<PAGE>   1
                                                             RFS NO.: 329.00-011

                                    CONTRACT
                                  BETWEEN THE
                  STATE OF TENNESSEE, DEPARTMENT OF CORRECTION
                                      AND
                               MHM SERVICES, INC.


         THIS CONTRACT, by and between the State of Tennessee, Department of
Correction, hereinafter referred to as the "State" and MHM SERVICES, INC.
hereinafter referred to as the "Contractor", is for the provision of mental
health services as further defined in the "SCOPE OF SERVICES" below.

         WHEREAS, the State provides mental health services to the inmate
population confined within twenty-one (21) Tennessee correctional facilities.
It is projected that there will be twenty-two (22) TDOC facilities operational
by June 1998.  These facilities are located in the East, Middle, and West
Regions of Tennessee and are as follows:

<TABLE>
<S>                                                                               <C>
             EAST                                     MIDDLE                                    WEST              
           REGION 1                                  REGION 2                                 REGION 3            
    *Brushy Mountain State                      *Middle Tennessee                     *Cold Creek Correctional    
         Penitentiary                            Reception Center                             Facility            
   *Carter County Work Camp                *Nashville Community Service                *Lake County Regional      
    *Chattanooga Community                            Center                           Correctional Facility      
        Service Center                     *Riverbend Maximum Security            *Mark Luttrell Reception Center 
 *Knoxville Community Service                      Institution                      *Northwest Correction Center  
            Center                       *Turney Center Industrial Prison             *Wayne County Boot Camp     
   *Morgan County Regional                           and Farm                           *West Tennessee High      
     Correctional Center                   *Tennessee Prison for Women                   Security Facility        
*Northeast Correctional Center            *Tennessee Correction Academy             *Lauderdale County Facility   
  *Southeast Tennessee State               *Tennessee Correctional Work              (ANTICIPATED CONSTRUCTION    
Regional Correctional Facility                        Center                                   1997)              
                                                        
                     REGION 4:  LOIS M. DEBERRY SPECIAL NEEDS FACILITY
</TABLE>

         THEREFORE, the State desires to contract with a vendor(s) who are
capable of providing quality mental health care in a cost effective manner.
The State wishes to reduce the number of contracts so as to improve the
continuity of service delivery throughout the correctional system.  The State
intends to award an at-risk capitated rate contract for the services outlined
in the Scope of Services (Section A) below.

         WITNESSETH, in consideration of the mutual promises herein contained,
the parties have agreed and do hereby enter into this Contract according to the
provisions set out herein:

         A.      SCOPE OF SERVICES:
 
                 1.       GENERAL

                          A.      All mental health services provided under
                                  this contract shall be in conformance with
                                  ALL TDOC policies as they may be amended from
                                  time to time. (Only TDOC Mental Health
                                  Policies are attached for the
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                                                             RFS No.: 329.00-011


                                  convenience of the proposer.) Other TDOC
                                  Policies may be reviewed through a
                                  coordinated effort with the Department's
                                  Central Office.

                                  1)       Said policies are available for
                                           review in the historical data and
                                           statistics section of this document.

                                  2)       The TDOC shall be responsible for
                                           notifying the Contractor in writing
                                           of any policy changes that will
                                           impact the Contractor.

                                  3)       At the institutional level, the
                                           Contractor('s) clinicians shall
                                           administratively respond to the TDOC
                                           Warden or Warden's Designee.
                                           Clinical matters are the sole
                                           responsibility of the licensed
                                           psychiatrist/psychologist.  The
                                           State's Director of Mental Health
                                           shall assist in the statewide
                                           coordination of services, monitoring
                                           and continuous developmental aspects
                                           of the terms outlined in this
                                           contract.

                          B.      The Contractor's service system shall provide
                                  a uniform and consistent continuum of quality
                                  mental health service delivery statewide.
                                  The Contractor shall work in concert with
                                  existing TDOC mental and medical
                                  professionals, and other contract entities,
                                  if applicable, in providing mental health
                                  care.

                          C.      The Contractor shall measure various
                                  clinical/programmatic mental health outcomes.
                                  At a minimum, the State shall require the
                                  Contractor to evaluate response to prescribed
                                  psychiatric medications, improvement in
                                  mental health status, patient
                                  functioning/sense of well-being, etc.  The
                                  State in a cooperative effort shall assist in
                                  the development of additional outcome
                                  measures.  The Contractor shall abide by the
                                  following milestone schedule for the
                                  development, standardization, and reporting
                                  requirements of the outcome measures.

                                  Within 90 days from Contract Execution: The
                                  Contractor shall propose in writing to the
                                  Director of Mental Health Services draft
                                  standardized outcome measures to be utilized
                                  regionally/state wide.

                                  Within 120 days from Contract Execution: The
                                  Contractor shall have revised and developed,
                                  in consultation with the Director of Mental
                                  Health Services, functional outcome
                                  measurement instruments that can be used
                                  regionally/state wide.  The instruments will
                                  be applied and data gathered in such a manner
                                  as to allow the collection of both
                                  time-series and cross-sectional data.  The
                                  instruments may vary based upon the treatment
                                  objectives and geographical location,(i.e.
                                  DeBerry Special Needs Facility) but the
                                  instrument must be universal enough to report
                                  meaningful information to both the Director
                                  of Mental Health Services and the Director of
                                  Contracts Administration.

                                  Failure to meet these milestones will be
                                  considered an incident of noncompliance for
                                  each week they are not performed.  The
                                  mechanism outlined in E.15. "Special Terms
                                  and Conditions" may be applied in the event
                                  the milestones are not met (See Attachment
                                  A).





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                                                             RFS No.: 329.00-011


                          D.      The Contractor shall adhere to the specific
                                  performance measures outlined in Attachment
                                  A. The State shall reserve the right to
                                  expand upon the performance measures denoted
                                  in Attachment A. The State's Director of
                                  Mental Health Services may solicit the
                                  expertise of the Contractor in the
                                  development of any new performance
                                  measure(s).  The State shall commence the
                                  assessment of damages as it relates to
                                  performance measures 60 days from the date of
                                  contract execution.

                                  The Contractor shall report to the Director
                                  of Mental Health Services and the Director of
                                  Contracts Administration the results of any
                                  approved and functional performance/outcome
                                  measures.  The information will be provided
                                  in both electronic and paper formats.  The
                                  utilized for service delivery comparisons
                                  such as, but not limited to, effectiveness of
                                  service delivery.  During the developmental
                                  stage, a distinction will be made as to
                                  whether the performance measure is
                                  determining the outcome of a specific program
                                  intervention or the performance expectation
                                  of the contractor.

                          E.      Upon approved written consent, conduct or
                                  participate in the development of research
                                  studies in conjunction with state and/or any
                                  other professional entity deemed appropriate
                                  by the TDOC.

                          F.      The contract providers will actively
                                  participate, when applicable, with the
                                  State's Quality Assurance/Improvement program
                                  as it relates to mental health service
                                  delivery.

                          G.      When applicable, the appropriately licensed
                                  clinician will provide clinical supervision
                                  to psychological internship or practicum
                                  students.

                          H.      The TDOC shall, when applicable, provide
                                  specialized training for sexual offender
                                  treatment programs.  The contractor shall
                                  follow the program philosophy and design
                                  standards as presented by the TDOC.

                          I.      The Contractor shall provide technical
                                  assistance to the TDOC Director of Mental
                                  Health Services in developing a standard
                                  anger management/violent offender treatment
                                  program that is to be implemented at selected
                                  TDOC sites.  Implementation date and
                                  treatment sites to be determined.

                          J.      The Contractor shall designate an individual
                                  with the overall responsibility for this
                                  contract.  This person shall be available to
                                  consult and coordinate service delivery with
                                  the State's Director of Mental Health and/or
                                  other designated state officials.

                          K.      When required, the Contractor shall enter
                                  specific service delivery information into
                                  the Tennessee Offender Management Information
                                  System (TOMIS).  Training and access to
                                  equipment shall be provided by the TDOC.

                          L.      The Contractor shall insure adequate backup
                                  coverage to address the clinical service
                                  needs of any TDOC facility.





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                                                             RFS No.: 329.00-011

                 2.       PSYCHIATRIC SERVICES

                          A.      Psychiatric services shall be provided by
                                  licensed physicians who are board eligible or
                                  board certified in psychiatry.  Standards of
                                  practice shall be according to those of the
                                  community and in compliance with state and
                                  federal laws.

                          B.      Evaluate and diagnose in accordance with the
                                  current DSM criteria those inmates referred
                                  by the Mental Health Treatment Team or other
                                  health care staff.

                          C.      Complete psychiatric evaluations/assessments
                                  as necessary and provide an individual
                                  treatment plan specific for those patients
                                  requiring psychiatric intervention to include
                                  medication.

                          D.      Patients shall have a documented physical
                                  assessment prior to the prescribing of a
                                  psychotropic medication.

                          E.      Provide that all medications shall be
                                  reviewed, and orders renewed if necessary, at
                                  least every thirty days as specified by
                                  policy.

                          F.      Patients receiving psychiatric medications
                                  shall receive a direct assessment from a
                                  psychiatrist prior to ninety (90) days
                                  elapsing.

                          G.      Prescribe only those medications approved in
                                  the TDOC's formulary, unless otherwise
                                  approved as TDOC procedure dictates.

                          H.      Provide consultation to mental health service
                                  staff and administrative staff and
                                  participate in the treatment team reviews
                                  when clinically necessary.

                          I.      Provide accessibility for twenty-four (24)
                                  hours per day, seven (7) days per week per
                                  calendar year emergency consultation with the
                                  mental health and health care staff.  Such
                                  availability may be by telephone unless
                                  circumstances necessitate on-site delivery.

                          J.      Provide a direct assessment to a patient
                                  within 72 hours from the time a telephone
                                  order was given for cases involving
                                  restrictive therapeutic dispositions.

                          K.      Provide clinical 
                                  recommendations/consultations and
                                  coordination of patient referrals to other
                                  specialized TDOC programs, or designated
                                  contract hospitals.  The contractor(s) must
                                  secure appropriate privileges at the
                                  designated hospital to provide services if
                                  required.  Said services may be provided in a
                                  written format and/or visual presentation,
                                  role play, teleconferencing medium, etc.

                          L.      Provide an appropriate level of psychiatric
                                  monitoring of patients requiring psychotropic
                                  medication intervention.

                          M.      When applicable, provide or assist in the
                                  provision of a mental health education
                                  program to other institutional staff that
                                  shall include, but not be limited to, the
                                  following:





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                                                             RFS No.: 329.00-011



                                  (1)      Early detection of potential mental
                                           health problems, i.e., signs and
                                           symptoms of mental illness,
                                           retardation, and chemical
                                           dependency.

                                  (2)      Crisis intervention/suicide
                                           precaution programs.

                                  (3)      Said services may be provided in a
                                           written format, audio/visual
                                           presentation, role play,
                                           teleconferencing medium, etc.

                 3.       PSYCHOLOGICAL SERVICES

                          A.      The delivery of doctoral level psychological
                                  services shall be provided by psychologists
                                  with health service provider designation who
                                  are licensed by the State of Tennessee or who
                                  have legal reciprocity to practice in the
                                  state of Tennessee.  Standards of practice
                                  shall be according to those of the community
                                  and with State and Federal laws.

                          B.      Evaluate and diagnose in accordance with the
                                  current DSM criteria those inmates referred
                                  by the Mental Health Treatment Team or other
                                  health care staff.

                          C.      Complete psychological
                                  evaluations/assessments as necessary and
                                  provide an individual treatment plan specific
                                  for those patients requiring psychological
                                  intervention(s).

                          D.      When clinically/programmatically deemed
                                  appropriate, provide individual and/or group
                                  therapy/consultation.

                          E.      Participate in the treatment team reviews
                                  when necessary.

                          F.      Be responsible for twenty-four (24) hours per
                                  day, seven (7) days per week per calendar
                                  year emergency consultation with the health
                                  care or other mental health staff.  Such
                                  availability may be by telephone unless
                                  circumstances necessitate on-site delivery.

                          G.      Provide clinical recommendations and
                                  coordination of referrals of patients to
                                  DeBerry Special Needs Facility or other
                                  specialized TDOC treatment units.

                          H.      Provide clinical supervision and/or
                                  consultation to institutional psychological
                                  examiner(s), mental health program
                                  specialist(s), alcohol and drug counselors,
                                  and health care staff.

                          I.      The Contractor shall provide or assist in the
                                  provision of mental health education programs
                                  to other institutional staff that shall
                                  include but not be limited to the following:

                                  (1)      Early detection of potential mental
                                           health problems, i.e., signs and
                                           symptoms of mental illness,
                                           retardation, and chemical
                                           dependency.

                                  (2)      Crisis intervention/suicide
                                           precaution programs.





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                                                            RFS No.: 329.00-011


                                  (3)      Provide consultation supervisory
                                           services to mental health staff
                                           involved in special programs.  Said
                                           services may be provided in a
                                           written format and/or visual
                                           presentation, role play,
                                           teleconferencing medium, etc.

                          J.      Complete the initial thirty (30) and ninety
                                  (90) day mental health assessments on
                                  specially segregated inmates as policy
                                  dictates.  Review findings documented by
                                  other licensed professionals.

                          K.      Provide psychological evaluations upon the
                                  request of the Board of Paroles.
        
                          L.      Provide psychological evaluations to all
                                  newly hired correctional officer/probation
                                  officers with the Tennessee Department of
                                  Corrections.  Said evaluations shall be,

                                  1)       Centrally provided at the Tennessee
                                           Correctional Academy located in
                                           Tullahoma, Tennessee.  The TDOC may,
                                           in the future decentralize the
                                           evaluation process.

                                  2)       The test battery shall minimally
                                           consist of the MMPI II, but may
                                           include the IPI and a stress
                                           management inventory.  Equivalent
                                           assessment measures/inventories may
                                           be utilized as clinically deemed
                                           appropriate.

                                  3)       The Contractor may utilize
                                           psychological examiners who are
                                           licensed in the State of Tennessee
                                           to assist in providing psychological
                                           evaluations to all newly hired
                                           correctional officers/probation
                                           officers employed with the Tennessee
                                           Department of Correction.  Standards
                                           of practice shall be in accordance
                                           to those of the community and with
                                           state and federal laws.

         B.      PAYMENT TERMS AND CONDITIONS:

                 1.       The Contractor shall be compensated based upon the
                          capitated rates as follows:

                          Capitated Annual Rate

<TABLE>
                                  <S>                                        <C>
                                  July 1997 - December 1997                  $129.94
                                  January 1998 - December 1998               $133.19
                                  January 1999 - December 1999               $136.52
                                  January 2000 - December 2000*              $139.93
                                  January 2001 - December 2001*              $143.43
</TABLE>

                          *  Option Years

                          Each month, the State will provide information to the
                          Contractor regarding inmate population.  The
                          Contractor will use TDOC's information to prepare its
                          monthly invoice to the State.





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                                                             RFS No.: 329.00-011


                 2.       The Capitated Rate in Paragraph 1 of this Section,
                          shall constitute the entire compensation due the
                          Contractor for the Service and all of the Contractor's
                          obligations hereunder regardless of the difficulty,
                          materials or equipment required.  The Capitated Rate
                          include, but are not limited to, all applicable
                          taxes, fees, overheads, profit and all other direct
                          and indirect costs incurred or to be incurred, by the
                          Contractor.  The cost of medications issued from
                          Central Pharmacy will be deducted from the Capitated
                          Rate Payment.

                 3.       The Capitated Rates in Paragraph 1 of this Section
                          are firm for the duration of the Contract and are not
                          subject to escalation for any reason, unless amended.
                          In the event of changes in the anticipated scope of
                          services, governmental regulations or other
                          circumstances, the State or the Contractor may submit
                          a written request for amendment.  If, within thirty
                          (30) days thereafter the parties are unable in good
                          faith to negotiate satisfactory modifications, the
                          party submitting the request may terminate this
                          Contract by giving sixty (60) days notice.

                 4.       The Contractor shall submit all invoices, in a form
                          acceptable to the State with all of the necessary
                          supporting documentation, prior to any reimbursement
                          of allowable costs.

                 5.       The Payment of an invoice by the State shall not
                          prejudice the State's right to object to or question
                          any invoice or matter in relation thereto.  Such
                          payment by the State shall neither be construed as
                          acceptance of any part of the work or service
                          provided nor as an approval of any of the costs
                          invoiced therein.  Contractor's invoice shall be
                          subject to reduction for amounts included in any
                          invoice or payment theretofore made which are
                          determined by the State, on the basis of audits
                          conducted in accordance with the terms of this
                          contract, not to constitute allowable costs.  Any
                          payment shall be reduced for over-payments, or
                          increased for under-payments on subsequent invoices.

                 6.       The State reserves the right to deduct from amounts
                          which are or shall become due and payable to the
                          Contractor under this or any contract between the
                          parties any amounts which are or shall become due and
                          payable to the State by the Contractor.

                 7.       In no event shall the maximum liability to the State
                          under this contract exceed SEVEN MILLION FOUR HUNDRED
                          SEVENTY-THREE THOUSAND THREE HUNDRED FOUR DOLLARS
                          ($7,473,304.00).

                 8.       The Contractor shall complete and sign an
                          "Authorization Agreement for Automatic Deposits (ACH
                          Credits) Form".  This form shall be provided to the
                          Contractor by the State.  Once this form has been
                          completed and submitted to the State by the
                          Contractor, all payments to the Contractor, under
                          this or any other contract the Contractor has with
                          the State, shall be made through the State's
                          Automated Clearing House wire transfer system.  The
                          Contractor shall not commence work or invoice the
                          State for services until he has completed this form
                          and submitted it to the State.  The debit entries to
                          correct errors authorized by the "Authorization
                          Agreement for Automatic Deposits Form" shall be
                          limited to those errors detected prior to the
                          effective date of the credit entry.  The remittance
                          advice shall note that a correcting entry was made.
                          All corrections shall be made within two banking days
                          of the effective date of the original transaction.
                          All other errors detected at a later date shall take
                          the form of a





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                                                             RFS No.: 329.00-011


                          refund, or in some instances, a credit memo if
                          additional payments are to be made




         C.      TERM:

                 This Contract shall be effective for a period of 36 months,
                 commencing on July 1, 1997 and ending on June 30, 2000.  The
                 State shall have no obligation for services rendered by the
                 Contractor which are not performed within the specified
                 period.  The State shall have the option to renew the contract
                 for two additional one (1) year periods.

         D.      STANDARD TERMS AND CONDITIONS:

                 1.       The State is not bound by this Contract until it is
                          executed by the appropriate parties and is approved
                          by the appropriate State officials as indicated on
                          the signature page of this Contract.

                 2.       This Contract may be modified only by a written
                          amendment which has been executed and approved by the
                          appropriate state officials as indicated on the
                          signature page of this Contract.

                 3.       The State may terminate this Contract by giving the
                          Contractor at least sixty (60) calendar days written
                          notice before the effective termination date.  The
                          Contractor shall be entitled to receive equitable
                          compensation for satisfactory authorized services
                          completed as of termination date.  Said termination
                          shall not be deemed a breach of contract.

                 4.       If the Contractor fails to properly perform its
                          obligations under this Contract or violates any terms
                          of this Contract, the State shall have the right to
                          immediately terminate the Contract and withhold
                          payments in excess of fair compensation for completed
                          services.  The Contractor shall not be relieved of
                          liability to the State for damages sustained by the
                          virtue of any breach of this Contract by the
                          Contractor.

                 5.       The Contractor shall not assign this Contract or
                          enter into a subcontract for any of the services
                          performed under this Contract without obtaining the
                          prior written approval of the State.  If such
                          subcontracts are approved by the State, they shall
                          contain, at a minimum, Paragraphs D.6 and D.8 of this
                          Contract.

                 6.       The Contractor warrants that no part of the total
                          Contract amount shall be paid directly or indirectly
                          to any employee or official of the State of Tennessee
                          as wages, compensation, or gifts in exchange for
                          acting as officer, agent, employee, subcontractor, or
                          consultant to the Contractor in connection with any
                          work contemplated or performed relative to this
                          Contract.

                 7.       The Contractor shall maintain documentation for all
                          charges against the State under this Contract.  The
                          books, records, and documents of the Contractor,
                          insofar as they relate to work performed or money
                          received under this Contract, shall be maintained for
                          a period of three (3) full years from the date of the
                          final payment, and shall be subject to audit, at any
                          reasonable time and upon reasonable notice, by the
                          State agency or the Comptroller of the Treasury, or





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                                                             RFS No.: 329.00-011


                          their duly appointed representatives.  The Financial
                          Statements shall be prepared in accordance with
                          generally accepted accounting principles.

                 8.       No person on the ground of handicap or disability,
                          age, race, color, religion, sex, national origin, or
                          any other classification protected by Federal and/or
                          Tennessee State constitutional and/or statutory law
                          shall be excluded from participation in, or be denied
                          benefits of, or be otherwise subjected to
                          discrimination in the performance under this
                          Contract, or in the employment practices of the
                          Contractor.  The Contractor shall, upon request show
                          proof of such non-discrimination, and shall post in
                          conspicuous places, available to all employees,
                          applicants, visitors and offenders notices of
                          non-discrimination.

                 9.       The Contractor, being an independent Contractor,
                          agrees to carry adequate public liability and other
                          appropriate forms of insurance.  The Contractor shall
                          show proof of such insurance coverage.

                 10.      The Contractor agrees to pay all taxes incurred in
                          the performance of this Contract.

                 11.      The State shall have no liability except as
                          specifically provided in the Contract.

                 12.      The Contractor shall comply with all applicable
                          Federal and State laws and regulations in the
                          performance of this Contract.

                 13.      This Contract shall be governed by laws of the State
                          of Tennessee.

         E.      SPECIAL TERMS AND CONDITIONS:

                 1.       Should any of these special terms and conditions
                          conflict with any other terms and conditions of this
                          Contract, these special terms and conditions shall
                          control.

                 2.       Where a term in the Contract differs from the RFP
                          and/or the proposal, the Contract shall rule.  Where
                          a term in the RFP differs from the proposal, the RFP
                          shall rule.

                 3.       The Contractor shall maintain confidentiality of all
                          records in acceptance with state and federal law; and
                          TDOC policy.

                 4.       This Contract and any extension of the terms of this
                          Contract are subject to appropriation and
                          availability of State and/or Federal funds.  In the
                          event that the funds are not appropriated or are
                          otherwise unavailable, the State reserves the right
                          to terminate this Contract upon written notice to the
                          Contractor.  Upon receipt of the written notice, the
                          Contractor shall cease all work associated with the
                          Contract.  Should such an event occur, the Contractor
                          shall be entitled to compensation for all authorized
                          services satisfactorily completed as of the
                          termination date.

                 5.       Upon expiration or early termination of this
                          Contract, the Contractor agrees to cooperate with any
                          treatment successor to effect an orderly and
                          therapeutically efficient transition for those
                          patients actively receiving care.

                 6.       The Contractor agrees to indemnify and hold harmless
                          the State as well as its officers, agents and
                          employees from all claims, losses or suits accruing
                          or





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                                                             RFS No.: 329.00-011


                          resulting to any person, firm, corporation or other
                          entity which may be injured or damaged as a result of
                          acts or omissions of the Contractor relating to this
                          Contract.  The State shall give the Contractor
                          written notice of each such claim or suit and full
                          right and opportunity to conduct the Contractor's own
                          defense.

                 7.       The sovereign immunity of the State shall not apply
                          to the Contractor nor any subcontractor, agent,
                          employee, or insurer of the Contractor.  Neither
                          Contractor nor any subcontractor, agent, employee, or
                          insurer of the Contractor may plead the defense of
                          sovereign immunity in any action arising out of the
                          performance or failure to perform any responsibility
                          or duty under this Contract.

                 8.       The Contractor shall be responsible for the correct
                          use, maintenance and protection of all equipment
                          furnished by the State under this Contract.  Upon
                          termination of this Contract, all equipment furnished
                          shall be returned to the State in good order and
                          condition as when received, reasonable use and wear
                          thereof excepted.  Should the equipment be destroyed,
                          lost or stolen, the Contractor shall be responsible
                          to the State for the residual value of the equipment
                          at the time of loss.

                 9.       The Contractor shall document mental health services
                          provided utilizing an approved TDOC format.  The
                          Contractor in concert with TDOC institutional staff
                          shall enter service codes into the Tennessee Offender
                          Management Information System (TOMIS).  This
                          automated process shall serve as a data collection
                          mechanism for each contract provider.

                 10.      The Contractor shall submit to the institutional
                          Warden or Warden's designee a hard copy of their TDOC
                          Services Provided Encounter Log as supporting
                          documentation.

                 11.      If requested by the State, the Contractor must agree
                          to random background checks which shall include
                          fingerprinting by the State's internal affairs
                          department.  If requested by the State, the
                          Contractor must submit copies of drivers licenses
                          and/or social security cards to be on file with the
                          State.  If background checks are requested, such
                          checks shall be at the expense of the Contractor.
                          Results of such checks shall be provided to the
                          State.

                 12.      The Contractor shall at all times honor the security
                          of the TDOC Tennessee Offender Management Information
                          System (TOMIS) information and shall not misuse,
                          abuse, alter, or attempt to alter the information
                          contained within TOMIS, except as pertains to the use
                          and data entry requirements necessary to fulfill the
                          Contractors obligations under the terms of this
                          Contract.

                 13.      The Contractor shall be duly licensed to conduct
                          business within the State of Tennessee.

                 14.      The Contractor shall establish a performance bond in
                          the amount of $100,000.00 for regional contracts or
                          $400,000.00 for a statewide contract.  Said
                          performance bond shall be in the form of a bond
                          issued by an insurance company or other reputable
                          bonding agent that is acceptable to the State.  The
                          following shall be the contractual terms controlling
                          this performance bond.

                          a.      Said performance bond shall be in force for
                                  the duration of the Contract.





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                                                             RFS No.: 329.00-011


                          b.      Should the State terminate this Contract
                                  under Section D.3., the Contractor shall
                                  continue to fully provide the services
                                  required under this Contract during the sixty
                                  (60) day termination period as provided by
                                  Section D.6. of this Contract in its
                                  entirety.

                          c.      Should the Contractor fail to provide these
                                  services during the sixty (60) day
                                  termination period, then the State shall be
                                  entitled to recover actual damages against
                                  the performance bond.

                 15.      The State's Director of Mental Health and Director of
                          Contracts Administration shall review mental health
                          performance/outcome measures to determine compliance,
                          effectiveness and quality of service delivery.  If
                          services designated to the Contractor are deemed
                          non-compliant, the State's Directors shall submit to
                          the Contractor a written warning citing the specific
                          non-compliant issue(s).  If upon reinspection the
                          non-compliant item(s) remain deficient, a stipulated
                          liquidated damages value shall be assessed per
                          non-compliant item(s) for the reporting period
                          identified (See Attachment A).  The contractor's
                          payment shall be reduced by the amount of accumulated
                          liquidated damages within thirty (30) days from the
                          point of receiving the second written notice.

                 16.      Prior to the end of the first contract year, the
                          Contractor shall submit for TDOC approval a mental
                          health service delivery recommendation plan.  The
                          plan shall be prepared with the assistance of the
                          State's Director of Mental Health.  The plan should
                          include a method for determining the types and levels
                          of service needs; a method for determining resource
                          needs; alternative service technology; etc.  Upon
                          approval of the plan, the state then reserves the
                          right to renegotiate the Contract provisions with the
                          existing Contractor.

                 17.      The parties agree that due to the complicated nature
                          of the Contractor's obligations under this Contract,
                          it would be difficult to specifically designate a
                          monetary amount for a breach by Contractor designated
                          in Attachment A as said amounts are likely to be
                          uncertain and not easily proven.  Contractor hereby
                          represents and convenants that it has carefully
                          reviewed the liquidated damages contained in
                          Attachment A and agree that said amounts are the
                          liquidated damages resulting from agreement between
                          the parties, represent a reasonable relationship
                          between the amount and what might reasonably be
                          expected in the event of breach, and are a reasonable
                          estimate of the damages that would occur from a
                          breach.

                 18.      It is hereby agreed between the parties that the
                          liquidated damages represent solely the damages and
                          injuries sustained by the State in losing the benefit
                          of the bargain with Contractor and do not include any
                          injury or damage sustained by a third party and
                          Contractor agrees that the liquidated damage amount
                          is in addition to any amounts the Contractor may owe
                          the State pursuant to the indemnity provision
                          contained in Section E(6) or otherwise.

                 19.      The State may continue to withhold the liquidated
                          damages or a portion thereof until the Contractor
                          cures the breach or the State terminates the
                          Contract.

                 20.      The State is not obligated to assess liquidated
                          damages before availing itself of any other remedy.





                                       11
<PAGE>   12
                                                             RFS No.: 329.00-011


                 21.      The State agrees to provide Contractor thirty (30)
                          days notice to cure in the event Contractor fails to
                          properly perform its obligations under this Contract
                          or violates any terms of this Contract.

                 22.      The State may choose to discontinue liquidated
                          damages and avail itself of any other remedy
                          available under this Contractor or at law or equity;
                          provided, however, Contractor shall receive a credit
                          for said liquidated damages previously withheld.

                 23.      The Contractor shall not publish any outcomes based
                          on data obtained from the operation of this Contract
                          without prior written consent of the TDOC.

                 24.      The Contractor shall be responsible for the costs of
                          all medications prescribed by the Contractor's
                          providers and said costs shall be a part of the
                          capitated rate.  The TDOC will forward to the
                          Contractor a monthly statement itemizing the drugs
                          prescribed by the Contractor's providers and
                          detailing the direct deductions made from the
                          Contractor's payments.  The Contractor's providers
                          shall utilize the TDOC formulary for the purpose of
                          prescribing medications.  The TDOC central pharmacy
                          shall be responsible for packaging and distribution
                          of psychopharmacological prescriptions.  Provided
                          that, with the consent of TDOC, Contractor, at its
                          own cost, may utilize other reasonable alternatives
                          for purchasing, packaging and distribution of
                          psychopharmacological prescriptions, provided that
                          the TDOC pharmacy first shall be given the
                          opportunity to match any alternative proposal for the
                          purchase, packaging and distribution of
                          psychopharmacological prescriptions which Contractor
                          is considering.

                 25.      TDOC may delegate or authorize other parties in
                          writing to perform any of the services or functions
                          specified in this contract as being the
                          responsibility of TDOC.  TDOC may, upon written
                          notice to the contractor, delegate or authorize the
                          services of functions to be performed by another
                          party.

                 26.      The State may require the Contractor to modify
                          staffing provisions if, upon review, the provisions
                          of services are deemed unacceptable in meeting the
                          clinical or program needs at any given TDOC facility.

                 27.      The Contract shall be governed by the laws of the
                          State of Tennessee.  Any legal proceedings against
                          the State regarding this Contract shall be brought in
                          the State of Tennessee administrative or judicial
                          forum.  Request shall be in Davidson County,
                          Tennessee.





                                       12
<PAGE>   13
                                                             RFS No.: 329.00-011


MHM SERVICES, INC.                   
                                                       
BY:                                                    
                                                       
/s/ MIKE PINKERT                               
------------------------------------------------           ---------------------
MIKE PINKERT, PRESIDENT                                             DATE
      FED I.D. NO. 521223048                        
                   ---------------------------------
                                                       
                                                       
STATE OF TENNESSEE                                     
DEPARTMENT OF CORRECTION                               
                                                       
BY:                                                    
         /s/ DONAL CAMPBELL                                        7/2/97      
         ----------------------------------------          ---------------------
         DONAL CAMPBELL, COMMISSIONER                               DATE
                                                       
APPROVED:                                              
TENNESSEE DEPARTMENT OF FINANCE AND ADMINISTRATION     
                                                       
BY:                                                    
                                                       
         /s/ JOHN D. FERGUSON                                   JUL 11 1997    
         ----------------------------------------          ---------------------
         JOHN D. FERGUSON, COMMISSIONER                             DATE
                                                       
APPROVED:                                              
COMPTROLLER OF THE TREASURY                            
                                                       
BY:                                                    
         /s/ WILLIAM R. SNODGRASS                                   7-15-97    
         ----------------------------------------           --------------------
         WILLIAM R. SNODGRASS, COMPTROLLER                          DATE
                                                       




                                       13
<PAGE>   14

                             PERFORMANCE MEASURES

                                 ATTACHMENT A

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
DEFICIENCY                                    DEFINITION                                         LIQUIDATED
                                                                                                   DAMAGES
<S>                               <C>                                                       <C>
I                                 A performance standard which, if not met, is              $200 will be assessed
                                  likely to be physically or psychologically                for each Type I
                                  distressing to the patient.  There will be a              deficiency found at
                                  disruption in the quality of care and policy              the time of reporting.
                                  adherence.

II                                A performance standard which, if not met, has             $75.00 will be assessed
                                  the potential to adversely impact the care of a           for each Type II
                                  given patient and/or adversely impact                     deficiency found at
                                  administrative/clinical practice.                         the time of reporting.

III                               A performance standard which, if not met,                 $50.00 will be assessed
                                  prevents the state from monitoring the                    for each Type III
                                  contractor's performance and/or may                       deficiency found at
                                  adversely impact continuity of care.                      the time of reporting.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE:  A written warning will be submitted to the contractor denoting a
       particular deficiency prior to assessing any damages. A second deficiency
       in the same area will warrant assessment of damages.
<PAGE>   15

                        PROVIDER PERFORMANCE MEASURES

<TABLE>
<CAPTION>
 SERVICE          DESIRED               PERFORMANCE                                       REPORTING                         
 AREA             OUTCOME               MEASURE                  STANDARD                 REQUIREMENT                       
                                                                                                                            
 <S>              <C>                   <C>                      <C>                      <C>                               
 Administrative   Treatment providers   Providers acknowledge    A1 100% of the service   Able to initiate the              
      A1          have satisfactory     understanding of their   providers are capable    performance                       
                  working               responsibilities         of recognizing and       measurements                      
                  relationship with     related to performance   implementing required    process.                          
                  facility staff and    measures.                services.                                                  
                  are familiar with                                                                                         
                  TDOC policy and                                                                                           
                  procedures.                                                                                               
                                                                                                                            
 Administrative                         Provider and TDOC        A2 75% of surveyed       Reported by type of               
      A2                                staff satisfaction       TDOC sites rated their   provider utilizing a              
                                        reporting rate           experience with          satisfaction scaled               
                                                                 contract personnel to    score, i.e., Likert               
                                                                 be fair to good.  90%    Scale.                            
                                                                 rated it as good or                                        
                                                                 excellent.                                                 

 Administrative                         Providers report type    A3 100% of service       When applicable,                  
      A3                                of service(s)            providers accurately     services reported                 
                                        provided.                fill out service logs    daily by provider                 
                                                                 and enter data.          utilizing TOMIS.                  
                                                                                          (TDOC staff may                   
                                                                                          provide assistance.)              

 Administrative   Clinical/administra-  Telephone non-response   A4 80% of providers      Response time for                 
      A4          tive staff obtain     or significant delay.    respond to               for non-emergency                 
                  access to provider.                            non-emergency            inquiries.                        
                                                                 inquiries within 24                                        
                                                                 hours.                                                     

                                                                 A4.1 95% of              Response time for                 
                                                                 psychiatrists respond    emergency inquiries               
                                                                 to emergency inquiries   in minutes.                       
                                                                 within 15 minutes.
</TABLE>

<TABLE>
<CAPTION>
 SERVICE          REPORTING         DEFICIENCY
 AREA             FREQUENCY         TYPE
                  
 <S>              <C>               <C>
 Administrative   60 days           III
      A1          After contract
                  initiation.
                  
                  
                  
                  
                  
                  

 Administrative   Annually          III
      A2          
                  
                  
                  
                  
                  

 Administrative   Weekly            III
      A3          (state
                  generated
                  report)
                  
                  

 Administrative   Quarterly         III
      A4          
                  
                  
                  

                  Quarterly         I
                  
                  
                  
</TABLE>          
<PAGE>   16
                        PROVIDER PERFORMANCE MEASURES

<TABLE>
<CAPTION>
 SERVICE          DESIRED                 PERFORMANCE                                           REPORTING                 
 AREA             OUTCOME                 MEASURE                     STANDARD                  REQUIREMENT               
 <S>              <C>                     <C>                         <C>                       <C>                       
 Clinical         Emergency psychiatric   On-site review of           C1 100% of the            Number of documented      
      C1          cases reviewed within   emergency intervention(s)   psychiatrists providing   days to respond. (Phone   
                  reasonable period of    that requires phone         emergency phone           dated and signed by       
                  time following phone    consult.                    consultation will see     psychiatrist.             
                  consultation and                                    patient(s) within a 72                              
                  ordering of                                         hour period from the                                
                  intervention.                                       time of the original                                
                                                                      phone order.                                        
                                                                                                                          
 Clinical         Patients are seen for   Average length of time      C2.1 100% of specialty    Number of patients and    
      C2          routine and specialty   patient waits to be seen    referrals to psychiatry   number of days that       
                  psychological/          from the time of referral   shall be seen within 14   elapsed beyond 14 days    
                  psychiatric consults/   to face-to-face contact     day time period.          before patient was        
                  treatment in a timely   with psychiatrist or                                  seen.                     
                  manner.                 psychologist.                                                                   
                                                                                                                          
                                                                      C2.2 100% of routine      Number of patients and    
                                                                      referrals to              number of days that       
                                                                      psychologist shall be     elapsed beyond 14 days    
                                                                      seen within a 30 days     before patient was seen   
                                                                      time period.                                        
                                                                                                                          
 Clinical         Patients prescribed     Frequency of face-to-face   C3 98% of the patients    A sample of patients      
      C3          psychotropic            contact with psychiatrist   prescribed psychotropic   who have been             
                  medications will meet   for patients prescribed     medication will have      prescribed psychotropic   
                  face-to-face with a     psychotropic medications.   met directly with a       medications by            
                  psychiatrist as                                     psychiatrist every 3      frequency of              
                  indicated by the                                    months.                   face-to-face contact      
                  treatment plan but                                                            with psychiatrist         
                  not less frequently                                                           during previous 3         
                  than once every 3                                                             months.                   
                  months.                                                                                                 
                                                                                                                          
 Clinical         Treatment plans that    Percentage of patients      C4. 98% of all patients   A sample of diagnosed     
      C4          address the clinical    with a diagnosis who have   warranting a treatment    patients with treatment   
                  care of a patient       a treatment plan to         plan will have been       plans shall be            
                  meet the approval of    address their mental        reviewed, signed and      reviewed.                 
                  the psychiatrist        needs.                      dated by the                                        
                  and/or psychologist.                                psychiatrist and/or                                 
                                                                      psychologist.  An                                   
                                                                      appropriate diagnosis
                                                                      will have been assigned
                                                                      to each patient.
</TABLE>
<TABLE>
<CAPTION>
 SERVICE          REPORTING                DEFICIENCY
 AREA             FREQUENCY                TYPE
 <S>              <C>                      <C>
 Clinical         Quarterly for DeBerry    I
      C1          Special Needs
                  Facility). Every four
                  months for other TDOC
                  facilities.
                  
                  
                  
                  
 Clinical         Quarterly for            II
      C2          reception centers.
                  Every four months for
                  other TDOC
                  facilities.
                  
                  
                  Quarterly for            II
                  reception centers.
                  Every four months for
                  other TDOC
                  facilities.
                  
 Clinical         Annually                 II
      C3          
                  
                  
                  
                  
                  
                  
                  
                  
                  
 Clinical         Annually                 II
      C4          
                  
                  
</TABLE>          
<PAGE>   17
<TABLE>
 <S>              <C>                       <C>                       <C>                       <C>                      
 Clinical         Documentation that all    In-house mental health    C5. 100% of documented    Memorandum noting        
    C5            in-house mental health    policies reflect TDOC     mental health in-house    approval of each         
                  policies have been        policy requirements and   policies shall meet the   in-house mental health   
                  approved by the           accepted clinical         approval of the           policy.                  
                  psychologist and/or       practices of the          psychologist and/or
                  psychiatrist.             community.                psychiatrist through
                                                                      memorandum.
</TABLE>

<TABLE>
 <S>              <C>                     <C>
 Clinical         Annually                II
    C5               
                  
</TABLE>          
<PAGE>   18
                                      
                     PATIENT/PROGRAM OUTCOME PERFORMANCE


<TABLE>
<CAPTION>
 SERVICE            DESIRED                PERFORMANCE                                    REPORTING              
 AREA               OUTCOME                MEASURE                STANDARD                REQUIREMENT            
 <S>                <C>                    <C>                    <C>                     <C>                    
 Administrative     Implement specific     Contractor will        The contractor will     The state will be in   
      A1            patient/program        develop with the       submit to the state's   a position to          
                    outcome measures       assistance and         Director of Mental      implement outcome at   
                    statewide/regionally   approval of the        Health several          it's discretion.
                                           state specific         patient outcome
                                           patient/program        measures.
                                           outcome measures.
</TABLE>

<TABLE>
<CAPTION>
 SERVICE            REPORTING                 DEFICIENCY
 AREA               FREQUENCY                 TYPE
 <S>                <C>                       <C>
 Administrative     120 days  after           III
      A1            contract initiation
                    
                    
                    
                    
                    
</TABLE>


NOTE: Additional patient/program outcome performance measures shall be
developed at a later date. Not all outcome measures will be subject to
liquidated damages.
<PAGE>   19
                             CONTRACT SUMMARY SHEET
<TABLE>
<S>                                                                    <C>
---------------------------------------------------------------------------------------------------------------------------
   [ ]  NEW CONTRACT            [ ] FA  [ ] GR  [ ] DP  [ ] RV                  CONTRACT NUMBER         RFS NUMBER
   [X]  AMENDMENT #1            [ ] ID  [ ] Z   [ ] DG  [ ] NC           --------------------------------------------------
                                [ ] GU  [ ] GG  [ ] DL                          FA-98-12426-01       329.00-011
---------------------------------------------------------------------------------------------------------------------------
   [ ] OTHER CONTRACTING PARTY (VENDOR):        [ ] GRANTEE:            VENDOR I.D. NUMBER

                MHM SERVICES, INC.                                        [ ]V  [X]C    521223048
---------------------------------------------------------------------------------------------------------------------------
   STATE AGENCY:   CORRECTION                                           DIVISION:  ADMINISTRATION/MENTAL HEALTH SVCS

---------------------------------------------------------------------------------------------------------------------------
   PROGRAM CONTACT:    LENNY LOCOCO                                     FISCAL CONTACT:     FRED HIX
   FLOOR(SUITE)/BLDG:  4TH FLR RACHEL JACKSON BLDG.                     FLOOR(SUITE)/BLDG:  3RD FLR RACHEL JACKSON BLDG.
   TELEPHONE:              741-2607                                     TELEPHONE:          741-2351

---------------------------------------------------------------------------------------------------------------------------
   ALLOTMENT        COST      MAJOR & MINOR                                GRANT IS ON       GRANT      SUBGRANT    CFDA
     CODE          CENTER      OBJECT CODE        FUND                        STARS           CODE        CODE     NUMBER
---------------------------------------------------------------------------------------------------------------------------
    329.01           43           083                                        [ ] YES
---------------------------------------------------------------------------------------------------------------------------

   BEGINNING DATE:    7/1/97                                            TERMINATION DATE:     6/30/00
---------------------------------------------------------------------------------------------------------------------------
ESTIMATED EXPENDITURES BY FISCAL YEAR BY FUNDING SOURCE:
---------------------------------------------------------------------------------------------------------------------------
                                                                                          TOTAL CONTRACT AMOUNT
  FY                 STATE               FEDERAL       INTERDEPARTMENTAL      OTHER       INCLUDING ALL AMENDMENTS
---------------------------------------------------------------------------------------------------------------------------
 98             $2,303,856.00                                                                 $2,303,856.00
---------------------------------------------------------------------------------------------------------------------------
 99             $2,506,155.00                                                                 $2,506,155.00
---------------------------------------------------------------------------------------------------------------------------
 00             $2,663,293.00                                                                 $2,663,293.00
---------------------------------------------------------------------------------------------------------------------------

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

---------------------------------------------------------------------------------------------------------------------------
 TOTAL          $7,473,304.00                                                                 $7,473,304.00
===========================================================================================================================
CONTRACT SCOPE/SERVICE DESCRIPTION:
---------------------------------------------------------------------------------------------------------------------------
PROVISION OF MENTAL HEALTH SERVICES FOR THE INMATE POPULATION CONFINED WITHIN THE TN DEPT. OF CORRECTION
---------------------------------------------------------------------------------------------------------------------------
CHECK ONE FOR EACH CATEGORY:
---------------------------------------------------------------------------------------------------------------------------
         [ ] FISCAL YEAR FUNDING IS STRICTLY LIMITED.
         [ ] FUNDS MAY ROLL FORWARD TO SUBSEQUENT FISCAL YEARS WITHIN THE CONTRACT TERM.
---------------------------------------------------------------------------------------------------------------------------
                [X] VENDOR IS ALREADY SET UP IN STARS ON ACH.
                [ ] VENDOR ACH FORM IS ATTACHED.
---------------------------------------------------------------------------------------------------------------------------
                        [X] CURRENT FORM W-9 INFORMATION IS ON FILE IN ACCOUNTS.
                        [ ] A FORM W-9 IS ATTACHED.
---------------------------------------------------------------------------------------------------------------------------
APPROVED BY FISCAL OFFICER:                                   COMPLETE FOR AMENDMENTS ONLY:
---------------------------------------------------------------------------------------------------------------------------
                                                                             ORIGINAL CONTRACT          THIS AMENDMENT
                                                                           AND PRIOR AMENDMENTS 
   /s/ FRED W. HIX                 11-3-97                  ---------------------------------------------------------------
  ----------------------------------------------------        TERMINATION
  SIGNATURE                        DATE                          DATE:
---------------------------------------------------------------------------------------------------------------------------
  OCA USE ONLY                                               FY/FUNDING:
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                            ---------------------------------------------------------------
                                                                TOTAL:
                                                                      -----------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>