EXHIBIT 99

INFORMATION FURNISHED PURSUANT TO THE REQUIREMENTS OF REGULATION FD

As used herein, the "Company" refers to Magellan Health Services, Inc. and
not to any of its subsidiaries and "we", "us" and "our" refer to Magellan Health
Services, Inc. and its subsidiaries.

1. FINANCIAL INFORMATION

The following table sets forth selected financial information for the
Company and its subsidiaries as of and for each of the fiscal years ended
September 30, 1996, 1997, 1998, 1999 and 2000, as of and for the six-month
periods ended March 31, 2000 and 2001 and for the twelve-month period ended
March 31, 2001.

The selected financial information should be read in conjunction with the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001 (the "Quarterly Report on Form 10-Q") and its Current Report on
Form 8-K filed with the U.S. Securities and Exchange Commission on May 21, 2001
relating to financial statements restated to present the Company's human
services segment as discontinued operations (the "Current Report on Form 8-K").

On September 2, 1999, the Company's Board of Directors approved a formal
plan to dispose of the businesses included in its healthcare provider and
franchising segment, and on September 10, 1999, the Company substantially
completed such disposal. On October 4, 2000, the Company adopted a formal plan
to dispose of the business included in its specialty managed healthcare segment,
which plan the Company expects to be substantially completed by September 30,
2001. On January 18, 2001, the Company adopted a formal plan to dispose of the
business included in its human services segment, and on March 9, 2001, the
Company completed such disposal. Accordingly, the statement of operations

information has been restated to reflect the healthcare provider, healthcare
franchising, specialty managed healthcare and human services segments as
discontinued operations.

TWELVE
SIX MONTHS ENDED MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31, ENDED
---------------------------------------------------------- ------------------- MARCH 31,
1996 1997 1998 1999 2000 2000 2001 2001
-------- -------- ---------- ---------- ---------- -------- -------- -----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)

STATEMENT OF OPERATIONS:
Net revenue(1)................... $232,760 $375,541 $1,017,002 $1,465,918 $1,640,933 $789,881 $890,075 $1,741,127
Costs and expenses
Salaries, cost of care and other
operating expenses(2).......... 239,952 358,533 908,471 1,282,046 1,442,082 695,409 783,120 1,529,793
Equity in (earnings) loss of
unconsolidated
subsidiaries(3)................ 2,005 5,567 (12,795) (20,442) (9,792) (6,382) (28,223) (31,633)
Depreciation and amortization.... 11,729 16,874 42,413 62,408 68,261 33,503 33,188 67,946
Interest, net(4)................. 48,584 46,438 76,505 93,752 97,286 48,245 48,897 97,938
Stock option expense (credit).... 914 4,292 (5,623) 18 -- -- -- --
Managed care integration
costs(5)....................... -- -- 16,962 6,238 -- -- -- --
Special charges(6)............... 1,221 -- -- 4,441 25,398 -- 3,340 28,738
Income (loss) from continuing
operations before income taxes,
minority interest and
extraordinary items............ (71,645) (56,163) (8,931) 37,457 17,698 19,106 49,753 48,345
Provision for (benefit from)
income taxes(7)................ (29,155) (22,961) 339 21,674 8,994 12,285 24,377 21,087
Income (loss) from continuing
operations before minority
interest and extraordinary
items.......................... (42,490) (33,202) (9,270) 15,783 8,704 6,821 25,376 27,258
Minority interest................ 4,531 6,856 4,094 630 114 31 52 135
Income (loss) from continuing
operations before extraordinary
items.......................... (47,021) (40,058) (13,364) 15,153 8,590 6,790 25,324 27,123
Discontinued operations:
Income (loss) from discontinued
operations, net of income
tax............................ 79,404 44,813 27,096 36,958 (56,736) (49,660) 5,167 (1,908)
Loss on disposal of discontinued
operations, net of income tax
benefit (provision) of $31,616
in 1999, $9,224 in 2000,
$(9,303) for the six months
ended March 31, 2001 and $(79)
for the twelve months ended
March 31, 2001................. -- -- -- (47,423) (17,662) -- (12,103) (29,765)
Income (loss) before
extraordinary items............ 32,383 4,755 13,732 4,688 (65,808) (42,870) 18,388 (4,550)
Extraordinary items -- losses on
early extinguishments of debt
(net of income tax benefit of
$3,503 in 1997 and $22,010 in
1998).......................... -- (5,253) (33,015) -- -- -- -- --
Net income (loss)................ $ 32,383 $ (498) $ (19,283) $ 4,688 $ (65,808) $(42,870) $ 18,388 $ (4,550)
======== ======== ========== ========== ========== ======== ======== ==========
OTHER FINANCIAL DATA:
EBITDA(8)........................ $ 767 $ 20,485 $ 132,111 $ 214,718 $ 218,068 $104,882 $141,813 $ 255,001
Capital expenditures............. 38,801 33,348 44,213 48,119 36,924 15,303 11,116 32,737
Cash interest expense............ 56,124 53,772 84,355 100,313 102,335 50,079 52,921 104,516
Ratio of EBITDA to cash interest
expense........................ 0.0x 0.4x 1.6x 2.1x 2.1x 2.1x 2.7x 2.4x
Ratio of total debt to EBITDA.... 745.8x 19.3x 9.3x 5.3x 5.0x N/A N/A 3.9x
Ratio of earnings to fixed
charges(9)..................... $(69,640) $(50,596) $ (10,798) 1.3x 1.1x 1.3x 1.4x

AS OF SEPTEMBER 30, AS OF MARCH 31,
----------------------------------------------- ------------------------------------
1996 1997 1998 1999 2000 2000 2001
---------- -------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED)

BALANCE SHEET DATA:(10)
Cash and cash equivalents................ $ 120,945 $372,878 $ 92,050 $ 37,440 $ 41,628 $ 36,357 $ 31,081
Current assets........................... 338,150 507,038 399,724 374,927 319,653 337,912 247,221
Current liabilities...................... 274,316 219,376 454,766 474,268 469,879 448,528 422,790
Property and equipment, net.............. 495,390 109,214 177,169 120,667 112,612 117,222 91,474
Total assets............................. 1,140,137 895,620 1,917,088 1,881,615 1,803,787 1,805,232 1,621,125
Total liabilities........................ 1,018,320 737,370 1,728,655 1,684,919 1,617,489 1,596,431 1,415,004
Total long term debt (including capital
lease obligations)..................... 566,307 391,693 1,202,613 1,114,189 1,063,928 1,107,394 972,231
Total debt (including capital lease
obligations)........................... 572,058 395,294 1,225,646 1,144,308 1,098,047 1,138,938 1,004,407
Redeemable preferred stock............... -- -- -- -- 57,834 55,321 60,315
Total stockholders' equity............... 121,817 158,250 188,433 196,696 128,464 153,480 145,806

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

(1) Net revenue for the six months and twelve months ended March 31, 2001
includes revenue of approximately $30.3 million in connection with the
settlement of certain issues related to two contracts with TRICARE. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Results of Operations--Six Months ended March 31, 2001, compared
to the same period in fiscal 2000" in the Quarterly Report on Form 10-Q.

(2) Salaries, cost of care and other operating expenses for the six months and
twelve months ended March 31, 2001 include an adjustment of approximately
$15 million to the estimate of claims incurred in prior years based on the
results of our reduction in claims inventory and other claims processing
improvements. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Six Months ended
March 31, 2001, compared to the same period in fiscal 2000" in the Quarterly
Report on Form 10-Q.

(3) Equity in earnings of unconsolidated subsidiaries for the six months and
twelve months ended March 31, 2001 includes positive adjustments of
approximately $20.7 million in connection with Choice's settlement of
certain issues related to its contract with TRICARE. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--Six Months ended March 31, 2001, compared to the same
period in fiscal 2000" in the Quarterly Report on Form 10-Q. For a
discussion of cash distributions from unconsolidated subsidiaries, see the
audited and unaudited consolidated statements of cash flows included in the
Current Report on Form 8-K and in the Quarterly Report on Form 10-Q.

(4) Net of interest income of $9,964, $9,044, $10,785, $10,404, $9,425, $4,028,
$6,635 and $12,034 in fiscal year 1996, 1997, 1998, 1999, 2000, the six
months ended March 31, 2000 and 2001 and the twelve months ended March 31,
2001, respectively.

(5) For a description of the managed care integration costs, see Note 10 to the
audited consolidated financial statements included in the Current Report on
Form 8-K.

(6) For a description of the special charges, see Note 10 to the audited
consolidated financial statements included in the Current Report on
Form 8-K and Note I to the unaudited condensed consolidated interim
financial statements included in the Quarterly Report on Form 10-Q.

(7) Provision for income taxes includes a $9.1 million benefit which was
recorded as a change in estimate during the fiscal year ended
September 30, 2000 pursuant to an agreement with the Internal Revenue
Service. See Note 8 to the audited consolidated financial statements
included in the Current Report on Form 8-K.

(8) EBITDA is defined as net revenue less salaries, cost of care and other
operating expenses plus interest income and equity in (earnings) loss of
unconsolidated subsidiaries. EBITDA is not a measure of performance under
accounting principles generally accepted in the United States. EBITDA should
not be considered a substitute for cash flow from operations, net income or
other measures of performance as defined by accounting principles generally
accepted in the United States or as a measure of our profitability or
liquidity. EBITDA does not give effect to the cash we must use to service
our debt or pay our income taxes and thus does not reflect the funds
actually available for capital expenditures or other discretionary uses. We
understand that while a similar term is frequently used by security
analysts, lenders and others in the evaluation of companies, our
presentation of EBITDA may not be comparable to other similarly titled
captions of other companies due to differences in the method of calculation.
EBITDA as defined above differs from EBITDA for purposes of our debt
obligations.

(9) For purposes of calculating the ratio of earnings to fixed charges,
"earnings" represent income from continuing operations before income taxes,
plus fixed charges. "Fixed charges" consist of interest expense, including
amortization of debt issuance costs and that portion of rental expense
considered to be a reasonable approximation of interest and pretax earnings
required to pay preferred stock dividends.

(10) Balance sheet data include assets and liabilities of discontinued
operations. See Note 3 to the audited consolidated financial statements
included in the Current Report on Form 8-K and Note G to the unaudited
condensed consolidated interim financial statements included in the
Quarterly Report on Form 10-Q.

CAPITALIZATION

The following table sets forth our unaudited capitalization as of March 31,
2001.

AS OF MARCH 31, 2001
---------------------
(UNAUDITED)
(DOLLARS IN MILLIONS)

Cash and cash equivalents................................... $ 31.1
========
Senior Credit Facilities:
Revolving Credit Facility(1).............................. $ --
Tranche A Term Loan(2).................................... 99.6
Tranche B Term Loan(2).................................... 135.2
Tranche C Term Loan(2).................................... 135.2
Senior Subordinated Notes due 2008.......................... 625.0
Other(3).................................................... 9.4
--------
Total debt................................................ 1,004.4
Redeemable Preferred Stock.................................. 60.3
Total stockholders' equity(4)............................... 145.8
--------
Total capitalization...................................... $1,210.5
========

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

(1) The Senior Credit Facilities (as defined) contain the senior secured
$150 million Revolving Credit Facility (as defined) maturing in
February 2004, with a sublimit of $75 million for letters of credit. We
currently have approximately $34.3 million of letters of credit outstanding,
which reduces availability to approximately $115.7 million.

(2) The interest rates applicable to the Tranche A Term Loan, the Tranche B
Term Loan and the Tranche C Term Loan are currently 8.00%, 8.25% and 8.50%,
respectively.

(3) Represents capital lease obligations, including $6.4 million of industrial
revenue bonds.

(4) Represents the book value of the Company's stockholders' equity. The
Company's common stock is publicly traded on the New York Stock Exchange.
As of May 18, 2001, the market value of the Company's common stock was
approximately $412.3 million.

SCHEDULED MATURITIES OF LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

As of March 31, 2001, the aggregate scheduled maturities of long-term debt
and capital lease obligations during the remainder of fiscal year 2001 and the
four fiscal years and beyond are set forth in the following table (in millions):

PAYMENT
YEAR AMOUNT
- ---- --------

2001........................................................ $ 11.9
2002........................................................ 43.0
2003........................................................ 75.7
2004........................................................ 120.3
2005........................................................ 99.9
2006 and beyond............................................. 653.5

As of March 31, 2001, we were in compliance with our debt covenants and
expect to be in compliance for the remainder of fiscal year 2001.

We currently estimate that our capital expenditures in fiscal 2002 will be
at levels similar to capital expenditures in fiscal 2001. The majority of our
anticipated capital expenditures relate to management

information systems and related equipment. In conjunction with our on-going
integration plan and efforts to comply with regulations under the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), we expect to
incur expenditures to improve our computer systems. We expect to fund these
expenditures from our regular capital expenditures budget.

2. CAUTIONARY STATEMENTS

ADDITIONAL BORROWING CAPACITY--DESPITE OUR SUBSTANTIAL LEVERAGE AT PRESENT,
WE WILL BE ABLE TO INCUR MORE DEBT.

Our senior secured bank credit agreement (the "Credit Agreement") and the
indenture for our Senior Subordinated Notes due 2008 (the "Subordinated Notes
Indenture") allow us to incur additional indebtedness under certain
circumstances, including up to $115.7 million of additional debt under the
revolving credit facility under the Credit Agreement (the "Revolving Facility"),
giving effect to the reduction of availability due to $34.3 million of
outstanding stand-by letters of credit. If we incur additional debt, the risks
associated with these levels of debt could intensify.

RESTRICTIVE COVENANTS IN OUR DEBT INSTRUMENTS--RESTRICTIONS IMPOSED BY THE
CREDIT AGREEMENT AND THE SUBORDINATED NOTES INDENTURE MAY LIMIT OUR ABILITY TO
TAKE CERTAIN ACTIONS.

The Subordinated Notes Indenture contains a number of covenants that limit
our management's discretion in the operation of our business by restricting our
ability to:

- incur additional indebtedness or issue preferred or redeemable stock;

- pay dividends and make other distributions;

- repurchase equity interests;

- prepay subordinated debt;

- make restricted payments;

- create liens;

- sell and otherwise dispose of assets; and

- enter into certain transactions with affiliates.

We cannot assure you that these restrictions will not adversely affect our
ability to finance our future operations or capital needs or engage in other
business activities that may be in our interest. In addition, the Credit
Agreement includes similar covenants, including restrictions on transactions
with affiliates and on the ability of the Company's subsidiaries to pay
dividends to the Company, as well as other restrictive covenants, such as
restrictions on our ability and the ability of our subsidiaries to enter into
sale leaseback transactions, and prohibits us from prepaying certain of our
other indebtedness.

RISK-RELATED PRODUCTS--THE PROFITABILITY OF OUR RISK-RELATED CONTRACTS
DEPENDS ON OUR ABILITY TO PREDICT AND CONTROL BEHAVIORAL HEALTHCARE COSTS, AND
WE MAY NOT BE ABLE TO ACCURATELY PREDICT THESE COSTS.

Revenues under contracts for risk-related products (which include contracts
for risk-based products, employee assistance programs ("EAPs") and integrated
products) are the primary source of our revenue. Such revenues accounted for
approximately 87.7% of our net revenue in fiscal year 2000 and approximately
88.0% of our net revenue for the six months ended March 31, 2001. Under a
risk-based contract, we assume all or a portion of the responsibility for the
cost of providing a full or specified range of behavioral healthcare treatment
services (excluding at present the cost of medication) to a specified
beneficiary population in exchange, generally, for a fixed fee per member per
month. Under EAPs and integrated contracts we also assume the responsibility for
providing certain

behavioral healthcare treatment services, although such products generally
require us to assume less risk than under a risk-based product. In order for
such contracts to be profitable, we must accurately estimate the rate of service
utilization by beneficiaries enrolled in programs managed by us and control the
unit cost of such services. The most significant factor affecting the
profitability of risk-related contracts is the ability to control direct service
costs in relation to contract pricing. If the aggregate cost of behavioral
healthcare treatment services provided to a given beneficiary population in a
given period exceeds the aggregate of the per member per month fees received by
us with respect to the beneficiary population in such period, we will incur a
loss with respect to such beneficiary population during such period. There can
be no assurance that our assumptions as to service utilization rates and costs
will accurately and adequately reflect actual utilization rates and costs, nor
can there be any assurance that increases in behavioral healthcare costs or
higher-than-anticipated utilization rates, significant aspects of which are
outside our control, will not cause expenses associated with such contracts to
exceed our revenue from such contracts.

In addition, there can be no assurance that adjustments will not be required
to the estimates, particularly those regarding cost of care, made in reporting
historical financial results. Medical claims payable in our financial statements
includes reserves for incurred but not reported ("IBNR") claims which are
estimated by us. We determine the amount of such reserves based on past claim
payment experience for member groups, including the average interval between the
date services are rendered and the date claims are paid and between the date
services are rendered and the date we receive the claims, enrollment data,
utilization statistics, adjudication decisions, authorized healthcare services
and other factors. The estimates for submitted claims and IBNR claims are made
on an accrual basis and adjusted in future periods as required. However, there
can be no assurances as to the ultimate accuracy of such estimates. During the
three months ended March 31, 2001, we recorded an adjustment (and corresponding
income statement charge) of $15.0 million to our estimate of claims incurred in
prior years based on the results of our reduction in claims inventory and other
claims processing improvements. We currently believe that our reserves for IBNR
claims are adequate in order to satisfy ultimate claim liability. Any
adjustments to such estimates could adversely affect our results of operations
in future periods. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations" in the Quarterly
Report on Form 10-Q and Note 1 to the audited consolidated financial statements
included in the Current Report on Form 8-K.

We expect to attempt to increase membership in our risk-related products. If
we are successful in this regard, our exposure to potential losses from our
risk-related products will also be increased. Furthermore, certain of these
contracts and certain state regulations limit the profits that we may earn on
risk-related business and may require refunds if the loss experience is more
favorable than that originally anticipated. We frequently record retroactive
customer settlements which may be unfavorable. These contracts and regulations
may also require us or certain of our subsidiaries to reserve a specified amount
of cash as financial assurance that we can meet our obligations under such
contracts. As of March 31, 2001, we had restricted cash and investments of
$88.3 million pursuant to such contracts and regulations. Such amounts will not
be available to us for general corporate purposes. Furthermore, certain state
regulations restrict the ability of subsidiaries that offer risk-related
products to pay dividends to us. Certain state regulations relating to the
licensing of insurance companies may also adversely affect our risk-related
business. Although experience varies on a contract-by-contract basis,
historically, our risk-related contracts have been profitable in the aggregate.
However, the degree of profitability varies significantly from contract to
contract. For example, our Medicaid contracts with governmental entities
generally tend to have direct profit margins that are lower than our other
contracts. The most significant factor affecting the profitability of
risk-related contracts is the ability to control direct service costs in
relation to contract pricing.

INTEGRATION OF OPERATIONS--OUR EFFORTS TO INTEGRATE OUR OPERATIONS MAY NOT
RESULT IN THE LEVEL OF COST SAVINGS AND IMPROVED SERVICES THAT WE ARE
ANTICIPATING.

In the past two years, we consolidated our behavioral managed healthcare
businesses, eliminating duplicate staffing and facilities. We are now focusing
on the next level of integration that includes reduction in computer system
platforms, best practices analysis, standardization of provider contracting and
utilization of the Internet to reduce the administrative burden to providers,
customers and beneficiaries. We believe that we will reduce administrative costs
and improve customer service through these measures. However, there can be no
assurance that we will be able to implement these initiatives or realize the
anticipated savings. Also, certain costs may increase during the transition
period even if savings are ultimately realized.

In addition, if we experience significant disruptions in our computer
systems and related claims payment problems during the integration process,
these developments would adversely affect our relationships with many of our
contracted providers and our business and results of operations.

RELIANCE ON CUSTOMER CONTRACTS--OUR INABILITY TO RENEGOTIATE CUSTOMER
CONTRACTS COULD ADVERSELY AFFECT US.

All of our net revenue in fiscal year 2000 and in the six-month period ended
March 31, 2001 was derived from contracts with payors of behavioral healthcare
benefits. Our behavioral managed healthcare contracts typically have terms of
one to three years, and in certain cases contain renewal provisions (at the
customer's option) providing for successive terms of between one and two years
(unless terminated earlier). Substantially all of these contracts are
immediately terminable with cause and many, including some of the Company's most
significant contracts, are terminable without cause by the customer upon the
provision of requisite notice and the passage of a specified period of time
(typically between 60 and 180 days), or upon the occurrence of certain other
specified events. Our ten largest behavioral managed healthcare customers
accounted for approximately 56.3% of our net revenue for fiscal year 2000 and
59.7% of our net revenue for the six-month period ended March 31, 2001. Both we
and Premier Behavioral Systems of Tennessee, LLC ("Premier"), in which we have a
fifty percent interest, separately contract with the State of Tennessee to
manage the behavioral healthcare benefits for the State's TennCare program. Our
direct TennCare contract (exclusive of Premier) represented approximately 13.8%
and 13.6% of our net revenue in fiscal year 2000 and the six-month period ended
March 31, 2001, respectively. Our managed behavioral contracts with Aetna, Inc.
("Aetna"), including NYLCare Health Plans and Prudential HealthCare, which were
acquired by Aetna in July 1998 and August 1999, respectively, represented
approximately 17.2% and 17.8% of our net revenue in fiscal year 2000 and the
six-month period ended March 31, 2001, respectively. The current TennCare and
Aetna contracts extend through December 31, 2002 and December 31, 2003,
respectively. There can be no assurance that such contracts will be extended or
successfully renegotiated or that the terms of any new contracts will be
comparable to those of existing contracts. Loss of all of these contracts or
customers would, and loss of any one of these contracts or customers could, have
a material adverse effect on us. In addition, price competition in bidding for
contracts can significantly affect the financial terms of any new or
renegotiated contract.

FLUCTUATION IN OPERATING RESULTS--OUR OPERATING RESULTS HAVE BEEN AND MAY IN
THE FUTURE BE SUBJECT TO SIGNIFICANT FLUCTUATIONS ON A QUARTERLY BASIS.

Our quarterly operating results have varied in the past and may fluctuate
significantly in the future due to a combination of factors, including:

- changes in utilization levels by enrolled members of our risk-based
contracts, including seasonal utilization patterns;

- performance-based contractual adjustments to revenue, reflecting
utilization results or other performance measures;

- retroactive contractual adjustments under commercial contracts and TRICARE
contracts;

- retrospective membership adjustments;

- the timing of implementation of new contracts and enrollment changes;

- pricing adjustments upon long-term contract renewals; and

- changes in estimates regarding medical costs and incurred but not yet
reported medical claims.

These factors may affect our quarterly revenues, expenses and results of
operations in the future. Accordingly, you should not rely on quarter-to-quarter
comparisons of our results of operations as an indication of our future
performance. It is possible that in future periods our results of operations may
be below the expectations of the public market, analysts and investors.

POSSIBLE IMPACT OF HEALTHCARE REFORM--WE COULD BE ADVERSELY AFFECTED BY
CHANGES IN FEDERAL, STATE AND LOCAL HEALTHCARE POLICIES.

The U.S. Congress is considering legislation which, among other things,
would place limits on healthcare plans and methods of operations, limit
employers' and healthcare plans' ability to define medical necessity and permit
employers and healthcare plans to be sued in state courts for coverage
determinations. It is uncertain whether we could recoup, through higher premiums
or other measures, the increased costs of federally mandated benefits or other
increased costs caused by such legislation or similar legislation. In addition,
if any federal parity legislation is adopted and the difference in coverage
limits for mental health coverage and medical health coverage is reduced or
eliminated, there can be no assurance that any increase in revenue we derive
following such legislation will be sufficient to cover the increase in costs
that would result from a greater utilization of mental healthcare services. We
cannot predict the effect of this legislation, nor other legislation that may be
adopted by Congress, and no assurance can be given that such legislation will
not have an adverse effect on us.

REGULATION--REGULATORY MATTERS COULD ADVERSELY AFFECT OUR ABILITY TO CONDUCT
OUR BUSINESS.

Confidentiality and patient privacy requirements are particularly strict in
the field of behavioral healthcare services, and additional legislative
initiatives relating to confidentiality and privacy are expected. HIPAA requires
the Secretary of the Department of Health and Human Services ("HHS") to adopt
standards relating to the transmission, privacy and security of health
information by healthcare providers and healthcare plans. HIPAA calls for HHS to
create regulations to address the following areas: electronic transactions and
code sets, privacy, security, provider IDs, employer IDs, health plan IDs and
individual IDs. At present, only the regulation relating to electronic
transactions and code sets and the regulation relating to privacy have been
released in final form. In addition, the Gramm-Leach-Bliley Act of 1999 ("GLB")
calls on departments of insurance in various states to enact regulations
relating to, among other things, the privacy of health information, with an
implementation date of July 1, 2001.

We are currently assessing and acting on the wide reaching implications of
these laws and regulations to ensure our compliance by the implementation dates.
We believe that significant resources will be required over the next 3 to
5 years to ensure compliance with the new requirements.

HIGHLY COMPETITIVE INDUSTRY--OUR INDUSTRY IS VERY COMPETITIVE AND INCREASED
COMPETITION COULD ADVERSELY AFFECT US.

The industry in which we conduct our managed care business is highly
competitive. We compete with large insurance companies, health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), third party
administrators ("TPAs"), independent practitioner associations,
multi-disciplinary medical groups and other managed care companies. Many of our
competitors are significantly larger and have greater financial, marketing and
other resources than us, and some of our competitors provide a broader range of
services. We may also encounter substantial competition in the

future from new market entrants. Many of our customers that are managed care
companies may, in the future, seek to provide behavioral managed healthcare
services to their employees or subscribers directly, rather than contracting
with us for such services. Because of competition, we do not expect to be able
to rely solely on price increases to achieve revenue growth and expect to
continue experiencing pressure on direct operating margins.

RISKS RELATED TO AMORTIZATION OF INTANGIBLE ASSETS--WE COULD BE ADVERSELY
AFFECTED IF THE VALUE OF INTANGIBLE ASSETS IS NOT FULLY REALIZED.

Our total assets at March 31, 2001 reflect goodwill of approximately
$1.0 billion, which is being amortized over 25 to 40 years, and other
identifiable intangible assets (primarily customer lists, provider networks and
treatment protocols) of approximately $143.9 million, which are being amortized
over 4 to 30 years. At March 31, 2001, net intangible assets were 70.6% of total
assets of approximately $1.6 billion. The amortization periods used by us may
differ from those used by other entities. In addition, we may be required to
shorten the amortization period for intangible assets in future periods based on
the prospects of acquired companies. There can be no assurance that we will ever
realize the value of such assets. We evaluate, on a regular basis, whether
events and circumstances have occurred that indicate that all or a portion of
the carrying value of intangible assets may no longer be recoverable, in which
case a charge to earnings for impairment losses could become necessary. During
fiscal year 2000, we recorded a $91.0 million impairment charge associated with
now discontinued business operations. This charge related to the write-down of
certain long-lived assets of our specialty managed healthcare segment and our
Group Practice Affiliates subsidiary ("GPA"). Any determination requiring
additional write-offs of a significant portion of unamortized intangible assets
would adversely affect our results of operations. A write-off of intangible
assets could become necessary if the anticipated undiscounted cash flows of an
acquired company do not support the carrying value of long-lived assets,
including intangible assets.

PROFESSIONAL LIABILITY; INSURANCE--WE MAY BE ADVERSELY AFFECTED BY CLAIMS OF
PROFESSIONAL LIABILITY.

The management and administration of the delivery of behavioral managed
healthcare services, and the direct provision of behavioral healthcare treatment
services, entail significant risks of liability. From time to time, we are
subject to various actions and claims of professional liability for alleged
negligence in performing utilization review activities, as well as for the acts
or omissions of our employees, network providers or other parties. In the normal
course of business, we receive reports relating to suicides and other serious
incidents involving patients enrolled in our programs. Such incidents
occasionally give rise to malpractice, professional negligence and other related
actions and claims against us or our network providers. To the extent that
certain actions and claims seek punitive and compensatory damages arising from
alleged intentional misconduct by us, such damages, if awarded, may not be
covered, in whole or in part, by our insurance policies. As the number of lives
covered by us grows and the number of providers under contract increases,
actions and claims against us (and, in turn, possible legal liability)
predicated on malpractice, professional negligence or other related legal
theories can be expected to increase. We are also subject to actions and claims
for the costs of services for which payment was denied. Many of these actions
and claims seek substantial damages and require us to incur significant fees and
costs related to our defense. There can be no assurance that pending or future
actions or claims for professional liability (including any judgments,
settlements or costs associated therewith) will not have a material adverse
effect on us.

Recently, certain managed healthcare companies, including us, have been
targeted as defendants in several national class action lawsuits regarding their
business practices. The class action complaints against us allege
misrepresentations with respect to, and failure to disclose, our claims
practices, the extent of the benefits coverage and other matters that cause the
value of the benefits to be less than the amount of premium paid. We believe
that these national class action lawsuits are part of a trend

targeting the healthcare industry, particularly managed care companies. There
can be no assurance that such lawsuits will not have a material adverse effect
on us.

We carry professional liability insurance, subject to certain deductibles.
There can be no assurance that such insurance will be sufficient to cover any
judgments, settlements or costs relating to present or future claims, suits or
complaints or that, upon expiration thereof, sufficient insurance will be
available on favorable terms, if at all. To the extent our customers are
entitled to indemnification under their contracts with us relating to
liabilities they incur arising from the operation of our programs, such
indemnification may not be covered under our insurance policies. If we are
unable to secure adequate insurance in the future, or if the insurance we carry
is not sufficient to cover any judgments, settlements or costs relating to any
present or future actions or claims, there can be no assurance that any such
judgments, settlements or costs would not have a material adverse effect on us.

From time to time, we receive notifications from and engage in discussions
with various government agencies concerning our respective managed care
businesses and operations. As a result of these contacts with regulators, we in
many instances implement changes to our operations, revise our filings with such
agencies and/or seek additional licenses to conduct our business. We also have
certain potential liabilities relating to the self-insurance program we
maintained with respect to our provider business prior to the sale of
substantially all of our domestic acute-care psychiatric hospitals and
residential treatment facilities to Crescent Real Estate Equities Company. In
addition, we continue to be subject to governmental investigations and
inquiries, civil suits and other claims and assessments with respect to the
provider business. We are also subject to or party to other litigation, claims
and civil suits, relating to our operations and business practices. Certain of
our managed care litigation matters involve class action lawsuits, which allege
that (i) we inappropriately denied and/or failed to authorize benefits for
mental health treatment under insurance policies with one of our customers and
(ii) a provider at one of our facilities violated privacy rights of certain
patients.

3. INDUSTRY

According to "The 2000 Healthcare Market Research Handbook and Strategic
Planning Handbook" (the "Healthcare Handbook"), approximately 22% of American
adults suffer from a diagnosable mental disorder in any given year. Applied to
an estimate by the U.S. federal government of the population aged eighteen years
or older as of November 1, 2000, this would translate to approximately
45 million individuals. According to the Healthcare Handbook, in the United
States during 1996, approximately $69 billion, or more than 7% of total health
spending, was spent on mental health services. In addition, according to the
Healthcare Handbook, direct costs associated with substance abuse were nearly
$13 billion in 1996. These direct costs have grown, in part, as society has
begun to recognize and address behavioral health concerns and employers have
realized that rehabilitation of employees suffering from substance abuse and
relatively mild mental health problems can reduce losses due to absenteeism and
decreased productivity. In addition, according to an estimate by the Healthcare
Handbook, indirect costs associated with these issues approaches $79 billion
annually, reflecting the fact that, according to "Mental Health: A Report of the
Surgeon General" issued by the U.S. Department of Health and Human Services in
1999, four of the ten leading causes of disability for persons aged 5 and older
in the United States are mental disorders.

According to "Open Minds Yearbook of Managed Behavioral Health Market Share
in the United States, 2000-2001" published by Open Minds, Gettysburg,
Pennsylvania ("Open Minds"), the total number of covered beneficiaries has grown
from approximately 86.3 million beneficiaries as of July 1993 to approximately
209.2 million as of July 2000, representing an approximate 13% compound annual
growth rate since July 1993 and an approximate 15% growth rate in the year ended
July 2000. In an effort to control costs, payors are increasingly utilizing
risk-based products and, according to Open Minds, the number of risk-based
covered lives has increased from approximately 13.6 million as

of July 1993 to approximately 62.9 million as of July 2000, representing a
compound annual growth rate of approximately 24% since July 1993 and growth of
approximately 27% in the year ended July 2000.

Despite this growth, according to Open Minds, only approximately 29% of
total managed behavioral healthcare covered lives were enrolled in risk-based
products as of July 2000. We believe that the growth of the behavioral managed
healthcare industry will continue, as there is wider public acceptance of
treatment and the benefits of treatment become more widely known, and believe
that the market for risk-based products has grown and will continue to grow as
payors attempt to reduce their responsibility for the cost of providing
behavioral healthcare while ensuring an appropriate level of access to care.

State and federal legislation that reduces or in some cases eliminates the
difference in coverage limits for medical health coverage as compared to mental
health coverage is referred to as parity legislation or anti-discrimination
legislation. Currently, 33 states have passed parity legislation that reduces
and in some cases eliminates the difference in coverage limits for mental health
coverage as compared to medical health coverage. We believe that this trend will
continue, and perhaps accelerate. All federal employees are covered by mental
health parity effective January 1, 2001 due to an executive order signed by
former President Clinton. The executive order resulted in the addition of
approximately 600,000 lives to our accounts and in significant rate increases in
already existing EAP accounts.

4. COMPETITIVE STRENGTHS

STRONG FREE CASH FLOW. As a result of the continued growth in EBITDA in our
behavioral managed healthcare business and our successful restructuring actions,
we believe we are positioned to generate strong free cash flow. Our EBITDA has
increased from approximately $132.1 million in fiscal year 1998 to approximately
$218.1 million in fiscal year 2000, while our capital expenditures (including
capital expenditures for operations that are now discontinued) have averaged
$43.1 million over the last three fiscal years. In addition, in March 2001, we
used the proceeds of the sale of our human services business to repay
approximately $50 million of the term loan facility (the "Term Loan Facility")
and approximately $50 million under the Revolving Facility in the Credit
Agreement. We believe that continued growth in EBITDA will allow us to continue
to reduce our indebtedness, as well as make various contingent payments
associated with prior acquisitions.

5. BUSINESS STRATEGY

With our exit from non-core businesses substantially complete, our strategy
is now focused on the following:

UTILIZING OUR LEADERSHIP POSITION TO CONTINUE TO GROW REVENUE AND
EARNINGS. As demand for behavioral managed healthcare services continues to
grow, we believe we are well positioned to continue to grow our membership and
revenues as a result of our economies of scale, our proven experience in risk
management, and increased focus within the industry on the more complex products
we provide. Furthermore, as the industry leader, we believe we are also well
positioned to benefit from the proposed changes in federal and state parity
legislation, legislation that reduces and in some cases eliminates the
difference in coverage limits for mental health coverage as compared to medical
health coverage.

CONTINUING TO FOCUS ON IMPROVING OPERATING EFFICIENCY AND MARGINS. In the
past two years, we consolidated our behavioral managed healthcare businesses,
eliminating duplicate staffing and facilities. We are now focusing on the next
level of integration that includes reduction in computer system platforms, best
practices analysis, standardization of provider contracting and utilization of
the Internet to reduce the administrative burden on providers, customers and
beneficiaries. Although these initiatives are at an early stage, we believe that
they will help us reduce administrative costs and

improve customer service. We expect to fund the costs for this next level of
integration with internally generated funds.

CONTINUING TO REDUCE DEBT AND IMPROVE FINANCIAL FLEXIBILITY. Although we
have successfully reduced our indebtedness by approximately $223.5 million since
April 1999, we intend to continue to reduce our indebtedness, primarily through
the application of free cash flow. The total remaining scheduled amortization
payments under the Term Loan Facility through 2003 were $128.2 million as of
March 31, 2001. In addition, we have continued to enjoy strong growth in our
core behavioral managed healthcare operations, growing net revenue and EBITDA by
a compound annual growth rate of 27.0% and 31.1%, respectively, from fiscal year
1998 to fiscal year 2000. Management believes that these restructuring actions
position us well to take advantage of positive industry trends and to continue
to grow our net revenue and EBITDA.

6. PRODUCTS AND SERVICES

The following table sets forth the approximate number of covered lives as of
September 30, 1999 and 2000 and as of March 31, 2000 and 2001 and revenue for
fiscal years 1999 and 2000 and the six-month periods ended March 31, 2000 and
2001 for the types of behavioral managed healthcare programs we offered:

PROGRAMS COVERED LIVES PERCENT REVENUE PERCENT
- -------- ------------- -------- -------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)

FISCAL 1999
Risk-Related Products(1)............................. 35.8 53.9% $1,265.6 86.3%
ASO Products......................................... 30.6 46.1 200.3 13.7

Total.......................................... 66.4 100.0% $1,465.9 100.0%

FISCAL 2000
Risk-Related Products(1)............................. 39.1 55.1% $1,439.6 87.7%
ASO Products......................................... 31.9 44.9 201.3 12.3

Total.......................................... 71.0 100.0% $1,640.9 100.0%

SIX MONTHS ENDED MARCH 31, 2000
Risk-Related Products(1)............................. 37.4 54.2% $ 690.5 87.4%
ASO Products......................................... 31.6 45.8 99.4 12.6

Total.......................................... 69.0 100.0% $ 789.9 100.0%

SIX MONTHS ENDED MARCH 31, 2001
Risk-Related Products(1)(2).......................... 37.1 53.2% $ 782.9 88.0%
ASO Products......................................... 32.6 46.8 107.2 12.0

Total.......................................... 69.7 100.0% $ 890.1 100.0%

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

(1) Includes risk-based products, EAPs and integrated products.

(2) Excludes approximately 2.2 million covered lives that were associated with
our Canadian subsidiary, which was sold, and GPA, our subsidiary which has
ceased operations. See Note 10 to the audited consolidated financial
statements included in the Current Report on Form 8-K and Note I to the
unaudited condensed consolidated interim financial statements included in
the Quarterly Report on Form 10-Q.

7. CUSTOMERS

The following table sets forth the approximate number of covered lives as of
March 31, 2000 and 2001 and revenue for the six-month periods ended March 31,
2000 and 2001 in each of our behavioral customer groups:

MARKET COVERED LIVES PERCENT REVENUE PERCENT
- ------ ------------- -------- -------- --------
(IN MILLIONS, EXCEPT PERCENTAGES)

SIX MONTHS ENDED MARCH 31, 2000
Workplace (Corporations and Labor Unions)............. 27.7 40.1% $115.4 14.6%
Health Plans.......................................... 38.3 55.6 448.7 56.8
Public Sector (Primarily Medicaid).................... 3.0 4.3 225.8 28.6

Total........................................... 69.0 100.0% $789.9 100.0%

SIX MONTHS ENDED MARCH 31, 2001
Workplace (Corporations and Labor Unions)............. 27.3 39.2% $115.5 13.0%
Health Plans.......................................... 40.0 57.4 541.8 60.8
Public Sector (Primarily Medicaid).................... 2.4 3.4 232.8 26.2

Total........................................... 69.7 100.0% $890.1 100.0%

8. REGULATION

We are subject to certain state laws and regulations, including those
governing accreditation, government healthcare program participation
requirements and reimbursement for patient services. In addition, we are subject
to certain federal laws and regulations including those governing Medicare and
Medicaid fraud and abuse.

LICENSES. In recent years, in response to governmental agency inquiries or
discussions with regulators, we have determined to seek licensing as a single
service HMO, TPA or utilization review agent in one or more jurisdictions.

INSURANCE, HMO AND PPO ACTIVITIES. Certain states, for example, have
adopted regulations based on a "health organizations risk-based capital
initiative" of the National Association of Insurance Commissioners, and as a
result we have been subject to certain minimum capital requirements in those
states. Certain other states, such as Maryland and New Jersey, have also
recently adopted their own regulatory initiatives that subject entities such as
our subsidiaries to regulation under state insurance laws.

HIPAA. Confidentiality and patient privacy requirements are particularly
strict in the field of behavioral healthcare services, and additional
legislative initiatives relating to confidentiality and privacy are expected.
The HIPAA requires the Secretary of HHS to adopt standards relating to the
transmission, privacy and security of health information by healthcare providers
and healthcare plans. HIPAA calls for HHS to create regulations to address the
following areas: electronic transactions and code sets, privacy, security,
provider IDs, employer IDs, health plan IDs and individual IDs. At present, only
the regulation relating to electronic transactions and code sets and the
regulation relating to privacy have been released in final form.

The electronic transactions and code sets regulation, which will come into
effect on October 16, 2002, establishes standard data content and formats for
the submission of electronic claims and other administrative and health
transactions. This regulation applies only to electronic transactions, and
healthcare providers will still be able to submit paper documents without being
subject to this regulation. In addition, health plans must be prepared to
receive these various transactions.

The final regulation on privacy was published on December 28, 2000 and
accepted by Congress on February 16, 2001. This regulation, which became
effective on April 14, 2001 with a compliance date of April 14, 2003, requires
patient consent and authorization to release healthcare information, creates
rules about how much and when information may be released and creates rights for
patients to review and amend their health records. This regulation applies to
both electronic and paper transactions.

The draft version of the regulation on security was published on August 12,
1998. The final version of this rule is expected to be released in the next few
months. This regulation creates safeguards for physical and electronic storage
of, maintenance and transmission of, and access to, individual health
information.

The proposed provider ID and employer ID regulations are similar in concept.
The provider ID regulation was published in draft form on May 7, 1998 and would
create a unique number for healthcare providers that will be used by all health
plans. The employer ID regulation was published in draft form on June 16, 1998
and calls for using the Employer Identification Number (the taxpayer identifying
number for employers that is assigned by the Internal Revenue Service) as the
identifying number for employers that will be used by all health plans. It is
expected that the final versions of these regulations will be released a few
months after the regulation on security. The health plan ID and individual ID
regulations have not been released in draft form.

We are currently assessing and acting on the wide reaching implications of
these regulations to ensure our compliance by the implementation dates. We have
identified HIPAA as a major initiative impacting our systems, business processes
and business relationships. This issue extends beyond our internal operations
and requires active participation and coordination with our customers, providers
and business partners. We have commissioned a dedicated HIPAA project team to
develop, coordinate and implement our compliance plan. With respect to the
proposed regulation on security and the final regulation on privacy, we have
hired a chief security officer, appointed an official who will be responsible
for privacy issues, commissioned separate security and privacy workgroups to
identify and assess the potential impact of the regulations and reviewed current
policies and drafted new policies to comply with the new requirements. We
believe that significant resources will be required over the next 3 to 5 years
to ensure compliance with the new requirements.

OTHER SIGNIFICANT PRIVACY REGULATION. Another initiative impacting the
privacy of healthcare information is GLB. This federal legislation calls on the
departments of insurance in the various states to enact regulations relating to
a number of issues, including the privacy of health information, with an
implementation date of July 1, 2001. The privacy regulation under HIPAA does not
preempt state law, unless the state law is in conflict with HIPAA, so in many
states we will be addressing privacy issues under not only HIPAA, but under GLB
as well. A few states have recognized this as an issue and have stated that
entities that comply with HIPAA by the effective date under GLB will be
considered to be in compliance with GLB even though the laws are different.

9. EMPLOYEES

At March 31, 2001, we had approximately 6,100 full-time and part-time
employees. We believe we have satisfactory relations with our employees.

10. PROPERTIES

The lease for the Company's headquarters expires in 2003. Additionally, we
lease 142 offices with terms expiring through 2008.

11. LEGAL PROCEEDINGS

From time to time, we are subject to various actions and claims of
professional liability for alleged negligence in performing utilization review
activities, as well as for the acts or omissions of our employees, network
providers or other parties. We are also subject to claims for the costs of
services for which the payment was denied.

To the extent our customers are entitled to indemnification under their
contracts with us relating to liabilities they incur arising from the operation
of our programs, such indemnification may not be covered under our insurance
policies. In addition, to the extent that certain actions and claims seek
punitive and compensatory damages arising from alleged intentional misconduct by
us, such damages, if awarded, may not be covered, in whole or in part, by our
insurance policies.

We have not recorded any reserves related to the lawsuit filed by Wachovia
Bank, N.A. in August 2000, in the Court of Common Pleas of Richland County,
South Carolina.