part of the rent for the balance
of the term, and declare the same to be immediately due and payable.

         (iv)  To terminate this lease and the Term without any right on the
part of Tenant to save the forfeiture by payment of any sum due or by other
performance of any condition, term or covenant broken.

     (c) GRACE PERIOD. Notwithstanding anything hereinabove stated, neither
party will exercise any available right because of any default of the other,
except those remedies contained in Subsection (b)(I) of this Section, unless
each party shall have first given 10 days written notice thereof to the
defaulting party, and the defaulting party shall have failed to cure the default
within such period; provided, however, that:

         (i)   No such notice shall be required if tenant fails to comply with
the provisions of Sections 10 or 20(a), in the case of emergency as set forth in
Section 22 or in the event of any default enumerated in subsections (a)(iii) and
(iv) of this Section.

         (ii)  Landlord shall not be required to give such 10 day notice more
than 2 times during any 12 month period.

         (iii) If the default consists of something other than the failure to
pay money which cannot reasonably be cured within 10 days, neither party will
exercise any right if the defaulting party begins to cure the default within the
10 days and continues actively and diligently in good faith to completely cure
said default.

         (iv)  Tenant agrees that any notice given by Landlord pursuant to this
Section which is served in compliance with Section 27 shall be adequate notice
for the purpose of landlord's exercise of any available remedies.

     (d) NON-WAIVER; NON-EXCLUSIVE. No waiver by Landlord of any breach by
Tenant shall be a waiver of any subsequent breach, nor shall any forebearance by
Landlord to seek a remedy for any breach by Tenant be a waiver by Landlord of
any rights and remedies with respect to such or any subsequent breach. Efforts
by Landlord to mitigate the damages caused by Tenant's default shall not
constitute a waiver of Landlord's right to recover damages hereunder. No right
or remedy herein conferred upon or reserved to Landlord is intended to be
exclusive of any other right or remedy provided herein or by law, but each shall
be cumulative and in addition to every other right or remedy given herein or now
or hereafter existing at law or in equity. No payment by Tenant or receipt or
acceptance by Landlord of a lesser amount than the total amount due Landlord
under this lease shall be deemed to be other than on account, nor shall any
endorsement or statement on any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of rent due, or Landlord's right to
pursue any other available remedy.


                                       9
   13
     (e) COSTS AND ATTORNEY'S FEES. If either party commences an action against
the other party arising out of or in connection with this lease, the prevailing
party shall be entitled to have and recover from the losing party attorneys'
fees, costs of suit, investigation expenses and discovery costs, including costs
of appeal.

24.  REPRESENTATIONS OF TENANT. Tenant represents to the Landlord and agrees
that:

     (a) The word "Tenant" as used herein includes the Tenant named above as
well as successors and assigns, each of which shall be under the same
obligations and liabilities and each of which shall have the same rights,
privileges, and powers as it would have possessed had it originally signed this
lease as tenant. Each and every of the persons named above as tenant shall be
bound jointly and severally by the terms, covenants and agreements contained
herein. However, no such rights, privileges or powers shall inure to the benefit
of any assignee of tenant immediate or remote, unless Tenant has complied with
the terms of Section 18 and the assignment to such assignee is permitted or has
been approved in writing by Landlord. Any notice required or permitted by the
terms of this lease may be given by or to any of the persons named above as
tenant, and shall have the same force and effect as if given by or to any one of
the persons named above as Tenant, and shall have the same force and effect as
if given by or to all thereof.

     (b) If Tenant is a corporation, partnership or any other form of business
association or entity, Tenant is duly formed and in good standing, and has full
corporate or partnership power and authority, as the case may be, to enter into
this lease and has taken all corporate or partnership action, as the case may
be, necessary to carry out the transaction contemplated herein, so that when
executed, this lease constitutes a valid and binding obligation enforceable in
accordance with its terms. Tenant shall provide Landlord with corporate
resolutions or other proof in a form acceptable to Landlord, authorizing the
execution of this lease at the time of such execution.

25.  LIABILITY OF LANDLORD. The word "Landlord" as used herein includes the
Landlord named above as well as its successors and assigns, each of which shall
have the same rights, remedies, powers, authorities and privileges as it would
have had it originally signed this lease as Landlord. Any such person or entity,
whether or not named herein, shall have no liability hereunder after it ceases
to hold title to the Premises except for obligations already accrued, (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) and Tenant shall look solely to Landlord's successor in
interest for the performance of the covenants and obligations of the Landlord
hereunder which thereafter shall accrue. Neither Landlord nor any principal of
Landlord nor any owner of the Property, whether disclosed or undisclosed, shall
have any personal liability with respect to any of the provisions of this lease
or the Premises, and if Landlord is in breach or default with respect to
Landlord's obligations under this lease or otherwise, Tenant shall look solely
to the equity of Landlord in the Property for the satisfaction of Tenant's
claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding
to the interest of Landlord hereunder (either in terms of ownership or
possessory rights) shall be (a) liable for any previous act or omission of a
prior landlord, (b) subject to any rental offsets or defenses against a prior
landlord or (c) bound by any amendment of this lease made without its written
consent, or by payment by Tenant of Minimum Annual rent in advance in excess of
one monthly installment.

26.  INTERPRETATION; DEFINITIONS.

     (a) CAPTIONS. The captions in this lease are for convenience only and are
not a part of this lease and do not in any way define, limit, describe or
amplify the terms and provisions of this lease or the scope or intent thereof.





   14
                                   EXHIBIT "C"

                                 BUILDING RULES

         1. As stated in the lease, Tenant shall not use the Premises as a
"place of public accommodation" as defined in the Americans with Disabilities
Act of 1990, which identifies the following categories into one or more of which
a business must fall to be a "place of public accommodation":

         a.       Places of lodging (examples: hotel, motel)

         b.       Establishments serving food or drink (examples: bar,
                  restaurant)

         c.       Places of exhibition (examples: motion picture house, theater,
                  stadium, concert hall)

         d.       Places of public gathering (examples: auditorium, convention
                  center, lecture hall)

         e.       Sales or rental establishments (examples: bakery, grocery
                  store, hardware store, shopping center)

         f.       Service establishments (examples: bank, laundromat, barber
                  shop, funeral parlor, gas station, business offices such as
                  lawyer, accountant, healthcare provider or insurance office)

         g.       Station used for specified public transportation (examples:
                  bus terminal, depot)

         h.       Places of public display or collection (examples: museum,
                  library, gallery)

         i.       Places of recreation (examples: park, zoo, amusement park)

         j.       Places of education (examples: nursery, elementary, secondary,
                  private or other undergraduate or postgraduate school)

         k.       Social service center establishment (examples: day-care
                  center, senior citizen center, homeless shelter, food bank,
                  adoption agency)

         l.       Places of exercise or recreation (examples: gym, health spa,
                  bowling alley, golf course)

         2. Any sidewalks, lobbies, passages, elevators and stairways shall not
be obstructed or used by Tenant for any purpose other than ingress and egress
from and to the Premises. Landlord shall in all cases retain the right to
control or prevent access by all persons whose presence, in the judgment of the
Landlord, shall be prejudicial to the safety, peace or character of the
Property.

         3. The toilet rooms, toilets, urinals, sinks, faucets, plumbing or
other service apparatus of any kind shall not be used for any purposes other
than those for which they were installed, and no sweeping, rubbish, rags, ashes,
chemicals or other refuse or injurious substances shall be placed therein or
used in connection therewith or left in any lobbies, passages, elevators or
stairways.

         4. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
No person shall go on the roof without Landlord's permission.

         5. Skylights, windows, doors and transoms shall not be covered or
obstructed by Tenant, and Tenant shall not install any window covering which
would affect the exterior appearances of the Building, except as approved in
writing by Landlord. Tenant shall not remove, without Landlord's prior written
consent, any shades, blinds or curtains in the Premises.

         6. Without Landlord's prior written consent, Tenant shall not hang,
install, mount, suspend or attach anything from or to any sprinkler, plumbing,
utility or other lines. If Tenant hangs, installs, mounts, suspends or attaches
anything form or to any doors, windows, walls, floors or ceilings, Tenant shall
sand and spackle all holes and repair any damage caused thereby or by the
removal thereof at or prior to the expiration or termination of the lease.
Without Landlord's prior written consent, no walls or partitions shall be
painted, papered or otherwise covered or moved in any way or marked or broken;
nor shall any connection be made to electric wires for running fans or motors or
other apparatus, devices of equipment; nor shall machinery of any kind other
than customary small business machines be allowed in the Premises; nor shall
Tenant use any other method of heating, air conditioning or air cooling than
that provided by Landlord; nor shall any mechanics be allowed to work in or
about the Building other than those employed by Landlord.

         7. Tenant shall not change any locks nor place additional locks upon
any doors and shall surrender all keys and passes at the end of the Term.

         8. Tenant shall not use nor keep in the Building any matter having an
offensive odor, nor explosive or highly flammable material, nor shall any
animals other than seeing eye dogs in the company of their masters be brought
into or kept in or about the Premises.

                                      C-1
   15
         9. If tenant desires to introduce electrical, signaling, telegraphic,
telephone, protective alarm or other wires, apparatus or devices, Landlord shall
direct where and how the same are to be placed, and except as so directed, no
installation boring or cutting shall be permitted. Landlord shall have the right
to prevent and to cut off the transmission of excessive or dangerous current of
electricity or annoyances into or through the Building or the Premises and to
require the changing of wiring connections or layout at Tenant's expense, to the
extent that Landlord may deem necessary, and further to require compliance with
such reasonable rules as Landlord may establish relating thereto, and in the
event of non-compliance with the requirements with the requirements or rules,
Landlord shall have the right immediately to cut wiring or to do what it
considers necessary to remove the danger, annoyance or electrical interference
with apparatus in any part of the Building. All wires installed by Tenant must
be clearly tagged at the distributing board and junction boxes and elsewhere
where required by Landlord, with the number of the office to which said wires
lead, and the purpose for which the wires respectively are used, together with
the name of the concern, if any, operating same.

         10. Tenant shall not place weights anywhere beyond the safe carrying
capacity of the Building which is designed to normal office building standards
for floor loading capacity. Landlord shall have the right to exclude from the
Building heavy furniture, safes and other articles which may be hazardous or to
require them to be located at designated places in the Premises. Tenant shall
obtain Landlord's written consent prior to the installation of any vending
machines in the Premises.

         11. The use of rooms as sleeping quarters is strictly prohibited at all
times.

         12. Tenant shall have the right, at Tenant's sole risk and
responsibility, to use its proportional share of the parking spaces at the
Property as reasonably determined by Landlord. Tenant shall comply with all
parking regulations promulgated by Landlord from time to time for the orderly
use of the vehicle parking areas, including without limitation the following:
Parking shall be limited to automobiles, passenger or equivalent vans,
motorcycles, light four wheel pickup trucks and (in designated areas (bicycles).
No vehicles shall be left in the parking lot overnight. Parked vehicles shall
not be used for vending or any other business or other activity while parked in
the parking areas. Vehicles shall be parked only in striped parking spaces,
except for loading and unloading, which shall occur solely in zones marked for
such purpose, and be so conducted as to not unreasonably interfere with traffic
flow within the Property or with loading and unloading areas of other tenants.
Employee and tenant vehicles shall not be parked in spaces marked for visitor
parking or other specific use. All vehicles entering or parking in the parking
areas shall do so owner's sole risk, and Landlord assumes no responsibility for
and damage, destruction, vandalism or theft. Tenant shall cooperate with
Landlord in any measures implemented by Landlord to control abuse of the parking
areas, including without limitation access control programs, tenant and guest
vehicle identification programs, and validated parking programs, provided that
no such validated parking program shall result in Tenant being charged for
spaces to which it has a right to free use under its lease. Each vehicle owner
shall promptly respond to any sounding vehicle alarm or horn, and failure to do
so may result in temporary or permanent exclusion of such vehicle from the
parking areas. Any vehicle which violates the parking regulations may be cited,
towed at the expense of the owner, temporarily or permanently excluded from the
parking areas, or subject to other lawful consequences.


         13. Tenant shall not smoke in the Building which Landlord has
designated as a non-smoking building.

         14. Canvassing, soliciting and distribution of handbills or any other
written material, and peddling in the Building are prohibited, and Tenant shall
cooperate to prevent same.

         15. Tenant shall provide Landlord with a written identification of any
vendors engaged by Tenant to perform services for Tenant at the Premises
(examples: security guards/monitors, telecommunications installers/maintenance).
Tenant shall permit Landlord's employees and contractors and no one else to
clean the Premises unless Landlord consents in writing. Tenant assumes all
responsibility for protecting its Premises from theft and vandalism and Tenant
shall see each day before leaving the Premises that all lights are turned out
and that the window and the doors are closed and securely locked.

         16. Landlord shall provide Tenant with the move-in and move-out
policies for the Building with which Tenant shall comply. Throughout the Term,
no furniture, packages, equipment, supplies or merchandise of Tenant will be
received in the Building, or carried up or down in the elevators or stairways,
except during such hours as shall be designated by Landlord, and Landlord in all
cases shall also have the exclusive right to prescribe the method and manner in
which the same shall be brought in or taken out of the Building. At the end of
the Term, Tenant's obligations regarding surrender of the Premises shall include
Tenants obligation to shampoo all carpet, strip and re-wax all vinyl composite
tile and replace any damaged ceiling tiles, the cost of which obligations shall
be deducted from the Security Deposit if not completed by Tenant prior to the
Expiration Date.

                                      C-2
   16

         17. Tenant shall not place oversized cartons, crates or boxes in any
area for trash pickup without Landlord's prior approval. Landlord shall be
responsible for trash pickup of normal office refuse placed in ordinary office
trash receptacles only. Excessive amounts of trash or other out-of-the-ordinary
refuse loads will be removed by landlord upon request at Tenant's expense.

         18. Tenant shall cause all of Tenant's Agents to comply with these
Building Rules.

         19. Landlord reserves the right to rescind, suspend or modify any rules
or regulations and to make such other rules and regulations as, in Landlord's
reasonable judgment, may from time to time be needed for the safety, care,
maintenance, operation and cleanliness of the Property. Notice of any action by
Landlord referred to in this paragraph, given to Tenant, shall have the same
force and effect as if originally made a part of the foregoing lease. New rules
or regulations will not, however, be unreasonably inconsistent with the proper
and rightful enjoyment of the Premises by Tenant under the lease.

         20. These Building Rules are not intended to give Tenant any rights or
claims in the event that Landlord does not enforce any of them against any other
tenants or if Landlord does not have the right to enforce them against any other
tenants and such non-enforcement will not constitute a waiver as to Tenant.

         21. Tenant shall be deemed to have read these Building Rules and to
have agreed to abide by them as a condition to Tenant's occupancy of the
Premises.



                                      C-3
   17
                                   EXHIBIT "D"

                                CLEANING SCHEDULE

         All service and materials specified in this Exhibit shall be furnished
         at the sole cost and expense of Landlord.

         I.       OFFICE AREA:

                  A.       Nightly (Monday through Friday - Holidays excepted):

                           1.       Empty wastepaper baskets, ashtrays, and 
                                    refuse receptacles.
                           2.       Dust sweep had surface flooring.
                           3.       Vacuum carpeted areas and rugs.
                           4.       Hand dust and wipe clean with treated cloths
                                    all horizontal surfaces including
                                    furniture, desk equipment, telephones,
                                    windowsills and induction unit tops within
                                    normal reach.
                           5.       Clean and sanitize all drinking fountains.

                  B.       Weekly:

                           1.       Remove finger marks from stairways, elevator
                                    and utility closet doors and light switches.

                  C.       Monthly:

                           1.       Wash and wax resilient tile floors.

                  D.       Quarterly:

                           1.       Do high dusting not reached in daily 
                                    cleaning, to include:

                                    a)      pictures, frames, charts, graphs, 
                                            and similar wall hangings; and

                                    b)      all vertical surfaces, such as
                                            walls, partitions, doors and bucks
                                            not reached in nightly cleaning.

                  E.       Annually:

                           1.       Wash all light fixtures.


   18

                           2.       Dry clean drapes or wash venetian blinds,
                                    whichever is supplied by Landlord on
                                    exterior windows.

         II.      LAVATORIES:

                  A.       Nightly:

                           1.       Sweep and wash floors with approved
                                    germicidal detergent solution.

                           2.       Wash and polish all mirrors, powder shelves,
                                    dispensers, receptacles, bright work,
                                    flushometers, piping and toilet seat hinges.

                           3.       Wash both sides of toilet seats, wash
                                    basins, bowls, and urinals with approved
                                    germicidal detergent solution.

                           4.       Remove finger marks and smudges from toilet
                                    partitions, ventilating grills, and tile
                                    walls.

                           5.       Empty and clean towel and sanitary disposal
                                    receptacles, remove waste to disposal areas.

                           6.       Replenish paper towel, toilet tissue, soap
                                    and sanitary napkin dispensers.

                  B.       Monthly:

                           1.       Wash partitions and tile walls.
                           2. Wash all waste receptacles with approved
germicidal solution.

         III.     WINDOW WASHING:

                  A.       Quarterly:

                           1.       Wash all exterior window glass, inside and
                                    outside surfaces, and all interior glass
                                    partitions.

         IV.      PEST EXTERMINATION:

                  A.       Maintain pest extermination as needed.





   19
                                   EXHIBIT "E"
                           TENANT ESTOPPEL CERTIFICATE

                  Please refer to the documents described in Schedule 1 hereto,
         (the "Lease Documents") including the "Lease" therein described: all
         defined terms in this Certificate shall have the same meanings as set
         forth in the Lease unless otherwise expressly set forth herein. The
         undersigned Tenant hereby certified that it is the tenant under the
         Lease. Tenant hereby further acknowledges that it has been advised that
         the Lease may be collaterally assigned in connection with a proposed
         financing secured by the Property and/or may be assigned in connection
         with a sale of the Property and certifies both to Landlord and to any
         and all prospective mortgages and purchasers of the Property, including
         any trustee on behalf of any holders of notes or other similar
         instruments, any holders from time to time of such notes or other
         instruments, and their respective successors and assigns (the
         "Mortgagees") that as of the date hereof:

         1. The information set forth in attached Schedule 1 is true and
correct.

         2. Tenant is in occupancy of the Premises and the Lease is in full
force and effect, and, except by such writings as are identified on Schedule 1,
has not been modified, assigned, supplemented or amended since its original
execution, nor are there any other agreements between Landlord and Tenant
concerning the Premises, whether oral or written.

         3. All conditions and agreements under the Lease to be satisfied or
performed by Landlord have been satisfied and performed.

         4. Tenant is not in default under the Lease Documents, Tenant has not
received any notice of defaults under the Lease Documents, and, to Tenant's
knowledge, there are no events which have occurred that, with the giving of
notice and/or passage of time, would result in a default by Tenant under the
Lease Documents.

         5. Tenant has not paid any Rent due under the Lease more than 30 days
in advance of the date due under the Lease and Tenant has no rights of setoff,
counterclaim, concession or other rights of diminution of any Rent due and
payable under the Lease except as set forth in Schedule 1.

         6. To Tenant's knowledge, there are no uncured defaults on the part of
Landlord under the Lease Documents, Tenant has not sent any notice of default
under the Lease Documents to Landlord, and there are no events which have
occurred that, with the giving of notice and/or the passage of time, would
result in a default by Landlord thereunder, and that at the present time Tenant
has not claim against Landlord under the Lease Documents.

         7. Except as expressly set forth in Part G of Schedule 1, there are no
provisions for any, and Tenant has no, options with respect to the Premises or
all or any portion of the Property.

         8. Except as set forth on Part M of Schedule 1, no action, voluntary or
involuntary, is pending against Tenant under federal or state bankruptcy or
insolvency law.

         9. The undersigned has the authority to execute and deliver this
Certificate on behalf of Tenant and acknowledges that all Mortgagees will rely
upon this Certificate in purchasing the Property or extending credit to Landlord
or its successors in interest.

         10. This Certificate shall be binding upon the successors, assigns and
representatives of Tenant and any party claiming through or under Tenant and
shall inure to the benefit of all Mortgagees.

                  IN WITNESS WHEREOF, Tenant has executed this Certificate this
_____ day of ___________, 19____.

                                  _____________________________________
                                  Name of Tenant


                                  By:__________________________________

                                  Title:_______________________________


                                      E-1
   20
                    SCHEDULE 1 TO TENANT ESTOPPEL CERTIFICATE

                 LEASE DOCUMENTS, LEASE TERMS AND CURRENT STATUS

         A.       Date of Lease:

         B.       Parties:

                  1.       Landlord:

                  2. Tenant d/b/a/:

         C.       Premises known as:

         D.       Modifications, Assignments, Supplements or Amendments to
                  Lease:

         E.       Commencement Date:

         F.       Expiration of Current Term:

         G.       Options:

         H.       Security Deposit Paid to Landlord:          $

         I.       Current Fixed Minimum Rent (Annualized):             $

         J.       Current Additional Rent (and if applicable, Percentage
                  Rent)(Annualized): $

         K.       Current Total Rent:       $

         L.       Square Feet Demised:

         M.       Tenant's Bankruptcy or other Insolvency Actions:

                                      E-2

EX-10.13

   1
                                                                   Exhibit 10.13

                                 S U B L E A S E

         THIS SUBLEASE made as of February 9, 1999, by and between ADVANCED
HEALTH CORPORATION, having an office at 555 White Plains Road, Tarrytown, New
York 10597 (hereinafter called "Sublessor") and WESTCO ASSOCIATES, INC., having
an office at 3 Browns Lane, Suite 203, Hawthorne, New York 10532 (hereinafter
called "Subtenant"),

                              W I T N E S S E T H:

         WHEREAS, Sublessor is the tenant in possession pursuant to the First
Amendment to Lease Agreement dated September 20, 1996 and certain other prior
leases referenced therein (together, the "Prime Lease", a copy of which is
annexed hereto as Exhibit A) between Reckson Operating Partnership, L.P. (as
landlord) and Sublessor (as tenant) pursuant to the provisions of which
Sublessor now subleases that part of the fifth (5th) floor comprising twenty-six
thousand three hundred and two (26,302) square feet located in the building
known as 555 White Plains Road, Tarrytown, New York (the "Premises"); and

         WHEREAS, Sublessor wishes to sublease to Subtenant a portion of said
5th floor constituting eight thousand seven hundred fifty (8,750) square feet as
shown as shaded area on the diagram annexed hereto as Exhibit B (the "Sublet
Premises") pursuant to the provisions of this Sublease, hereinafter set forth;

         NOW, THEREFORE, Sublessor and Subtenant, in consideration of the
charges, covenants and agreements hereinafter set forth, mutually covenant and
agree as follows:

         1. Sublease. Sublessor hereby leases the Sublet Premises to Subtenant
for occupancy during the Term.

         2. Term. The term of this Sublease shall commence on the date after the
date that Reckson Operating Partnership, L.P., the present landlord under the
Prime Lease ("Landlord"), shall have given its written consent to this Sublease
("Commencement Date"), and shall terminate on March 31, 2002, unless earlier
terminated as provided herein (the "Term"). The obligation to pay rent shall
commence ("Rent Commencement Date") seventy-five (75) days after the issuance of
the work permits and approvals necessary to build out the space in accordance
the plan attached as Exhibit C (the "Build-out"). If the Prime Lease or the term
thereby granted is terminated for any reason whatsoever, this Sublease shall
thereupon simultaneously terminate and thereupon, except as otherwise herein
specifically provided, the obligations of the Sublessor and Subtenant, other
than the obligations of Subtenant for payment of any monies then owing to
Sublessor, shall cease, except that the parties shall remain liable for any
obligations incurred prior to any such termination date for any matter occurring
prior to such date.

         3. Annual Fixed Rent. Subtenant shall pay Sublessor fixed rent for the
Sublet Premises, inclusive of all charges for electricity, except as described
below, at the annual rate of one hundred eighty one thousand five hundred
sixty-two dollars and fifty cents ($181,562.50) for the period ending March 31,
2000 (the "First Rent Period") and thereafter at the annual rate of one hundred
ninety six thousand ($196,000.00) dollars. Fixed rent shall 
   2
be paid in twelve (12) equal monthly installments in advance, each in the amount
of fifteen thousand one hundred thirty dollars and twenty one cents
($15,130.21), for the First Rent Period except as otherwise provided below in
paragraph 3, and thereafter in equal monthly payments of sixteen thousand three
hundred thirty-three dollars and thirty-three cents ($16,333.33) and without
notice or demand, on the 1st day of the month for which the fixed rent payment
is due during the term hereof, and without setoff, deduction or abatement.
Should Landlord charge Sublessor fees for excess electrical usage due to
subtenant's electrical usage, subtenant shall pay Sublessor such difference. All
installments of fixed rent shall be paid by check, drawn on a member bank of the
New York Clearinghouse Association, to the order of Sublessor and shall be
delivered or mailed to Sublessor at its address first above set forth, or at
such other address as Sublessor may from time to time in writing designate. If
the date on which Subtenant's obligation to pay fixed rent or additional rent
shall commence on a date other than the first day of a calendar month or shall
end on a date other than the last day of a calendar month, then the fixed rent
and additional rent payable by Subtenant shall be apportioned based upon the
portion of such calendar month included with the term of this Sublease. The
foregoing notwithstanding, the first thirty-four thousand dollars ($34,000.00)
of fixed rent otherwise payable hereunder is abated so that Subtenant shall
enjoy a free rent period of approximately two months and eight days from and
after the Rent Commencement Date. Upon execution hereof, Subtenant will pay
Sublessor the first monthly installment of fixed rent payable under this
Sublease.

         4. Use. The Sublet Premises shall be used by Subtenant solely for
executive and administrative offices and for no other purpose.

         5. Condition of the Sublet Premises and Commencement of Construction.
Subtenant has examined, and agrees to accept, the Sublet Premises in the
condition and state of repair existing on the date of the execution of this
Sublease, subject to Subtenant's receipt of consent from Landlord to the
Build-out. Construction shall commence upon receipt of Landlord's consent and
the receipt by Subtenant or its contractor and agents of work permits and
approvals required for such construction. Subtenant warrants that it will seek
to obtain all necessary permits and approvals without delay.

         6. Telephones and Equipment. Subtenant shall install its telephone and
facsimile system and equipment in the Sublet Premises at its sole expense and
shall have the sole obligation to maintain and repair same during the Term.

         7. Measurements. Subtenant and its representatives shall have the right
to inspect and to take measurements of the Sublet Premises during business hours
effective immediately after this Sublease is executed except that existing
facilities and equipment shall not be disturbed.

         8. Brokerage. Sublessor agrees to pay the commissions earned by any and
all brokers that were the procuring cause of the parties hereto entering into
this sublease. Such brokers shall be compensated per separate agreement.


                                       2
   3
         9. Subordination. This Sublease is subject and subordinate to the
rights of Landlord under the Prime Lease to any renewal, amendments, or
modification thereof, to the rights of any mortgagee under any mortgage to which
the Prime Lease or said Sublease is subject or subordinate, to all renewals,
modifications, consolidations, correlations, replacements and extensions
thereof, and to any Ground Lease to which the Prime Lease or said Sublease is
subject or subordinate, and to all renewals, modifications, consolidations,
amendments, replacements and extensions thereof. The provisions for such
subordination shall be self-operative so that no further instrument of
subordination need be required by any mortgagee.

         10. Prime Lease. This Sublease is subject to all of the convenants,
agreements, terms, provisions and conditions contained in the Prime Lease which
are hereby made a part of this Sublease with the same force and effect as if
they were fully set forth herein. Wherever the term "Tenant" appears in the
Prime Lease, it shall read "Subtenant" and where ever the term "Owner" appears,
it shall be deemed to include "Sublessor" unless by its terms such use would be
inappropriate and Sublessor shall have all the rights and remedies of Landlord
thereunder, without limiting Sublessor's rights and remedies to enforce any
provision of this Sublease not contained in the Prime Lease. Subtenant agrees to
observe and perform all of such covenants, agreements, terms, provisions and
conditions contained in this Sublease as though and as if Subtenant was the
tenant originally named in the Prime Lease, except that the provisions of the
Prime Lease which have been specifically addressed by this Sublease shall not,
to the extent addressed, apply and Subtenant shall not be obligated thereunder
except as otherwise provided in this Sublease. The foregoing notwithstanding,
Subtenant shall pay to Sublessor as additional rent its pro rata share of
increases in Base Impositions and Base Operating Costs due to Landlord from
Sublessor. The term "Base Impositions" shall mean the Impositions levied against
the property of which the demised premises are part for city and school taxes
for the 1999 state, county and town year and for the 1998/1999 school year. The
term "Base Operating Costs" shall mean the Operating Costs in effect for the
calendar year ending December 31, 1999. The Subtenant's pro rata share shall
equal 33.27% of the Tenant Proportionate share. Subtenant shall also be
allocated four (4) parking spaces. Sublessor shall have no obligation to provide
any services or to do any act or thing with respect to the Sublet Premises which
are the obligation or responsibility of the Landlord under the Prime Lease, and
Subtenant agrees to look solely to Landlord under the Prime Lease for the
provision of any such service and observance and performance of any such act or
thing. Upon Subtenant's written request, Sublessor shall present to Landlord, in
the name of Sublessor, any demand requested by Subtenant for any such repairs,
restorations, materials or services required to be furnished to the Sublet
Premises by Landlord. Subtenant shall have the right to exercise, in Sublessor's
name, but at Subtenant's sole cost and expense, all of the rights available to
Sublessor to enforce performance of the obligations of Landlord to make any such
repairs and restorations or to supply any such materials and services to the
demised premises, and no cessation, interruption or suspension of any service
provided by Landlord shall entitle Subtenant to any diminution or abatement of
fixed or additional rent or other compensation under this Sublease, nor shall
this Sublease be affected by reason of any such failure, cessation, interruption
or suspension. Notwithstanding anything contained herein the Sublease shall not
be deemed to grant Subtenant any rights under the Prime Lease which Sublessor
does not have under the Prime Lease, and any act of Sublessor or any 


                                       3
   4
omission to act required by the Prime Lease shall in no event be deemed a
violation of this Sublease merely because such act or omission is a violation of
the Prime Lease.

         11. Insurance. Subtenant shall furnish to Sublessor on or before the
Commencement Date of this Sublease evidence that the insurance required to be
obtained pursuant to the Prime Lease has been obtained and as to all such
insurance (i) Subtenant shall cause Sublessor to be named as an additional
insured; (ii) the general liability policy required to be obtained shall also
provide contractual indemnity coverage with respect to the obligations of tenant
under the Prime Lease, (iii) duplicate originals of policies or certificates
required to be delivered to Landlord shall be delivered to Sublessor as well,
and (iv) Subtenant shall deliver to Sublessor a certificate or certificates
containing an endorsement that such insurance shall not be canceled except upon
ten days' prior notice to Landlord and Sublessor.

         12. Assignment Subletting. Subtenant shall not, without the prior
written consents of both Landlord and Sublessor in each instance, by operation
of law or otherwise, assign, mortgage, pledge, sub-sublet, encumber or otherwise
transfer this Sublease (collectively a "Transfer"), nor the estate and term
hereby granted, nor sublet or permit the Sublet Premises or any part thereof to
be used by others. Notwithstanding anything contained above, Sublessor may
withhold such consent in its sole and absolute discretion to any sub-sublet,
assignment or any other Transfer of this Sublease. Notwithstanding anything to
the contrary, affiliated entities controlling, controlled by, or under common
control with, the Subtenant shall not be deemed assignees or Subtenants by
Sublessor. Sublessor shall be listed on the building directory, and Subtenant
shall submit the names of affiliated entities directly to the Landlord for
listing on the building directory.

         13. Repairs, Alterations, Improvements and Other Work:

             (a) After completion of the Build-out, Subtenant shall at no time
make any alterations or improvements to the Sublet Premises without the prior
written consent of both Landlord and Sublessor, which in the case of Sublessor
shall not be unreasonably witheld or delayed. Subtenant shall bear all risk,
liability and expense and in all respects meet the requirements of the Prime
Lease in connection with any alteration whether before, during or after the
build-out. Landlord's consent under the terms of the Prime Lease is a condition
precedent to the making of any alterations or improvements to the extent
required under the Prime Lease.

             (b) Neither Sublessor nor Subtenant shall be required to restore
Subtenant's space on the expiration or earlier termination of the Prime Lease or
the Sublease. Neither Sublessor nor Subtenant shall be required to pay Landlord
or its affiliates any fee for general contracting or related services set forth
in the Prime Lease unless mutually agreed pursuant to a separate agreement.

         14. Time Periods. The time limits provided in the Prime Lease for any
grace periods, for the giving of notices, the making of demands, the performance
of any act, condition or covenant, or the exercise of any right, remedy or
option are changed for the purposes of this Sublease by shortening the same by
three (3) days in each 


                                       4
   5
instance, but in the event there shall be remaining less than three (3) days
after giving effect to such shortened term, then the term shall be coextensive
with the time limit provided under the Prime Lease.

         15. Non-Liability, Indemnity. Subtenant shall indemnify and hold
harmless Sublessor, its agents, contractors, servants, licensees, employees or
invitees from and against any and all claims, losses, liabilities, damages,
costs and expenses (including, without limitation, reasonable attorney's fees
and disbursements) arising from (i) the use, conduct or maintenance of the
Sublet Premises or any business therein or any work or thing whatsoever done, or
any condition created in or about the Sublet Premises during the term of this
Sublease (or any time prior to the Commencement Date that Subtenant may have
been given access to the demised premises), (ii) any negligent or otherwise
wrongful act or omission of Subtenant or any of its agents, contractors,
servants, licensees, employees or invitees, and (iii) any failure of Subtenant
to perform or comply with all of the provisions of this Sublease hereof that are
applicable to Subtenant. In case any action or proceeding be brought against
Sublessor or any agent, contractor, servant, licensee, employee or invitee of
Sublessor by reason of any of the foregoing, Subtenant, upon notice from
Sublessor, shall defend such action or proceeding by counsel chosen by
Subtenant, who shall be reasonably satisfactory to Sublessor. Subtenant or its
counsel shall keep Sublessor fully apprised at all times of the status of such
defense and shall not settle same without the written consent of Sublessor.

         16. Destruction by Fire or Other Casualty, Condemnation. If the Sublet
Premises or the Building shall be partially or totally damaged or destroyed by
fire or other casualty, Subtenant shall be entitled to exercise the right to
terminate this Sublease on behalf of Sublessor, pursuant to the provisions of
the Prime Lease.

             (a) If the Sublet Premises are partially or totally damaged by fire
or other casualty as a consequence of which Sublessor shall receive an abatement
of rent and/or additional rent relating to the demised premises, then in such
event, there shall be a pro rata abatement of the fixed rent payable hereunder.

             (b) Subtenant shall give Sublessor and Landlord notice of any fire,
casualty or accident in or about the demised premises promptly after Subtenant
becomes aware of such event.

             (c) If the Prime Lease is terminated pursuant to the provisions
thereof as the result of a taking of all or any portion of the Building by
condemnation (or deed in lieu thereof), this Sublease shall likewise terminate.
In such event, Subtenant shall have no claim to any portion of the award with
respect to any such taking, except to file a claim for the value of its
fixtures, furnishings, or for moving expenses, provided, however, that
Sublessor's award is not thereby reduced or otherwise adversely affected.

         17. Successors and Assigns. Subject to the restrictions on assignment
and subletting in this Sublease and the Prime Lease, this Sublease and the
covenants and agreements herein contained and incorporated herein by reference
shall bind and inure to the benefit of the respective successors and assigns of
the parties.

         18. Entire Agreement; Amendments; Waiver. This Sublease sets forth the
entire agreement of the parties, and shall not be modified or amended except by
a writing signed by the party against whom enforcement is 


                                       5
   6
sought. Neither the waiver of any breach by either party of any provisions of
this Sublease, nor any indulgence by either party in respect of any payment due
it hereunder shall be construed as a waiver of any subsequent breach or imply
any future indulgence.

         19. Costs and Expenses. Subtenant shall reimburse Sublessor, on demand,
for all costs and expenses (including attorneys' fees and disbursements and
court costs) incurred by Sublessor in connection with enforcing Subtenant's
obligations under this Sublease, whether incurred in connection with an action
or proceeding commenced by Sublessor or by Subtenant. All such amounts shall be
deemed to be additional rent, and shall be collectible whether incurred before
or after the expiration or termination of this Sublease.

         20. End of Term. Upon the expiration or other termination of this
Sublease, Subtenant shall quit and surrender to Sublessor the Sublet Premises
broom clean in accordance of the Prime Lease, in good order, ordinary wear
excepted, and Subtenant shall remove all of its property therefrom. Should
Sublessor be subject to any fine, cost or expense pursuant to the Prime Lease
because of any holdover or other failure to comply with end of term provisions
by Subtenant, Subtenant will pay as liquidated damages to Sublessor an amount
equal to two and one half (2-1/2) times the amount of such fine, cost or
expense.

         21. Defaults. If Subtenant (a) defaults in the timely payment of any
rent or other charges due Sublessor; (b) if the Sublet Premises are vacated or
deserted by Subtenant; (c) if any execution or attachment shall be issued
against Subtenant or any Subtenant's property whereupon the Sublet Premises
shall be taken or occupied by someone other than Subtenant; (d) if Subtenant
shall fail to move into or take possession of the Sublet Premises within thirty
days after the Commencement Date; or (e) Subtenant defaults in fulfilling any
other covenant under this Sublease not cured within ten (10) days after notice;
then Sublessor may serve a written three days' notice of cancellation of this
Sublease upon Subtenant and upon the expiration of said three days, this
Sublease and the term thereof shall end and expire and Subtenant shall then quit
and surrender the Sublet Premises to Sublessor. This Sublease and the term
thereof shall end and expire and in such event Sublessor may, without notice,
re-enter the Sublet Premises either by force or otherwise, and dispossess
Subtenant by summary proceedings or otherwise, and the legal representative of
Subtenant or other occupant of the Sublet Premises and remove their effects and
hold the Sublet Premises as if this Sublease had not been made, and Subtenant
hereby waives the service of notice of intention to re-enter or to institute
legal proceedings to that end.

         22. Construction. This Sublease shall be governed by and construed
under the law of the State of New York.

         23. Notices. All notices under this Sublease shall be in writing and
shall be deemed to have been sufficiently given when (i) delivered personally,
(ii) sent by postage prepaid certified mail, return receipt requested (air mail
if international), (iii) sent by telex, telegraph, or facsimile transmission, or
(iv) sent by private courier service guaranteeing overnight or three-day
delivery, addressed at the addresses included on Page 1 hereof, or to such other
address as any party may subsequently designate by this notice procedure. Notice
will be deemed 


                                       6
   7
effective (i) upon delivery, if delivered personally to the notice address of
either party; or (ii) three (3) business days after mailing, if by certified
mail (air mail if international); and (iii) three business days after deposit
with the courier if sent by courier service with delivery or attempted delivery
confirmed by the courier in writing.

         24. Landlord's Consent. This Sublease shall not become effective, nor
shall the term commence, unless and until the written consent of Landlord to
this Sublease, the build-out plans and the subletting hereunder is obtained.
Subtenant agrees to supply such information and fees as Landlord shall require
in connection with its determination. Sublessor shall promptly request such
consent and furnish Subtenant with a copy thereof when it is obtained. In the
event such written consent of Landlord is not given within sixty (60) days
hereafter, either party may terminate this agreement on five (5) days' written
notice except that if such consent is given within said five-day period, said
notice shall be deemed withdrawn. Both parties shall modify this Sublease to the
extent reasonably required by Landlord.

         IN WITNESS WHEREOF, Sublessor and Subtenant have respectively signed
this Sublease as of the day and year first above written.

                                         ADVANCED HEALTH CORPORATION (Sublessor)


                                         By:(ORIGINAL SIGNATURE)               
                                            ------------------------------------


                                         WESTCO ASSOCIATES, INC., (Subtenant)


                                         By: (ORIGINAL SIGNATURE)              
                                            ------------------------------------


                                       7
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DENNIS NOSKIN ARCHITECT, P.C.
Architecture/Interior Design/Planning
32 Elm Place
Rye, New York 10580




Floor Plan Design (#22981, Pg 13 of original source)


                                       8
   9
DENNIS NOSKIN ARCHITECT, P.C.
Architecture/Interior Design/Planning
32 Elm Place
Rye, New York 10580




Floor Plan Design (#22981, Pg 14 of original source)






                               RECKSON ASSOCIATES
                               555 WHITE PLAINS RD
                               TARRYTOWN, NEW YORK



Job Title : WESTCO                           Job No. 98xxx

Dwg Title: EXISTING CONDITIONS               Scale: 1/32" x 1'-0"

                                             Issue date: 10 FAB 99


                                       9

EX-10.17

   1
                                                                   Exhibit 10.17


                           EMPLOYMENT AGREEMENT dated as of November 1, 1998,
                           between ADVANCED HEALTH CORPORATION, a Delaware
                           corporation (the "Company"), and JEFFREY M. SAUERHOFF
                           (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
Senior Vice President, Finance 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 the date hereof and ending on November
         1, 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 such
         party's intent not to renew this Agreement.

         3. Duties. The Employee shall be employed as the Senior Vice President,
         Finance 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 with
         the Company and would otherwise be consistent in stature and prestige
         with the position of Senior Vice President, Finance 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 three weeks vacation per year (in addition to
                  public holidays), 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.

         5.       Compensation; Reimbursement. (a) 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.
   2
                  (b) From time to time the Employee may also receive cash
                  bonuses at the discretion of the Board or the Compensation
                  Committee.

                  (c) 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, disability coverage and such other fringe benefits
                  enjoyed by other employees at substantially the same
                  employment level as the Employee.

                  (d) 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 traveling 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.

                  (e) The Employee shall maintain a suitable automobile for
                  business use. During the Employment Period, the Company shall
                  pay the Employee a $550 per month car allowance towards the
                  costs of leasing, using, insuring, repairing and maintaining
                  such automobile.

                  (f) 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.

         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.

         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 


                                       2
   3
                           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; or

                  (ii)     the conviction by the Employee of misappropriation of
                           funds, properties or assets of the Company, sexual
                           harassment, 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
                           business, affairs, conditions (financial or
                           otherwise), operations, results of operations,
                           assets, properties or rights, liabilities or
                           obligations, customer or employee relationships or
                           prospects of the Company.

         8.       Termination Without Cause. The Company may terminate the
                  employment of the Employee hereunder at any time during the
                  Employment Period without "Cause" (a "Termination Without
                  Cause"). It is expressly acknowledged that if Employee shall
                  not report to the CEO of the Company, such change in reporting
                  structure shall constitute a Termination Without Cause. It is
                  expressly acknowledged that non-renewal of this Agreement as
                  contemplated by Section 2 shall not constitute a Termination
                  Without Cause. Further, if either (I) Employee's Base Salary
                  shall be reduced without Employee's consent, or (ii) Employee
                  shall be required to relocate outside the New York
                  metropolitan area, such action by Employer shall 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.

         10.      Change in Control. On a Change of Control, all options to
                  purchase common stock of the Company then held by the Employee
                  shall immediately vest and shall be exercisable for a period
                  of five years from the date of the 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 shall
                  cease for any reason to constitute a majority thereof 


                                       3
   4
                  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.

         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 vacation, 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(d).

         In addition, current arrangements concerning indemnification, including
but not limited to payment of expenses of officers, directors, and employees in
connection with litigation involving the Company shall remain in full force and
effect following termination.

                  (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, plus (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, plus (iii) to be immediately vested in all stock options granted
to the Employee by the Company that would have vested during the three-month
period immediately following the effective date of the Involuntary Termination.
In addition, current arrangements concerning indemnification, including but not
limited to payment of expenses of officers, directors, and employees in
connection with litigation involving the Company shall remain in full force and
effect following termination.

(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 amount
provided for in Section 11(a) hereof , (ii) to receive a cash severance payment
in an aggregate amount equal to the base salary and bonus received by the
Employee during the 12-month period immediately prior to the effective date of
the Termination Without Cause, plus car allowance, health insurance and life
insurance premium payments, professional licensing and membership fees and dues
for such one year period, payable in one lump sum within 10 days of such
termination if such termination occurs within six months of a Change in Control,
and otherwise in 12 equal monthly installments, (iii) reasonable cell phone and
pager use, and inclusion in the Company's 401(k) plan for the 12-month period
following such termination; plus (iv) all options to purchase common stock of
the Company, which shall include any parent or affiliated entity shall fully
vest and shall be exercisable for a period of five years following the date of
such Termination. In addition, current arrangements concerning


                                       4
   5
indemnification, including but not limited to payment of expenses of officers,
directors, and employees in connection with litigation involving the Company
shall remain in full force and effect following termination.


         12.      Non-Competition; Non-Disclosure of Information. (a) The
                  Employee shall not during the Employment Period, and 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 or any of its subsidiaries in the business of
                  primarily providing physician practice management, physician
                  network management and/or clinical information technology to
                  or for physicians to the extent such businesses are conducted
                  by the Company and its subsidiaries at the time of any
                  termination of the Employment Period.

                  (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 (the "Inventions")
                  relating in any way to the business of providing physician
                  practice management, 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,


                                       5
   6
                  copyrights and reissues thereof that may at any time be
                  granted for or upon any such Inventions. 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.


                                       6
   7
                  (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 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:
                               Jeffrey M. Sauerhoff
                               45 Longacre Drive
                               Huntington, NY  11743


                               If to the Company:
                               Advanced Health Corporation
                               555 White Plains Road, Second Floor
                               Tarrytown, New York 10591
                               Attention: Chairman and CEO

                  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
                  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
                  contains the entire agreement between the parties with respect
                  to the subject matter contained herein 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, 


                                       7
   8
                  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.

         22.      Severability. Any provisions 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



                                    --- /s/ Jonathan T. Edelson, MD ----
                                    Name:  Jonathan T. Edelson, MD
                                    Title:    Chairman and CEO


                                    ---/s/-- Jeffrey M. Sauerhoff---
                                    Jeffrey M. Sauerhoff


                                       8

EX-10.18

   1
                                                                   EXHIBIT 10.18

                  EMPLOYMENT AGREEMENT dated as of November 1, 1998, between
                  ADVANCED HEALTH CORPORATION, a Delaware corporation (the
                  "Company"), and EDDY W. FRIEDFELD (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
Senior Vice President, Business and Legal Affairs and General Counsel 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 the date hereof and ending on
         November 1, 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 such party's intent not to renew this Agreement.

         3. Duties. The Employee shall be employed as Senior Vice President,
         Business and Legal Affairs and General Counsel 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 with the Company and as would
         otherwise be consistent in stature and prestige with the position of
         Senior Vice President, Business and Legal Affairs and General Counsel
         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 three weeks vacation per year (in addition to
                  public holidays), 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.

         5.       Compensation; Reimbursement. (a) 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 $175,000, 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 
   2
                  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.

                  (b) From time to time the Employee may also receive cash
                  bonuses at the discretion of the Board or the Compensation
                  Committee.

                  (c) 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, disability coverage and such other fringe benefits
                  enjoyed by other employees at substantially the same
                  employment level as the Employee.

                  (d) 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 traveling 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.

                  (e) The Employee shall maintain a suitable automobile for
                  business use. During the Employment Period, the Company shall
                  pay the Employee a $600 per month car allowance towards the
                  costs of leasing, using, insuring, repairing and maintaining
                  such automobile.

                  (f) 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.

         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.

         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:


                                       2
   3
                  (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; or

                  (ii)     the conviction by the Employee of misappropriation of
                           funds, properties or assets of the Company, sexual
                           harassment, 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
                           business, affairs, conditions (financial or
                           otherwise), operations, results of operations,
                           assets, properties or rights, liabilities or
                           obligations, customer or employee relationships or
                           prospects of the Company.

         8.       Termination Without Cause. The Company may terminate the
                  employment of the Employee hereunder at any time during the
                  Employment Period without "Cause" (a "Termination Without
                  Cause"). It is expressly acknowledged that if Employee shall
                  not report to the CEO of the Company, such change in reporting
                  structure shall constitute a Termination Without Cause. It is
                  expressly acknowledged that non-renewal of this Agreement as
                  contemplated by Section 2 shall not constitute a Termination
                  Without Cause. Further, if either (I) Employee's Base Salary
                  shall be reduced without Employee's consent, or (ii) Employee
                  shall be required to relocate outside the New York
                  metropolitan area, such action by Employer shall 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.

         10.      Change in Control. On a Change of Control, all options to
                  purchase common stock of the Company then held by the Employee
                  shall immediately vest and shall be exercisable for a period
                  of five years from the date of the 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 


                                       3
   4
                  any period of two consecutive years, individuals who at the
                  beginning of such period constitute the entire Board 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.

         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 vacation, 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(d).

         In addition, current arrangements concerning indemnification, including
but not limited to payment of expenses of officers, directors, and employees in
connection with litigation involving the Company shall remain in full force and
effect following termination.

                  (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, plus (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, plus (iii) to be immediately vested in all stock options granted
to the Employee by the Company that would have vested during the three-month
period immediately following the effective date of the Involuntary Termination.
In addition, current arrangements concerning indemnification, including but not
limited to payment of expenses of officers, directors, and employees in
connection with litigation involving the Company shall remain in full force and
effect following termination.

(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 amount
provided for in Section 11(a) hereof , (ii) to receive a cash severance payment
in an aggregate amount equal to the base salary and bonus received by the
Employee during the 12-month period immediately prior to the effective date of
the Termination Without Cause, plus car allowance, health insurance and life
insurance premium payments, professional licensing and membership fees and dues
for such one year period, payable in one lump sum within 10 days of such
termination if such termination occurs within six months of a Change in Control,
and otherwise in 12 equal monthly installments, (iii) reasonable cell phone and
pager use, and inclusion in the Company's 401(k) plan for the 12-month period
following such termination; plus (iv) all options to purchase common stock of
the Company, which shall 


                                       4
   5
include any parent or affiliated entity shall fully vest and shall be
exercisable for a period of five years following the date of such Termination.
In addition, current arrangements concerning indemnification, including but not
limited to payment of expenses of officers, directors, and employees in
connection with litigation involving the Company shall remain in full force and
effect following termination.


         12.      Non-Competition; Non-Disclosure of Information. (a) The
                  Employee shall not during the Employment Period, and 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 or any of its subsidiaries in the business of
                  primarily providing physician practice management, physician
                  network management and/or clinical information technology to
                  or for physicians to the extent such businesses are conducted
                  by the Company and its subsidiaries at the time of any
                  termination of the Employment Period.

                  (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 (the "Inventions")
                  relating in any way to the business of providing physician
                  practice management, 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


                                       5
   6
                  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 Inventions. 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 


                                       6
   7
                  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 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:
                               Eddy W. Friedfeld
                               300 East 71st Street
                               New York, NY  10021

                               If to the Company:
                               Advanced Health Corporation
                               555 White Plains Road, Second Floor
                               Tarrytown, New York 10591
                               Attention: Chairman and CEO

                  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
                  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
                  contains the entire agreement between the parties with respect
                  to the subject matter contained herein and supersedes all
                  prior agreements or understandings among the parties with
                  respect 


                                       7
   8
                  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.

         22.      Severability. Any provisions 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



                                    ----/s/ -- Jonathan T. Edelson, MD
                                    Name:  Jonathan T. Edelson, MD
                                    Title:    Chairman and CEO


                                    ---/s/ - Eddy W. Friedfeld ---
                                    Eddy W. Friedfeld


                                       8

EX-23.2

   1
     (e) COSTS AND ATTORNEY'S FEES. If either party commences an action against
the other party arising out of or in connection with this lease, the prevailing
party shall be entitled to have and recover from the losing party attorneys'
fees, costs of suit, investigation expenses and discovery costs, including costs
of appeal.

24.  REPRESENTATIONS OF TENANT. Tenant represents to the Landlord and agrees
that:

     (a) The word "Tenant" as used herein includes the Tenant named above as
well as successors and assigns, each of which shall be under the same
obligations and liabilities and each of which shall have the same rights,
privileges, and powers as it would have possessed had it originally signed this
lease as tenant. Each and every of the persons named above as tenant shall be
bound jointly and severally by the terms, covenants and agreements contained
herein. However, no such rights, privileges or powers shall inure to the benefit
of any assignee of tenant immediate or remote, unless Tenant has complied with
the terms of Section 18 and the assignment to such assignee is permitted or has
been approved in writing by Landlord. Any notice required or permitted by the
terms of this lease may be given by or to any of the persons named above as
tenant, and shall have the same force and effect as if given by or to any one of
the persons named above as Tenant, and shall have the same force and effect as
if given by or to all thereof.

     (b) If Tenant is a corporation, partnership or any other form of business
association or entity, Tenant is duly formed and in good standing, and has full
corporate or partnership power and authority, as the case may be, to enter into
this lease and has taken all corporate or partnership action, as the case may
be, necessary to carry out the transaction contemplated herein, so that when
executed, this lease constitutes a valid and binding obligation enforceable in
accordance with its terms. Tenant shall provide Landlord with corporate
resolutions or other proof in a form acceptable to Landlord, authorizing the
execution of this lease at the time of such execution.

25.  LIABILITY OF LANDLORD. The word "Landlord" as used herein includes the
Landlord named above as well as its successors and assigns, each of which shall
have the same rights, remedies, powers, authorities and privileges as it would
have had it originally signed this lease as Landlord. Any such person or entity,
whether or not named herein, shall have no liability hereunder after it ceases
to hold title to the Premises except for obligations already accrued, (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) and Tenant shall look solely to Landlord's successor in
interest for the performance of the covenants and obligations of the Landlord
hereunder which thereafter shall accrue. Neither Landlord nor any principal of
Landlord nor any owner of the Property, whether disclosed or undisclosed, shall
have any personal liability with respect to any of the provisions of this lease
or the Premises, and if Landlord is in breach or default with respect to
Landlord's obligations under this lease or otherwise, Tenant shall look solely
to the equity of Landlord in the Property for the satisfaction of Tenant's
claims. Notwithstanding the foregoing, no mortgagee or ground lessor succeeding
to the interest of Landlord hereunder (either in terms of ownership or
possessory rights) shall be (a) liable for any previous act or omission of a
prior landlord, (b) subject to any rental offsets or defenses against a prior
landlord or (c) bound by any amendment of this lease made without its written
consent, or by payment by Tenant of Minimum Annual rent in advance in excess of
one monthly installment.

26.  INTERPRETATION; DEFINITIONS.

     (a) CAPTIONS. The captions in this lease are for convenience only and are
not a part of this lease and do not in any way define, limit, describe or
amplify the terms and provisions of this lease or the scope or intent thereof.

EX-27

 

<ARTICLE> 5
       
                             
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               DEC-31-1998
<CASH>                                           9,269
<SECURITIES>                                     6,972
<RECEIVABLES>                                      320
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                21,568
<PP&E>                                           2,565
<DEPRECIATION>                                   2,790
<TOTAL-ASSETS>                                  44,634
<CURRENT-LIABILITIES>                           13,805
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                           104
<OTHER-SE>                                      29,770
<TOTAL-LIABILITY-AND-EQUITY>                    44,634
<SALES>                                              0
<TOTAL-REVENUES>                                 3,530
<CGS>                                                0
<TOTAL-COSTS>                                    1,942
<OTHER-EXPENSES>                                21,778
<LOSS-PROVISION>                                   553
<INTEREST-EXPENSE>                                  20
<INCOME-PRETAX>                               (18,117)
<INCOME-TAX>                                     4,722
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