SEC Filing | Pediatrix Medical Group, Inc.

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1996

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PEDIATRIX MEDICAL GROUP, INC.
(Exact name of registrant as specified in its charter)

FLORIDA 8099 65-0271219
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)

1455 NORTHPARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
(954) 384-0175
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office)

ROGER J. MEDEL, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PEDIATRIX MEDICAL GROUP, INC.
1455 NORTHPARK DRIVE
FT. LAUDERDALE, FLORIDA 33326
(954) 384-0175
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES OF COMMUNICATIONS TO:

REBECCA R. ORAND, ESQ. JOHN J. HUBER, ESQ.
GREENBERG, TRAURIG, HOFFMAN, LATHAM & WATKINS
LIPOFF, ROSEN & QUENTEL, P.A. SUITE 1300
1221 BRICKELL AVENUE 1001 PENNSYLVANIA AVENUE, N.W.
MIAMI, FLORIDA 33131 WASHINGTON, D.C. 20004
(305) 579-0557 (202) 637-2200

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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Common Stock, $.01 par value per share.......... $278,875,000 $96,163
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(1) Includes 750,000 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933 on the basis of
the average of the high and low sale price of the Common Stock on June 27,
1996.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PEDIATRIX MEDICAL GROUP, INC.

CROSS REFERENCE SHEET
FURNISHED PURSUANT TO ITEM 501(B) OF REGULATION S-K

FORM S-1 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of the Registration
Statement; Cross-Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................. Inside Front Cover Page; Outside Back
Cover Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Underwriting
6. Dilution..................................... *
7. Selling Security Holders..................... Principal and Selling Shareholders
8. Plan of Distribution......................... Underwriting
9. Description of Securities to be Registered... Description of Capital Stock; Price
Range of Common Stock and Dividends
10. Interests of Named Experts and Counsel....... *
11. Information with Respect to the Registrant...
(a) Description of Business................. Prospectus Summary; The Company; Risk
Factors; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business
(b) Description of Property................. Business
(c) Legal Proceedings....................... Business
(d) Market Price of and Dividends on the
Registrant's Common Equity and Related
Shareholder Matters................... Prospectus Summary; Price Range of
Common Stock and Dividends;
Description of Capital Stock; Price
Range of Common Stock and Dividends;
Shares Eligible for Future Sale
(e) Financial Statements.................... Consolidated Financial Statements;
Unaudited Pro Forma Condensed
Consolidated Information
(f) Selected Financial Data................. Selected Consolidated Financial Data
(g) Supplementary Financial Information..... *
(h) Management's Discussion and Analysis of
Financial Condition and Results
of Operations......................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................. *
(j) Directors and Executive Officers........ Management; Principal and Selling
Shareholders
(k) Executive Compensation.................. Management
(l) Security Ownership of Certain Beneficial
Owners and Management................. Principal and Selling Shareholders
(m) Certain Relationships and Related
Transactions.......................... Management
12. Disclosure of Commission Position on
Indemnification for Securities Act *
Liabilities................................

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* Not applicable or answer thereto is negative.
3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.

SUBJECT TO COMPLETION
Dated June 28, 1996
5,000,000 SHARES
[LOGO] PEDIATRIX MEDICAL GROUP
COMMON STOCK
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Of the 5,000,000 shares of Common Stock offered hereby (the "Shares"), 1,500,000
shares are being offered by Pediatrix Medical Group, Inc. (the "Company"),
and 3,500,000 shares are being offered by certain shareholders
of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders."
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The Common Stock is included in the Nasdaq National Market under the symbol
"PEDX." On June 27, 1996, the last reported sales price for the Common
Stock on the Nasdaq National Market was $48.25 per share. See
"Price Range of Common Stock and Dividends."
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SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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PER SHARE $ $ $ $
TOTAL(3) $ $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $600,000.

(3) Certain Selling Shareholders have granted the Underwriters a 30-day option
to purchase up to an additional 750,000 shares to cover over-allotments, if
any. If all such shares are purchased, the total price to public,
underwriting discounts and commissions, proceeds to Company and proceeds to
Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
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The Shares are offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject any order
in whole or in part and subject to certain other conditions. It is expected that
delivery of the Shares will be made in New York, New York, on or about
, 1996.
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DEAN WITTER REYNOLDS INC.
ALEX. BROWN & SONS
INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

HAMBRECHT & QUIST
SMITH BARNEY INC.

, 1996

PEDIATRIX
MEDICAL GROUP,INC.

[MAP]

The graphic is a map of the United States which designates the locations of
the neonatal intensive care units, pediatric intensive care units and pediatrics
clinics where the Company provides physician management services.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). SEE
"UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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5

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR THE UNDERWRITERS. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
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TABLE OF CONTENTS

PAGE
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Prospectus Summary.................... 4
Risk Factors.......................... 8
The Company........................... 13
Recent Developments................... 13
Use of Proceeds....................... 15
Price Range of Common Stock and
Dividends........................... 16
Capitalization........................ 16
Selected Consolidated Financial
Data................................ 17
Unaudited Pro Forma Condensed
Consolidated Information............ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23

PAGE
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Business.............................. 29
Management............................ 37
Principal and Selling Shareholders.... 43
Description of Capital Stock.......... 44
Shares Eligible for Future Sale....... 46
Underwriting.......................... 48
Legal Matters......................... 49
Experts............................... 49
Index to Consolidated Financial
Statements.......................... 50

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AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act") with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain information contained in the Registration
Statement and the exhibits and schedules thereto on file with the Commission
pursuant to the Securities Act and the rules and regulations of the Commission
thereunder. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and, in each instance,
reference is made to the contract or document filed as an exhibit to the
Registration Statement and incorporated by reference herein. The Company is
subject to the information requirements of the Exchange Act and in accordance
therewith files reports, proxy statements and other information with the
Commission (collectively, "Exchange Act Filings"). The Registration Statement,
including exhibits and schedules thereto, as well as the Company's Exchange Act
Filings certain of which are incorporated by reference herein may be obtained
from the Commission's principal office at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
public reference section of the Commission at its Washington address upon
payment of the fees prescribed by the Commission, or may be examined without
charge at the offices of the Commission, or accessed through the Commission's
Internet address at http://www.sec.gov.

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6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Consolidated Financial Statements
and notes thereto included elsewhere in this Prospectus. Unless otherwise
indicated, the information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. Unless the context otherwise requires,
references in this Prospectus to the Company or Pediatrix include Pediatrix
Medical Group, Inc., its predecessor and its subsidiaries and the professional
associations and partnerships (the "PA Contractors") which are separate legal
entities that contract with the Company to provide physician services in certain
states and Puerto Rico, and references to PMG refer only to Pediatrix Medical
Group, Inc.

THE COMPANY

Pediatrix is the nation's leading provider of physician management services
to hospital-based neonatal intensive care units ("NICUs"). NICUs provide medical
care to newborn infants with low birth weight and other medical complications,
and are staffed with specialized pediatric physicians, known as neonatologists.
Based upon its own market research, knowledge of the health care industry and
experience in neonatology, the Company believes that it is the only provider of
NICU physician management services that markets its services on a national
basis. The Company also provides physician management services to hospital-based
pediatric intensive care units ("PICUs"), units which provide medical care to
critically ill children and are staffed with specially-trained pediatricians,
and to pediatrics departments in hospitals. As of June 15, 1996, the Company
provided services to 58 NICUs, eight PICUs and three pediatrics departments in
14 states and Puerto Rico and employed or contracted with 163 physicians.

The Company staffs and manages NICUs and PICUs in hospitals, providing the
physicians, professional management and administrative support, including
physician billing and reimbursement expertise and services. The Company's policy
is to provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.

Pediatrix established its leading position in physician management services
to NICUs by developing a comprehensive care model and management and systems
infrastructure that address the needs of patients, hospitals, payor groups and
physicians. Pediatrix addresses the needs of (i) patients by providing
continuous, comprehensive, professional quality care, (ii) hospitals by
recruiting, credentialing, and retaining neonatologists and hiring related staff
to operate NICUs in a cost-effective manner thereby relieving hospitals of the
financial and administrative burdens of operating the NICUs, (iii) payor groups
by providing cost-effective care to patients, and (iv) physicians by providing
administrative support, including billing and reimbursement expertise and
services, to enable them to focus on providing care to patients, and by offering
an opportunity for career advancement within Pediatrix.

Of the approximately four million babies born in the United States in 1994,
approximately 10% required neonatal treatment. Demand for neonatal services is
primarily due to premature births, which are often characterized by low birth
weight and other medical complications. A majority of high-risk mothers whose
births require neonatal treatment are not identified until the time of delivery,
thus heightening the need for continuous coverage by neonatologists. Across the
United States, NICUs are concentrated primarily among hospitals located in
metropolitan areas with a higher volume of births. NICUs are important to
hospitals since obstetrics generates one of the highest volumes of admissions
and obstetricians generally prefer to perform deliveries at hospitals with
NICUs. Hospitals must maintain cost-effective care and service in these units to
enhance the hospital's desirability to the community, physicians and managed
care payors.

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7

The Company's objective is to enhance its position as the nation's leading
provider of physician management services to NICUs by adding new units and
increasing same unit growth. The key elements of the Company's strategy are as
follows:

- Continue to focus exclusively on neonatology and pediatrics

- Acquire well-established neonatal physician group practices

- Develop regional networks to facilitate relationships with third party
payors

- Increase same unit growth

- Assist hospitals by promoting cost-effective, quality care

- Continue to develop new business models to meet the challenges of managed
care

Since its initial public offering in September 1995 (the "IPO"), the
Company has completed six acquisitions (the "Recent Acquisitions") of neonatal
physician group practices, which (i) added 24 NICUs, four PICUs and one
pediatrics department, (ii) added 50 physicians, (iii) established the Company
in three new markets, Denver, Phoenix and El Paso and (iv) expanded the
Company's presence in Southern California. To support this growth and to
facilitate the integration of acquisitions, the Company has enhanced its
management infrastructure. See "Recent Developments."

The Company's net patient service revenue has increased from $10.5 million
in 1991 to $43.9 million for the year ended December 31, 1995 ($69.4 million for
the year ended December 31, 1995 on a pro forma basis), representing a compound
annual growth rate of 43.0% (60.4% on a pro forma basis). Over the same period,
net income increased from $1.8 million in 1991 to $6.7 million for the year
ended December 31, 1995, representing a compound annual growth rate of 38.1%.

THE OFFERING

Common Stock Offered by the Company................... 1,500,000 shares
Common Stock Offered by the Selling Shareholders...... 3,500,000 shares
Common Stock Outstanding After the Offering........... 14,576,170 shares(1)
Use of Proceeds by the Company........................ Estimated net proceeds of $70.7
million to the Company will be used
for possible future acquisitions,
working capital requirements for
new hospital contracts and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market Symbol......................... "PEDX"

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(1) Excludes (i) 2,430,954 shares of Common Stock reserved for issuance under
the Company's amended and restated stock option plan (the "Stock Option
Plan"), of which options for an aggregate of 1,941,029 shares of Common
Stock were issued and outstanding as of June 15, 1996 and options for an
aggregate of 444,335 shares of Common Stock were exercisable as of June 15,
1996, and (ii) 1,000,000 shares of Common Stock reserved for issuance under
the Company's 1996 Qualified Employee Stock Purchase Plan and 1996
Non-Qualified Employee Stock Purchase Plan (collectively the "Stock
Purchase Plans"), none of which had been issued as of June 15, 1996. See
"Management -- Stock Option Plans."

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8

SUMMARY CONSOLIDATED FINANCIAL DATA

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
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1995 1996
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PRO PRO
1991 1992 1993 1994 ACTUAL FORMA(1) 1995 ACTUAL FORMA(2)
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(IN THOUSANDS, EXCEPT PER SHARE AND OTHER OPERATING DATA)

CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue........ $10,497 $15,438 $23,570 $32,779 $43,860 $69,423 $8,886 $16,127 $21,342
Operating expenses:
Salaries and benefits............ 6,291 9,585 14,852 20,723 29,545 47,204 6,270 10,796 14,216
Supplies and other operating
expenses....................... 1,044 1,743 2,230 2,774 3,451 8,568 607 1,213 2,017
Depreciation and amortization.... 39 60 95 244 363 1,763 74 233 460
Nonrecurring expense(3).......... -- 15,400 -- -- -- -- -- -- --
------- ------- ------- ------- ------- -------- ------ ------- --------
Total operating expenses... 7,374 26,788 17,177 23,741 33,359 57,535 6,951 12,242 16,693
------- ------- ------- ------- ------- -------- ------ ------- --------
Income (loss) from operations...... 3,123 (11,350) 6,393 9,038 10,501 11,888 1,935 3,885 4,649
Investment income.................. 81 160 45 208 804 537 107 499 92
Interest expense................... -- (49) (105) (90) (117) (124 ) (28) (35) (35 )
Other income (expense), net........ -- 45 (17) -- -- 58 -- -- --
------- ------- ------- ------- ------- -------- ------ ------- --------
Income (loss) before income
taxes............................ 3,204 (11,194) 6,316 9,156 11,188 12,359 2,014 4,349 4,706
Income tax provision (benefit)..... 1,358 (3,536) 2,166 3,749 4,475 5,262 805 1,737 1,904
------- ------- ------- ------- ------- -------- ------ ------- --------
Net income (loss)(4)............... $ 1,846 $(7,658) $ 4,150 $ 5,407 $ 6,713 $ 7,097 $1,209 $ 2,612 $ 2,802
======= ======= ======= ======= ======= ========= ====== ======= =========
Net income per common and common
equivalent share(5).............. $ .47 $ .55 $ .58 $ .10 $ .19 $ .20
======= ======= ========= ====== ======= =========
Weighted average shares
outstanding(5)................... 11,430 12,216 12,216 11,614 13,726 13,726
======= ======= ========= ====== ======= =========
OTHER OPERATING DATA:
Number of units at end of period:
NICU............................. 6 13 18 22 37 23 47
PICU............................. 2 2 3 5 4 5 7
Other pediatric services......... -- -- 1 1 2 2 3
Number of physicians at end of
period........................... 25 42 52 75 114 77 131
Number of births(6)................ 16,127 23,289 32,532 39,541 59,186 10,991 25,337
NICU admissions.................... 2,563 3,600 4,777 5,823 7,611 1,528 2,798
NICU patient days.................. N/A N/A 59,024 64,615 87,672 17,248 33,424

MARCH 31, 1996
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PRO PRO FORMA
ACTUAL FORMA(7) AS ADJUSTED(8)
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(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $7,084 $7,084 $ 77,773
Working capital..................................................................... 39,717 21,267 91,956
Total assets........................................................................ 77,371 77,956 148,645
Total liabilities................................................................... 11,809 12,394 12,394
Long-term debt, including current maturities........................................ 799 799 799
Stockholders' equity................................................................ 65,562 65,562 136,251

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9

(1) Gives effect to the Recent Acquisitions and the acquisition of Neonatal
Pediatric Intensive Care Medical Group, Inc. ("NAPIC") as if such
transactions had occurred as of January 1, 1995. See "Recent Developments"
and "Unaudited Pro Forma Condensed Consolidated Information."
(2) Gives effect to the Recent Acquisitions as if such transactions had occurred
as of January 1, 1995. See "Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Information."
(3) Reflects nonrecurring payments aggregating $15.4 million to certain of the
Company's physicians as bonuses for prior services and for covenants not to
compete occuring at the time of the investment in the Company by Summit
Ventures III, L.P. and Summit Investors II, L.P. (collectively "Summit") in
1992.
(4) Immediately prior to the consummation of the IPO, the outstanding shares of
redeemable cumulative convertible preferred stock (the "Convertible
Preferred Stock") were converted into 4,571,063 shares of Common Stock and
unpaid dividends on the Convertible Preferred Stock of approximately $3.7
million were forgiven pursuant to the terms of the Series A Preferred Stock
Purchase Agreement, dated as of October 26, 1992. Upon conversion, such
amounts were credited to the common stock and additional paid-in capital
accounts. The net income (loss) amounts do not include accrued and unpaid
dividends with respect to the Convertible Preferred Stock.
(5) Such amounts represent net income per common share and common equivalent
share pro forma to give effect to the conversion of the Convertible
Preferred Stock, which was not determined to be a Common Stock equivalent,
into Common Stock in connection with the IPO for 1994 and 1995. The net
income per common share is computed based upon the weighted average number
of shares of Common Stock and Common Stock equivalents, including the
number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock, outstanding during the period. Common Stock
issued by the Company during the 12 months immediately preceding the
initial filing of the registration statement relating to the IPO, plus
Common Stock equivalents relating to the grant of Common Stock options
during the same period, have been included in the calculation of weighted
average number of Common Stock equivalents outstanding for 1994 and 1995,
using the treasury stock method and the IPO price of $20 per share.
(6) Represents number of births at the hospitals with which the Company provided
physician management services during the periods indicated.
(7) Adjusted to give effect to the acquisitions consummated in the second
quarter of 1996 (the "1996 Second Quarter Acquisitions") described in
"Recent Developments" and "Unaudited Pro Forma Condensed Consolidated
Information," as if all of these transactions occurred as of March 31,
1996.
(8) Adjusted to give effect to (i) the sale of 1,500,000 shares of Common Stock
offered hereby by the Company and the application of the estimated net
proceeds therefrom, as described under "Use of Proceeds" and (ii) the 1996
Second Quarter Acquisitions as if all of these transactions occurred as of
March 31, 1996. See "Recent Developments" and "Unaudited Pro Forma
Condensed Consolidated Information."

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10

RISK FACTORS

Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in evaluating
an investment in the Shares offered hereby. This Prospectus contains certain
statements of a forward-looking nature relating to future events or the future
financial performance of the Company. Prospective investors are cautioned that
such statements are only predictions and that actual events or results may
differ materially. In evaluating such statements, prospective investors should
specifically consider the various factors identified in this Prospectus,
including the matters set forth below, which could cause actual results to
differ materially from those indicated by such forward-looking statements.

Health Care Regulatory Environment Could Increase Restrictions on the
Company. The health care industry and physicians' medical practices are highly
regulated. Neonatal and other health care services that the Company offers and
proposes to offer are subject to extensive federal and state laws and
regulations governing matters such as licensure and certification of facilities
and personnel, conduct of operations, audit and retroactive reimbursement
policies, adjustment of prior government billings and prohibitions on payments
for the referral of business and self referrals. Failure to comply with these
laws, or a determination that in the past the Company has failed to comply with
these laws, could have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the health
care regulatory environment will not change so as to restrict the Company's
existing operations or limit the expansion of its business. Changes in
government regulation could also impose new requirements, involving compliance
costs which cannot be recovered through price increases. See
"Business -- Government Regulation."

Reliance upon Government Programs; Possible Reduction in
Reimbursement. Approximately 26%, 31% and 30% of the Company's net patient
service revenue in 1994, 1995 and the three months ended March 31, 1996,
respectively, was derived from payments made by government-sponsored health care
programs (principally Medicaid). Increasing budgetary pressures may lead to
reimbursement reductions or limits, reductions in these programs or elimination
of coverage for certain individuals or treatments under these programs. Federal
legislation could result in a reduction of Medicaid funding or an increase in
state discretionary funding through block grants, or a combination thereof.
State Medicaid waiver requests if granted by the federal government could
increase discretion, or reduce coverage of or funding for certain individuals or
treatments under the Medicaid program, in the absence of new federal
legislation. Increased state discretion in Medicaid, coupled with the fact that
Medicaid expenditures comprised a substantial and growing share of state
budgets, could lead to significant reductions in reimbursement. In addition,
these programs generally reimburse on a fee schedule basis, rather than a
charge-related basis. Therefore, the Company generally cannot increase its
revenues by increasing the amount it charges for services provided. To the
extent the Company's costs increase, the Company may not be able to recover such
cost increases from government reimbursement programs. In various states,
Medicaid managed care is encouraged and may become mandated. In such systems
health maintenance organizations ("HMOs") bargain for reimbursement with
competing providers and contract with the state to provide benefits to Medicaid
enrollees. Such systems are intended and expected to reduce Medicaid
reimbursement of providers. Legislation enacted in states could result in
reduced payments to the Company for Medicaid patients. Additionally, Proposition
187, which was adopted by referendum in California, but has been enjoined by a
California court, may limit the access by illegal aliens to Medicaid funds in
California. In the event similar legislation is passed in other states with
large illegal alien populations, such as Arizona and Florida, the Company's
ability to collect for medical services rendered to such patients could be
adversely affected. Changes in government-sponsored health care programs which
result in the Company being unable to recover cost increases through price
increases or otherwise could have a material adverse effect on the Company's
financial condition and results of operations. Because of cost containment
measures and market changes in non-governmental insurance plans, the Company may
not be able to shift cost increases to, or recover them from, non-governmental
payors. In addition, funds received under government programs are subject to
audit with respect to the proper billing for physician services and,
accordingly, retroactive adjustments of revenue from these programs may occur.
See "Business -- Government Regulation."

8
11

State Laws Regarding Prohibition of Corporate Practice of
Medicine. Business corporations, such as PMG, are generally not permitted under
state law to practice medicine, exercise control over the medical judgments or
decisions of physicians or engage in certain practices, such as fee splitting,
with physicians. In the states in which the Company operates, other than
Florida, there exist potential judicial or governmental interpretations which
may extend the scope of the corporate practice of medicine and/or medical
practices acts principles. For such reasons, or for business reasons, PMG
contracts with the PA Contractors (which are owned by a licensed physician in
the state) in such states, which in turn employ or contract with physicians to
provide necessary physician services to hospitals with which the Company
provides physician management services. There can be no assurance that
regulatory authorities or other parties will not assert that PMG is engaged in
the corporate practice of medicine or that the percentage fee arrangements
between PMG and the PA Contractors constitute fee splitting or the corporate
practice of medicine. If such a claim were successfully asserted in any
jurisdiction, PMG could be subject to civil and criminal penalties under such
jurisdiction's laws and could be required to restructure its contractual
arrangements. Such results or the inability to successfully restructure
contractual arrangements could have a material adverse effect on the Company's
financial condition and results of operations. In states where PMG is not
permitted to practice medicine, PMG performs only non-medical administrative
services, does not represent to the public or its clients that it offers medical
services and does not exercise influence or control over the practice of
medicine by the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws relating to the
corporate practice of medicine. See "Business -- Contractual Relationships."

Risk of Applicability of Anti-Kickback and Self-Referral Laws. Federal
anti-kickback laws and regulations prohibit any knowing and willful offer,
payment, solicitation or receipt of any form of remuneration, either directly or
indirectly, in return for, or to induce (i) referral of an individual for a
service for which payment may be made by Medicaid or another
government-sponsored health care program or (ii) purchasing, leasing, ordering
or arranging for, or recommending the purchase, lease or order of, any service
or item for which payment may be made by a government-sponsored health care
program. Violations of anti-kickback rules are punishable by monetary fines,
civil and criminal penalties and exclusion from participation in Medicare and
Medicaid programs. Effective January 1, 1995, federal physician self-referral
laws became applicable to inpatient and outpatient hospital services. Subject to
certain exceptions, these laws, such as "Stark I" and "Stark II," prohibit
Medicare or Medicaid payments for services furnished by an entity pursuant to a
referral by a physician who has a financial relationship with the entity through
ownership, investment, or a compensation arrangement. Possible sanctions for
violation of these laws include civil monetary penalties, exclusion from
Medicare and Medicaid programs and forfeiture of amounts collected in violation
of such prohibitions. Certain states in which the Company does business have
similar anti-kickback, anti-fee splitting and self-referral laws, imposing
substantial penalties for violations. The Company's relationships, including fee
payments, among PA Contractors, hospital clients and physicians have not been
examined by federal or state authorities under these laws and regulations.
Although the Company believes it is in compliance with these laws and
regulations, there can be no assurance that federal or state regulatory
authorities will not challenge the Company's current or future activities under
these laws. See "Business -- Strategy" and "Business -- Government Regulation."

Uncertainty Relating to Federal and State Legislation. Federal and state
governments have recently focused significant attention on health care reform.
Some of the proposals under consideration, or others which may be introduced,
could, if adopted, have a material adverse effect on the Company's financial
condition and results of operations. It is not possible to predict which, if
any, proposal that has been or will be considered will be adopted. The Company
cannot predict what effect any future legislation will have on the Company.
There can be no assurance that any future state or federal legislation or other
changes in the administration or interpretation of governmental health care
programs will not adversely affect the Company's financial condition and results
of operations. See "Business -- Government Regulation."

Risks Relating to Acquisition Strategy. The Company has expanded and
intends to continue to expand its geographic and market penetration primarily
through acquisitions of physician group practices. In implementing this
acquisition strategy, the Company will compete with other potential acquirers,
some of which may have greater financial or operational resources than the
Company. Competition for acquisitions

9
12

may intensify due to the ongoing consolidation in the health care industry,
which may increase the costs of capitalizing on such opportunities. While the
Company has recently completed the Recent Acquisitions, there can be no
assurance that future acquisition candidates will be identified or that any
future acquisition will be consummated or, if consummated, that any acquisition,
including the Recent Acquisitions, will be integrated successfully into the
Company's operations or that the Company will be successful in achieving its
objectives. The Recent Acquisitions also involve numerous short and long term
risks, including diversion of management's attention, failure to retain key
personnel, amortization of acquired intangible assets and the effects of
contingent earn-out payments. At March 31, 1996, approximately $17.7 million, or
approximately 22.9% of total assets, was goodwill relating to acquisitions.
Subsequent to March 31, 1996, the Company made three acquisitions, resulting in
additional aggregate goodwill of approximately $18.5 million. The Company may
also incur one-time acquisition expenses in connection with acquisitions.
Consummation of acquisitions could result in the incurrence or assumption by the
Company of additional indebtedness and the issuance of additional equity. The
issuance of shares of Common Stock for an acquisition may result in dilution to
shareholders. Also, as the Company enters into new geographic markets, the
Company will be required to comply with laws and regulations of states that
differ from those in which the Company's operations are currently conducted.
There can be no assurance that the Company will be able to effectively establish
a presence in these new markets. While many of the expenses arising from the
Company's efforts in these areas may have a negative effect on operating results
until such time, if at all, as these expenses are offset by increased revenues,
there can be no assurance that the Company will be able to implement its
acquisition strategy, or that this strategy will ultimately be successful. See
"Use of Proceeds," "Selected Unaudited Pro Forma Condensed Consolidated
Information," "Business -- Strategy," "Business -- Marketing," and
"Business -- Government Regulation."

Growth Strategy; Rapid Growth. Since the IPO, the Company has experienced
rapid growth in its business and number of employees. Continued rapid growth may
impair the Company's ability to efficiently provide its physician management
services and to adequately manage its employees. While the Company is taking
steps to manage rapid growth, future results of operations could be materially
adversely affected if it is unable to do so effectively.

Quarterly Fluctuations in Operating Results; Potential Volatility. The
Company has historically experienced and expects to continue to experience
quarterly fluctuations in net patient service revenue and associated net income
due to unit specific volume and cost fluctuations. The Company has a high level
of fixed operating costs, including physician costs, and, as a result, is highly
dependent on the volume of births and capacity utilization of NICUs and PICUs to
sustain profitability. Results of operations for any quarter are not necessarily
indicative of results of operations for any future period or for the full year.
As a result, there can be no assurance that results of operations will not
fluctuate significantly from period to period. There has been significant
volatility in the market price of securities of health care companies that often
has been unrelated to the operating performance of such companies. The Company
believes that certain factors, such as legislative and regulatory developments,
quarterly fluctuations in the actual or anticipated results of operations of the
Company, lower revenues or earnings in the financial results of the Company than
those anticipated by securities analysts, the overall economy and the financial
markets, could cause the price of the Common Stock to fluctuate substantially.

Impact of Payor Discounts and Capitation Arrangements. The evolving
managed care environment has created substantial cost containment pressures for
the health care industry. The Company's business could be adversely affected by
reductions in reimbursement amounts or rates, changes in services covered and
similar measures which may be implemented by government sponsored health care
programs or by other third party payors. The Company's contracts with payors and
managed care organizations traditionally have been fee-for-service arrangements.
At June 15, 1996, the Company had six shared-risk capitated arrangements with
payors in Southern California, Arizona and Texas. These arrangements and any
future arrangements may adversely affect the Company's financial condition and
results of operations if the Company is unable to limit the risks associated
with such arrangements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Contractual Relationships"
and "Business -- Government Regulation."

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13

Professional Liability and Insurance. The Company's business entails an
inherent risk of claims of physician professional liability. The Company
periodically becomes involved as a defendant in medical malpractice lawsuits,
some of which are currently ongoing, and is subject to the attendant risk of
substantial damage awards. See "Business -- Proceedings." The Company's
contracts with hospitals generally require the Company to indemnify certain
parties for losses resulting from the negligence of physicians who are managed
by or affiliated with the Company. While the Company believes it has adequate
professional liability insurance coverage, there can be no assurance that a
pending or future claim or claims will not be successful or if successful will
not exceed the limits of available insurance coverage or that such coverage will
continue to be available at acceptable costs and on favorable terms. See
"Business -- Professional Liability and Insurance."

Collection and Reimbursement Risk. The Company assumes the financial risk
related to collection, including the potential uncollectibility of accounts and
delays attendant to reimbursement by third party payors, such as government
programs, private insurance plans and managed care plans. Failure to manage
adequately the collection risks and working capital demands could have a
material adverse effect on the Company's financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Contractual Relationships" and "Business --
Government Regulation."

Contract Administrative Fees; Cancellation or Non-renewal of
Contracts. The Company's net patient service revenue is derived primarily from
fee-for-service billings for patient care provided by its physicians and from
administrative fees. Certain contracting hospitals that do not generate
sufficient patient volume pay the Company administrative fees to assure the
Company a minimum revenue level. If, at the time of renewal of the contracts
with the hospitals currently paying administrative fees to the Company, such
hospitals continue to generate insufficient patient volume but elect not to pay
administrative fees to assure the Company a minimum revenue level, then the
Company could either choose not to renew the contract or renew the contract with
lower gross profit margins at such hospitals. Administrative fees include
guaranteed payments to the Company, as well as fees paid to the Company by
certain hospitals for administrative services performed by the Company's medical
director at such hospital. Administrative fees accounted for 13%, 12% and 10% of
the Company's net patient service revenue during 1994, 1995 and the three months
ended March 31, 1996, respectively. The Company's contracts provide for
approximately three-year terms and are generally terminable by the hospital upon
90 days' written notice. In 1996, approximately one-third of these contracts
have come up for renewal or are scheduled to be renewed. The Company has not
been notified that these contracts will not be renewed and is currently
providing services and receiving payment pursuant to the terms of such
contracts. While the Company has in most cases been able to negotiate renewal of
its contracts in the past, no assurance can be given that the Company's
contracts with hospitals will not be canceled or will be renewed in the future
or that the administrative fees will be continued. To the extent that the
Company's contracts with hospitals are canceled or are not renewed or replaced
with other contracts with at least as favorable terms, the Company's financial
condition and results of operations could be adversely affected. See
"Business -- Contractual Relationships."

Competition. The health care industry is highly competitive and subject to
continual changes in the method in which services are provided and the manner in
which health care providers are selected and compensated. The Company believes
that private and public reforms in the health care industry emphasizing cost
containment and accountability will result in an increasing shift of NICU and
related pediatric care from highly fragmented, individual or small practice
neonatology providers to physician management companies. Companies in other
health care industry segments, such as managers of other hospital-based
specialties or currently expanding large physician group practices, some of
which have financial and other resources greater than those of the Company, may
become competitors in providing management of neonatal and pediatric intensive
care services to hospitals. Increased competition could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business -- Competition."

Dependence on Qualified Neonatologists. The Company's business strategy is
dependent upon its ability to recruit and retain qualified neonatologists. The
Company has been able to compete with many types of health care providers, as
well as teaching, research and governmental institutions, for the services of
such physicians. No assurance can be given that the Company will be able to
continue to recruit and retain a

11
14

sufficient number of qualified neonatologists who provide services in markets
served by the Company on terms similar to its current arrangements. The
inability to successfully recruit and retain physicians could adversely affect
the Company's ability to service existing or new units at hospitals, or expand
its business.

Dependence on Key Personnel. The Company's success depends to a
significant extent on the continued contributions of its key management,
business development, sales and marketing personnel, including one of the
Company's principal shareholders, President, Chief Executive Officer and
co-founder, Dr. Roger Medel, for management of the Company and successful
implementation of its growth strategy. The loss of Dr. Medel or other key
personnel could have a material adverse effect on the Company's financial
condition, results of operations and plans for future development.

Dependence on PA Contractors. The Company has a management agreement with
a PA Contractor in each state in which it operates except Florida. The
agreements provide that the terms of the arrangements are permanent, subject
only to termination by PMG and that the PA Contractor shall not terminate the
agreement without PMG's prior written consent. Any disruption of the Company's
relationships with the PA Contractors' relationships with contracting hospitals
(including the determination that the PA Contractors' arrangements with PMG
constitute the corporate practice of medicine) or any other event adverse to the
PA Contractors could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Government Regulation" and
"Business -- Contractual Relationships."

Shares Eligible for Future Sale; Possible Adverse Effect on Market
Price. Upon completion of this offering, the Company will have 14,576,170
shares of Common Stock outstanding, based upon the number of shares outstanding
as of June 15, 1996. There are 7,269,270 shares of Common Stock (the "Restricted
Shares"), which are deemed "restricted securities" under Rule 144 under the
Securities Act and are eligible for future sale in the public market at
prescribed times pursuant to Rule 144 or the exercise of registration rights. In
addition, as of June 15, 1996, the Company had (i) 2,430,954 shares of Common
Stock reserved for issuance under the Stock Option Plan, of which options for an
aggregate of 1,941,029 shares of Common Stock were issued and outstanding as of
June 15, 1996 and options for an aggregate of 444,335 shares of Common Stock
were exercisable as of June 15, 1996, and (ii) 1,000,000 shares of Common Stock
reserved for issuance under the Stock Purchase Plans, none of which had been
issued as of June 15, 1996. See "Management -- Stock Option Plans." Shares
issued under the Stock Option Plan and Stock Purchase Plans will be freely
tradeable unless acquired by affiliates of the Company, as defined in Rule 144
of the Securities Act. Sales of such shares in the public market, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock or impair the Company's ability to raise additional capital in
the future. See "Shares Eligible for Future Sale" and "Underwriting."

Anti-Takeover Provisions; Possible Issuance of Preferred Stock. The
Company's Articles of Incorporation and Bylaws contain provisions that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of, the Company.
These provisions establish certain advance notice procedures for nomination of
candidates for election as directors and for shareholder proposals to be
considered at shareholders' meetings and provide that only the Board of
Directors may call special meetings of the shareholders. In addition, the
Company's Articles of Incorporation authorize the Board of Directors to issue
preferred stock ("Preferred Stock") without shareholder approval and upon such
terms as the Board of Directors may determine. While no shares of Preferred
Stock will be outstanding upon the consummation of this offering and the Company
has no present plans to issue any shares of Preferred Stock, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of any holders of Preferred Stock that may be issued in the future.
See "Description of Capital Stock."

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15

THE COMPANY

Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. The Company also provides physician management services
to hospital-based PICUs and pediatrics departments in hospitals. The Company
staffs and manages NICUs and PICUs in hospitals, providing the physicians,
professional management and administrative support, including physician billing
and reimbursement expertise and services. As of June 15, 1996, the Company
provided services to 58 NICUs, eight PICUs and three pediatrics departments in
14 states and Puerto Rico and employed or contracted with 163 physicians.

The Company's predecessor was incorporated in 1980 by its co-founders, Drs.
Medel and Melnick, as a professional association under the name Melnick & Medel,
M.D.'s, P.A. In 1992, the Company changed its name to Pediatrix Medical Group,
Inc.

The Company's principal executive offices are located at 1455 Northpark
Drive, Ft. Lauderdale, Florida 33326 and its telephone number is (954) 384-0175.

RECENT DEVELOPMENTS

The IPO provided net proceeds to the Company of approximately $39.7
million. Since the IPO in September 1995, the Company has enhanced its
management infrastructure, thereby strengthening its ability to identify
acquisition candidates, consummate transactions and integrate acquired physician
group practices into the Company's operations. During the first half of 1996,
the Company completed six acquisitions of neonatology physician group practices
for an aggregate cash purchase price of approximately $29.5 million at the time
of acquisition. The Company has developed regional networks in Denver, Phoenix
and Southern California and intends to develop additional regional networks and
state-wide networks. The Company believes these networks, augmented by ongoing
marketing and acquisition efforts, will strengthen its position with third party
payors, such as Medicaid and managed care organizations.

RECENT ACQUISITIONS

The Recent Acquisitions have (i) added 24 NICUs, four PICUs and one
pediatrics department, (ii) added 50 physicians, (iii) established the Company
in three new markets, Denver, Phoenix and El Paso, and (iv) expanded the
Company's presence in Southern California. In the aggregate, the number of NICU
patient days attributable to the Recent Acquisitions during 1995 was
approximately 90,000. See "Unaudited Pro Forma Condensed Consolidated
Information."

Arizona. On January 16, 1996, the Company expanded its operations into
metropolitan Phoenix by acquiring all of the outstanding capital stock of
Neonatal Specialists, Ltd., an Arizona professional corporation ("NSL"), and
certain assets of certain entities affiliated with NSL, for an aggregate cash
purchase price of $6.0 million. NSL provided physician management services to
five NICUs in the Phoenix area and employed six physicians. NSL's net patient
service revenue for 1995 was approximately $4.1 million, and NICU patient days
during 1995 were approximately 21,000.

Colorado. The Company expanded its operations into metropolitan Denver by
making three acquisitions during the first half of 1996. Through these
acquisitions, the Company has established a regional network, which the Company
believes will strengthen its position with third party payors, such as Medicaid
and managed care organizations, in the Denver area.

On January 29, 1996, the Company acquired certain assets of Pediatric and
Newborn Consultants, P.C., a Colorado professional corporation ("PNC"), for an
aggregate cash purchase price of $3.6 million. The shareholders of PNC are
eligible to receive additional consideration of up to $1.3 million on or about
April 4, 1997 if certain targets are achieved at the hospitals previously served
by PNC during the period from February 1, 1996 to January 31, 1997. PNC provided
physician management services to three NICUs, three PICUs and one pediatrics
department in the Denver area and employed seven physicians. PNC's net patient

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16

service revenue for 1995 was approximately $2.3 million, and NICU patient days
during 1995 were approximately 5,000.

On January 29, 1996, the Company acquired Colorado Neonatal Associates,
P.C., a Colorado professional corporation ("CNA") through a merger, for an
aggregate cash purchase price of $1.4 million. The prior shareholders of CNA are
eligible to receive additional consideration of up to $667,000 on or about April
4, 1997 if certain targets are achieved at the hospitals previously served by
CNA during the period from February 1, 1996 to January 31, 1997. CNA provided
physician management services to two NICUs in the Denver area and employed two
physicians. CNA's net patient service revenue for 1995 was approximately $1.3
million and NICU patient days during 1995 were approximately 5,000.

On May 1, 1996, the Company acquired Rocky Mountain Neonatology, P.C., a
Colorado professional corporation ("RMN") through a merger, for an aggregate
cash purchase price of $7.2 million. RMN provided physician management services
to two NICUs, including Denver's largest NICU, and one PICU and employed eight
physicians. RMN's net patient service revenue for 1995 was approximately $3.1
million and NICU patient days during 1995 were approximately 15,000.

Texas. On May 30, 1996, the Company expanded its presence into El Paso by
acquiring certain assets of West Texas Neonatal Associates, a Texas general
partnership ("WTNA"), for an aggregate cash purchase price of $5.3 million. WTNA
provided physician management services to three NICUs and employed four
physicians. WTNA's net patient service revenue for 1995 was approximately $2.3
million, and NICU patient days during 1995 were approximately 12,000.

California. On June 6, 1996, the Company expanded its presence in Southern
California by acquiring certain assets of Infant Care Specialists Medical Group,
Inc. ("ICS"), relating to the operations of nine NICUs and the employment of 23
physicians. The aggregate cash payments were $6.0 million. Net patient service
revenue of ICS for 1995 was approximately $10.4 million, and NICU patient days
during 1995 were approximately 32,000. The acquisition of ICS complements the
Company's acquisition in July 1995 of NAPIC, a neonatology physician group
practice with operations in Southern California.

ADDITIONS TO MANAGEMENT INFRASTRUCTURE

To support its growth and facilitate the integration of acquisitions, the
Company has enhanced its management infrastructure by adding the following new
positions. See "Management."

Chief Medical Officer. The Chief Medical Officer ("CMO") is responsible
for overseeing all clinical operations of the Company. M. Douglas Cunningham,
M.D., who has more than 25 years experience as a practicing neonatologist and
professor of pediatrics and neonatotology, became CMO in June 1996. Dr.
Cunningham's duties include developing and monitoring research and educational
and peer review activities. In addition, Dr. Cunningham participates in sales
discussions and acts as a liaison with hospital administrators in connection
with the acquisition and hospital contracting process.

Vice President, Business Development. The Vice President, Business
Development is responsible for directing the Company's activities relating to
the growth of its business. Kristen Bratberg joined the Company as Vice
President, Business Development in November 1995. Mr. Bratberg was previously
employed by Dean Witter Reynolds Inc. in the Corporate Finance Department
specializing in the healthcare industry. Mr. Bratberg's duties include the
implementation and execution of the Company's acquisition program, the
development of regional and state-wide networks and marketing to hospital
administrators for new hospital contracts.

Vice President, Practice Integration. The Vice President, Practice
Integration is responsible for the integration of physicians joining the
Company. Brian D. Udell, M.D., who has been employed by the Company since 1983,
was appointed to this position in November 1995. Dr. Udell's duties include
familiarizing new physicians with scheduling and coverage at their units,
collecting and analyzing clinical outcomes statistics, monitoring practice
patterns and profiles and documenting patient records.

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17

Chief Information Officer. The Chief Information Officer ("CIO") is
responsible for determining and defining the Company's immediate and strategic
information needs in coordination with other members of the Company's management
and staff and developing the infrastructure, systems and processes to meet such
needs in a cost-effective manner. The Company appointed Joseph M. Calabro as CIO
in January 1996. Mr. Calabro's duties include coordinating with the Chief
Operating Officer and Chief Financial Officer to upgrade and develop new
management information systems.

Director of Research and Medical Education. The Director of Research and
Medical Education will be responsible for developing and directing a program of
clinically-relevant research, establishing and monitoring programs for exchange
of clinical information among physicians, including review of significant cases
and development of accredited internal continuing medical education programs.
The Company expects to fill this position in the third quarter of 1996.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
1,500,000 shares of Common Stock offered by the Company at the offering price
set forth on the cover page of this Prospectus, after deducting underwriting
discounts and commissions and estimated expenses of the offering payable by the
Company, are approximately $70.7 million. The net proceeds to the Company from
this offering will be used for possible future acquisitions, working capital
requirements for new hospital contracts and general corporate purposes. The
Company's growth strategy includes the acquisition of neonatal physician group
practices that provide physician management services to NICUs. While the Company
is actively pursuing acquisitions of neonatal physician group practices, and may
at any time be in various stages of negotiating acquisitions, there can be no
assurance that future acquisition candidates will be identified or that any
future acquisition will be consummated. See "Risk Factors -- Risks Relating to
Acquisition Strategy." Pending use of the net proceeds of this offering, the
Company will invest such funds in short-term and medium-term, investment grade,
interest-bearing obligations. The Company will not receive any of the proceeds
from the sale of the Shares offered by the Selling Shareholders. See "Principal
and Selling Shareholders."

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18

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Common Stock commenced trading on the Nasdaq National Market under the
symbol "PEDX" on September 20, 1995. The following table sets forth, for the
periods indicated, the high and low sales prices for the Common Stock as
reported on the Nasdaq National Market.

1995 HIGH LOW
---------------- ---- ---

Third Quarter...................................................................... 22 1/4 18 7/8
Fourth Quarter..................................................................... 28 1/2 18 1/2

1996
----------------
First Quarter...................................................................... 39 1/4 24
Second Quarter (through June 27)................................................... 64 3/4 35 1/4

On June 27, 1996, the last reported sale price for the Company's Common
Stock on the Nasdaq National Market was $48.25 per share. As of June 27, 1996,
there were 100 holders of record of Common Stock. This number does not include
an indeterminate number of shareholders whose shares are held by brokers in
"street name."

The Company has not declared or paid any dividends since 1992, and does not
currently intend to declare or pay in the future, any dividends on its Common
Stock. The Company intends to retain all earnings for the operation and
expansion of its business. The payment of any future dividends will be at the
discretion of the Board of Directors and will depend upon, among other things,
future earnings, results of operations, capital requirements, the general
financial condition of the Company, general business conditions and contractual
restrictions on payment of dividends, such as the Company's $30 million
unsecured line of credit, as well as such other factors as the Board of
Directors may deem relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996, (i) on an actual basis, (ii) on a pro forma basis
to give effect to the 1996 Second Quarter Acquisitions referenced in "Unaudited
Pro Forma Condensed Consolidated Information" and (iii) as adjusted to give
effect to the sale of the Shares being offered hereby and the application of the
estimated net proceeds therefrom as described under "Use of Proceeds." This
table should be read in conjunction with the Consolidated Financial Statements
and related notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the other financial information
appearing elsewhere in this Prospectus.

MARCH 31, 1996
-------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)

Note payable(1):.................................................... $ 799 $ 799 $ 799
------- ------- ---------
Stockholders' equity:
Common stock; $.01 par value; 50,000,000 shares authorized;
13,063,809 shares issued and outstanding; 13,063,809 shares
issued and outstanding, pro forma, and 14,563,809 shares issued
and outstanding, as adjusted(2)................................. 131 131 131
Additional paid-in capital.......................................... 55,809 55,809 126,498
Retained earnings................................................... 9,657 9,657 9,657
Unrealized loss on investments...................................... (35) (35) (35)
------- ------- ---------
Total stockholders' equity................................. 65,562 65,562 136,251
------- ------- ---------
Total capitalization....................................... $66,361 $66,361 $ 137,050
======= ======= =========

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

(1) Includes current portion of $64,000.
(2) Excludes 2,445,915 shares of Common Stock reserved for issuance under the
Stock Option Plan, of which options for an aggregate of 1,906,740 shares of
Common Stock were issued and outstanding as of March 31, 1996 and options
for an aggregate of 446,328 shares of Common Stock were exercisable as of
March 31, 1996, and (ii) 1,000,000 shares of Common Stock reserved for
issuance under the Stock Purchase Plans, none of which had been issued as of
March 31, 1996. See "Management -- Stock Option Plans." Between March 31,
1996 and June 15, 1996, options for an aggregate of 50,000 shares of Common
Stock were issued and as of June 15, 1996, options for an aggregate of
444,328 shares of Common Stock were exercisable.

16
19

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below as of and for each
of the five years in the period ended December 31, 1995, have been derived from
the Consolidated Financial Statements, which statements have been audited by
Coopers & Lybrand L.L.P., independent accountants. The selected consolidated
financial data of the Company as of and for the three month periods ended March
31, 1995 and 1996 have been derived from the unaudited consolidated financial
statements of the Company which, in the Company's opinion, include all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the information set forth therein. The results of
operations for the three months ended March 31, 1996 are not necessarily
indicative of the results for the full year. The following data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and the Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.

THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

CONSOLIDATED INCOME STATEMENT DATA:
Net patient service revenue........ $10,497 $15,438 $23,570 $32,779 $43,860 $8,886 $16,127
Operating expenses:
Salaries and benefits............ 6,291 9,585 14,852 20,723 29,545 6,270 10,796
Supplies and other operating
expenses....................... 1,044.. 1,743 2,230 2,774 3,451 607 1,213
Depreciation and amortization.... 39 60 95 244 363 74 233
Nonrecurring expense(1).......... -- 15,400 -- -- -- -- --
------- -------- ------- ------- ------- ------- -------
Total operating
expenses................ 7,374 26,788 17,177 23,741 33,359 6,951 12,242
------- -------- ------- ------- ------- ------- -------
Income (loss) from operations...... 3,123 (11,350) 6,393 9,038 10,501 1,935 3,885
Investment income.................. 81 160 45 208 804 107 499
Interest expense................... -- (49) (105) (90) (117) (28) (35)
Other income (expense), net........ -- 45 (17) -- -- -- --
------- -------- ------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 3,204 (11,194) 6,316 9,156 11,188 2,014 4,349
Income tax provision (benefit)..... 1,358 (3,536) 2,166 3,749 4,475 805 1,737
------- -------- ------- ------- ------- ------- -------
Net income (loss)(2)............... $ 1,846 $ (7,658) $ 4,150 $ 5,407 $ 6,713 $ 1,209 $ 2,612
======== ========= ======== ======== ======== ======== ========
Net income per common share(3)..... $ .47 $ .55 $ .10 $ .19
======== ======== ======== ========
Weighted average shares
outstanding(3)................... 11,430 12,216 11,614 13,726
======== ======== ======== ========

DECEMBER 31, MARCH 31,
----------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS)

CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........... $1,576 $2,329 $2,469 $7,384 $18,499 $9,466 $7,084
Working capital..................... 3,426 6,651 8,052 13,772 53,448 14,768 39,717
Total assets........................ 6,243 11,721 14,239 20,295 69,881 21,706 77,371
Total liabilities................... 2,500 3,388 3,762 4,203 7,071 4,418 11,809
Long-term debt, including current
maturities........................ -- 1,604 965 879 815 863 799
Convertible Preferred Stock(4)...... -- 13,212 14,401 15,697 -- 16,050 --
Stockholders' equity (deficit)(5)... 3,743 (4,879) (3,924) 395 62,810 1,238 65,562

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

(1) Reflects nonrecurring payments aggregating $15.4 million to certain of the
Company's physicians as bonuses for prior services and for covenants not to
compete occuring at the time of the investment in the Company by Summit in
1992.

17
20

(2) The net income (loss) amounts do not include accrued and unpaid dividends
with respect to the Convertible Preferred Stock. See footnote 4 below.
(3) Such amounts represent net income per common share and common equivalent
share, pro forma to give effect to the conversion of the Convertible
Preferred Stock, which was not determined to be a Common Stock equivalent,
into Common Stock in connection with the IPO for 1994 and 1995. The net
income per common share is computed based upon the weighted average number
of shares of Common Stock and Common Stock equivalents, including the
number of shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock, outstanding during the period. Common Stock
issued by the Company during the 12 months immediately preceding the
initial filing of the registration statement relating to the IPO, plus
Common Stock equivalents relating to the grant of Common Stock options
during the same period, have been included in the calculation of weighted
average number of Common Stock equivalents outstanding for 1994 and 1995,
using the treasury stock method and the initial public offering price of
$20 per share.
(4) Immediately prior to the consummation of the IPO in September 1995, the
Convertible Preferred Stock was converted into 4,571,063 shares of Common
Stock and unpaid dividends of approximately $3.7 million were forgiven
pursuant to the terms of the Series A Preferred Stock Purchase Agreement,
dated as of October 26, 1992. Upon conversion, such amounts were credited
to the common stock and additional paid-in capital accounts.
(5) The deficit in total stockholders' equity is due to the net loss in 1992 as
well as the accrual of unpaid cumulative dividends on the Convertible
Preferred Stock. See Note 8 to the Consolidated Financial Statements.

18
21

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INFORMATION

The following Unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1996 is adjusted to give effect to (i) the 1996 Second Quarter
Acquisitions and (ii) the consummation of this offering and the application of
the estimated net proceeds to the Company therefrom, as if these transactions
had occurred on March 31, 1996. The following Unaudited Pro Forma Condensed
Consolidated Statements of Income for the year ended December 31, 1995 give
effect to Recent Acquisitions and the acquisition of NAPIC, and for the three
month period ended March 31, 1996 give effect to the Recent Acquisitions, as if
such transactions had occurred on January 1, 1995. The Unaudited Pro Forma
Condensed Consolidated Financial Statements should be read in conjunction with
the December 31, 1995 and March 31, 1996 historical Consolidated Financial
Statements of the Company and the related notes thereto.

The Unaudited Pro Forma Condensed Consolidated Statements of Income have
been prepared by the Company and are not necessarily indicative of the operating
results that would have been achieved had the Recent Acquisitions and the
acquisition of NAPIC actually occurred on January 1, 1995, nor do they purport
to indicate the results of future operations.

The Unaudited Pro Forma Condensed Consolidated Statements of Income combine
the Company's Consolidated Statements of Operations with the historical
operations of the Recent Acquisitions and the acquisition of NAPIC prior to the
dates the Company made such acquisitions.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)

1996 PRO FORMA
SECOND AFTER 1996
QUARTER SECOND
ACQUISITION QUARTER OFFERING PRO FORMA
COMPANY ADJUSTMENTS(A) ACQUISITIONS ADJUSTMENT AS ADJUSTED
------- -------------- ------------ ----------- -----------

ASSETS
Current assets:
Cash and cash equivalents................ $ 7,084 $ 7,084 $70,689(b) $ 77,773
Investments in marketable securities..... 26,552 $(18,450)(c) 8,102 8,102
Accounts receivable, net................. 15,484 585 (c) 16,069 16,069
Other current assets..................... 1,671 1,671 1,671
------- -------- -------- ------- ---------
Total current assets............... 50,791 (17,865) 32,926 70,689 103,615
Property and equipment, net................ 5,242 5,242 5,242
Other assets............................... 21,338 18,450 (c) 39,788 39,788
------- -------- -------- ------- ---------
Total assets....................... $77,371 $ 585 $ 77,956 $70,689 $ 148,645
======== ======== ======== ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.... $ 7,539 $ 585 (c) $ 8,124 $ 8,124
Current portion of note payable.......... 64 64 64
Deferred income taxes.................... 3,471 3,471 3,471
------- -------- -------- ------- ---------
Total current liabilities.......... 11,074 585 11,659 11,659
Note payable............................... 735 735 735
------- -------- -------- ------- ---------
Total liabilities.................. 11,809 585 12,394 12,394
------- -------- -------- ------- ---------
Stockholders' equity:
Common stock............................. 131 131 131
Additional paid-in capital............... 55,809 55,809 $70,689(b) 126,498
Retained earnings........................ 9,657 9,657 9,657
Unrealized loss on investments........... (35) (35) (35)
------- -------- -------- ------- ---------
Total stockholders' equity......... 65,562 65,562 70,689 136,251
------- -------- -------- -------- ---------
Total liabilities and stockholders'
equity........................... $77,371 $ 585 $ 77,956 $70,689 $ 148,645
======== ======== ======== ======== =========

See accompanying notes to pro forma condensed consolidated financial statements.

19
22

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------
RECENT PRO FORMA
ACQUISITIONS ACQUISITION AFTER
COMPANY AND NAPIC(A) ADJUSTMENTS ACQUISITIONS
------- --------------- ----------- ------------

Net patient service revenue............................... $43,860 $25,563 $ 69,423
------- ------- ----------- ------------
Operating expenses:
Salaries and benefits................................... 29,545 19,105 $(1,446)(d) 47,204
Supplies and other operating expenses................... 3,451 5,651 (534)(e) 8,568
Depreciation and amortization........................... 363 101 1,299(f) 1,763
------- ------- ----------- ------------
Total operating expenses.......................... 33,359 24,857 (681) 57,535
------- ------- ----------- ------------
Income from operations.................................... 10,501 706 681 11,888
Investment income......................................... 804 59 (326)(g) 537
Interest expense.......................................... (117) (7) (124)
Other income, net......................................... -- 58 58
------- ------- ----------- ------------
Income before income taxes........................ 11,188 816 355 12,359
Income tax provision (benefit)............................ 4,475 (476) 843(h) 5,262
420(i)
------- ------- ----------- ------------
Net income........................................ $ 6,713 $ 1,292 $ (908) $ 7,097
======= ============= =========== ===========
Earnings per share(j)..................................... $ 0.55 $ 0.58
Weighted average shares used in computing net income per
common and common equivalent share...................... 12,216 12,216

THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
PRO FORMA
RECENT ACQUISITION AFTER
COMPANY ACQUISITIONS(A) ADJUSTMENTS ACQUISITIONS
------- --------------- ----------- ------------

Net patient service revenue............................... $16,127 $ 5,215 $ 21,342
------- ------- ----------- ------------
Operating expenses:
Salaries and benefits................................... 10,796 3,609 $ (189)(d) 14,216
Supplies and other operating expenses................... 1,213 933 (129)(e) 2,017
Depreciation and amortization........................... 233 23 204(f) 460
------- ------- ----------- ------------
Total operating expenses.......................... 12,242 4,565 (114) 16,693
------- ------- ----------- ------------
Income from operations.................................... 3,885 650 114 4,649
Investment income......................................... 499 -- (407)(g) 92
Interest expense.......................................... (35) -- (35)
Other income, net......................................... -- -- --
------- ------- ----------- ------------
Income before income taxes........................ 4,349 650 (293) 4,706
Income tax provision...................................... 1,737 101 148(h) 1,904
(82)(i)
------- ------- ----------- ------------
Net income........................................ $ 2,612 $ 549 $ (359) $ 2,802
======== ============= =========== ===========
Earnings per share
Primary............................................... $ 0.19 $ 0.20
Fully diluted......................................... $ 0.19 $ 0.20
Weighted average shares used in computing net income per
common and common equivalent share
Primary............................................... 13,697 13,697
Fully diluted......................................... 13,726 13,726

See accompanying notes to pro forma condensed consolidated financial statements.

20
23

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

A description of the adjustments included in the pro forma consolidated
financial statements are as follows (in thousands, unless otherwise noted):

(a) The following acquisitions have been accounted for using the purchase
method of accounting.

NAME OF PURCHASE TOTAL ASSETS TOTAL LIABILITIES GOODWILL
ACQUISITION DATE OF ACQUISITION PRICE RECORDED RECORDED(1) RECORDED
- ------------------ --------------------- -------- ------------ ----------------- --------
(IN MILLIONS)

NAPIC............. July 27, 1995 $3.0 $4.6 $ 1.4 $3.8
NSL............... January 16, 1996 6.0 6.5 0.5 5.7
CNA(2)............ January 29, 1996 1.4 2.0 0.6 1.6
PNC(2)............ January 29, 1996 3.6 3.8 0.3 3.8
RMN............... May 1, 1996 7.2 7.7 0.6 7.2
WTNA.............. May 30, 1996 5.3 5.3 -- 5.3
ICS............... June 6, 1996 6.0 6.0 -- 6.0

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

(1) Total liabilities recorded by the Company consist of expenses incurred in
connection with the acquisition and liabilities recorded for accounts
receivable due to the prior shareholders of the entities acquired. The
Company's liabilities for NAPIC and NSL include the purchase and payment of
premiums for professional liability tail coverage. Liability tail coverage
has been purchased and the premiums are being paid by the prior shareholders
in all of the other Recent Acquisitions.
(2) The prior shareholders of CNA and the shareholders of PNC are also eligible
to receive additional cash consideration in an amount not to exceed $667,000
and $1.3 million, respectively, in April 1997 if certain targets are
achieved at the hospitals previously served by such acquired entity during
the period from February 1, 1996 to January 31, 1997.

PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS

(b) Reflects the estimated net proceeds of the offering of $70.7 million
(assuming sale of 1.5 million shares at $49.25 per share (closing price at June
25, 1996), estimated offering expenses of $600,000 and 3.5% underwriters'
discounts and commissions).

(c) Reflects the purchase by the Company of the 1996 Second Quarter
Acquisitions for consideration of $18.5 million in cash. Net assets acquired are
as follows:

Accounts receivable........................................ $ 585
Other noncurrent assets.................................... 18,450
Current liabilities........................................ (585)
-------
Total cash consideration......................... $18,450
=======

PRO FORMA CONSOLIDATED STATEMENTS OF INCOME ADJUSTMENTS

(d) Reflects the elimination of certain amounts of compensation, bonuses
and other benefits paid principally to shareholders and other physicians that
will not be paid in the future as a result of the following acquisitions and the
employment agreements entered into as a result of these acquisitions. For the
acquisition of WTNA, the adjustments represent amounts to be paid by the Company
under employment agreements.

21
24

Such amounts were previously not recorded by WTNA in the historical financial
statements as compensation expense since WTNA was a Partnership and such amounts
were treated as Partnership draws.

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

NAPIC................................... $ -- $ --
NSL..................................... 966 40
CNA..................................... 91 (27)
PNC..................................... 599 50
RMN..................................... 573 322
WTNA.................................... (783) (196)
ICS..................................... -- --
------- -------
Total......................... $ 1,446 $ 189
================== ===============

(e) Reflects the reduction in the cost of malpractice insurance incurred by
the Recent Acquisitions and NAPIC prior to the respective dates of their
acquisition as a result of the Company's existing insurance arrangements.

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

NAPIC................................... $ 156 $ --
NSL..................................... 45 2
CNA..................................... 10 1
PNC..................................... 17 1
RMN..................................... 36 10
WTNA.................................... 6 --
ICS..................................... 264 115
------- -------
Total......................... $ 534 $ 129
================== ===============

(f) Reflects the amortization of goodwill, based on the allocation of the
purchase prices paid in the Recent Acquisitions and the acquisition of NAPIC,
which is being amortized on a straight-line basis over 25 years as follows:

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

NAPIC................................... $ 114 $ --
NSL..................................... 229 14
CNA..................................... 65 1
PNC..................................... 153 4
RMN..................................... 288 72
WTNA.................................... 210 53
ICS..................................... 240 60
------- -------
Total......................... $ 1,299 $ 204
================== ===============

(g) Reflects the elimination of that portion of investment income from
interest on the investment of the net proceeds of the IPO assumed to be used by
the Company for acquisitions and thus are no longer available by the Company for
investment purposes assuming an average interest rate of 4.0% for 1995 and 5.0%
for the first quarter ended March 31, 1996.

(h) Reflects the incremental income taxes on the operations of the
following entities that were either a Subchapter S corporation or a general
partnership prior to the respective dates of their acquisition and assuming an
effective income tax rate of 40% as follows:

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

NSL..................................... $ 162 $ 7
PNC..................................... 32 3
WTNA.................................... 649 138
------ ------
Total......................... $ 843 $148
================== ===============

(i) Reflects the income tax benefit of the pro forma adjustments at an
assumed income tax rate of 40%.

(j) Such amount represents pro forma net income per common share and common
equivalent share as a result of the conversion of the Convertible Preferred
Stock in connection with the IPO. See Note 2 to the Consolidated Financial
Statements.

22
25

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

GENERAL

Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. The Company also provides physician management services
to hospital-based PICUs and pediatrics departments in hospitals. Pediatrix was
incorporated in 1980 by its co-founders, Drs. Roger Medel and Gregory Melnick.
Since obtaining its first hospital contract in 1980, the Company has grown by
increasing revenues at existing units ("same unit growth") and by adding new
units.

In July 1995, the Company completed its first acquisition of a neonatal
physician group practice. Since its IPO in September 1995, the Company has
enhanced its management infrastructure, thereby strengthening its ability to
identify acquisition candidates, consummate transactions and integrate acquired
physician group practices into the Company's operations. During the first half
of 1996, the Company completed the Recent Acquisitions, which added 24 NICUs,
four PICUs, one pediatrics department and 50 physicians. In the aggregate, the
number of NICU patient days attributable to the Recent Aquisitions during 1995
was approximately 90,000. The Company has developed regional networks in Denver,
Phoenix and Southern California and intends to develop additional regional and
state-wide networks. The Company believes these networks, augmented by ongoing
marketing and acquisition efforts, will strengthen its position with third party
payors, such as Medicaid and managed care organizations. See
"Business -- Strategy."

The following chart identifies the number and geographic distribution of
the hospitals as of June 15, 1996 where the Company provides services. See
"Business -- Physician Management Services."

TYPE OF
LOCATION OF HOSPITAL EFFECTIVE DATE FACILITY
- --------------------- ----------------- ----------

FT. LAUDERDALE, FL July, 1980 NICU
BOYNTON BEACH, FL January, 1983 NICU
CORAL SPRINGS, FL February, 1987 NICU/PICU
CHARLESTON, WV July, 1990 NICU
FT. LAUDERDALE, FL July, 1991 PICU
ALEXANDRIA, VA November, 1991 NICU
PONCE, PR March, 1992 NICU
LEESBURG, VA July, 1992 NICU
FREDERICKSBURG, VA July, 1992 NICU
VIRGINIA BEACH, VA September, 1992 NICU
TRENTON, NJ October, 1992 NICU
WICHITA, KS April, 1993 NICU
HATO REY, PR August, 1993 NICU/PICU
STRATFORD, NJ August, 1993 NICU
TURNERSVILLE, NJ August, 1993 NICU
BOCA RATON, FL September, 1993 NICU
ELMIRA, NY October, 1993 NICU
TRENTON, NJ December, 1993 PEDS(a)
UTICA, NY March, 1994 NICU
WICHITA, KS June, 1994 PICU
BARRINGTON, IL July, 1994 NICU
WATERTOWN, NY July, 1994 NICU
HARRISBURG, PA September, 1994 NICU
GRAND RAPIDS, MI October, 1994 NICU
TRENTON, NJ January, 1995 NICU
TRENTON, NJ January, 1995 PEDS(a)
HOUSTON, TX June, 1995 NICU
PONTIAC, MI July, 1995 NICU
DAYTON, OH July, 1995 NICU
KETTERING, OH July, 1995 NICU
DAYTON, OH July, 1995 NICU
HOBOKEN, NJ July, 1995 NICU

TYPE OF
LOCATION OF HOSPITAL EFFECTIVE DATE FACILITY
- --------------------- ----------------- ----------

APPLE VALLEY, CA August, 1995 NICU
FULLERTON, CA August, 1995 NICU
NEWPORT BEACH, CA August, 1995 NICU
OCEANSIDE, CA August, 1995 NICU
SANTA ANA, CA August, 1995 NICU
MESA, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
PHOENIX, AZ January, 1996 NICU
GLENDALE, AZ January, 1996 NICU
DENVER, CO January, 1996 NICU
WESTMINSTER, CO January, 1996 NICU
DENVER, CO January, 1996 NICU/PICU
LITTLETON, CO January, 1996 NICU/PICU
DENVER, CO January, 1996 PEDS(a)
ENGLEWOOD, CO January, 1996 NICU/PICU
SANTURCE, PR February, 1996 NICU
DENVER, CO May, 1996 NICU/PICU
AURORA, CO May, 1996 NICU
EL PASO, TX May, 1996 NICU
EL PASO, TX May, 1996 NICU
EL PASO, TX May, 1996 NICU
LAGUNA HILLS, CA June, 1996 NICU
RIVERSIDE, CA June, 1996 NICU
WEST COVINA, CA June, 1996 NICU
WEST COVINA, CA June, 1996 NICU
FOUNTAIN VALLEY, CA June, 1996 NICU
ENCINO, CA June, 1996 NICU
VENTURA, CA June, 1996 NICU
SAN LUIS OBISPO, CA June, 1996 NICU
SOUTH LAGUNA, CA June, 1996 NICU

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

(a) The Company provides physician management services to pediatrics departments
at these locations.

23
26

The Company bills payors for services provided by physicians based upon
rates for the specific services provided. The rates are substantially the same
for all patients in a particular geographic area regardless of the party
responsible for paying the bill. The Company determines its net patient service
revenue based upon the difference between the gross fees for services and the
ultimate collections from payors which differ from the gross fees due to (i)
Medicaid reimbursements at government established rates, (ii) managed care
payments at contracted rates, (iii) various reimbursement plans and negotiated
reimbursements from other third party payors and (iv) discounted and
uncollectible accounts of private pay patients.

The Company seeks to increase revenue at existing units in hospitals by
providing support to areas of the hospital outside the NICU and PICU,
particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical. The following table
summarizes the fees for services by the point at which services originate,
expressed as a percentage of total net patient service revenue, exclusive of
administrative fees, for the periods indicated.

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

NICU....................................................... 73.4% 74.7% 78.2%
PICU and PEDS.............................................. 7.7 6.0 3.8
Other(1)................................................... 18.9 19.3 18.0
----- ----- ------
100.0% 100.0% 100.0%
===== ===== ==========

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

(1) Represents the net patient service revenue generated by physicians providing
support to areas of hospitals outside the NICU and PICU and by physicians
in pediatric subspecialty offices outside of hospitals.

PAYOR MIX

The Company's payor mix is comprised of government (principally Medicaid),
managed care payors, other third party payors and private pay patients. The
Company benefits when more patients are covered by Medicaid, despite Medicaid's
lower reimbursement rates as compared with those of managed care payors, other
third party payors and private payors, because typically these patients would
not otherwise be able to pay for services due to lack of insurance coverage. In
addition, the Company benefits from the fact that most of the medical services
provided at the NICU or PICU are classified as emergency services, a category
typically classified as a covered service by managed care payors. A significant
increase in the managed care or capitated components of the Company's payor mix,
however, could result in reduced reimbursement rates and, in the absence of
increased patient volume, could have a material adverse effect on the Company's
financial condition and results of operations. See "Risk Factors -- Reliance
upon Government Programs; Possible Reduction in Reimbursement." The following is
a summary of the Company's payor mix, expressed as a percentage of total net
patient service revenue, exclusive of administrative fees, for the periods
indicated.

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

Government................................................... 26 % 31 % 30%
Managed care................................................. 23 24 31
Other third party payors..................................... 44 39 34
Private pay.................................................. 7 6 5
---- ---- ---
100 % 100 % 100%
==== ==== ==========

24
27

RESULTS OF OPERATIONS

The following discussion provides an analysis of the Company's results of
operations and should be read in conjunction with the Unaudited Pro Forma
Condensed Consolidated Information and the Consolidated Financial Statements and
related notes thereto appearing elsewhere in this Prospectus. The operating
results for the periods presented were not significantly affected by inflation.

The following table sets forth, for the periods indicated, certain
information relating to the Company's operations expressed as a percentage of
the Company's net patient service revenue (patient billings net of contractual
adjustments and uncollectibles, and including administrative fees):

THREE MONTHS
YEARS ENDED DECEMBER ENDED MARCH
31, 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----

Net patient service revenue.................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Salaries and benefits...................... 63.0 63.2 67.4 70.6 66.9
Supplies and other operating expenses...... 9.5 8.5 7.9 6.8 7.6
Depreciation and amortization.............. .4 .7 .8 .8 1.4
----- ----- ----- ----- -----
Total operating expenses........... 72.9 72.4 76.1 78.2 75.9
----- ----- ----- ----- -----
Income from operations..................... 27.1 27.6 23.9 21.8 24.1
Other income (expense), net.................. (.3) .3 1.6 .9 2.9
----- ----- ----- ----- -----
Income before income taxes................. 26.8 27.9 25.5 22.7 27.0
Income tax provision......................... 9.2 11.4 10.2 9.1 10.8
----- ----- ----- ----- -----
Net income................................. 17.6% 16.5% 15.3% 13.6% 16.2%
===== ===== ===== ===== =====

Three Months Ended March 31, 1996 as Compared to Three Months Ended March 31,
1995

The Company reported net patient service revenue of $16.1 million for the
three months ended March 31, 1996, as compared with $8.9 million for the same
period in 1995, a growth rate of 81.5%. Of this $7.2 million increase, $6.3
million, or 87.5%, was attributable to new units, including units at which the
Company provides services as a result of acquisitions. Same unit patient service
revenue, exclusive of administrative fees, increased $559,000, or 7.2%, for the
three months ended March 31, 1996, compared to the same period in 1995. Same
units are those units at which the Company provided services for the entire
period for which the percentage is calculated and the entire prior comparable
period. The same unit growth resulted from volume increases as there were no
general price increases during the periods. See "-- Quarterly Results."

Salaries and benefits increased $4.5 million, or 72.2%, to $10.8 million
for the three months ended March 31, 1996, as compared with $6.3 million for the
same period in 1995. Of this $4.5 million increase, $3.4 million, or 75.6%, was
attributable to hiring new physicians, primarily to support new unit growth, and
the remaining $1.1 million was primarily attributable to increased support staff
and resources added in the areas of nursing, management and billing and
reimbursement. Supplies and other operating expenses increased $606,000, or
100%, to $1.2 million for the three months ended March 31, 1996, as compared
with $607,000 for the same period in 1995, primarily as a result of new units.
Depreciation and amortization expense increased by $159,000, or 214.9%, to
$233,000 for the three months ended March 31, 1996, as compared with $74,000 for
the same period in 1995, primarily as a result of amortization of goodwill in
connection with acquisitions.

Income from operations increased approximately $2.0 million, or 100.8%, to
$3.9 million for the three months ended March 31, 1996, as compared with $1.9
million for the same period in 1995, representing an increase in the operating
margin from 21.8% to 24.1%. The increase in operating margin was primarily due
to increased volume, principally from acquisitions.

The Company earned net interest income of approximately $499,000 for the
three months ended March 31, 1996, as compared with $107,000 for the same period
in 1995. The increase in net interest income

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resulted primarily from additional funds available for investment due to
proceeds from the initial public offering and cash flow from operations.

The effective income tax rate was approximately 40% for both of the three
month periods ended March 31, 1996 and 1995.

Net income increased 116.0% to $2.6 million for the three months ended
March 31, 1996, as compared with $1.2 million for the same period in 1995. Net
income as a percentage of net patient service revenue increased to 16.2% for the
three months ended March 31, 1996, compared to 13.6% for the same period in
1995.

Year Ended December 31, 1995 as Compared to Year Ended December 31, 1994

Net patient service revenue increased by $11.1 million, or 33.8%, to $43.9
million for the year ended December 31, 1995 compared to $32.8 million for the
year ended December 31, 1994. Of this $11.1 million increase, $10.9 million, or
98.2%, was attributable to new contracts, including $2.7 million, or 24.3%,
attributable to contracts acquired in connection with the acquisition of NAPIC
in the third quarter of 1995. Same unit patient service revenue, exclusive of
administrative fees, increased $689,000, or 2.6%. Same units are those units at
which the Company provided services for the entire period for which the
percentage is calculated and the entire prior comparable period. The same unit
growth resulted from volume increases as there were no general price increases
during the periods.

Salaries and benefits increased by $8.8 million, or 42.6%, to $29.5 million
for the year ended December 31, 1995, compared to $20.7 million for the year
ended December 31, 1994. Of this $8.8 million increase, $6.5 million, or 73.9%,
was attributable to hiring of new physicians, primarily to support new contract
growth, and the remaining $2.3 million was primarily attributable to increased
support staff and resources added in the areas of nursing, executive management
and billing and reimbursement. Supplies and other operating expenses increased
$677,000, or 24.4%, to $3.5 million for the year ended December 31, 1995,
compared to $2.8 million for the year ended December 31, 1994, primarily as a
result of increased contract activity. Depreciation and amortization expense
increased by $119,000 or 48.8%, to $363,000 for the year ended December 31, 1995
compared to $244,000 in 1994, primarily as a result of additions of computer
equipment and amortization of goodwill in connection with the acquisition of
NAPIC.

Income from operations increased $1.5 million, or 16.2%, to $10.5 million
for the year ended December 31, 1995, compared to $9.0 million for the year
ended December 31, 1994, representing a decrease in the operating income margin
from 27.6% to 23.9%. The decrease in operating income margin was primarily due
to increases in salaries and benefits to support new contract growth.

The Company earned net interest income of $687,000 for the year ended
December 31, 1995, compared to net interest income of $118,000 for the year
ended December 31, 1994. This increase in net interest income primarily resulted
from the investment of IPO net proceeds.

The effective income tax rate was approximately 40.0% for the year ended
December 31, 1995 compared with 40.9% for the year ended December 31, 1994.

Net income increased by $1.3 million, or 24.1%, to $6.7 million for the
year ended December 31, 1995, compared to $5.4 million for the year ended
December 31, 1994. Net income as a percentage of net patient service revenue
decreased to 15.3% for the year ended December 31, 1995, compared to 16.5% for
the year ended December 31, 1994.

Year Ended December 31, 1994 as Compared to Year Ended December 31, 1993

Net patient service revenue increased by $9.2 million, or 39.1%, to $32.8
million in 1994, compared to $23.6 million in 1993. Of this $9.2 million
increase, $8.5 million, or 92%, was attributable to new contracts, and $716,000
was attributable to same units which grew 3.4%. Same units are those units that
were under contract with the Company prior to 1993. Same unit growth resulted
generally from volume increases with little or no impact from price increases.

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Salaries and benefits increased by $5.9 million, or 39.5%, to $20.7 million
in 1994, compared to $14.9 million in 1993. Of this $5.9 million increase, $4.6
million, or 78.0%, was attributable to hiring of new physicians, primarily to
support new contract growth, and the remaining $1.3 million was primarily
attributable to increased support staff and resources added in the areas of
executive management and billing and reimbursement. Supplies and other operating
expenses increased $544,000, or 24.4%, to $2.8 million in 1994, compared to $2.2
million in 1993, primarily as a result of increased advertising and contract
activity. Depreciation expenses increased by $148,000 to $244,000 in 1994,
primarily as a result of a full year's depreciation in 1994 of the Company's
executive offices, which were occupied in July 1993.

Income from operations increased by $2.6 million, or 41.4%, to $9.0 million
in 1994, compared to $6.4 million in 1993, representing an increase in the
operating income margin from 27.1% to 27.6%. The increase in operating income
margin was primarily due to same unit growth.

The Company earned net interest income of $118,000 in 1994, while it
incurred net interest expense of $60,000 in 1993. This increase in net interest
income primarily resulted from the reduction in 1993 of the debt incurred by the
Company with respect to a stock repurchase and land and building acquisition and
the accumulation of cash balances which amounted to $7.4 million as of December
31, 1994.

The effective income tax rate was approximately 40.9% in 1994 compared to
approximately 34.3% in 1993 with the increase resulting primarily from the
effect of state income taxes.

Net income increased by $1.3 million, or 30.3%, to $5.4 million in 1994,
compared to $4.1 million in 1993. Net income as a percentage of net patient
service revenue decreased to 16.5% in 1994, compared to 17.6% in 1993 due
primarily to the higher effective tax rate in 1994.

QUARTERLY RESULTS

The following table presents certain unaudited quarterly financial data for
each of the quarters in the years ended December 31, 1994 and 1995 and the
quarter ended March 31 1996. This information has been prepared on the same
basis as the Consolidated Financial Statements appearing elsewhere in this
Prospectus and include, in the opinion of the Company, all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the quarterly results when read in conjunction with the Consolidated Financial
Statements and the notes thereto. The Company has historically experienced and
expects to continue to experience quarterly fluctuations in net patient service
revenue and net income. As a result, the operating results for any quarter are
not necessarily indicative of results for any future period or for the full
year. See "Risk Factors -- Quarterly Fluctuations in Operating Results;
Potential Volatility."

1994 CALENDAR QUARTERS 1995 CALENDAR QUARTERS 1996 CALENDAR
--------------------------------- ----------------------------------- QUARTER
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
------ ------ ------ ------ ------ ------ ------- ------- -------------
(IN THOUSANDS)

Net patient service revenue.......... $7,190 $7,612 $9,032 $8,945 $8,886 $9,131 $12,478 $13,365 $16,127
Operating expenses:
Salaries and benefits.............. 4,481 4,639 5,455 6,148 6,270 6,322 8,212 8,741 10,796
Supplies and other operating
expenses......................... 496 711 689 878 607 831 967 1,046 1,213
Depreciation and amortization...... 49 59 65 71 74 66 99 124 233
------ ------ ------ ------ ------ ------ ------- ------- -------------
Total operating expenses..... 5,026 5,409 6,209 7,097 6,951 7,219 9,278 9,911 12,242
------ ------ ------ ------ ------ ------ ------- ------- -------------
Income from operations............... 2,164 2,203 2,823 1,848 1,935 1,912 3,200 3,454 3,885
Other income, net.................... 7 15 37 59 79 116 85 407 464
------ ------ ------ ------ ------ ------ ------- ------- -------------
Income before income taxes........... 2,171 2,218 2,860 1,907 2,014 2,028 3,285 3,861 4,349
Income tax provision................. 889 908 1,171 781 805 812 1,314 1,544 1,737
------ ------ ------ ------ ------ ------ ------- ------- -------------
Net income........................... $1,282 $1,310 $1,689 $1,126 $1,209 $1,216 $ 1,971 $ 2,317 $ 2,612
====== ====== ====== ====== ====== ====== ======= ======= =============

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LIQUIDITY AND CAPITAL RESOURCES

Prior to the IPO, the Company generated sufficient cash flow from
operations to support its growth strategy, which primarily consisted of
marketing directly to hospital administrators. The Company significantly
increased its acquisition activities commencing with the fourth quarter of 1995.
During the first quarter of 1996, the Company completed three acquisitions of
neonatology physician group practices, utilizing approximately $11.0 million of
net proceeds from the IPO. As of March 31, 1996, the Company had approximately
$33.6 million of cash, cash equivalents and marketable securities. From April 1,
1996 through June 15, 1996, the Company completed three additional acquisitions
utilizing approximately $18.5 million of net proceeds from the IPO.

As of March 31, 1996, the Company had working capital of approximately
$39.7 million, a decrease of $13.7 million from the working capital of $53.4
million available at December 31, 1995. The decrease is due principally to the
acquisition of three physician group practices for aggregate consideration of
approximately $11.0 million in cash as well as additions to property and
equipment and other assets.

On June 27, 1996, the Company entered into a $30.0 million unsecured
revolving credit facility (the "Credit Facility") with The First National Bank
of Boston ("Bank of Boston") and SunTrust Bank, which includes a $2.0 million
amount reserved to cover deductibles under the Company's malpractice insurance
policies. The Company intends to use amounts available under the Credit Facility
primarily for acquisitions. The Credit Facility matures on June 30, 1999. At the
Company's option, the Credit Facility bears interest at either LIBOR plus .875%
or the prime rate announced by Bank of Boston. There is no balance currently
outstanding under the Credit Facility.

The Company is constructing a new building, which is scheduled to be
completed in the third quarter of 1996 at an anticipated total cost of
approximately $2.3 million. The Company has been funding the construction of the
new building with available cash. The Company has an $800,000 mortgage loan with
Bank of Boston which is secured by the corporate headquarters building. The
Company has received a $3.0 million commitment from Bank of Boston for a
mortgage loan on the new building and the corporate headquarters, which will
replace the $800,000 mortgage loan.

The Company's annual capital expenditures have typically been for computer
hardware and software and for furniture, equipment and improvements at the
corporate headquarters. During the three months ended March 31, 1996, capital
expenditures amounted to approximately $800,000. For the remainder of 1996, the
Company anticipates capital expenditures of approximately $3.3 million,
including approximately $1.0 million for computer hardware and software, $1.5
million for the completion of the new building, and other expenditures, such as
furnishing the new building and renovating the corporate headquarters. See
"Business -- Properties." Capital expenditures during 1997 are not expected to
exceed $2.0 million, principally for computer hardware and software.

The Company anticipates that funds generated from operations, together with
the net proceeds of this offering, cash and marketable securities on hand and
funds available under the Credit Facility, will be sufficient to meet its
working capital requirements and finance any required capital expenditures and
acquisitions for both the short-term and long-term.

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BUSINESS

Pediatrix is the nation's leading provider of physician management services
to hospital-based NICUs. NICUs provide medical care to newborn infants with low
birth weight and other medical complications, and are staffed with specialized
pediatric physicians, known as neonatologists. Based upon its own market
research, knowledge of the health care industry and experience in neonatology,
the Company believes that it is the only provider of NICU physician management
services that markets its services on a national basis. The Company also
provides physician management services to hospital-based PICUs, units which
provide medical care to critically ill children and are staffed with
specially-trained pediatricians, and pediatrics departments in hospitals. As of
June 15, 1996, the Company provided services to 58 NICUs, eight PICUs and three
pediatrics departments in 14 states and Puerto Rico and employed or contracted
with 163 physicians. See "Recent Developments."

The Company staffs and manages NICUs and PICUs in hospitals, providing the
physicians, professional management and administrative support, including
billing and reimbursement expertise and services. The Company's policy is to
provide 24-hour coverage at its NICUs and PICUs with on-site or on-call
physicians. As a result of this policy, physicians are available to provide
continuous pediatric support to other areas of the hospital on an as-needed
basis, particularly in the obstetrics, nursery and pediatrics departments, where
immediate accessibility to specialized care is critical.

Pediatrix established its leading position in physician management services
to NICUs by developing a comprehensive care model and management and systems
infrastructure that address the needs of patients, hospitals, payor groups and
physicians. Pediatrix addresses the needs of (i) patients by providing
continuous, comprehensive, professional quality care, (ii) hospitals by
recruiting, credentialing, and retaining neonatologists and hiring related staff
to operate NICUs in a cost-effective manner thereby relieving hospitals of the
financial and administrative burdens of operating the NICUs, (iii) payor groups
by providing cost-effective care to patients and (iv) physicians by providing
administrative support, including physician billing and reimbursement expertise
and services, to enable them to focus on providing care to patients, and by
offering an opportunity for career advancement within Pediatrix.

INDUSTRY OVERVIEW

The evolving managed care environment has created substantial cost
containment pressures for all constituents of the health care industry. The
increasing use of fixed-payment systems that shift financial risk from payors to
providers has forced hospitals, in particular, to be more cost-effective in all
aspects of their operations. A trend among hospitals is to utilize third party
contract management companies to manage specialized functions in an effort to
contain costs, improve utilization management, and reduce administrative
burdens. Physician management organizations provide hospitals with professional
management of staff, including recruiting, staffing and scheduling of
physicians.

Physicians are responding to cost containment pressures by joining group
practices through which they have greater leverage to negotiate and contract
with hospitals and managed care payors. Physician management organizations
provide a physician group practice an alternative to self management that
enables physicians to maintain their clinical autonomy while creating greater
negotiating power with payors and hospitals, and providing administrative
support to deal with the increasing complexity of billing and reimbursement.
Physician group practices are becoming larger and more prevalent. The Company
believes that as cost pressures continue to influence the medical industry, the
trend of physicians joining group practices will continue. Although the Company
continues to market its services to hospitals to obtain new contracts, the
Company has shifted its strategy to growth through acquisitions as physicians
become more receptive to being acquired.

The Company believes that hospitals will continue to outsource certain
units, such as NICUs and PICUs, on a contract management basis. NICUs and PICUs
present significant operational challenges for hospitals, including complex
billing procedures, highly variable admissions rates, and difficulties in
recruiting and retaining qualified physicians. These operational challenges
generally make it difficult for hospitals to operate these units profitably.
Traditionally, hospitals have staffed their NICUs internally, through
affiliations with small, local physician groups or with independent
practitioners. These small practices typically lack the necessary expertise and
support services in billing and reimbursement, recruiting and effective medical

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32

management to operate NICUs on a cost-effective basis. Hospitals are
increasingly seeking to contract with physician management services
organizations that have the capital resources, information and reimbursement
systems and practice management expertise that NICUs require to accept and
manage risk in the evolving managed care environment.

STRATEGY

Focus on Neonatology and Pediatrics. Since its founding in 1980, the
Company has focused exclusively on neonatology and pediatrics. As a result
of this focus the Company believes it has (i) developed significant
expertise in the complexities of billing and reimbursement for neonatology
physician services and (ii) a competitive advantage in recruiting and
retaining neonatologists seeking to join a group practice. The Company
believes its continued focus will allow it to enhance its position as the
nation's leading provider of physician management services to NICUs.

Acquire Neonatal Physician Group Practices. The Company intends to
further increase the number of units at which its provides physician
management services by acquiring well-established neonatal physician group
practices. The Company believes that it will continue to benefit from
physicians joining larger practice groups in an effort to increase
negotiating power with managed care organizations and eliminate
administrative burdens, while maintaining clinical autonomy. The Company
completed its first acquisition of a neonatology physician group practice
in California in July 1995 and completed acquisitions of six neonatology
physician group practices in the first half of 1996. The Company is
actively pursuing acquisitions of other neonatal physician group practices.
No assurance can be given that future acquisition candidates will be
identified or that any future acquisitions will be consummated. See "Recent
Developments."

Develop Regional Networks. The Company intends to develop regional
and state-wide networks of NICUs in geographic areas with high
concentrations of births. The Company operates regional networks in Denver,
Phoenix and Southern California. The Company believes that the development
of regional and state-wide networks will strengthen its position with third
party payors, such as Medicaid and managed care organizations, since such
networks will offer more choice to the patients of third party payors.

Increase Same Unit Growth. The Company seeks to provide its services
to hospitals where the Company can benefit from increased admissions and
intends to increase revenues at existing units by providing support to
areas of the hospital outside the NICU and PICU, particularly in the
obstetrics, nursery and pediatrics departments, where immediate
accessibility to specialized care is critical. These services generate
incremental revenue to the Company, contribute to the Company's overall
profitability, enhance the hospital's profitability, strengthen the
Company's relationship with the hospital, and assist the hospital in
attracting more admissions by enhancing the hospital's reputation in the
community as a full-service critical care provider.

Assist Hospitals to Control Costs. The Company intends to continue
assisting hospitals to control costs. The Company's comprehensive care
model, which promotes early intervention by neonatologists in emergency
situations, as well as the retention of qualified neonatologists, improves
the overall cost-effectiveness of care. The Company believes that its
ability to assist hospitals to control costs will allow it

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33

to continue to be successful in adding new units at which the Company
provides physician management services.

Address Challenges of Managed Care Environment. The Company intends
to continue to develop new methods of doing business with managed care and
third party payors, which will allow it to develop relationships among
payors, hospitals and the Company. The Company is also prepared to enter
into flexible arrangements with third party payors, including capitation
arrangements. As the nation's leading provider of physician management
services to NICUs, the Company believes that it is well-positioned to
address the needs of managed care organizations and other third party
payors which seek to contract with cost-effective, quality providers of
medical services.

PHYSICIAN MANAGEMENT SERVICES

The Company provides physician management services to NICUs and PICUs,
providing (i) a medical director to manage the unit, (ii) recruiting, staffing
and scheduling of physicians and certain other medical staff, (iii) neonatology
and pediatric support to other hospital departments, (iv) pediatric subspecialty
services and (v) billing and reimbursement expertise and services. These
physician management services include:

Unit Management. The Company staffs each NICU and PICU it manages
with a medical director who reports to the CMO of the Company. The CMO and
all medical directors at these units are board certified or board eligible
in neonatology, pediatrics, pediatric critical care or pediatric
cardiology. In addition to providing medical care and physician management
in the unit, the medical director is responsible for (i) the overall
management of the unit, including quality of care, professional discipline,
utilization review, physician recruitment, staffing and scheduling, (ii)
serving as a liaison to the hospital administration, (iii) maintaining
professional and public relations in the hospital and the community and
(iv) monitoring the Company's financial success within the unit.

Recruiting, Staffing and Scheduling. The Company is responsible for
recruiting, staffing and scheduling the neonatologists, pediatricians and
advanced registered nurse practitioners ("ARNPs") within the NICU and PICU
of the hospital. The Company's recruiting department maintains an extensive
database of neonatologists and pediatricians nationwide from which to draw
for recruiting purposes. All candidates are pre-screened and their
credentials, licensure and references are checked and verified by the
Company. The CMO and the medical directors play a key role in the
recruiting and interviewing process before candidates are introduced to
hospital administrators. The NICUs and PICUs managed by the Company are
staffed with at least one neonatologist or pediatrician on-site or
available on-call. All of these physicians are board certified or board
eligible in neonatology, pediatrics, pediatric critical care or pediatric
cardiology. The Company also employs or contracts with ARNPs, who assist
medical directors and other physicians in operating the NICUs and PICUs.
All ARNPs have either a certificate as a neonatal nurse practitioner or
pediatric nurse practitioner or a masters degree in nursing, and have
previous neonatal or pediatric experience. With respect to the physicians
that are employed by or under contract with the Company, the Company
assumes responsibility for salaries, benefits, bonuses, group health
insurance and physician malpractice insurance. See "-- Contractual
Relationships."

Support to Other Hospital Departments. As part of the Company's
comprehensive care model, physicians provide pediatric support services to
other areas of hospitals, particularly in the obstetrics, nursery and
pediatrics departments, where immediate accessibility to specialized care
is critical. The Company believes this support (i) improves its relations
with hospital staff and referring physicians, (ii) enhances the hospital's
reputation in the community as a full-service critical care provider, (iii)
increases admissions from referring obstetricians and pediatricians, (iv)
integrates the physicians into a hospital's medical community, (v)
generates incremental revenue which contributes to the Company's overall
profitability and (vi) increases the likelihood of renewing and adding new
hospital contracts.

Pediatric Subspecialties. The Company has developed a pediatric
subspecialty program to complement and enhance its comprehensive care
model. The program consists of (i) a director of Pediatric Subspecialties
to administer the program, (ii) four pediatric cardiologists in Florida and
(iii) one pediatric nephrologist (kidney specialist) in Puerto Rico. These
physicians provide out-patient services in

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34

offices outside contracting hospitals. The pediatric cardiologists and the
pediatric nephrologist also assist attending physicians at hospitals in
Florida and Puerto Rico. The Company is exploring the possibility of
expanding the existing program in pediatric cardiology in line with the
Company's other strategic objectives in neonatology and pediatric intensive
care. Expansion of the program will depend in part on the demand for such
critical care services at hospitals and by payor groups.

Billing and Reimbursement. The Company assumes responsibility for all
aspects of the billing, reimbursement and collection process relating to
physician services. Patients treated at the unit receive a bill from the
Company for physician services, and the hospital bills and collects
separately for all other services. To address the increasingly complex and
time-consuming process for obtaining reimbursement for medical services,
the Company has invested in both the technical and human resources
necessary to create an efficient billing and reimbursement process,
including specific claim forms and software systems. The Company begins
this process by providing training to physicians that emphasizes a detailed
review of and proper coding protocol for all procedures performed and
services provided to achieve appropriate collection of revenues for
physician services. Historically, the Company's billing and collection
operations were conducted from its corporate headquarters in Fort
Lauderdale, Florida. In June 1996, the Company opened a business office in
Orange, California to support its operations in California.

MARKETING

Historically, most of the Company's growth was generated internally through
marketing efforts and referrals. The Company significantly increased its
acquisition activities during the fourth quarter of 1995 to capitalize on the
opportunities created by the trend toward consolidation in the health care
industry. The Company's marketing program to neonatal physician groups consists
of (i) market research to identify established physician groups, (ii)
telemarketing to identify and contact acquisition candidates, as well as
hospitals with high demand for NICU services, including certain hospitals
without on-site NICUs, and (iii) a national sales manager and two regional
managers that conduct on-site visits along with senior management. The Company
also advertises its services in hospital and health care trade journals,
participates at hospital and physician trade conferences, and markets its
services directly to hospital administrators and medical staff. In addition, the
Company intends to focus on developing additional regional networks and
state-wide networks to strengthen its position with third party payors, such as
Medicaid and managed care organizations.

MANAGEMENT INFORMATION SYSTEMS

The Company maintains several systems to support day-to-day operations,
business development and ongoing business analysis, including (i) a Company-wide
electronic mail system to assist in intracompany communications and
conferencing, including interaction among physicians regarding clinical matters
on a real-time basis, (ii) electronic interchange with payors utilizing
electronic invoicing and (iii) a database used by the business development and
marketing departments in recruiting individual physicians and identifying
potential neonatal physician group acquisition candidates, which is updated
through telemarketing activities, personal contacts, professional journals and
mail solicitation. The Company is in the process of acquiring and developing an
electronic medical record system. The Company believes that the electronic
medical record system, when implemented, will expedite the reimbursement process
and serve as the source of data for a Company-wide clinical and financing
repository in support of outcomes reporting, financial analysis and clinical
studies.

The Company's management information system is an integral component of the
billing and reimbursement process. The Company's system enables it to track
numerous and diverse third party payor relationships and payment methods and
provides for electronic interchange in support of insurance benefits
verification and claims submission with payors accepting electronic invoicing.
The Company's system was designed to meet its requirements by providing maximum
flexibility as payor groups upgrade their payment and reimbursement systems. See
"Management's Discussion and Analysis and Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

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CONTRACTUAL RELATIONSHIPS

Hospital Relationships. Most of the Company's contracts with hospitals
grant the Company the exclusive right and responsibility to manage the provision
of physician management services to the NICUs and PICUs. The contracts typically
have terms of three to five years and renew automatically for additional terms
of one to five years unless otherwise terminated by either party. The contracts
typically provide that the hospital may terminate the agreement prior to the
expiration of the initial term upon 30 days written notice in the event any
physician (i) loses medical staff membership privileges, (ii) is convicted of a
felony, (iii) is unable to perform duties due to disability or (iv) commits a
grossly negligent act that jeopardizes the health or safety of a patient.

The Company bills for the physicians' services on a fee-for-service basis
separately from other charges billed by the hospital. Certain contracting
hospitals that do not generate sufficient patient volume agree to pay the
Company administrative fees to assure a minimum revenue level. Administrative
fees include guaranteed payments to the Company, as well as fees paid to the
Company by certain hospitals for administrative services performed by the
Company's medical directors at such hospitals. Administrative fees accounted for
13%, 12% and 10% of the Company's net patient service revenue during 1994, 1995
and the three months ended March 31, 1996, respectively. The hospital contracts
typically require that the Company and the physicians performing services
maintain professional liability insurance and general liability insurance in
minimum amounts of $1.0 million per claim per physician and $3.0 million in the
aggregate per year per physician. The Company contracts for and pays the
premiums for such insurance on behalf of the physicians. See "-- Professional
Liability and Insurance."

In addition to contracts with hospitals, staffing at certain hospitals is
provided through the staff membership of the doctors at the hospital on an open
basis in which no group of doctors at the NICU has an exclusive relationship
with the hospital. At June 15, 1996, of the 58 NICUs to which the Company
provided services, twelve were at open hospitals.

Payor Relationships. While virtually all of the Company's contracts with
third party payors are discounted fee for service contracts, as of June 15,
1996, the Company had six contracts that provide for capitated payments,
including four contracts in California with an independent practice association
("IPA"), one contract in Arizona with an HMO and one contract in Texas with an
IPA. The Company is prepared to enter into capitation arrangements with other
third party payors. In the event the Company enters into relationships with
third party payors with respect to regional and state-wide networks, such
relationships may be on a capitated basis.

PA Contractor Relationships. PMG has entered into management agreements
("PA Management Agreements") with PA Contractors in all states in which it
operates, other than Florida. There is one PA Contractor in each state in which
the Company operates. Each PA Contractor is owned by a physician licensed in the
jurisdiction in which the PA Contractor operates, who is also an officer of the
PA Contractor. Under the PA Management Agreements, the PA Contractors delegate
to PMG the administrative, management and support functions (but not any
functions constituting the practice of medicine) that the PA Contractors have
agreed to provide to the hospital. In consideration of such services, each PA
Contractor pays PMG a percentage of the PA Contractor's gross revenue (but in no
event greater than the net profits of such PA Contractor), or a flat fee. PMG
has the discretion to determine whether the fee shall be paid on a monthly,
quarterly or annual basis. The management fee may be adjusted from time to time
to reflect industry standards and the range of services provided by the PA
Contractor. The agreements provide that the term of the arrangements are
permanent, subject only to termination by PMG, and that the PA Contractor shall
not terminate the agreement without PMG's prior written consent. Also, the
agreements provide that PMG or its assigns has the right, but not the
obligation, to purchase the stock of the PA Contractor. See "Risk Factors --
State Laws Regarding Prohibition of Corporate Practice of Medicine", "Risk
Factors -- Dependence on PA Contractors" and Note 2 to the Consolidated
Financial Statements.

Physician Relationships. The Company contracts with the PA Contractors to
provide the medical services required to fulfill its obligations to hospitals.
The physician employment agreements typically have terms of three years and can
be terminated by either party at any time upon 90 days prior written notice. The
physicians generally receive a base salary plus a productivity bonus. The
physician is required to hold a valid

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license to practice medicine in the appropriate jurisdiction in which the
physician practices and to become a member of the medical staff, with
appropriate privileges at the hospital. The Company is responsible for billing
patients and third party payors for services rendered by the physician, and the
Company has the exclusive right to establish the schedule of fees to be charged
for such services. Substantially all of the physicians employed by PMG or the PA
Contractors have agreed not to compete with PMG or the PA Contractor within a
five-mile radius of any hospital for which the physician is rendering medical
services for a period of one to two years after termination of employment. The
Company contracts for and pays the premiums for malpractice insurance on behalf
of the physicians. See "-- Professional Liability and Insurance."

Acquisitions. The Company structures acquisitions of physician practice
groups as asset purchases, stock purchases and stock mergers. Generally, these
structures provide for: (i) the assignment to the Company of the contracts
between the physician practice groups and the hospital at which the physician
practice group provides medical services; (ii) physician "tail insurance"
coverage under which the Company is an insured party to cover malpractice
liabilities that may arise after the date of the acquisition which relate to
events prior to the acquisition; and (iii) indemnification to the Company by the
previous owners of the acquired entity. Generally, in acquisitions structured as
asset purchases, the Company does not acquire the physician practice group's
receivables or liabilities, including malpractice claims, arising from the
physician practice group's activities prior to the date of the acquisition.
Generally, in acquisitions structured as stock purchases or stock mergers, the
physician practice group's receivables (net of any liabilities accruing prior to
the acquisition and permitted indemnification claims) are distributed as
compensation to and collected by the former owners of the physician practice
group.

GOVERNMENT REGULATION

The Company's operations and relationships are subject to a variety of
governmental and regulatory requirements relating to the conduct of its
business. The Company is also subject to laws and regulations which relate to
business corporations in general. The Company believes that it exercises care in
an effort to structure its practices and arrangements with hospitals and
physicians to comply with relevant federal and state law and believes that such
arrangements and practices comply in all material respects with all applicable
statutes and regulations.

Approximately 31% and 30% of the Company's net patient service revenue in
1995 and the three months ended March 31, 1996, respectively, was derived from
payments made by government-sponsored health care programs (principally
Medicaid). These programs are subject to substantial regulation by the federal
and state governments. Any change in reimbursement regulations, policies,
practices, interpretations or statutes that places material limitations on
reimbursement amounts or practices could adversely affect the operations of the
Company. Medicaid and other government reimbursement programs are increasingly
shifting to managed care, which could result in reduced payments to the Company
for Medicaid patients. In addition, funds received under these programs are
subject to audit with respect to the proper billing for physician services and,
accordingly, retroactive adjustments of revenue from these programs may occur.

The Company is also subject to (i) certain provisions of the Social
Security Act, commonly referred to as the "Anti-kickback Statute," which
prohibits entities, such as the Company, from offering, paying, soliciting, or
receiving any form of remuneration in return for the referral of Medicare or
state health program patients or patient care opportunities, or in return for
the recommendation, arrangement, purchase, lease, or order of items or services
that are covered by Medicare or state health programs, (ii) prohibitions against
physician referrals, commonly known as "Stark II," which prohibit, subject to
certain exemptions, a physician or a member of his immediate family from
referring Medicare or Medicaid patients to an entity providing "designated
health services" (which include hospital inpatient and outpatient services) in
which the physician has an ownership or investment interest, or with which the
physician has entered into a compensation arrangement including the physician's
own group practice, and (iii) state and federal civil and criminal statutes
imposing substantial penalties, including civil and criminal fines and
imprisonment, on health care providers which fraudulently or wrongfully bill
governmental or other third party payors for health care services. Although the
Company believes that it is not in violation of these provisions, there can be
no

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assurance that the Company's current or future practices will not be found to be
in violation of these provisions, and any such finding could have a material
adverse effect on the Company.

In addition, business corporations such as PMG are generally not permitted
under state law to practice medicine, exercise control over the medical
judgments or decisions of physicians, or engage in certain practices such as
fee-splitting with physicians. In states where PMG is not permitted to practice
medicine, the Company performs only nonmedical administrative services, does not
represent to the public or its clients that it offers medical services and does
not exercise influence or control over the practice of medicine by the PA
Contractors or the physicians employed by the PA Contractors. Accordingly, the
Company believes it is not in violation of applicable state laws relating to the
practice of medicine. In most states, PMG contracts with the PA Contractors
(which are owned by a licensed physician employed by the respective PA
Contractor), which in turn employ or contract with physicians to provide
necessary physician services. There can be no assurance that regulatory
authorities or other parties will not assert that PMG is engaged in the
corporate practice of medicine or that the percentage fee arrangements between
PMG and the PA Contractors constitute fee splitting or the corporate practice of
medicine. If such a claim were successfully asserted in any jurisdiction, PMG
could be subject to civil and criminal penalties under such jurisdiction's laws
and could be required to restructure its contractual arrangements, which could
have a material adverse effect on the Company's financial condition and results
of operations.

In addition to current regulation, the public and state and federal
governments have recently focused significant attention on reforming the health
care system in the United States. Although the Company cannot predict whether
these or other reductions in the Medicare or Medicaid programs will be adopted,
the adoption of such proposals could have a material adverse effect on the
Company's business. Concern about such proposals has been reflected in
volatility of the stock prices of companies in health care and related
industries.

PROFESSIONAL LIABILITY AND INSURANCE

The Company's business entails an inherent risk of claims of physician
professional liability. The Company maintains professional liability insurance
and general liability insurance on a claims-made basis in the amounts of $1.0
million per incident per physician and ARNP ($2.0 million for certain physicians
in California), and $3.0 million in the aggregate per annum for each physician
and ARNP ($4.0 million for certain physicians in California); $2.0 million per
incident and $4.0 million in the aggregate per annum for the Company; and $12.0
million in the aggregate per year for the Company and all physicians employed by
or under contract with the Company. The Company believes that these amounts,
which represent the required amounts of insurance coverage in the states in
which the Company does business, are appropriate based upon claims experience
and the nature and risks of its business. The Credit Facility includes a $2.0
million amount reserved to cover deductibles under the Company's insurance
policies. There can be no assurance that a pending or future claim or claims
will not be successful or if successful will not exceed the limits of available
insurance coverage or that such coverage will continue to be available at
acceptable costs and on favorable terms. See "-- Proceedings" and "Risk
Factors -- Professional Liability and Insurance."

The physicians that are employed by or contract with the Company are
required to obtain professional liability insurance coverage, and the Company
contracts for and pays the premiums with respect to such insurance for the
physicians. This insurance would provide coverage to the Company, subject to
policy limits, in the event the Company were held liable as a co-defendant in a
lawsuit against a physician or a hospital arising out of the provision of
medical services by the physician. The current policy expires April 30, 1997,
and the Company expects to be able to renew such policy upon such expiration.

COMPETITION

The health care industry is highly competitive and has been subject to
continual changes in the method in which health care services are provided and
the manner in which health care providers are selected and compensated. The
Company believes that private and public reforms in the health care industry
emphasizing cost containment and accountability will result in an increasing
shift of NICU and related pediatric care from highly fragmented, individual or
small practice neonatology providers to physician management companies.
Companies in other health care industry segments, such as managers of other
hospital-based specialties or large physician group practices, some of which
have financial and other resources greater than those of the

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Company, may become competitors in providing management of neonatal and
pediatric intensive care services to hospitals.

The Company provides neonatal and pediatric management services in Arizona,
California, Colorado, Florida, Illinois, Kansas, Michigan, New Jersey, New York,
Ohio, Pennsylvania, Puerto Rico, Texas, Virginia and West Virginia. Competition
in the Company's current markets and other geographic markets where the Company
may expand is generally based upon the Company's reputation and experience, and
the physician's ability to provide cost-effective, quality care.

SERVICE MARKS

The Company has registered the service mark "Pediatrix Medical Group" and
its design with the United States Patent and Trademark Office, and has applied
for registration of a baby design logo.

EMPLOYEES AND PROFESSIONALS UNDER CONTRACT

In addition to the 163 physicians employed or under contract with the
Company as of June 15, 1996, Pediatrix employed or contracted with 34 other
clinical professionals and 194 other full-time and part-time employees. None of
the Company's employees are subject to a collective bargaining agreement.

PROPERTIES

The Company owns its executive offices located in Ft. Lauderdale, Florida
(approximately 10,000 square feet) and currently leases space in other
facilities in various states for its California business office, pediatric
cardiology offices, storage space, and temporary housing of medical staff, with
aggregate annual rents of approximately $360,000. In May 1995, the Company
purchased approximately three acres of land adjacent to its current offices and
is constructing an administrative building on such land. The building will be
approximately 20,000 square feet, and is expected to be completed in the third
quarter of 1996 at a cost of approximately $2.3 million.

To facilitate its acquisition and business integration programs, the
Company entered into a contract in March 1996 to purchase an aircraft for $9.8
million with delivery scheduled for 1996. The Company intends to transfer its
rights under the purchase contract to a third party lessor and enter into a
long-term operating lease for the aircraft. The Company may also enter into a
financial sharing arrangement with respect to the operating lease with one or
more third parties.

PROCEEDINGS

During the ordinary course of business, the Company has become a party to
pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. The
Company intends to vigorously defend these suits. The Company believes, based
upon the investigations conducted by the Company to date, that the outcome of
such legal actions and proceedings, individually or in the aggregate, will not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity, notwithstanding any possible insurance recovery. If
liability results from the medical malpractice claims, there can be no assurance
that the Company's medical malpractice insurance coverage will be adequate to
cover liabilities arising out of such proceedings. See "Risk
Factors -- Professional Liability and Insurance."

On May 14, 1996, the Company received the Internal Revenue Service's (the
"IRS") proposed adjustments to the Company's tax liability in connection with
its examination of the Company's 1992, 1993, and 1994 federal income tax returns
as discussed in Note 9 to the Consolidated Financial Statements. The IRS has
challenged certain deductions that, if disallowed, would result in additional
taxes of approximately $4.5 million, plus interest. The Company and its tax
advisors are in the process of preparing a response to the IRS. The Company and
its tax advisors believe that the tax returns are substantially correct as
filed, and intend to vigorously contest the proposed adjustments. The Company
and its tax advisors also believe that the amounts that have been provided for
income taxes are adequate and that the ultimate resolution of the examination
will not result in a material adverse effect on the Company's consolidated
results of operations, financial position or cash flows.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

NAME AGE POSITION WITH THE COMPANY
-------------------------------------- --- --------------------------------------

Roger J. Medel, M.D., M.B.A........... 49 President, Chief Executive Officer and
Director
Richard J. Stull, II.................. 52 Executive Vice President, Chief
Operating Officer and Director
M. Douglas Cunningham, M.D............ 56 Vice President and Chief Medical
Officer
Lawrence M. Mullen.................... 53 Vice President and Chief Financial
Officer
Cathy J. Lerman....................... 40 Vice President, General Counsel and
Corporate Secretary
Brian D. Udell, M.D................... 44 Vice President, Practice Integration
Kristen Bratberg...................... 34 Vice President, Business Development
E. Roe Stamps, IV..................... 50 Director
Bruce R. Evans(1)..................... 37 Director
Frederick V. Miller, M.D.............. 40 Director
Michael B. Fernandez(1)(2)............ 43 Director
Albert H. Nahmad(1)(2)................ 55 Director

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

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

Roger J. Medel, M.D. has held the position of President, Chief Executive
Officer and director of Pediatrix since he founded the Company in 1980 with Dr.
Gregory Melnick. Dr. Medel has been an instructor in pediatrics at the
University of Miami and participates as a member of several medical and
professional organizations. Dr. Medel also holds a Masters Degree in Business
Administration from the University of Miami. Dr. Medel has served on the boards
of directors of Sechrist Industries Inc., ARC Broward Inc. and Physician
Healthcare Plans, Inc.

Richard J. Stull, II joined the Company in November 1994 as Executive Vice
President and was elected as a director in December 1994, and appointed as Chief
Operating Officer in February 1995. From 1988 to November 1994, Mr. Stull served
as the President and Chief Executive Officer of the North Broward Hospital
District, a four hospital multi-facility health care delivery system, and the
third largest public hospital system in the United States with gross revenues in
excess of $1.0 billion and 6,000 employees. Mr. Stull has served on the boards
of directors of the South Florida Hospital Association and the Florida Hospital
Association, and is a member of the American Hospital Association's Regional
Policy Board and Metropolitan Hospital Section. Mr. Stull has over 25 years of
experience in the health care industry.

M. Douglas Cunningham, M.D. joined the Company in June 1996 as Vice
President and Chief Medical Officer. Dr. Cunningham has over 25 years experience
as a practicing neonatologist and professor of pediatrics and neonatology. From
1988 until joining the Company, Dr. Cunningham served as the Senior Vice
President, Medical Operations with Infant Care Management Services, Inc.
("ICMS"). Pediatrix recently acquired certain assets of ICMS' parent company,
Infant Care Specialists Medical Group, Inc. Dr. Cunningham has also served as a
professor at several medical schools, most recently as a Clinical Professor of
Pediatrics at the University of California, Irvine, and has published numerous
medical articles.

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acquisition by Columbia/HCA Healthcare Corporation in September 1994. Mr. Mullen
served as a consultant to Columbia/HCA from November 1994 until joining
Pediatrix. Prior to joining Medical Care America, Inc., Mr. Mullen was a partner
of KPMG Peat Marwick LLP, where he was employed from 1964 to 1993.

Cathy J. Lerman joined Pediatrix as Vice President and General Counsel in
October 1994. From May 1990 to October 1994, Ms. Lerman served as corporate
counsel to Post, Buckley, Schuh, and Jernigan, Inc., an international
engineering firm with offices in 38 states and several foreign countries. Prior
to that time, Ms. Lerman was in private practice specializing in commercial,
insurance and malpractice litigation. She has served as officer and director of
numerous local, state, and national bar associations and has published several
legal articles.

Brian D. Udell, M.D. has been employed by the Company since 1983. Dr. Udell
served as a medical director from July 1983 to June 1994 and as the Medical
Administrator from July 1994 to May 1995, at which time he was appointed Vice
President, Business Development. In November 1996, upon the appointment of Mr.
Bratberg as Vice President, Business Development, Dr. Udell was appointed Vice
President, Practice Integration. Dr. Udell has published numerous medical
articles and is a Fellow of the American Academy of Pediatrics and
past-president of the Florida Society of Neonatologist -- Perinatologists.

Kristen Bratberg joined the Company in November 1995 as Vice President,
Business Development. Prior to joining the Company, Mr. Bratberg was employed by
Dean Witter Reynolds Inc. in the Corporate Finance Department from May 1987 to
November 1995, most recently as a Senior Vice President specializing in the
healthcare industry.

E. Roe Stamps, IV was elected a director of the Company in October 1992.
Mr. Stamps co-founded Summit Partners in 1984 and is currently its Managing
General Partner. Mr. Stamps is currently a director of Boca Research, Inc.

Bruce R. Evans was elected a director of the Company in October 1992. Mr.
Evans has been employed by Summit Partners since 1986, and is currently a
General Partner. Mr. Evans is currently a member of the board of directors of A+
Network, Inc.

Frederick V. Miller, M.D. was elected as a director in January 1995, and
has been employed by the Company since 1991, most recently as a medical
director. Prior to joining the Company, Dr. Miller served as a neonatal
consultant and medical director for neonatal services with the US Army Medical
Corps.

Michael B. Fernandez was appointed as a director in October 1995. Mr.
Fernandez has served since 1992 as Chairman of the Board and Chief Executive
officer of Physicians Healthcare Plans, Inc., a Florida based health maintenance
organization. Prior to that time, Mr. Fernandez served from 1990 to 1992 as
Executive Vice President of Product Development and Marketing as well as Chief
Executive Officer of certain indemnity subsidiaries of CAC-United Healthcare
Plans of Florida, Inc.

Albert H. Nahmad was appointed as a director in January 1996. Mr. Nahmad
has served since 1973 as Chairman of the Board and President of Watsco, Inc. Mr.
Nahmad is also a director of American Bankers Insurance Group, Inc.

DIRECTOR COMPENSATION

The Company pays each director who is neither an employee or affiliated
with one of the Company's principal shareholders an annual director's fee of
$7,500 payable quarterly, a $1,000 fee for each meeting of the Board of
Directors attended by such director and, if not held in conjunction with a
regular meeting of the Board of Directors, a $500 fee for each committee meeting
attended. In addition, each non-employee director that is not affiliated with
one of the Company's principal shareholders (a "Non-Affiliated Director")
receives options to purchase 5,000 shares of Common Stock on such director's
initial appointment to the Board, which options become fully exercisable on the
one-year anniversary date of the grant. The unexercised portion of any option
granted to a Non-Affiliated Director becomes null and void three months after
the date on which such Non-Employee Director ceases to be a director of the
Company for any reason. The Company also reimburses

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all directors for out-of-pocket expenses incurred in connection with the
rendering of services as a director. Dr. Miller also serves as a medical
director at a contracting hospital with the Company. He has two employment
agreements, one as a medical director and one as a physician, which together
provide for an annual salary of $250,000 plus a performance bonus. During 1993,
1994 and 1995, Dr. Miller received $259,629, $250,722 and $259,859,
respectively, under such employment agreements.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

In 1992, the Company's Board of Directors established a Compensation
Committee consisting of Messrs. Stamps and Evans and Dr. Medel. In September
1995, Dr. Medel resigned his position with the Compensation Committee. The
Compensation Committee currently consists of Messrs. Nahmad, Fernandez and
Evans. During the period that Dr. Medel served on the Compensation Committee,
all compensation decisions affecting Dr. Medel were approved by the Company's
directors, exclusive of Dr. Medel.

Mr. Fernandez, a member of the Company's Compensation Committee, is also a
director and executive officer of Physician Healthcare Plans, Inc. Dr. Medel
serves on the Board of Directors of Physicians Healthcare Plans, Inc.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain summary
information concerning compensation paid or accrued by the Company and its
subsidiaries to or on behalf of the Company's Chief Executive Officer and each
of the most highly compensated executive officers of the Company whose total
annual salary and bonus, determined as of the end of the last fiscal year,
exceeded $100,000 (the "Named Executive Officers"), for the fiscal years ended
December 31, 1995 and 1994.

LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) ------------------
-------------------------------- NO. OF SECURITIES ALL OTHER
FISCAL UNDERLYING COMPENSA-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) OPTIONS TION(3)
- -------------------------------------- ------ --------- ----------- ------------------ ----------

Roger J. Medel, M.D., M.B.A. 1995 $ 400,000 $ 175,750 200,000 $6,000
President and Chief Executive 1994 400,000 311,139 320,000 6,000
Officer
Richard J. Stull, II 1995 291,667 45,000 75,000 --
Executive Vice President, Chief 1994 62,498 -- 200,000(5) --
Operating Officer and Director(4)
Lawrence M. Mullen 1995 110,936 25,500 100,000 3,400
Vice President and Chief Financial
Officer(6)
Cathy J. Lerman 1995 123,750 18,750 65,000 2,675
Vice President, General Counsel and 1994 18,808 -- 10,000 --
Corporate Secretary(7)
Brian D. Udell, M.D. 1995 350,000 25,000 50,000 6,000
Vice President, Practice Integration 1994 350,000 50,000 -- 6,000

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

(1) The column for "Other Annual Compensation" has been omitted because there is
no compensation required to be reported in such columns. The aggregate
amount of perquisites and other personal benefits provided to each officer
listed above is less than 10% of the total annual salary and bonus of such
officer.
(2) Includes bonuses paid in a subsequent year for services performed in the
prior year.
(3) Reflects matching contributions to the Company's 401(k) plan.
(4) Mr. Stull joined the Company in November 1994.
(5) Options to purchase 100,000 shares were canceled in December 1995 pursuant
to the terms of Mr. Stull's employment agreement.
(6) Mr. Mullen joined the Company in May 1995.
(7) Ms. Lerman joined the Company in October 1994.

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Option Grants Table. The following table sets forth certain information
concerning grants of stock options made during fiscal 1995 to the Named
Executive Officers.

INDIVIDUAL OPTION GRANTS IN 1995 FISCAL YEAR
---------------------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO APPRECIATION FOR OPTION
NUMBER OF EMPLOYEES EXERCISE TERM(1)
OPTIONS IN FISCAL PRICE PER EXPIRATION ------------------------
NAME GRANTED 1995 SHARE(2) DATE 5% 10%
- ------------------------------ --------- ----------- --------- ---------- ---------- ----------

Roger J. Medel, M.D........... 200,000 23.8% $ 19.25 10/29/05 $2,421,244 $6,135,908
Richard J. Stull, III......... 75,000 8.9 19.25 10/29/05 907,967 2,300,966
Lawrence M. Mullen............ 50,000 5.9 12.50 05/01/05 393,059 996,089
Lawrence M. Mullen............ 50,000 5.9 19.25 10/29/05 605,311 1,533,977
Cathy J. Lerman............... 40,000 4.8 12.50 01/18/05 314,447 796,871
Cathy J. Lerman............... 25,000 3.0 19.25 10/29/05 302,656 766,989
Brian D. Udell, M.D........... 50,000 5.9 20.00 12/04/05 628,895 1,593,742

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

(1) The dollar amounts set forth in these columns are the result of calculations
at the five percent and ten percent rates set by the Securities and
Exchange Commission, and therefore are not intended to forecast possible
future appreciation, if any, of the market price of the Common Stock.
(2) All options were granted at exercise prices equal to the fair market value
of the Common Stock on the date of grant.

Year-End Option Value Table. No Named Executive Officer exercised stock
options during the year ended December 31, 1995. The following table sets forth
certain information concerning the number of stock options held by the Named
Executive Officers as of December 31, 1995, and the value (based on the fair
market value of a share of stock at fiscal year-end) of in-the-money options
outstanding as of such date.

NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1995 AT DECEMBER 31, 1995(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------ ----------- ------------- ----------- -------------

Roger J. Medel, M.D............................. 139,999 430,001 $ 3,055,312 $ 6,527,688
Richard J. Stull, II............................ 33,333 141,667 749,993 2,118,757
Lawrence M. Mullen.............................. -- 100,000 -- 1,162,500
Cathy J. Lerman................................. 3,333 71,667 74,993 956,257
Brian D. Udell, M.D............................. -- 50,000 -- 375,000

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

(1) The closing sale price for the Company's Common Stock as reported on the
Nasdaq National Market System on December 29, 1995 was $27.50. Value is
calculated by multiplying (a) the difference between $27.50 and the option
exercise price by (b) the number of shares of Common Stock underlying the
option.

EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AGREEMENTS

Effective February 1, 1995, the Company entered into an employment
agreement with Ms. Lerman, and amended and restated employment agreements with
each of Dr. Medel, Mr. Stull and Dr. Udell. In May 1995, the Company entered
into an employment agreement with Mr. Mullen. In November 1995, the Company
entered into an employment agreement with Mr. Bratberg, and in June 1996, the
Company entered into an employment agreement with Dr. Cunningham (as amended to
date, collectively, the "Employment Agreements"). All Employment Agreements are
for a three-year term, except that Dr. Medel's agreement is for a five-year
term. Dr. Medel's agreement provides for his employment as President and Chief
Executive Officer at a base salary of $400,000 per year, plus (i) an incentive
bonus equal to 5% of the Company's Pre-Tax Consolidated Net Income (as defined)
in excess of specified targets ($9.0 million for 1995 and for each subsequent
year during the employment term, such target is equal to the highest Pre-Tax
Consolidated Net Income achieved during the employment term), and (ii) a
performance bonus of $100,000 if certain performance objectives are achieved by
Dr. Medel during the year. Pursuant to the Employment Agreements,

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Messrs. Stull and Mullen, Dr. Udell, Ms. Lerman, Mr. Bratberg and Dr. Cunningham
receive base salaries of $300,000, $170,000, $350,000, $125,000, $100,000 and
$275,000, respectively. The Employment Agreements for Messrs. Stull, Mullen and
Bratberg, Dr. Udell, Ms. Lerman and Dr. Cunningham also provide that such
executives are eligible to receive performance bonuses, with Mr. Bratberg's
agreement providing that such performance bonus shall be $100,000 per year
payable in 12 equal installments. Mr. Bratberg's Employment Agreement also
provides for payment of an incentive bonus of 5% of the initial fiscal year's
"gross profits" (as defined) of businesses acquired during the term of his
agreement, half of which is payable in the month immediately succeeding each
such acquisition based upon projected "gross profits" and the remainder of which
is payable at the end of the initial fiscal year of each such acquisition upon
closure of the accounting period. The Employment Agreements also provide for
payments to the executives upon termination after a Change in Control (as
defined) in amount equal to 200% of average compensation for Dr. Medel, 150% of
the average annual compensation for Dr. Udell, and 100% of the average
compensation for each of Messrs. Stull, Mullen and Bratberg, Ms. Lerman and Dr.
Cunningham for the five taxable years prior to such termination. The executive
officers each hold options to purchase Common Stock granted under the Company's
Stock Option Plan. The Employment Agreements provide that, to the extent not
already exercisable, such options will become exercisable if the executive's
employment is terminated within a 12-month period after a Change in Control. The
Employment Agreements further provide that each executive shall not compete with
the Company during the employment term and for a period of one year thereafter
following the termination of the agreement for any reason.

STOCK OPTION PLANS

Stock Option Plan. Under the Company's Stock Option Plan (the "Stock
Option Plan"), 2,500,000 shares of Common Stock were reserved for issuance upon
exercise of stock options. The Stock Option Plan is designed as a means to
retain and motivate key employees and directors. The Compensation Committee of
the Board of Directors administers and interprets the Stock Option Plan and is
authorized to grant options thereunder to all eligible employees and directors
of the Company, except that no incentive stock options (as defined in Section
422 of the Internal Revenue Code) may be granted to a director who is not also
an employee of the Company or a subsidiary.

The Stock Option Plan provides for the granting of both incentive stock
options and nonqualified stock options. Options are granted under the Stock
Option Plan on such terms and at such prices as determined by the Compensation
Committee, except that the per share exercise price of incentive stock options
cannot be less than the fair market value of the Common Stock on the date of
grant. Each option is exercisable after the period or periods specified in the
option agreement, but no option may be exercisable after the expiration of ten
years from the date of grant. Options granted to an individual who owns (or is
deemed to own) at least 10% of the total combined voting power of all classes of
stock of the Company must have an exercise price of at least 110% of the fair
market value of the Common Stock on the date of grant and a term of no more than
five years. Options granted under the Stock Option Plan are not transferable
other than by will or by the laws of descent and distribution. The Stock Option
Plan also authorizes the Company to make or guarantee loans to optionees to
enable them to exercise their options. Such loans must (i) provide for recourse
to the optionee, (ii) bear interest at a rate no less than the prime rate of
interest, and (iii) be secured by the shares of Common Stock purchased. The
Board of Directors has the authority to amend or terminate the Stock Option
Plan, provided that no such action may impair the rights of the holder of any
outstanding option without the written consent of such holder, and provided
further that certain amendments of the Stock Option Plan are subject to
shareholder approval. Unless terminated sooner, the Stock Option Plan will
continue in effect until all options granted thereunder have expired or been
exercised, provided that no options may be granted after 10 years from the date
the Board of Directors adopted the Stock Option Plan.

As of June 15, 1996, the Company has outstanding options to purchase an
aggregate of 1,941,029 shares of Common Stock under the Plan at a weighted
average exercise price of $15.70 per share.

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44

Employee Stock Purchase Plans.

The Company has adopted two Stock Purchase Plans, one which covers the
employees of the Company and one which covers the employees of the PA
Contractors. The Company has reserved an aggregate of 1,000,000 shares under the
Stock Purchase Plans.

The purpose of the Stock Purchase Plans is to encourage stock ownership in
the Company, thereby enhancing employee interest in the continued success and
progress of the Company. The Stock Purchase Plans permit participants to
purchase stock of the Company at a favorable price and possibly with favorable
tax consequences to the participants. The Stock Purchase Plans are administered
by the Compensation Committee appointed by the Board consisting of persons who
are "disinterested" persons under Rule 16b-3 under the Exchange Act. The Stock
Purchase Plans give broad powers to the Committee to administer and interpret
the Qualified Stock Purchase Plan. Purchase periods for the Stock Purchase Plans
are each of the six-month periods ending on the last day of March and September,
commencing September 30, 1996. Before the commencement date of each purchase
period, each participant must elect to have compensation withheld during the
purchase period of either (i) a minimum of 1% and a maximum of 15% of his or her
compensation, or (ii) a specific dollar amount of not less than $25 or more than
$10,625. The percentage or amount designated may not be increased or decreased
during a purchase period, but a participant can discontinue payroll deductions
for the remainder of a purchase period and withdraw his or her funds entirely.
As of the first day of the purchase period, a participant is granted an option
to purchase that number of shares determined by dividing the total amount to be
withheld by the purchase price described below. Based on the amount of salary
withheld at the end of the purchase period, shares will be purchased for the
account of each participant within five business days of the termination date of
such purchase period (the "Purchase Date"). In no event, however, may a
participant receive an option for shares which would cause the participant to
own 5% or more of the Common Stock of the Company. The purchase price to be paid
by the participants will be the lower of the amount determined under Paragraphs
A and B below:

A. 85% of the average of the high and low sales price of the Company's
Common Stock as reported on Nasdaq National Market as of the commencement
date of the purchase period; or

B. 85% of the average of the high and low sales price of the Company's
Common Stock as reported on Nasdaq National Market as of the Purchase Date.

As required by tax law, no participant may receive an option under the
Stock Purchase Plans for shares which have a fair market value in excess of
$25,000 determined at the time such option is granted. Any funds not used to
purchase shares will remain credited to the participant's bookkeeping account
and applied to the purchase of shares of Common Stock in the next succeeding
purchase period. No interest is paid by the Company on funds withheld, and such
funds are used by the Company for general operating purposes.

As of June 15, 1996, no shares of Common Stock had been issued under the
Stock Purchase Plans.

401(K) PLAN

As of January 1, 1993, the Company instituted a 401(k) plan (the "401(k)
Plan"). All full-time employees of the Company who are at least 21 years old are
eligible to participate in the 401(k) Plan on the first day of the quarter
following the employee's date of hire. The Company contributes an amount equal
to the participant's contribution, up to 4% of the participant's salary. The
401(k) Plan also allows the Company to make other discretionary contributions,
including profit sharing contributions, which will be administered by the
Compensation Committee.

The Company's matching contributions on behalf of an eligible employee
generally become fully vested if such employee reaches normal retirement age,
dies or becomes disabled while an employee. Such matching contributions vest on
a pro rata basis over a three-year period from the date of contribution.

An employee generally will be entitled to payment of such employee's total
account balance under the 401(k) Plan upon such employee's retirement, death or
permanent disability. In the event employment is terminated for any other
reason, an employee will be entitled to payment of such employee's vested
account balance. See Note 11 of Notes to Consolidated Financial Statements.

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45

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information with respect to the beneficial
ownership of the Company's outstanding Common Stock as of June 15, 1996 and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding shares of Common Stock, (ii) each director or executive officer of
the Company who beneficially owns any shares, (iii) each Selling Shareholder,
and (iv) all directors and executive officers of the Company as a group. Except
as otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of Common Stock owned by them, except to the
extent such power may be shared with a spouse.

SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(2) NUMBER OF OFFERING(2)
------------------------ SHARES ---------------------
NAME OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ---------- --------- --------- -------

Summit Partners(3)....................... 3,079,125 23.6% 1,500,000 1,579,125 10.8%
Roger J. Medel, M.D.(4).................. 1,197,575 9.0 500,000 697,575 4.7
Richard J. Stull, II(5).................. 31,583 * -- 31,583 *
Lawrence M. Mullen(6).................... 19,167 * -- 19,167 *
Cathy J. Lerman(7)....................... 14,167 * -- 14,167 *
Brian D. Udell, M.D.(8).................. 630,455 4.8 300,000 330,455 2.3
E. Roe Stamps, IV(3)..................... 3,079,125 23.6 1,500,000 1,579,125 10.8
Bruce R. Evans(3)........................ 3,079,125 23.6 1,500,000 1,579,125 10.8
Frederick V. Miller, M.D.(9)............. 38,266 * -- 38,266 *
K. Steven Haskins, M.D.(10).............. 630,455 4.8 300,000 330,455 2.3
Stefan R. Maxwell, M.D.(10).............. 630,455 4.8 300,000 330,455 2.3
Gregory Melnick, M.D.(10)(11)............ 624,000 4.8 300,000 324,000 2.2
Carlos A. Perez, M.D.(10)(12)............ 391,413 3.0 300,000 91,413 *
All directors and executive officers as a
group (12 persons)(13)................. 5,010,338 37.5 2,300,000 2,710,338 18.3

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

* Less than one percent.
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 1455 Northpark Drive, Ft. Lauderdale, Florida 33326.
(2) Based on 13,076,170 shares of Common Stock outstanding at June 15, 1996 and
14,576,170 as adjusted after the offering. Pursuant to the rules of the
Commission, certain shares of Common Stock which a person has the right to
acquire within 60 days of the date hereof pursuant to the exercise of stock
options are deemed to be outstanding for the purpose of computing the
percentage ownership of such person but are not deemed outstanding for the
purpose of computing the percentage ownership of any other person.
(3) Includes 3,030,223 shares of Common Stock held by Summit Ventures III, L.P.
("Ventures"), 26,549 shares of Common Stock held by Summit Investors II,
L.P. ("Investors"), and 22,353 shares of Common Stock held by HKL
Associates ("HKL", and together with Ventures and Investors, "Summit
Partners"). Mr. Evans and Mr. Stamps are directors of the Company, general
partners of an affiliate of Ventures and are general partners of Investors
and HKL. Messrs. Stamps and Evans may, by virtue of their relationships
with Ventures, Investors and HKL, be deemed to beneficially own the
securities held by Ventures, Investors and HKL, and to share voting and
investment power with respect to such securities. Messrs. Stamps and Evans
both disclaim beneficial ownership of the securities, except to the extent
of their respective investment interests in Ventures, Investors and HKL.
The address of Summit Partners and Messrs. Stamps and Evans is 600 Atlantic
Avenue, Suite 2800, Boston, Massachusetts 02210. Does not reflect the sale
of 500,000 shares pursuant to the exercise of the Underwriters' over-
allotment option. See "Underwriting."

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46

(4) Includes (i) 50,000 shares beneficially owned by Dr. Medel's wife, as to
which Dr. Medel disclaims beneficial ownership; (ii) 240 shares owned by
Dr. Medel's minor children, as to which Dr. Medel disclaims beneficial
ownership, (iii) 950,908 shares held of record by Medel Family Investments,
Ltd., a Florida limited partnership, and its general partner, which are
controlled by Dr. Medel and his wife, and (iv) 196,667 shares subject to
presently exercisable options. Excludes 573,333 shares subject to
unexercisable options. Does not reflect the sale of 250,000 shares pursuant
to the exercise of the Underwriters' over-allotment option. See
"Underwriting."
(5) Includes (i) 1,250 shares directly owned, and (ii) 30,333 shares subject to
presently exercisable options. Excludes 141,667 shares subject to
unexercisable options.
(6) Includes (i) 2,500 shares directly owned, and (ii) 16,667 shares subject to
presently exercisable options. Excludes 83,333 shares subject to
unexercisable options.
(7) All shares are subject to presently exercisable options. Excludes 58,333
shares subject to unexercisable options.
(8) All shares are held in trusts for the benefit of Dr. Udell and his wife.
Dr. Udell disclaims beneficial ownership with respect to the shares held in
trust for his wife. Excludes 50,000 shares subject to unexercisable
options.
(9) Includes (i) 26,600 shares directly owned, and (ii) 11,666 shares subject
to presently exercisable stock options. Excludes 23,334 shares subject to
unexercisable options.
(10) Each of Drs. Haskins, Maxwell, Melnick, Perez and Turnier (the wife of Dr.
Medel) are employed by the Company as medical directors. Prior to April 1,
1996, Drs. Haskins, Maxwell, Melnick, Perez and Turnier received annual
salaries of $315,000, $300,000, $300,000, $300,000 and $300,000,
respectively, pursuant to employment agreements. Effective April 1, 1996,
commensurate with an anticipated reduction in responsibilities, the annual
compensation to be paid to each such person was reduced to $50,000 per
year.
(11) Includes 290,000 shares beneficially owned by Dr. Melnick's wife, as to
which Dr. Melnick disclaims beneficial ownership.
(12) Includes 46,667 shares subject to presently exercisable stock options.
Excludes 93,333 shares subject to unexercisable options.
(13) Includes 269,500 shares subject to presently exercisable stock options.
Excludes 1,065,000 shares subject to unexercisable options.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 50,000,000 shares of
authorized Common Stock and 1,000,000 shares of authorized preferred stock, $.01
par value (the "Preferred Stock"). Copies of the Articles of Incorporation and
Bylaws have been filed as exhibits with the Commission and are incorporated by
reference herein.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of shareholders, including the election of directors. Since
the Common Stock does not have cumulative voting rights, the holders of a
majority of the outstanding shares voting for election of directors can elect
all members of the Board of Directors. A majority vote is also sufficient for
other actions that require the vote or concurrence of shareholders. See
"Principal and Selling Shareholders." Dividends may be paid to holders of Common
Stock when and if declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock will be
entitled to share ratably in the assets of the Company legally available for
distribution to shareholders in the event of liquidation or dissolution.

The holders of Common Stock have no preemptive or conversion rights. The
shares of Common Stock offered hereby will be, when issued and paid for, fully
paid and not liable for further call or assessment.

PREFERRED STOCK

Although the Company has no present plans to issue shares of Preferred
Stock, Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of
Directors. The Board of

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47

Directors, without obtaining shareholder approval, could issue the Preferred
Stock with voting and/or conversion rights and thereby dilute the voting power
and equity of the holders of Common Stock and adversely affect the market price
of such stock. See "Risk Factors--Anti-Takeover Provisions; Possible Issuance of
Preferred Stock."

CERTAIN FLORIDA LEGISLATION

The Company is subject to (i) the Florida Control Share Act, which
generally provides that shares acquired in excess of certain specified
thresholds will not possess any voting rights unless such voting rights are
approved by a majority vote of the corporation's disinterested shareholders, and
(ii) the Florida Fair Price Act, which generally requires supermajority approval
by disinterested directors or shareholders of certain specified transactions
between a corporation and holders of more than 10% of the outstanding shares of
the corporation (or their affiliates).

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, acquisitions and employee benefit
plans.

The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of the Company's
management. See "Risk Factors -- Anti-Takeover Provisions; Possible Issuance of
Preferred Stock."

ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS

Certain provisions of the Articles of Incorporation and Bylaws of the
Company summarized in the following paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a shareholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by shareholders.

Special Meeting of Shareholders. The Articles of Incorporation provide
that special meetings of shareholders of the Company may be called only by the
Board of Directors or upon the written demand of the holders of not less than
fifty percent of all votes entitled to be cast on any issue proposed to be
considered at a special meeting. This provision will make it more difficult for
shareholders to take actions opposed by the Board of Directors.

Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Articles of Incorporation provide that shareholders seeking to
bring business before an annual meeting of shareholders, or to nominate
candidates for election as directors at an annual meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the executive offices of the
Company not less than 120 days nor more than 180 days prior to the first
anniversary of the date of the Company's notice of annual meeting provided with
respect to the previous year's annual meeting. The Articles of Incorporation
also specify certain requirements for a shareholder's notice to be in proper
written form. These provisions may preclude some shareholders from bringing
matters before the shareholders at an annual meeting or from making nominations
for directors at an annual meeting.

TRANSFER AGENT

The transfer agent and registrar of the Common Stock is Boston Equiserve,
Boston, Massachusetts.

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48

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have 14,576,170 shares
of Common Stock outstanding, based upon the number of shares outstanding as of
June 15, 1996. Of these shares, the 5,000,000 shares sold in this offering
(5,750,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act, except for any shares purchased by "affiliates" of the
Company, as that term is defined under the Securities Act ("Affiliates").

SALES OF RESTRICTED SHARES

There are 7,269,270 Restricted Shares which are deemed "restricted
securities" under Rule 144 under the Securities Act and may not be sold unless
they are registered under the Securities Act or unless an exemption, such as the
exemption provided by Rule 144, is available. Of this amount, 6,970,734 shares
are subject to the Lock-up Agreements described below. Of the 298,536 shares
that are not subject to the Lock-up Agreements, all are eligible for sale in the
public market in accordance with Rule 144, including 200,981 shares subject to
immediate resale under the provisions of Rule 144(k). Certain securityholders
have the right to have their Restricted Shares registered by the Company under
the Securities Act as described below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially owned
Restricted Shares for at least two years, is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock (approximately
145,762 shares after this offering) or (ii) the average weekly trading volume in
the Common Stock during the four calendar weeks preceding the date on which
notice of such sale is filed with the Commission. In addition, under Rule
144(k), a person who is not an Affiliate and has not been an Affiliate for at
least three months prior to the sale and who has beneficially owned the
Restricted Shares for at least three years may resell such shares without
compliance with the foregoing requirements. In meeting the two and three year
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an Affiliate. On July 27, 1995, the
Securities and Exchange Commission proposed to reduce the Rule 144(d) holding
period for resales of restricted securities from two years to one year and to
reduce the Rule 144(k) holding period from three years to two years. If the
proposed changes are adopted, the reduced holding periods will apply to all
securities eligible for resale under Rule 144.

OPTIONS

As of June 15, 1996, options to purchase a total of 1,941,029 shares of
Common Stock were outstanding, of which options for an aggregate of 444,335
shares of Common Stock were exercisable. Of the exercisable options, 299,500
shares are subject to Lock-up Agreements. The Company has filed one or more
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock subject to then outstanding stock options and Common
Stock issuable pursuant to the Company's Stock Option Plan and Employee Stock
Purchase Plans. The shares registered pursuant to these registration statements
will, once exercisable, be eligible for sale in the public markets, subject to
the Lock-up Agreements, to the extent applicable. See "Management."

LOCK-UP AGREEMENTS

Holders of 6,970,734 shares of Common Stock outstanding immediately prior
to this offering and holders of options to purchase an aggregate of 1,447,000
shares of Common Stock have agreed, pursuant to the Lock-up Agreements, that
they will not, without the prior written consent of Dean Witter Reynolds Inc.,
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
beneficially owned by them or exercise any registration rights in respect of
such Common Stock for a period of 90 days after the date of this Prospectus (the
"Lock-up Period").

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49

REGISTRATION RIGHTS

The Selling Shareholders (collectively, the "Rights Holders") will be
entitled, subject to the Lock-up Agreements, to require the Company to register
under the Securities Act a total of approximately 6,919,015 shares of
outstanding Common Stock (the "Registrable Shares") (approximately 3,419,015
shares after giving effect to the sale of shares in this offering). The
Registration Rights Agreement provides that under certain circumstances and
subject to certain limitations the Rights Holders may require the Company to
file a registration statement under the Securities Act with respect to the
Registrable Shares and the Company must use all commercially reasonable efforts
to effect such registration. In addition, in the event the Company proposes to
register any of its securities, either for its own account or for the account of
a security holder, the Rights Holders may be entitled to include the Registrable
Shares in such registration, subject to certain limitations on the number of
shares to be included in the registration by the underwriter of such offering.

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50

UNDERWRITING

The Underwriters named below, for whom Dean Witter Reynolds Inc. and Alex.
Brown & Sons Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation,
Hambrecht & Quist LLC and Smith Barney Inc. are acting as representatives (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement (a copy of which has been filed as an exhibit to
the Registration Statement), to purchase from the Company and the Selling
Shareholders the number of shares of Common Stock set forth opposite their
respective names in the table below:

NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------

Dean Witter Reynolds Inc. ................................................
Alex. Brown & Sons Incorporated...........................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................
Hambrecht & Quist LLC.....................................................
Smith Barney Inc. ........................................................
---------
Total........................................................... 5,000,000
=========

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased.

The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such public offering price less a concession not to
exceed $ per share. Such dealers may reallow a concession not to exceed
$ per share to other dealers. After the public offering, the public
offering price may be reduced and concessions and reallowances to dealers may be
changed by the underwriters. The Representatives have informed the Company that
the Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority. The Representatives intend to make a market in
the Common Stock after completion of this offering.

Certain Selling Shareholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an additional 750,000 shares of Common Stock at the public
offering price, less underwriting discounts and commissions to cover
over-allotments, if any. After commencement of this offering, the Underwriters
may confirm sales subject to the over-allotment option.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required to
make in respect thereof.

The Company, the officers and directors of the Company and the Selling
Shareholders have agreed that they will not, during the period commencing on the
date hereof and ending 90 days after the date of this prospectus (1) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are now owned by the undersigned or are hereafter acquired), or
(2) enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise.

In connection with this offering, the Underwriters and other selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange
Act. Passive market making consists of displaying bids on the Nasdaq

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National Market limited by the prices of independent market makers and effecting
purchases limited by such prices and in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and certain of the Selling Shareholders by Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, Florida. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Latham & Watkins, Washington, D.C.

EXPERTS

The consolidated balance sheets of the Company at December 31, 1994 and
1995 and the consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1995,
the balance sheet of Neonatal and Pediatric Intensive Care Medical Group, Inc.
as of December 31, 1994 and the statements of operations, stockholders' equity
and cash flows for the year ended December 31, 1994, and the balance sheet of
Rocky Mountain Neonatology, P.C. as of December 31, 1995 and the statements of
operations, stockholders' equity and cash flows for the year ended December 31,
1995, which are included in this Prospectus and Registration Statement, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The balance sheet of Neonatal Specialists, Ltd. as of December 31, 1995 and
the statements of income and retained earnings, and cash flows for the year then
ended, which are included in this Prospectus and Registration Statement, have
been included herein in reliance on the report of Johnson & Moser, Ltd.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The balance sheet of Pediatric and Newborn Consultants, PC as of December
31, 1995 and the statements of earnings and retained earnings, and cash flows
for the year then ended, which are included in this Prospectus and Registration
Statement, have been included herein in reliance on the report of Deon E. Fitch,
C.P.A., independent accountant, given on the authority of that individual as an
expert in accounting and auditing.

The balance sheet of West Texas Neonatal Associates, a Partnership, as of
December 31, 1995 and the related statements of income and partners' equity, and
cash flows for the year then ended, which are included in this Prospectus and
Registration Statement, have been included herein in reliance on the report of
Linda G. Medlock P.C., independent accountant, given on the authority of that
firm as an expert in accounting and auditing.

The consolidated balance sheet of Infant Care Specialists Medical Group,
Inc. and subsidiary as of December 31, 1995 and the consolidated statements of
income and retained earnings and cash flows for the year then ended, which are
included in this Prospectus and Registration Statement, have been included
herein in reliance on the report of Harlan & Boettger, independent accountants,
given on the authority of that firm as experts in accounting and auditing.

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52

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

THE REGISTRANT --

PEDIATRIX MEDICAL GROUP, INC.

PAGE
----

Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995, and March 31, 1996
(unaudited)......................................................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995, and the Three Months Ended March 31, 1995 and 1996 (unaudited)................ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995, and the Three Months Ended March 31, 1996 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995, and the Three Months Ended March 31, 1995 and 1996 (unaudited)................ F-6
Notes to Consolidated Financial Statements............................................ F-7
BUSINESSES ACQUIRED --
NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.
Report of Independent Accountants..................................................... F-19
Balance Sheets at December 31, 1994 and June 30, 1995 (unaudited)..................... F-20
Statements of Operations for the Year Ended December 31, 1994 and the Six Months Ended
June 30, 1995 (unaudited)........................................................... F-21
Statements of Stockholders' Equity for the Year Ended December 31, 1994 and the Six
Months Ended June 30, 1995 (unaudited).............................................. F-22
Statements of Cash Flows for the Year Ended December 31, 1994 and the Six Months Ended
June 30, 1995 (unaudited)........................................................... F-23
Notes to Financial Statements......................................................... F-24
NEONATAL SPECIALISTS, LTD.
Independent Auditors' Report.......................................................... F-31
Balance Sheet at December 31, 1995.................................................... F-32
Statement of Income and Retained Earnings for the Year Ended December 31, 1995........ F-33
Statement of Cash Flows for the Year Ended December 31, 1995.......................... F-34
Notes to Financial Statements......................................................... F-35
PEDIATRIC AND NEWBORN CONSULTANTS, PC
Independent Auditor's Report.......................................................... F-38
Balance Sheet at December 31, 1995.................................................... F-39
Statement of Earnings and Retained Earnings for the Year Ended December 31, 1995...... F-40
Statement of Cash Flows for the Year Ended December 31, 1995.......................... F-41
Notes to Financial Statements......................................................... F-42
ROCKY MOUNTAIN NEONATOLOGY, P.C.
Report of Independent Accountants..................................................... F-45
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited).................... F-46
Statements of Operations for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-47
Statements of Stockholders' Equity for the Year Ended December 31, 1995 and the Three
Months Ended March 31, 1996 (unaudited)............................................. F-48
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-49
Notes to Financial Statements......................................................... F-50

50
53

PAGE
----

WEST TEXAS NEONATAL ASSOCIATES
Independent Auditors' Report.......................................................... F-55
Balance Sheets at December 31, 1995 and March 31, 1996 (unaudited).................... F-56
Statements of Income and Partners' Equity for the Year Ended December 31, 1995 and the
Three Months Ended March 31, 1996 (unaudited)....................................... F-57
Statements of Cash Flows for the Year Ended December 31, 1995 and the Three Months
Ended March 31, 1996 (unaudited).................................................... F-58
Notes to Financial Statements......................................................... F-59
INFANT CARE SPECIALISTS MEDICAL GROUP, INC. AND SUBSIDIARY
Independent Auditors' Report.......................................................... F-61
Consolidated Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... F-62
Consolidated Statements of Operations and Retained Earnings for the Years Ended
December 31, 1994 and 1995 and the Three Months Ended March 31, 1996 (unaudited).... F-63
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994 and 1995
and the Three Months Ended March 31, 1996 (unaudited)............................... F-64
Notes to Consolidated Financial Statements............................................ F-65

51
54

PEDIATRIX MEDICAL GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

F-1
55

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Pediatrix Medical Group, Inc.
Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Pediatrix
Medical Group, Inc. as of December 31, 1994 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1995. 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 consolidated 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 consolidated financial position of Pediatrix
Medical Group, Inc. as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
January 29, 1996

F-2
56

PEDIATRIX MEDICAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(IN THOUSANDS) (UNAUDITED)

ASSETS
Current assets:
Cash and cash equivalents..................................... $ 7,384 $18,499 $ 7,084
Investments in marketable securities.......................... -- 27,718 26,552
Accounts receivable, net...................................... 8,965 12,096 15,484
Prepaid expenses.............................................. 293 628 692
Other assets.................................................. 339 497 596
Income taxes receivable....................................... 179 330 383
------- ------- -----------
Total current assets.................................. 17,160 59,768 50,791
Property and equipment, net..................................... 3,011 4,549 5,242
Other assets, net............................................... 124 5,564 21,338
------- ------- -----------
Total assets.......................................... $20,295 $69,881 $77,371
======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 2,784 $ 4,347 $ 7,539
Current portion of note payable............................... 64 64 64
Deferred income taxes......................................... 540 1,909 3,471
------- ------- -----------
Total current liabilities............................. 3,388 6,320 11,074
Note payable.................................................... 815 751 735
------- ------- -----------
Total liabilities..................................... 4,203 7,071 11,809
------- ------- -----------
Preferred stock; voting, redeemable, cumulative, convertible,
$.01 par value; 4,575,000 shares authorized, 4,571,063 shares
issued and outstanding at December 31, 1994, and none issued
and outstanding at December 31, 1995 and March 31, 1996;
stated at redemption value of $13,000,103 plus accrued and
unpaid dividends of $2,696,678 at December 31, 1994........... 15,697 -- --
Contingencies (Note 10)
Stockholders' equity:
Preferred stock; $.01 par value, 1,000,000 shares authorized,
none issued and outstanding at December 31, 1995 and March
31, 1996................................................... -- -- --
Common stock; $.01 par value, 15,000,000 shares authorized at
December 31, 1994 and 50,000,000 shares authorized at
December 31, 1995 and March 31, 1996, 6,265,983 and
13,051,055 and 13,063,809 shares issued and outstanding at
December 31, 1994 and 1995 and March 31, 1996,
respectively............................................... 63 131 131
Additional paid-in capital.................................... -- 55,620 55,809
Retained earnings............................................. 332 7,045 9,657
Unrealized gain (loss) on investments......................... -- 14 (35)
------- ------- -----------
Total stockholders' equity............................ 395 62,810 65,562
------- ------- -----------
Total liabilities and stockholders' equity............ $20,295 $69,881 $77,371
======= ======= =========

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

F-3
57

PEDIATRIX MEDICAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR (UNAUDITED)
PER SHARE DATA)

Net patient service revenue...................... $23,570 $32,779 $43,860 $ 8,886 $16,127
------- ------- ------- ------- -------
Operating expenses:
Salaries and benefits.......................... 14,852 20,723 29,545 6,270 10,796
Supplies and other operating expenses.......... 2,230 2,774 3,451 607 1,213
Depreciation and amortization.................. 95 244 363 74 233
------- ------- ------- ------- -------
Total operating expenses............... 17,177 23,741 33,359 6,951 12,242
------- ------- ------- ------- -------
Income from operations........................... 6,393 9,038 10,501 1,935 3,885
Investment income................................ 45 208 804 107 499
Interest expense................................. (105) (90) (117) (28) (35)
Other expense, net............................... (17) -- -- -- --
------- ------- ------- ------- -------
Income before income taxes..................... 6,316 9,156 11,188 2,014 4,349
Income tax provision............................. 2,166 3,749 4,475 805 1,737
------- ------- ------- ------- -------
Net income............................. $ 4,150 $ 5,407 $ 6,713 $ 1,209 $ 2,612
======= ======= ======= ======= =======
Per share data (1995 pro forma unaudited):
Net income per common and common equivalent
share.......................................... $ .55 $ .10 $ .19
======= ======= =======
Weighed average shares used in computing net
income per common and common equivalent
share.......................................... 12,216 11,614 13,726
======= ======= =======

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

F-4
58

PEDIATRIX MEDICAL GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK RETAINED
------------------ ADDITIONAL EARNINGS
NUMBER OF PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT)
--------- ------ ---------- ------------
(IN THOUSANDS)

Balance at December 31, 1992.......................... 6,857 $ 69 $ -- $ (4,662)
Net income............................................ -- -- -- 4,150
Common stock issued................................... 204 2 291 --
Common stock retired.................................. (837) (8) (24) (2,553)
Accrued and unpaid preferred stock dividends for the
year ended December 31, 1993........................ -- -- (267) (921)
--------- ------ ---------- ------------
Balance at December 31, 1993.......................... 6,224 63 -- (3,986)
Net income............................................ -- -- -- 5,407
Common stock issued................................... 118 1 588 --
Common stock retired.................................. (76) (1) (154) (227)
Accrued and unpaid preferred stock dividends for the
year ended December 31, 1994........................ -- -- (434) (862)
--------- ------ ---------- ------------
Balance at December 31, 1994.......................... 6,266 63 -- 332
Net income............................................ -- -- -- 6,713
Accrued and unpaid preferred stock dividends through
conversion date, September 25, 1995................. -- -- (1,040) --
Common stock issued................................... 2,240 22 39,848 --
Conversion of preferred stock......................... 4,571 46 16,691 --
Tax benefit related to employee stock options......... -- -- 252 --
Common stock retired.................................. (26) -- (131) --
--------- ------ ---------- ------------
Balance at December 31, 1995.......................... 13,051 131 55,620 7,045
Net income (unaudited)................................ -- -- -- 2,612
Common stock issued (unaudited)....................... 14 2 72 --
Common stock retired (unaudited)...................... (2) (2) (44) --
Tax benefit related to employee stock options
(unaudited)......................................... -- -- 161 --
--------- ------ ---------- ------------
Balance at March 31, 1996 (unaudited)................. 13,063 $131 $ 55,809 $ 9,657
======== ====== ======= ==========

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

F-5
59

PEDIATRIX MEDICAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -----------------
1993 1994 1995 1995 1996
------- ------- -------- ------ --------
(IN THOUSANDS) (UNAUDITED)

Cash flows from (used in) operating activities:
Net income................................... $ 4,150 $ 5,407 $ 6,713 $1,209 $ 2,612
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 95 244 363 74 233
Deferred income taxes..................... 1,339 517 1,456 (121) 1,562
Other..................................... 17 -- (2) -- --
Changes in assets and liabilities:
Accounts receivable..................... (2,692) (1,290) (3,131) 607 (3,388)
Prepaid expenses and other assets....... (66) (449) (493) 194 (162)
Income taxes receivable................. 1,362 428 101 -- 108
Other assets............................ (3) (7) 62 (103) (1,882)
Accounts payable and accrued expenses... 479 521 871 412 752
------- ------- -------- ------ --------
Net cash provided (used) by operating
activities......................... 4,681 5,371 5,940 2,272 (165)
------- ------- -------- ------ --------
Cash flows used in investing activities:
Physician group acquisition payments......... -- -- (4,938) -- (11,584)
Purchase of investments...................... -- -- (34,382) -- (6,621)
Proceeds from sale of investments............ -- -- 6,681 -- 7,738
Purchase of property and equipment........... (1,897) (578) (1,861) (161) (794)
------- ------- -------- ------ --------
Net cash used by investing activities..... (1,897) (578) (34,500) (161) (11,261)
------- ------- -------- ------ --------
Cash flows (used in) from financing activities:
Borrowings on notes payable.................. 2,359 -- -- -- --
Payments on notes payable.................... (2,997) (87) (64) (16) (16)
Proceeds from issuance of common stock....... 579 590 39,871 -- 72
Payments made to retire common stock......... (2,585) (381) (132) (13) (45)
------- ------- -------- ------ --------
Net cash (used in) provided by
financing activities............... (2,644) 122 39,675 (29) 11
------- ------- -------- ------ --------
Net increase (decrease) in cash and cash
equivalents.................................. 140 4,915 11,115 2,082 (11,415)
Cash and cash equivalents at beginning of
year/period.................................. 2,329 2,469 7,384 7,384 18,499
------- ------- -------- ------ --------
Cash and cash equivalents at end of
year/period.................................. $ 2,469 $ 7,384 $ 18,499 $9,466 $ 7,084
======= ======= ======== ====== ========
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest.................................. $ 125 $ 130 $ 117 $ 28 $ 35
Income taxes.............................. $ 85 $ 2,354 $ 2,943 $ -- $ 66
Non-cash investing and financing activities:
Accrued and unpaid preferred stock
dividends............................... $ 1,189 $ 1,269 $ 1,040 $ 353 $ --

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

F-6
60

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL:

The principal business activity of Pediatrix Medical Group, Inc.
("Pediatrix" or the "Company") is to provide physician management services to
hospital-based neonatal and pediatric intensive care units in twelve states and
Puerto Rico. Contractual arrangements with hospitals are a) fee-for-service
contracts whereby hospitals agree, in exchange for the Company's services, to
authorize the Company and its healthcare professionals to bill and collect the
professional component of the charges for medical services rendered by the
Company's healthcare professionals; and b) administrative fees whereby the
Company is assured a minimum revenue level.

In September 1995, the Company completed its initial public offering
whereby it issued 2,200,000 shares of common stock, resulting in cash proceeds
to the Company of approximately $39.7 million. In addition, in connection with
the initial public offering, the Company authorized 50,000,000 shares of common
stock and 1,000,000 shares of preferred stock.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Presentation

The financial statements (the "consolidated financial statements") include
the accounts of Pediatrix consolidated with the accounts of the Pediatrix
Medical Group of Florida, Inc. (the "Subsidiary") and combined with the accounts
of the professional associations (the "PA Contractors") with which the Company
currently has specific management billing arrangements. All significant
intercompany and interaffiliate accounts and transactions have been eliminated.
The financial statements of the PA Contractors are consolidated with Pediatrix
because Pediatrix, as opposed to affiliates of Pediatrix, has unilateral control
over the assets and operations of the PA Contractors. Notwithstanding the lack
of technical majority ownership, consolidation of the PA Contractors is
necessary to present fairly the financial position and results of operations of
Pediatrix because of the existence of a parent-subsidiary relationship by means
other than record ownership of the PA Contractors' voting common stock. Control
of the assets and operations of the PA Contractors by Pediatrix is permanent and
other than temporary because the PA Contractors' agreements with Pediatrix
provide that the term of the arrangements are permanent, subject only to
termination by Pediatrix and that the PA Contractors shall not terminate the
agreements without the prior written consent of Pediatrix. Also, the agreements
provide that Pediatrix or its assigns has the right, but not the obligation, to
purchase the stock of the PA Contractors.

Accounting Estimates

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

Accounts Receivable and Revenues

Accounts receivable are primarily amounts due under fee-for-service
contracts from third party payors, such as insurance companies, self-insured
employers and patients and government-sponsored health care programs
geographically dispersed throughout the United States and its territories. These
receivables are presented net of an estimated allowance for contractual
adjustments and uncollectibles which is charged to operations based on the
Company's evaluation of expected collections resulting from an analysis of
current and past due accounts, past collection experience in relation to amounts
billed and other relevant information. Contractual adjustments result from the
difference between the physician rates for services performed and

F-7
61

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reimbursements by government-sponsored healthcare programs and insurance
companies for such services. Bad debts are included in contractual allowances
and uncollectibles because they are not considered material.

Concentration of credit risk relating to accounts receivable is limited by
number, diversity and geographic dispersion of the neonatology units managed by
the Company, as well as by the large number of patients and payors, including
the various governmental agencies in the states in which the Company provides
services. Receivables from government agencies made up approximately 35% and 41%
of accounts receivable at December 31, 1994 and 1995, respectively.

Cash Equivalents

Cash equivalents are defined as all highly liquid financial instruments
with maturities of 90 days or less from the date of purchase. The Company
maintains its cash and cash equivalents which consist principally of demand
deposits, short-term government securities and amounts on deposit in money
market accounts with principally four financial institutions.

Investments

The Company determines the appropriate classification of its investments in
debt securities at the time of purchase and reevaluates such determination at
each balance sheet date. Investments are classified as available for sale and
are carried at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of shareholders' equity. Fair value is
determined by the most recently traded price of the security at the balance
sheet date.

The cost of debt securities is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization and interest income and
declines in value judged to be other than temporary are included in investment
income. Realized gains and losses are included in earnings using the specific
identification method for determining the cost of securities sold.

Investments are stated at fair market value which approximates amortized
cost and consist principally of tax exempt municipal obligations (fair value of
$19.4 million at December 31, 1995) as well as U.S. government and government
agency securities (fair value of $8.3 million at December 31, 1995). The
Company's investments in marketable securities represent cash available for
current operations and are accordingly classified as current assets.

Property and Equipment

Property and equipment is recorded at cost. Depreciation of property and
equipment is computed on the straight-line method over the estimated useful
lives which range from five to forty years. Upon sale or retirement of property
and equipment, the cost and related accumulated depreciation are eliminated from
the respective accounts and the resulting gain or loss is included in earnings.

Other Assets

Other assets include the excess of cost over the fair value of net assets
acquired which is being amortized on a straight-line basis over twenty-five
years. In addition, other assets include payments to physicians for non-
competition and other agreements which are being amortized over their terms
which range from one to five years.

At each balance sheet date following the acquisition of a business, the
Company reviews the carrying value of the goodwill to determine if facts and
circumstances suggest that it may be impaired or that the amortization period
may need to be changed. The Company considers external factors relating to each
acquired business, including hospital and physician contract changes, local
market developments, changes in

F-8
62

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

third party payments, national health care trends, and other publicly available
information. If these external factors indicate the goodwill will not be
recoverable, as determined based upon undiscounted cash flows before interest
charges of the business acquired over the remaining amortization period, the
carrying value of the goodwill will be reduced. The Company does not believe
there currently are any indicators that would require an adjustment to the
carrying value of the goodwill or its estimated periods of recovery at December
31, 1995.

Professional Liability Coverage

The Company maintains professional liability coverage which indemnifies the
Company and its employee physicians and independent contractor physicians on a
claims made basis with a portion of self insurance retention. The Company
records an estimate of its liabilities for claims incurred but not reported
based on an actuarial valuation. Such liabilities are not discounted.

Income Taxes

The Company utilizes the liability method of accounting for deferred income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.

Stock Options

The Company follows the practice of recording amounts received upon the
exercise of options by crediting common stock and additional paid-in capital. No
charge has been reflected in the consolidated statements of operations as a
result of the grant or exercise of stock options, as the fair market value of
the Company's stock equals the exercise price on the date the options are
granted. To the extent that the Company realizes an income tax benefit from the
exercise or early disposition of certain stock options, this benefit results in
a decrease in current income taxes payable and an increase in additional paid-in
capital.

Change in Accounting Standards

Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" must be implemented by the Company in 1996. This statement requires that
long-lived assets and certain intangibles to be held and used by the Company be
reviewed for impairment. This pronouncement is not expected to have a material
impact on the financial statements of the Company.

SFAS No. 123, "Accounting for Stock-Based Compensation" must also be
implemented by the Company in 1996. This pronouncement establishes financial
accounting and reporting standards for stock-based employee compensation plans.
It encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees
based on new fair value accounting rules. Companies that choose not to adopt the
new fair value accounting rules will be required to disclose proforma net income
and earnings per share under the new method. The Company anticipates adopting
the disclosure provisions of SFAS No. 123, although the impact of such
disclosure has not been determined.

Interim Financial Statements

The financial statements at March 31, 1996, and for the three months ended
March 31, 1996 and 1995 are unaudited and, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments necessary for a
fair statement of the results of interim periods. The results of operations for
the

F-9
63

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

three months ended March 31, 1996 are not necessarily indicative of the results
to be expected for the full year or any other interim period.

Net Income Per Common and Common Equivalent Share (Unaudited)

As a result of the conversion of the preferred stock, which was not
determined to be a common stock equivalent, into common stock in connection with
the initial public offering, the Company has presented pro forma net income per
common and common equivalent share for the years ended December 31, 1994 and
1995 and for the three months ended March 31, 1995. The calculation of the
proforma shares is comparable to primary and fully dilutive common and common
equivalent shares subsequent to the initial public offering. Pro forma net
income per common and common equivalent share is computed based upon the
weighted average number of shares of common stock and common stock equivalents,
including the number of shares of common stock issuable upon conversion of
preferred stock, outstanding during the period. Pursuant to the requirements of
the Securities and Exchange Commission (SEC), common stock issued by the Company
during the 12 months immediately preceding the initial filing of the
registration statement with the SEC, plus common stock equivalents relating to
the grant of common stock options during the same period, have been included in
the calculation of pro forma weighted average number of common and common stock
equivalents outstanding for the years ended December 31, 1994 and 1995, and for
the three months ended March 31, 1995, using the treasury stock method and the
initial public offering price of $20 per share.

3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE:

Accounts receivable consist of the following:

DECEMBER 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS)

Gross accounts receivable...................................... $ 22,211 $ 25,184
Less allowance for contractual adjustments and
uncollectibles............................................... (13,246) (13,088)
-------- --------
$ 8,965 $ 12,096
======== ========

Net patient service revenue consists of the following:

YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)

Gross patient service revenue...................... $ 45,829 $ 59,405 $ 79,360
Less contractual adjustments and uncollectibles.... (25,475) (30,885) (40,843)
Hospital contract administrative fees.............. 3,216 4,259 5,343
-------- -------- --------
$ 23,570 $ 32,779 $ 43,860
======== ======== ========

F-10
64

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

DECEMBER 31,
-------------------
1994 1995
------ ------
(IN THOUSANDS)

Land............................................................. $ 389 $1,308
Building......................................................... 1,608 1,644
Equipment and furniture.......................................... 1,445 2,104
------ ------
3,442 5,056
Less accumulated depreciation.................................... (431) (748)
Construction in progress......................................... -- 241
------ ------
$3,011 $4,549
====== ======

5. OTHER ASSETS:

Other assets consist of the following:

DECEMBER 31,
-----------------
1994 1995
---- ------
(IN THOUSANDS)

Excess of cost over net assets acquired........................... $ -- $3,870
Physician agreements.............................................. -- 1,692
Other............................................................. 124 106
---- ------
124 5,668
Less accumulated amortization..................................... -- (104)
---- ------
$124 $5,564
==== ======

On July 27, 1995, the Company completed the acquisition of the stock of
Neonatal and Pediatric Intensive Care Medical Group, Inc. ("NAPIC"), a
California professional corporation, in exchange for approximately $3.2 million
in cash. In connection with the transaction, the Company has recorded assets of
$4.6 million including $3.8 million of goodwill and liabilities of $1.4 million.
The Company has accounted for the transaction using the purchase method of
accounting for financial reporting purposes and the excess of the cost over fair
value of net assets acquired is being amortized on a straight-line basis over 25
years. NAPIC's results of operations have been included in the consolidated
financial statements from the date of acquisition.

The following unaudited pro forma information combines the consolidated
results of operations of the Company and NAPIC as if the acquisition had
occurred on January 1, 1994:

YEARS ENDED
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)

Net patient service revenue.................................... $36,527 $45,999
Net income..................................................... 5,381 6,639
Net income per share........................................... 0.47 .54

The pro forma results do not necessarily represent results which would have
occurred if the acquisition had taken place at the beginning of the period, nor
are they indicative of the results of future combined operations.

F-11
65

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:

DECEMBER 31,
---------------
1994 1995
------ ------
(IN THOUSANDS)

Accounts payable................................................... $ 918 $ 786
Accrued salaries and bonuses....................................... 599 779
Accrued payroll taxes and benefits................................. 461 726
Accrued professional liability coverage............................ 500 1,268
Other accrued expenses............................................. 306 788
------ ------
$2,784 $4,347
====== ======

7. NOTE PAYABLE:

Note payable consists of the following:

DECEMBER 31,
-------------
1994 1995
---- ----
(IN THOUSANDS)

Mortgage payable to bank, interest at prime plus .5% (9.5% at December
31, 1995) quarterly payments of principal of $16,032 plus interest
through maturity date of October 4, 1998 at which time the unpaid
principal balance of $638,488 is due................................ $879 $815
Less current portion................................................ 64 64
---- ----
$815 $751
==== ====

The Company is required to maintain minimum levels of net income and net
worth under the terms of the mortgage agreement. The mortgage is collateralized
by the Company's headquarters carried at $1,545,000 at December 31, 1995.

The Company has a revolving line of credit in the amount of $7,000,000 and
another $2,000,000 line of credit to cover deductibles under its professional
liability insurance policies. Both facilities bear interest at prime plus .5%.
The Company did not have an outstanding balance under either line of credit at
December 31, 1994 or 1995. The revolving line of credit is collateralized by all
tangible personal and intangible property of the Company. The agreement provides
for the Company to maintain certain covenants including a requirement that the
Company maintain minimum levels of net income and net worth, as defined.

8. PREFERRED STOCK:

On October 26, 1992, the Company issued 4,571,063 shares of 9% voting,
redeemable, cumulative convertible Preferred Stock for $13,000,103. Pursuant to
the terms of the Preferred Stock Purchase Agreement (the "Agreement"), each
share of Preferred Stock was convertible into one share of common stock, subject
to adjustments in certain events. The Agreement indicated that upon conversion
of the Preferred Stock, all accumulated and unpaid dividends, whether or not
declared, since the date of issue up to and including the date of conversion
would be forgiven.

On September 25, 1995, in connection with the initial public offering, the
Company's Preferred Stock was converted into common stock of the Company and the
unpaid dividends of $3,736,589 were forgiven and the redemption value of the
Preferred Stock was credited to common stock and additional paid-in capital
accounts.

F-12
66

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES:

The components of the income tax provision are as follows:

DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)

Federal:
Current.................................................... $ 527 $2,460 $2,573
Deferred................................................... 1,269 722 1,184
------ ------ ------
1,796 3,182 3,757
------ ------ ------
State:
Current.................................................... -- 322 454
Deferred................................................... 370 245 264
------ ------ ------
370 567 718
------ ------ ------
Total.............................................. $2,166 $3,749 $4,475
====== ====== ======

The Company files its tax return on a consolidated basis with the
Subsidiary. The remaining PA Contractors file tax returns on an individual
basis.

The effective tax rate on income was 34%, 41% and 40% for the years ended
December 31, 1993, 1994 and 1995, respectively. The differences between the
effective rate and the U.S. federal income tax statutory rate of 35% are as
follows:

DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)

Tax at statutory rate........................................ $2,211 $3,205 $3,916
Statutory federal surtax exemption........................... (63) (91) (112)
State income tax, net of federal benefit..................... 60 333 451
Change in valuation allowance................................ (300) (450) --
Other, net................................................... 258 752 220
------ ------ ------
Income tax provision......................................... $2,166 $3,749 $4,475
====== ====== ======

The significant components of deferred income tax assets and liabilities
are as follows:

DECEMBER 31,
-----------------------------------------------
1994 1995
---------------------- ----------------------
DEFERRED INCOME TAX DEFERRED INCOME TAX
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN THOUSANDS)

Allowances for uncollectible accounts receivable
and other expenses recognized on a cash basis
by certain PA Contractors...................... $738 $(1,314) $389 $(2,711)
Property and equipment........................... 1 (47) -- (139)
Net operating loss carryforward.................. 151 -- 552 --
------ ----------- ------ -----------
Total.................................. 890 (1,361) 941 (2,850)
Current deferred income taxes.................... -- (540) -- (1,909)
------ ----------- ------ -----------
Total noncurrent deferred income
taxes................................ $890 $ (821) $941 $ (941)
===== ======= ===== =======
Net noncurrent deferred income taxes............. $ 69
=====

F-13
67

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The net noncurrent deferred income tax asset for the year ended December
31, 1994, is included in other assets.

The income tax benefits related to the exercise of stock options reduces
taxes currently payable and is credited to additional paid-in capital. Such
amounts totaled $252,180 for the year ended December 31, 1995.

The Company has net operating loss carryforwards for federal and state tax
purposes of approximately $369,000 and $1,377,000 at December 31, 1994 and
December 31, 1995, respectively, expiring at various times commencing in 1997.

As of December 31, 1995, U.S. Federal Income Tax Returns for 1992 and 1993
were in the process of examination by the Internal Revenue Service, which the
Company believes will propose certain adjustments for additional taxes and
interest. The Company believes that the tax returns are substantially correct as
filed and intends to vigorously contest any proposed adjustments. The Company
believes that the amounts that have been provided are adequate and that the
ultimate resolution of the examination will result in no material impact on the
Company's consolidated results of operations, financial position or cash flows.

10. CONTINGENCIES:

During the ordinary course of business, the Company has become a party to
pending and threatened legal actions and proceedings, most of which involve
claims of medical malpractice and are generally covered by insurance. These
lawsuits are not expected to result in judgments which would exceed professional
liability insurance coverage, and therefore, will not have a material impact on
the Company's consolidated results of operations, financial position or
liquidity, notwithstanding any possible insurance recovery.

11. RETIREMENT PLAN:

The Company has a qualified contributory savings plan (the "Plan") as
allowed under Section 401(k) of the Internal Revenue Code. The Plan permits
participant contributions and allows elective company contributions based on
each participant's contribution. Participants may elect to defer up to 15% of
their annual compensation by contributing amounts to the Plan. The Company
approved contributions of $375,339, $473,249 and $559,125 to the Plan during the
years ended December 31, 1993, 1994 and 1995, respectively.

F-14
68

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. HISTORICAL NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:

Net income per common and common equivalent share on a historical basis,
both primary and fully diluted, are as follows:

YEARS ENDED DECEMBER 31,
------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)

Income applicable to common stock:
Net income................................................ $4,150 $5,407 $6,713
Less: preferred stock dividends........................... 1,189 1,296 1,040
------ ------ ------
Income applicable to common stock........................... $2,961 $4,111 $5,673
------ ------ ------
Net income per share:
Primary................................................... $ 0.43 $ 0.60 $ 0.65
------ ------ ------
Fully diluted............................................. $ 0.36 $ 0.47 $ 0.55
------ ------ ------
Weighted average number of common and common equivalent
shares outstanding:
Primary................................................... 6,833 6,853 8,773
------ ------ ------
Fully diluted............................................. 11,415 11,430 12,216
------ ------ ------

Primary net income per common and common equivalent share is computed by
dividing net income available to common shareholders by the weighted average
number of common and common equivalent shares outstanding during the period. The
voting, redeemable, cumulative convertible preferred stock issued in October
1992 was determined not to be a common stock equivalent. In computing primary
net income per share, preferred stock dividends reduce income available to
common shareholders. Fully diluted net income per share is computed by dividing
net income by the weighted average number of common and common equivalent shares
outstanding during the period and includes 4,571,063 shares of common stock
assumed to be issued upon conversion of all shares of the preferred stock
described in Note 8 for December 31, 1993 and 1994.

Pursuant to the requirements of the SEC, common stock issued by the Company
plus common stock equivalents relating to the grant of common stock options,
during the twelve months immediately preceding the initial filing of the
registration statement with the SEC, have been included in the calculation of
the weighted average number of common and common equivalent shares outstanding
on a primary and fully diluted basis for the years ended December 31, 1993, 1994
and 1995, using the treasury stock method and the initial public offering price
of $20 per share.

13. STOCK OPTION PLAN:

In 1993, the Company's Board of Directors authorized a stock option plan.
Under the plan, options to purchase shares of common stock may be granted to
certain employees at a price not less than the fair market value of the shares
on the date of grant. The options must be exercised within ten years from the
date of grant. The stock options become exercisable on a prorata basis over a
three year period from the date of grant. As of January 18, 1995, 1,500,000
options were authorized by the Company's Board of Directors and the previously
issued options were confirmed. The additional authorization of options resulted
in 268,300 options available for grant as of that date.

F-15
69

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Pertinent information covering the stock option plan is as follows:

NUMBER OF OPTION PRICE EXPIRATION
SHARES PER SHARE DATE
--------- ------------- ----------

Outstanding at December 31, 1993................. 200,000 $ 2.84-$ 3.12 2003
Granted........................................ 1,035,450 $ 5.00-$10.00
Canceled....................................... (3,750) $ 5.00
--------- -------------
Outstanding at December 31, 1994................. 1,231,700 $ 2.84-$10.00 2003-2004
Granted........................................ 841,500 $10.00-$21.50
Canceled....................................... (324,583) $ 3.12-$12.50
Exercised...................................... (39,709) $ 3.12-$10.00
--------- -------------
Outstanding at December 31, 1995................. 1,708,908 $ 2.84-$21.50 2003-2005
======== ============
Exercisable at December 31, 1995................. 306,872 $ 2.84-$10.00
======== ============

14. SUBSEQUENT EVENTS:

Subsequent to year end, the Company completed acquisitions of three
neonatology and pediatric physician group practices for a total of approximately
$11 million cash. The agreements provide for additional payments of up to $2
million in 1997 based upon achievement of certain operating targets. The
acquisitions will be accounted for using the purchase method of accounting.

15. SUBSEQUENT EVENTS (UNAUDITED):

During the second quarter of 1996, the Company completed acquisitions of
three neonatology and pediatric physician group practices:

- On May 1, 1996, the Company, through its PA Contractors, acquired the
stock of Rocky Mountain Neonatology, P.C., a Colorado professional
corporation, in exchange for approximately $7.2 million in cash.

- On May 30, 1996, the Company, through its PA Contractors, acquired
certain assets of West Texas Neonatal Associates, a Texas general
partnership, in exchange for approximately $5.25 million in cash.

- On June 6, 1996, the Company, through its PA Contractors, acquired
certain assets of Infant Care Specialists Medical Group, Inc., a
California professional corporation, in exchange for approximately $6
million in cash.

The Company has accounted for the transactions using the purchase method of
accounting and the excess of cost over fair value of net assets acquired is
being amortized on a straight-line basis over 25 years. The results of
operations of the acquired companies have been included in the consolidated
financial statements from the dates of acquisition.

The following unaudited pro forma consolidated results of operations give
effect to the acquisitions completed in 1996 as if they had occurred as of
January 1, 1995 and do not purport to be indicative of what would have occurred
had the acquisitions actually been made as of such date or of results which may
occur in the future. Adjustments made in arriving at these results include the
reduction of certain amounts of compensation, bonuses and other benefits paid
principally to shareholders and other physicians, the reduction

F-16
70

PEDIATRIX MEDICAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in the cost of malpractice insurance, the amortization of goodwill, the
elimination of investment income assumed to be used for the acquisitions and the
application of the Company's effective tax rate on the combined earnings.

YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996
----------------- ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Net patient service revenue................. $69,423 $ 21,342
Net income.................................. 7,097 2,802
Net income per share........................ .58 .20

On May 14, 1996, the Company received the Internal Revenue Service's (IRS)
proposed adjustments to the Company's tax liability in connection with its
examination of the Company's 1992, 1993, and 1994 federal income tax returns as
discussed in Note 9 to the Consolidated Financial Statements. The IRS has
challenged certain deductions that, if disallowed, would result in additional
taxes of approximately $4.5 million, plus interest. The Company and its tax
advisors are in the process of preparing a response to the IRS. The Company and
its tax advisors believe that the tax returns are substantially correct as filed
and intend to vigorously contest the proposed adjustments. The Company and its
tax advisors also believe that the amounts that have been provided for income
taxes are adequate and that the ultimate resolution of the examination will not
result in a material adverse effect on the Company's consolidated results of
operations, financial position or cash flows.

F-17
71

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

FINANCIAL STATEMENTS

F-18
72

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Neonatal and Pediatric Intensive Care Medical Group, Inc.

We have audited the accompanying balance sheet of Neonatal and Pediatric
Intensive Care Medical Group, Inc. as of December 31, 1994 and the related
statements of operations, stockholders' equity and cash flows for the year then
ended. 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 audit.

We conducted our audit 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 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 audit provides 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 Neonatal and Pediatric
Intensive Care Medical Group, Inc. as of December 31, 1994, and the results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Los Angeles, California
July 21, 1995

F-19
73

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

BALANCE SHEETS

DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

ASSETS:
Current assets:
Cash and cash equivalents.................................... $ 194,916 $ 194,831
Accounts receivable, net of allowance for uncollectibles of
$129,046 at December 31, 1994 and $153,435 at June 30,
1995...................................................... 788,809 698,275
Income tax receivable........................................ 10,982 10,982
Equity securities available for sale......................... 22,582 83,607
Prepaid expenses and other assets............................ 33,230 37,059
----------------- -------------
Total current assets................................. 1,050,519 1,024,754
Equipment, net of accumulated depreciation of $14,093 at
December 31, 1994 and $14,263 at June 30, 1995............... 1,555 1,385
Deferred tax asset............................................. 63,487 81,207
Other assets................................................... 58,804 72,808
----------------- -------------
Total assets......................................... $ 1,174,365 $ 1,180,154
============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses........................ $ 246,886 $ 319,835
Deferred revenue............................................. 122,500 17,500
Deferred tax liability....................................... 222,324 236,829
----------------- -------------
Total current liabilities............................ 591,710 574,164
Professional claims liability.................................. 234,456 320,098
----------------- -------------
Total liabilities.................................... 826,166 894,262
----------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock; no par value, 100,000 shares authorized, 60,000
shares issued and outstanding............................. 135,000 135,000
Unrealized valuation adjustment, net of tax effect........... 835 12,041
Retained earnings............................................ 212,364 138,851
----------------- -------------
Total stockholders' equity........................... 348,199 285,892
----------------- -------------
Total liabilities and stockholders' equity........... $ 1,174,365 $ 1,180,154
============= ==========

See accompanying notes.

F-20
74

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

STATEMENTS OF OPERATIONS

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

Operating revenues:
Net patient service revenue.................................. $ 3,748,454 $ 2,139,730
----------------- -------------
Operating expenses:
Stockholders' compensation and benefits...................... 1,935,454 1,011,851
Salaries and benefits........................................ 1,280,441 860,133
Supplies and other operating expenses........................ 568,523 356,334
Depreciation................................................. 2,651 170
----------------- -------------
Total operating expenses............................. 3,787,069 2,228,488
----------------- -------------
Loss from operations................................. (38,615) (88,758)
Other income................................................... 15,462 4,376
----------------- -------------
Loss before income taxes............................. (23,153) (84,382)
Income tax provision (benefit)................................. 3,572 (10,869)
----------------- -------------
Net loss............................................. $ (26,725) $ (73,513)
============= ==========

See accompanying notes.

F-21
75

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK
-------------------- UNREALIZED
NUMBER OF RETAINED VALUATION
SHARES AMOUNT EARNINGS ADJUSTMENT TOTAL
--------- -------- --------- ---------- ---------

Balance at December 31, 1993.............. 60,000 $135,000 $ 239,089 $ 6,820 $ 380,909
Unrealized valuation adjustment, net of
tax effect of ($4,168).................. -- -- -- (5,985) (5,985)
Net loss.................................. -- -- (26,725) -- (26,725)
--------- -------- --------- ---------- ---------
Balance at December 31, 1994.............. 60,000 135,000 212,364 835 348,199
Unrealized valuation adjustment, net of
tax effect of $11,206 (unaudited)....... -- -- -- 11,206 11,206
Net loss (unaudited)...................... -- -- (73,513) -- (73,513)
--------- -------- --------- ---------- ---------
Balance at June 30, 1995 (unaudited)...... 60,000 $135,000 $ 138,851 $ 12,041 $ 285,892
======== ======== ========= ======== =========

See accompanying notes.

F-22
76

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

STATEMENTS OF CASH FLOWS

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

Cash flows from operating activities:
Net loss..................................................... $ (26,725) $ (73,513)
Adjustments to reconcile net loss to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation.............................................. 2,651 170
Provision for uncollectible accounts...................... 129,046 24,389
Provision for deferred taxes.............................. 3,767 7,992
Changes in assets and liabilities:
Accounts receivable..................................... (306,184) 66,145
Prepaid expenses and other assets....................... (29,347) (17,835)
Accounts payable and accrued expenses................... 25,268 72,950
Deferred revenues....................................... 40,833 (105,000)
Professional claims liability........................... 37,550 85,642
----------------- -------------
Net cash provided by (used in) operating
activities......................................... (123,141) 60,940
Cash flows from investing activities:
Purchase of equity securities................................ (183,079) (149,399)
Sale of equity securities.................................... 212,822 88,374
Purchase of property and equipment........................... (4,856) --
----------------- -------------
Net cash provided by (used in) investing
activities......................................... 24,887 (61,025)
----------------- -------------
Net decrease in cash and cash equivalents............ (98,254) (85)
Cash and cash equivalents at beginning of year................. 293,170 194,916
----------------- -------------
Cash and cash equivalents at end of year....................... $ 194,916 194,831
============= ==========
Supplemental disclosure of cash flow information:
Cash paid for taxes.......................................... $ 10,641 $ 800
============= ==========

See accompanying notes.

F-23
77

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS

1. GENERAL:

The principal business activity of Neonatal and Pediatric Intensive Medical
Care Group, Inc. ("the Company") is to provide physician services to
hospital-based neonatal and pediatric intensive care units. Contractual
arrangements with hospitals are: (a) fee-for-service contracts whereby hospitals
agree, in exchange for the Company's services, to authorize the Company and its
healthcare professionals to bill and collect the professional component of the
charges for medical services rendered by the Company's healthcare professionals;
and (b) administrative fees whereby the Company is assured a minimum revenue
level for the services provided. In addition, the Company has a revenue sharing
agreement with another medical group which also provides services at certain
hospitals where the Company provides services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounts Receivable and Revenues

Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with hospitals, medical groups and third-party payors,
such as insurance companies, self-insured employers, patients and
government-sponsored health care programs in the State of California. These
receivables are presented net of contractual adjustments and an estimated
allowance for uncollectibles which is charged to operations based on an
evaluation of expected collections resulting from an analysis of current and
past due accounts, past collection experience in relation to amounts billed and
other relevant information. Contractual adjustments result from the difference
between the physician rates for services performed, including withholding
provisions, and reimbursement by government-sponsored healthcare programs and
insurance companies for such services. Bad debts are included in contractual
allowances and uncollectibles because they are not considered material.

Concentration of credit risk relating to accounts receivable is limited by
the number and diversity of the neonatology units managed by the Company, as
well as by the large number of patients and payors. Approximately one-third of
the Company's net patient service revenue is derived from Medi-Cal, the
California Medicaid program. Receivables from Medi-Cal made up approximately 13%
of accounts receivable at December 31, 1994.

Deferred Revenues

The Company receives certain fees from hospitals for its services which are
paid in advance. The payments are recognized as earned on a straight-line basis
over the remaining contract period.

Cash and Cash Equivalents

Cash and cash equivalents are defined as all highly liquid financial
instruments with maturities of 90 days or less from the date of purchase. The
Company maintains its cash and cash equivalents which consist primarily of
demand deposits, amounts on deposit in a money market account with principally
one financial institution and short-term government securities which subjects it
to concentrations of credit risk. At times such balances may exceed the Federal
Deposit Insurance Corporation limits.

Property and Equipment

Property and equipment is recorded at cost. Depreciation of property and
equipment is computed on the double-declining-balance method over the estimated
useful lives of five years. Upon sale or retirement of property and equipment,
the cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is reflected in operations.

F-24
78

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Professional Liability Coverage

The Company maintains professional liability coverage which indemnifies the
Company and its stockholder and employee physicians and independent contractor
physicians on a claims-made basis. The Company records an estimate of its
liabilities for claims incurred but not reported. Such liabilities are not
discounted.

Income Taxes

The Company computes its income taxes utilizing Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes,"which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted rates in effect for the year in which
the differences are expected to reverse.

Investments

The Company accounts for its investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities ("SFAS NO. 115").

This Statement classifies investments into one of three categories:
held-to-maturity, available-for-sale, or trading. Debt securities that an
enterprise has the positive intent and ability to hold to maturity are
classified as held-to-maturity and reported at amortized cost. Debt and equity
securities that are bought and held principally for the purpose of selling them
in the near term are classified as trading securities and reported at fair value
with unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity securities or trading
securities are classified as available-for-sale and reported at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of shareholders' equity.

The Company classifies its investments as available-for-sale. The basis on
which cost is determined is the specific identification method which the Company
uses when computing realized gains and losses. Gains of $10,623 and losses of
$5,861 were realized on the sale of investments in securities for the year ended
December 31, 1994. Gains and losses for the six months ended June 30, 1995 were
$841 and $395, respectively. Gross unrealized gains and losses were $1,996 and
$580, at December 31, 1994 and $20,310 and $650 at June 30, 1995, respectively.

Charity Care

The Company provides care to patients who meet certain criteria under its
charity care policy without charge. Because the Company does not pursue
collection of amounts determined to qualify as charity care, they are not
reported as revenue.

F-25
79

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. INCOME TAXES:

The following table presents the current and deferred income tax provision
(benefit) for federal and state income taxes:

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

Current:
Federal.............................................. $ (10,982) $ --
State................................................ 800 800
----------------- -------------
(10,182) 800
----------------- -------------
Deferred:
Federal.............................................. 11,920 (10,390)
State................................................ 1,834 (1,279)
----------------- -------------
13,754 (11,669)
----------------- -------------
$ 3,572 $ (10,869)
============= ==========

The provision for income taxes differs from the amount obtained by applying
the federal statutory income tax rate to income before provision for income
taxes as follows:

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

Federal statutory rate................................ 35.0% 35.0%
State income tax, net of federal benefit.............. (7.4) .4
Change in valuation allowance......................... (21.9) (20.3)
Officer's life insurance.............................. (16.3) (2.2)
Meals and entertainment............................... (6.0) (.2)
Other, net............................................ 1.2 .2
------ ------
(15.4)% 12.9%
============== ==========

F-26
80

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The deferred tax asset/(liability) is comprised of the following:

DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------

Deferred tax asset (long-term):
Professional claims liability..................... $ 103,864 $ 141,803
Other............................................. (14,518) (13,571)
----------------- -------------
89,346 128,232
Less: valuation adjustment........................ (25,859) (47,025)
----------------- -------------
$ 63,487 $ 81,207
================== =============
Deferred tax liability (short-term):
Allowance for uncollectibles...................... $ 57,167 $ 67,972
Deferred revenue.................................. 54,268 7,753
Accrual to cash adjustments....................... (333,458) (303,798)
Other............................................. (301) (8,756)
----------------- -------------
$(222,324) $(236,829)
================== =============

The change in the valuation allowance increased by $5,070 in the year ended
December 31, 1994 and $21,166 for the six months ended June 30, 1995.

At December 31, 1994 the Company had a state net operating loss
carryforward (NOL) of approximately $6,000 which will expire in 1999. At June
30, 1995 the Company had federal and state net operating losses of approximately
$47,000 and $40,000, respectively, which will expire in 2010 and 2000,
respectively.

The acquisition of the Company referred to in Note 8 will constitute a
change in control under both Section 382 of the Internal Revenue Code and
related state law. As a result, the amount of NOL carryovers that may be
utilized in a tax year subsequent to the acquisition is limited to the
"long-term tax exempt rate" (presently 5.88% for ownership changes during August
1995) times the value of the Company. The value of the Company is subject to
specific rules under section 382 of the Internal Revenue Code and related state
tax law.

The sources of deferred taxes and the tax effect of each are as follows:

SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1994 JUNE 30, 1995
----------------- -------------
(UNAUDITED)

Allowance for uncollectibles...................... $ 57,167 $ 10,804
Accrual to cash adjustments....................... (71,659) 29,660
Deferred revenue.................................. 18,089 (46,515)
Professional claims liability..................... 16,634 37,939
Other............................................. (29,243) (17,714)
Net operating loss................................ 1,507 18,661
----------------- -------------
(7,505) 32,835
Valuation allowance............................... (6,249) (21,166)
----------------- -------------
(13,754) 11,669
----------------- -------------
Unrealized valuation adjustment (reflected in the
statement of stockholders' equity).............. 4,168 (11,206)
----------------- -------------
$ (9,586) $ 463
================== =============

F-27
81

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:

DECEMBER 31, 1994 JUNE 30, 1995
----------------- --------------

(UNAUDITED)
Accrued retirement..................................... $ 229,000 $229,000
Accrued vacation....................................... 14,141 15,386
Accounts payable....................................... 3,745 75,449
----------------- --------------
$ 246,886 $319,835
============== ===========

5. RELATED-PARTY TRANSACTIONS:

For the year ended December 31, 1994, the Company paid approximately
$84,000 ($52,000 for the six months ended June 30, 1995) in billing fees to a
company for the billing and collection of revenue (the "Billing Company") in
which certain shareholders of the Company have a controlling ownership. In
addition, the Company rents certain employees to the Billing Company at its
cost. The reimbursement for these services is presented net in the accompanying
statement of operations and amounted to approximately $81,000 in 1994 and
$48,000 for the six months ended June 30, 1995.

6. RETIREMENT PLANS:

The Company has two qualified defined contribution employee benefit plans
(the "Plans") as allowed under Section 401 of the Internal Revenue Code, which
include a 401(k)/profit-sharing plan ("401(k) Plan") and a money purchase plan
("Money Purchase Plan") which covers substantially all employees. Employees who
have completed 12 months of service and are at least 21 years old are eligible
to participate and will become participants in the Plans following eligibility
effective on certain dates which are based on each of the Plans' years.

The 401(k) Plan permits participant contributions and a discretionary
amount determined by the Company which are fully vested upon contribution. In
addition, the Company may elect to contribute from the profits of the Company up
to 15% of its annual compensation expense (as defined in the Plan) which is
allocated to each participant based on a relationship of his/her compensation to
total compensation, with graduated vesting over 6 years of service.

Under the provisions of the Money Purchase Plan, the Company shall
contribute to the Plan on behalf of each eligible participant an amount equal to
approximately 6.13% of the participant's compensation (as defined in the Plan)
for such Plan year which is subject to certain limitations. These amounts are
allocated to each participant based on a relationship of his/her compensation to
total compensation with graduated vesting over 7 years of service.

The Company approved contributions of $229,000 to the Plans which were
expensed for the year ended December 31, 1994.

7. COMMITMENTS:

The Company has employment agreements with certain employee physicians that
expire in various months ranging from June to September 1995. As of December 31,
1994 the terms of the agreements commit the Company to pay approximately
$374,000 ($43,000 at June 30, 1995) in compensation for the remainder of the
agreements' terms. In addition, the agreements provide the Company with the
right to automatically extend the agreements, unless the employee gives
appropriate notice as defined in each agreement.

F-28
82

NEONATAL AND PEDIATRIC INTENSIVE CARE MEDICAL GROUP, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. SUBSEQUENT EVENT:

On June 13, 1995, the Company announced it had reached an agreement in
principle to be acquired by Pediatrix Medical Group of California, P.C., a
separate legal entity that contracts with Pediatrix Medical Group, Inc., in a
stock transaction in exchange for cash.

Consummation of the sale is conditioned upon satisfactory resolution of the
following items: the satisfactory completion of due diligence by Pediatrix, the
successful negotiation of arrangements with the hospitals now serviced by the
Company and the successful negotiation of any other professional relationships
necessary to effectuate a continuum of the Company's professional services
presently rendered.

F-29
83

NEONATAL SPECIALISTS, LTD.

FINANCIAL STATEMENTS

F-30
84

INDEPENDENT AUDITORS' REPORT

The Shareholders and Board of Directors
Neonatal Specialists, Ltd.
Phoenix, Arizona

We have audited the accompanying balance sheet of Neonatal Specialists,
Ltd. as of December 31, 1995, and the related statements of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of Neonatal Specialists, Ltd.'s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of Neonatal Specialists, Ltd. as of December
31, 1995, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.

Johnson & Moser, Ltd.

Scottsdale, Arizona
February 22, 1996

F-31
85

NEONATAL SPECIALISTS, LTD.

BALANCE SHEET
DECEMBER 31, 1995

ASSETS:

Current assets:
Cash.......................................................................... $ 3,456
Accounts Receivable -- Net (Note 1)........................................... 851,180
Stockholder's Advances (Note 2)............................................... 2,646
Other Receivables (Note 2).................................................... 88,169
Deposits...................................................................... 1,090
--------
Total current assets.................................................. $946,541
========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts Payable.............................................................. $ 22,313
Other Payables (Note 2)....................................................... 146,835
Interest Payable.............................................................. 1,086
Payroll Taxes Payable......................................................... 2,199
Profit Sharing Plan Payable (Note 4).......................................... 53,236
Treasury Stock Payable (Note 3)............................................... 20,947
Deferred Compensation (Note 3)................................................ 133,365
--------
Total current liabilities............................................. 379,981
Stockholders' equity:
Common Stock, $10 Par Value, 255 Shares Issued................................ 2,550
Retained Earnings............................................................. 604,010
--------
606,560
Treasury Stock, 102 Shares, at Cost (Note 3).................................. (40,000)
--------
Total stockholders' equity............................................ 566,560
--------
Total liabilities and stockholders' equity............................ $946,541
========

See accompanying notes to financial statements.

F-32
86

NEONATAL SPECIALISTS, LTD.

STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1995

Medical revenues, net of patient refunds....................................... $4,086,713
Operating expenses............................................................. 3,716,612
----------
Total operating income............................................... 370,101
----------
Other income (expenses):
Other Income................................................................. 36,777
Interest Income.............................................................. 5,438
Interest Expense............................................................. (7,521)
----------
Net Income -- Other.......................................................... 34,694
----------
Net income..................................................................... 404,795
Retained earnings at beginning of year......................................... 199,215
----------
Retained earnings at end of year............................................... $ 604,010
=========

See accompanying notes to financial statements.

F-33
87

NEONATAL SPECIALISTS, INC.

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995

Cash flows from operating activities:

Net Income................................................................... $ 404,795
Adjustments to reconcile net income to net cash used by operating activities:
(Increase) Decrease in Assets:
Accounts Receivable -- Net.............................................. 54,503
Other Receivables....................................................... (88,169)
Stockholder's Advances.................................................. (2,646)
Deposits................................................................ 1,070
Increase (Decrease) in Liabilities:
Accounts Payable........................................................ 1,676
Other Payables.......................................................... 146,836
Interest Payable........................................................ (204)
Payroll Taxes Payable................................................... (167,216)
Income Taxes Payable.................................................... (2,155)
Profit Sharing Plan Payable............................................. 22,690
Treasury Stock Payable.................................................. (17,403)
Deferred Compensation................................................... (40,535)
---------
Net cash provided by operating activities............................ 313,242
Cash flows from financing activities:
Distributions to Stockholders............................................. (430,452)
---------
Net decrease in cash and equivalents........................................... (117,210)
Cash and equivalents at beginning of year...................................... 120,666
---------
Cash and equivalents at end of year............................................ $ 3,456
=========

See accompanying notes to financial statements.

F-34
88

NEONATAL SPECIALISTS, LTD.

NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in
understanding the Neonatal Specialists, Ltd.'s ("Company") financial statements.
The financial statements and notes are representations of the Company's
management, who is responsible for their integrity and objectivity. These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.

Business Activities

The Company is a professional corporation. The stockholders are physicians
specializing in the field of neonatology. The area of service is mainly in
Phoenix, Arizona. The Company receives patients from a wider geographical area
serviced by transport/air ambulance services. Services are provided within
hospital settings, based on contracts between the Company and the various
hospitals. The Company has fee agreements with the State of Arizona and
insurance providers.

Accounts Receivable

Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with hospitals and third-party payors, such as
insurance companies and government-sponsored health care programs in the State
of Arizona. These receivables are presented net of contractual adjustments and
an estimated allowance for uncollectibles of $244,000 which is charged to
operations based on an evaluation of expected collections resulting from an
analysis of current and past due accounts, past collection experience in
relation to amounts billed and other relevant information. Contractual
adjustments result from the difference between the physician rates for services
performed, including withholding provisions, and reimbursement by government-
sponsored healthcare programs and insurance companies for such services.

S Corporation -- Income Tax Status

The Company elected the C Corporation status in 1991. In 1995, this
election was changed to an S Corporation.

In lieu of corporation income taxes, the shareholders of an S corporation
are taxed on their proportionate share of the Company's taxable income. As a
result, provision or liability for federal and state income taxes has not been
included in the financial statements.

Cash Equivalents

For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.

NOTE 2 -- RELATED PARTY TRANSACTIONS

The Company has entered into contractual agreements with two related
parties. CMJ Leasing, L.P. leases fixed assets to the Company. Med-Support, L.P.
leases employees to the Company.

For the year ended December 31, 1995, total expenses charged to the Company
by CMJ Leasing, L.P. and Med-Support, L.P. were $36,000 and $1,613,160,
respectively. At year-end, the Company was owed $87,169 by CMJ Leasing, L.P.,
but owed Med-Support, L.P. $145,835.

As of December 31, 1995, one stockholder had been advanced $2,646 on a
non-interest bearing basis.

F-35
89

NEONATAL SPECIALISTS, LTD.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- TREASURY STOCK AND DEFERRED COMPENSATION PAYABLES

Deferred compensation and payments for the Company's treasury stock are
paid to former stockholders. In 1994, the Company entered into a contract to buy
back stock from former stockholders. Part of the agreement included deferred
compensation to the former stockholders.

NOTE 4 -- RETIREMENT PLANS

The Company covers substantially all of its employees under two qualified
defined contribution employee benefit plans (the "Plans") as allowed under
Section 401 of the Internal Revenue Code. The Plans include a profit sharing
plan ("Profit Sharing Plan") and a money purchase plan ("Money Purchase Plan").
Employees who have completed 12 months of service and are at least 21 years old
are eligible to participate and will become participants in the Plans following
eligibility effective on certain dates which are based on each of the Plan's
years. The participants of the Plans with less than five years of service are
subject to a vesting schedule, with less than one year of service having 0%
vested and for 1-5 years, 20% vested per year beginning with the completion of
the first year. Vesting of 100% occurs when the participants reach normal
retirement age or upon death or disability prior to the completion of the 5
years of service. The Plans cover all "Leased Employees" as determined in
accordance with Section 414(n)(6) of the Internal Revenue Code.

Under the provisions of the Profit Sharing Plan, the Company may elect to
contribute from the profits of the Company a percentage of annual compensation
expense, as defined. The amount allocated to each participant is based on the
percentage of his/her compensation to the total compensation of the Company.

The Money Purchase Plan directs the Company to contribute to the Plan on
behalf of each eligible participant an amount equal to 5% of the participant's
annual compensation, as defined, subject to certain limitations. The amount
allocated to each participant is based on the percentage of his/her compensation
to the total compensation of the Company.

NOTE 5 -- CONTINGENT LIABILITY

The Company has an automobile lease for an employee of Med-Support, L.P.
The balance due as of December 31, 1995, was $5,338, and is due to be paid off
by December 31, 1996. The Company's stockholders are liable for the remainder of
the payments.

NOTE 6 -- CASH FLOW INFORMATION

Supplemental cash flow information relative to cash payments for the year
ended December 31, 1995 is as follows:

Interest.................................... $6,435
Income Taxes................................ $2,155

NOTE 7 -- SUBSEQUENT EVENTS

Sale of Business

On January 16, 1996, the Company's stockholders sold all outstanding shares
of the Company to an affiliate of Florida-based Pediatrix Medical Group, Inc. a
publicly held company traded on NASDAQ, for an amount in excess of book value.
As part of the sales agreement, the treasury stock and deferred compensation
debts were paid in full by the Company's stockholders.

F-36
90

PEDIATRIC AND NEWBORN CONSULTANTS, PC

FINANCIAL STATEMENTS

F-37
91

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Pediatric and Newborn Consultants, PC

I have audited the accompanying balance sheet of Pediatric and Newborn
Consultants, PC as of December 31, 1995 and the related statements of earnings
and retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Pediatric and Newborn Consultants, PC's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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.
I believe my audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pediatric and Newborn
Consultants, PC as of December 31, 1995 and the results of its activities and
its cash flows for the year then ended in conformity with generally accepted
accounting principles.

DEON E. FITCH, CPA

Englewood, Colorado
March 15, 1996

F-38
92

PEDIATRIC AND NEWBORN CONSULTANTS, PC

BALANCE SHEET

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

ASSETS
Current assets
Cash....................................................................... $ 10,596
Accounts receivable, net................................................... 426,402
Stockholder loans.......................................................... 8,289
-----------------
445,287
-----------------
Property and equipment
Equipment and furnishings.................................................. 18,893
Less accumulated depreciation.............................................. (18,795)
-----------------
98
-----------------
Other assets
Deferred sales commissions................................................. 20,175
Unamortized organization costs............................................. 800
Security deposit........................................................... 400
-----------------
21,375
-----------------
Total assets....................................................... $ 466,760
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and withheld taxes........................................ $ 9,958
Accrued retirement plan contributions...................................... 35,875
Deferred compensation...................................................... 12,490
-----------------
58,323
-----------------
Stockholders' equity
Common stock, no par value, 10,000 shares authorized, 5,000 shares issued
and outstanding......................................................... 5,098
Retained earnings.......................................................... 403,339
-----------------
408,437
-----------------
Total liabilities and stockholders' equity......................... $ 466,760
=============

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

F-39
93

PEDIATRIC AND NEWBORN CONSULTANTS, PC

STATEMENT OF EARNINGS AND RETAINED EARNINGS

YEAR ENDED
DECEMBER 31, 1995
-----------------

Revenue
Hospital contracts......................................................... $ 676,412
Patient fees, net.......................................................... 1,646,635
-----------------
Total revenue...................................................... 2,323,047
-----------------
Expense
Salaries and wages
Physicians.............................................................. 1,463,005
Staff physicians........................................................ 230,221
Physician assistants and administrative................................. 95,560
Payroll taxes and employee benefits........................................ 79,998
Retirement benefits........................................................ 131,989
Contract office services................................................... 17,576
Amortization............................................................... 200
Professional development................................................... 3,375
Practice development....................................................... 30,902
Contract medical coverage.................................................. 16,500
Office..................................................................... 15,708
Hospital dues and licenses................................................. 5,050
Malpractice insurance...................................................... 39,596
Billing services........................................................... 80,084
Professional fees.......................................................... 11,838
Vehicle.................................................................... 19,663
Charitable contributions................................................... 1,875
-----------------
Total expense...................................................... 2,243,140
-----------------
Net earnings................................................................. 79,907
Retained earnings, beginning................................................. --
Transfer of accounts receivable and accounts payable on incorporation,
accrual basis.............................................................. 323,432
-----------------
Retained earnings, ending.................................................... $ 403,339
=============

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

F-40
94

PEDIATRIC AND NEWBORN CONSULTANTS, PC

STATEMENT OF CASH FLOWS

YEAR ENDED
DECEMBER 31, 1995
-----------------

Cash flows from operating activities......................................... $ 2,237,294
Cash received from fees and services....................................... (2,201,834)
-----------------
Cash paid to employees and other
Net cash provided from operating activities........................ 35,460
-----------------
Cash flows from (used in) investing activities
Stockholder loans.......................................................... (8,289)
Deferred sales commissions................................................. (20,175)
Organization costs......................................................... (1,000)
Security deposit........................................................... (400)
-----------------
Net cash used in investing activities.............................. (29,864)
-----------------
Cash flows from financing activities
Proceeds from issuance of common stock..................................... 5,000
-----------------
Net cash from financing activities................................. 5,000
-----------------
Net increase in cash......................................................... 10,596
Cash, beginning of year...................................................... --
-----------------
Cash, end of year............................................................ $ 10,596
=============
Reconciliation of net earnings to net cash provided by operating activities:
Net earnings............................................................... $ 79,907
Adjustments
Amortization............................................................ 200
Increase in receivables................................................. (85,753)
Increase in payables.................................................... 41,106
-----------------
Net cash provided from operating activities............................. $ 35,460
=============
Supplemental schedule of non-cash transactions
Non-cash transfers of assets and liabilities on incorporation:
Net property transfer in exchange for common stock......................... $ 98
=============
Transfer of accounts receivable, retained earnings, beginning.............. $ 340,649
Transfer of accounts payable, retained earnings, beginning................. (17,217)
-----------------
Net transfer of accounts receivable and payables on incorporation.......... $ 323,432
=============

The accompanying notes are an integral part of these statements.

F-41
95

PEDIATRIC AND NEWBORN CONSULTANTS, PC

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995

1. NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Activities

Pediatric and Newborn Consultants, PC, a Colorado professional service
corporation and hereafter referred to as PNC, was formed to provide neonatal and
pediatric services through the practice of medicine in Colorado. PNC commenced
operations in January, 1995 as a continuation of Pediatric and Newborn
Consultants, a general partnership.

PNC uses the modified-cash method of accounting for reporting the results
of its activities for financial statement and income tax purposes. Under this
method, revenues are reported when received, expenses when paid and retirement
plan contributions when incurred.

The accompanying special purpose financial statements have been prepared on
the accrual basis.

Accounts Receivable, Contractual Adjustments

Accounts receivable is composed of outstanding patient fees and services,
net of estimated uncollectible accounts and contractual adjustments based on
collection experience.

DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------

Accounts receivable.......................................... $ 802,538 $ 720,379
Estimated uncollectible accounts............................. (146,535) (196,304)
Contractual adjustments...................................... (229,601) (183,426)
----------------- -----------------
Accounts receivable, net..................................... $ 426,402 $ 340,649
============= =============

Property

Fully depreciated property of $18,893 is still in use as of December 31,
1995.

Statement of Cash Flows

For the purposes of the statement of cash flows, PNC considers all highly
liquid debt instruments purchased with a maturity of three months or less and
certificates of deposits to be cash.

Income Taxes

PNC and its shareholders have elected to be classified as an S corporation
for federal and state income tax purposes and accordingly all items subject to
taxation generally pass-through the corporation and are taxed in conjunction
with the shareholder's individual income tax returns.

Deferred Compensation

In April, 1995, in accordance with the terms and conditions of an
employment agreement, PNC agreed to pay a terminating physician/shareholder a
portion of the outstanding accounts receivable as of April 30, 1995 as
collected. In February, 1996, PNC negotiated a final settlement for the
compensation obligation.

Retirement Plans

PNC maintains a money-purchase pension plan and a profit-sharing plan for
some of its eligible employees with one year of full-time service. Contributions
to the money purchase pension plan are based on compensation, integrated with
social security and subject to a vesting schedule on termination of employment.
Contributions to the profit-sharing plan are at the discretion of the board of
directors, based on compensation and subject to a vesting schedule on
termination of employment.

F-42
96

PEDIATRIC AND NEWBORN CONSULTANTS, PC

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

During 1995, PNC allocated the following amounts to its retirement plans.

MONEY PURCHASE
PARTICIPANTS PENSION PROFIT-SHARING TOTAL
- --------------------------------------------------------- -------------- -------------- --------

Physician/shareholders................................... $ 40,835 $ 49,165 $ 90,000
Staff.................................................... 16,455 25,534 41,989
-------------- -------------- --------
Totals......................................... $ 57,290 $ 74,699 $131,989
============ ========== ========

In conjunction with the sale of its professional practice, PNC has agreed
to terminate its retirement plans on or before December 31, 1996 and provide
full vesting for all plan participants.

Incorporation and Issuance of Common Stock

On January 3, 1995, the partners of Pediatric and Newborn Consultants, a
general partnership, transferred their interests in the partnership's assets
including outstanding accounts receivable, accounts payable, work in progress
and cash in the amount of $5,000 to Pediatric and Newborn Consultants, PC in
exchange for 5,000 shares of no par value, common stock of Pediatric and Newborn
Consultants, PC.

2. COMMITMENTS AND CONTINGENCIES

Revenue and Support

PNC derives substantially all of its revenue including interrelated patient
fees, use of office and clinic facilities and administrative services from
various short-term, renewable contracts with some of the hospitals in the
metro-Denver area. Should a significant reduction in the level of this revenue
and support occur, PNC programs and activities may be affected.

The value of the use of the office and clinic facilities and administrative
services applicable to these contracts has not been reflected in the
accompanying financial statements.

Office Facility

In December, 1995, PNC secured an office facility for a one year term
beginning January 1, 1996. Under the lease, rent in the amount of $400 per month
plus a prorata share of the monthly maintenance is payable during the term.

3. SUBSEQUENT EVENTS

Sale of Professional Practice

In December, 1995, PNC and its shareholders negotiated a letter of intent
to sell, assign and transfer all of its assets, hospital contracts, business
rights/goodwill and restrictive covenants, excluding cash and outstanding
accounts receivable and payable to Pediatrix Medical Group of Colorado, P.C., a
separate legal entity that contracts with Pediatrix Medical Group, Inc.

Final negotiations for the sale and assignment, which includes contingent,
additional sales consideration based on productivity and activities during the
one-year, post-closing period, were completed on January 29, 1996. Subsequent to
the sale, PNC became a nonprofessional service corporation.

Deferred Sales Commissions Agreement

In conjunction with the sale of the professional practice, PNC contracted
with Nord Capital Group, Inc. to assist in the negotiations. In addition to the
sales commissions applicable to the completed portions of the sales agreement,
PNC agreed to assign an undivided six percent interest in its contingent,
additional sales consideration arrangement applicable to the one-year,
post-closing period.

F-43
97

ROCKY MOUNTAIN NEONATOLOGY, P.C.

FINANCIAL STATEMENTS

F-44
98

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Rocky Mountain Neonatology, P.C.

We have audited the accompanying balance sheet of Rocky Mountain
Neonatology, P.C. as of December 31, 1995 and the related statements of
operations, stockholders' equity, and cash flows for the year then ended. 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 audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Rocky Mountain Neonatology,
P.C. as of December 31, 1995, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
June 17, 1996

F-45
99

ROCKY MOUNTAIN NEONATOLOGY, P.C.

BALANCE SHEETS

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

ASSETS
Current assets:
Cash and cash equivalents.......................................... $157,095 $ 477,879
Accounts receivable, net........................................... 634,267 675,926
Prepaid expenses................................................... 77,607 62,566
------------ ------------
Total current assets....................................... 868,969 1,216,371
Furniture and equipment, net of accumulated depreciation of $2,737
at December 31, 1995 and $2,949 at March 31, 1996............... 1,878 1,666
------------ ------------
Total assets............................................... $870,847 $1,218,037
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............................. $ 18,679 $ 20,188
Salaries payable................................................... -- 371,640
Patient overpayments............................................... 83,276 89,521
Hospital salary reimbursement payable.............................. 83,329 25,000
Professional claims liability...................................... 72,842 72,842
Deferred tax liability............................................. 233,131 243,059
------------ ------------
Total current liabilities.................................. 491,257 822,250
------------ ------------
Commitments (Note 6)
Stockholders' equity:
Common stock; $1 par value, 50,000 shares authorized, 6,000 shares
issued and outstanding.......................................... 6,000 6,000
Retained earnings.................................................. 373,590 389,787
------------ ------------
Total stockholders' equity...................................... 379,590 395,787
------------ ------------
Total liabilities and stockholders' equity...................... $870,847 $1,218,037
========== =========

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

F-46
100

ROCKY MOUNTAIN NEONATOLOGY, P.C.

STATEMENTS OF OPERATIONS

THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ -------------
(UNAUDITED)

Net patient service revenue......................................... $3,105,845 $ 954,900
------------ -------------
Operating expenses:
Stockholders' compensation and benefits........................... 1,973,395 671,640
Salaries and benefits............................................. 344,494 111,193
Supplies and other operating expenses............................. 428,779 106,175
Insurance expense................................................. 70,411 18,641
Hospital salary reimbursement..................................... 83,329 25,000
Depreciation...................................................... 1,236 212
------------ -------------
Total operating expenses.................................. 2,901,644 932,861
------------ -------------
Income from operations.............................................. 204,201 22,039
Other income........................................................ 7,721 4,086
------------ -------------
Income before income taxes................................ 211,922 26,125
Income tax provision................................................ 80,530 9,928
------------ -------------
Net income................................................ $ 131,392 $ 16,197
========== ===========

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

F-47
101

ROCKY MOUNTAIN NEONATOLOGY, P.C.

STATEMENTS OF STOCKHOLDERS' EQUITY

COMMON STOCK
------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- ------ -------- --------

Balance, December 31, 1994............................... 6,000 $6,000 $242,198 $248,198
Net income............................................... -- -- 131,392 131,392
--------- ------ -------- --------
Balance, December 31, 1995............................... 6,000 6,000 373,590 379,590
Net income (unaudited)................................... -- -- 16,197 16,197
--------- ------ -------- --------
Balance, March 31, 1996 (unaudited)...................... 6,000 $6,000 $389,787 $395,787
======= ====== ======== ========

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

F-48
102

ROCKY MOUNTAIN NEONATOLOGY, P.C.

STATEMENTS OF CASH FLOWS

THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
(UNAUDITED)

Cash flows from operating activities:
Net income......................................................... $ 131,392 $ 16,197
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities:
Provision for deferred taxes.................................... 80,530 9,928
Depreciation.................................................... 1,236 212
Changes in assets and liabilities:
Accounts receivable........................................... (102,337) (41,659)
Prepaid expenses and other assets............................. (37,463) 15,041
Accounts payable and accrued expenses......................... 1,722 1,509
Salaries payable.............................................. -- 371,640
Patient overpayments.......................................... 12,592 6,245
Hospital salary reimbursement payable......................... 68,536 (58,329)
------------ ------------
Net cash provided by operating activities.................. 156,208 320,784
------------ ------------
Net increase in cash and cash equivalents............................ 156,208 320,784
Cash and cash equivalents, beginning of year/period.................. 887 157,095
------------ ------------
Cash and cash equivalents, end of year/period........................ $ 157,095 $477,879
========== ==========

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

F-49
103

ROCKY MOUNTAIN NEONATOLOGY, P.C.

NOTES TO FINANCIAL STATEMENTS

1. GENERAL:

The principal business activity of Rocky Mountain Neonatology, P.C. (the
"Company") is to provide physician services to hospital-based neonatal and
pediatric intensive care units to two hospitals in the Denver, Colorado area.
Contractual arrangements with hospitals are: (a) fee-for-service contracts
whereby hospitals agree, in exchange for the Company's services, to authorize
the Company and its healthcare professionals to bill and collect the
professional component of the charges for medical services rendered by the
Company's healthcare professionals; and (b) administrative fees for providing
medical director services for neonatal and/or pediatric departments in the
hospitals where the Company provides physician services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounting Estimates:

Accounts Receivable and Revenues:

Accounts receivable are primarily amounts due under discounted
fee-for-service contracts with medical groups and third-party payors, such as
insurance companies, self-insured employers, patients and government-sponsored
health care programs in the State of Colorado. These receivables are presented
net of contractual adjustments and an estimated allowance for uncollectibles
which is charged to operations based on an evaluation of expected collections
resulting from an analysis of current and past due accounts, past collection
experience in relation to amounts billed and other relevant information.
Contractual adjustments result from the difference between the physician rates
for services performed, including withholding provisions, and reimbursement by
government-sponsored healthcare programs and insurance companies for such
services. Bad debts are included in contractual allowances and uncollectibles
because they are not considered material.

Concentration of credit risk relating to accounts receivable is limited by
the large number of patients and payors that the Company manages. Approximately
29% of the Company's net patient service revenue is derived from Medicaid.

Cash and Cash Equivalents:

Furniture and Equipment:

Furniture and equipment is recorded at cost. Depreciation of furniture and
equipment is computed on the straight line method over the estimated useful
lives of five years. Upon sale or retirement of furniture and equipment, the
cost and related accumulated depreciation are eliminated from the respective
accounts and the resulting gain or loss is reflected in operations.

F-50
104

ROCKY MOUNTAIN NEONATOLOGY, P.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Professional Liability Coverage:

The Company maintains professional liability coverage which indemnifies the
Company and its stockholders and employee physicians on a claims made basis. The
Company records an estimate of its liabilities for claims incurred but not
reported. Such liabilities are not discounted.

Income Taxes:

The Company computes its income taxes utilizing Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted rates in effect for the year in which
the differences are expected to reverse.

Charity Care:

Interim Financial Statements:

The financial statements at March 31, 1996 and for the three months ended
March 31, 1996, are unaudited and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments necessary for a fair
statement of the results of interim periods. The results of the three months
ended March 31, 1996 are not necessarily indicative of the results to be
expected for the full year or any other interim period.

3. ACCOUNTS RECEIVABLE AND NET PATIENT SERVICE REVENUE:

Accounts receivable consist of the following:

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

Gross accounts receivable.................................. $ 973,779
Less: allowance for contractual adjustments and
uncollectibles........................................... (389,512 )
Administrative fees........................................ 50,000
------------
$ 634,267
============

Net patient service revenue consists of the following:

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

Gross patient service revenue.............................. $ 4,190,338
Less contractual adjustments and uncollectibles............ (1,467,160 )
Administrative fees........................................ 382,667
------------
$ 3,105,845
============

Administrative fees are received by the Company for providing medical
director services under annual agreements with the hospitals where the Company
provides physician services. These agreements are automatically renewable,
unless otherwise terminated.

F-51
105

ROCKY MOUNTAIN NEONATOLOGY, P.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. RETIREMENT PLANS:

The Company has two qualified defined contribution employee benefit plans
(the "Plans") as allowed under Section 401 of the Internal Revenue Code, which
include a 401(k)/profit sharing plan ("401(k) Plan") and a money purchase plan
("Money Purchase Plan") which covers substantially all employees. Employees who
have completed 24 months of service and are at least 21 years old are eligible
to participate and will become participants in the Plans following eligibility
effective on certain dates which are based on each of the Plan's years.

The 401(k) Plan permits participant contributions and a discretionary
amount determined by the Company which are fully vested upon contribution. In
addition, the Company may elect to contribute from the profits of the Company a
percentage of annual compensation expense, as defined, which is allocated to
each participant based on a relationship of his/her compensation to total
compensation, with immediate vesting upon contribution.

Under the provisions of the Money Purchase Plan, the Company shall
contribute to the Plan on behalf of each eligible participant an amount equal to
5% of the participant's annual compensation, as defined, subject to certain
limitations. These amounts are allocated to each participant based on a
relationship of his/her compensation to total compensation, with immediate
vesting upon contribution.

The Company approved contributions of $180,000 to the Plans which were
expensed for the year ended December 31, 1995.

5. INCOME TAXES:

The components of the income tax provision is as follows:

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

Deferred:
Federal.................................................... $ 74,173
State...................................................... 6,357
------------
$ 80,530
==========

The provision for income taxes differs from the amount obtained by applying
the federal statutory income tax rate to income before provision for income
taxes as follows:

YEAR ENDED
DECEMBER 31,
1995
------------

Federal statutory rate....................................... 35.0%
State income tax, net of federal benefit..................... 3.0
-----
Effective rate............................................... 38.0%
==========

F-52
106

ROCKY MOUNTAIN NEONATOLOGY, P.C.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The significant components of the deferred income tax assets and
liabilities at December 31, 1995 are as follows:

Accounts receivable........................................... $(241,022)
Prepaid expenses.............................................. (29,491)
Patient overpayments.......................................... 31,644
Hospital salary reimbursement payable......................... 31,665
Professional claims liability................................. 27,680
Accrual to cash adjustments................................... (59,418)
Other......................................................... 5,811
---------
Net current deferred tax liability.................. $(233,131)
=========

6. COMMITMENTS:

The Company has an employment agreement with an employee physician that
expires on June 30, 1997. As of December 31, 1995, the terms of the agreement
commit the Company to pay approximately $293,000 to the employee physician in
compensation for the remainder of the agreement's term.

The Company is a lessee of office space under an operating lease that
expires on April 24, 1997. Future minimum payments under the lease are $29,550
and $10,047 for fiscal years 1996 and 1997, respectively. Total rent expense
under this lease was $30,230 for the year ended December 31, 1995.

7. SUBSEQUENT EVENT:

Effective May 1, 1996, the capital stock of the Company was acquired by
Pediatrix Acquisition Corp., a separate legal entity which contracts with
Pediatrix Medical Group, Inc., in exchange for an aggregate cash purchase price
of $7.2 million.

F-53
107

WEST TEXAS NEONATAL ASSOCIATES

FINANCIAL STATEMENTS

F-54
108

INDEPENDENT AUDITORS' REPORT

The Partners
West Texas Neonatal Associates

We have audited the accompanying balance sheet of West Texas Neonatal
Associates (a Partnership) as of December 31, 1995 and the related statements of
income and partners' equity, and cash flows for the year then ended. 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 audit.

We conducted our audit 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 audit provides 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 West Texas Neonatal
Associates as of December 31, 1995 and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

LINDA G. MEDLOCK P.C.

June 10, 1996
El Paso, Texas

F-55
109

WEST TEXAS NEONATAL ASSOCIATES

BALANCE SHEETS

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

ASSETS
Current assets:
Checking -- Texas commerce.......................................... $ -- $ 156,596
Accounts receivable -- trade........................................ 558,343 496,604
Accounts receivable -- Internal Revenue Service..................... 2,200 --
------------ -----------
Total current assets........................................ 560,543 653,200
------------ -----------
Property and equipment:
Furniture and fixtures.............................................. 3,550 3,550
Less: accumulated depreciation................................... (3,550) (3,550)
------------ -----------
Net property and equipment....................................... -- --
------------ -----------
Total assets................................................ $560,543 $ 653,200
========== =========
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
Bank overdraft...................................................... $ 24,541 $ --
Accounts payable -- CMBS............................................ 13,757 22,110
Payroll taxes payable............................................... 374 357
Accounts payable -- Jose Arellano, M.D. P.A......................... -- 6,339
------------ -----------
Total current liabilities................................... 38,672 28,806
------------ -----------
Partners' equity:
Capital -- Ayo...................................................... 255,286 305,179
Capital -- Caviglia................................................. 266,585 319,215
------------ -----------
Total partners' equity...................................... 521,871 624,394
------------ -----------
Total liabilities and partners' equity...................... $560,543 $ 653,200
========== =========

Notes to financial statements are an integral part of these financial
statements.

F-56
110

WEST TEXAS NEONATAL ASSOCIATES

STATEMENTS OF INCOME AND PARTNERS' EQUITY

YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
(UNAUDITED)

Medical fee income............................................... $ 2,269,543 $ 561,088
------------ ---------------
Operating expenses:
Billing service................................................ 160,519 46,878
Patient refunds................................................ 4,924 354
Business promotion............................................. -- 236
Contract labor................................................. 5,050 825
Insurance -- malpractice....................................... 21,549 --
Insurance -- employee health................................... 17,955 5,032
Insurance -- general........................................... -- 1,326
Legal and accounting........................................... 2,600 1,100
Medical books.................................................. -- 700
Miscellaneous.................................................. 2,505 --
Office supplies................................................ 188 --
Office maintenance............................................. 2,566 --
Penalties...................................................... 4 --
Professional fees -- other..................................... 99,349 57,258
Salaries and wages............................................. 306,761 94,250
Seminars....................................................... 450 --
Taxes -- payroll............................................... 21,433 7,567
Telephone...................................................... 1,316 320
Travel......................................................... 529 --
------------ ---------------
Total operating expenses............................... 647,698 215,846
------------ ---------------
Operating income....................................... 1,621,845 345,242
Other income (expense):
Interest income................................................ 7 18
------------ ---------------
Net income............................................. 1,621,852 345,260
Partners' equity at beginning of year/period..................... 419,787 521,871
Partners draw.................................................... (1,519,768) (242,737)
------------ ---------------
Partners' equity at end of year/period........................... $ 521,871 $ 624,394
========== ============

Notes to financial statements are an integral part of these statements.

F-57
111

WEST TEXAS NEONATAL ASSOCIATES

STATEMENTS OF CASH FLOWS

THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ --------------
(UNAUDITED)

Cash flows from operating activities:
Cash received from patients...................................... $2,155,044 $ 622,828
Cash collected from other sources................................ 7 18
Cash paid to billing service, patients and employees............. (467,129) (133,129)
Cash paid for general and administrative expenses................ (176,075) (65,843)
------------ --------------
Net cash provided by operating activities................ 1,511,847 423,874
------------ --------------
Cash flows from financing activities:
Cash paid to partner -- Ayo...................................... (764,769) (122,737)
Cash paid to partner -- Caviglia................................. (755,000) (120,000)
------------ --------------
Net cash used by financing activities.............................. (1,519,769) (242,737)
------------ --------------
Net (decrease) increase in cash and cash equivalents............... (7,922) 181,137
Cash and cash equivalents at beginning of year/period.............. (16,619) (24,541)
------------ --------------
Cash and cash equivalents at end of year/period.................... $ (24,541) $ 156,596
========== ===========
Reconciliation of net income to net cash provided by operating
activities:
Net income....................................................... $1,621,852 $ 345,260
------------ --------------
Adjustments to reconcile net income to net cash provided by
operating activities:
(Increase) decrease in accounts receivable -- trade........... (114,499) 61,740
(Increase) decrease accounts receivable -- IRS................ (1,508) --
(Increase) decrease accounts payable.......................... 6,002 16,874
------------ --------------
Total adjustments............................................. (110,005) 78,614
------------ --------------
Net cash provided by operating activities..................... $1,511,847 $ 423,874
========== ===========

Notes to financial statements are an integral part of these financial
statements.

F-58
112

WEST TEXAS NEONATAL ASSOCIATES

NOTES TO FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES:

The Company's accounting policies conform to generally accepted accounting
principles based on the accrual method of accounting.

Nature of Operations

The Company, a partnership, is engaged in the business of providing medical
services at its location in El Paso, Texas.

Property and Equipment

Property and equipment are carried at cost. Management has elected to
calculate depreciation using the accelerated cost recovery system (ACRS) and the
modified accelerated cost recovery system (MACRS). These are not acceptable
methods for financial statements under generally accepted accounting principles.
Generally accepted accounting principles require depreciating cost over an
asset's estimated useful life using an acceptable method. The effect of this
departure from generally accepted accounting principles on financial position,
results of operations, and cash flows has not been determined.

Bad Debts

Bad debts are accounted for using the direct write-off method. Expense is
recognized only when a specific account is determined to be uncollectible. The
effects of using this method approximate those of the allowance method.

2. INCOME TAXES:

The Partnership is not a taxpaying entity for federal or state income tax
purposes, and thus no income tax expense has been recorded in the statements.
Income from the Partnership is taxed to the partners in their individual
returns.

3. ECONOMIC DEPENDENCY:

The Company operates in El Paso, Texas, and has contracts with Sierra
Medical Center and Providence Hospital (which are owned by the Tenet
Corporation). All services are provided through these two hospitals.

4. CONCENTRATION OF CREDIT RISK:

The Company grants credit without collateral to its patients, most of whom
are local residents and are insured under third-party payor agreements. The
major source of income consists of fees from medicaid and private insurance.

5. SUBSEQUENT EVENT:

The Company has signed a contract to sell its assets to Pediatrix Medical
Group of Texas, P.A. effective May 30, 1996. The two partners will remain as
employees and continue to provide neonatal services.

F-59
113

INFANT CARE SPECIALISTS
MEDICAL GROUP, INC. & SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS

F-60
114

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
Infant Care Specialists Medical Group, Inc. & Subsidiary:

We have audited the accompanying consolidated balance sheet of Infant Care
Specialists Medical Group, Inc. (a California corporation) and Subsidiary as of
December 31, 1995, and the related consolidated statements of operations and
retained earnings and cash flows for the year then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The consolidated financial statements of Infant Care Specialists
Medical Group, Inc. and Subsidiary as of December 31, 1994 were audited by other
auditors, whose report dated September 20, 1995 expressed an unqualified opinion
on those statements.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated 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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Infant Care
Specialists Medical Group, Inc. and Subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The general and administrative expense
detail for the year ended December 31, 1995 presented in Exhibit I is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole. The general and administrative expense
detail for the year ended December 31, 1994 presented in Exhibit I was subjected
to the auditing procedures applied in the December 31, 1994 audit of the basic
financial statements by other auditors, whose report on such information stated
that it was fairly stated in all material respects in relation to the December
31, 1994 basic financial statements taken as a whole.

San Diego, California
May 7, 1996

F-61
115

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, MARCH 31,
----------------------- ----------
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)

ASSETS
Current Assets
Cash..................................................... $ 364,121 $ 128,085 $ 114,164
Accounts receivable, net of allowance for mandatory
adjustments of $5,247,098, $3,358,706 and $4,765,882
for 1994, 1995 and March 31, 1996 (Note A)............ 5,150,777 3,542,341 3,496,407
Prepaid expenses and other current assets................ 106,790 15,239 --
---------- ---------- ----------
Total current assets............................. 5,621,688 3,685,665 3,610,571
Property and equipment, net (Note B)....................... 338,695 305,867 282,845
Investment in partnership (Note C)......................... 302,570 327,804 327,804
Deferred income tax assets................................. 70,050 73,655 37,979
Deposits................................................... 8,584 8,583 8,583
---------- ---------- ----------
$6,341,587 $4,401,574 $4,267,782
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Line of credit -- current (Note H)....................... $ 9,350 $ 10,200 $ 10,200
Capital lease obligations -- current portion............. 11,268 12,960 12,964
Accounts payable and accrued expenses.................... 174,244 190,982 158,259
Accrued pension contribution payable (Note D)............ 748,653 370,186 370,186
Note payable -- other (Note G)........................... 433,185 377,846 200,656
Note payable -- affiliate (Note E)....................... 267,050 245,000 245,000
Income taxes payable..................................... 11,265 109,823 41,423
Deferred income taxes (Notes A and F).................... 2,027,875 1,371,169 1,424,809
---------- ---------- ----------
Total Current Liabilities........................ 3,682,890 2,688,166 2,463,497
Commitments (Note I)
Line of credit, less current portion (Note H)............ 41,650 31,450 28,900
Capital lease obligations, less current portion.......... 55,051 42,340 39,252
Minority interest in subsidiary.......................... 8,785 (7,211) (532)
---------- ---------- ----------
Total Liabilities 3,788,376 2,754,745 2,531,117
Stockholders' Equity
Common stock, $1 par value; 200,000 shares authorized;
900 shares issued and outstanding..................... 900 900 900
Preferred stock, $1 par value; 200,000 shares authorized;
1,300, 1,800 and 1,900 shares issued and outstanding,
respectively.......................................... 1,300 1,800 1,900
Additional paid-in-capital............................... 1,310 1,310 1,310
Retained earnings........................................ 2,549,701 1,642,819 1,732,555
---------- ---------- ----------
Total Stockholders' Equity....................... 2,553,211 1,646,829 1,736,665
---------- ---------- ----------
$6,341,587 $4,401,574 $4,267,782
========= ========= =========

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

F-62
116

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

THREE
MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------
1994 1995 1996
----------- ----------- -----------
(UNAUDITED)

Income
Professional fees............................... $ 9,933,406 $10,363,733 $ 2,939,229
Management fees................................. 692,216 -- 238,231
Interest income (expense)....................... 15,560 50,699 (2,957)
Other income (expense).......................... 8,128 (3,181) --
Minority interest in net income of subsidiary... (7,021) 15,996 (6,679)
----------- ----------- -----------
Total income............................ 10,642,289 10,427,247 3,167,824
Operating expenses
Payroll and payroll taxes....................... 4,977,124 7,373,320 2,115,199
Liability insurance............................. 260,552 353,074 137,533
Disability insurance............................ 256,411 165,827 68,450
General and administrative...................... 1,221,433 1,203,395 302,826
Management fees................................. -- 194,056 --
Billing service fee............................. 460,684 124,482 7,222
Depreciation and amortization................... 45,423 93,116 23,022
Profit sharing plan contributions (Note D)...... 748,653 483,411 94,407
Physician moonlighting.......................... 427,257 417,922 54,599
Independent contracting......................... 88,746 33,070 18,275
Transcription fees.............................. 133,808 134,962 51,829
University expenses............................. 3,163,062 1,303,005 113,810
----------- ----------- -----------
Total operating expenses................ 11,783,153 11,879,640 2,987,172
----------- ----------- -----------
(Loss) income before income taxes................. (1,140,864) (1,452,393) 180,652
(Benefit) provision for income taxes (Notes A and
F).............................................. (384,055) (545,511) 90,916
----------- ----------- -----------
Net (loss) income................................. (756,809) (906,882) 89,736
Retained earnings, beginning of year.............. 3,306,510 2,549,701 1,642,819
----------- ----------- -----------
Retained earnings, end of year.................... $ 2,549,701 $ 1,642,819 $ 1,732,555
========== ========== ==========

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

F-63
117

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE
MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- ----------
1994 1995 1996
---------- ---------- ----------
(UNAUDITED)

Cash flows from operating activities:
Net (loss) income........................................ $ (756,809) $ (906,882) $ 89,736
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 45,423 93,113 23,022
Expenses accrued under notes payable.................. 491,859 -- --
Loss (gain) on investment in partnership.............. 1,230 (25,234) --
Minority interest in net income of subsidiary......... 7,021 (15,994) 6,679
Change in assets and liabilities:
Accounts receivable................................. 122,671 1,608,436 45,934
Employee receivable................................. (300) 2,064 --
Management fees receivable.......................... 489,166 -- --
Prepaid expenses.................................... 102,235 81,987 15,239
Deposits............................................ (8,584) -- --
Income taxes receivable............................. (2,500) 7,500 --
Tax benefit......................................... -- (3,605) 35,676
Accounts payable and accrued expenses............... 99,331 16,737 (32,721)
Accrued pension plans............................... 123,516 (378,467) --
Income taxes payable................................ 11,265 98,558 (68,400)
Note payable, other................................. -- -- (177,192)
Deferred income taxes............................... (396,920) (656,706) 53,640
---------- ---------- ----------
Net cash provided by (used in) operating activities........ 328,604 (78,493) (8,387)
---------- ---------- ----------
Cash flows from investing activities:
Purchases of fixed assets................................ (197,295) (60,285) --
Payments on related party debt........................... -- (22,050) --
---------- ---------- ----------
Net cash used in investing activities...................... (197,295) (82,335) --
---------- ---------- ----------
Cash flows from financing activities:
Proceeds (payments) on line of credit.................... 51,000 (9,350) (2,550)
Principal payments on capital leases..................... (4,855) (11,019) (3,084)
Decrease in notes payable................................ -- (55,339) --
Principal payments in notes payable -- other............. (36,625) -- --
Proceeds from issuance of preferred stock................ 200 500 100
---------- ---------- ----------
Net cash provided by (used in) financing activities........ 9,720 (75,208) (5,534)
---------- ---------- ----------
Net increase (decrease) in cash............................ 141,029 (236,036) (13,921)
Cash, beginning of year.................................... 223,092 364,121 128,085
Cash, end of year.......................................... $ 364,121 $ 128,085 $ 114,164
========= ========= =========

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

F-64
118

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Infant Care Specialists Medical Group, Inc. (the Company) was incorporated
under the laws of the State of California on November 15, 1988. The Company
provides neonatal medical services through its affiliation agreements with the
UC Irvine Medical Center, Division of Neonatal Medicine and with fourteen other
Southern California hospitals.

Basis of Accounting

The Company's policy is to prepare its financial statements on an accrual
basis of accounting. Accordingly, the accompanying financial statements are
intended to present the financial position, results of operations and cash flows
in conformity with generally accepted accounting principles.

These financial statements include the accounts of the Company and its
82.36% owned subsidiary, Infant Care Management Services, Inc. (ICMS), a company
established to provide management and administrative services to medical
practice groups in Southern California.

All significant intercompany accounts and transactions have been eliminated
in consolidation.

University Affiliation

All of the physician shareholders and employees of the Company were also
employees of the Division of Neonatal/Perinatal Medicine in the Department of
Pediatrics of the University of California, Irvine. It has been the practice of
the Company to fund the salaries and benefits of the physicians and staff who
have paid positions with the University as well as research and teaching
expenses. In order to cover these expenses, the Company deposits professional
fees with the Regents of the University of California. These funds are used only
to support physician salaries, administration salaries, research salaries and
miscellaneous research supplies.

Cash

For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
and money market funds to be cash equivalents.

Accounts Receivable

Accounts receivable are stated at net realizable value. An allowance for
mandatory adjustments has been reflected in the financial statements to reduce
accounts receivable for managed care contracts and Medical charges which the
Company has agreed to accept at a discounted fee. The total mandatory
adjustments at 1995 and 1994 are $3,358,706 and $5,247,098, respectively.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided by the
straight-line method over their estimated useful lives as follows:

Leasehold improvements............. 5 years (term of lease)
Furniture and fixtures............. 7 years
Equipment.......................... 5 - 7 years
Software........................... 3 years

F-65
119

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Upon retirement or disposal of depreciated assets, the cost and related
depreciation are removed and the resulting gain or loss is reflected in income.
Major renewals and betterments are capitalized while maintenance costs and
repairs are expensed in the year incurred.

Income Taxes

Deferred tax liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax liabilities are measured using enacted tax rates in effect
for the year in which those temporary differences are expected to be settled.
The effect on deferred tax liabilities of a change in tax rates is recognized in
income in the period in which the change is enacted. Temporary differences
related principally to differences between the accrual method of accounting used
for financial statement purposes and the cash method of accounting used for tax
purposes.

Management Fees

The Company maintains a management agreement with Infant Care Management
Services, Inc. (ICMS). ICMS manages the operations of the Company and receives
its net income from the Company in the form of a management fee.

Concentration of Credit Risk

Substantially all of the Company's accounts receivables are concentrated
within the medical industry, primarily health insurance companies and government
insurance providers.

Reclassifications

Certain amounts included in the financial statements for 1994 have been
reclassified to conform to the current year presentation.

B. PROPERTY AND EQUIPMENT:

Property and equipment as of December 31, 1994 and 1995 are summarized as
follows:

1994 1995
--------- ---------

Furniture and fixtures......................................... $ 76,250 $ 83,274
Equipment...................................................... 281,433 319,782
Software....................................................... 39,738 53,211
Leasehold improvements......................................... 44,860 46,298
--------- ---------
422,281 502,565
Less: accumulated depreciation................................. (103,586) (196,698)
--------- ---------
$ 338,695 $ 305,867
========= =========

C. INVESTMENT IN PARTNERSHIP:

During 1993, the Company acquired a 98% interest in LBW Medical Group,
Limited Partnership ("LBW") in exchange for cash of $58,800 and a note payable
of $245,000. The Partnership, together with other joint venture partners, plans
to invest in and assist in the development and operation of transitional care
facilities for infants who are presently being treated in hospital neonatal
intensive care units. The Partnership is currently in the development stage of
operations and did not generate any revenues during 1995 or 1994

F-66
120

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

related to operations. However, the investment earned interest income in 1995 in
the amount of $29,392 and incurred expenses of $4,158 (see Note E).

D. ACCRUED PENSION AND PROFIT SHARING EXPENSE:

The Company maintains both a defined contribution profit sharing plan and a
money purchase pension plan covering substantially all employees subject to
minimum age and service requirements. Contributions to the profit sharing plan
are at the discretion of the Board of Directors. Contributions to the money
purchase plan are based upon 5% of eligible compensation. Total pension and
profit sharing expense was $483,411 and $748,653 for the years ended December
31, 1995 and 1994, respectively.

It is the policy of the Company to fund accrued pension and profit sharing
contributions prior to the filing of the corporate income tax returns.

E. NOTE PAYABLE TO AFFILIATE:

The Company has a note payable of $245,000 to LBW, in which the Company has
a 98% interest. The note bears interest at 6% per annum and is due on demand.

F. INCOME TAXES:

As discussed in Note A, the Company adopted SFAS 109, "Accounting for
Income Taxes" in 1993 and applied the provisions of this statement retroactively
to January 1, 1992. SFAS 109 requires the use of the balance sheet method of
accounting for income taxes. Under this method, a deferred tax asset or
liability represents the tax effect of temporary differences between financial
statement and tax bases of assets and liabilities and is measured using the
latest enacted tax rates.

The provision for income taxes (benefit) for the years ended December 31,
1994 and 1995 are as follows:

1994 1995
--------- ---------

Current provision............................................ $ 12,865 $ 114,800
Deferred benefit............................................. (396,920) (660,311)
--------- ---------
Net benefit............................................. $(384,055) $(545,511)
========= =========

G. NOTES PAYABLE:

Notes payable at December 31, 1994 and 1995 is comprised of the following:

Non-interest bearing note due to the University of
California, Irvine as reimbursement for expenses of
Division of Neonatal Medicine paid by the University
(see Note A).......................................... $ 433,185 $ 377,847
========= =========

F-67
121

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

H. LINE OF CREDIT:

The Company maintains a line of credit facility with City National Bank
(the "Bank") which is secured by various fixed assets, with interest at the
"prime rate" as announced by the Bank plus 1.25% (8.75% at December 31, 1995).
Principal is currently payable at $850 per month plus interest through December
1, 2000.

The following is a schedule of future maturities of the line of credit as
of December 31, 1995:

YEAR ENDING
DECEMBER 31,
------------------------------------------------------------------

1996............................................................ $ 10,200
1997............................................................ 10,200
1998............................................................ 10,200
1999............................................................ 10,200
2000............................................................ 850
--------
41,650
Less: current portion............................................. (10,200)
--------
$ 31,450
========

I. COMMITMENTS:

On July 15, 1994, the Company entered into a noncancelable building lease
for its operating facility which runs through July 30, 1999. The agreement calls
for an annual base rent of $88,402 with an increase of 6% in the fourth and
fifth year.

Net future minimum rental payments required under this lease as of December
31, 1995 are as follows:

YEARS ENDED
DECEMBER 31,
------------------------------------------------------------------

1996............................................................ $ 88,402
1997............................................................ 88,402
1998............................................................ 93,707
1999............................................................ 99,329
--------
$369,840
========

Total rent expense charged to operations for the year ended December 31,
1995 and 1994 was $73,669 and $50,183, respectively.

J. SUBSEQUENT EVENT:

In June of 1996, Pediatrix Medical Group of California, P.C., which is a
separate legal entity that contracts with Pediatrix Medical Group, Inc.,
acquired the operating assets of the Company including its existing contracts
with various hospitals and tendered employment contracts to most of its
employees. With the funds received, the Company has paid severance fees to all
of its employees based upon a formula established by its Board of Directors for
years of service with the Company. The Company's future operations include the
collection of its remaining accounts receivables, paying its outstanding
expenses and liquidation.

F-68
122

ADDITIONAL INFORMATION

F-69
123

EXHIBIT I

INFANT CARE SPECIALISTS MEDICAL GROUP, INC. & SUBSIDIARY

DETAIL OF GENERAL AND ADMINISTRATIVE EXPENSES

YEARS ENDED
DECEMBER 31, MARCH 31,
----------------------- ---------
1994 1995 1996
---------- ---------- ---------
(UNAUDITED)

General and Administrative Expenses
Auto expense............................................. $ 87,086 $ 76,708 $ 10,822
Practice development..................................... 135,972 9,997 964
Dues and subscriptions................................... 98,074 87,520 23,401
Outside services......................................... 33,382 72,918 25,774
Legal and accounting..................................... 174,152 174,052 96,336
Education and conferences................................ 156,956 84,701 15,293
Computer maintenance..................................... 24,855 22,921 3,764
Telephone................................................ 59,521 86,571 25,970
Housing and relocation................................... 15,111 11,787 --
Supplies................................................. 54,567 91,355 9,200
Miscellaneous............................................ 2,453 20,114 6,888
Drugs.................................................... 35,458 27,578 9,260
Printing................................................. 12,100 60,438 --
Meals and entertainment.................................. 37,007 43,913 15,333
Postage.................................................. 14,672 70,622 6,063
Interest................................................. 28,004 19,642 --
Other insurance.......................................... 113,110 50,834 17,624
Repairs and maintenance.................................. 837 1,294 --
Recruiting............................................... 6,325 10,162 --
Pension administration................................... 10,650 4,878 --
Gifts.................................................... 6,875 5,849 --
Rent -- building......................................... 50,183 73,669 34,184
Rent -- equipment........................................ -- 65,987 --
Licenses and fees........................................ 2,745 9,572 932
Managed care fees........................................ 47,535 -- --
Bank service charges..................................... 14,163 20,313 1,018
---------- ---------- ---------
Total General and Administrative Expenses........ $1,221,433 $1,203,395 $302,826
========= ========= =========

F-70
124
[LOGO] PEDIATRIX MEDICAL GROUP (R)

5,000,000 SHARES
COMMON STOCK

PROSPECTUS

DEAN WITTER REYNOLDS INC.

ALEX. BROWN & SONS
INCORPORATED

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

HAMBRECHT & QUIST

SMITH BARNEY INC.

, 1996
125

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Company estimates that expenses payable by it in connection with the
offering described in this registration statement (other than underwriting
discounts and commissions) will be as follows:

Securities and Exchange Commission registration fee..................... $ 96,163
NASD filing fee......................................................... 29,100
Nasdaq National Market listing fee...................................... 17,500
Printing expenses....................................................... 50,000
Accounting fees and expenses............................................ 100,000
Legal fees and expenses................................................. 200,000
Fees and expenses (including legal fees) for qualifications under state
securities laws....................................................... 25,000
Registrar and Transfer Agent's fees and expenses........................ 7,000
Miscellaneous........................................................... 75,237
---------
Total......................................................... $600,000
========

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

* To be provided by amendment.

All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee are estimated.
The Company intends to pay all expenses of registration with respect to shares
being sold by the Selling Shareholders hereunder, with the exception of
underwriting discounts and commissions.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company has authority under Florida law to indemnify its directors and
officers to the extent provided in such statute. The Articles provide that the
Company shall indemnify its directors to the fullest extent permitted by law
either now or hereafter. The Company has also entered into an agreement with
each of its directors and certain of its officers wherein it has agreed to
indemnify each of them to the fullest extent permitted by law.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any officer or director.

Pursuant to the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Company against certain civil
liabilities that may be incurred in connection with this offering, including
certain liabilities under the Securities Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

In December 1992, the Company issued 200,000 shares of Common Stock for
$2.84 per share, pursuant to the Company's 1992 Employee Stock Purchase Plan.
Such shares were issued pursuant to the exemption set forth in Section 4(2) of
the Securities Act.

In January 1994, the Company issued 200,000 shares of Common Stock for
$5.00 per share, pursuant to the Company's 1994 Employee Stock Purchase Plan.
Such shares were issued pursuant to the exemption set forth in Section 4(2) of
the Securities Act.

In September 1995, immediately prior to the consummation of the Company's
initial public offering, the Company issued an aggregate of 4,571,063 shares of
Common Stock upon conversion of 4,571,063 shares of Series A Convertible
Preferred Stock (the "Convertible Preferred Stock"). The Convertible Preferred
Stock

II-1
126

had originally been issued pursuant to the terms of a Series A Preferred Stock
Purchase Agreement, dated October 26, 1992 (the "Purchase Agreement") for an
aggregate purchase price of $13 million. Pursuant to the Purchase Agreement,
unpaid dividends of approximately $3.7 million were forgiven upon such
conversion. The shares of Common Stock were issued pursuant to the exemption set
forth in Section 3(a)(9) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

EXHIBITS DESCRIPTION
- -------- -----------------------------------------------------------------------------------

1.1 -- Proposed form of Underwriting Agreement(7)
3.1 -- PMG's Amended and Restated Articles of Incorporation(3.1)(1)
3.2 -- PMG's Amended and Restated Bylaws(3.2)(1)
4.1 -- Registration Rights Agreement, dated as of September 13, 1995 between PMG and
certain shareholders(4.1)(1)
5.1 -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. as to the
validity of the Common Stock being registered(7)
10.1 -- PMG's Amended and Restated Stock Option Plan(5)
10.2 -- Form of Indemnification Agreement between PMG and each of its directors and certain
executive officers(10.2)(1)
10.3 -- Employment Agreement, dated as of January 1, 1995, as amended, between PMG and
Roger J. Medel, M.D.(10.3)(1)
10.4 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Richard J. Stull, II(10.4)(1)
10.5 -- Employment Agreement, dated as of May 1, 1995, as amended, between PMG and Larry M.
Mullen(10.5)(1)
10.6 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Cathy J. Lerman, as amended(10.6)(1)
10.7 -- Employment Agreement, dated as of February 1, 1995, as amended, between PMG and
Brian D. Udell, M.D., as amended(10.7)(1)
10.8 -- Employment Agreement, dated as of July 27, 1993, between PMG and Frederick V.
Miller, M.D.(10.8)(1)
10.9 -- Employment Agreement, dated as of November 6, 1995, between Kristen Bratberg and
Pediatrix(4)
10.10 -- Mortgage, Security Agreement and Assignment of Leases and Rents, dated as of
September 30, 1993, made by PMG in favor of The First National Bank of
Boston(10.22)(1)
10.11 -- The Company's Profit Sharing Plan(10.23)(1)
10.12 -- Form of Non-Competition and Nondisclosure Agreement(10.24)(1)
10.13 -- Form of Exclusive Management and Administrative Services Agreement between PMG and
each of the PA Contractors(10.25)(1)
10.14 -- Agreement for Purchase and Sale of Stock, dated July 27, 1995, between Pediatrix
Medical Group of California and Neonatal and Pediatric Intensive Care Medical
Group, Inc. and the individual physicians set forth in Exhibit A therein(10.26)(1)
10.15 -- NICU Medical Director Appointment, dated as of July 27, 1993, between PMG and
Frederick V. Miller, M.D.(10.28)(1)
10.16 -- Stock Purchase Agreement, effective January 16, 1996, between Jack C. Christensen,
M.D., Cristina Carballo-Perelman, M.D., Michael C. McQueen, M.D., Neonatal
Specialists, Ltd. and Brian Udell, M.D.(2.1)(2)
10.17 -- Asset Purchase Agreement, effective January 16, 1996, between Med-Support, L.P. and
Neonatal Specialists, Ltd.(2.2)(2)
10.18 -- Asset Purchase Agreement, effective January 16, 1996, between CMJ Leasing, L.P. and
Neonatal Specialists, Ltd.(2.3)(2)

II-2
127

EXHIBITS DESCRIPTION
- -------- -----------------------------------------------------------------------------------

10.19 -- Asset Purchase Agreement, dated January 29, 1996, among Pediatrix Medical Group of
Colorado, P.C., Pediatric and Newborn Consultants, P.C., and the shareholders of
PNC(2.1)(3)
10.20 -- Agreement and Plan of Merger, dated January 29, 1996, among Pediatrix Medical Group
of Colorado, P.C., Colorado Neonatal Associates, P.C. and the shareholders of
CNA(2.1)(3)
10.21 -- Employment Agreement, dated June 1, 1996, between PMG and M. Douglas Cunningham,
M.D.(6)
10.22 -- Airplane Purchase Agreement, dated March 22, 1996, between PMG and Learjet Inc.(6)
10.23 -- PMG's 1996 Qualified Employee Stock Purchase Plan (10.25)(5)
10.24 -- PMG's 1996 Non-Qualified Employee Stock Purchase Plan (10.26)(5)
10.25 -- First Amended and Restated Credit Agreement, dated as of June 27, 1996, between
PMG, certain PA Contractors, The First National Bank of Boston and SunTrust Bank(7)
11.1 -- Statement re computation of per share earnings(6)
21.1 -- Subsidiaries of Pediatrix(21.1)(1)
23.1 -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be
included in its opinion to be filed as Exhibit 5.1)(7)
23.2 -- Consent of Coopers & Lybrand L.L.P.(6)
23.3 -- Consent of Johnson & Moser, Ltd.(6)
23.4 -- Consent of Deon E. Fitch, CPA(6)
23.5 -- Consent of Linda G. Medlock P.C.(6)
23.6 -- Consent of Harlan & Boettger(6)
24.1 -- Reference is made to the Signatures section of this Registration Statement for the
Power of Attorney contained therein(6)
24.2 -- Secretary's Certificate of resolution of Board of Directors(7)

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

(1) Incorporated by reference to the exhibit shown in parentheses and filed with
the Pediatrix Form S-1 (File No. 33-95086).
(2) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 8-K, dated January 31, 1996.
(3) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 8-K, dated February 8, 1996.
(4) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 10-K, dated March 26, 1996.
(5) Incorporated by reference to the exhibit shown in parenthesis and filed with
the Pediatrix Form 10-Q, dated May 10, 1996.
(6) Filed herewith.
(7) To be filed by amendment.

(b) Financial Statement Schedules:

The following supplemental schedules can be found on the indicated pages of
this Registration Statement.

ITEM PAGE
------------------------------------------------------------------------------ ----

Report of Independent Auditors on Supplemental Financial Statement
Schedules................................................................... S-1
Schedule II: Valuation and Qualifying Accounts................................ S-2

All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are not applicable, and therefore have been omitted.

II-3
128

ITEM 17. UNDERTAKINGS

(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

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

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

II-4
129

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on June 27, 1996.

PEDIATRIX MEDICAL GROUP, INC.

By: /s/ ROGER J. MEDEL, M.D.
-----------------------------------
Roger J. Medel, M.D.
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Roger J. Medel, Lawrence M. Mullen and
Cathy J. Lerman his true and lawful attorneys-in-fact, each acting alone, with
full powers of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments, including
any post-effective amendments, to this registration statement, or any
registration statement relating to this offering to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone, may lawfully do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.

SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- --------------

/s/ ROGER J. MEDEL, M.D. President, Chief Executive June 27, 1996
- --------------------------------------------- Officer and Director
Roger J. Medel, M.D. (principal executive officer)

/s/ RICHARD J. STULL, II Executive Vice President, Chief June 27, 1996
- --------------------------------------------- Operating Officer and Director
Richard J. Stull, II

/s/ LAWRENCE M. MULLEN Vice President and Chief June 27, 1996
- --------------------------------------------- Financial Officer (principal
Lawrence M. Mullen financial officer and
principal accounting officer)

/s/ E. ROE STAMPS, IV Director June 27, 1996
- ---------------------------------------------
E. Roe Stamps, IV

/s/ BRUCE R. EVANS Director June 27, 1996
- ---------------------------------------------
Bruce R. Evans

/s/ FREDERICK V. MILLER, M.D. Director June 27, 1996
- ---------------------------------------------
Frederick V. Miller, M.D.

/s/ MICHAEL FERNANDEZ Director June 27, 1996
- ---------------------------------------------
Michael Fernandez

/s/ ALBERT H. NAHMAD Director June 27, 1996
- ---------------------------------------------
Albert H. Nahmad

II-5
130

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Pediatrix Medical Group, Inc.
Fort Lauderdale, Florida

In connection with our audits of the consolidated financial statements of
Pediatrix Medical Group, Inc. as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, which financial
statements are included in this Prospectus, we have also audited the financial
statements listed in Item 16 herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

COOPERS & LYBRAND L.L.P.

Fort Lauderdale, Florida
January 29, 1996

S-1
131

PEDIATRIX MEDICAL GROUP, INC.

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, DECEMBER 31, 1994, AND DECEMBER 31, 1995
(IN THOUSANDS)

1993 1994 1995
-------- -------- --------

Allowance for contractual adjustments and uncollectibles:
Balance at beginning of year............................... $ 7,188 $ 9,770 $ 13,246
Portion charged against operating revenue................ 25,475 30,885 40,843
Accounts receivable written-off (net of recoveries)...... (22,893) (27,409) (41,001)
-------- -------- --------
Balance at end of year..................................... $ 9,770 $ 13,246 $ 13,088
======== ======== ========

S-2

   1
 
                                                                   EXHIBIT 10.21
 
                              EMPLOYMENT AGREEMENT
 
     THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of the
1st of June, 1996 by and between PEDIATRIX MEDICAL GROUP, INC., a Florida
corporation (hereinafter called the "Company"), and Douglas Cunningham, M.D.,
(hereinafter called the "Executive").
 
                             PRELIMINARY STATEMENTS
 
     A. The Company is presently engaged in the business of providing neonatal
and pediatric physician management services to hospitals (the "Business").
 
     B. The Executive has had many years of experience in medical administration
and management.
 
     C. The Company is desirous of employing the Executive and benefiting from
his contributions to the Company.
 
                                   AGREEMENT
 
     NOW, THEREFORE, in consideration of the premises and mutual covenants set
forth herein, the parties agree as follows:
 
1. EMPLOYMENT.
 
     1.1. Employment and Term.  The Company hereby agrees to employ the
Executive and the Executive hereby agrees to serve the Company, on the terms and
conditions set forth herein, for a period of three (3) years (the "Initial
Term") commencing on June 1, 1996 and expiring on May 31, 1999 (the "Expiration
Date") unless sooner terminated as hereinafter set forth. The Initial Term of
this Agreement, and the employment of the Executive hereunder, may be renewed
and/or extended for such period or periods as may be mutually agreed to by the
Company and the Executive in a written supplement to this Agreement signed by
the Executive and the Company. If this Agreement is not renewed and/or extended
prior to the expiration of the Initial Term, this Agreement, and the employment
of the Executive hereunder, shall automatically terminate on the Expiration
Date. (The Initial Term and any extensions shall be hereinafter referred to as
the "Employment Period").
 
     1.2. Duties of the Executive.  During the Employment Period, the Executive
shall serve as Chief Medical Officer of the Company. The Executive shall report
to, and shall be subject to the supervision and direction of, the Chief
Executive Officer. During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote substantially all of his attention and business time during normal
business hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the Executive hereunder
as a senior executive officer involved with the general management of the
Company, to use the Executive's reasonable best efforts to perform faithfully
and efficiently such responsibilities. During the Employment Period it shall not
be a violation of this Agreement for the Executive to (i) serve on corporate,
civic or charitable boards or committees; (ii) deliver lectures, fulfill
speaking engagements or teach at educational institutions; or (iii) manage
personal investments and engage in other business activities, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the date
hereof, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the date hereof shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
 
     1.3. Place of Performance.  The Executive shall be based at the Company's
principal executive offices located in Broward County, Florida, except for
required travel relating to the Company's Business.
 
                                        1
   2
 
2. BASE COMPENSATION AND BONUSES.
 
     2.1. Base Salary.  Commencing on the date hereof, the Executive shall
receive a base salary at the annual rate of not less than two hundred and
seventy-five thousand dollars ($275,000) (the "Base Salary") during the term of
this Agreement, with such Base Salary payable in installments consistent with
the Company's normal payroll schedule, subject to required applicable
withholding for taxes. The Base Salary shall also be reviewed, at least
annually, for merit increases and may, by action and in the discretion of the
Board, be increased at any time or from time to time.
 
     2.2. Performance Bonus.  The Executive shall be entitled to a performance
bonus for each of the Company's fiscal years during the Employment Period (the
"Performance Bonus") of up to fifty thousand dollars ($50,000) per year. The
Compensation Committee of the Board shall have the exclusive right to increase
or decrease the Executive's Performance Bonus to reflect the Executive's and the
Company's performance for the year.
 
3. OTHER BENEFITS.
 
     3.1. Expense Reimbursement.  The Company shall promptly reimburse the
Executive for all reasonable expenses actually paid or incurred by the Executive
in the course of and pursuant to the Business of the Company, including expenses
for travel and entertainment. The Executive shall account and submit reasonably
supporting documentation to the Company in connection with any expense
reimbursement hereunder in accordance with the Company's policies.
 
     3.2. Other Benefits.  During the Employment Period, the Company shall
continue in force all existing comprehensive major medical and hospitalization
insurance coverages, either group or individual for the Executive and his
dependents; shall continue in force all existing life insurance for the
Executive; and shall continue in force all existing disability insurance for the
Executive (collectively, the "Policies"), which Policies the Company shall keep
in effect at its sole expense throughout the term of this Agreement. The
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under all welfare benefit
plans, practices, policies and programs provided by the Company (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to senior
executive officers or other peer executives of the Company. The Executive shall
also be entitled to participate in all incentive, savings and retirement plans,
practices, policies and programs and such other perquisites as applicable
generally to senior executive officers or other peer executives of the Company.
The Executive shall be reimbursed for up to $1,500 per year for professional
dues and subscriptions in accordance with written policies and procedures of the
Company. Nothing paid to the Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
Base Salary payable to the Executive pursuant to this agreement.
 
     3.3. Working Facilities.  The Company shall furnish the Executive with an
office, a secretary and such other facilities and services suitable to his
position and adequate for the performance of his duties hereunder.
 
     3.4. Vacation.  The Executive shall be entitled to such number of paid
vacation and leave days in each calendar year as determined by the Board from
time to time for its senior executive officers, but in no event less than four
(4) weeks of paid vacation during each calendar year. Unused vacation days may
be carried forward from year to year at the option of the Executive; provided
that the Executive notifies the Company of his intention to accrue any unused
vacation or leave time.
 
     3.5. Stock Options.  The Executive shall be entitled to participate in the
Company's Stock Option Plan or any other similar plan adopted by the Company
that provides for the issuance of stock options to its employees. Executive
shall receive 25,000 options at market price with a three year vesting period.
The agreement for said options is attached hereto as Exhibit A. The terms of
said agreement and the Company Stock Option plan shall control the Executive's
rights and interest in said options.
 
     3.6 Professional Meetings and Seminars and Expenses.  The Executive shall
be entitled to be reimbursed for up to $2,000 per year for professional meetings
and seminars in accordance with written policies and
 
                                        2
   3
 
procedures of the Company. Any time taken by the Executive for such professional
meetings and seminars shall be counted as part of (and is not in addition to)
the four (4) weeks of paid vacation provided to the Executive referenced in
Section 3.4 hereof.
 
4. TERMINATION.
 
     4.1. Termination for Cause.
 
          (a) The Company may terminate this Agreement for Cause. As used in
     this Agreement, the term "Cause" shall mean:
 
             (i) A material willful breach committed in bad faith by the
        Executive of the Executive's obligations under Section 1.2 hereof (other
        than as a result of incapacity due to physical or mental illness) which
        is not remedied in a reasonable period of time after receipt of written
        notice from the Company specifying such breach; or
 
             (ii) The conviction of the Executive of a felony based upon a
        violent crime or a sexual crime involving baseness, vileness or
        depravity; or
 
             (iii) Substance abuse by the Executive in a manner which materially
        affects the performance of the Executive's obligations under Section 1.2
        hereof; or
 
             (iv) Any act or omission of the Executive which is materially
        contrary to the business interests, representations or goodwill of the
        Company.
 
          (b) The Termination Date for a termination of this Agreement pursuant
     to this Section 4.1 shall be the date specified by the Board in a written
     notice to the Executive of finding of Cause.
 
          (c) Upon any termination of this Agreement pursuant to this Section
     4.1, the Executive shall be entitled to the compensation specified in
     Section 5.1 hereof.
 
     4.2. Disability.  The Company may terminate this Agreement upon the
Disability (as defined below) of the Employee in strict accordance with the
following procedure: Upon a good faith determination by not less than a majority
of the Board of the entire membership of the Board (excluding the Executive)
that the Executive has suffered a Disability, the Company shall give the
Executive written notice of its intention to terminate this Agreement due to
such Disability. In such event, the Executive's employment with the Company
shall terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a fulltime basis for six consecutive months or twelve months
whether or not consecutive as a result of incapacity due to mental or physical
illness which is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the Executive's
legal representative (such agreement as to acceptability not to be withheld
unreasonably). The Termination Date for a termination of this Agreement pursuant
to this Section 4.2 shall be the date specified by the Board in the resolution
finding that the Executive has suffered a Disability, which date may not be any
earlier than 30 days after the date of Board's finding. Upon any termination of
this Agreement pursuant to this Section 4.2, the Executive shall be entitled to
the compensation specified in Section 5.2 hereof.
 
     4.3. Death.  This Agreement shall terminate automatically upon the death of
the Executive, without any requirement of notice by the Company to the
Executive's estate. The date of the Executive's death shall be the Termination
Date for a termination of this Agreement pursuant to this Section 4.3. Upon any
termination of this Agreement pursuant to this Section 4.3, the Executive shall
be entitled to the compensation specified in Section 5.3 hereof.
 
     4.4 Termination by the Executive Without Cause.  The Company may terminate
the Executive's employment, without cause, upon ninety (90) days prior written
notice. To terminate the Executive's employment without cause in accordance with
this Section 4.4, the Company shall give the Executive written
 
                                        3
   4
 
notice of such termination. The Termination Date shall be the date specified by
the Company in such notice. Upon any termination of this Agreement pursuant to
this Section 4.4, the Executive shall be entitled to the compensation specified
in Section 5.4 hereof.
 
     4.5. Termination by the Executive Upon a Change in Control of the
Company.  In the event a Change in Control (as hereafter defined) in the Company
shall occur during the Employment Period, and the Executive is (i) assigned any
position, duties or responsibilities that are significantly diminished or
changed when compared with the position, duties or responsibilities of the
Executive prior to such Change in Control, (ii) forced to relocate to another
location more than 25 miles from Executive's location prior to the Change in
Control, or (iii) terminated, then the Executive shall be entitled to the
compensation specified in Section 5.5 hereof and any other compensation and
benefits provided in this Agreement in connection with a Change in Control of
the Company. For purpose of this Section 4.5, "Change in Control of the Company"
shall mean (i) the acquisition by a person or an entity or a group of persons
and entities, directly or indirectly, of more than fifty (50%) percent of the
Company's common stock in a single transaction or a series of transactions
(hereinafter referred to as a "50% Change in Control"); (ii) a merger or other
form of corporate reorganization resulting in an actual or de facto 50% Change
in Control; or (iii) the failure of Applicable Directors (defined below) to
constitute a majority of the Board during any two (2) consecutive year period
after the date of this Agreement (the "Two-Year Period"). "Applicable Directors"
shall mean those individuals who are members of the Board at the inception of a
Two-Year Period and any new director whose election to the Board or nomination
for election to the Board was approved (prior to any vote thereon by
shareholders) by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of the Two-Year
Period at issue or whose election or nomination for election during such
Two-Year Period was previously approved as provided in this sentence. If the
Executive elects to terminate his employment pursuant to the terms of this
Section 4.5, the Executive shall give the Company written termination notice.
The Termination Date shall be the date specified in such notice, which date may
not be earlier than 30 days nor later than 90 days from the Company's receipt of
such notice.
 
     4.6. Termination by the Executive Due to Poor Health.  The Executive may
terminate his employment under this Agreement upon written notice to the Company
if the Executive's health should become impaired to any extent that makes the
continued performance of the Executive's duties under this Agreement hazardous
to the Executive's physical or mental health or his life (regardless of whether
such condition would be deemed a Disability under any other section of this
Agreement), provided that the Executive shall have furnished the Company with a
written statement from a qualified doctor to that effect and provided further
that, at the Company's written request and expense, the Executive shall submit
to a medical examination by a qualified doctor selected by the Company and
acceptable to the Executive (which acceptance shall not be unreasonably
withheld) which doctor shall substantially concur with the conclusions of the
Executive's doctor. The Termination Date shall the date specified in the
Executive's notice to the Company, which date may not be earlier than 30 days
nor later than 90 days from the Company's receipt of such notice. Upon any
termination of this Agreement pursuant to this Section 4.6, the Executive shall
be entitled to the compensation specified in Section 5.6 hereof.
 
     4.7. Non-renewal.  In the event that this Agreement is not renewed beyond
the Initial Term as provided in Section 1.1 hereof, then this Agreement shall
terminate at the end of such Initial Term of this Agreement. The last day of the
Initial Term shall be the Termination Date for a termination pursuant to this
Section 4.7. Upon any termination of this Agreement pursuant to this Section
4.7, the Executive shall be entitled to the compensation specified in Section
5.7.
 
     4.8. Termination by the Executive.  The Executive may terminate his
employment under this Agreement for any reason whatsoever upon not less than 90
days prior written notice to the Company. The Termination Date under this
Section 4.8 shall be the date specified in the Executive's notice to the
Company, which date may not be earlier than 90 days from the Company's receipt
of such notice. Upon any termination of this Agreement pursuant to this Section
4.8, the Executive shall be entitled to the compensation specified in Section
5.7 hereof.
 
                                        4
   5
 
5. COMPENSATION AND BENEFITS UPON TERMINATION.
 
     5.1. Cause.  If the Executive's employment is terminated for Cause, the
Company shall pay the Executive his full Base Salary through the Termination
Date specified in Section 4.1 at the rate in effect at the Termination Date, and
the Company shall have no further obligation to the Executive under this
Agreement.
 
     5.2. Disability.  During any period that the Executive is unable to perform
his duties under this Agreement as a result of incapacity due to physical or
mental illness, the Executive shall continue to receive his full Base Salary
until the Termination Date specified in Section 4.2, plus the prorated amounts
specified in Section 5.10. After such termination, the Executive shall receive
in equal monthly installments 100% of his Base Salary at the rate in effect at
the Termination Date for one year, reduced by any disability payments otherwise
payable by or pursuant to plans provided by the Company.
 
     5.3. Death.  Upon the Executive's death, the Company shall pay to the
person designated by the Executive in a notice filed with the Company or, if no
person is designated, to his estate (i) any unpaid amounts of his Base Salary
and accrued vacation to the date of the Executive's death, plus the prorated
amounts specified in Section 5.10; and (ii) any payments the Executive's spouse,
beneficiaries or estate may be entitled to receive pursuant to any pension or
employee benefit plan or life insurance policy or similar plan or policy then
maintained by the Company. Upon full payment of all amounts required to be paid
under this Section 5.3, the Company shall have no further obligation under this
Agreement.
 
     5.4 Termination by the Company Without Cause.  If the Company terminates
the Executive's employment without cause in accordance with and subject to
Section 4.4, then (i) the Company shall pay the Executive his full Base Salary
through the Termination Date specified in Section 4.4 at the rate in effect at
such Termination Date, plus amounts specified in Section 5.10.
 
     5.5. Termination by the Executive Upon a Change in Control.  If the
Executive terminates this Agreement upon a Change in Control of the Company
pursuant to Section 4.5, then (i) the Company shall pay the Executive his full
Base Salary through the Termination Date specified in Section 4.5, at the rate
in effect at such Termination Date, plus the amounts specified in Section 5.10;
(ii) the Executive shall receive all other compensation and benefits provided in
this Agreement in connection with a termination of employment due to a Change in
Control of the Company; and (iii) in lieu of any further salary payments to the
Executive for periods subsequent to such Termination Date (but without affecting
compensation or benefits to the Executive in accordance with the preceding
clauses 5.5(i) and 5.5(ii) and in consideration of the rights of the Company
under Section 8, the Company shall pay as severance pay to the Executive an
amount equal to 100% of the average taxable compensation of the Executive for
the five taxable years prior to such termination (all as determined to compute
the "base amount" for purposes of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), reduced, but not below zero, by the amount of
compensation or benefits from the Company to the Executive which would cause the
severance pay payable pursuant to this Section 5.5 to exceed the excess
parachute payment limitation imposed under Section 280G of the Code, payable to
the Executive in twelve (12) equal monthly installments. In addition, in the
event the Termination Date as a result of a Change in Control occurs within the
twelve (12) month period of a Change in Control, any stock options held by the
Executive on the Termination Date shall become vested in full and immediately
exercisable.
 
     5.6. Termination by the Executive Due to Poor Health.  If the Executive
terminates this Agreement pursuant to Section 4.6 hereof, the Company shall pay
to the Executive any unpaid amounts of his Base Salary and accrued vacation to
the Termination Date specified in Section 4.6, plus any disability payments
otherwise payable by or pursuant to plans provided by the Company, plus the
prorated amounts specified in Section 5.10.
 
     5.7. Non-renewal or other termination.  If this Agreement terminates
pursuant to Section 4.7 or Section 4.8 hereof, the Company shall pay to the
Executive any unpaid amounts of his Base Salary and accrued vacation to the
Termination Date specified in Section 4.7 or Section 4.8, as the case may be,
plus the prorated amounts specified in Section 5.10.
 
                                        5
   6
 
     5.8. Health and Medical Plans.  The Executive shall be entitled to all
continuation of health, medical, hospitalization and other programs as provided
by any applicable law and such additional benefits as are provided by the
Company to its employees upon termination of employment with the Company.
 
     5.9. Mitigation.  The Executive shall be required to mitigate the amount of
any payment provided for in this Section 5 by seeking other employment or
otherwise, any payment provided for in this Section 5 be reduced by any
compensation earned by the Executive as the result of employment by another
employer after the Termination Date.
 
     5.10. Performance Bonus and Expense Reimbursement.  If the Executive's
employment with the Company is terminated for any reason, other than Cause
(defined in Section 4.1(b) above), the Executive shall be paid, solely in
consideration for services rendered by the Executive prior to such termination,
a Bonus with respect to the Company's fiscal year in which the Termination Date
occurs, equal to the Performance Bonus that would have been payable to the
Executive for the fiscal year if the Executive's employment had not been
terminated, multiplied by the number of days in the fiscal year prior to and
including the date of termination and divided by 365. The Executive shall be
entitled to reimbursement for reasonable business expenses incurred prior to the
Termination Date, subject, however to the provisions of Section 3.1.
 
6. SUCCESSORS; BINDING AGREEMENT.
 
     6.1. Successors.  The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) acquiring a
majority of the Company's voting common stock or any other successor to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
previously defined and any successor to its business and/or assets which
executes and delivers the agreement provided for in this Section 6 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
 
     6.2. Benefit.  This Agreement and all rights of the Executive under this
Agreement shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him under this Agreement, including all
payments payable under Section 5, if he had continued to live, all such amounts
shall be paid in accordance with the terms of this Agreement to the Executive's
devisee, legatee, or other designee or, if there is no such designee, the
Executive's estate.
 
     7. CONFLICTS WITH PRIOR EMPLOYMENT CONTRACT.  Except as otherwise provided
in this Agreement, this Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof, and supersedes and revokes any
and all prior or existing agreements, written or oral, relating to the subject
matter hereof, and this Agreement shall be solely determinative of the subject
matter hereof.
 
8. NONCOMPETITION; UNAUTHORIZED DISCLOSURE; INJUNCTIVE RELIEF.
 
     8.1. No Material Competition.  Except with respect to services performed
under this Agreement on behalf of the Company, and subject to the obligations of
the Executive as an officer of the Company and the employment obligations of the
Executive under this Agreement, the Executive agrees that at no time during the
Employment Period or, for a period of one year immediately following any
termination of this Agreement for any reason, for himself or on behalf of any
other person, persons, firm, partnership, corporation or company:
 
          (a) Solicit or accept business from any clients of the Company or its
     affiliates, from any prospective clients whose business the Company or any
     affiliate of the Company is in the process of soliciting at the time of the
     Executive's termination, or from any former clients which had been doing
     business with the Company within one year prior to the Executive's
     termination;
 
          (b) Solicit any employee of the Company or its affiliates to terminate
     such employee's employment with the Company; or
 
                                        6
   7
 
          (c) Engage in any business of the type performed by the Company in the
     geographical area where the Company is actively doing business or
     soliciting business.
 
     8.2. Unauthorized Disclosure.  During the Employment Period and for two
years following the termination of this Agreement for any reason, the Executive
shall not, without the written consent of the Board or a person authorized by
the Board or as may otherwise be required by law or court order, disclose to any
person, other than an employee of the Company or person to whom disclosure is
reasonably necessary or appropriate in connection with the performance by the
Executive of his duties as an executive of the Company, any material
confidential information obtained by him while in the employ of the Company with
respect to any of the company's clients, physicians, creditors, lenders,
investments bankers or methods of marketing, provided, however, that
confidential information shall not include any information generally known to
the public (other than as a result of unauthorized disclosure by the Executive)
or any information of a type not otherwise considered confidential by persons
engaged in the same business or a business similar to that conducted by the
Company.
 
     8.3. Injunction.  The Company and the Executive acknowledge that a breach
by the Executive of any of the covenants contained in this Section 8 may cause
irreparable harm or damage to the Company or its subsidiaries, the monetary
amount of which may be virtually impossible to ascertain. As a result, the
Executive agrees that the Company shall be entitled to an injunction issued by
any court of competent jurisdiction enjoining and restraining all violations of
this Section 8 by the Executive or his associates, affiliates, partners or
agents, and that the right to an injunction shall be cumulative and in addition
to all other remedies the Company may possess.
 
     8.4. Certain Provisions.  The provisions of this Section 8 shall apply
during the time the Executive is receiving Disability payments from the Company
as a result of a termination of this Agreement pursuant to Section 4.2 hereof.
 
     9. ARBITRATION.  Any dispute or controversy (except for disputes arising
under Section 8) arising under or in connection with this Agreement shall be
settled exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect (except to the extent that the procedures
outlined below differ from such rules). Within 7 days after receipt of written
notice from either party that a dispute exists and that arbitration is required,
both parties must within 7 business days agree on an acceptable arbitrator. If
the parties cannot agree on an arbitrator, then the parties shall list the "Big
Six" accounting firms (other than the Company's auditors) in alphabetical order
and the first firm that does not have a conflict of interest and is willing to
serve will be selected as the arbitrator. The parties agree to act as
expeditiously as possible to select an arbitrator and conclude the dispute. The
arbitrator must render his decision in writing within 30 days of his or its
appointment. The cost and expenses of the arbitration and of legal counsel to
the prevailing party shall be borne by the non-prevailing party, except as
otherwise provided in Section 3.7 hereof. Each party will advance one-half of
the estimated fees and expenses of the arbitrator. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided that the
Company shall be entitled to seek a restraining order or injunction in any court
of competent jurisdiction to prevent any continuation of any violation of
Section 8 hereof.
 
     10. GOVERNING LAW.  This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its conflict
of laws principles to the extent that such principles would require the
application of laws other than the laws of the State of Florida.
 
                                        7
   8
 
     11. NOTICES.  Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
delivered by hand or when deposited in the United States mail by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
 
                                        
        If to the Company:                         If to the Executive:

        Roger Medel, M.D., M.B.A.                  Douglas Cunningham, M.D.
        C.E.O.                                     6 Via Cancha
        Pediatrix Medical Group, Inc.              San Clemente, CA 92673
        1455 Northpark Drive
        Ft. Lauderdale, FL 33326

        

 
or to such other addresses as either party hereto may from time to time give
notice of to the other in the aforesaid manner.
 
     12. BENEFITS: BINDING EFFECT.  This Agreement shall be for the benefit of
and binding upon the parties hereto and their respective heirs, personal
representatives, legal representatives, successors and, where applicable,
assigns. Notwithstanding the foregoing, neither party may assign its rights or
benefits hereunder without the prior written consent of the other party hereto.
 
     13. SEVERABILITY.  The invalidity of any one or more of the words, phrases,
sentences, clauses or sections contained in this Agreement shall not affect the
enforceability of the remaining portions of this Agreement or any part thereof,
all of which are inserted conditionally on their being valid in law, and, in the
event that any one or more of the words, phrases, sentences, clauses or sections
contained in this Agreement shall be declared invalid, this Agreement shall be
construed as if such invalid word or words, phrase or phrases, sentence or
sentences, clause or clauses, or section or sections had not been inserted. If
such invalidity is caused by length of time or size of area, or both, the
otherwise invalid provision will be considered to be reduced to a period or area
which would cure such invalidity.
 
     14. WAIVERS.  The waiver by either party hereto of a breach or violation of
any term or provision of this Agreement shall not operate nor be construed as a
waiver of any subsequent breach or violation.
 
     15. DAMAGES.  Nothing contained herein shall be construed to prevent the
Company or the Executive from seeking and recovering from the other damages
sustained by either or both of them as a result of its or his breach of any term
or provision of this Agreement. In the event that either party hereto brings
suit for the collection of any damages resulting from, or the injunction of any
action constituting, a breach of any of the terms or provisions of this
Agreement, then the party found to be at fault shall pay all reasonable court
costs and attorneys' fees of the other, whether such costs and fees are incurred
in a court of original jurisdiction or one or more courts of appellate
jurisdiction.
 
     16. NO THIRD PARTY BENEFICIARY.  Nothing expressed or implied in this
Agreement is intended, or shall be construed, to confer upon or give any person
(other than the parties hereto and, in the case of the Executive, his heirs,
personal representative(s) and/or legal representative) any rights or remedies
under or by reason of this Agreement. No agreements or representations, oral or
otherwise, express or implied, have been made by either party with respect to
the subject matter of this agreement which agreements or representations are not
set forth expressly in this Agreement, and this Agreement supersedes any other
employment agreement between the Company and the Executive.
 
     17. BOARD APPROVAL; AGREEMENT.  The Company warrants and represents to the
Executive that this Agreement has been approved and authorized by the Board. No
provisions of this Agreement may be modified, waived or discharged unless such
waiver modification or discharge is agreed to in writing signed by the Executive
and the officer of the Company which is specifically designated by the Board.
 
                                        8
   9
 
     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
 
                                            PEDIATRIX MEDICAL GROUP, INC.
 
                                            By:
                                               ---------------------------------
                                              Roger J. Medel, M.D., M.B.A.
 
                                            THE EXECUTIVE:

                                            ------------------------------------
                                            Douglas Cunningham, M.D.
 
                                        9

   1
 
                                                                   EXHIBIT 10.22
 
                                   LEARJET 60
 
                          AIRPLANE PURCHASE AGREEMENT
 
     This Agreement is made by and between Learjet Inc., a Delaware corporation
with its principal offices in Wichita, Kansas ("Learjet"), and Pediatrix Medical
Group, Inc. or its Assignee ("Buyer") and shall be effective as of the date of
its acceptance by Learjet.
 
     In consideration of the mutual covenants made herein and subject to the
following terms and conditions, Learjet agrees to sell and Buyer agrees to buy
the new Learjet airplane (the "Airplane") described below.
 
                        SECTION I.  AIRPLANE DESCRIPTION
 
     A. The Airplane is a new Learjet 60, Serial Number 075, more fully
described in the Specification and Description dated 2/96 (the "Specification")
attached hereto as Exhibit "A" and made a part hereof by reference, together
with the avionics, other equipment, and interior and exterior installations as
specified on Exhibit "B" ("Options").
 
     B. The Options are described and the price of the Options is set forth in
the Optional Equipment Description & Pricing List dated 2/96.
 
              SECTION II.  PRICE AND PAYMENT AND DELIVERY SCHEDULE
 
     A. Subject to adjustment for the price of the Options and Additional
Options (as hereinafter defined) selected by Buyer after the date hereof, the
purchase price of the Airplane ("Purchase Price") shall be:
 
                                                           
          Base Price..................................................  $9,795,000  U.S.
          Price of Options and Other Charges:.........................     796,150  U.S.
          Special Sales Allowance.....................................    (750,225) U.S.
               Total Purchase Price:..................................  $9,840,925  U.S.

          

 
     B. The Purchase Price shall be payable in U.S. Dollars as follows:
 
          *1. A non-refundable deposit of $2,000,000 at the time of the
     execution of this Agreement, or delivery of the Aircraft Lease Agreement
     per Exhibit "E", whichever is later, to be applied toward the Total
     Purchase Price.
 
           2. The balance of the Purchase Price in the amount of $7,840,925
     U.S., plus applicable taxes and other charges, by cashier's check drawn on
     a U.S. bank or wire transfer at the time of delivery of the Airplane.
 
     C. Learjet anticipates that the Airplane will be ready for delivery on or
about July 31, 1996 but no later than September 30, 1996 (the "Anticipated
Delivery Date"), although the actual date for delivery cannot be ascertained as
the date of this Agreement. The date of delivery shall be the date of actual
delivery of the Airplane, unless Learjet and Buyer agree in writing to another
date ("Delivery Date").
 
                   SECTION III.  SPECIAL PROVISIONS (IF ANY)
 
     *A refundable $100,000.00 received by Learjet shall become non-refundable
and credited toward the $2,000,000 deposit in Section II.B.1 upon execution of
this Purchase Agreement.
 
     Exhibits "B", Aircraft Profile, Exhibit "C" Special Conditions, Exhibit "D"
Learjet 60 Total Learjet Coverage Plan, and Exhibit "E" Aircraft Lease Agreement
are attached hereto and made a part hereof by reference.
 
     EXCEPT FOR THE EXPRESS TERMS OF THE LEARJET AIRPLANE WARRANTY POLICY SET
FORTH IN THE SPECIFICATION, LEARJET MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
OTHERWISE. SUCH WRITTEN WARRANTY IS MADE IN LIEU OF ALL OTHER WARRANTIES,
OBLIGATIONS OR LIABILITIES OF LEARJET WITH RESPECT TO THE MANUFACTURE, SALE,
 
                                        1
   2
 
LEASE, OPERATION OR USE OF THE AIRPLANE AND, EXCEPT AS SET FORTH THEREIN,
LEARJET SHALL NOT BE LIABLE IN WARRANTY, NEGLIGENCE, OR STRICT LIABILITY FOR ANY
DEFECTS, FAILURES OR MALFUNCTIONS IN PERFORMANCE, DESIGN, MANUFACTURE OR
OTHERWISE, WHETHER PATENT OR LATENT. THE EXTENT OF LEARJET'S LIABILITY UNDER
SUCH WARRANTY IS LIMITED TO THE REPAIR OR REPLACEMENT OR DEFECTS IN THE MANNER
DESCRIBED IN SUCH WARRANTY, AND ALL OTHER REMEDIES AGAINST LEARJET FOR
INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES ARISING OUT OF THE MANUFACTURE, SALE,
LEASE OPERATION OR USE OF THE AIRPLANE ARE EXPRESSLY EXCLUDED.
 
     In the event the Buyer is a natural person or sole proprietorship the,
notwithstanding anything herein to the contrary, the limits on warranties or on
remedies for breach shall not apply to the extent (but only to the extent) such
limitations are prohibited by Kansas Law.
 
     Buyer and Learjet agree that this transaction is governed solely by the
terms and conditions set forth (1) above, (2) on the reverse side hereof, (3) in
the exhibits referenced and incorporated herein, and (4) in all amendments
hereto, all of which together constitute the complete agreement between Buyer
and Learjet with respect to the Airplane. Buyer acknowledges that Buyer has read
and understands the complete agreement, and that this Agreement shall be not
binding upon Learjet until it has been executed by both an authorized officer of
Learjet and an authorized representative of Learjet's Marketing Administration
Department at the address set forth below.
 
     BUYER HEREBY ACKNOWLEDGES AND AGREES THAT NONE OF LEARJET'S SALESMEN ARE
AUTHORIZED TO WAIVE OR ALTER ANY TERM, PROVISION OR CONDITION OF THIS AGREEMENT,
OR TO MAKE ANY REPRESENTATION OR WARRANTY WITH RESPECT TO THIS AGREEMENT OR THE
AIRPLANE.
 
                                                
BUYER                                              LEARJET
Name:  Pediatrix Medical Group, Inc. or            P.O. BOX 7707
  Assignee                                         Wichita, KS 67277-7707
- ----------------------------------------------     By:
                                                   ----------------------------------------------
Address:  1455 North Park Drive                    Title:  Vice President, North American Sales
- ---------------------------------------------      ----------------------------------------------
           Ft. Lauderdale, FL 33326                
- ---------------------------------------------      
By:                                                By:
- ----------------------------------------------     ----------------------------------------------
Title:  President                                  Title:  Vice President, Marketing & Sales
- ----------------------------------------------     ----------------------------------------------
Date:  3/22/96                                     Date:  March 22, 1996
- ----------------------------------------------     ----------------------------------------------


 
                             SECTION IV.  DELIVERY
 
     A. Delivery Period.  Learjet may tender delivery of the Airplane anytime
between July 31, 1996 and September 30, 1996 (the "Delivery Period"); provided,
however, that in the event (1) Buyer selects, with the approval of Learjet,
additional or alternative avionics, other equipment, interior or exterior
installations or furnishings or other changes in the Airplane ("Additional
Options"); (2) installation of any Additional Options affects Learjet's ability
to timely deliver the Airplane; (3) delivery is delayed due to causes beyond
Learjet's control; or (4) defects are noted during the inspection and acceptance
flight provided for under Section V.A. hereof, then the Delivery Period shall be
extended for the period of time reasonably
 
     B. Place of Delivery.  Delivery of the Airplane to Buyer shall be in
Wilmington, Delaware following technical acceptance in Tucson, Arizona, unless a
different location is agreed upon in writing by Buyer and Learjet.
 
                                        2
   3
 
                       SECTION V.  LEARJET'S OBLIGATIONS
 
     A. Delivery and Acceptance.  Learjet will notify Buyer when the Airplane is
ready for delivery and permit Buyer to inspect the Airplane and participate in
an acceptance flight of not more than two (2) hours duration which shall be
controlled by Learjet. If no defects are noted during the inspection and
acceptance flight, Buyer shall accept and pay for the Airplane on the Delivery
Date. If any defects are noted during such inspection and acceptance flight,
Learjet shall correct the same within a reasonable time and, if necessary, and
as provided in Section VI.C. hereof, the Delivery Period shall be extended to
permit Learjet to correct such defects.
 
     B. Transfer of Title.  At the time of delivery, Learjet shall transfer, or
cause to be transferred, title to the Airplane, free and clear of all liens and
encumbrances, by means of a Bill of Sale duly prepared and executed on the
appropriate U.S. Federal Aviation Administration ("FAA") form.
 
     C. Certificate of Airworthiness.  At the time of delivery, Learjet shall
furnish the Buyer with a valid, effective Standard Certificate of Airworthiness
issued by the FAA certifying that, as of the date of issuance, the Airplane has
been inspected and found to conform in all respects to the applicable FAA Type
Certificate.
 
     D. Publications.  Learjet shall furnish the Buyer with one copy each of the
applicable Flight Manual, Maintenance Manual, Parts Catalog, two sets of wiring
diagrams, flight supplements for all installed equipment and Wiring Manual and,
for a period of one (1) year after delivery of the Airplane, Learjet shall
furnish to the Buyer, without charge, any revisions to such publications.
 
     E. Training.  The price of the Airplane includes, and Learjet shall make
available to Buyer, training by Learjet's designated trainer, Flight Safety
International, for two (2) qualified pilots and ground maintenance training for
two (2) mechanics in accordance with the terms of the Crew Training Agreement
set forth in the Specification. All training described in the Specification
shall be available from the execution of this Purchase Agreement until twelve
(12) calendar months after delivery of the Airplane, subject to availability.
 
                        SECTION VI.  BUYER'S OBLIGATIONS
 
     A. Payments.  Buyer agrees to make all deposits and payments required to be
made pursuant to Section II. hereof as and when the same are due. Late payments
shall be subject to interest charges from the date due until paid at a rate
equal to the prime rate as reported from time to time by the Wall Street Journal
PLUS 2%.
 
     B. Specification of Options and Changes.  Buyer agrees to specify the
Options on or before the Option Date in accordance with Section I. hereof. Any
Additional Options requested by Buyer after the Option Date shall be subject to
Learjet's approval. Buyer understands and agrees that such changes may result in
additional charges and/or delays in the Delivery Date.
 
     C. Inspection.  Within seven (7) business days after Learjet notifies Buyer
that the Airplane is ready for delivery, Buyer agrees to inspect the Airplane,
and if the Airplane meets the Specification, is free of mechanical and cosmetic
defects, is equipped per Exhibit B, and the conditions of Section V.C. and V.D.
are met, to accept and pay for the Airplane on the Delivery Date. If Buyer has
not accepted the Airplane within ten (10) days after the date Learjet notifies
Buyer that the Airplane is ready for delivery, then Buyer agrees to immediately
notify Learjet, in writing, of the reasons for Buyer's failure to accept the
Airplane. The unpaid balance of the Purchase Price shall be subject to interest
charges from the date the Airplane is ready for delivery until paid at the rate
described in Paragraph A. of this Section VI; provided, however, that if Buyer's
failure to accept and pay for the Airplane is due to the fact that the Airplane
does not meet the Specification, that the Airplane is not equipped as set forth
in Exhibit B, or the conditions of Section V.C. and V.D. are not met, or the
Airplane has mechanical or cosmetic defects, then no interest shall accrue
unless and until such time as the Airplane meets the Specification, the criteria
of Exhibit B and the conditions of Section V.C. and V.D., and is free of
mechanical and cosmetic defects and is tendered for delivery by Learjet and
Buyer refuses acceptance.
 
     If for any reason the Airplane tendered for delivery by Learjet does not
meet the above criteria, and Buyer refuses to accept delivery thereof, Buyer
agrees to specify, in writing, the basis of Buyer's refusal to accept delivery
and to give Learjet the reasonable opportunity or opportunities to cure any
defect and thereafter, deliver the Airplane to Buyer. If defects in the Airplane
are discovered by Buyer subsequent to delivery, Buyer agrees to
 
                                        3
   4
 
immediately notify Learjet, in writing, of such defects and further agrees to
provide Learjet the reasonable opportunity or opportunities to cure the same in
accordance with the terms of the Learjet Airplane Warranty Policy set forth in
the Specification.
 
     D. Taxes.  At the time of delivery of the Airplane, Buyer shall remit to
Learjet, in addition to any other amounts due Learjet hereunder, (1) any and all
federal, state, or local sales or other taxes applicable to the sale and
delivery of the Airplane which Learjet is required to collect and (2) any and
all import duties, import taxes, or other import charges levied by other than
the United States Government. Buyer hereby agrees to indemnify and hold Learjet
harmless from and against any and all applicable sales, use or other taxes
which, inadvertently or for any other reason, are not collected by Learjet at
the time of delivery.
 
                   SECTION VII.  GENERAL TERMS AND CONDITIONS
 
     A. Loss, Damage or Destruction of the Airplane.  In the event of loss,
damage or destruction of the Airplane prior to delivery, Learjet shall be
excused from and not be liable for any delay or failure in the performance of
this Agreement. In such event Buyer shall have the right to accept delivery of
the next available airplane, as determined by Learjet, or to terminate this
Agreement. Buyer shall notify Learjet of its decision within fifteen (15) days
from the date of receipt of notice from Learjet of the loss, damage or
destruction of the Airplane and the anticipated delivery date and price of the
next available airplane. In the event of termination of this Agreement
hereunder, Buyer shall be entitled to recover all amounts paid to Learjet on
account of the Airplane together with interest thereon at the prime rate as
reported from time to time by the Wall Street Journal.
 
     B. Title and Risk of Loss.  Title and risk of loss to the Airplane shall
pass from Learjet to Buyer at the time of delivery.
 
     C. Failure or Delay in Delivery.  Learjet shall not be liable for any
failure to deliver or delay in delivery of the Airplane due to causes beyond its
control and the Delivery Period shall be extended by a period of time equal to
such delay. Such causes include, but are not limited to, acts of God or public
enemy, war, civil commotion, insurrection, riot, embargo, fire, explosion,
earthquake, lightning, flood, drought, windstorm, tornado, other action of the
elements, epidemics, governmental acts, regulations or directives, labor strikes
or work stoppages or slowdown, delays in vendor deliveries, failure after due
diligence to obtain type approval or airworthiness certification, or any other
cause beyond Learjet's control or not attributable to Learjet's negligence.
 
     D. Termination.
 
          (1) Learjet may terminate this Agreement immediately at any time prior
     to delivery of the Airplane by written notice to the Buyer in the event (a)
     Buyer makes an assignment for the benefit of creditors, admits an inability
     to pay its debts as they become due, (b) a receiver or trustee is appointed
     for Buyer or for substantially all of Buyer's assets and, if appointed
     without Buyer's consent, such appointment is not discharged or stayed
     within thirty (30) days, or (c) proceeding under any law of bankruptcy,
     insolvency, or reorganization or relief of debtors is instituted by or
     against Buyer and, if not contested by Buyer, not dismissed or stayed
     within thirty (30) days.
 
          (2) Learjet may terminate this Agreement immediately upon written
     notice to Buyer in the event Buyer (a) fails to make any payment required
     to be made by Buyer hereunder when due or (b) fails or refuses to accept
     delivery of the Airplane within seven (7) days (i) after the date the
     Airplane is ready for delivery or (ii) after Learjet has cured, within a
     reasonable time, any defects noted during Buyer's inspection of the
     Airplane. In the event of termination of this Agreement by Learjet under
     either subparagraph (1) or subparagraph (2) of this Paragraph D. of Section
     VII., all of Buyer's right, title and interest in, to and under this
     Agreement and the Airplane shall be extinguished, and all amounts paid by
     Buyer on account of the Airplane under this Agreement shall be retained by
     Learjet, not as a penalty, but as liquidated damages for default.
 
          (3) Buyer may terminate this Agreement at any time prior to delivery
     of the Airplane by giving not less than ten (10) days written notice to
     Learjet in the event Learjet (a) fails to tender delivery of the Airplane
     within the Delivery Period and such failure is not excused pursuant to
     Paragraph C. of this Section VII, or
 
                                        4
   5
 
     (b) Learjet fails for any reason whatsoever to tender delivery of the
     Airplane within six (6) months after the end of the Delivery Period. In the
     event of termination of this Agreement by Buyer under subparagraph (3) of
     this Paragraph D. of Section VII. Learjet shall promptly refund all amounts
     paid by Buyer on account of the Airplane, together with interest thereon at
     the prime rate as reported from time to time by the Wall Street Journal,
     which shall be Buyer's sole and exclusive remedy for Learjet's failure to
     deliver the Airplane as set forth in subparagraph (3) of this Paragraph D.
     of Section VII.
 
          (4) Buyer recognizes, understands and agrees that Buyer shall not have
     the right to terminate this Agreement because of any change or fluctuation
     in the value of any currency.
 
     E. Assignment.  This Agreement may be assigned by Buyer to a subsidiary or
other affiliate owned and controlled by, or under common ownership or control
with, Buyer, or to a leasing company for purposes of financing after written
notification to Learjet. Any other assignment by Buyer of this Agreement may be
made only with Learjet's prior written consent, which shall not be unreasonably
withheld. Learjet reserves the right to assign and transfer its rights under
this Agreement to financing institutions for financial and accounting purposes.
Any such assignment and transfer shall not relieve Learjet of its obligations
under the Purchase Agreement. Buyer agrees to acknowledge its consent hereto by
executing and delivering such documents or instruments as Learjet may reasonably
request.
 
     F. Notices.  Any notice to be given hereunder shall be sent by certified or
registered mail, commercial courier, telegram, or telecopier to the party to
which such notice is to be given at the address set forth above or such other
address as the party to receive such notice shall designate in writing. Notice
so sent shall be deemed to be received upon actual receipt.
 
     G. Entire Agreement.  This Agreement and the matters referred to herein
constitute the entire agreement of Learjet and Buyer with respect to the
Airplane and supersede and cancel all prior statements, representations,
negotiations, understandings, agreements, undertakings, and communications,
whether verbal or written, with respect to or in connection with the subject
matter hereof. This Agreement may only be amended or changed by a written
instrument signed by both parties hereto.
 
     H. Applicable Law.  This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Kansas.
 
     I. Arbitration.  All disputes arising under this Agreement which cannot be
settled amicably between Learjet and Buyer shall be resolved by arbitration
conducted in Wichita, Kansas, in accordance with the rules of the American
Arbitration Association. The decision of the arbitrators shall be final and
binding upon both parties.
 
     J. Severability.  If any of the terms or provisions of this Agreement are
determined or held to be illegal or unenforceable under applicable law, such
terms and provisions shall be deemed to be ineffective and severed from the
remaining terms and provisions hereof which shall be unimpaired and remain in
full force and effect.
 
     K. Acceptance in Wichita.  This Agreement shall become a binding contract
upon its acceptance and execution by Learjet at its principal offices in
Wichita, Kansas.
 
                                        5

   1
 
                                                                    EXHIBIT 11.1
 
                         PEDIATRIX MEDICAL GROUP, INC.
 
                STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
                (IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA)
 


                                                                                   THREE MONTHS
                                                                                       ENDED
                                                YEARS ENDED DECEMBER 31,             MARCH 31,
                                               ---------------------------       -----------------
                                                1993      1994      1995          1996      1995
                                               -------   -------   -------       -------   -------
                                                                            
Income applicable to common stock:
Net income...................................  $ 4,150   $ 5,407   $ 6,713       $ 2,612   $ 1,209
Less: preferred stock dividends..............    1,189     1,296     1,040            --       354
                                               -------   -------   -------       -------   -------
Income applicable to common stock............  $ 2,961   $ 4,111   $ 5,673       $ 2,612   $   855
                                               =======   =======   =======       =======   =======
Weighted average number of common and common
  share equivalents outstanding:
Primary:
Weighted average of common shares
  outstanding................................    6,377     6,272     8,092        13,057     6,265
Weighted average of dilutive common stock
  equivalents................................      456       581       681           640       778
                                               -------   -------   -------       -------   -------
Weighted average number of common and common
  share equivalents outstanding for primary
  earnings per share.........................    6,833     6,853     8,773        13,697     7,043
                                               =======   =======   =======       =======   =======
Fully diluted:
Weighted average of common shares
  outstanding................................    6,377     6,272     8,092        13,057     6,265
Weighted average of dilutive common stock
  equivalents................................    5,038     5,158     4,124           669     5,349
                                               -------   -------   -------       -------   -------
Weighted average number of common and common
  share equivalents outstanding for fully
  dilutive earnings per share................   11,415    11,430    12,216        13,726    11,614
                                               =======   =======   =======       =======   =======
Net income per share:
Primary......................................  $  0.43   $  0.60   $  0.65       $  0.19   $  0.12
                                               =======   =======   =======       =======   =======
Fully diluted................................  $  0.36   $  0.47   $  0.55       $  0.19   $  0.10
                                               =======   =======   =======       =======   =======

   1
 
                                                                    EXHIBIT 23.2
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 29, 1996, on our audits of the financial statements and
financial statement schedules of Pediatrix Medical Group, Inc., our report dated
July 21, 1995, on our audit of the financial statements of Neonatal and
Pediatric Intensive Care Medical Group, Inc., and our report dated June 17,
1996, on our audit of the financial statements of Rocky Mountain Neonatology,
P.C. We also consent to the reference to our Firm under the caption "Selected
Consolidated Financial Data" and "Experts."
 
                                          COOPERS & LYBRAND L.L.P.
 
Fort Lauderdale, Florida
June 28, 1996

   1
 
                                                                    EXHIBIT 23.3
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We consent to the inclusion in this registration statement on Form S-1 of
our report dated February 22, 1996, on our audit of the financial statements of
Neonatal Specialists, Ltd. We also consent to the reference to our Firm under
the caption "Experts."
 
                                          JOHNSON & MOSER, LTD.
 
Scottsdale, Arizona
June 28, 1996

   1
 
                                                                    EXHIBIT 23.4
 
                       CONSENT OF INDEPENDENT ACCOUNTANT
 
     I consent to the inclusion in this registration statement on Form S-1 of my
report dated March 15, 1996, on my audit of the financial statements of
Pediatric and Newborn Consultants, PC. I also consent to the reference to my
firm under the caption "Experts."
 
                                          DEON E. FITCH, CPA
 
Englewood, Colorado
June 28, 1996

   1
 
                                                                    EXHIBIT 23.5
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We consent to the inclusion in this registration statement on Form S-1 of
our report dated June 10, 1996, on our audit of the financial statements of West
Texas Neonatal Associates, a Partnership. We also consent to the reference to
our firm under the caption "Experts."
 
                                          LINDA G. MEDLOCK P.C.
 
El Paso, Texas
June 28, 1996

   1
 
                                                                    EXHIBIT 23.6
 
                       CONSENT OF INDEPENDENT ACCOUNTANTS
 
     We consent to the inclusion in this registration statement on Form S-1 of
our report dated May 7, 1996, on our audit of the consolidated financial
statements of Infant Care Specialists Medical Group, Inc. and Subsidiary. We
also consent to the reference to our Firm under the caption "Experts."
 
                                          HARLAN & BOETTGER
 
San Diego, California
June 28, 1996