<PAGE>

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

                                    FORM 10-Q

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                  FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 1998
                                       OR
          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM __________ TO __________

                         COMMISSION FILE NUMBER 0-19393


                          MANAGED CARE SOLUTIONS, INC.
             (Exact name of registrant as specified in its charter)


            DELAWARE                                        36-3338328
 (State or other jurisdiction of incorporation or organization)(I.R.S. Employer
Identification No.)


                             7600 NORTH 16TH STREET
                                    SUITE 150
                             PHOENIX, ARIZONA 85020
                    (Address of principal executive offices)
                                   (Zip Code)

                                  602-331-5100
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No _______

There were 4,602,723 shares of common stock outstanding as of April 1, 1998.
<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE


Part I  Financial Information


     Item 1.   Financial Statements


               Consolidated Balance Sheets...................................3



               Consolidated Statements of Operations.........................4


               Consolidated Statements of Cash Flows.........................5



               Notes to Unaudited Consolidated Financial Statements........6-7



     Item 2.   Management's Discussion and Analysis of Financial Condition
               and Results of

               Operations.................................................8-10



Part II OTHER INFORMATION



     Item 2.   Changes in Securities

               C.   Recent Sales of Unregistered Securities.................10


     Item 6.   Exhibits and Reports on Form 8-K..........................10-12


                                       2
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                      MANAGED CARE SOLUTIONS, INC.
                                       CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                         FEBRUARY 28,         MAY 31,
                                                                            1998               1997
                                                                        --------------    --------------
                                                                         (UNAUDITED)
<S>                                                                     <C>               <C>

ASSETS
------

Current Assets:
  Cash and cash equivalents, including restricted cash of $8,027,000
    and $5,304,000                                                      $   11,030,000    $    7,212,000
  Short-term investments                                                     1,512,000         1,503,000
  Accounts and notes receivable and unbilled services, net                   3,197,000         3,998,000
  Related party accounts and notes receivable                                   18,000            26,000
  Prepaid expenses and other current assets                                    338,000         1,735,000
  Deferred income taxes, net                                                   930,000           971,000
                                                                        --------------    --------------
     Total current assets                                                   17,025,000        15,445,000

Notes receivable                                                                     -           315,000
Related party notes receivable                                                 674,000           941,000
Property and equipment, net                                                  4,636,000         3,723,000
Performance bonds                                                            3,794,000         3,737,000
Goodwill, net                                                                2,917,000         3,191,000
Other assets                                                                   829,000           665,000
                                                                        --------------    --------------
                                                                        $   29,875,000    $   28,017,000
                                                                        ==============    ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current Liabilities:
  Accounts payable                                                      $      495,000    $      350,000
  Accrued medical claims                                                     7,690,000         7,080,000
  Risk pool payable                                                          1,137,000         2,035,000
  Related party risk pool payable                                              298,000           301,000
  Accrued expenses                                                           3,043,000         2,668,000
  Current portion of long-term debt                                            117,000           200,000
                                                                        --------------    -------------- 
     Total current liabilities                                              12,780,000        12,634,000

Long-term debt                                                                       -            67,000
Related party long-term debt                                                 3,878,000         3,643,000
Deferred income taxes, net                                                     203,000           203,000
                                                                        --------------    --------------
     Total liabilities                                                      16,861,000        16,547,000
                                                                        --------------    --------------

Commitments                                                                          -                 -

Stockholders' Equity:
  Voting preferred stock, $1,000 par value
   Authorized, issued and outstanding - 6.85 shares                              7,000             7,000
  Common stock, $0.01 par value
   Authorized - 10,000,000 shares
   Issued and outstanding - 4,598,000 and 4,394,000 shares                      46,000            44,000
  Capital in excess of par value                                            15,508,000        14,497,000
  Accumulated deficit                                                       (2,547,000)       (3,078,000)
                                                                        --------------    --------------
     Total stockholders' equity                                             13,014,000        11,470,000
                                                                        --------------    --------------
                                                                        $   29,875,000    $   28,017,000
                                                                        ==============    ==============


                                                   3

                   The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>

                                      MANAGED CARE SOLUTIONS, INC.
                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                               (UNAUDITED)

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED         NINE MONTHS ENDED
                                                  --------------------------  --------------------------
                                                  FEBRUARY 28,  FEBRUARY 28,  FEBRUARY 28,  FEBRUARY 28,
                                                      1998          1997          1998          1997
                                                  ------------  ------------  ------------  ------------
<S>                                               <C>           <C>           <C>           <C>   
Revenues                                          $ 17,104,000  $ 14,592,000  $ 47,949,000  $ 49,693,000
                                                  ------------  ------------  ------------  ------------

Direct cost of operations                           13,591,000    11,373,000    38,238,000    40,072,000
Marketing, sales and administrative                  3,342,000     3,246,000     9,219,000    11,209,000
                                                  ------------  ------------  ------------  ------------

  Total costs and expenses                          16,933,000    14,619,000    47,457,000    51,281,000
                                                  ------------  ------------  ------------  ------------

Operating income (loss)                                171,000       (27,000)      492,000    (1,588,000)
                                                  ------------  ------------  ------------  ------------

Interest income                                        219,000       170,000       623,000       405,000
Interest expense                                       (92,000)      (95,000)     (285,000)     (226,000)
                                                  ------------  ------------  ------------  ------------

  Net interest income                                  127,000        75,000       338,000       179,000
                                                  ------------  ------------  ------------  ------------

Income (loss) before income taxes                      298,000        48,000       830,000    (1,409,000)

Provision (benefit) for income taxes                   122,000       (71,000)      299,000      (121,000)
                                                  ------------  ------------  ------------  ------------

Net income (loss)                                 $    176,000  $    119,000  $    531,000  $ (1,288,000)
                                                  ============  ============  ============  ============


Net income (loss) per common share - basic        $       0.04  $       0.03  $       0.12  $      (0.30)
                                                  ============  ============  ============  ============


Weighted average common shares
 outstanding                                         4,513,000     4,365,000     4,433,000     4,365,000
                                                  ============  ============  ============  ============


Net income (loss) per share--assuming dilution    $       0.04  $       0.03  $       0.12  $      (0.30)
                                                  ============  ============  ============  ============


Weighted average common and common
  equivalent shares outstanding                      4,833,000     4,382,000     4,589,000     4,365,000
                                                  ============  ============  ============  ============


                                                   4

                    The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>


                             MANAGED CARE SOLUTIONS, INC.
                         CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)
<TABLE>
<CAPTION>

                                                                NINE MONTHS ENDED
                                                           ----------------------------
                                                           FEBRUARY 28,    FEBRUARY 28,
                                                               1998            1997
                                                           ------------    ------------
<S>                                                        <C>             <C>

Cash flows from operating activities:
  Net income (loss)                                        $    531,000    $ (1,288,000)
  Adjustments to reconcile net income (loss) to net cash
   provided by operating activities:
   Bad debt expense                                              27,000         900,000
   Depreciation and amortization                              1,386,000       1,334,000
   Loss on sale of property and equipment                        28,000               -
   Deferred income taxes                                         41,000        (227,000)
   Changes in assets and liabilities:
     Accounts receivable and unbilled services                  774,000      (1,727,000)
     Prepaid expenses and other current assets                1,397,000        (564,000)
     Accounts payable                                           145,000         313,000
     Accrued medical claims                                     610,000       1,528,000
     Risk pool payable                                         (898,000)      1,329,000
     Related party risk pool payable                             (3,000)        143,000
     Accrued expenses                                           375,000         376,000
     Loss contract reserve                                            -        (510,000)
     Other assets                                              (164,000)        257,000
                                                           ------------    ------------
Net cash provided by operating activities                     4,249,000       1,864,000
                                                           ------------    ------------

Cash flows from investing activities:
  Purchase of property and equipment                         (2,060,000)     (1,549,000)
  Proceeds from sale of property and equipment                    7,000          14,000
  Purchase of short-term investments                            (10,000)     (2,722,000)
  Proceeds from maturity/sale of short-term investments           1,000       3,801,000
  Proceeds from related party notes receivable                  275,000       1,991,000
  Collection from (issuance of) notes receivable                315,000         (95,000)
  Increase in assets securing performance bond                  (57,000)       (396,000)
                                                           ------------    ------------
Net cash provided by (used in) investing activities          (1,529,000)      1,044,000
                                                           ------------    ------------

Cash flows from financing activities:
  Due to Medicus Systems Corporation                                  -        (647,000)
  Principal payment on long-term debt                          (150,000)     (1,584,000)
  Issuance of/increase in long-term debt                        235,000       3,179,000
  Issuance of stock and stock warrants                        1,013,000         121,000
                                                           ------------    ------------
Net cash provided by financing activities                     1,098,000       1,069,000
                                                           ------------    ------------

Net increase in cash and cash equivalents                     3,818,000       3,977,000
Cash and cash equivalents, beginning of period                7,212,000       3,804,000
                                                           ------------    ------------
Cash and cash equivalents, end of period                   $ 11,030,000    $  7,781,000
                                                           ============    ============
</TABLE>


                                          5

           The accompanying notes are an integral part of these statements.
<PAGE>

                          MANAGED CARE SOLUTIONS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

In management's  opinion,  the  accompanying  unaudited  consolidated  financial
statements  contain  all  adjustments   (consisting  of  only  normal  recurring
adjustments)  considered  necessary for a fair  statement of the results for the
interim  periods  presented.  The  results of  operations  for the period  ended
February 28, 1998 are not  necessarily  indicative of the results to be expected
for the full year. The interim consolidated  financial statements should be read
in  conjunction   with  Managed  Care  Solutions,   Inc.  ("MCS"  or  "Company")
consolidated  financial  statements and notes thereto  included in the Company's
Form 10-K for the year ended May 31, 1997.

NOTE 2 - NET INCOME PER SHARE

Net income  (loss) per common  share has been  computed by  dividing  net income
(loss) by the weighted average common equivalent shares  outstanding  during the
period.  Common stock  equivalents  include  shares  issuable on the exercise of
stock options and warrants when  dilutive,  using the treasury stock method from
date of grant.

The following is the  computation  of the  reconciliation  of the numerators and
denominators  of net income per  common  share and net income per common  share,
assuming dilution in accordance with Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 was issued in February 1997
and is effective for financial  statements  for both interim and annual  periods
ending after December 15, 1997.

<TABLE>
<CAPTION>


                                                                        THREE MONTHS ENDED
                                           -----------------------------------------------------------------------------
                                                     FEBRUARY 28, 1998                      FEBRUARY 28, 1997
                                           -------------------------------------  --------------------------------------
<S>                                        <C>          <C>            <C>        <C>           <C>           <C>

                                              Income        Shares     Per Share     Income        Shares     Per  Share
                                           (Numerator)  (Denominator)    Amount   (Numerator)  (Denominator)    Amount
                                           -----------  -------------    ------   -----------  -------------    ------

Net income per common share:
  Income available to common stockholders  $  176,000     4,513,000      $ 0.04   $  119,000     4,365,000      $ 0.03
Effect of dilutive securities: 
  Stock options and warrants                        -       320,000                        -        17,000             
                                           ----------     ---------               ----------     ---------

Net income per common share,
  Assuming dilution:
  Income available to common
    stockholders and assumed conversions   $  176,000     4,833,000      $ 0.04   $  119,000     4,382,000      $ 0.03
                                           ==========     =========      ======   ==========     =========      ======


                                                          6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                        NINE MONTHS ENDED
                                           -----------------------------------------------------------------------------
                                                     FEBRUARY 28, 1998                      FEBRUARY 28, 1997
                                           -------------------------------------  --------------------------------------
<S>                                        <C>          <C>            <C>        <C>           <C>           <C>

                                              Income        Shares     Per Share     Income        Shares     Per  Share
                                           (Numerator)  (Denominator)    Amount   (Numerator)  (Denominator)    Amount
                                           -----------  -------------    ------   -----------  -------------    ------

Net income (loss) per common share:
  Income (loss) available to common 
    stockholders                           $  531,000     4,433,000      $ 0.12   $(1,288,000)   4,365,000      $(0.30)
Effect of dilutive securities:
  Stock options and warrants                        -       156,000                         -            -
                                           ----------     ---------               -----------    ---------

Net income (loss) per common share,
  Assuming dilution:
  Income (loss) available to common
    stockholders and assumed conversions   $  531,000     4,589,000      $ 0.12   $(1,288,000)   4,365,000      $(0.30)
                                           ==========     =========      ======   ===========    =========      ======
</TABLE>
           
At February 28, 1998, no shares of common stock had been issued upon  conversion
of the two convertible notes issued in October 1996. These notes are convertible
into an  aggregate  of 857,143  shares of common  stock.  These  shares were not
included in the calculation of diluted earnings per share for the three and nine
month periods ended February 28, 1998 and 1997 due to the  anti-dilutive  effect
they would have on earnings per share if converted.

Due to the  Company's  loss in the nine month period ended  February 28, 1997, a
calculation of earnings per share assuming dilution is not required. During this
period,  dilutive securities  consisted of options and warrants convertible into
approximately 84,000 shares of common stock.

NOTE 3 - RESTRICTIONS ON FUND TRANSFERS

Certain  of  the  Company's   operating   subsidiaries   are  subject  to  state
regulations,  which  require  compliance  with  certain  net worth,  reserve and
deposit requirements.  To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to the parent organization, MCS. Net assets of subsidiaries (after inter-company
eliminations)  which,  at February 28, 1998,  may not be  transferred  to MCS by
subsidiaries  in the form of  loans,  advances  or cash  dividends  without  the
consent of a third  party are  referred to as  "Restricted  Net  Assets".  Total
Restricted  Net  Assets  of these  operating  subsidiaries  were  $8,868,000  at
February 28, 1998,  with deposit and reserve  requirements  (performance  bonds)
representing $3,794,000 of the Restricted Net Assets and net worth requirements,
in excess of  deposit  and  reserve  requirements,  representing  the  remaining
$5,074,000.

NOTE 4 - SALE OF SECURITIES

On January 7, 1998, the Company entered into a purchase  agreement  with Beverly
Enterprises, Inc., pursuant to which, the Company received $1,000,000 and issued
200,000 shares of the Company's common stock at $5 per share. These transactions
were  effected  pursuant  to the  exemption  contained  in  section  4(2) of the
Securities Act of 1933.

                                       7

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

INTRODUCTION

Managed Care  Solutions,  Inc. ("MCS" or the "Company") is involved in a variety
of health care programs,  many of which serve indigent and Medicaid populations.
The  Company's   operations  include  a  long-term  care  Arizona  based  health
maintenance organization ("HMO") subsidiary, Ventana Health Systems ("Ventana");
an Arizona based primary and acute care HMO subsidiary,  Arizona Health Concepts
("AHC");   management  contracts  pursuant  to  which  the  Company  administers
privately owned HMOs located in Hawaii,  Michigan,  New Mexico,  and Texas;  the
management of healthcare  services for an indigent  population for the County of
San Diego; a contractual  arrangement with the State of Indiana Medicaid Agency;
and a subsidiary  providing  home  healthcare and community  worker  services to
Ventana.

In January  1998,  the Company  announced  the  election  of Michael  Hernandez,
President of The Cova  Corporation,  as Chairman and Chief Executive  Officer of
the Company.  James Burns will retain the title of President and Chief Operating
Officer.  Mr.  Hernandez  has over 20  years of  experience  in  investment  and
merchant banking along with significant health care experience.

RESULTS OF OPERATIONS

Revenues for the three-month period ended February 28, 1998 increased $2,512,000
as  compared  to  the  same  period  of  the  prior  year.   Revenues  for   the
nine-month  period  ended  February 28, 1998  decreased  $1,744,000  versus  the
comparable period of the prior year.

For the three and nine month periods  ended  February 28, 1998,  $6,934,000  and
$18,581,000,  respectively,  represented fees for management of health plans not
owned by the Company.  Management fee revenue increased 53% for the three months
ended  February  28, 1998 as compared to the same period of the prior year.  For
the nine months ended February 28, 1998,  management  fee revenue  increased 21%
over the  comparable  period of the prior year.  The increase in management  fee
revenue is due to two plans,  Lovelace  Community  Health Plan in New Mexico and
Rio  Grande  HMO  in Texas,  that  began  enrolling  members  on  October 1  and
January 1, respectively.  Also  adding  to the rise in revenue was the increased
membership in the AlohaCare health plan located in Hawaii.

Capitation  revenue  of  $10,169,000   received  by  Ventana  and  AHC  remained
relatively  constant  for the  three-month  period  ended  February  28, 1998 as
compared to the same period of the prior year.  Capitation revenue received from
these entities  during the  nine-month  period ended February 28, 1998 decreased
15% to  $29,368,000.  The  decline is  primarily  a result of a decrease  in AHC
revenues of $4,679,000  for the nine month period ended February 28, 1998 due to
the   transition  of   members  in  Maricopa  County  to  a  different  plan  on
December 1, 1996.

Direct  costs  of  operations   increased  $2,218,000  to  $13,591,000  for  the
three-month  period ended  February 28, 1998 versus the same period of the prior
year.  For the  nine-month  period  ended  February  28,  1998,  direct costs of
operations  decreased $1,834,000 to $38,238,000 as compared to the corresponding
period  of the  previous  year.  For  the  three and  nine  month  periods ended
February  28, 1998,  direct  costs of  operations  consisted of  $4,539,000  and
$12,754,000, respectively, related  to  fees  generated from management of plans
not owned by the  Company  and  $9,052,000  and  $25,483,000, respectively, from
combined operating expenses of Ventana and AHC. The direct cost of operations to
manage  plans  as a  percentage  of  revenue for  the  three month  period ended
February 28, 1998  decreased to 65% from 69% for the same period of the previous
year.  The  decrease is  primarily  due to  the recognition  of $288,000 of risk
sharing revenue received from AlohaCare as settlement of  prior year risk pools.
Direct costs of  operations to manage  plans as a percentage  of revenue for the
nine-month period ended February 28, 1998 increased 4% to 69%.  The  increase is
due  to  the  additional costs  related to  the  pre-operational  phase  of  Rio
Grande HMO in Texas, which began accepting members January 1, 1998.

                                       8
<PAGE>

The direct costs of operations  as a percentage  of related  revenue for Ventana
was 84% for both the three and nine month periods ended  February 28, 1998,  and
98% and 92% during the respective  periods for AHC. The higher costs experienced
by  AHC  during   the  three  month   versus   the  nine   month  periods  ended
February  28,  1998 are  primarily  due  to  seasonally  higher  utilization  of
healthcare services during the winter months.

Marketing,  sales and  administrative  expenses for the three-month period ended
February 28, 1998 increased from  $3,246,000 to $3,342,000.  The increase is due
to the  additional  expenses  related  to the  pre-operational  phase of the Rio
Grande HMO in Texas,  which began  accepting  members  January 1, 1998.  For the
nine-month period ended February 28, 1998,  marketing,  sales and administrative
expenses decreased from $11,209,000  to $9,219,000.  The Decrease is primarily a
result of the termination of unprofitable contracts during the second quarter of
fiscal year 1997, the workforce  reduction plan  implemented in July 1996 and an
effort to reduce administrative costs.

The  effective  income  tax  rate  was  36%  for  the  nine-month  period  ended
February 28, 1998 and 9% for the  comparable  period  of  the prior fiscal year.
The lower  rate in  fiscal year 1997 reflects the  utilization  of net operating
loss carry backs.

Net interest income for the three and nine-month periods ended February 28, 1998
were $127,000 and $338,000,  respectively,  versus  $75,000 and $179,000 for the
comparable  periods of the prior year. Net interest income is primarily  related
to investments held by Ventana and AHC,  partially offset by interest expense on
outstanding convertible debt.

Net income was $176,000 and $531,000 for the three and nine-month  periods ended
February 28, 1998, respectively, compared to net income of $119,000 and net loss
of $1,288,000  for the  corresponding  periods of the previous year. The primary
reasons for the change in profitability are the costs included in the prior year
related to  terminated  contracts in  Colorado,  Illinois and Missouri and costs
related  to  severance  agreements  with  employees  terminated  as  part of the
workforce  reduction effort in July 1996. The  administrative  services contract
with Lovelace  Community  Health Plan, which began operation on July 1, 1997 and
currently with 37,000  members,  and the increase in AlohaCare  membership  from
approximately  25,000  to  30,000   during   the  open  enrollment  process   on
September 1, 1997 also contributed to the improvement in profitability.

In January  1998,  the Company was notified  that  mandatory  enrollment  in the
STAR+PLUS  program in Texas,  scheduled  to begin March 1, 1998 would be delayed
until April 1, 1998. The Company was further  notified during March 1998 that of
the total mandatory phase enrollees, those eligible for long term care services,
would be delayed to begin May 1, 1998.  The mandatory  enrollment  phase enrolls
those eligible  beneficiaries  that have not chosen a particular plan during the
voluntary  enrollment  phase. The STAR+PLUS  program will provide  comprehensive
managed health care services to  approximately  60,000 aged,  blind and disabled
Medicaid  beneficiaries.  On April 1, 1998,  Rio  Grande  HMO had  approximately
18,500 members including approximately 430 long term care members.

In March 1998, the Company received notification from the State of Michigan that
the health plan to which it provides  administrative  services,  was recommended
for an award to expand it's  operations  to the majority of counties  within the
State. This expansion, which is subject to final State approval, is scheduled to
occur in the second calendar quarter of 1998.  Community Choice Michigan was the
only HMO  recommended  for a statewide  award through a competitive  procurement
process. The plan, Community Choice Michigan,  currently operates in 22 counties
with approximately 28,000 members.

LIQUIDITY AND CAPITAL RESOURCES

During the  nine-month  period ended  February 28, 1998,  the Company's cash and
cash equivalents  increased by $3,818,000 to $11,030,000.  Operating  activities
provided  $4,249,000  for the  nine-month  period  ended  February  28,  1998 as
compared  to  $1,864,000  for the same  period of the prior  year.  The  primary
reasons  for the  increase  were a  decrease  in  accounts  receivable,  prepaid
expenses and an increase in accrued medical claims, offset by a decrease in risk
pools payable.

                                       9
<PAGE>

Investing  activities used $1,529,000 of cash during the nine-month period ended
February  28, 1998 versus  providing  $1,044,000  of cash during the  comparable
period  of  the  previous year.   Sources  of cash for  the  nine  months  ended
February 28, 1998 consisted  primarily  of funds  received in  payment of  notes
receivable.  The funds  received  were  offset  by  $2,060,000  in  fixed  asset
purchases.

Financing   activities   provided   $1,098,000  for   the   nine  months   ended
February 28, 1998 versus  $1,069,000 during  the same period  of the prior year.
Sources of cash for  the nine-month  period  ended  February 28, 1998  consisted
primarily of cash received from Beverly  Enterprises,  Inc. for the purchase  of
200,000  shares of the Company's common stock at $5 per share.

Certain  of  the  Company's   operating   subsidiaries   are  subject  to  state
regulations,  which  require  compliance  with  certain  net worth,  reserve and
deposit requirements.  To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to MCS. Net assets of subsidiaries (after inter-company  eliminations) which, at
February 28, 1998, may not be transferred to MCS by  subsidiaries in the form of
loans,  advances  or cash  dividends  without  the  consent of a third party are
referred to as  "Restricted  Net Assets".  Total  Restricted Net Assets of these
operating  subsidiaries  were  $8,868,000 on February 28, 1998, with deposit and
reserve  requirements   (performance  bonds)  representing   $3,794,000  of  the
Restricted  Net Assets  and net worth  requirements,  in excess of  deposit  and
reserve  requirements,  representing the remaining  $5,074,000.  The outstanding
balance  on funds  provided  by Ventana  to MCS under  loan  agreements  totaled
$586,000 at February 28, 1998. Ventana provided these loans in the normal course
of operations.  All such  agreements  were  pre-approved  as required by Arizona
Health Care Cost Containment System Administration.

FORWARD LOOKING INFORMATION

This report contains statements that may be considered forward-looking,  such as
the discussion of the Company's  strategic  goals,  new contracts and cash flow.
These statements speak of the Company's plans,  goals or expectations,  refer to
estimates, or use similar terms. Actual results could differ materially from the
results  indicated by these statements  because the realization of those results
is subject to many uncertainties.

PART II - OTHER INFORMATION

ITEM 2.   CHANGES IN SECURITIES

C.   RECENT SALES OF UNREGISTERED SECURITIES

On January 7, 1998 the Company  entered into a purchase  agreement  with Beverly
Enterprises, Inc., pursuant to which, the Company received $1,000,000 and issued
200,000 shares of the Company's common stock at $5 per share. These transactions
were  effected  pursuant  to the  exemption  contained  in  section  4(2) of the
Securities Act of 1933.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits
               (10.1) Agreement between the registrant and the State of Indiana.
               (10.2) Purchase  Agreement  between  the  registrant and  Beverly
                      Enterprises, Inc.
               (27)   Financial data schedule.

          (b)  Reports on Form 8-K

               None

                                       10
<PAGE>

SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                        MANAGED CARE SOLUTIONS, INC.

                        By:     /s/ Michael D. Hernandez
                                ------------------------
                                Michael D. Hernandez, Chairman and Chief 
                                Executive Officer

                        By:     /s/ Michael J. Kennedy
                                ----------------------
                                Michael J. Kennedy, Chief Financial Officer

                        Dated:  April 14, 1998

                                       11
<PAGE>
                                                                    EXHIBIT 10.1

                                CONTRACT BETWEEN
                   THE OFFICE OF MEDICAID POLICY AND PLANNING
                                       AND
                          MANAGED CARE SOLUTIONS, INC.


      This contract is made and entered into by and between the State of Indiana
[hereinafter  "State" or "State of  Indiana"],  through  the Office of  Medicaid
Policy and Planning  [hereinafter  "Office"],  of the Indiana  Family and Social
Services  Administration,   402  West  Washington  Street,  W382,  Indianapolis,
Indiana,  and Managed Care  Solutions,  Inc.,  7600 N. 16th  Street,  Suite 150,
Phoenix, Arizona 85020 [hereinafter "Contractor"].

      WHEREAS,  I.C. 12-15-30-1  authorizes  the Office to  enter into contracts
to assist in the administration of the Indiana Medicaid program;

      WHEREAS,  the  Contractor  is willing  and  able  to perform  the  desired
services for the Medicaid program;

      WHEREAS,  the State of Indiana is desirous to contract for the services of
an enrollment  broker for its Medicaid managed care programs as procured through
Broad Agency Announcement 98-13;

      THEREFORE,  the  parties  to  this  contract  agree  that  the  terms  and
conditions  specified  below  will apply to  services  in  connection  with this
contract, and such terms and conditions are as follows:


                                     I. TERM

      This contract is effective  from January 1, 1998, to December 31, 1999. At
the  discretion of the Office of Medicaid  Policy and Planning,  the term may be
extended  for up to two  additional  years.  In no event  shall the term  exceed
December 31, 2001.


                            II. DUTIES OF THE PARTIES

A.    The  Contractor  agrees to provide the  services  set out in Broad  Agency
      Announcement 98-13 and in the Contractor's Response to BAA 98-13, attached
      as Exhibits A and B-1, B-2 and B-3, respectively and incorporated herein.

B.    The Contractor and  the Office agree that the additional  duties  proposed
      by  the  Contractor  in Sections  4.3.4  (direct  access to  DSS [Decision
      Support System]),  4.3.5 (provider  enrollment  update function  performed
      by   fiscal  agent)  and   4.3.8   (facilitation   of  MCO  [managed  care
      organization]  policy/operations  meeting   performed  by fiscal agent) of
      Exhibit  B-1 shall only  be  performed  if  the Office  provides  specific
      written  direction to the  Contractor to  perform any one  or all of these
      duties.

                                  Page 1 of 15

<PAGE>

C.    The  Contractor  and the Office further agree that the language of Section
      4.3.3.5 of BAA 98-13 shall be deleted and the  following  added to read as
      follows:

      Section 4.3.3.5   Performance  Standards   for  Hotline  Maintenance   and
                        Management

      1)    Ninety-seven  percent  (97%) of all calls  shall  reach the  Hoosier
            Healthwise Helpline menu on or before the fourth ring.

      2)    No more than two calls per Helpline  representative should be in the
            queue at any time.

      3)    The  average  wait  time  for  answered  calls  shall not  exceed 45
            seconds.

      4)    The busy rate shall not exceed 5%.

      5)    Calls should be of sufficient length to ensure adequate  information
            is imparted to the recipient.

      6)    The lost call (abandonment) rate shall not exceed 10%.

      7)    Eighty-five  percent  (85%) of all  issues  from  callers  should be
            resolved on line. If information cannot be provided to a caller in a
            timely manner, Helpline representatives should request a name, phone
            number  and/or  address  (if  necessary)  and  respond to the caller
            within 24 hours from the time of contact.

      8)    An answering  machine (or service) must be available for after-hours
            calls.  All  after-hours  calls  must be  returned  within  the next
            business day.

      9)    The Hotline must be equipped with the appropriate  technology  (e.g.
            TDD) to accept  calls  from all  members of the  Hoosier  Healthwise
            program.  The Contractor is  responsible  for ensuring that deaf and
            hearing   impaired   persons  and  persons  with   limited   English
            proficiency  have  access  to  communication   services  (i.e.  AT&T
            Telecommunication   Relay   Services,   Sign  Language   Interpreter
            Services,  AT&T's Language Line Service) that enables all recipients
            to utilize the Hotline.

                                  Page 2 of 15
<PAGE>

      The Contractor is encouraged to perform at a level exceeding these minimum
      standards.

      For purposes of these standards,  the Hotline means the Hoosier Healthwise
      Helpline  (1-800-889-9949)  and includes all calls  received  through that
      line from providers, recipients and the general public.

D.    The parties further agree that Section 4.4.2.1 of the BAA is deleted.

E.    The parties further agree that the following  provisions shall be added to
      the BAA 98-13:


      1.    4.3.3.5.1   Non-compliance With Hotline  Maintenance  and Management
                        Standards

            Because actual damages caused by  non-compliance  with the standards
            set forth in sections 4.3.3.5 is not subject to exact determination,
            the Office will assess the Contractor,  as liquidated  damages,  and
            not as a penalty,  up to twelve thousand dollars ($12,000) per month
            for each month that the  Contractor  remains out of compliance  with
            any three of the standards numbered 1, 3, 4, 6, 8, or 9 as set forth
            in Sections  4.3.3.5.  Such  assessment  shall not occur until after
            three consecutive months of documented  non-compliance for which the
            Contractor has received notice.  After three  consecutive  months of
            non-compliance,  liquidated damages shall be assessed beginning with
            the  third  month  of   non-compliance,   and  continuing  for  each
            consecutive   month  of   non-compliance.   The  following   example
            illustrates the application of this section.  If the Contractor does
            not meet  standards  1, 4, 8, in month one and in month two does not
            meet  standards 3, 6, and 8, but is in  compliance  with standard 1,
            the Contractor shall be considered non-compliant for two consecutive
            months.  If the  Contractor  continues  to fail to  meet  any  three
            standards in the third month,  one month's damages will be assessed.
            Assessment  of damages  shall  continue for  successive  consecutive
            months of non-compliance.

            The  Office  shall  provide  written  notice  to the  Contractor  of
            non-compliance  within thirty (30) days of the Office's discovery of
            such failure.

                                  Page 3 of 15
<PAGE>

      2.    Section 4.2.1.1  Deduction from Payments

            Amounts  due the  Office  as  liquidated  damages  which  have  been
            assessed  under either Section 4.2.1 or Section  4.3.3.5.1  shall be
            deducted  by the Office  from any money  payable  to the  Contractor
            pursuant to this Contract. The Office shall notify the Contractor in
            writing of any claim for  liquidated  damages at least  fifteen (15)
            days  prior to the date the  Office  deducts  such sums  from  money
            payable to the Contractor.

       III.  HIERARCHY OF DOCUMENTS GOVERNING THE DUTIES OF THE PARTIES

      Any  inconsistency  or  ambiguity  in this  contract  shall be resolved by
giving precedence to the documents identified below in the following order:

      1)    The express terms of this contract document.
      2)    Broad Agency Announcement 98-13 (Exhibit A).
      3)    The  Contractor's  Response  to BAA  98-13,  Volumes  I,  II and III
            (Exhibits B-1, B-2 and B-3).


                                   IV. PAYMENT

A.    In  consideration  of the services to be performed by the Contractor,  the
      Office  agrees to  reimburse  the  Contractor  in an amount  not-to-exceed
      eleven million five hundred  seventy-two  thousand six hundred sixty-eight
      dollars ($11,572,668).

B.    The Office will  provide the  above-specified  funding on a  reimbursement
      basis, with the Contractor  submitting claims directly to the attention of
      Judith E. Becherer, Director of Program Operations - Long Term Care within
      the Office.

      1.    The Contractor is paid for activities or services performed and must
            submit with each invoice a monthly  summary and narrative  report of
            activity documenting the contracted tasks.

            a.    The    invoice    must    reflect    the   charges   for   the
                  activities/services as specified in the BAA.

            b.    The monthly  summary must have as headings the requested tasks
                  in the BAA. Under each task,  the Contractor  must specify the
                  activities performed to meet the goals in each task area, what
                  level of staff  performed these tasks and the number of hours.
                  The Contractor shall also provide  aggregate  amounts incurred
                  compared to budget for each category.

                                  Page 4 of 15
<PAGE>

            c.    The monthly report must provide a narrative description of the
                  activities documented by the monthly summary.

            d.    The  name  and  telephone  number  of the  individual  who can
                  provide  clarification or answers about the invoice or monthly
                  report must be listed. If the individual is different for each
                  report, please specify.

      2.    All invoices  must be received by the Office by the tenth (10th) day
            of the month  following  the month  which is being  billed to insure
            payment at the end of that month.

C.    All payment obligations are subject to the encumbrance of monies and shall
      be made in  arrears  in  accordance  with  Indiana  law and the  State  of
      Indiana's  fiscal policies and  procedures.  The Contractor may not submit
      claim forms before the services have been performed.

D.    It is understood and agreed upon  by the parties  that all  obligations of
      the State of Indiana are  contingent upon the  availability and  continued
      appropriation  of  State and  Federal  funds,  and IN  NO EVENT  SHALL THE
                                                         -----------------------
      STATE OF  INDIANA  BE LIABLE  FOR  ANY  PAYMENTS  IN EXCESS OF   AVAILABLE
      --------------------------------------------------------------------------
      APPROPRIATED  FUNDS.   When the  Director of the State Budget Agency makes
      -------------------
      a written  determination  that funds  are  not  appropriated  or otherwise
      available to support  continuation of  performance of  this contract,  the
      contract  shall  be   canceled.   A  determination  by  the  State  Budget
      Director  that funds  are  not  appropriated  or  otherwise  available  to
      support continuation of performance shall be final and conclusive.


                                    V. NOTICE

A.    Whenever  notice is required to be given to the other  party,  it shall be
      made in writing and delivered to that party.  Delivery  shall be deemed to
      have occurred if a signed  receipt is obtained  when  delivered by hand or
      according  to the date on the return  receipt if sent by  certified  mail,
      return receipt requested. Notices shall be addressed as follows:


      In case of notice to the Contractor:

                                  Page 5 of 15
<PAGE>

            Rick Jelinek
            Senior Vice President
            Managed Care Solutions, Inc.
            7600 N. 16th Street, Suite 150
            Phoenix, Arizona  85020

      In case of notice to the Office:

            Judith E. Becherer, Director
            Program Operations - Long Term Care
            Office of Medicaid Policy and Planning
            Indiana Family and Social Services Administration
            State of Indiana, 402 W. Washington St., Room W382
            Indianapolis, Indiana  46204

B.    Said notices  shall  become  effective on the date of delivery or the date
      specified  within the notice,  whichever  comes  later.  Either  party may
      change its address for  notification  purposes by mailing a notice stating
      the change and setting forth the new address.


                          VI. MISCELLANEOUS PROVISIONS

A.    ENTIRE AGREEMENT.  This Contract  constitutes the entire agreement between
      the parties  with  respect to the subject  matter;  all prior  agreements,
      representations, statements, negotiations, and undertakings are superseded
      hereby.

B.    CHANGES. Any changes to this Contract shall be by formal amendment of this
      Contract signed by all parties required by Indiana law.

C.    TERMINATION.  The Office may,  without cause,  cancel and  terminate  this
      -----------
      Contract in  whole or in part upon  one hundred  eighty  (180) days' prior
      written   notice.    The  Contractor   will  be  reimbursed  for  services
      performed prior to  the date of  termination  consistent with the terms of
      the  Contract.   The  Office  will not  be liable for  services  performed
      after  notice  of  termination,  but   before  the  date  of  termination,
      without  written   authorization   from  the  Office.   The  Office   will
      identify  those  services   it  authorizes  the  Contractor  to   continue
      performing,  and include written  authorization for payment as  a part  of
      the  notice of  termination.  In no event  will the  Office be  liable for
      services performed after the termination date.

      The  parties  agree that they shall  convene the  meeting  required  under
      Paragraph J as soon as  practicable in order to address the completion and
      conveyance activities as set forth

                                  Page 6 of 15
<PAGE>

      in that paragraph.

      In the event that the Office  requests  that the  Contractor  perform  any
      additional  services  associated  with the  transition  or turnover of the
      contract,  the Office agrees to pay reasonable  costs for those additional
      services specifically requested by the Office.

D.    DISPUTES.  Should any disputes  arise with respect to this  Contract,  the
      Contractor  and the State of Indiana agree to act  immediately  to resolve
      any such disputes. Time is of the essence in the resolution of disputes.

      The Contractor agrees that, the existence of a dispute notwithstanding, it
      will continue  without delay to carry out all its  responsibilities  under
      this Contract which are not affected by the dispute. Should the Contractor
      fail to continue without delay to perform its responsibilities  under this
      Contract in the  accomplishment  of all non-disputed  work, any additional
      costs  incurred by the  Contractor  or the State of Indiana as a result of
      such  failure  to  proceed  shall  be  borne  by the  Contractor,  and the
      Contractor  shall  make no claim  against  the State of  Indiana  for such
      costs. If the Contractor and the State of Indiana cannot resolve a dispute
      within ten (10) working days following  notification  in writing by either
      party of the existence of said dispute, then the following procedure shall
      apply:

      1.    The parties  agree to  resolve such  matters  through submission  of
            their  dispute  to  the  Commissioner  of the Indiana  Department of
            Administration who shall reduce her decision  to writing and mail or
            otherwise furnish a copy thereof to the  Contractor and the State of
            Indiana  within ten (10)  working  days after  presentation  of such
            dispute for  her   decision.   Her  decision   shall  be  final  and
            conclusive unless the Contractor mails or otherwise furnishes to the
            Commissioner of Administration,  within ten (10)  working days after
            receipt of  the Commissioner's decision,  a written  appeal.  Within
            ten  (10)  working days  of  receipt  by the  Commissioner,  she may
            reconsider her decision.  If no reconsideration is  provided  within
            ten (10) working days the  Contractor  may submit the dispute to  an
            Indiana court of competent jurisdiction.

      2.    The State of Indiana may withhold payments on disputed items pending
            resolution of the dispute.  The  non-payment by the State of Indiana
            to the

                                  Page 7 of 15
<PAGE>

            Contractor  of   one  or   more  invoices  not  in dispute shall not
            constitute  default,  however,  the  Contractor  may  bring  suit to
            collect  such  monies  without  following  the  disputes   procedure
            contained herein.

E.    COMPLIANCE  WITH  LAWS AND  HOLD  HARMLESS.   The  Contractor  agrees   to
      ------------------------------------------
      comply  with all  applicable  Federal,  State,  and  local   laws,  rules,
      regulations,  or ordinances,  and  all provisions  required thereby  to be
      included  herein  are hereby  incorporated  by reference.   The Contractor
      agrees to  indemnify  and hold  the State of  Indiana  harmless  from  any
      loss,  damage,  or liability  resulting  from  a violation on  the part of
      the   Contractor  of  such   laws,  rules,  regulations,   or  ordinances;
      provided,  however,  that  the  Contractor  has  been  afforded  the prior
      opportunity to participate  in the settlement  and/or  litigation  of  any
      such claims.

F.    COMPLIANCE   WITH   CIVIL   RIGHTS   LAWS.    The   Contractor   and   its
      -----------------------------------------
      subcontractors  hereby  assure that  thy will comply  with all Federal and
      Indiana   Civil  Rights  Laws,  including,   but   not  limited  to,  I.C.
      22-9-1-10,  to  the end  that they  shall  not  discriminate  against  any
      employee or applicant for employment,  to be  employed  in the performance
      of   this  Contract,   with  respect  to  his/her   hire,  tenure,  terms,
      conditions  or   privileges  of  employment  or  any  matter  directly  or
      indirectly  related  to   employment,  because  of  his/her  race,  color,
      religion,  sex,  disability,  national  origin,  ancestry  or status  as a
      veteran.  The  Contractor  understands  that the  State of  Indiana  is  a
      recipient  of  federal  funds.   Pursuant  to   that  understanding,   the
      Contractor,   and   its  subcontractors,   if  any,  agree   that  if  the
      Contractor  employs 50 or more employees  and does at  least $50,000 worth
      of business with the  State of Indiana  and is not exempt,  the Contractor
      will  comply   with  the  reporting  requirements  of  41 CFR  60-1.7,  if
      applicable.  Breach  of  this  covenant  may be  regarded  as  a  material
      breach of the  Contract.  The State of Indiana shall comply  with  Section
      202  of  Executive  Order  11246,  as  amended,  and  41  CFR  60-741,  as
      amended, which are incorporated herein by specific reference.

G.    CONFIDENTIALITY  OF  STATE  OF   INDIANA   INFORMATION.    The  Contractor
      -----------------------------------------------------
      understands and  agrees that  data,  materials and  information  disclosed
      to  the  Contractor   may  contain   confidential   and   protected  data;
      therefore,  the Contractor promises and assures  that data, material,  and
      information gathered,  based upon or  disclosed to the  Contractor for the
      purpose of this  Contract  will not be  disclosed to  others or  discussed
      with other  parties  without  the prior  written  consent of the  State of
      Indiana.

                                  Page 8 of 15
<PAGE>

H.    CONFIDENTIALITY  OF DATA,  PROPERTY   RIGHTS  IN PRODUCTS,  AND  COPYRIGHT
      --------------------------------------------------------------------------
      PROHIBITION.  The Contractor further agrees  that all  information,  data,
      -----------
      findings,  recommendations,  proposals,  etc., by  whatever name described
      and by whatever form therein,  secured  developed,  written,  or  produced
      by the  Contractor in furtherance of  this Contract shall  be the property
      of the State of Indiana and that the  Contractor  shall  take such  action
      as is necessary  under law to preserve  such  property  rights  in and  of
      the State of Indiana  while  such  property is  within the control  and/or
      custody of the Contractor.

      By this Contract the Contractor specifically waives and/or releases to the
      State of  Indiana  any  cognizable  property  right in the  Contractor  to
      copyright or patent such  information,  data,  findings,  recommendations,
      proposals, etc.

I.    OWNERSHIP  OF   DOCUMENTS  AND   MATERIALS.    All   documents,   records,
      ------------------------------------------
      programs,  data, film,  tape,  articles,  memoranda,  and  other materials
      developed  under  this  contract  will  be the  property  of the State  of
      Indiana.   Use  of  these  materials  other   than  related  to   contract
      performance by  the Contractor  without the prior written  consent  of the
      State of Indiana is prohibited.  During  the  performance of  the services
      specified  herein,  the Contractor  shall be  responsible for any  loss or
      damage to  these  materials  developed  for  or  supplied  by the State of
      Indiana and  used to develop or  assist in the services  provided  herein,
      while  they are  in the  possession  of  the  Contractor,  and any loss or
      damage  thereto  shall  be  restored at the  Contractor's  expense.  Full,
      immediate and unrestricted  access to  the  work product of the Contractor
      during  the term of this  contract  shall  be  available  to  the State of
      Indiana.  The  Contractor  will  give to  the  State of  Indiana,  or  the
      State of Indiana's  designee,  all  records of  other materials  described
      in this  section,  after  termination  of the Contract and  upon  five (5)
      days notice of a request from the State of Indiana.

      All documents, records, data, programs, film, tape, articles, memoranda or
      other  materials  owned by the  Contractor  that  were  used  in,  but not
      developed  in the course  of,  the  Contract  shall  remain the  exclusive
      property of the Contractor.


J.    CONVEYANCE OF DOCUMENTS AND  CONTINUATION OF EXISTING  ACTIVITY:    Should
      ----------------------------------------------------------------
      the Contract for whatever  reason,  (i.e.  completion  of a  contract with
      no renewal,  or termination of service  by either party), be  discontinued
      and the  activities 

                                  Page 9 of 15
<PAGE>

      as   provided   for    in     the    Contract   for     services    cease,
      the  Contractor  and  any  subcontractors  employed   by  the  terminating
      Contractor  in the  performance  of  the  duties  of  the  Contract  shall
      promptly  convey to the State of Indiana,  copies of  all  vendor  working
      papers, data collection  forms, reports,  charts,  programs, cost  records
      and all other material related to work performed on this Contract.

      The Contractor and the Office shall convene  immediately upon notification
      of termination or non-renewal of the Contract to determine what work shall
      be  suspended,  what  work  shall  be  completed,  and the  timeframe  for
      completion  and  conveyance.  The Office will then provide the  Contractor
      with a  written  schedule  of the  completion  and  conveyance  activities
      associated with termination. Documents/materials associated with suspended
      activities  shall be  conveyed by the  Contractor  to the State of Indiana
      upon five days' notice from the State of Indiana. Upon completion of those
      remaining  activities noted on the written schedule,  the Contractor shall
      also convey all  documents and materials to the State of Indiana upon five
      days' notice from the State of Indiana.

K.    INDEPENDENT  CONTRACTOR.  The Office and the  Contractor  acknowledge  and
      agree that the Contractor is an independent contractor and not an officer,
      employee or agent of the State of Indiana.

L.    GOVERNING  LAWS.  This Contract  shall  be construed  in  accordance  with
      and governed by the laws of the State  of Indiana and suit,  if any,  must
      be brought in the State of Indiana.

M.    VALIDITY.  The  invalidity  in whole or in part of any  provision  of this
      Contract shall not void or affect the validity of any other provision.

N.    WAIVER  OF  BREACH.  No  waiver  of  breach  of  any  provision  of   this
      Contract  shall  constitute  a waiver  of any  other  breach  or  of  such
      provision.

      Failure  of the  Office  to  enforce  at any  time any  provision  of this
      contract shall not be construed as a waiver  thereof.  The remedies herein
      reserved  shall be cumulative  and additional to any other remedies in law
      or equity.

O.    FORCE  MAJEURE;  SUSPENSION AND  TERMINATION.   In  the event either party
      --------------------------------------------
      is unable to perform any of its  obligations  under  this  Contract or  to
      enjoy any of  its  benefits  because of  (or if  failure  to  perform  the
      service  is  caused  by)  natural   disaster,   actions   or  decrees   of
      governmental  bodies,

                                 Page 10 of 15
<PAGE>

      or   communication    line     failure     not    the    fault   of    the
      affected  party  (hereinafter  referred to  as a "Force  Majeure  Event"),
      the party who has been so affected shall  immediately  give notice  to the
      other party  and  shall take  reasonable  measures to resume  performance.
      Upon receipt of such notice,  all obligations  under this  Contract  shall
      be  immediately  suspended.   If  the  period of  non-performance  exceeds
      thirty (30) days from the receipt of  notice of  the Force Majeure  Event,
      the party  whose  ability to perform  has  not  been so  affected  may, by
      giving written notice, terminate this Contract.

P.    SUCCESSORS AND ASSIGNEES. The Contractor binds its successors,  executors,
      assignees, and administrators,  to all covenants of this Contract.  Except
      as set forth above, the Contractor shall not assign,  sublet,  or transfer
      the  Contractor's  interest in this  Contract  without  the prior  written
      consent of the Office.

Q.    MAINTAINING A DRUG-FREE WORKPLACE (EXECUTIVE ORDER NO. 90-5)
      1.    The  Contractor  hereby  covenants and  agrees to make a  good faith
            effort to provide and  maintain  during the term of this  Contract a
            drug-free  workplace,  and that it will give  written  notice to the
            Office and the Indiana Department of Administration  within ten (10)
            days  after  receiving   actual  notice  that  an  employee  of  the
            Contractor has been convicted of a criminal drug violation occurring
            in the Contractor's workplace.

      2.    In addition to  subparagraph  (1),  the  Contractor  hereby  further
            agrees  that  this  Contract  is  expressly  subject  to the  terms,
            conditions, and representations contained in the drug-free workplace
            certification  executed by the Contractor in  conjunction  with this
            Contract and which is attached hereto.

      3.    It is further  expressly agreed  that the  failure of the Contractor
            to in good faith comply with  the terms of  subparagraph  (1) above,
            or   falsifying   or   otherwise   violating   the   terms  of   the
            certification   referenced   in    subparagraph   (2)  above   shall
            constitute a material  breach of  this Contract,  and  shall entitle
            the State of Indiana  to impose  sanctions  against  the  Contractor
            including,  but  not limited to,  suspension  of  contract  payment,
            termination  of this  Contract  and/or  debarment of  the Contractor
            from doing  further  business  with the State of Indiana  for up  to
            three (3) years.

R.    LOBBYING  ACTIVITIES.  Pursuant  to 31 U.S.C.  1352,  and any  
      --------------------

                                 Page 11 of 15
<PAGE>

      regulations promulgated  thereunder,  the  Contractor  hereby  assures and
      certifies that no federally  appropriated funds have been paid, or will be
      paid, by or on behalf of the Contractor,  to any person for influencing or
      attempting  to influence an  officer or employee of any agency,  a  member
      of  Congress,  an officer or employee of  Congress,  or an  employee of  a
      member of  Congress,  in  connection  with  the  awarding  of any  federal
      contract,  the making of any  federal  grant,  the making of  any  federal
      loan, the entering into of any  cooperative contract,  and  the extension,
      continuation,   renewal,   amendment,  or   modification  of  any  federal
      contract,  grant, loan or cooperative  contract.  If any  funds other than
      federally  appropriated  funds  have  been  paid  or will be  paid  to any
      person  for   influencing   or  attempting  to  influence  an  officer  or
      employee of any agency, a member of Congress,  an  officer or employee  of
      Congress,  or an  employee of a  member of  Congress  in  connection  with
      this  Contract,  the   Contractor  shall  complete   and  submit  Standard
      Form-LLL,  "Disclosure  Form to  Report Lobbying",  in accordance with its
      instructions.

S.    ACCESS TO RECORDS.  The Contractor and  any  subcontractor  shall maintain
      -----------------
      all  books,  documents,  papers and records which  are directly  pertinent
      to  this  Contract  and  shall  make  such  materials  available   at  all
      reasonable  times  during  the  contract  period  and for  three (3) years
      from the date of final  payment  under the  Contract or until  all pending
      matters are  closed,  whichever  date  is  later,  for  inspection  by the
      Office,  or any other  duly  authorized  representative  of  the  State of
      Indiana or the Federal government.

T.    ENVIRONMENTAL  STANDARDS.  If  the  contract  amount  set  forth  in  this
      ------------------------
      Contract is in excess of $100,000,  the  Contractor shall comply  with all
      applicable  standards,  orders, or requirements  issued under  section 305
      of the Clean  Air Act (42 USC  7606),  section  508 of  the Clean  Air Act
      (33 USC 1368),  Executive   Order  11738,  and   Environmental  Protection
      Agency  regulations  (40 CFR Part  15),  which   prohibit  the  use  under
      non-exempt  Federal contracts of facilities  included  on the EPA  List of
      Violating  Facilities.  The  Contractor  shall  report any  violations  of
      this  paragraph  to  the  State  of  Indiana  and  to  the  United  States
      Environmental Protection Agency Assistant Administrator for Enforcement.

U.    CONFLICT OF INTEREST
      --------------------

      1.    As used in this section:

            "Immediate   family"  means  the  spouse   and   the   unemancipated
            children of an individual.

                                 Page 12 of 15
<PAGE>

            "Interested party" means:

            a.    The individual executing this Contract;

            b.    An  individual  who has an interest of three  percent  (3%) or
                  more of the Contractor if the Contractor is not an individual;
                  or

            c.    Any member of the immediate family of an individual  specified
                  under subdivision a or b.

            "Department" means the Indiana Department of Administration.

            "Commission" means the State Ethics Commission.

      2.    The  Department  may cancel this  Contract  without  recourse by the
            Contractor  if any  interested  party is an employee of the State of
            Indiana.

      3.    The Department will not  exercise its  right of  cancellation  under
            section 2 above if the Contractor  gives  the Department  an opinion
            by the Commission  indicating  that  the existence  of this Contract
            and the  employment  by the  State  of  Indiana  of  the  interested
            party does not  violate  any  statute  or code  relating  to ethical
            conduct  of  state  employees.   The  Department  may  take  action,
            including   cancellation  of   this  Contract  consistent  with  an
            opinion of the Commission obtained under this section.

      4.    The Contractor has an affirmative  obligation under this Contract to
            disclose to the Department when an interested party is or becomes an
            employee of the State of Indiana.  The obligation under this section
            extends only to those facts which the Contractor knows or reasonably
            could know.

V.    PARKING PERMIT. As Ken Kubisty, Lynn Irelan and Jean Terrell, employees of
      the  Contractor,  will be  on-site  for an  average of three days per week
      throughout  the contract  term,  the Office  agrees to request two parking
      permits for use of these  individuals  to park at the  Indiana  Government
      Center parking facility.

      The  Office  will  complete  all  relevant  paperwork  and request  formal
      approval of all  relevant  state  entities for  these  individuals  to  be
      assigned two  parking  permits.  Mr. Kubisty,  Ms. Irelan  and Ms. Terrell
      will comply with all the usual

                                 Page 13 of 15
<PAGE>

      parking  policies   applicable  to  a  state employee   provided   with  a
      parking  pass.    Upon  expiration  of  the contract, the  Contractor will
      return the parking passes to the Office.

      In the event of a leave of absence,  resignation, or termination of either
      Mr  Kubisty,  Ms.  Irelan  or Ms.  Terrell  in their  employment  with the
      Contractor,  the Office will follow the procedures  outlined in the second
      paragraph of this section to request formal  approval for a parking permit
      for the replacement  employee.  The replacement will comply with the usual
      parking policies as outlined in the second paragraph of this section.

W.    ASSURANCE OF COMPLIANCE WITH CIVIL RIGHTS ACT OF 1964,  SECTION 504 OF THE
      REHABILITATION  ACT OF 1973 AND THE AGE  DISCRIMINATION  ACT OF 1975:  The
      Contractor agrees that it will comply with the following:

      a.    Title VI  of the Civil  Rights Act of  1964  (Pub.  L.  88-352),  as
            amended,  and  all  requirements  imposed  by  or  pursuant  to  the
            Regulation  of the  Department  of  Health and  Human  Services  (45
            C.F.R.  Part 80), to the end that, in accordance  with  Title  VI of
            that Act and the Regulation,  no person  in the  United States shall
            on the  ground of race,  color,  or  national  origin,  be  excluded
            from  participation  in, be denied the benefits of, or  be otherwise
            subjected  to  discrimination  under  any  program or  activity  for
            which  the  Contractor  receives Federal financial  assistance under
            this Contract.

      b.    Section 504 of the  Rehabilitation  Act  of  1973 (Pub.  L. 93-112),
            as  amended,  and all  requirements  imposed by or  pursuant  to the
            Regulation  of the  Department  of Health  and  Human  Services  (45
            C.F.R.  Part 84), to the end  that, in accordance  with  Section 504
            of   that  Act   and  the   Regulation,   no   otherwise   qualified
            handicapped  individual  in  the  United  States  shall,  solely  by
            reason of his/her handicap,  be  excluded from  participation in, be
            denied the  benefits of, or  be  subjected to  discrimination  under
            any program or activity for which  the  Contractor  receives Federal
            financial assistance under this Contract.

      c.    The Age  Discrimination  Act  of 1975 (Pub. L. 94-135),  as amended,
            and all  requirements  imposed by or pursuant to  the  Regulation of
            the Department of Health  and  Human  Services (45 C.F.R.  Part 91),
            to the end that,  in  accordance  with  the Act and the  Regulation,
            no person in the  United  States  shall,  on  the basis  of age,  be
            denied the benefits of, be  excluded from  participation

                                 Page 14 of 15
<PAGE>

            in,  or  be subjected  to   discrimination  under   any   program or
            activity  for   which  the  Contractor  receives  Federal  financial
            assistance under this Contract.

      The Contractor  agrees that compliance  with this assurance  constitutes a
      condition of continued receipt of Federal financial  assistance,  and that
      it is  binding  upon  the  Contractor,  its  successors,  transferees  and
      assignees  for the period during which such  assistance  is provided.  The
      Contractor  further recognizes that the United States shall have the right
      to seek judicial enforcement of this assurance.

X.    NON-COLLUSION AND ACCEPTANCE.   The undersigned  attests,  subject to  the
      ----------------------------
      penalties for perjury,  that he is the  contracting  party, or that he  is
      the  representative,  agent, member  or officer of  the contracting party,
      that he has not,  nor  has  any  other  member  employee,  representative,
      agent  or  officer  of  the  firm,  company,  corporation  or  partnership
      represented  by   him,  directly  or  indirectly,  to   the  best  of  his
      knowledge,  entered   into  or  offered  to enter  into  any  combination,
      collusion  or  agreement to receive  or pay, and that  he has not received
      or paid,  any sum of money or other  consideration  for  the execution  of
      this  agreement  other  than  that  which  appears  upon the  face  of the
      agreement.

                                 Page 15 of 15
<PAGE>

WHEREOF, the parties have executed this Contract.


For the Contractor:                       For the State of Indiana:

/s/ Rick Jelinek                          /s/ Kathleen D. Gifford
--------------------------                -------------------------
Rick Jelinek                              Kathleen D. Gifford
Senior Vice President                     Assistant Secretary
Managed Care Solutions, Inc.              Office of Medicaid Policy Planning

Date: 1/19/98                             Date: 1/21/98
      -------------------                       -------------------

APPROVED:                                 APPROVED:


/s/ Ali Khan for                          /s/ Jay D. McQueen for
-------------------------                 -------------------------
Peggy Boehm, Director                     Betty Cockrum
State Budget Agency                       Commissioner
                                          Department of Administration

Date: 2/16/98                             Date: 2/5/98
      -------------------                       -------------------


APPROVED AS TO FORM AND LEGALITY


/s/ Jeffrey W. Hagedorn, Deputy
-------------------------
Jeffrey A. Modisett
Attorney General of Indiana

Date: 2/18/98
      -------------------
<PAGE>
                                                                    EXHIBIT 10.2

                              PURCHASE AGREEMENT


      This purchase agreement  ("the  Agreement") is made and entered into as of
this 7th day of  January,  1998 by and  between  Beverly  Enterprises,  Inc.,  a
Delaware  corporation  (the  "Purchaser"),  and Managed Care Solutions,  Inc., a
Delaware corporation (the "Seller").

                                     RECITAL

      The Seller desires to sell to the Purchaser,  and the Purchaser desires to
purchase from the Seller,  200,000 shares of Common Stock,  $.01 par value,  per
share, of the Seller (the "Shares") at an aggregate purchase price of $1,000,000
on the terms and conditions hereinafter set forth.

                                   AGREEMENTS

      In consideration of the mutual  representations,  warranties and covenants
and subject to the  conditions  herein  contained,  the parties  hereto agree as
follows:

      1.0   PURCHASE AND SALE

            1.1 The Seller agrees to sell,  transfer,  assign and deliver to the
Purchaser at the Closing,  and the Purchaser  agrees to purchase and accept from
the  Seller,  on the  terms  and  subject  to the  conditions  set forth in this
Agreement,  the Shares, free and clear of all liens, claims,  charges,  security
interests,  restrictions on transfer (other than restrictions  under federal and
state securities  laws). The Shares shall be registered in such name or names as
the Purchaser shall direct in a written notice  delivered to the Seller at least
three days prior to the Closing Date.  On or before the Closing (as  hereinafter
defined),  the Seller will have authorized the issuance and sale to Purchaser of
the  Shares  in  accordance  with  the  applicable  provisions  of  the  General
Corporation  Law of the State of Delaware  which Shares shall have the terms set
forth in the Seller's Certificate of Incorporation,  as amended, a copy of which
is attached hereto as EXHIBIT A.

            1.2 As consideration  for the Shares,  the Purchaser  agrees, on the
terms and subject to the  conditions set forth in this  Agreement,  to pay to or
for the account of Seller the Purchase Price as set forth in Section 2.3.

      2.0   CLOSING

            2.1 The closing of the  purchase  and sale of the Shares  shall take
place at the offices of Bell, Boyd & Lloyd, at 1:00 P.M., local time, on January
5, 1998. In this Agreement,  such event is referred to as the "Closing" and such
date and time are referred to as the "Closing Date."

<PAGE>

            2.2. At the Closing, the Seller shall deliver to the Purchaser:

                  2.2.1 a  Certificate  in proper form  representing  the Shares
      duly executed by the proper officers of the Seller;

                  2.2.2 a legal opinion of Bell,  Boyd & Lloyd,  dated as of the
      Closing Date  satisfactory  to the  Purchaser,  to the effect that (A) the
      Seller is a corporation  validly  existing in good standing under the laws
      of the  State of  Delaware,  (B) the  Seller  has the  corporate  power to
      execute,  deliver  and  perform  its  obligations  under the terms of this
      Agreement and has taken all necessary  action to authorize the  execution,
      delivery  and   performance  of  this   Agreement  and  the   transactions
      contemplated  hereby,  (C) this  Agreement  has  been  duly  executed  and
      delivered by the Seller and is a valid and legally  binding  obligation of
      the Seller,  (D) no permit,  consent,  approval,  or authorization  of, or
      declaration  to or filing  with,  any  Governmental  Body (as  hereinafter
      defined) is necessary for the execution and delivery by the Seller of this
      Agreement  or for  the  consummation  by  the  Seller  of the  transaction
      contemplated  hereby, (E) assuming the accuracy of the representations and
      warranties of the Purchaser set forth in Section 4.5 hereof,  the issuance
      and sale of the Shares is exempt from registration and prospectus delivery
      requirements  under the  Securities Act and  applicable  state  securities
      laws,  (F)  issuance  and sale of the Shares does not violate the Seller's
      governing  documents  and (G) the Shares when  issued upon  payment of the
      Purchase  Price by the  Purchaser  to the Seller will be duly  authorized,
      validly issued,  fully paid and nonassessable Shares of Common Stock, $.01
      par value per share,  of the  Seller.  The legal  opinion of Bell,  Boyd &
      Lloyd may be rendered in a form  consistent  with the Legal Opinion Accord
      of the ABA Section of Business Law (1992); and

                  2.2.3 a  certificate  of a duly  authorized  officer of Seller
      certifying that all representations and warranties of the Seller contained
      in this Agreement are true and correct on the Closing Date.

            2.3 At Closing,  the  Purchaser  shall  deliver to the Seller  legal
opinions of counsels,  dated as of the Closing Date  satisfactory to the Seller,
to the effect that (A) the Purchaser is a corporation  validly  existing in good
standing  under the laws of the State of  Delaware,  (B) the  Purchaser  has the
corporate power to execute,  deliver and perform its obligations under the terms
of this Agreement and has taken all necessary action to authorize the execution,
delivery and  performance  of this Agreement and the  transactions  contemplated
hereby,  and (C) this  Agreement  has been duly  executed  and  delivered by the
Purchaser and is a valid and legally binding obligation of the Purchaser.

            2.4 The  Purchase  Price  for the  Shares  shall be  $1,000,000.  At
Closing,  in  consideration  for the delivery  and  transfer of the Shares,  the
Purchaser  shall  pay to the  Seller  the Purchase  Price by wire  transfer  of
immediately  available funds to an account designated by the Seller at least one
day prior to the Closing Date.
<PAGE>

      3.0   REPRESENTATIONS AND WARRANTIES OF THE SELLER

            In order to induce the Purchaser to enter into this Agreement and to
purchase the Shares,  the Seller  represents  and  warrants to the  Purchaser as
follows,  which  representations and warranties shall be true and correct on the
date hereof and on the Closing Date:

            3.1 The Seller is a corporation  duly organized and validly existing
in good  standing  under  the laws of the  State of  Delaware  and has all power
(corporate and other)  necessary to carry on its business as now being conducted
and to own,  lease and  operate  its  properties.  The Seller is duly  licensed,
qualified  and  authorized  to conduct its  business in Arizona and in all other
jurisdictions  in which the  character and location of the assets owned by it or
the nature of the business transacted by it requires licensing, qualification or
authorization.  This Agreement has been duly authorized,  executed and delivered
by the Seller  and is a valid and  legally  binding  obligation  of the  Seller,
enforceable in accordance  with its terms,  except to the extent  enforceability
may  be  limited  by  (i)  bankruptcy,  insolvency,   moratorium,   liquidation,
reorganization or similar laws affecting creditors' rights generally, regardless
of whether such  enforceability is considered in equity or law, and (ii) general
equity  principles.  The  Seller has taken all  corporate  action  necessary  to
authorize  issuance of the Shares.  Upon Closing and the payment of the Purchase
Price by the Purchaser,  the Shares will be duly  authorized and validly issued,
fully paid, and non-assessable.

            3.2 Neither the  execution  or  delivery of this  Agreement  nor the
issuance,  sale or delivery of the Shares,  nor the performance by the Seller of
its obligations  under this agreement,  nor the consummation of the transactions
contemplated hereby:

            i.    violate any  provision  of  the  governing  documents  of  the
                  Seller;

            ii.   violate  any  statute,   law,   rule  or   regulation  or  any
                  judgment,  decree, order, regulation or rule of  any court  or
                  governmental  authority  to  which  the  Seller or  any of its
                  properties   may  be  subject,  except  for   such  violations
                  which,  individually  or in the aggregate,  would  not have  a
                  material  adverse  effect  on  the   condition,  financial  or
                  otherwise,  results of  operation,  business or  prospects  of
                  the   Seller  or  its  subsidiaries,  taken  as  a   whole  (a
                  "Material Adverse Effect"); or

            iii.  violate,  or  be in conflict  with,  or  constitute a  default
                  under,  or  permit the termination of, or require  the consent
                  of any  person  under,  or result in  the creation of any lien
                  upon   any  property  of   the  Seller  under,  any  mortgage,
                  indenture,   loan   agreement,   note,   debenture  or   other
                  agreement  for  borrowed  money  or  any  other  agreement  to
                  which the  Seller is a party or  by which  the  Seller (or its
                  properties)  may   be  bound,  except  for  such   violations,
                  conflicts,    defaults,   terminations   and    liens   which,
                  individually or in the aggregate,  would  not  have a Material
                  Adverse  Effect or  which  violations,  conflicts  or defaults
                  have  been  consented  to  or  otherwise  waived by  the other
                  party  or  parties  to  any  such  mortgage,  indenture,  loan
                  agreement,  note,  debenture  or other  agreement for borrowed
                  money or any other agreement to which the Seller is a party.
<PAGE>

            3.3 Except as contemplated in the consolidated  financial statements
of the Seller and its  subsidiaries  for the fiscal year ended May 31, 1997,  as
set forth in the Seller's  Annual Report on Form 10-K filed with the  Securities
and  Exchange  Commission  for  Seller's  fiscal  year  ended May 31,  1997 (the
"1996/1997  Financial  Statements"),  (a)  there  is no  action,  proceeding  or
investigation  pending,  or  threatened  against or affecting  the Seller or its
business or the business of any of its  subsidiaries  in any court or before any
governmental  authority or arbitration  board or tribunal,  foreign or domestic,
except  for such  actions  which,  if  adversely  determined,  singly and in the
aggregate, would not have a Material Adverse Effect, and there is no such action
seeking to restrain, enjoin, prevent the consummation of or otherwise challenge,
the transactions  contemplated by this Agreement  including,  but not limited to
the issuance and sale of the Shares. All applications, reports and other filings
required by any  governmental  authority or agency to be filed  through the date
hereof have been duly and timely filed as of the date hereof and (b) neither the
Seller nor its  business  is subject to any  judgment,  order,  or decree of any
court, governmental authority or arbitration board or tribunal, and there are no
material  actions,  proceedings  or  other  matters  pending  before  any  state
insurance department to which Seller or any of its subsidiaries is a party.

            3.4 At the  Closing,  the Seller will convey to  Purchaser  good and
marketable  title to the  Shares  free and  clear  of any  liens,  encumbrances,
pre-emptive rights or other claims.

            3.5 The Seller has no obligation to pay any fees or  commissions  to
any investment banker,  broker,  finder or agent with respect to the sale of the
Shares contemplated by this Agreement.

            3.6 The net proceeds from the sale of the Shares  hereunder  will be
used for the Seller's general corporate purposes.

            3.7 The authorized and outstanding capital stock of the Seller is as
stated in the 1996/1997 Financial Statements.
<PAGE>

            All such  outstanding  shares have been duly  authorized and validly
issued and are paid and nonassessable.

            Except as set forth on Schedule 3.7, as of the date hereof and after
giving  effect  to the  Closing  (a)  there  are no  outstanding  subscriptions,
warrants,  options,  calls  or  commitments  of  any  character  relating  to or
entitling  any person or entity to  purchase  or  otherwise  acquire any capital
stock or other equity  securities  of Seller;  (b) there are no  obligations  or
securities  convertible  into or  exchangeable  or exercisable for shares of any
capital  stock or other equity  securities of Seller or any  commitments  of any
character relating to or entitling any person or entity to purchase or otherwise
acquire any such  obligations or securities;  and (c) there are no preemptive or
similar rights to subscribe for or to purchase any capital stock or other equity
securities  of Seller which are not  disclosed in the Seller's  filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934.

            Seller has not entered into any  agreement to register its equity or
debt  securities  under the Securities Act, except as identified on Schedule 3.7
hereto.

            3.8 Except as set forth on Schedule  3.8, the  Seller's  outstanding
indebtedness is as stated in the 1996/1997 Financial Statements.

            3.9  The  1996/1997  Financial  Statements  have  been  prepared  in
accordance  with GAAP and fairly  present the financial  position and results of
operations of the Seller as of the dates and for the periods indicated.

            3.10 Except as set forth on Schedule 3.10, since May 31, 1997, there
has been no change and no event has  occurred  with  respect to Seller or any of
its  subsidiaries or with respect to the business of Seller and its subsidiaries
which would constitute a Material Adverse Effect.

            3.11 None of the documents or information  regarding  Seller and its
business furnished by or on behalf of the Seller to Purchaser in connection with
the  negotiation  and sale of the Shares,  contains  any untrue  statement  of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading.  There is no fact known to the Seller which the Seller has
not disclosed to Purchaser which could have a Material Adverse Effect.

            3.12 All tax returns  required to be filed by the Seller and each of
its subsidiaries in any jurisdiction (including foreign jurisdictions) have been
so filed, and all taxes,  assessments,  fees and other charges due or claimed to
be due  which are due and  payable  have  been  paid,  other  than  those  being
contested in good faith or those currently  payable without penalty or interest.
The Seller knows of no actual or proposed material additional tax assessments or
any fiscal period with respect to the Seller and each of its  subsidiaries or of
any basis  therefor.  Except as set forth in Schedule  3.12,  no tax returns are
under audit,  and no waivers of the statute of limitations or extensions of time
with respect to any tax returns have been granted.

            3.13

            i.    The execution  and delivery of this  Agreement and the sale of
                  the Shares will not involve any prohibited  transaction within
                  the meaning of the Employee  Retirement Income Security Act of
                  1974 ("ERISA") or Section 4975 of the Code.
<PAGE>

            ii.   The  Seller is in  compliance  in all material  respects  with
                  any  applicable  provisions  of  ERISA  and  the  Code and the
                  regulations  and  published  interpretations  thereunder  with
                  respect    to   all    employee    pension    benefit    plans
                  (collectively,  "Pension  Plans")  and  all  employee  welfare
                  benefit  plans  (collectively  "Welfare Plans") maintained  or
                  contributed  to  by  the  Seller.   No  reportable  event  has
                  occurred or  is reasonably  expected to occur  with respect to
                  any   Pension   Plan.    There   are   no   unfunded   benefit
                  liabilities  under any of the Pension Plans.   The Seller  has
                  not  incurred  or is  not  reasonably  expected  to  incur any
                  withdrawal  liability  under  Title IV or ERISA  with  respect
                  to any  multi-employer  plan  maintained or  contributed to by
                  the  Seller.   The  Seller  has  no  obligation  to  make  any
                  payment to  or with  respect to  any  former  employee  of the
                  Seller   pursuant  to any  retiree  medical  benefit  or other
                  Welfare Plan.

                  As used in this  Section  3.13,  the terms  "employee  pension
                  benefit plan,"  "employee  welfare benefit plan,"  "reportable
                  event," "unfunded benefit liabilities," "withdrawal liability"
                  and "multi-employer  plan" shall have the meanings assigned to
                  such terms in ERISA.

                  Schedule 3.13 contains a complete list of all employee pension
                  benefit   plans,    employee   welfare   benefit   plans   and
                  multi-employer plans with (i) are maintained or contributed to
                  by the Company.

            3.14  To its  knowledge,  the  Seller  is not  in  violation  of any
statutes,  laws,  ordinances,  or  governmental  rules  or  regulations  or  any
judgment, order or decree (federal,  state, local or foreign) to which it or its
business is subject or has it failed to obtain any licenses, permits, franchises
or other governmental  authorizations necessary to the ownership or operation of
its properties or the conduct of its businesses.

            3.15 The  offer,  issuance,  sale or  delivery  of the Shares at the
Closing as contemplated  hereby requires no consent,  approval or  authorization
of,  or  notice  to,  or  filing,   registration  or  qualification   with,  any
governmental  authority other than the filings,  registrations or qualifications
under the state  securities  laws or "blue  sky" laws of any state of the United
States of America  that may be  required  to be made or  obtained,  all of which
shall have been made or obtained on the Closing  Date (and copies of which shall
have been delivered to Purchaser).

            3.16  Assuming the accuracy of the  representations  of Purchaser in
Section  4.5, the sale of the Shares  hereunder is exempt from the  registration
and prospectus delivery requirements of the Securities Act.
<PAGE>

            The Purchaser is the sole purchaser of the Shares. The Seller agrees
that neither it, nor anyone acting on its behalf,  will offer or sell any shares
of its common  stock or any  portion of them,  if such offer or sale might bring
the issuance and sale of the Shares hereunder within the provisions of Section 5
of the Securities Act, or offer any similar  securities for issuance or sale to,
or solicit any offer to acquire any of the same from,  or otherwise  approach or
negotiate  with respect  thereto with,  anyone if the sale of the Shares and any
such securities could be integrated as a single offering for the purposes of the
Securities Act.

            3.17  To  its  knowledge,  the  Seller  is in  compliance  with  the
provisions of all  environmental  laws relating to its business,  properties and
assets;  (ii) the  Seller  has not  violated  any  provision  of any  applicable
environmental  laws;  and (iii) to its  knowledge,  the Seller has no liability,
absolute or contingent, under any environmental law.

      4.0   REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

            In order to induce the Seller to enter  into this  Agreement  and to
sell the Shares, the Purchaser represents and warrants as follows:

            4.1 The  Purchaser  is a  corporation  duly  organized  and  validly
existing in good  standing  under the laws of the State of Delaware  and has all
power  (corporate  and  other)  necessary  to enter  into this  Agreement.  This
Agreement  has been duly  executed and delivered by the Purchaser and is a valid
and legally binding obligation of the Purchaser,  enforceable in accordance with
its terms, except to the extent enforceability may be limited by (i) bankruptcy,
insolvency,  moratorium,  liquidation,  reorganization or similar laws affecting
creditors'  rights  generally,  regardless  of whether  such  enforceability  is
considered in equity or law, and (ii) general equity principles.

            4.2  Neither  the  execution,   delivery  and  performance  of  this
Agreement  by  the  Seller,  nor  the  Consummation  by  it of  the  transaction
contemplated  hereby,  will violate any law or regulation,  or any order,  writ,
injunction,  or  decree  of the  United  States  or any  court,  arbitrator,  or
governmental or regulatory official, body, subdivision,  instrumentality, agency
or authority,  whether federal, state or local ("Governmental Body"), applicable
to the Purchaser, its business or properties,  or will, in any material respect,
conflict  or be  inconsistent  with or result in any breach of any of the terms,
covenants,  conditions or  provisions  of, or  constitute a default  under,  any
material agreement to which the Purchaser is a party or by which it is bound. No
permit,  consent,  approval,  or  authorization  of, or declaration to or filing
with, any  Governmental  Body or any other person is necessary for the execution
and  delivery by the Seller of this  Agreement  or for the  consummation  by the
Purchaser of the purchase of the Shares contemplated hereby.

            4.3 There  are no  actions,  suits,  investigations  or  proceedings
pending or, to the actual  knowledge  of the  Purchaser,  threatened  against or
affecting the Purchaser or its respective  assets by or before any  Governmental
Body or any other  tribunal that could,  if adversely  decided,  have a material
adverse  effect  on the  consummation  of the  sale of the  Shares  contemplated
hereby.
<PAGE>

            4.4 The Purchaser  has no obligation to pay any fees or  commissions
to any investment  banker,  broker,  finder or agent with respect to the sale of
the Shares contemplated by this Agreement.

            4.5 The  Purchaser is acquiring  the Shares for  investment  and the
Purchaser  understands  that the Shares are to be held for  investment  purposes
only and not for  distribution.  The Purchaser  understands that the Shares have
not been registered under the Securities Act of 1933 and,  therefore,  cannot be
sold or transferred  unless either they are  subsequently  registered under such
Act (as well as under any applicable state securities laws) or an exemption from
such registration is available. The Purchaser is an accredited investor, as such
term is defined in Regulation D under the Securities Act of 1933, as amended.

      5.0   COVENANTS

            5.1  FURTHER  ASSURANCES.  From  and  after  the  Closing,  upon the
reasonable request of the Purchaser,  the Seller shall execute,  acknowledge and
deliver all such further acts,  deeds,  bills of sale,  assignments,  transfers,
conveyances,  powers of attorney and assurances as may reasonably be required to
convey and  transfer to and vest in the  Purchaser  and protect the  Purchaser's
right, title and interest in the Shares.

            5.2   REGISTRATION RIGHTS.

            5.2.1  DEMAND  REGISTRATIONS.  (a) Upon the  written  request of the
      Purchaser  that  the  Seller  register  all or part of the  Shares  (which
      request  shall satisfy the  requirements  of paragraph (c) of this Section
      5.2.1),  the  Seller  shall,  subject  in all cases to the  provisions  of
      paragraph (b) of this Section 5.2.1,  thereupon,  use its reasonable  best
      efforts to cause the Shares  specified in such request to be so registered
      as soon as  practicable,  but not later than 90 days after the date of the
      Purchaser's written request to register.

            (b) The  Seller's  obligation  to register all or part of the Shares
      pursuant  to  paragraph  (a) of this  Section  5.2.1 shall in all cases be
      subject to the following limitations and qualifications:

                  (i) The Seller  shall (x) be  required to effect only one such
            demand   registration  with  respect  to  shares  of  Common  Stock,
            including the Shares owned by the Purchaser, if such registration is
            ordered or declared  effective  and (y) not be  obligated  to file a
            registration  statement at any time if a special audit of the Seller
            would be required by the rules and regulations of the Securities and
            Exchange Commission (the "Commission") in connection therewith; and
<PAGE>

                  (ii) The Seller shall be entitled to postpone for a reasonable
            period of time not to exceed 90 days the filing of any  registration
            statement  otherwise  required to be prepared and filed by it if, at
            the  time  it  receives  a  request  for  registration,  the  Seller
            determines, in its reasonable judgment, that such registration would
            materially  interfere  with any  financing,  acquisition,  corporate
            reorganization or other material transaction then being contemplated
            by its Board of Directors,  involving the Seller, and promptly gives
            the Purchaser  written notice of such  determination and the reasons
            therefor,  provided that the Seller shall not defer its  obligations
            in this  manner more than twice in any twelve  month  period and the
            Seller  shall not defer its  obligation  until 90 days have  expired
            after any prior  deferral.  In such event,  the Purchaser shall have
            the right to withdraw the request for registration by giving written
            notice to the Seller  within 30 days after  receipt of the notice of
            postponement  (and,  in the event of such  withdrawal,  such request
            shall be ignored for purposes of counting the demand registration to
            which the Purchaser is entitled pursuant to this paragraph (b)).

            For purposes of this  paragraph (b),  "special  audit" shall mean an
      audit other than a year-end  audit,  requiring  an opinion of the Seller's
      independent public accountants.

            (c) Any written  request of the Purchaser made pursuant to paragraph
      (a) of this Section 5.2.1 shall:

                  (i)  specify  the  number of the  Shares  which the  Purchaser
            intends to offer and  intends to sell and the source of such  shares
            (transaction in which they were acquired);

                  (ii) state the firm  intention of the  Purchaser to offer such
            shares for sale;

                  (iii)  describe the intended  method of  distribution  of such
            shares; and

                  (iv) contain an  undertaking  on the part of the  Purchaser to
            provide all such information and materials  concerning the Purchaser
            and take all such  action as may be required to permit the Seller to
            comply with all  applicable  requirements  of the  Commission and to
            obtain  acceleration  of the  effective  date  of  the  registration
            statement.
<PAGE>

            5.2.2 PARTICIPATION REGISTRATIONS. (a) If, at any time from the date
      hereof,  the Seller shall propose to register  under the Securities Act of
      1933 (the "Securities  Act") an offering of Common Stock to be offered and
      sold by it or any  stockholder,  it  shall  give  written  notice  of such
      proposed  registration to the Purchaser as promptly as possible and shall,
      subject  in all cases to  paragraph  (b) of this  Section  5.2.2,  use its
      reasonable  best  efforts to include in the  offering  such  number of the
      Shares then owned by the Purchaser as the Purchaser shall request,  within
      10 days after the giving of such notice, to be included,  such offering to
      be upon the same  terms  (including  the  method of  distribution)  as the
      Common Stock being sold by the Seller pursuant to any such offering.

            (b) The  Seller's  obligation  to include  the  Shares  owned by the
      Purchaser in any offering  pursuant to paragraph (a) of this Section 5.2.2
      shall  in  all  cases  be  subject  to  the   following   limitation   and
      qualifications:

                  (i) The Seller  shall not be  required  to give  notice to the
            Purchaser  or include  such shares in any such  registration  if the
            proposed  registration  is (x) a  registration  of stock  option  or
            compensation  plan or of Common Stock issued or issuable pursuant to
            any such plan, or (y) a registration  of Common Stock proposed to be
            issued in exchange  for  securities  or assets of, or in  connection
            with a merger or consolidation with, another corporation;

                  (ii) The Seller  may  require  that the number of such  Shares
            requested to be included in such  registration  be reduced,  or that
            all such Shares be  excluded  from any such  registration,  if it is
            advised in writing by its managing  underwriter  that such reduction
            or exclusion, as the case may be, is necessary to permit the orderly
            sale and distribution of the securities being offered by the Seller.
            Any reduction shall be made pro rata among all selling  shareholders
            in proportion to the relative  number of Shares sought by each to be
            registered.  If the  Seller  shall  require  such a  reduction,  the
            Purchaser shall have the right to withdraw from the offering;

                  (iii) The Seller may, in its sole  discretion  and without the
            consent of the Purchaser,  withdraw such registration  statement and
            abandon the proposed  offering in which the  Purchaser had requested
            to participate; and

                  (iv) The  Seller  shall be  required  to effect  only one such
            registration;  provided that the  Purchaser's  right to registration
            under this  Section  5.2.2  shall not  expire  unless all Shares the
            Purchaser has requested under Section 5.2.2(a) to be registered have
            been so registered.
<PAGE>

            5.3 CERTAIN  COVENANTS  OF THE SELLER.  (a) In  connection  with any
registration  of the Shares  undertaken by the Seller  pursuant to Section 5.2.1
and, if and to the extent appropriate, Section 5.2.2, the Seller shall:

            (i) prepare and file with the  Securities  and  Exchange  Commission
      (the  "Commission")  a registration  statement with respect to such Shares
      and use its best  efforts to cause such  registration  statement to become
      effective;

            (ii)  prepare  and file  with the  Commission  such  amendments  and
      supplements  to such  registration  statement and the  prospectus  used in
      connection  therewith  as may  be  necessary  to  keep  such  registration
      statement  current for such period not to exceed 270 days as the Purchaser
      shall request and to comply with the provisions of the Securities Act with
      respect  to the sale of all of the  Shares  covered  by such  registration
      statement during such period;

            (iii) provide the Purchaser a reasonable  opportunity to review and,
      in the case of registrations  effected pursuant to Section 5.2.1,  approve
      prior to filing  (x) any  registration  statement  filed by the  Seller in
      connection  with a  registration  effected  pursuant  to Section  5.1.2 or
      Section 5.2.2 and (y) any amendments or  supplements to such  registration
      statement and any prospectus used in connection therewith;

            (iv) furnish to the  Purchaser  such number of  conformed  copies of
      such  registration  statement and of each such  amendment  and  supplement
      thereto (in each case  including all  exhibits),  such number of copies of
      the prospectus  included in such  registration  statement  (including each
      preliminary prospectus and prospectus supplement),  copies of which are in
      conformity  with the  requirements  of the Securities  Act, and such other
      documents as the Purchaser may  reasonably  request in order to facilitate
      the sale of the Shares covered by such registration statement;

            (v) use its best  efforts to register or qualify the Shares  covered
      by such  registration  statement  under such other  securities or blue sky
      laws of such jurisdictions as the Purchaser shall reasonably request,  and
      do any and all other acts and things which may be reasonably  necessary or
      advisable  to  enable  the  Purchaser  to  consummate  the  sale  in  such
      jurisdictions  of such Shares;  provided that the Seller shall not for any
      such purpose be required to qualify  generally to do business as a foreign
      corporation  in  any  jurisdiction  wherein  it  would  not  but  for  the
      requirements  of this  paragraph (v) be obligated to be so  qualified,  to
      subject  itself to  taxation  in any such  jurisdiction  or to  consent to
      general service of process in any such jurisdiction;
<PAGE>

            (vi) notify the Purchaser, at any time when a prospectus relating to
      the Shares  covered  by such  registration  statement  is  required  to be
      delivered  under the Securities  Act, of the Seller's  becoming aware that
      the prospectus included in such registration statement, as then in effect,
      includes  an untrue  statement  of a  material  fact or omits to state any
      material  fact  required  to be stated  therein or  necessary  to make the
      statements  therein  not  misleading  in light of the  circumstances  then
      existing, and at the request of the Purchaser promptly prepare and furnish
      to  the   Purchaser  a  reasonable   number  of  copies  of  a  prospectus
      supplemented or amended so that, as thereafter delivered to the purchasers
      of such Shares, such prospectus shall not include an untrue statement of a
      material  fact or omit to state a  material  fact  required  to be  stated
      therein or  necessary to make the  statements  therein not  misleading  in
      light of the circumstances then existing;

            (vii) provide a transfer  agent and registrar for the Shares covered
      by such  registration  statement not later than the effective date of such
      registration statement;

            (viii)  enter  into  such  agreements   (including  an  underwriting
      agreement in customary  form) and take such other actions as the Purchaser
      reasonably  requests in order to expedite or facilitate the disposition of
      such shares;

            (ix) The Seller shall pay all expenses  incident to all registration
      and filing fees,  fees and expenses of compliance  with securities or blue
      sky laws  (including  reasonable  fees and  disbursements  of  counsel  in
      connection with blue sky  qualifications  of the registrable  securities),
      rating agency fees,  printing  expenses,  messenger and delivery expenses,
      the fees and  expenses  incurred  in  connection  with the  listing of the
      securities to be registered  on securities  exchanges or NASDAQ,  fees and
      disbursements  of counsel  for the Seller  and its  independent  certified
      public accountants. Except as provided above, the Seller will not have any
      responsibility  for  any of the  expenses  of the  Purchaser  incurred  in
      connection with any registration hereunder, including, without limitation,
      underwriting  discounts  or  commissions   attributable  to  the  sale  of
      registrable securities; and

            (x) INDEMNIFICATION.  (1) In connection with any registration of the
      Shares of the Purchaser  pursuant to Sections 5.2.1 and 5.2.2 hereof,  the
      Seller  agrees to  indemnify,  to the full extent  permitted  by law,  the
      Purchaser, and its respective directors,  officers,  partners,  agents and
      affiliates,  against all losses, claims, damages, liabilities and expenses
      (including  attorneys' fees and  disbursements)  to which Purchaser or any
      such director, officer, partner, agent, affiliate or controlling person or
      entity may become subject under the  Securities Act or otherwise,  insofar
      as such losses,  claims,  damages or liabilities arise out of or are based
      upon any untrue or alleged  untrue  statement of a material fact contained
      in any registration  statement,  prospectus or preliminary  prospectus (or
<PAGE>

      any amendment or supplement  thereto) or any omission or alleged  omission
      to state  therein  a  material  fact  required  to be  stated  therein  or
      necessary  to  make  the   statements   therein,   in  the  light  of  the
      circumstances  under which they were made, not misleading,  except insofar
      as the same are caused by any such  untrue  statement  or  alleged  untrue
      statement  or any such  omission  or alleged  omission  if (x) such untrue
      statement  or  omission  is  completely   corrected  in  an  amendment  or
      supplement to such preliminary  prospectus or prospectus  supplement,  the
      seller of the Shares has an obligation under the Securities Act to deliver
      a prospectus or prospectus  supplement in connection with such sale of the
      Shares  and the seller of such  Shares  thereafter  fails to deliver  such
      prospectus or prospectus supplement as so amended or supplemented prior to
      or concurrently  with the sale of the Shares to the person  asserting such
      loss, claim, damage or liability after the Seller has furnished the seller
      with a  sufficient  number  of  copies  of the  same,  or (y) such  untrue
      statement or omission is caused by or contained  in any  information  with
      respect  to the  Purchaser  furnished  in  writing  to the  Seller  by the
      Purchaser  expressly for use therein, or caused by the Purchaser's failure
      to deliver to a prospective purchaser a copy of the registration statement
      or prospectus or any  amendments or  supplements  thereto.  Such indemnity
      shall remain in full force and effect regardless of any investigation made
      by or on behalf of such Purchaser or any such director,  officer, partner,
      employee,  agent,  affiliate or  controlling  person and shall survive the
      transfer of the Shares by such Purchaser.

            (2) In connection  with any  registration  in which the Purchaser is
      participating,  the  Purchaser  will furnish to the Seller in writing such
      information with respect to it as the Seller  reasonably  requests for use
      in  connection  with  any  such  registration  statement,   prospectus  or
      preliminary  prospectus  and  agrees  to  indemnify,  to the  full  extent
      permitted by law, the Seller,  its  directors and officers and each person
      who controls the Seller (within the meaning of the Securities Act) and, in
      connection with an underwritten offering, each underwriter and each person
      who controls the  underwriters  (within the meaning of the Securities Act)
      against any losses, claims,  damages,  liabilities and expenses (including
      attorneys' fees and disbursements)  caused by any untrue or alleged untrue
      statement  of a material  fact  contained in any  registration  statement,
      prospectus or preliminary  prospectus or any omission or alleged  omission
      to state  therein  a  material  fact  required  to be  stated  therein  or
      necessary  to  make  the   statements   therein,   in  the  light  of  the
      circumstances  under which they were made, not misleading,  to the extent,
      but only to the  extent,  that such  untrue  statement  or  omission is in
      conformity  with and  contained  in any  information  with  respect to the
      Purchaser  so  furnished  in writing by the  Purchaser  expressly  for use
      therein,  PROVIDED,  HOWEVER, that (x) the indemnifying party shall not be
      liable in any such case to the extent that any such  statement or omission
      is  completely  corrected  in  the  final  prospectus,  in the  case  of a
      preliminary  prospectus,  or in an amendment or supplement to a prospectus
      or prospectus  supplement and (y) the liability of such indemnifying party
      under this  Section  5.3(a)(x)  shall be limited to the amount of proceeds
      received by such  indemnifying  party in the offering  giving rise to such
      liability.   Such  indemnity  shall  remain  in  full  force  and  effect,
      regardless of any investigation  made by or on behalf of the Seller or any
      such  director,  officer,  or  controlling  person and shall  survive  the
      transfer of the Shares of the Purchaser.
<PAGE>

            (3) Any person entitled to indemnification  hereunder agrees to give
      prompt written notice to the indemnifying  party after the receipt by such
      person of any written  notice of the  commencement  of any  action,  suit,
      proceeding or  investigation  or threat  thereof made in writing for which
      such person will claim  indemnification  or contribution  pursuant to this
      Agreement (PROVIDED, HOWEVER, that the failure of any indemnified party to
      give  such  notice  shall  not  relieve  the  indemnifying  party  of  its
      obligations under Sections 5.3(a)(x)(1) or (2) hereof except to the extent
      that the  indemnifying  party is materially  prejudiced by such failure to
      give notice) and,  unless in the reasonable  judgment of such  indemnified
      party a conflict of interest may exist between such indemnified  party. If
      the  indemnifying  party is not entitled to, or elects not to,  assume the
      defense of a claim,  it will not be obligated to pay the fees and expenses
      of more  than one  counsel  with  respect  to such  claim,  unless  in the
      reasonable  judgment of any  indemnified  party a conflict of interest may
      exist  between such  indemnified  party and any other of such  indemnified
      parties with respect to such claim, in which event the indemnifying  party
      shall be obligated to pay the fees and expenses of such additional counsel
      or counsels.  The indemnifying  party will not be subject to any liability
      for any  settlement  made without its consent,  which consent shall not be
      unreasonably withheld or delayed.

            (4) If the indemnification  provided for in this Section 5.3(a) from
      the indemnifying party is unavailable to an indemnified party hereunder in
      respect of any losses, claims,  damages,  liabilities or expenses referred
      to in any notice referred to in 5.3(a)(x)(3), then the indemnifying party,
      in lieu of indemnifying  such indemnified  party,  shall contribute to the
      amount  paid or  payable  by such  indemnified  party as a result  of such
      losses, claims, damages,  liabilities or expenses in such proportion as is
      appropriate  to reflect the relative fault of the  indemnifying  party and
      indemnified  parties in connection with the actions which resulted in such
      losses,  claims,  damages,  liabilities or expenses,  as well as any other
      relevant equitable considerations. The relative fault of such indemnifying
      party and  indemnified  parties shall be determined by reference to, among
      other  things,  whether any action in  question,  including  any untrue or
      alleged  untrue  statement  of a  material  fact or  omission  or  alleged
      omission  to state a  material  fact,  has been  made by,  or  relates  to
      information  supplied by, such indemnifying party or indemnified  parties,
      and the parties'  relative  intent,  knowledge,  access to information and
      opportunity to correct or prevent such action.  The amount paid or payable
      by a party as a result of the losses,  claims,  damages,  liabilities  and
      expenses  referred  to above  shall be deemed to  include,  subject to the
      limitations set forth in Section 5.3(a)(x)(2),  any legal or other fees or
      expenses  reasonably  incurred  by  such  party  in  connection  with  any
      investigation or proceeding.
<PAGE>

      (b) The Seller shall take all reasonable actions necessary so as to enable
the Purchaser to make sales of the Shares under Rule 144 (or any successor rule)
under the  Securities  Act and in accordance  with  applicable  laws,  rules and
regulations,  the  requirements  of the  Seller's  transfer  agent(s),  and  the
reasonable requirements of the broker through which the sales are proposed to be
executed. Seller shall make all filings required to be made under the Securities
Exchange Act of 1934 and the rules  thereunder,  and shall  provide to Purchaser
copies of such filings on request.

      (c) From and after the date of the Shares,  the Seller shall not,  without
the written consent of the Purchaser,  enter into any agreement  granting to any
person  or entity  any  registration  rights  that are more  favorable  than the
registration  rights granted to the Purchaser under this  Agreement,  unless the
same rights are granted to the Purchaser.

            5.4 STANDSTILL.  In the event of a registered  public offering,  the
Purchaser will agree with the  underwriters not to sell any Shares for up to 180
days  following  commencement  of the offering if and only if the  Purchaser has
been offered the opportunity to participate in the offering and the underwriters
have not reduced the number of shares that the Purchaser may sell.

            5.5  ACQUISITION  OF ADDITIONAL  SHARES.  The Purchaser  agrees that
without  the consent of the Seller it will not  acquire  shares of Common  Stock
$.01 par value per share of the Seller, in the open market or otherwise, if such
acquisition would cause Purchaser  immediately after the consummation thereof to
own more than 10% of the  outstanding  shares of Common Stock $.01 par value per
share of the Seller.

            5.6 LEGEND. The Purchaser and the Seller agree that the certificates
for the Shares  delivered  pursuant to Section  2.2.2  hereof may, if  Purchaser
deems it necessary, have imprinted therein the following legend:

            "THE SHARES  REPRESENTED BY THIS CERTIFICATE (THE "SHARES") HAVE NOT
      BEEN  REGISTERED  UNDER THE  SECURITIES  ACT OF 1933 (THE "ACT"),  AND THE
      HOLDER HEREOF, BY HIS ACCEPTANCE HEREOF,  ACKNOWLEDGES AND AGREES THAT THE
      SHARES  MUST BE HELD  INDEFINITELY  UNLESS  (I) A  REGISTRATION  STATEMENT
      RELATING TO THE SHARES AND  DESCRIBING  THE  PROPOSED  TRANSFER HAS BECOME
      EFFECTIVE UNDER THE ACT OR (II) THE CORPORATION HAS RECEIVED AN OPINION OF
      ITS COUNSEL, OR OF COUNSEL  SATISFACTORY TO IT, THAT THE PROPOSED TRANSFER
      WILL NOT VIOLATE THE REGISTRATION REQUIREMENTS OF THE ACT. THE CORPORATION
      WILL  FURNISH  WITHOUT  CHARGE  TO  EACH  STOCKHOLDER  WHO SO  REQUESTS  A
      DESCRIPTION  OF  THE  POWERS,  DESIGNATIONS,   PREFERENCES  AND  RELATIVE,
      PARTICIPATING,  OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OF
      THE CORPORATION OR SERIES THEREOF AND THE  QUALIFICATIONS,  LIMITATIONS OR
      RESTRICTIONS OF SUCH PREFERENCES  AND/OR RIGHTS,  AS WELL AS A DESCRIPTION
      OF RESTRICTIONS AGREED TO BY THE ORIGINAL HOLDER OF THE SHARES."
<PAGE>

      Seller agrees to remove such legend two years after the Closing Date.

      6.0   INDEMNIFICATION

            6.1 The Seller  agrees to  indemnify,  defend and hold  harmless the
Purchaser and its directors, employees and agents (collectively,  the "Purchaser
Indemnified   Persons"),   from  and  against  all  losses,   claims,   damages,
liabilities, expenses (including reasonable legal fees and expenses), judgments,
fines,  settlements  and other amounts  incurred or suffered by the Purchaser or
the Purchaser  Indemnified  Persons and arising out of (i) the inaccuracy of any
of the  representations  and warranties  made by the Seller in this Agreement or
(ii) any breach by the Seller of this Agreement.

            6.2 The Purchaser agrees to indemnify,  defend and hold harmless the
Seller  and  its  directors,  employees  and  agents  (the  "Seller  Indemnified
Persons") from and against all losses, claims,  damages,  liabilities,  expenses
(including reasonable legal fees and expenses),  judgments,  fines,  settlements
and other amounts  incurred or suffered by the Seller or the Seller  Indemnified
Persons and arising out of (i) the inaccuracy of any of the  representations and
warranties  made by the  Purchaser  in this  Agreement or (ii) any breach by the
Purchaser of this Agreement.

            6.3 Any party entitled to indemnification hereunder will give prompt
written notice to the  indemnifying  party of any claim with respect to which it
seeks  indemnification  and,  unless  in  such  indemnified  party's  reasonable
judgment a conflict  of  interest  between  such  indemnified  and  indemnifying
parties may exist with respect to such claim,  permit such indemnifying party to
assume the defense of such claim with  counsel  reasonably  satisfactory  to the
indemnified  party. If such defense is assumed,  the indemnifying party will not
be subject to any liability for any  settlement  made by the  indemnified  party
without its consent  (but such consent will not be  unreasonably  withheld).  An
indemnifying  party who is not entitled to, or elects not to, assume the defense
of a claim will not be  obligated  to pay the fees and expenses of more than one
counsel for all parties  indemnified by such indemnifying  party with respect to
such claim,  unless in the  reasonable  judgment  of such  counsel a conflict of
interest  may  exist  between  such  indemnified  party  and any  other  of such
indemnified parties with respect to such claim.

      7.0   MISCELLANEOUS

            7.1  The  representations,   warranties,  covenants  and  agreements
contained  herein are  continuing  in nature and shall survive the execution and
delivery of this Agreement and the Closing, regardless of any investigation made
by or on behalf of any party to this Agreement.
<PAGE>

            7.2 The  parties  hereto  may  amend,  modify  and  supplement  this
Agreement in such manner as may be agreed upon by them in writing.

            7.3  Each  party to this  Agreement  shall  pay all of the  expenses
incurred by it in connection with this Agreement,  including without  limitation
its  legal and  accounting  fees and  expenses,  and the  commissions,  fees and
expenses  of any  person  employed  or  retained  by it to  bring  about,  or to
represent it in, the sale of the Shares contemplated hereby.

            7.4 This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns.

            7.5 This  instrument and the exhibits and schedules  attached hereto
contain the entire  agreement of the parties hereto with respect to the purchase
of the Shares,  and supersede  all prior  understandings  and  agreements of the
parties with respect to the subject matter hereof.

            7.6 The  descriptive  headings in this  Agreement  are  inserted for
convenience only and do not constitute a part of this Agreement.

            7.7 This  Agreement  may be executed in any number of  counterparts,
each of which shall be deemed an original.

            7.8 All notices  provided for in this Agreement shall be in writing,
duly  signed by the  party  giving  such  notice,  and shall be sent by  Federal
Express or other reliable overnight courier, sent by fax or mailed by registered
or certified mail, return receipt requested, as follows:

            If to the Purchaser, addressed to such party at:

                  Beverly Enterprises, Inc.
                  5111 Rodgers Avenue
                  Suite 40-A
                  Fort Smith, Arkansas 72919
                            Attention: Phillip Small

            with a copy to:

                  Latham & Watkins
                  Sears Tower, Suite 5800
                  Chicago, Illinois  60606
                        Attention: Christopher D. Lueking

<PAGE>


            If to the Seller, addressed to:

                  Managed Care Solutions, Inc.
                  7600 N. 16th Street
                  Suite 150
                  Phoenix, Arizona  85020
                        Attention:  President

            with a copy to:

                  Bell, Boyd & Lloyd
                  Three First National Plaza
                  Chicago, Illinois 60602-4207
                           Attention: William G. Brown

Each  notice  shall be deemed to have been  given upon the  earliest  of (i) the
receipt of such notice by the intended recipient thereof, (ii) two days after it
is sent by Federal Express or other reliable  overnight  courier or sent by fax,
or (iii) five days after it is mailed by registered or certified  mail,  postage
prepaid, return receipt requested.

            7.9 This Agreement  shall be governed by and construed in accordance
with the laws of the State of Arizona  applicable  to  contracts  made and to be
performed therein.

<PAGE>


      IN WITNESS  WHEREOF,  the parties  have caused this  Agreement  to be duly
executed as of the day and year first above written.


                                       BEVERLY ENTERPRISES, INC.



                                       By: /s/ David G. Merrill
                                           -------------------------------
                                          Its: Vice President
                                               ---------------------------



                                       MANAGED CARE SOLUTIONS, INC.


                                       By: /s/ Michael J. Kennedy
                                           -------------------------------
                                          Its: Chief Financial Officer
                                               ---------------------------



<PAGE>