Introduction to PHNS' Unique Hospital Partner Model

PHNS has developed a solutions agreement dedicated solely to the provider healthcare marketplace. The agreement, called "Hospital Partnership" helps hospitals achieve both long-term and short-term goals in information technology, health information management and business office.

This partnership provides incentives that result in long-term mutually beneficial relationships between PHNS and its hospital partners. In this partnership, PHNS acquires hospital personnel with expertise in IT, HIM and/or Business Office, along with the IT, HIM and/or Business Office operations and assets of the hospital partners. In return, PHNS manages the hospital's IT infrastructure, HIM department or Business Office and hospital partners receive an ownership interest in PHNS and may receive a seat on PHNS' Board of Directors.

In addition, PHNS pays cash for the fair market value ("FMV") of the IT and/or HIM assets and "monetizes" the IT and/or HIM expense stream of the hospital partner by paying a mutually agreed upon combination of cash and PHNS stock for the value of the hospital partner's IT and/or HIM business based on a multiple of that expense stream. The resources and expertise of PHNS' Hospital Partners is coupled with the management expertise of PHNS and leveraged to reduce costs and improve the quality of healthcare services for PHNS' partners and customers. This arrangement is a unique approach that monetizes an internal expense stream for a healthcare provider, thus creating capital appreciation opportunities for the health system.

As a partner, PHNS delivers improved services, contains cost, delivers cost savings and enables cost avoidance through PHNS' aggregation, consolidation and sharing model. PHNS offers selected healthcare systems a unique opportunity to enter into a Hospital Partnership that offers the following potential benefits:

• PHNS board representation
• Cash and equity to purchase the Corporate Partner's IT and or HIM business operations, which are valued based on a multiple of the fully burdened IT and/or HIM operating expense budget for such operations, resulting in monetizing the IT and or HIM expense stream
• Equity appreciation opportunity based on PHNS' current business plan to raise additional capital resources through an initial public offering
• Cash to purchase all tangible, transferable IT and HIM assets based on current market value
• Funding for future IT and HIM capital expenditures, resulting in off balance sheet financing, if so desired
• Commitment to service improvements and cost reductions from aggregation, consolidation, sharing and standardization of IT and HIM resources
• Detailed contractual service level agreements that are specifically tailored to the provider's unique requirements as viewed from the end user perspective, not the IT or HIM departments' perspective
• Contractually guaranteed cost savings in a unique shared savings incentive model