-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Mtw1lhQwyRcbqGicYHG2xU4dFHEEOctVwzT7xyLICeQ49P2zBOXxOaJ3MWw4bQ59 dTpGsSprbB1QQiLV16NmEQ== 0000912057-94-002224.txt : 19940705 0000912057-94-002224.hdr.sgml : 19940705 ACCESSION NUMBER: 0000912057-94-002224 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19940701 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARTER MEDICAL CORP CENTRAL INDEX KEY: 0000019411 STANDARD INDUSTRIAL CLASSIFICATION: 8060 IRS NUMBER: 581076937 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-4/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-53701 FILM NUMBER: 94537519 BUSINESS ADDRESS: STREET 1: 577 MULBERRY ST STREET 2: PO BOX 209 CITY: MACON STATE: GA ZIP: 31298 BUSINESS PHONE: 9127421161 S-4/A 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 1, 1994 REGISTRATION NO. 33-53701 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CHARTER MEDICAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 8060 58-1076937 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
577 Mulberry Street Macon, Georgia 31298 (912) 742-1161 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ See Table of Additional Registrants below. ------------------------ ROBERT W. MILLER, ESQ. King & Spalding 191 Peachtree Street Atlanta, Georgia 30303-1763 (404) 572-4600 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPY TO: LAWRENCE W. DRINKARD, EXECUTIVE VICE PRESIDENT - FINANCE Charter Medical Corporation 577 Mulberry Street Macon, Georgia 31298 (912) 742-1161 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. ------------------------ If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box: / / ------------------------ THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADDITIONAL REGISTRANTS(1)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Ambulatory Resources, Inc. Georgia 58-1456102 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Atlanta MOB, Inc. Georgia 58-1558215 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Beltway Community Hospital, Inc. Texas 58-1324281 577 Mulberry Street Macon, GA 31298 (912) 742-1161 C.A.C.O. Services, Inc. Ohio 58-1751511 577 Mulberry Street Macon, GA 31298 (912) 742-1161 CCM, Inc. Nevada 58-1662418 577 Mulberry Street Macon, GA 31298 (912) 742-1161 CMCI, Inc. Nevada 88-0224620 1061 East Flamingo Road Suite One Las Vegas, NV 89119 (702) 737-0282 CMFC, Inc. Nevada 88-0215629 1061 East Flamingo Road Suite One Las Vegas, NV 89119 (702) 737-0282 CMSF, Inc. Florida 58-1324269 3550 Colonial Boulevard Fort Myers, FL 33906 (813) 939-0403 CPS Associates, Inc. Virginia 58-1761039 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Alvarado Behavioral Health System, California 58-1394959 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Appalachian Hall Behavioral Health North Carolina 58-2097827 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Arbor Indy Behavioral Health Indiana 35-1916340 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Augusta Behavioral Health System, Georgia 58-1615676 3100 Perimeter Parkway Inc. Augusta, GA 30909 (404) 868-6625 Charter Bay Harbor Behavioral Health Florida 58-1640244 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Beacon Behavioral Health System, Indiana 58-1524996 1720 Beacon Street Inc. Fort Wayne, IN 46805 (219) 423-3651 Charter Behavioral Health System at Fair New Jersey 58-2097832 577 Mulberry Street Oaks, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System at Hidden Maryland 52-1866212 577 Mulberry Street Brook, Inc. Macon, GA 31298 (912) 742-1161
i ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Behavioral Health System at Los California 33-0606642 577 Mulberry Street Altos, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System at Maryland 52-1866221 577 Mulberry Street Potomac Ridge, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System at Maryland 52-1866214 577 Mulberry Street Warwick Manor, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Georgia 58-1513304 240 Mitchell Bridge Road Athens, Inc. Athens, GA 30604 (404) 546-7277 Charter Behavioral Health System of Texas 58-1440665 8402 Cross Park Drive Austin, Inc. Austin, TX 78754 (512) 837-1800 Charter Behavioral Health System of Texas 76-0430571 577 Mulberry Street Baywood, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Florida 58-1527678 577 Mulberry Street Bradenton, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Canoga California 95-4470774 577 Mulberry Street Park, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Georgia 58-1408670 3500 Riverside Drive Central Georgia, Inc. Macon, GA 31209 (912) 474-6200 Charter Behavioral Health System of South Carolina 58-1761157 2777 Speissegger Drive Charleston, Inc. Charleston, SC 29405-8299 (803) 747-5830 Charter Behavioral Health System of Virginia 58-1616917 2101 Arlington Boulevard Charlottesville, Inc. Charlottesville, VA 22903-1593 (804) 977-1120 Charter Behavioral Health System of Illinois 58-1315760 4700 North Clarendon Avenue Chicago, Inc. Chicago, IL 60640 (312) 728-7100 Charter Behavioral Health System of Chula California 58-1473063 577 Mulberry Street Vista, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Missouri 61-1009977 200 Portland Street Columbia, Inc. Columbia, MO 65201 (314) 876-8000 Charter Behavioral Health System of Corpus Texas 58-1513305 3126 Rodd Field Road Christi, Inc. Corpus Christi, TX 78414 (512) 993-8893 Charter Behavioral Health System of Texas 58-1513306 6800 Preston Road Dallas, Inc. Plano, TX 75024 (214) 964-3939 Charter Behavioral Health System of Indiana 35-1916338 577 Mulberry Street Evansville, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Fort Texas 58-1643151 6201 Overton Ridge Blvd. Worth, Inc. Fort Worth, TX 76132 (817) 292-6844
ii ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Behavioral Health System of Mississippi 58-1616919 East Lakeland Drive Jackson, Inc. Jackson, MS 39208 (601) 939-9030 Charter Behavioral Health System of Florida 58-1483015 3947 Salisbury Road Jacksonville, Inc. Jacksonville, FL 32216 (904) 296-2447 Charter Behavioral Health System of Indiana 35-1916342 577 Mulberry Street Jefferson, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Kansas Kansas 58-1603154 8000 West 127th Street City, Inc. Overland Park, KS 66213 (913) 897-4999 Charter Behavioral Health System of Louisiana 72-0686492 577 Mulberry Street Lafayette, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Lake Louisiana 62-1152811 4250 Fifth Avenue, South Charles, Inc. Lake Charles, LA 70605 (318) 474-6133 Charter Behavioral Health System of California 33-0606647 577 Mulberry Street Lakewood, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Indiana 35-1916343 577 Mulberry Street Michigan City, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Alabama 58-1569921 5800 Southland Drive Mobile, Inc. Mobile, AL 36609 (205) 661-3001 Charter Behavioral Health System of New Hampshire 02-0470752 577 Mulberry Street Nashua, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Nevada 58-1321317 7000 West Spring Mountain Road Nevada, Inc. Las Vegas, NV 89180 (702) 876-4357 Charter Behavioral Health System of New New Mexico 58-1479480 5901 Zuni Road, SE Mexico, Inc. Albuquerque, NM 87108 (505) 265-8800 Charter Behavioral Health System of California 58-1857277 101 Cirby Hills Drive Northern California, Inc. Roseville, CA 95678 (916) 969-4666 Charter Behavioral Health System of Arkansas 58-1449455 4253 Crossover Road Northwest Arkansas, Inc. Fayetteville, AR 72701 (501) 521-5731 Charter Behavioral Health System of Indiana 58-1603160 101 West 61st Avenue Northwest Indiana, Inc. State Road 51 Hobart, IN 46342 (219) 947-4464 Charter Behavioral Health System of Kentucky 61-1006115 435 Berger Road Paducah, Inc. Paducah, KY 42002-7609 (502) 444-0444 Charter Behavioral Health System of Illinois 36-3946945 577 Mulberry Street Rockford, Inc. Macon, GA 31298 (912) 742-1161
iii ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Behavioral Health System of San California 58-1747020 577 Mulberry Street Jose, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Georgia 58-1750583 1150 Cornell Ave Savannah, Inc. Savannah, GA 31416 (912) 354-3911 Charter Behavioral Health System of California 58-1366605 577 Mulberry Street Southern California, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Tampa Florida 58-1616916 4004 North Riverside Drive Bay, Inc. Tampa, FL 33603 (813) 238-8671 Charter Behavioral Health System of Arkansas 71-0752815 577 Mulberry Street Texarkana, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of the California 95-2685883 2055 Kellogg Drive Inland Empire, Inc. Corona, CA 91720 (714) 735-2910 Charter Behavioral Health System of Ohio 58-1731068 1725 Timberline Road Toledo, Inc. Maumee, Ohio 43537 (419) 891-9333 Charter Behavioral Health System of Arizona 86-0757462 577 Mulberry Street Tucson, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Virginia 54-1703071 577 Mulberry Street Virginia Beach, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of California 33-0606644 577 Mulberry Street Visalia, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of District of Columbia 52-1866204 577 Mulberry Street Washington, D.C., Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of Minnesota 41-1775626 577 Mulberry Street Waverly, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health System of North Carolina 56-1050502 3637 Old Vineyard Road Winston-Salem, Inc. Winston-Salem, NC 27104 (919) 768-7710 Charter Behavioral Health System of Yorba California 33-0606646 577 Mulberry Street Linda, Inc. Macon, GA 31298 (912) 742-1161 Charter Behavioral Health Systems of Georgia 58-1900736 577 Mulberry Street Atlanta, Inc. Macon, GA 31298 (912) 742-1161 Charter Brawner Behavioral Health System, Georgia 58-0979827 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter-By-The-Sea Behavioral Health Georgia 58-1351301 2927 Demere Road System, Inc. St. Simons Island, GA 31522 (912) 638-1999 Charter Canyon Behavioral Health System, Utah 58-1557925 175 West 7200 South Inc. Midvale, UT 84047 (801) 561-8181
iv ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Canyon Springs Behavioral Health California 33-0606640 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Centennial Peaks Behavioral Health Colorado 58-1761037 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Colonial Institute, Inc. Virginia 58-1492652 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Community Hospital, Inc. California 58-1398708 21530 South Pioneer Boulevard Hawaiian Gardens, CA 90716 (310) 860-0401 Charter Community Hospital of Des Moines, Iowa 58-1523702 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Contract Services, Inc. Georgia 58-2100699 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Cove Forge Behavioral Health Pennsylvania 25-1730464 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Crescent Pines Behavioral Health Georgia 58-1249663 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Fairbridge Behavioral Health Maryland 52-1866218 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Fairmount Behavioral Health Pennsylvania 58-1616921 561 Fairthorne Avenue System, Inc. Philadelphia, PA 19128 (215) 487-4000 Charter Fenwick Hall Behavioral Health South Carolina 57-0995766 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Financial Offices, Inc. Georgia 58-1527680 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Forest Behavioral Health System, Louisiana 58-1508454 9320 Linwood Avenue Inc. Shreveport, LA 71106 (318) 688-3930 Charter Grapevine Behavioral Health Texas 58-1818492 2300 William D. Tate Ave. System, Inc. Grapevine, TX 76051 (817) 481-1900 Charter Greensboro Behavioral Health North Carolina 58-1335184 700 Walter Reed Drive System, Inc. Greensboro, NC 27403 (919) 852-4821 Charter Health Management of Texas, Inc. Texas 58-2025056 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of Columbus, Inc. Ohio 58-1598899 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of Denver, Inc. Colorado 58-1662413 577 Mulberry Street Macon, GA 31298 (912) 742-1161
v ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Hospital of Ft. Collins, Inc. Colorado 58-1768534 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of Laredo, Inc. Texas 58-1491620 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of Miami, Inc. Florida 61-1061599 11100 N.W. 27th Street Miami, FL 33172 (305) 591-3230 Charter Hospital of Mobile, Inc. Alabama 58-1318870 251 Cox Street Mobile, AL 36604 (205) 432-4111 Charter Hospital of Northern New Jersey, New Jersey 58-1852138 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Hospital of Santa Teresa, Inc. New Mexico 58-1584861 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of St. Louis, Inc. Missouri 58-1583760 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Hospital of Torrance, Inc. California 58-1402481 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Indianapolis Behavioral Health Indiana 58-1674291 5602 Caito Drive System, Inc. Indianapolis, IN 46226 (317) 545-2111 Charter Lafayette Behavioral Health Indiana 58-1603158 3700 Rome Drive System, Inc. Lafayette, IN 47905 (317) 448-6999 Charter Lakehurst Behavioral Health New Jersey 22-3286879 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Lakeside Behavioral Health System, Tennessee 62-0892645 2911 Brunswick Road Inc. Memphis, TN 38134 (901) 377-4700 Charter Laurel Heights Behavioral Health Georgia 58-1558212 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Laurel Oaks Behavioral Health Florida 58-1483014 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Linden Oaks Behavioral Health Illinois 36-3943776 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Little Rock Behavioral Health Arkansas 58-1747019 1601 Murphy Drive System, Inc. Haumelle, AR 72118 (501) 851-8700 Charter Louisville Behavioral Health Kentucky 58-1517503 1405 Browns Lane System, Inc. Louisville, KY 40207 (502) 896-0495 Charter Meadows Behavioral Health System, Maryland 52-1866216 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161
vi ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter MOB of Charlottesville, Inc. Virginia 58-1761158 1023 Millmont Avenue Charlottesville, VA 22901 (804) 977-1120 Charter Medfield Behavioral Health System, Florida 58-1705131 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Medical -- California, Inc. Georgia 58-1357345 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical -- Clayton County, Inc. Georgia 58-1579404 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical -- Cleveland, Inc. Texas 58-1448733 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical -- Dallas, Inc. Texas 58-1379846 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical -- Long Beach, Inc. California 58-1366604 6060 Paramount Boulevard Long Beach, CA 90805 (310) 220-1000 Charter Medical -- New York, Inc. New York 58-1761153 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical (Cayman Islands) Ltd. Cayman Islands 58-1841857 P.O. Box 1043 Swiss Bank Building Caledonian House, Georgetown, Grand Cayman, Cayman Islands (809) 949-0050 Charter Medical Executive Corporation Georgia 58-1538092 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical Information Services, Inc. Georgia 58-1530236 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical International, Inc. Cayman Islands applied for P.O. Box 1043 Swiss Bank Building Caledonian House, Georgetown, Grand Cayman, Cayman Islands (809) 949-0050 Charter Medical International, S.A., Inc. Nevada 58-1605110 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical Management Company Georgia 58-1195352 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical of East Valley, Inc. Arizona 58-1643158 2190 N. Grace Boulevard Chandler, AZ 85224 (602) 809-8989 Charter Medical of England Limited United Kingdom applied for 111 Kings Road, Box 323 London SW3 4PB, England
vii ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Medical of North Phoenix, Inc. Arizona 58-1643154 6015 W. Peoria Avenue Glendale, AZ 85311 (602) 878-7878 Charter Medical of Orange County, Inc. Florida 58-1615673 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical of Puerto Rico, Inc. Puerto Rico 58-1208667 1225 Ponce de Leon Avenue Santuree, Puerto Rico 00907 (809) 723-8666 Charter Mental Health Options, Inc. Florida 58-2100704 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Mid-South Behavioral Health Tennessee 58-1860496 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Milwaukee Behavioral Health Wisconsin 58-1790135 11101 West Lincoln Avenue System, Inc. West Allis, WI 53227 (414) 327-3000 Charter Mission Viejo Behavioral Health California 58-1761156 23228 Madero System, Inc. Mission Viejo, CA 92691 (714) 830-4800 Charter North Behavioral Health System, Alaska 58-1474550 2530 DeBarr Road Inc. Anchorage, AK 99508-2996 (907) 258-7575 Charter North Counseling Center, Inc. Alaska 58-2067832 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Northbrooke Behavioral Health Wisconsin 39-1784461 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Northridge Behavioral Health North Carolina 58-1463919 400 Newton Road System, Inc. Raleigh, NC 27615 (919) 847-0008 Charter Northside Hospital, Inc. Georgia 58-1440656 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Oak Behavioral Health System, Inc. California 58-1334120 1161 East Covina Boulevard Covina, GA 91724 (818) 966-1632 Charter Palms Behavioral Health System, Texas 58-1416537 1421 E. Jackson Avenue Inc. McAllen, TX 78502 (512) 631-5421 Charter Peachford Behavioral Health Georgia 58-1086165 2151 Peachford Road System, Inc. Atlanta, GA 30338 (404) 455-3200 Charter Pines Behavioral Health System, North Carolina 58-1462214 3621 Randolph Road Inc. Charlotte, NC 28211 (704) 365-5368 Charter Plains Behavioral Health System, Texas 58-1462211 801 N. Quaker Avenue Inc. Lubbock, TX 79408 (806) 744-5505 Charter Psychiatric Hospitals, Inc. Delaware 58-1852072 577 Mulberry Street Macon, GA 31298 (912) 742-1161
viii ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Real Behavioral Health System, Texas 58-1485897 8550 Huebner Road Inc. San Antonio, TX 78240 (512) 699-8585 Charter Regional Medical Center, Inc. Texas 74-1299623 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Richmond Behavioral Health System, Virginia 58-1761160 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Ridge Behavioral Health System, Kentucky 58-1393063 3050 Rio Dosa Drive Inc. Lexington, KY 40509 (606) 269-2325 Charter Rivers Behavioral Health System, South Carolina 58-1408623 2900 Sunset Boulevard Inc. West Columbia, SC 29171 (803) 796-9911 Charter San Diego Behavioral Health California 58-1669160 11878 Avenue of Industry System, Inc. San Diego, CA 92128 (619) 487-3200 Charter Serenity Lodge Behavioral Health Virginia 56-1703066 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Sioux Falls Behavioral Health South Dakota 58-1674278 2812 South Louise Avenue System, Inc. Sioux Falls, SD 57106 (605) 341-8111 Charter South Bend Behavioral Health Indiana 58-1674287 6704 North Gumwood Drive System, Inc. Granger, IN 46530 (219) 272-9799 Charter Springs Behavioral Health System, Florida 58-1517461 3130 S.W. 27th Avenue Inc. Ocala, FL 32678 (904) 237-7293 Charter Springwood Behavioral Health Virginia 58-2097829 577 Mulberry Street System, Inc. Macon, GA 31298 (912) 742-1161 Charter Suburban Hospital of Mesquite, Texas 75-1161721 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Charter Terre Haute Behavioral Health Indiana 58-1674293 1400 Crossing Boulevard System, Inc. Terre Haute, IN 47802 (812) 299-4196 Charter Thousand Oaks Behavioral California 58-1731069 150 Via Merida Health System, Inc. Thousand Oaks, CA 91361 (805) 495-3292 Charter Tidewater Behavioral Virginia 54-1703069 577 Mulberry Street Health System, Inc. Macon, GA 31298 (912) 742-1161 Charter Treatment Center of Michigan 58-2025057 577 Mulberry Street Michigan, Inc. Macon, GA 31298 (912) 742-1161 Charter Westbrook Behavioral Virginia 54-0858777 1500 Westbrook Avenue Health System, Inc. Richmond, VA 23227 (804) 266-9671 Charter White Oak Behavioral Maryland 52-1866223 577 Mulberry Street Health System, Inc. Macon, GA 31298 (912) 742-1161
ix ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme Health System, Inc. Wichita, KS 67207 (316) 686-5000 Charter Woods Behavioral Alabama 58-1330526 700 Cottonwood Road Health System, Inc. Dothan, AL 36302 (205) 794-4357 Charter Woods Hospital, Inc. Alabama 58-2102628 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter of Alabama, Inc. Alabama 63-0649546 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter-Provo School, Inc. Utah 58-1647690 4501 North University Ave. Provo, UT 84603 (801) 227-2000 Charterton/LaGrange, Inc. Kentucky 61-0882911 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Desert Springs Hospital, Inc. Nevada 88-0117696 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Employee Assistance Services, Inc. Georgia 58-1501282 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Florida Health Facilities, Inc. Florida 58-1860493 21808 State Road 54 Lutz, FL 33549 (813) 948-2441 Gulf Coast EAP Services, Inc. Alabama 58-2101394 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Gwinnett Immediate Care Center, Inc. Georgia 58-1456097 577 Mulberry Street Macon, GA 31298 (912) 742-1161 HCS, Inc. Georgia 58-1527679 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Holcomb Bridge Immediate Care Center, Inc. Georgia 58-1374463 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Hospital Investors, Inc. Georgia 58-1182191 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Mandarin Meadows, Inc. Florida 58-1761155 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Metropolitan Hospital, Inc. Georgia 58-1124268 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Middle Georgia Hospital, Inc. Georgia 58-1121715 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Pacific-Charter Medical, Inc. California 58-1336537 577 Mulberry Street Macon, GA 31298 (912) 742-1161
x ADDITIONAL REGISTRANTS(1) (CONTINUED)
ADDRESS INCLUDING ZIP CODE, STATE OR OTHER AND TELEPHONE NUMBER EXACT NAME OF JURISDICTION OF I.R.S. EMPLOYER INCLUDING AREA CODE, REGISTRANT AS SPECIFIED INCORPORATION IDENTIFICATION OF REGISTRANT'S PRINCIPAL IN ITS CHARTER OR ORGANIZATION NUMBER EXECUTIVE OFFICES - ------------------------------------------ -------------------- ---------------- ------------------------------------------ Peachford Professional Network, Inc. Georgia 58-2100700 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Rivoli, Inc. Georgia 58-1686160 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Schizophrenia Treatment & Rehabilitation, Georgia 58-1672912 209 Church Street Inc. Decatur, GA 30030 (404) 377-1986 Shallowford Community Hospital, Inc. Georgia 58-1175951 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Sistemas De Terapia Respiratoria S.A., Georgia 58-1181077 577 Mulberry Street Inc. Macon, GA 31298 (912) 742-1161 Stuart Circle Hospital Corporation Virginia 54-0855184 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Charter Medical of Florida, Inc. Florida 58-2100703 577 Mulberry Street Macon, GA 31298 (912) 742-1161 Western Behavioral Systems, Inc. California 58-1662416 577 Mulberry Street Macon, GA 31298 (912) 742-1161 - ------------------------------ (1) The Additional Registrants listed are wholly-owned subsidiaries of the Registrant and are guarantors of the Registrant's 11 1/4% Senior Subordinated Notes due 2004 and will be guarantors of the Registrant's 11 1/4% Series A Senior Subordinated Notes due 2004 to be issued pursuant to the Exchange Offer described in the attached Registration Statement. The Additional Registrants have been conditionally exempted, pursuant to Section 12(h) of the Securities Exchange Act of 1934, from filing reports under Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended.
xi ADDITIONAL REGISTRANTS(1) (CONTINUED) CHARTER MEDICAL CORPORATION CROSS-REFERENCE SHEET FOR REGISTRATION STATEMENT ON FORM S-4 AND INFORMATION STATEMENT/PROSPECTUS
ITEM CAPTION IN INFORMATION NUMBER CAPTION STATEMENT/PROSPECTUS - --------- -------------------------------------------------- ---------------------------------------------------- 1. Forepart of Registration Statement and Outside Front Cover Page of Prospectus................... Facing Page of Registration Statement; Cross Reference Sheet; Outside Front Cover Page of Prospectus. 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front and Outside Back Cover Pages of Prospectus; Available Information. 3. Risk Factors, Ratio of Earnings to Fixed Charges and Other Information............................ Summary; Investment Considerations; Certain Federal Income Tax Consequences of the Exchange Offer; The Exchange Offer; Selected Historical Consolidated Financial and Statistical Data; Unaudited Pro Forma Financial Information. 4. Terms of the Transaction.......................... Summary; Investment Considerations; The Exchange Offer; Certain Federal Income Tax Consequences of the Exchange Offer; Description of the New Notes; Plan of Distribution. 5. Pro Forma Financial Information................... Summary; Capitalization; Selected Historical Consolidated Financial and Statistical Data; Unaudited Pro Forma Financial Information. 6. Material Contacts with the Company Being Acquired......................................... Not Applicable. 7. Additional Information Required for Reoffering by Persons and Parties Deemed to be Underwriters.... Not Applicable. 8. Interests of Named Experts and Counsel............ Legal Matters; Experts. 9. Disclosure of Commission Position on In- demnification for Securities Act Liabilities..... Not Applicable. 10. Information With Respect to S-3 Registrants....... Not Applicable. 11. Incorporation of Certain Information by Ref- erence........................................... Not Applicable. 12. Information With Respect to S-2 or S-3 Registrants...................................... Not Applicable. 13. Incorporation of Certain Information by Ref- erence........................................... Not Applicable.
ADDITIONAL REGISTRANTS(1) (CONTINUED)
ITEM CAPTION IN INFORMATION NUMBER CAPTION STATEMENT/PROSPECTUS - --------- -------------------------------------------------- ---------------------------------------------------- 14. Information With Respect to Registrants Other than S-3 or S-2 Registrants........................... Summary; The Company; Investment Considerations; The Acquisition; Capitalization; Selected Historical Consolidated Financial and Statistical Information; Target Hospital Selected Financial Information; Unaudited Pro Forma Financial Information; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Executive Compensation; Security Ownership of Certain Beneficial Owners and Manage- ment; Certain Relationships and Related Trans- actions; Index to Financial Statements; Financial Statements. 15. Information With Respect to S-3 Companies......... Not Applicable. 16. Information With Respect to S-2 or S-3 Companies........................................ Not Applicable. 17. Information With Respect to Companies Other Than S-2 or S-3 Companies............................. Not Applicable. 18. Information if Proxies, Consents or Authori- zations are to be Solicited...................... Not Applicable. 19. Information if Proxies, Consents or Authori- zations are not to be Solicited, or in an Exchange Offer................................... Summary; Management; Security Ownership of Certain Beneficial Owners and Management.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JULY 1, 1994 PROSPECTUS $375,000,000 CHARTER MEDICAL CORPORATION [LOGO] OFFER TO EXCHANGE ITS 11 1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2004 FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2004 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1994, UNLESS EXTENDED. Charter Medical Corporation, a Delaware corporation ("Charter" or the "Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount of its 11 1/4% Series A Senior Subordinated Notes due 2004 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement of which this Prospectus is a part, for each $1,000 principal amount of its outstanding 11 1/4% Senior Subordinated Notes due 2004 (the "Old Notes"), which have not been registered under the Securities Act. The aggregate principal amount of the Old Notes currently outstanding is $375,000,000. The form and terms of the New Notes are the same as the form and terms of the Old Notes except that (i) the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting their transfer, (ii) holders of New Notes will not be entitled to certain rights under the Registration Rights Agreement (as defined), which rights will terminate when the Exchange Offer is consummated, and (iii) the New Notes have been given a series designation to distinguish them from the Old Notes. The New Notes will evidence the same debt as the Old Notes (which they will replace) and will be issued under and be entitled to the benefits of the indenture governing the Old Notes dated as of May 2, 1994 (the "Indenture"). The Old Notes and the New Notes are sometimes referred to herein collectively as the "Notes." See "The Exchange Offer" and "Description of the New Notes." The Company will accept for exchange and exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1994, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain customary conditions. See "The Exchange Offer." Old Notes may be tendered only in integral multiples of $1,000. The Old Notes were sold by the Company on May 2, 1994, in transactions that were not registered under the Securities Act in reliance upon the exemption provided in Section 4(2) of the Securities Act. The initial purchasers of the Old Notes subsequently resold the Old Notes to "qualified institutional buyers" in reliance upon Rule 144A under the Securities Act. Accordingly, the Old Notes may not be reoffered, resold or otherwise transferred unless so registered or unless an applicable exemption from the registration requirements of the Securities Act is available. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The New Notes are being offered for exchange hereby to satisfy certain obligations of the Company under the Exchange and Registration Rights Agreement, dated April 22, 1994, among the Company and the initial purchasers of the Old Notes (the "Registration Rights Agreement"). Based on existing interpretations of the staff of the Division of Corporation Finance (the "Staff") of the Securities and Exchange Commission (the "Commission") with respect to similar transactions, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act ), without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, have no arrangement with any person to participate in, and do not intend to engage in any public distribution of the New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a resale prospectus in connection with any resale of such New Notes. The Letter of Transmittal which accompanies this Prospectus states that by so acknowledging and by delivering a resale prospectus, a broker-dealer will not be deemed to admit to be acting in the capacity of an "underwriter" (within the meaning of Section 2(11) of the Securities Act). This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities. The Company has agreed that, for a period of 180 days after the date on which the Registration Statement of which this Prospectus is a part is first declared effective, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Holders of Old Notes whose Old Notes are not tendered and accepted in the Exchange Offer will continue to hold such Old Notes and will be entitled to all the rights and preferences and will be subject to the limitations applicable thereto under the Indenture, and with respect to transfer, under the Securities Act. The Company will not receive any proceeds from the Exchange Offer and will pay all the expenses incurred by it incident to the Exchange Offer. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holders thereof as promptly as practicable after the expiration or termination of the Exchange Offer. See "The Exchange Offer." There is no public market for the Old Notes, although the Old Notes are included in the Private Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market for trading among "qualified institutional buyers." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. The Company has been advised by the American Stock Exchange, Inc. ("AMEX") that the New Notes have been approved for listing on AMEX, subject to official notice of issuance. There can be no assurance that an active trading market for the New Notes will develop after such listing. The Notes are general unsecured obligations of the Company and are subordinate in right of payment to all existing and future Senior Indebtedness of the Company, which includes all the secured indebtedness of the Company, and senior or PARI PASSU in right of payment to all existing and future subordinated indebtedness. The Notes are fully and unconditionally guaranteed on an unsecured senior subordinated basis by substantially all of the Company's existing subsidiaries and certain subsidiaries created after the issuance of the Notes (the "Guarantors"). The guarantees of the Notes by the Guarantors are subordinate in right of payment to all Senior Indebtedness of the Guarantors and senior or PARI PASSU in right of payment of all existing and future subordinated indebtedness of the Guarantors. As of May 31, 1994, the principal amount outstanding of Senior Indebtedness of the Company and the Guarantors was approximately $147.3, which includes approximately $65.1 million of secured indebtedness. Pursuant to the Indenture, the Company and the Guarantors may create liens on any of their respective assets to secure Senior Indebtedness and certain other types of indebtedness. The Indenture prohibits the Company and the Guarantors from creating liens on any of their respective assets to secure indebtedness that is PARI PASSU with or subordinated to the Notes, unless the Notes are equally and ratably secured. SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN RISKS TO BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE OFFER. ------------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS , 1994. [GRAPHIC] This is a map of the United States (excluding Hawaii), showing the Charter Medical Facilities and Target Hospitals. NEW HAMPSHIRE RESIDENTS ONLY Neither the fact that a registration statement or an application for a license has been filed under Chapter 421-B of the New Hampshire Revised Statutes with the State of New Hampshire nor the fact that a security is effectively registered or a person is licensed in the State of New Hampshire constitutes a finding by the Secretary of State that any document filed under Chapter 421-B of the New Hampshire Revised Statutes is true, complete and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the Secretary of State has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer or client any representation inconsistent with the provisions of this paragraph. SUMMARY THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND SHOULD BE READ IN CONJUNCTION WITH, THE DETAILED INFORMATION APPEARING ELSEWHERE, OR INCORPORATED BY REFERENCE IN, THIS PROSPECTUS. ALL CAPITALIZED TERMS USED IN THIS PROSPECTUS WITHOUT A DEFINITION ARE DEFINED AS SET FORTH BELOW UNDER THE CAPTION "DESCRIPTION OF THE NEW NOTES - -- CERTAIN DEFINITIONS." THE COMPANY Charter Medical Corporation ("Charter" or the "Company") is a leading private provider of behavioral healthcare services and one of the largest owners and operators of private psychiatric hospitals in the United States. Approximately 46,900 patients were admitted to the Company's psychiatric hospitals during the six-month period ended March 31, 1994. In contrast, its next largest competitor reported approximately 19,600 admissions during its two most recent fiscal quarters. As of March 31, 1994, the Company operated 73 psychiatric hospitals and two free-standing residential treatment centers with an aggregate capacity of 6,970 licensed beds. Its next largest competitor operated 49 psychiatric hospitals and had 4,205 beds in service at such date. On June 30, 1994, the Company acquired 18 psychiatric hospitals, seven chemical-dependency treatment facilities, one residential treatment center and one physician outpatient practice from National Medical Enterprises, Inc. ("NME"). The acquisition of such Target Hospitals increased the number of psychiatric hospitals operated by the Company by 35% and the number of licensed beds by 29%. The Company has agreed to acquire additional behavioral healthcare facilities from NME (the acquisition concluded on June 30, 1994, together with the proposed acquisition of additional facilities, are referred to as the "Acquisition"). See "-- The Acquisition." Most of the Company's hospitals are located in well-populated urban and suburban communities in 26 primarily southern or western states of the United States. In addition, the Company operates 120 outpatient centers staffed by behavioral health professionals, 68 of the Company's hospitals operate partial hospitalization programs, 40 of the Company's hospitals operate intensive outpatient programs, and 14 hospitals offer residential treatment programs. The Company's facilities provide a continuum of behavioral care for children, adolescents and adults. These services include crisis stabilization; acute psychiatric services; acute chemical dependency services; partial (day and evening) hospitalization programs; intensive adolescent weekend services; outpatient services; support group services and aftercare, including programs such as ALCOHOLICS ANONYMOUS, NARCOTICS ANONYMOUS and OVEREATERS ANONYMOUS; and residential treatment. According to industry and government estimates, mental disorders affect approximately 40 million American adults (22% of the adult population) each year. Direct expenditures in 1990, the latest year for which data are available, for the treatment of persons suffering from mental and substance abuse disorders were approximately $67 billion. Management believes that a small percentage of those who reportedly suffer from mental or substance abuse disorders receive professional treatment. Management further believes that demand for behavioral healthcare services should increase commensurate with an increase in the percentage of persons who seek treatment for their behavioral health disorders. Management anticipates that the percentage of persons who seek treatment will increase because of a continuing decline in the social stigma associated with behavioral disorders and a growing recognition by the government and employers of the indirect costs (such as lost productivity, work and vehicular accidents, and social welfare costs) of failing to treat such behavioral health disorders. The Company's patient admissions increased 20.7% from 70,565 in fiscal 1991 to 85,158 in fiscal 1993. While admissions of behavioral healthcare patients have grown, third-party payors have been imposing more stringent admission, length of stay and reimbursement rate criteria. The average length of stay at the Company's hospitals during fiscal 1991 was 20.4 days, compared to 15.8 days during fiscal 1993, reflecting this trend. Total inpatient days also declined, from 1,445,614 in fiscal 1991 to 1,350,835 in fiscal 1993, a decline of 6.6%. Also, in recent years, reimbursement rate increases have failed to offset increases in the cost of providing care. As a result, net revenue increased only 3.5% from fiscal 1991 to fiscal 1993, significantly less than the percentage increase in patient admissions. In response to these industry trends, the Company (i) developed a wider array of outpatient services, such as partial hospitalization, intensive outpatient and 1 residential treatment programs; (ii) decentralized hospital management to increase the Company's responsiveness to local market conditions; (iii) pursued joint ventures and strategic affiliations with other healthcare providers; and (iv) implemented more efficient operating and administrative expense controls. As a result of the controls, operating and administrative expenses decreased from $656.8 million in fiscal 1991 to $640.8 million in fiscal 1993, or 2.4%. The Company's strategy is to become a nationwide integrated provider of high-quality, cost-effective behavioral healthcare services. To implement this strategy, management intends to expand the Company's partial hospitalization and outpatient programs in its existing markets and to enter approximately 14 new markets in the United States and Europe, in addition to the 16 new markets entered into as a result of the Acquisition. The Company's ability to enter such new markets will depend on whether or not, and how quickly, the Company is able to identify facilities it may acquire in such markets. The Company does not, on the date hereof, have an agreement to acquire any behavioral healthcare facilities in any of the 14 new markets. Management also is seeking additional strategic alliances with, and additional acquisitions of, group psychiatric practices, mental health clinics, other behavioral healthcare providers and behavioral managed-care firms. Management believes that this strategy will enhance the Company's ability to obtain nationwide, area-wide and local contracts to be the exclusive or a preferred provider of behavioral healthcare services to major employers, third-party payors and managed-care firms. The Company was reorganized pursuant to chapter 11 of the United States Bankruptcy Code during fiscal 1992 (the "Reorganization"). Following the Reorganization, the Company has focused on further reducing its long-term debt and managing its core group of psychiatric hospitals. As of March 31, 1994, the Company had repaid approximately $692.7 million of its approximately $1.1 billion post-Reorganization long-term debt. On September 30, 1993, the Company sold ten of its general hospitals for approximately $338.0 million, the net proceeds of which were applied to such repayment. THE ACQUISITION The Company has entered into two asset sale agreements (the "Asset Sale Agreements") with NME providing for the purchase from NME of substantially all of the assets of 36 psychiatric hospitals, eight chemical-dependency treatment facilities, two residential treatment centers and one physician outpatient practice (including related outpatient facilities and other associated assets, the "Target Hospitals"). The aggregate purchase price for the Target Hospitals under the Asset Sale Agreements is approximately $146.9 million in cash plus an additional cash amount, estimated to be approximately $50.7 million, subject to adjustment, for the net working capital of the Target Hospitals at the closing of the Acquisition. As noted above, on June 30, 1994, the Company acquired 18 of the Target Hospitals, seven chemical-dependency treatment facilities, one residential treatment facility and the physician outpatient practice. The Target Hospitals have an aggregate capacity of 3,496 licensed beds and are located in 20 states. During their fiscal year ended May 31, 1993, the Target Hospitals had approximately 40,000 patient admissions and net revenue of approximately $407.5 million. The subsidiaries of the Company that own, or will own, the Target Hospitals are Guarantors. Management believes that the Acquisition will assist the Company in implementing its strategy by increasing the Company's size, market position and geographic coverage. For example, the Acquisition permits the Company to enter 16 new markets, including markets in the mid-Atlantic and northeastern United States. Management also believes that the introduction to the Target Hospitals of Charter's operating and financial control systems, continuum of care and marketing efforts will increase the utilization and profitability of the Target Hospitals. However, the Company has no assurance that it will be able to operate the Target Hospitals profitably following the Acquisition. NME and certain of its subsidiaries that own the Target Hospitals have been involved in significant lawsuits and governmental investigations concerning possible improper practices related principally to its psychiatric business. As a result of these past practices, Charter's ability to operate the Target Hospitals profitably may have been impaired. Furthermore, the Company could unknowingly employ NME personnel who were involved in such wrongful activities. See "Risk Factors -- Risks Related to Unsuccessful Operation of the Target Hospitals" and "-- Risks Related to Past Practices of NME." 2 Except for the combined financial statements of the Selected Psychiatric Hospitals of National Medical Enterprises, Inc. included elsewhere in this Prospectus, information contained herein regarding NME and the Target Hospitals has been derived by the Company from information obtained by the Company during its due diligence review of the Target Hospitals prior to executing the Asset Sale Agreement. Except for the combined financial statements of the Selected Psychiatric Hospitals of National Medical Enterprises, Inc., NME has not passed upon the accuracy or adequacy of this Prospectus, which has been prepared by the Company. Subject to certain conditions, the Company has agreed to indemnify NME in connection with the offering of the securities made hereby. The combined financial statements of the Selected Psychiatric Hospitals of National Medical Enterprises, Inc. relate to all facilities to be acquired in the Acquisition, including the facilities that have not yet been acquired. THE OLD NOTES OFFERING The Old Notes..................... The Old Notes were sold by the Company on May 2, 1994 in a private placement (the "Offering") to accredited investors (the "Initial Purchasers") pursuant to a Purchase Agreement dated April 22, 1994 (the "Purchase Agreement"). The Initial Purchasers subsequently resold the Old Notes to "qualified institutional buyers" pursuant to Rule 144A under the Securities Act. As of the date of this Prospectus, all $375,000,000 outstanding principal amount of the Old Notes were evidenced by global securities, registered in the name of CEDE & Co., as nominee for The Depositary Trust Company ("DTC"), and held by Marine Midland Bank as securities custodian for CEDE & Co. As indicated elsewhere in this Prospectus, the Old Notes have been included in the PORTAL Market for trading among "qualified institutional buyers" pursuant to Rule 144A under the Securities Act. Registration Rights Agreement..... Pursuant to the Purchase Agreement, the Company and the Initial Purchasers entered into the Registration Rights Agreement, which, among other things, grants the holders of the Old Notes certain exchange and registration rights. The Exchange Offer is intended to satisfy such exchange rights, which rights will terminate upon consummation of the Exchange Offer. See "The Exchange Offer -- Purpose and Effect of the Exchange Offer." The Financing Transactions........ Simultaneously with the sale of the Old Notes, the Company amended and restated its existing credit agreements with a group of financial institutions (as so amended and restated, the "New Credit Agreement"). The Company used the net proceeds from the sale of the Old Notes and the initial borrowings pursuant to the New Credit Agreement to refinance substantially all of the Company's outstanding indebtedness and certain indebtedness of its subsidiaries. The issuance of the Old Notes, the borrowings pursuant to the New Credit Agreement and the application of the proceeds thereof as described in the preceding sentence and to finance the Acquisition are referred to herein collectively as the "Financing Transactions." See "Use of Proceeds." THE EXCHANGE OFFER Securities Offered................ $375,000,000 aggregate principal amount of 11 1/4% Series A Senior Subordinated Notes due April 15, 2004 that have been registered pursuant to the Securities Act (the "New Notes").
3 The Exchange Offer................ $1,000 principal amount of the New Notes in exchange for each $1,000 principal amount of 11 1/4% Senior Subordinated Notes due April 15, 2004 that have not been registered pursuant to the Securities Act (the "Old Notes"). As of the date hereof, $375,000,000 aggregate principal amount of Old Notes is outstanding. The Company will issue the New Notes to holders on or promptly after the Expiration Date. The New Notes are being offered for exchange hereby to satisfy certain obligations of the Company under the Registration Rights Agreement. Based on existing interpretations of the Staff with respect to similar transactions, the Company believes that New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such New Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, have no arrangement with any person to participate in, and do not intend to engage in, any public distribution of the New Notes. Each broker-dealer that receives New Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a resale prospectus in connection with any resale of such New Notes. The Letter of Transmittal which accompanies this Prospectus states that by so acknowledging and by delivering a resale prospectus, a broker-dealer will not be deemed to admit to be acting in the capacity of an "underwriter" (within the meaning of Section 2(11) of the Securities Act). This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such broker-dealer as a result of market-making or other trading activities. The Company has agreed that, for a period of 180 days after the date on which the Registration Statement of which this Prospectus is a part is first declared effective it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." Expiration Date................... 5:00 p.m., New York City time, on , 1994 unless the Exchange Offer is extended, in which case the term "Expiration Date" means the latest date and time to which the Exchange Offer is extended. Accrued Interest on the New Notes and Old Notes..................... Each New Note will bear interest from its date of original issuance. Holders of Old Notes that are accepted for exchange and exchanged for New Notes will receive, in cash, accrued interest thereon to, but not including, the original issuance date of the New Notes. Such interest will be paid on the first interest pay- ment date for the New Notes. Interest on the Old Notes accepted for exchange and exchanged in the Exchange Offer will cease to accrue on the date next preceding the date of original issuance of the New Notes.
4 Conditions to the Exchange Offer............................. The Exchange Offer is subject to certain customary conditions, which may be waived by the Company. See "The Exchange Offer -- Conditions." Procedures for Tendering Old Notes............................. Each holder of Old Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Old Notes and any other required documentation to the Exchange Agent (as defined) at the address set forth herein. By executing the Letter of Transmittal, each holder will represent to the Company that, among other things, each holder of the Old Notes who wishes to exchange its Notes for New Notes in the Exchange Offer will be required to make certain representations to the Company, including that (i) any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in a public distribution (within the meaning of the Securities Act) of the New Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act of the Company, or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. In addition, each holder who is not a broker-dealer will be required to represent that it is not engaged in, and does not intend to engage in, a public distribution of the New Notes. Each holder who is a broker-dealer and who receives New Notes for its own account in exchange for Old Notes that were acquired by it as a result of market-making activities or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such New Notes. The Company has agreed that, for a period of 180 days after the date on which the Registration Statement of which this Prospectus is a part is first declared effective, it will make this Prospectus available to any broker-dealer for use in connection with any such resales. For a description of the procedures for certain resales by broker-dealers, see "Plan of Distribution." See "The Exchange Offer -- Procedures for Tendering." Untendered Old Notes.............. Following the consummation of the Exchange Offer, holders of Old Notes eligible to participate and to receive freely transferrable New Notes (based on existing interpretations of the staff described elsewhere in this Prospectus) but who do not tender their Old Notes will not have any further registration rights and such Old Notes will continue to be subject to certain restrictions on transfer under the Securities Act. Accordingly, the liquidity of the market for such Old Notes could be adversely affected. Shelf Registration Statement...... Pursuant to the Registration Rights Agreement, in the event that applicable interpretations of the Staff do not permit the Company to effect the Exchange Offer or if for any other reason the Exchange Offer is not consummated by August 31, 1994, or if the Initial Purchasers so request with respect to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer or if any holder of Old Notes is not eligible to participate in the
5 Exchange Offer or does not receive freely tradeable New Notes in the Exchange Offer, the Company will, at its expense, (a) promptly file a shelf registration statement (a "Shelf Registration Statement") permitting resales from time to time of the Old Notes, (b) use its best efforts to cause such registration statement to become effective and (c) use its best efforts to keep such registration statement current and effective until three years from the date it becomes effective or such shorter period that will terminate when all the Old Notes covered by such registration statement have been sold pursuant thereto. The Company, at its expense, will provide to each holder of the Old Notes copies of the prospectus that is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes from time to time. A holder of Old Notes who sells such Old Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). Special Procedures for Beneficial Owners............................ Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender its Old Notes for exchange in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tend- er on such beneficial owner's behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering its Old Notes, either make appropriate arrangements to register ownership of the Old Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Guaranteed Delivery Procedures.... Holders of Old Notes who wish to tender their Old Notes and whose Old Notes are not immediately available or who cannot deliver their Old Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Old Notes accord- ing to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." Withdrawal Rights................. Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Old Notes and Delivery of New Notes............. The Company will accept for exchange and exchange any and all Old Notes which are properly tendered in the Exchange Offer and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The New Notes issued pursuant to the
6 Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." Federal Income Tax Consequences... The exchange pursuant to the Exchange Offer should not be a taxable event for federal income tax purposes. See "Federal Income Tax Consequences of the Exchange Offer." Use of Proceeds................... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. See "Use of Proceeds." Exchange Agent.................... Marine Midland Bank.
SUMMARY OF TERMS OF THE NEW NOTES The form and terms of the New Notes are identical to the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and, therefore, will not bear legends restricting the transfer thereof and except for the series designation. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture. See "Description of the New Notes." Maturity Date..................... April 15, 2004. Interest Payment Dates............ April 15 and October 15, commencing October 15, 1994. Guarantees........................ The New Notes will be fully and unconditionally guaranteed on an unsecured senior subordinated basis by the Guarantors. The guarantees of the New Notes by the Guarantors will be subordinated in right of payment to all Senior Indebtedness of the Guarantors and senior or PARI PASSU in right of payment to all existing and future subordinated indebtedness of the Guarantors. See "Description of the New Notes -- Guarantees." Ranking........................... The New Notes will be general unsecured obligations of the Company, subordinate in right of payment to all existing and future Senior Indebtedness and senior or PARI PASSU in right of payment to all existing and future subordinated indebtedness of the Company. The New Notes and the guarantees thereof will be PARI PASSU in right of payment with all Old Notes that are not exchanged for New Notes pursuant to the Exchange Offer. As of May 31, 1994, the aggregate outstanding principal amount of Senior Indebtedness of the Company and the Guarantors was approximately $147.3 million. The Indenture will prohibit the Company from incurring, assuming or guaranteeing any Indebtedness that is subordinated to any Senior Indebtedness and senior in right of payment to the New Notes. Optional Redemption............... The New Notes will be redeemable for cash, at the option of the Company, in whole or in part, on or after April 15, 1999, at the redemption prices set forth herein, plus accrued interest. See "Description of the New Notes -- Optional Redemption." Change of Control................. Upon the occurrence of a Change of Control, holders of the New Notes will have the option to require the Company to repurchase their New Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the repurchase date. The Company's ability to repurchase the New Notes following a Change of Control will be dependent upon it having sufficient cash therefor and the terms of its then outstanding Senior Indebtedness. See "Description of the New Notes -- Change of Control" and "Summary of New Credit Agreement."
7 Certain Covenants................. The Indenture contains certain covenants, including limitations on the ability of the Company and its Restricted Subsidiaries to: (i) incur additional indebtedness; (ii) incur indebtedness that is subordinated to any Senior Indebtedness and senior in right of payment to the New Notes; (iii) grant liens to secure subordinated indebtedness; (iv) sell equity interests in subsidiaries; (v) engage in transactions with affiliates; (vi) make certain restricted payments; (vii) apply the net proceeds of certain asset sales; (viii) agree to payment restrictions affecting certain subsidiaries; and (ix) engage in mergers, consolidations and the transfer of all or substantially all of the assets of the Company or its Restricted Subsidiaries to another person. Investment Considerations......... In evaluating the Exchange Offer, holders of Old Notes should carefully consider the factors set forth under the caption "Risk Factors" prior to determining whether to participate in the Exchange Offer. Holders of the Old Notes should also consider that such factors are also generally applicable to the Old Notes.
8 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER DAY AMOUNTS) The following summary consolidated historical financial data of Charter have been prepared from, and should be read in conjunction with, Charter's consolidated financial statements for the year ended September 30, 1993 and notes thereto, including the unaudited interim consolidated financial data for the six months ended March 31, 1993 and 1994, set forth elsewhere in this Prospectus. The summary selected consolidated pro forma financial data have been prepared assuming that the Acquisition and the Financing Transactions occurred on the first day of the period presented, in the case of the pro forma operating data, and on the balance sheet date, in the case of the pro forma balance sheet data. For an explanation of the adjustments and assumptions made to prepare the pro forma financial data, see "Unaudited Pro Forma Financial Information."
SIX MONTHS ENDED MARCH 31, -------------------------------------- YEAR ENDED SEPTEMBER 30, 1993 1993 1994 ------------------------ ---------- ------------------------ ACTUAL PRO FORMA ACTUAL ACTUAL PRO FORMA ---------- ---------- ---------- ---------- ---------- INCOME STATEMENT DATA: Net revenue....................................... $897,907 $1,284,127 $ 459,550 $ 421,427 $599,834 Operating and administrative expenses............. 640,847 966,652 323,367 305,589 453,042 Bad debt expense.................................. 67,300 82,937 34,870 32,288 40,981 Depreciation and amortization (2)................. 69,060 76,309 35,302 29,179 32,804 Interest, net..................................... 74,156 56,179 37,307 16,785 28,513 Net income (loss)................................. (52,227) (5,206) (26,915) (2,743) 1,402 OTHER FINANCIAL DATA: EBITDA(1)......................................... 189,760 234,538 101,313 83,550 105,811 Ratio of EBITDA to interest, net(1)............... 2.56x 4.17x 2.72x 4.98x 3.71x EBITDA as % of net revenue(1)..................... 21.1% 18.3% 22.0% 19.8% 17.6% Cash flows provided by operating activities....... 89,958 NA 37,247 18,547 NA Cash flows provided by investing activities....... 371,407 NA 27,465 3,218 NA Cash flows used in financing activities........... (516,166) NA (100,032) (67,232) NA SELECTED OPERATING DATA: Number of psychiatric hospitals................... 74 120 78 75 121 Average licensed beds............................. 7,145 10,693 7,207 6,980 10,434 Total inpatient days(3)........................... 1,373,835 2,059,333 705,235 649,931 970,136 Total equivalent patient days(4).................. 1,481,221 2,228,414 755,057 712,485 1,068,937 Admissions........................................ 86,794 125,660 42,723 46,912 65,751 Average length of stay (days)..................... 15.8 16.2 16.3 13.9 14.6 Net revenue per equivalent patient day(5)......... $576 $556 $581 $557 $531
MARCH 31, 1994 ---------------------- ACTUAL PRO FORMA --------- ----------- BALANCE SHEET DATA: Working capital(6)..................................................................... $ (18,532) $ 65,304 Property and equipment -- net.......................................................... 429,720 574,215 Total assets........................................................................... 768,056 1,006,258 Long-term debt and capital lease obligations........................................... 321,192 599,137 Stockholders' equity................................................................... 82,109 68,420 Ratio of long-term debt and capital lease obligations to EBITDA(1)(7).................. 1.9x 2.8x - ------------------------------ (1) Earnings before interest, income taxes, stock option expense, ESOP expense, depreciation and amortization, discontinued operations and extraordinary items. The Company believes that EBITDA provides useful information regarding the Company's ability to service its debt payment obligations; however, EBITDA does not represent cash flow from operations, as defined by generally accepted accounting principles, and should not be considered as a substitute for net income as an indicator of the Company's operating performance or for cash flow as a measure of liquidity. The ratios are shown as indicators of the Company's ability to meet its debt service obligations. (2) Includes amortization of reorganization value in excess of amounts allocable to identifiable assets. (3) Provision of care to one inpatient for one day. (4) Inpatient days adjusted to reflect outpatient utilization, computed by dividing patient revenue by inpatient revenue per day. (5) Includes inpatient and outpatient revenue. Excludes revenue from non-psychiatric operations. (6) The Company had a working capital deficiency of $18.5 million at March 31, 1994, due primarily to the retention of liabilities for cost report settlements for the general hospitals sold on September 30, 1993. (7) This ratio is based on annualized EBITDA.
9 THE COMPANY The Company was incorporated in 1969 under the laws of the State of Delaware. The Company's principal executive offices are located at 577 Mulberry Street, Macon, Georgia 31298, and its telephone number is (912) 742-1161. Unless the context otherwise requires, the "Company" includes Charter Medical Corporation and its subsidiaries. RISK FACTORS IN EVALUATING THE EXCHANGE OFFER, HOLDERS OF THE OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN ADDITION TO THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS PRIOR TO ACCEPTING THE EXCHANGE OFFER. HOLDERS OF OLD NOTES SHOULD ALSO CONSIDER THAT SUCH FACTORS ARE ALSO GENERALLY APPLICABLE TO THE OLD NOTES. THE OLD NOTES AND THE NEW NOTES ARE COLLECTIVELY REFERRED TO HEREIN AS THE "NOTES." LEVERAGE AND DEBT SERVICE. As of May 31, 1994, the ratio of the Company's total long-term debt and capital lease obligations to EBITDA (as defined) was approximately 3.0 to 1. The ratio of EBITDA (as defined) to net interest for the eight months ended May 31, 1994, was approximately 5.0 to 1. The Indenture permits the Company and its subsidiaries to incur additional indebtedness, subject to certain limitations. The degree to which the Company is leveraged could have important consequences to holders of the Notes, including: (a) a significant portion of the Company's cash flow from operations must be dedicated to the payment of principal and interest on indebtedness and (b) the Company's leverage may make it more vulnerable to healthcare industry related or general economic downturns and may limit its ability to withstand competitive pressures or to take advantage of attractive business opportunities. The Company's ability to make scheduled payments or to refinance its obligations with respect to its indebtedness (including the Notes) depends on its financial and operating performance, which, in turn, is subject to prevailing economic conditions, to governmental healthcare policies and to financial, business, regulatory and other factors beyond its control. There can be no assurance that the Company's operating results will continue to be sufficient for payment of all of the Company's indebtedness, including the Notes. See "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Unaudited Pro Forma Financial Information." SUBORDINATION. The New Notes will be senior subordinated obligations of the Company and, as such, will be subordinated to all existing and future Senior Indebtedness of the Company and the Guarantors, which include borrowings pursuant to the New Credit Agreement in an amount not to exceed $300 million and will rank PARI PASSU in right of payment with all Old Notes not exchanged for New Notes pursuant to the Exchange Offer. As of May 31, 1994, the aggregate outstanding principal amount of Senior Indebtedness of the Company and the Guarantors was approximately $147.3 million. Upon the maturity of any Specified Senior Indebtedness by lapse of time, acceleration (unless waived, rescinded or annulled) or otherwise, all principal thereof, premium, if any, interest and fees thereon and all other obligations with respect thereto shall first be paid in full in cash, or such payment duly provided for, before any payment is made on account of principal of, premium, if any, or interest on the Notes. In addition, the Company may not pay principal of, premium, if any, or interest on the Notes and may not acquire any Notes (including by means of redemption or upon the occurrence of a Change of Control) for cash or property, if there has been any default in the payment of principal of or interest on any Specified Senior Indebtedness or in the payment of any letter of credit commission under the New Credit Agreement, unless such default has been cured, waived or has ceased to exist, or such Specified Senior Indebtedness has been discharged. In addition, if any non-payment event of default exists with respect to any Specified Senior Indebtedness pursuant to which the maturity of such Specified Senior Indebtedness may be accelerated and certain other conditions are satisfied, the Company may not make or otherwise provide for any payments on the Notes for a designated period of time. Pursuant to the terms of certain Senior Indebtedness, a non-payment default under such Senior Indebtedness could result in (i) the acceleration of such Senior Indebtedness, (ii) the cessation of funding under the New Credit Agreement, and (iii) the ability of holders of certain Senior Indebtedness to stop payments of principal of, premium, if any, and interest on the Notes. Upon any payment or distribution of assets of the Company upon liquidation, dissolution, reorganization or any similar proceeding, the holders of Senior Indebtedness of the Company and the Guarantors will be entitled to receive payment in full before the holders of the Notes are entitled to receive any payment. See "Description of the New Notes." 10 The indebtedness outstanding pursuant to the New Credit Agreement (including the guarantees thereof by the Guarantors) is secured by substantially all of the real and personal property of the Company and its domestic subsidiaries (except for the real property of the Target Hospitals and of subsidiaries formed after the date of the New Credit Agreement, subject to certain exceptions), including pledges of all or a portion of the capital stock of substantially all of the Company's operating subsidiaries. The Notes and the guarantees thereof are not secured. See "Summary of New Credit Agreement." DEPENDENCE ON DISTRIBUTIONS FROM SUBSIDIARIES. The Company is a holding company which derives substantially all of its operating income from its subsidiaries. The Company must rely upon dividends and other payments from its subsidiaries to generate the funds necessary to meet its obligations, including the payment of principal of and interest on the Notes. The ability of the Company's subsidiaries to make such payments may be restricted by, among other things, applicable state corporate laws and other laws and regulations. See "Description of the New Notes." POSSIBLE UNENFORCEABILITY OF THE GUARANTEES. The holders of the Notes have no direct claim against the subsidiaries other than the claim created by the guarantees. The guarantees may be subject to legal challenge as constituting fraudulent conveyances or for otherwise being given for inadequate consideration. If such a challenge were upheld, the guarantees would be invalidated and unenforceable. In addition, it is possible that holders of the Notes would be ordered by a court to turn over to other creditors of the Guarantors or to their trustees in bankruptcy all or a portion of the payments made to them pursuant to the guarantees. To the extent that the guarantees are not enforceable in amounts sufficient to satisfy the claims of the holders of the Notes, the rights of holders of the Notes to participate in any distribution of assets of any Guarantor upon liquidation, bankruptcy, reorganization or otherwise may, as is the case with other unsecured creditors of the Company, be subject to prior claims of creditors of that Guarantor. RISKS RELATED TO UNSUCCESSFUL OPERATION OF THE TARGET HOSPITALS There can be no assurance that the Company will be able to operate the Target Hospitals profitably following the Acquisition. In this regard, the Company notes that NME incurred net losses with respect to its operations of the Target Hospitals of approximately $1.3 million and $23.1 million for its fiscal years ended May 31, 1992 and 1993, respectively, and of approximately $17.2 million and $117.9 million for its nine-month periods ended February 28, 1993 and 1994, respectively. There can be no assurance that the Company will be able to reverse the factors that caused the Target Hospitals to incur operating losses in such periods. RISKS RELATED TO PAST PRACTICES OF NME. NME and certain of its subsidiaries, including those that own the Target Hospitals, have been involved in significant lawsuits and governmental investigations concerning possible improper practices related principally to its psychiatric business. NME has settled a majority of the significant lawsuits and, on June 29, 1994, entered into a settlement agreement with certain federal government agencies that finalized all of its open investigations of NME. The past practices of NME present the following risks for the Company: (i) The Company's ability to operate the Target Hospitals profitably may have been impaired because of the uncertainty caused by the lawsuits and governmental investigations related to NME's past practices. Such uncertainty may have adversely affected management and employee morale, diverted management attention from operational matters and permitted the Target Hospitals' competitors to use concerns about the past practices as a means of attracting physicians and other referral sources. The Company has no assurance that it will be able to reverse such impairment. (ii) The Company intends to employ a significant number of managerial employees who are now employed by NME in connection with the Target Hospitals. While the Company is not aware that any employees it intends to hire were involved in allegedly wrongful activities, it is possible that the Company could unknowingly employ persons who were so involved. Such persons could cause the Company to engage in practices of the type in which NME was alleged to have participated in the past. PREVIOUS BANKRUPTCY REORGANIZATION. The Company was reorganized pursuant to chapter 11 of the United States Bankruptcy Code, effective on July 21, 1992. Prior to the Reorganization, the Company's total indebtedness was approximately $1.8 billion; and from February 1991 until July 1992, the Company was in default in the payment of interest and principal, or both, on substantially all such indebtedness. The 11 indebtedness was incurred by the Company in connection with a management buyout of the Company in 1988 and a hospital-construction program. There can be no assurance that the Company will not be required to seek further protection pursuant to the bankruptcy laws, due to the occurrence of factors beyond its control and that it cannot now foresee. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." HISTORICAL OPERATING LOSSES. The Company experienced losses from continuing operations before reorganization items, extraordinary item and cumulative effect of a change in accounting principle of approximately $65.6 million, $322.3 million and $167.1 million for the fiscal years ended September 30, 1989, 1990 and 1991, respectively. Such losses amounted to approximately $81.7 million and $8.1 million for the ten-month period ended July 31, 1992 and the two-month period ended September 30, 1993, respectively. For the fiscal year ended September 30, 1993, such loss amounted to approximately $39.6 million. The Company's history of such losses could have an adverse affect on the Company's operations. REIMBURSEMENT BY THIRD-PARTY PAYORS. For the fiscal year ended September 30, 1993, the Company derived approximately 56% of its gross psychiatric patient service revenue from private-pay sources (including HMO's, PPO's and Blue Cross), 23% from Medicare, 15% from Medicaid and 6% from the Civilian Health and Medical Program for the Uniformed Services ("CHAMPUS"). Changes in the mix of the Company's patients among the private-pay, Medicare and Medicaid categories, and among different types of private-pay sources, can significantly affect the profitability of the Company's operations. Various cost-containment mechanisms by both governmental and private third-party payors have begun to restrict the scope and amount of reimbursable healthcare expenses. Therefore, there can be no assurance that payments under governmental and private third-party payor programs will remain at levels comparable to present levels or will, in the future, be sufficient to cover the costs allocable to patients eligible for reimbursement pursuant to such programs. In addition, there can be no assurance that the Company's hospitals will continue to meet the requirements for participation in such programs. HEALTHCARE REFORM. On October 27, 1993, President Clinton submitted to Congress comprehensive healthcare reform legislation (the "Administration's Proposal"). At present, six other comprehensive reform proposals have been introduced in the Congress, several of which are likely to be viewed by Congress as significant alternatives to the Administration's Proposal. A central component of the Administration's Proposal is the restructuring of health insurance markets through the use of "managed competition." Under the Administration's Proposal, states would be required to establish regional purchasing cooperatives, known as "regional alliances," that would be the exclusive source of insurance coverage for individuals and employers with fewer than 5,000 employees. All employers would be required to make such coverage available to their employees and contribute 80% of the premium, and all individuals would be required to enroll in an approved health plan. Regional alliances would contract with health plans that demonstrate an ability to provide consumers with a broad range of benefits, including hospital services. The federal government would provide subsidies to low income individuals and certain small businesses to help pay for the cost of coverage. These subsidies and other costs of the Administration's Proposal would be funded in significant part by reductions in payments by the federal Medicare and Medicaid programs to providers, including hospitals. The Administration's Proposal would also place stringent limits on the annual growth in health-plan insurance premiums. Certain aspects of the Administration's Proposal, such as reductions in Medicare and Medicaid payments, if adopted, could adversely affect the Company's business. Other aspects of the Administration's Proposal, such as universal health insurance coverage, could have a positive impact on the Company's business by reducing the amount of uncompensated care provided by the Company's hospitals. No assurance can be given that any reform proposal will be adopted or implemented or that any reform proposal which is ultimately adopted will not have a material adverse effect on the Company's financial condition and results of operations. In addition to the Administration's Proposal and other federal reform initiatives, state legislatures also have undertaken healthcare reform initiatives independent of federal reform. The States of Maine, Florida, California and Washington have adopted legislation based on managed competition. It is not possible at this time to predict what, if any, reforms will be adopted by these and other states, or when such reforms will be adopted and implemented. No assurance can be given that any such reforms will not have a material adverse effect upon the Company's revenues and earnings or upon the demand for the Company's services. 12 COMPETITION. Competition among hospitals and other healthcare providers for patients has intensified in recent years. During this period, hospital occupancy rates in the United States have declined as a result of cost containment pressures, changing technology, changes in regulations and reimbursement, changes in practice patterns from inpatient to outpatient treatment and other factors. In areas in which the Company operates, there are other hospitals or facilities that provide inpatient or outpatient services comparable to those offered by the Company's hospitals. The competitive position of the Company's hospitals also has been, and in all likelihood will continue to be, affected by the increased initiatives undertaken during the past several years by federal and state governments and other major purchasers of healthcare services, including insurance companies and employers, to revise payment methodologies and monitor healthcare expenditures in order to contain healthcare costs. In addition, hospitals owned by governmental agencies or other tax-exempt entities benefit from endowments, charitable contributions and tax-exemptions, the advantages of which are not enjoyed by the Company's hospitals. LIMITATIONS IMPOSED BY THE NEW CREDIT AGREEMENT. The New Credit Agreement contains a number of restrictive covenants which, among other things, limit the ability of the Company and its Restricted Subsidiaries to incur other indebtedness, engage in transactions with affiliates, incur liens, make certain restricted payments, enter into certain business combination and asset sale transactions and limit capital expenditures. There can be no assurance that such restrictions will not adversely affect the Company's ability to conduct its operations or finance its capital needs or impair the Company's ability to pursue attractive business and investment opportunities if such opportunities arise. Under the New Credit Agreement, the Company is also required to maintain certain specified financial ratios. Failure by the Company to maintain such financial ratios or to comply with the restrictions contained in the New Credit Agreement could cause such indebtedness (and by reason of cross-acceleration provisions, other indebtedness) to become immediately due and payable and/or could cause the cessation of funding under the New Credit Agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," and "Summary of the New Credit Agreement." The Indenture contains certain restrictive covenants that are less restrictive than those contained in the New Credit Agreement. REGULATION. The federal government and all states in which the Company operates regulate various aspects of the Company's business. Healthcare facilities are subject to periodic inspection by governmental and other authorities to ensure continued compliance with various standards, their continued licensing under state law and certification under the Medicare and Medicaid programs. Although the Company has not failed to obtain necessary approvals or licenses in the past, the failure to obtain or renew any required regulatory approvals or licenses in the future could adversely affect the operations of the Company. DEPENDENCE ON HEALTHCARE PROFESSIONALS. Physicians traditionally have been the source of a majority of the Company's hospital admissions. Therefore, the success of the Company's hospitals is dependent in part on the number and quality of the physicians on the medical staffs of the Company's hospitals and their admission practices. A small number of physicians account for a significant portion of patient admissions at some of the Company's hospitals. There can be no assurance that the Company can retain its current physicians on staff or that additional physician relationships will be developed in the future. Furthermore, hospital physicians are generally not employees of the Company and in general the Company does not have contractual arrangements with hospital physicians restricting the ability of such physicians to practice elsewhere. LIABILITY INSURANCE. In prior years, the Company self-insured against a substantial portion of its general and professional liability risk, including a self-insured deductible of $2 million per occurrence for the policy years ended May 31, 1992 and 1993, of $2.5 million per occurrence for the policy years ended May 31, 1990 and 1991, and of $3 million for the policy year ended May 31, 1989. Effective for the policy year beginning on June 1, 1993, the Company eliminated its self-insured deductible for psychiatric hospitals and reduced its self-insured deductible to $1.5 million per occurrence for its general hospitals, which were sold on September 30, 1993. The amount of expense relating to the Company's malpractice insurance may materially increase or decrease from year to year depending, among other things, on the nature and number of new reported claims against the Company and amounts of settlements of previously reported claims. To date, the Company has not experienced a loss in excess of policy limits. The Company believes that its coverage limits are adequate. ABSENCE OF TRADING MARKETS. The Old Notes are currently owned by a relatively small number of institutional investors. The Company believes that none of such holders is an affiliate (as defined in Rule 405 under the Securities Act) of the Company. Prior to the Exchange Offer, no public market for the Old Notes 13 will exist, although the Old Notes are eligible for trading in the PORTAL Market among "qualified institutional buyers." The Company has been advised by AMEX that the New Notes have been approved for listing on AMEX, subject to official notice of issuance. There can be no assurance that an active trading market for the New Notes will develop after any such listing. Future trading prices of the Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's results of operations and the market for similar securities. Depending on prevailing interest rates, the markets for similar securities and other factors, including the financial condition of the Company, the Notes may trade at a discount from their principal amount. RESTRICTIONS ON TRANSFER OF THE NOTES. The Old Notes have not been registered under the Securities Act and will remain subject to restrictions on transferability to the extent they are not exchanged for New Notes by holders who are entitled to participate in the Exchange Offer. The holders of Old Notes who are not eligible to participate in the Exchange Offer are entitled to certain registration rights, and the Company is required to file the Shelf Registration Statement with respect to resales from time to time of any such Old Notes. EXCHANGE OFFER PROCEDURES. Issuance of the New Notes in exchange for the Old Notes pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of such Old Notes, a properly completed and duly executed Letter of Transmittal and all other required documents. Therefore, holders of the Old Notes desiring to tender such Old Notes in exchange for New Notes should allow sufficient time to ensure timely delivery. The Company is under no duty to give notification of defects or irregularities with respect to tenders of Old Notes for exchange. Old Notes that are not tendered or that are tendered but not accepted by the Company for exchange will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof under the Securities Act and, upon consummation of the Exchange Offer, certain registration rights under the Registration Rights Agreement will terminate. In addition, any holder of Old Notes who tenders in the Exchange Offer for the purpose of participating in a public distribution of the New Notes may be deemed to be an "underwriter" (within the meaning of Section 2(11) of the Securities Act) of the New Notes and, if so, will be required to comply with the registration and prospectus delivery requirements in the Securities Act in connection with any resale transaction. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as result of market-making activities or other trading activities, must acknowledge in the Letter of Transmittal that accompanies this Prospectus that it will deliver a prospectus in connection with any resale of such New Notes. See "Plan of Distribution." To the extent that Old Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Old Notes could be adversely affected. See "The Exchange Offer." THE ACQUISITION GENERAL. On March 29, 1994, the Company entered into an asset sale agreement with respect to the purchase of the Target Hospitals. The Company and NME subsequently entered into two separate Asset Sale Agreements, each dated as of March 29, 1994, which supersede the original asset sale agreement and, together, provide for the purchase of the Target Hospitals. One such Asset Sale Agreement (the "First Facilities Agreement") provided for the sale of 21 psychiatric hospitals, seven chemical-dependency treatment facilities, one residential treatment center and one physician outpatient practice. The Company and NME closed the sale of 18 psychiatric hospitals, seven chemical-dependency treatment facilities, one residential treatment facility and the physician outpatient practice covered by the First Facilities Agreement on June 30, 1994. The second Asset Sale Agreement (the "Subsequent Facilities Agreement") provides for the sale of 15 psychiatric hospitals, one chemical-dependency treatment facility and one residential treatment center. Closing dates for the sale of the remaining Target Hospitals covered by the First Facilities Agreement and the Target Hospitals covered by the Subsequent Facilities Agreement have not been established. The Company received a request for additional information related to the Acquisition from the Federal Trade Commission ("FTC") in connection with obtaining regulatory approvals for the Acquisition. The Company and NME agreed to enter into two separate asset sale agreements after the FTC agreed to grant early termination of the applicable waiting period with respect to the Target Hospitals covered by the First Facilities Agreement. The FTC issued its approval of the sale of the Target Hospitals covered by the First Facilities Agreement on June 24, 1994. The purchase price for the Target Hospitals was determined by NME following its solicitation of bids for the Target Hospitals and arm's-length negotiations with the Company. The Company's bid for the Target 14 Hospitals was based on an analysis of many factors, including the EBITDA of the Target Hospitals. The purchase price for the Target Hospitals set forth in the original asset sale agreement was $151.9 million. The price was reduced to $146.9 million when the First Facilities Agreement and the Subsequent Facilities Agreement were executed. DESCRIPTION OF THE TARGET HOSPITALS. The Target Hospitals have an aggregate capacity of 3,496 licensed beds and are located in 20 states. During their fiscal year ended May 31, 1993, the Target Hospitals had approximately 40,000 patient admissions. The following table sets forth certain unaudited financial information regarding the Target Hospitals set forth elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED MAY 31, FEBRUARY 28, ---------------------- ---------------------- 1992 1993 1993 1994 ---------- ---------- ---------- ---------- Net revenue...................................................... $ 537,218 $ 407,525 $ 309,273 $ 265,160 Operating and administrative expenses............................ 424,985 351,281 268,206 228,326
See "Business -- Hospital Properties" and "Target Hospital Summary Financial Information." RATIONALE FOR THE ACQUISITION. Management believes that the Acquisition will assist the Company in implementing its strategy by increasing the Company's size, market position and geographic coverage. For example, the Acquisition will permit the Company to enter 16 new markets, including markets in the mid- Atlantic and northeastern United States. Management also believes that the introduction to the Target Hospitals of Charter's operating and financial control systems, continuum of care and marketing efforts will increase the utilization and profitability of the Target Hospitals. See "Risk Factors -- Risks Related to Unsuccessful Operation of the Target Hospitals" and "-- Risks Related to Past Practices of NME." TERMS OF THE ACQUISITION AND RELATED DOCUMENTS. Under the terms of the Asset Sale Agreements, the aggregate purchase price of the Target Hospitals is approximately $146.9 million (the "Basic Purchase Price"), plus an additional cash amount estimated to be approximately $50.7 million, subject to adjustment, for the net working capital of the Target Hospitals on the closing date of the Acquisition. The Basic Purchase Price has been allocated among the Target Hospitals so that adjustments may be made if one or more of the Target Hospitals is not acquired because of the inability to obtain certain necessary consents or approvals, the existence of certain prohibitions or restraints relating to the contemplated transactions, defects in the title to real property, environmental conditions or events of casualty or condemnation. The Asset Sale Agreements include a covenant by NME not to compete with any Target Hospital from or through any facility located within a 25-mile radius of such Target Hospital for a period of three years after closing of the Acquisition, subject to certain conditions. In addition, the Asset Sale Agreements require that if NME exercises its right to terminate the Acquisition under either agreement because of fiduciary duties to its shareholders and if NME sells substantially all of the Target Hospitals to one or more third parties prior to March 29, 1995, NME shall pay to the Company a termination fee of $15 million. The Subsequent Facilities Agreement contemplates up to three closings of purchases of the Target Hospitals subject to such agreement. The purchase of the Target Hospitals, including the Target Hospitals remaining to be purchased pursuant to the First Facilities Agreement, is subject to certain conditions set forth in the Asset Sale Agreements, including (i) the receipt of all required approvals and consents to the purchases, (ii) the Company's having obtained all necessary licenses and permits necessary for operation of the pertinent Target Hospital, (iii) the absence of pending or threatened legal or governmental actions seeking to restrain the sale of the pertinent Target Hospital, (iv) the performance of covenants and agreements and the accuracy of representations and warranties set forth in the Asset Sale Agreements, and (v) the absence of any material adverse change in the financial, banking or capital markets as a result of which lending institutions generally cease their commercial financing activities. Pursuant to the First Facilities Agreement, the closing with respect to the remaining Target Hospitals will occur on such date as the Company and NME agree, but not later than September 30, 1994, unless such date is extended with respect to the Subsequent Facilities Agreement. Pursuant to the Subsequent Facilities Agreement, the first of the three permitted closings shall occur after the satisfaction or waiver of all conditions to the acquisition of Target Hospitals that account in the aggregate for at least $8 million of the EBITDA (as defined in the Subsequent Facilities Agreement) assigned to the Target Hospitals covered by the Subsequent Facilities Agreement for such purpose. The second of the three permitted closings must occur within 30 days of the first closing. NME will convey to the Company at the second closing those Target Hospitals as to which all conditions relating to the acquisition 15 thereof have been satisfied or waived as of such date. The third closing shall occur after the satisfaction or waiver of all conditions to the acquisition of any Target Hospitals that were not conveyed to the Company in the first or second closing. Target Hospitals as to which all conditions relating to the acquisition thereof cannot be satisfied or waived will not be conveyed to the Company. All three closings must occur prior to September 30, 1994; provided that the final closing may be extended in the event of a governmental injunction, order or proceeding to a date not later than December 31, 1994. If the first closing does not occur before September 30, 1994, or December 31, 1994, as the case may be, the Subsequent Facilities Agreement is subject to termination by either the Company or NME, subject to certain conditions. All Target Hospitals subject to the Subsequent Facilities Agreement may be conveyed to the Company in one or two closings. The Company is unable to predict when the first closing or any subsequent closing will occur under the Subsequent Facilities Agreement. The Company has no assurance that any closing will occur. The occurrence and timing of any closing under the Subsequent Facilities Agreement is subject to receipt of approval from the FTC. The Company has no assurance that such approval will be obtained. Pursuant to the Asset Sale Agreement, the Company and NME have each agreed to indemnify and hold harmless the other against, among other things, certain losses ("Losses") resulting from inaccuracy of representations or warranties, nonperformance or breach of covenants or agreements, and the failure to discharge liabilities for which such party is responsible. In addition, NME has agreed to indemnify the Company against Losses resulting from operations of the Target Hospitals before closing (including Losses arising in connection with the matters described in "Risk Factors -- Risks Related to Past Practices of NME," but excluding specific contracts, debt obligations and working capital liabilities expressly assumed by the Company), and the Company has agreed to indemnify NME against Losses resulting from the operations of the Company and the assets purchased by the Company from NME after closing, including the continuation or performance by the Company of any agreement or practice of NME or the Target Hospitals. Certain of the indemnification obligations of the Company and NME are subject to a deductible. HISTORY OF THE TARGET HOSPITALS. NME and certain of its subsidiaries, including those that own the Target Hospitals, have been involved in significant lawsuits and governmental investigations concerning possible improper practices related principally to its psychiatric business. The suits sought compensatory and punitive damages and in some cases, attorneys fees. NME has settled a majority of the significant lawsuits and, on June 29, 1994, NME entered into a settlement agreement with certain federal government agencies that finalized all of its all open investigations of NME. As noted above, Charter's ability to operate the Target Hospitals profitably may have been impaired because of the uncertainty related to the pending lawsuits and governmental investigations, and the possibility exists that the Company could unknowingly employ NME personnel who were involved in such wrongful activities. The Company believes that it will be able to overcome the adverse effects on the profitability of the Target Hospitals caused by NME's past practices. With respect to employment of NME personnel, the Company intends to advise all former NME employees that it hires that the alleged wrongful activities are against Company policy and will promptly discharge any employee who violates the policy. 16 USE OF PROCEEDS The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. The Company will not receive any cash proceeds from the issuance of the New Notes offered hereby. In consideration for issuing the New Notes contemplated in this Prospectus, the Company will receive in exchange Old Notes in like principal amount, the form and terms of which are the same as the form and terms of the New Notes, except as otherwise described herein. The Old Notes surrendered in exchange for New Notes will be retired and cancelled and cannot be reissued. Accordingly, issuance of the New Notes will not result in any increase or decrease in the indebtedness of the Company. The net proceeds from the sale of the Old Notes were approximately $365.6 million. Approximately $181.8 million of such net proceeds were used for the purpose of redeeming the Company's 7 1/2% Senior Subordinated Debentures due 2003. Approximately $56.8 million of the net proceeds from the sale of the Old Notes were used to repay certain indebtedness of the Company outstanding under its Amended and Restated Credit Agreements, dated July 21, 1992 (the "Old Credit Agreement") and to pay transaction costs relating to the Financing Transactions (approximately $8.7 million). Of the remaining net proceeds from the sale of the Old Notes, approximately $98.5 million, together with approximately $11.1 million of borrowings pursuant to the New Credit Agreement and approximately $19.5 million of cash on hand, were used to finance the Acquisition of certain facilities covered by the First Facilities Agreement. In the event that the Acquisition of the remaining Target Hospitals covered by the First Facilities Agreement or of the Target Hospitals covered by the Subsequent Facilities Agreement are not consummated, the Company will use the remaining net proceeds from the sale of the Old Notes for strategic acquisitions and alliances, the creation of joint ventures or other general corporate purposes. The Company does not, on the date hereof, have any plans or agreements for acquisitions of any facilities or for the creation of specific alliances or joint ventures that, in either case, could be considered material to the Company. Nor is the Company, on the date hereof, engaged in any negotiations relating to such. The Financing Transactions also included the refinancing of the existing mortgage indebtedness of certain of the subsidiaries of the Company (approximately $14.7 million) and the indebtedness of certain subsidiaries of the Company outstanding under the Old Credit Agreement (approximately $46.8 million) pursuant to the New Credit Agreement. The following table indicates the sources and uses of the funds obtained or to be obtained by the Company in connection with the Financing Transactions (assuming the Acquisition of all Target Hospitals). The amounts of indebtedness shown in the "Uses of Funds" table set forth below are the balances as of April 1, 1994. (DOLLARS IN MILLIONS) SOURCES OF FUNDS - ------------------------------------------------ New Credit Agreement................. $ 140.8 Senior Subordinated Notes............ 375.0 Less: Discount to Initial Purchasers........................ (9.4) --------- Total Sources........................ $ 506.4 --------- --------- USES OF FUNDS - ------------------------------------------------ Old Credit Agreement Company Indebtedness............... $ 56.8 Subsidiary Indebtedness............ 46.8 Mortgages............................ 14.7 7 1/2% Senior Subordinated Debentures.......................... 181.8 Acquisition.......................... 197.6 Transaction Expenses................. 8.7 --------- Total Uses........................... $ 506.4 --------- ---------
The indebtedness outstanding pursuant to the Old Credit Agreement consisted of a term-loan facility and an ESOP term-loan facility. At March 31, 1994, approximately $66.0 million was outstanding under the term-loan facility and $37.6 million was outstanding under the ESOP term-loan facility. The term-loan facility also provided for the support of letters of credit securing industrial development bonds issued on behalf of certain of the Company's subsidiaries. The term-loan facility (except for borrowings used to fund letter of credit drawings) bore interest per annum at BTCo's prime lending rate plus .5%. Borrowings with respect to letter of credit drawings bore interest per annum at BTCo's prime lending rate plus 1.5% per annum for the first $40 million drawn and at BTCo's prime lending rate plus 1% per annum for amounts drawn in excess of $40 million. The ESOP term loan facility funded purchases of the Company's common stock by the Company's employee stock ownership plan. Approximately 75% of the borrowings outstanding pursuant to the ESOP term-loan facility bore interest at a fixed rate of 8.375% per annum, with the remaining portion bearing interest at a rate per annum equal to 85% of the interest rate applicable to the term-loan facility. The principal amount outstanding pursuant to the Old Credit Agreement was payable in installments, with the final installment being due on September 30, 1997. The indebtedness that was secured by mortgages bore interest at 12.32% per annum and matured in 1997. 17 CAPITALIZATION The following table sets forth (i) the capitalization of the Company at March 31, 1994, and (ii) such capitalization as adjusted as of such date to give effect to the Financing Transactions.
ACTUAL PRO FORMA MARCH 31, MARCH 31, 1994 PRO FORMA 1994 (UNAUDITED) ADJUSTMENTS (1) (UNAUDITED) ------------ --------------- ------------ (IN THOUSANDS) Short Term Debt: Current maturities of long-term debt and capital lease obligations...................................................... $ 41,010 $ (37,740) $ 3,270 ------------ --------------- ------------ Long Term Debt and Capital Lease Obligations: New Credit Agreement.............................................. -- 136,695 136,695 Old Credit Agreement.............................................. 103,156 (103,156) -- Collateralized notes payable and capital lease obligations........ 101,668 (10,956) 90,712 11 1/4% Senior Subordinated Notes due 2004(2)..................... -- 375,000 375,000 7 1/2% Senior Subordinated Debentures due 2003.................... 200,000 (200,000) -- ------------ --------------- ------------ 404,824 197,583 602,407 Less amounts due within one year.................................... 41,010 (37,740) 3,270 Less unamortized discount........................................... 42,622 (42,622) -- ------------ --------------- ------------ Total Long Term Debt and Capital Lease Obligations.............. 321,192 277,945 599,137 ------------ --------------- ------------ Stockholders' Equity (Deficit) Common stock, par value $.25 80,000,000 shares authorized 26,750,950 shares outstanding.................................... 6,688 -- 6,688 Additional paid-in capital........................................ 240,162 -- 240,162 Accumulated deficit............................................... (62,166) (13,689) (75,855) Unearned compensation under ESOP.................................. (98,125) -- (98,125) Warrants outstanding.............................................. 182 -- 182 Cumulative foreign currency adjustments........................... (4,632) -- (4,632) ------------ --------------- ------------ Total Stockholders' Equity...................................... 82,109 (13,689) 68,420 ------------ --------------- ------------ Total Capitalization............................................ $ 444,311 $ 226,516 $ 670,827 ------------ --------------- ------------ ------------ --------------- ------------ - ------------------------ (1) See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited) for a discussion of the pro forma adjustments. (2) The New Notes will evidence the same debt as the Old Notes, which they will replace.
18 SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND STATISTICAL INFORMATION The selected consolidated financial data set forth below as of September 30, 1989, 1990 and 1991, July 31, 1992, and September 30, 1992 and 1993, and for each of the fiscal periods in the five-year period ended September 30, 1993, have been derived from the Company's audited consolidated financial statements. The information for periods after July 31, 1992 is not comparable to information presented for periods prior to such date because of consummation of the Reorganization and the implementation of fresh start accounting in fiscal 1992, which included the revaluation of the Company's assets and liabilities at the assumed reorganization value thereof and resulted in, among other things, significant reductions in the principal amount of the Company's long-term debt and interest expense and the elimination of preferred stock and preferred stock dividend requirements. Accordingly, a line has been used to separate the financial data of the Company after the consummation of the Reorganization from those of the Company prior to the consummation of the Reorganization. The consolidated financial statements of the Company as of September 30, 1991, July 31, 1992 and September 30, 1992 and 1993, and for each of the fiscal periods in the three-year period ended September 30, 1993, together with the notes thereto and the related reports of Arthur Andersen & Co., independent public accountants, are included elsewhere in this Prospectus. Selected consolidated financial information for the six months ended March 31, 1993 and 1994 has been derived from unaudited consolidated financial statements and, in the opinion of Management, includes all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the operating results for such interim periods. Results for the interim periods are not necessarily indicative of the results for the full year or for any future periods. The selected financial data set forth below should be read in conjunction with the Consolidated Financial Statements of the Company, the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Prospectus. 19 SELECTED STATEMENT OF OPERATIONS DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE TEN TWO SIX MONTHS MONTHS MONTHS YEAR ENDED YEAR ENDED SEPTEMBER 30, ENDED ENDED ENDED MARCH 31, -------------------------------- JULY 31, SEPT. 30, SEPT. 30, ------------------ 1989 1990 1991 1992 1992 1993 1993 1994 -------- ---------- ---------- -------- --------- --------- -------- -------- Net revenue................... $930,831 $ 954,508 $ 868,264 $777,855 $142,850 $897,207 $459,550 $421,427 Operating and administrative expenses..................... 667,482 804,897 656,828 563,600 107,608 640,847 323,367 305,589 Bad debt expense.............. 41,935 78,944 51,617 50,403 14,804 67,300 34,870 32,288 Depreciation and amortization................. 43,555 66,571 48,659 35,126 3,631 26,382 13,802 13,579 Amortization of reorganization value in excess of amounts allocable to identifiable assets....................... -- -- -- -- 7,167 42,678 21,500 15,600 Interest, net................. 180,351 205,723 232,218 169,244 12,690 74,156 37,307 16,785 ESOP expense (credit)......... 43,941 52,033 (3,962) 33,714 4,811 45,874 17,970 24,599 Deferred compensation expense...................... 31,399 6,815 5,061 3,190 -- -- -- -- Stock option expense (credit)..................... -- -- -- -- (789) 38,416 31,277 6,851 Provision for restructuring of operations................... -- 105,000 45,000 -- -- -- -- -- Income (Loss) from continuing operations before income taxes, reorganization items, extraordinary item and cumulative effect of a change in accounting principle...... (77,832) (365,475) (167,157) (77,422) (7,072) (37,746) (20,543) 6,136 Provision for (Benefit from) income taxes................. (12,197) (43,132) -- 4,259 1,054 1,874 364 8,879 Loss from continuing operations before reorganization items, extraordinary item and cumulative effect of a change in accounting principle...... (65,635) (322,343) (167,157) (81,681) (8,126) (39,620) (20,907) (2,743) Discontinued operations: Income (Loss) from discontinued operations.... 28,954 18,606 37,115 24,211 930 (14,703) (6,008) -- Gain on disposal of discontinued operations.... -- -- -- -- -- 10,657 -- -- Loss before reorganization items, extraordinary item and cumulative effect of a change in accounting principle...... (36,681) (303,737) (130,042) (57,470) (7,196) (43,666) (26,915) (2,743) Reorganization items: Professional fees and other expenses................... -- -- -- (8,156) -- -- -- -- Adjust accounts to fair value...................... -- -- -- 83,004 -- -- -- -- Extraordinary item-gain (loss) on early extinguishment or discharge of debt............ -- -- -- 730,589 -- (8,561) -- -- Cumulative effect of a change in accounting principle...... -- (7,567) -- -- -- -- -- -- Net income (loss)............. (36,681) (311,304) (130,042) 747,967 (7,196) (52,227) (26,915) (2,743) Earnings (Loss) per common share: Loss from continuing operations before extraordinary item......... $(.33) $(1.59) $(.84) $(.11) Income (Loss) from discontinued operations and disposal of discontinued operations................. .04 (.16) (.24) -- Loss before extraordinary item....................... (.29) (1.75) (1.08) (.11) Extraordinary loss on early extinguishment of debt..... -- (.35) -- -- Net loss.................... --(A) --(A) --(A) --(A) $(.29) $(2.10) $(1.08) $(.11) - ------------------------------ (A) Earnings (loss) per share for periods prior to the two months ended September 30, 1992 are not presented because they are not meaningful due to the implementation of fresh start accounting and an increase in the number of shares outstanding as a result of the Plan.
SELECTED BALANCE SHEET DATA (IN THOUSANDS)
AS OF SEPTEMBER 30, AS OF ------------------------------------------------------- MARCH 31, 1989 1990 1991 1992 1993 1994 --------- ---------- ---------- --------- --------- ----------- Current assets............................. $ 230,524 $ 255,644 $ 320,755 $ 290,742 $ 231,915 $ 196,540 Current liabilities........................ 185,019 1,986,748 2,123,006 296,144 272,598 215,072 Working capital............................ 45,505 (1,731,104) (1,802,251) (5,402) (40,683) (18,532) Property and equipment -- net.............. 691,272 696,813 645,173 486,762 444,786 429,720 Total assets............................... 1,349,528 1,333,659 1,338,823 1,299,198 838,186 768,056 Long-term debt and capital lease obligations............................... 1,549,231 12,633 5,920 844,839 350,205 321,192 Redeemable preferred stock................. 187,460 189,989 214,842 -- -- -- Common stockholders' equity (deficit)...... (729,262) (984,954) (1,138,279) 10,424 57,298 82,109
20 TARGET HOSPITAL SELECTED FINANCIAL INFORMATION The selected combined financial information (other than the Operating Data) as of May 31, 1992 and 1993 and for the fiscal years then ended set forth below regarding the Target Hospitals has been derived from the audited combined financial statements for the Target Hospitals included elsewhere in this Prospectus. The selected unaudited combined financial information (other than the Operating Data) for the nine months ended February 28, 1993 and 1994 has been derived from unaudited combined condensed financial statements. The selected financial data (other than the Operating Data) set forth below should be read in conjunction with the audited financial statements of the Target Hospitals as of May 31, 1992 and 1993 and for the fiscal years then ended and the notes thereto included elsewhere in this Prospectus. In view of the fact that this information necessarily is incomplete and relates to the operation of the Target Hospitals by NME for the historical periods presented, it is not indicative of future results from operations of the Target Hospitals by the Company following the Acquisition.
YEAR ENDED NINE MONTHS ENDED MAY 31, FEBRUARY 28, -------------------- -------------------- 1992 1993 1993 1994 --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER DAY AMOUNTS) INCOME STATEMENT DATA: Net operating revenue................................................... $ 537,218 $ 407,525 $ 309,273 $ 265,160 --------- --------- --------- --------- Operating and administrative expenses................................... 424,985 351,281 268,206 228,326 Intercompany fees and allocations....................................... 66,962 53,252 42,540 40,086 Depreciation and amortization........................................... 32,137 21,826 16,396 9,274 Provision for loss on sale of selected hospitals........................ 2,202 4,262 0 170,289 Minority interest in earnings of certain selected hospitals............. 1,652 1,185 921 320 Interest, net........................................................... 11,012 11,906 8,578 9,076 --------- --------- --------- --------- Total costs and expenses............................................ 538,950 443,712 336,641 457,371 --------- --------- --------- --------- Loss before income tax benefit.......................................... (1,732) (36,187) (27,368) (192,211) Income tax benefit...................................................... (439) (13,121) (10,126) (71,118) --------- --------- --------- --------- Net loss................................................................ $ (1,293) $ (23,066) $ (17,242) $(121,093) --------- --------- --------- --------- --------- --------- --------- --------- OPERATING DATA: Number of psychiatric hospitals......................................... 44 46 47 47 Average licensed beds................................................... 3,391 3,556 3,549 3,447 Total inpatient days (1)................................................ 913,658 707,587 533,651 480,148 Total equivalent patient days........................................... 971,538 768,563 584,645 530,790 Occupancy rate (2)...................................................... 73.6% 54.5% 55.1% 51.0% Admissions.............................................................. 43,734 39,539 29,480 27,949 Average length of stay (days)........................................... 21.3 17.6 19.6 16.3 Net revenue per equivalent patient day (3).............................. $550 $525 $525 $489 Target Hospital EBITDA (4).............................................. $ 110,581 $ 55,059 $ 40,146 $ 36,514
AS OF AS OF MAY 31, FEBRUARY 28, 1993 1994 --------- ------------- BALANCE SHEET DATA: Current assets.................................................................. $ 65,885 $ 200,119 Current liabilities............................................................. 44,713 39,756 Property and equipment -- net................................................... 286,462 -- Total assets.................................................................... 379,640 201,672 - ------------------------------ (1) Provision of care to one inpatient for one day. (2) Inpatient days as a percentage of licensed bed days. (3) Includes inpatient and outpatient revenue. Excludes revenue from non-psychiatric operations. (4) Earnings before interest, income tax benefit, provision for loss on sale of selected hospitals, depreciation and amortization, and intercompany fees and allocations. The Company believes that EBITDA provides useful information regarding the ability to service debt payment obligations; however, EBITDA does not represent cash flows from operations, as defined by generally accepted accounting principles, and should not be considered as a substitute for net income as an indicator of the Target Hospitals' operating performance or for cash flow as a measure of liquidity.
21 UNAUDITED PRO FORMA FINANCIAL INFORMATION The unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended September 30, 1993, and the six months ended March 31, 1994, and the unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1994, set forth below, have been prepared by combining the Company's audited consolidated statement of operations for the year ended September 30, 1993 with the Target Hospitals' unaudited combined condensed statement of operations for the twelve months ended August 31, 1993; combining the Company's unaudited condensed consolidated statement of operations for the six months ended March 31, 1994 with the Target Hospitals' unaudited combined condensed statement of operations for the six months ended February 28, 1994; combining the Company's unaudited condensed consolidated balance sheet as of March 31, 1994 with the Target Hospitals' unaudited combined condensed balance sheet as of February 28, 1994; and giving effect to the Financing Transactions and the payment of the estimated related expenses. The pro forma financial information should be read in conjunction with "Risk Factors -- Leverage and Debt Service," Charter's consolidated historical financial statements and notes thereto and the combined financial statements of the Target Hospitals and notes thereto included elsewhere in this Prospecuts. The unaudited Pro Forma Condensed Consolidated Statements of Operations for the year ended September 30, 1993, and the six months ended March 31, 1994, were prepared as if the Financing Transactions had occurred on October 1, 1992 and 1993, respectively. The unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1994, was prepared as if the Financing Transactions had occurred on such date. For purposes of presenting pro forma results, no changes in revenues and expenses have been made to reflect the result of any modification to operations that might have been made had the Financing Transactions been consummated on the assumed effective dates of such transactions. The pro forma expenses include the recurring costs which are directly attributable to such transactions, such as interest expense, and the related tax effects. The pro forma financial information does not purport to be indicative of the results which would actually have been attained had such transactions been completed as of the date and for the periods presented or which may be attained in the future. 22 PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF MARCH 31, 1994 (IN THOUSANDS) ASSETS
TOTAL CONTINUING CHARTER AS TARGET HOSPITALS PRO FORMA PRO FORMA REPORTED AS OF 2/28/94 ADJUSTMENTS CONSOLIDATED ---------- ---------------- ------------ ------------ Current assets Cash and cash equivalents........................................... $ 40,535 $ 2,019 $ (2,019)(a) $ 50,220 (194,057)(a) 203,742(b) Cash collateral account............................................. 8,207 0 (8,207)(b) 0 Accounts receivable, net............................................ 129,117 65,707 2,817(a) 197,641 Supplies............................................................ 4,933 2,328 7,261 Assets held for sale................................................ 0 126,943 (126,943)(a) 0 Other current assets................................................ 13,748 3,122 (670)(a) 16,200 ---------- -------- ------------ Total current assets.............................................. 196,540 200,119 271,322 Property and equipment Land................................................................ 93,850 0 9,346(a) 103,196 Buildings and improvements.......................................... 307,768 0 103,296(a) 411,064 Equipment........................................................... 69,017 0 31,324(a) 100,341 ---------- -------- ------------ 470,635 0 614,601 Accumulated depreciation............................................ (43,109) 0 (43,109) ---------- -------- ------------ 427,526 0 571,492 Construction in progress............................................ 2,194 0 529(a) 2,723 ---------- -------- ------------ 429,720 0 574,215 Other long-term assets................................................ 100,195 1,553 (1,553)(a) 119,120 3,000(a) 15,925(b) Reorganization value in excess of amounts allocable to identifiable assets, net.......................................................... 41,601 0 41,601 ---------- -------- ------------ ------------ $ 768,056 $ 201,672 $ 36,530 $ 1,006,258 ---------- -------- ------------ ------------ ---------- -------- ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.................................................... $ 39,021 $ 9,107 $ 48,128 Accrued expenses.................................................... 67,847 29,969 (16,373)(a) 79,526 (1,917)(b) Other accrued liabilities........................................... 62,392 0 62,392 Current income taxes payable........................................ 4,802 0 7,900(b) 12,702 Current maturities of long-term debt and capital lease obligations........................................................ 41,010 680 (175)(a) 3,270 (38,245)(b) ---------- -------- ------------ Total current liabilities......................................... 215,072 39,756 206,018 Long-term debt and capital lease obligations.......................... 321,192 5,169 (1,635)(a) 599,137 274,411(b) Deferred income tax liabilities....................................... 36,439 0 (17,000)(b) 19,439 Reserve for unpaid claims............................................. 98,268 0 98,268 Deferred credits and other long-term liabilities...................... 14,976 79,811 (79,811)(a) 14,976 Stockholders' equity Common stock........................................................ 6,688 361 (361)(a) 6,688 Other stockholders' equity (deficit) Additional paid-in capital........................................ 240,162 43,593 (43,593)(a) 240,162 Retained earnings (accumulated deficit)........................... (62,166) 32,982 (32,982)(a) (75,855) (13,689)(b) Unearned compensation under ESOP.................................. (98,125) 0 (98,125) Warrants outstanding.............................................. 182 0 182 Cumulative foreign currency adjustments........................... (4,632) 0 (4,632) ---------- -------- ------------ Stockholder's equity............................................ 82,109 76,936 68,420 Commitments and contingencies ---------- -------- ------------ ------------ $ 768,056 $ 201,672 $ 36,530 $ 1,006,258 ---------- -------- ------------ ------------ ---------- -------- ------------ ------------ - ------------------------------ See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
23 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30, 1993 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
TOTAL TARGET CONTINUING HOSPITALS CHARTER AS (FOR 12 MONTHS PRO FORMA PRO FORMA REPORTED ENDED 8/31/93) ADJUSTMENTS CONSOLIDATED ---------- -------------- ------------ ------------ Net revenue....................................... $ 897,907 $ 386,220 $ 1,284,127 ---------- -------------- ------------ Operating and administrative expenses............. 640,847 310,439 $ 4,400(c) 966,652 10,008(d) 958(d) Bad debt expense.................................. 67,300 15,637 82,937 Intercompany fees and allocations................. 0 62,743 (10,008)(d) 0 (52,735)(e) Depreciation and amortization..................... 26,382 21,903 (14,654)(f) 33,631 Amortization of reorganization value in excess of amounts allocable to identifiable assets......... 42,678 0 42,678 Interest, net..................................... 74,156 12,590 (18,489)(g) 56,179 (12,078)(h) ESOP expense...................................... 45,874 0 45,874 Stock option expense.............................. 38,416 0 38,416 Minority interest in earnings of certain hospitals........................................ 0 958 (958)(d) 0 Provision for loss on sale of assets.............. 0 4,262 (4,262)(i) 0 ---------- -------------- ------------ 935,653 428,532 1,266,367 ---------- -------------- ------------ Income (Loss) from continuing operations before income taxes..................................... (37,746) (42,312) 97,818 17,760 Provision (Benefit) for income taxes.............. 1,874 (15,570) 36,662(j) 22,966 ---------- -------------- ------------ ------------ Loss from continuing operations................... $ (39,620) $ (26,742) $ 61,156 $ (5,206) ---------- -------------- ------------ ------------ ---------- -------------- ------------ ------------ Average number of common shares outstanding...................................... 24,875 24,875 ---------- ------------ ---------- ------------ Loss from continuing operations per common share............................................ $ (1.59) $ (.21) ---------- ------------ ---------- ------------ - ------------------------ See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
24 PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED MARCH 31, 1994 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
TARGET TOTAL HOSPITALS CONTINUING (FOR SIX CHARTER AS MONTHS PRO FORMA PRO FORMA REPORTED ENDED 2/28/94) ADJUSTMENTS CONSOLIDATED ---------- -------------- ------------ ------------ Net revenue....................................... $ 421,427 $ 178,407 $ 599,834 ---------- -------------- ------------ Operating and administrative expenses............. 305,589 143,470 $ 2,200(c) 453,042 1,602(d) 181(d) Bad debt expense.................................. 32,288 8,693 40,981 Intercompany fees and allocations................. 0 27,574 (1,602)(d) 0 (25,972)(e) Depreciation and amortization..................... 13,579 3,945 (320)(f) 17,204 Amortization of reorganization value in excess of amounts allocable to identifiable assets......... 15,600 0 15,600 Interest, net..................................... 16,785 5,952 11,501(g) 28,513 (5,725)(h) ESOP expense...................................... 24,599 0 24,599 Stock option expense.............................. 6,851 0 6,851 Minority interest in earnings of certain hospitals........................................ 0 181 (181)(d) 0 Provision for loss on sale of assets.............. 0 170,289 (170,289)(i) 0 ---------- -------------- ------------ 415,291 360,104 586,790 ---------- -------------- ------------ Income (Loss) before income taxes................. 6,136 (181,697) 188,605 13,044 Provision (Benefit) for income taxes.............. 8,879 (66,904) 69,667(j) 11,642 ---------- -------------- ------------ ------------ Net income (loss) from continuing operations...... $ (2,743) $ (114,793) $ 118,938 $ 1,402 ---------- -------------- ------------ ------------ ---------- -------------- ------------ ------------ Average number of common shares outstanding (k)... 25,936 ---------- ---------- Loss per common share (k)......................... $ (.11) ---------- ---------- Earnings per common share and common equivalent share (k)........................................ $ .05 ------------ ------------ Earnings per common share assuming full dilution (k).............................................. $ .05 ------------ ------------ - ------------------------ See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)
25 NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (a) To record the purchase of the property and equipment, the working capital and the covenant not to compete for the Target Hospitals and remove the historical assets and liabilities not purchased or assumed by the Company, using the purchase method of accounting. The following table shows the allocation of the total purchase price of $198.1 million (which includes approximately $0.6 million for closing costs.)
TARGET HOSPITALS AS OF FEBRUARY 28, PRO FORMA AMOUNT 1994 ADJUSTMENTS PURCHASED --------------- ----------- ---------- Cash.............................................................. $ 2,019 $ (2,019) $ 0 Accounts receivable, net.......................................... 65,707 2,817 68,524 Supplies.......................................................... 2,328 2,328 Assets held for sale.............................................. 126,943 (126,943) 0 Other current assets.............................................. 3,122 (670) 2,452 Other long-term assets............................................ 1,553 (1,553) 0 Accounts payable.................................................. 9,107 (9,107) Accrued expenses.................................................. 29,969 (16,373) (13,596) ---------- Working capital purchased..................................... 50,601 ---------- Land.............................................................. 0 9,346 9,346 Buildings......................................................... 0 103,296 103,296 Equipment......................................................... 0 31,324 31,324 Construction in progress.......................................... 0 529 529 ---------- Property and equipment purchased.............................. 144,495 ---------- Covenant not to compete........................................... 0 3,000 3,000 ---------- Total purchase price.............................................. 198,096 ---------- Less debt assumed: Current maturities of long-term debt and capital lease obligations................................................ 680 (175) (505) Long-term debt and capital lease obligations...................... 5,169 (1,635) (3,534) Deferred credits and long-term liabilities........................ 79,811 (79,811) 0 Common stock...................................................... 361 (361) 0 Additional paid-in-capital........................................ 43,593 (43,593) 0 Retained earnings................................................. 32,982 (32,982) 0 ---------- Debt assumed.................................................. (4,039) ---------- Total purchase price less debt assumed............................ $ 194,057 ---------- ----------
26 (b)
OTHER CASH LONG-TERM ACCRUED CURRENT INCOME CASH COLLATERAL ASSETS EXPENSES TAXES PAYABLE --------- ---------- --------- -------- -------------- To record repayment or redemption of outstanding debt and record proceeds from issuance of new debt as follows: Old Credit Agreement............................ (94,949) (8,207) 7 1/2% Senior Subordinated Debentures........... (157,378) Collateralized mortgages........................ (14,995) New Credit Agreement............................ 136,695 Notes........................................... 375,000 To record the payment of penalties on the early extinguishment of debt as follows: 7 1/2% Senior Subordinated Debentures........... (21,164) Collateralized mortgages........................ (1,000) To record the payment of accrued interest on outstanding debt................................. (1,917) (1,917) To record the payment of deferred loan costs related to the issuance of new debt.............. (15,925) 15,925 To record the payment of estimated expenses related to the issuance of new debt.............. (625) To record income tax benefit related to expenses of refinancing................................... (1,300) To record income tax benefit related to the redemption of the 7 1/2% Senior Subordinated Debentures....................................... 9,200 --------- ---------- --------- -------- ------ 203,742 (8,207) 15,925 (1,917) 7,900 --------- ---------- --------- -------- ------ --------- ---------- --------- -------- ------ CURRENT MATURITIES OF LONG-TERM LONG-TERM DEBT AND DEBT AND CAPITAL DEFERRED CAPITAL LEASE LEASE INCOME TAX RETAINED OBLIGATIONS OBLIGATIONS LIABILITIES EARNINGS ------------- ----------- ----------- -------- To record repayment or redemption of outstanding debt and record proceeds from issuance of new debt as follows: Old Credit Agreement............................ (35,155) (68,001) 7 1/2% Senior Subordinated Debentures........... (157,378) Collateralized mortgages........................ (3,090) (11,905) New Credit Agreement............................ 136,695 Notes........................................... 375,000 To record the payment of penalties on the early extinguishment of debt as follows: 7 1/2% Senior Subordinated Debentures........... (21,164) Collateralized mortgages........................ (1,000) To record the payment of accrued interest on outstanding debt................................. To record the payment of deferred loan costs related to the issuance of new debt.............. To record the payment of estimated expenses related to the issuance of new debt.............. (625) To record income tax benefit related to expenses of refinancing................................... 1,300 To record income tax benefit related to the redemption of the 7 1/2% Senior Subordinated Debentures....................................... (17,000) 7,800 ------------- ----------- ----------- -------- (38,245) 274,411 (17,000) (13,689) ------------- ----------- ----------- -------- ------------- ----------- ----------- --------
27 (c) To record estimated incremental overhead related to the Target Hospitals. This amount was calculated by preparing a detailed budget. (d) To reclassify to operating expenses the estimated direct cost of hospital chief executive officers' and chief financial officers' ("CEO/CFO") salaries and bonuses, management information services costs and minority interests in certain hospitals as follows:
FOR THE YEAR ENDED SEPTEMBER 30, FOR THE SIX MONTHS 1993 ENDED MARCH 31, 1994 ----------------- --------------------- CEO/CFO salaries and bonuses........................ $ 6,033 $ 555 Management information services costs............... 3,975 1,047 Minority interests.................................. 958 181 ------- ------ $ 10,966 $ 1,783 ------- ------ ------- ------
(e) To eliminate intercompany management fees and corporate overhead allocated to the Target Hospitals by their parent corporations. (f) To remove the historical depreciation and amortization of the Target Hospitals and record depreciation expense on buildings and equipment purchased and amortization expense related to the covenant not to compete as follows:
FOR THE YEAR FOR THE SIX MONTHS ENDED ENDED SEPTEMBER 30, 1993 MARCH 31, 1994 ------------------- ------------------- Depreciation expense -- buildings..................... $ 3,451 $ 1,726 Depreciation expense -- equipment..................... 2,798 1,399 Amortization expense.................................. 1,000 500 ------ ------ $ 7,249 $ 3,625 ------ ------ ------ ------
(g) Interest expense related to the Refinancing and the borrowings under the New Credit Agreement and the Notes was determined reflecting the Company's pro forma capitalization as if it were outstanding during the entire period as follows:
FOR THE YEAR FOR THE SIX ENDED MONTHS INTEREST SEPTEMBER 30, ENDED MARCH AMOUNT RATE 1993 31, 1994 ---------- --------- ------------- ----------- New bank debt............................................. $ 136,695 6.00 % $ 8,316 $ 4,147 New debentures............................................ 375,000 11.25 % 42,187 21,094 Letter of credit fees..................................... 73,104 0.25 % 185 92 Revolver availability fees................................ 90,201 0.50 % 457 228 Debt issue cost amortization.............................. 15,925 2,003 989 Old debt remaining interest...................................................... 6,054 2,981 Historical interest income....................................................... (3,535) (1,245) ------------- ----------- Subtotal......................................................................... 55,667 28,286 Historical Charter interest...................................................... 74,156 16,785 ------------- ----------- Adjustment....................................................................... $ (18,489) $ 11,501 ------------- ----------- ------------- -----------
(h) To remove historical interest expense of the Target Hospitals other than interest on long-term debt and capital lease obligations to be assumed by the Company. (i) To remove the provision for loss on sale of assets recorded by the Target Hospitals related to the sale of assets and working capital to the Company. 28 (j) To adjust the income tax provision resulting from the earnings of the Target Hospitals and the pro forma adjustments, based on the historical combined federal and state statutory rate of 38% and 40% for the year ended September 30, 1993 and the six months ended March 31, 1994, respectively, as shown below:
FOR THE YEAR ENDED FOR THE SIX MONTHS SEPTEMBER 30, ENDED 1993 MARCH 31, 1994 ----------------- ------------------ Income (Loss) before income taxes: Historical Target Hospitals......................................... $ (42,312) $ (181,697) Proforma adjustments................................................ 97,818 188,605 -------- ---------- Total............................................................. 55,506 6,908 Tax rate.............................................................. x.38 x.40 -------- ---------- Required income tax provision......................................... 21,092 2,763 Less: Historical Target Hospitals benefit from income taxes........... (15,570) (66,904) -------- ---------- Required proforma adjustment...................................... $ 36,662 $ 69,667 -------- ---------- -------- ----------
(k) Loss per common share for the six months ended March 31, 1994 was calculated by dividing net loss by the weighted average number of common shares outstanding during the period. Common equivalent shares would have been antidilutive and were therefore not included in the calculation of loss per common share. Pro forma earnings per common share and common equivalent share were calculated by dividing net income by the total weighted average common shares outstanding during the period (25,935,523) increased by the number of shares issuable on the exercise of options and warrants outstanding, reduced by the number of common shares that are assumed to have been purchased with the proceeds from the exercise of the options and warrants (1,399,601). Those purchases were assumed to have been made at the average price of the common stock during the period. Pro forma earnings per common share assuming full dilution were calculated in the same manner. However, purchases assumed in the computation of pro forma earnings per common share assuming full dilution were computed using the common stock price at the end of the period, which was higher than the average price. The net increase resulting from the exercise of options and warrants outstanding would have been 1,414,812. 29 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW For the fiscal years ended September 30, 1991 and 1993 and the six months ended March 31, 1994, the Company derived approximately 6%, 11% and 14%, respectively, of its gross patient revenue from HMO's and PPO's; 64%, 45% and 39%, respectively, from other private payor sources (primarily Blue Cross and commercial insurance); 14%, 23% and 26%, respectively, from Medicare; 8%, 15% and 16%, respectively, from Medicaid; and 8%, 6% and 5%, respectively, from CHAMPUS. The Company does not expect its current payor mix to be altered significantly as a result of the Acquisition. Changes in the mix of the Company's patients among the private-pay, Medicare and Medicaid categories, and among different types of private-pay sources, can significantly affect the profitability of the Company's operations. The psychiatric hospital industry has been adversely affected by (i) the imposition of more stringent length of stay and admission criteria by non-governmental insurance and other healthcare benefit programs; (ii) the failure of reimbursement rate increases from certain third-party payors that reimburse on a per diem or other discounted basis to offset increases in the cost of providing services; (iii) an increase in the percentage of its business that the Company derives from third-party payors that reimburse on a per diem or other discounted basis; (iv) a trend toward higher deductibles and co-insurance for individual patients; (v) a trend toward limiting employee health benefits, such as reductions in annual and lifetime limits on behavioral health coverage; and (vi) a trend toward agreements with payors where the Company agrees to assume the risk for provision of treatment to all members of a particular group for a specified revenue amount. The Company continues to experience admission increases at its psychiatric hospitals, but as a result of the reductions in average length of stay, aggregate patient days have decreased. Also an increasing percentage of the Company's revenue is coming from Medicare, Medicaid and HMO's and PPO's and less from traditional commercial insurance. Accordingly, the Company continues to broaden the scope of healthcare services it provides by offering alternatives to traditional inpatient treatment settings, such as partial hospitalization, intensive outpatient and residential treatment programs. Despite the pressures noted above, in fiscal 1993 all but five of the Company's psychiatric hospitals generated sufficient revenues to cover their operating expenses. These five hospitals had lower than anticipated patient revenue and had operating expenses in excess of revenues of $1.4 million, of which $1.0 million was attributable to one facility. This facility was located in an overlapping region with another of the Company's psychiatric hospitals. The operations of these two hospitals were combined and are showing improved results in fiscal 1994. The remaining four facilities have increased their revenue due to increased admissions and increased equivalent patient days and are no longer operating at losses. Because of the industry factors described above, the Company's operating margins declined to 20.4% and 19.8% in the second quarter and first six months, respectively, of fiscal year 1994 from 22.8% and 22.0% in the second quarter and first six months, respectively, of the prior year. Operating income (which is defined as net revenue less operating and administrative expenses and bad debt expenses) was $43 million for the Company's second fiscal quarter ended March 31, 1994, compared with $53 million in the comparable quarter in fiscal 1993. Operating income in the fiscal quarter ended March 31, 1993 was approximately $2 million more than operating income in the fiscal quarter ended March 31, 1994, due to the normal settlement of reimbursement issues. The Company may continue to experience reduced margins and fewer inpatient days when compared to prior periods. The Company's intends further to increase its outpatient services and to enter approximately 30 new markets in response to this trend. Management believes that the Acquisition will assist the Company in implementing its strategy by increasing the Company's size, market position and geographical coverage. For example, the Acquisition will permit the Company to enter 16 new markets, including markets in the mid-Atlantic and northeastern United States. Management also believes that the introduction to the Target Hospitals of Charter's operating and financial control systems, continuum of care and marketing efforts will increase the utilization and profitability of the Target Hospitals. On a pro forma basis (see "Unaudited Pro-forma Financial Information") the Company's net income from continuing operations increased. Management believes the operating 30 results of the Target Hospitals will provide sufficient cash flow for debt service and capital expenditures related to those facilities. See "Risk Factors - -- Risks Related to Unsuccessful Operations of the Target Hospitals." The Company's ability to increase the rates it charges to offset increased costs is limited because the Company derives a significant portion of its revenues from patients covered by governmental and managed-care programs. With respect to governmental programs, the amount the Company can charge for its services is established by law. With respect to managed-care programs, the amount is established by the managed-care contracts. Although inflation has not been a significant factor in the Company's results of operations in recent years, a resurgence of inflation could adversely affect the Company's results of operations because of such limitations on the Company's ability to increase its rates. It is unlikely that federal and state governments will increase reimbursement rates under their programs in amounts sufficient to offset future price increases that result from general inflationary pressures. Also, many of the Company's managed-care contracts have multi-year terms and do not contain inflation adjustment provisions. The Company's business is seasonal in nature, with a reduced demand for certain services generally occurring in the fourth quarter and around major holidays, such as Thanksgiving and Christmas. The Company believes that business in the entire behavioral healthcare industry is seasonal and, therefore, does not expect the Acquisition to alter this aspect of the Company's business. As of September 30, 1990, the Company operated 91 psychiatric hospitals and 12 general hospitals with an aggregate capacity of 9,798 licensed beds. During fiscal years 1991, 1992, and 1993, and through March 31, 1994, the Company sold eight psychiatric hospitals for a total of $42.7 million, leased two psychiatric hospitals, with options to purchase by the lessees, and closed five psychiatric hospitals. One of the closed hospitals was leased, and the lease was terminated; the remaining four hospitals are held for sale or sublease or for alternate uses. Of the four hospitals, the Company has a contract to sell one facility, one facility is being marketed for sale, one facility is being marketed for sublease and one facility is now being used for a residential treatment program by an existing Company facility. During fiscal year 1992, the Company closed one general hospital, and on September 30, 1993, it sold ten general hospitals. As a result of these transactions, and the combining into one facility of two psychiatric hospitals formerly licensed separately, the Company operated 75 psychiatric hospitals as of March 31, 1994. The Company leases one general hospital, which is managed by an unrelated third party. The lease and management agreement expire in 1997. The ten general hospitals were sold for approximately $338.0 million. The Company retained the assets and liabilities for professional liability claims incurred and cost report settlements for periods prior to September 30, 1993. The results of operations of the general hospitals sold on September 30, 1993 have been reported as discontinued operations in the Company's financial statements. Included in these amounts are net interest expenses related to debt specifically identifiable as debt of the general hospitals. One of the ten hospitals sold had previously been classified as a "non-core general hospital." The results of operations of this hospital were not included in the consolidated financial statements. For fiscal 1993, the core general hospitals had net revenue of approximately $347 million and a net loss of approximately $15 million. The sale of the general hospitals has enabled the Company to concentrate its efforts on behavioral healthcare systems. Additionally, the sale of the general hospitals enabled the Company to reduce its long-term debt by approximately $310.3 million. During fiscal 1992, the Company filed a voluntary petition for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code. The Reorganization, which became effective on July 21, 1992, resulted in a reduction of approximately $700 million principal amount of long-term debt and the elimination of redeemable preferred stock having an aggregate liquidation preference of $233 million. The Company accounted for the Reorganization by using the principles of fresh start accounting, as required by AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code." For accounting purposes, the Company assumed that the Reorganization was consummated on July 31, 1992. Under the principles of fresh start accounting, the Company's total assets were recorded at their assumed 31 reorganization value, with the reorganization value allocated to identified tangible assets on the basis of their estimated fair value at July 31, 1992. The excess of the reorganization value over the value of identifiable assets is reported as "reorganization value in excess of amounts allocable to identifiable assets." Since consummation of the Reorganization in July 1992, the Company made further reductions in its long-term debt of approximately $692.7 million as of March 31, 1994. This debt reduction was made from the net proceeds from the sale of the general hospitals ($310.3 million), sale of other assets ($27.3 million), mandatory prepayments from excess cash ($108.6 million) and voluntary and scheduled principal amortization ($246.5 million). Effective with the fiscal year beginning October 1, 1994 the Company will be required to adopt Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115 investments are to be classified into three categories: held to maturity, available for sale, or trading. Unrealized holding gains or losses will be recorded for securities held for trading and securities available for sale. The Company believes the adoption of SFAS 115 will not have a material effect on the Company's financial statements or results of operations. RESULTS OF OPERATIONS The comparability of the Company's net revenue, operating and administrative expenses and bad debt expense from continuing operations for fiscal years 1991 through 1993 was not affected by the consummation of the Reorganization or the sale of the general hospitals. During the fourth quarters of fiscal 1990 and 1991, the Company recorded charges related to the estimated losses through estimated disposal dates of hospitals that the Company planned to sell, lease or close (the "Noncore Hospitals"). Accordingly, financial results presented in the Company's consolidated financial statements for the fiscal years ended September 30, 1991, 1992 and 1993 and the six months ended March 31, 1993 and 1994, do not include net revenue, operating and administrative expenses, bad debt expenses or depreciation and amortization expense for the Noncore Hospitals. QUARTER AND SIX MONTHS ENDED MARCH 31, 1993 COMPARED TO QUARTER AND SIX MONTHS ENDED MARCH 31, 1994. The selected statistics presented below are for the "same store" core hospitals in operation at March 31, 1994.
QUARTER ENDED MARCH 31, SIX MONTHS ENDED MARCH 31, ------------------------------------- ----------------------------------------- 1993 1994 % CHANGE 1993 1994 % CHANGE ---------- ---------- ------------- ------------ ------------ ------------- Number of psychiatric hospitals.......... 75 75 -- 75 75 -- Average licensed beds.................... 7,016 6,975 (1) 7,008 6,980 -- Licensed bed days........................ 631,460 627,765 (1) 1,275,368 1,270,385 -- Total inpatient days (1)................. 353,709 329,267 (7) 692,903 649,931 (6) Total equivalent outpatient days (2)..... 25,519 33,271 30 49,147 62,554 27 Total equivalent patient days............ 379,228 362,538 (4) 742,050 712,485 (4) Occupancy rate (3)....................... 56.0% 52.5% (6) 54.3% 51.2% (6) Admissions............................... 22,380 25,037 12 42,004 46,912 (12) Average length of stay (days)............ 15.7 13.4 (15) 16.3 13.9 (15) Psychiatric net revenue (in thousands) (4)..................................... $ 217,954 $ 198,947 (9) $ 430,637 $ 397,076 (8) Net revenue per equivalent patient day (4)..................................... $ 575 $ 549 (5) $ 580 $ 557 (4) - ------------------------ (1) Provision of care to one inpatient for one day. (2) Represents outpatient utilization computed by dividing gross outpatient revenue by gross inpatient revenue per day. (3) Inpatient days as a percentage of licensed bed days. (4) Includes inpatient and outpatient revenue. Excludes revenue from non-psychiatric operations.
The Company had 329,267 patient days during the second quarter of fiscal 1994, a decrease of 24,442, or 7%, as compared to 353,709 for the same period of fiscal 1993. The decrease in patient days occurred despite 32 an increase of 2,657, or 12%, in admissions from 22,380 in the second quarter of fiscal 1993 to 25,037 in the second quarter of fiscal 1994. The Company had 649,931 patient days during the first six months of fiscal 1994, a decrease of 42,972, or 6%, as compared to 692,903 for the same period of fiscal 1993. These decreases in patient days were due primarily to a 15% decrease in the average length of stay per patient caused primarily by increasingly stringent utilization criteria imposed by third party payors regarding inpatient treatment. Admissions increased 4,908, or 12%, from 42,004 in the first half of fiscal 1993 to 46,912 in the first half of fiscal 1994. The Company's net revenue declined from $233,160,000 in the second quarter of fiscal 1993 to $212,610,000 in the second quarter of fiscal 1994, a decrease of $20,550,000 or 9%. Of this decrease, $2,950,000 related to three hospitals which were closed during the last two quarters of fiscal 1993. The remaining decline was related to the "same store" core hospitals in operation at March 31, 1993 and 1994. Net revenue at the "same store" core hospitals decreased from $217,954,000 in the second quarter of fiscal 1993 to $198,947,000 in the second quarter of fiscal 1994, a decline of $19,007,000 or 9%. Net revenue per equivalent patient day also declined for the "same store" core hospitals from $575 to $549, or 5%, for the same periods. The decline in net revenue was offset, in part, by a $1,407,000 increase in revenue from non-psychiatric operations, from $12,256,000 in the second quarter of fiscal 1993 to $13,663,000 in the second quarter of fiscal 1994. The Company's net revenue for the six months ended March 31, 1994 declined from $459,550,000 for the same period in fiscal 1993 to $421,427,000, a decrease of $38,123,000, or 8%. Of this decrease, $10,706,000 related to the four hospitals closed during fiscal 1993. The remaining decline related to the "same store" core hospitals. One hospital which is now included in the "same store" core hospital group was previously held for sale, and therefore, its net revenue of $2,658,000 was not included in the Company's reported consolidated net revenue for the six months ended March 31, 1993. Net revenue decreased $33,561,000, or 8%, from $430,637,000 for the six months ended March 31, 1993, to $397,076,000 for the six months ended March 31, 1994. Net revenue per equivalent patient day also decreased to $557 from $580, or 4%, for the same periods. The declines in net revenue and net revenue per equivalent patient day for the "same store" hospitals were due primarily to a shift in payor mix toward more Medicare, Medicaid and other cost-based business. The decline in net revenue was offset, in part, by a $3,486,000 increase in net revenue from non-psychiatric operations, from $20,865,000 in the first six months of fiscal 1993 to $24,351,000 in the first six months of fiscal 1994. The increase was primarily due to additional reserves established in fiscal 1993 for uncollectible accounts. The Company experienced a $10,466,000, or 6%, decrease in operating and administrative expenses to $153,147,000 for the second quarter of fiscal 1994, as compared to $163,613,000 for the second quarter of fiscal 1993. Operating and administrative expenses for the six months ended March 31, 1994 were $305,589,000 as compared to $323,367,000 for the six months ended March 31, 1993, a decline of $17,778,000, or 5% due primarily to reductions in salaries and benefits resulting from decreases in the number of employees and reductions in other purchased services. Bad debt expenses for the quarter ended March 31, 1994 decreased $334,000, or 2%, to $16,159,000 from $16,493,000 for the same period of the previous fiscal year. Bad debt expenses as a percentage of net revenue increased to 7.6% in the second quarter of fiscal 1994 from 7.1% in the second quarter of fiscal 1993. Bad debt expenses for the six months ended March 31, 1994 decreased $2,582,000, or 7%, to $32,288,000 from $34,870,000 for the same period of the previous fiscal year. Bad debt expenses as a percentage of net revenue increased to 7.7% in the first six months of fiscal 1994 from 7.6% in the first six months of fiscal 1993. Depreciation and amortization expense increased $269,000, or 4%, from $6,635,000 in the second quarter of fiscal 1993 to $6,904,000 in the second quarter of fiscal 1994 and decreased $223,000, or 2%, from $13,802,000 for the six months ended March 31, 1993 to $13,579,000 for the six months ended March 31, 1994. Reorganization value in excess of amounts allocable to identifiable assets (the "Excess Reorganization Value") is being amortized over the three-year period ending June 1995. During fiscal 1993, Excess Reorganization Value was reduced by approximately $21 million to reflect the recognition of tax benefits related to 33 pre-Reorganization tax loss carry forwards, and accordingly amortization expense for the Excess Reorganization Value decreased 27%, or $2,950,000 to $7,800,000 from $10,750,000 for the second quarter of fiscal 1994 and 1993, respectively and decreased 27%, or $5,900,000, to $15,600,000 from $21,500,000 for the six months ended March 31, 1994 and 1993, respectively. Net interest expense for the quarter and six months ended March 31, 1994 decreased 54% and 55%, respectively, from the same periods of the previous fiscal year, due to the debt reductions resulting from the sale of the general hospitals, mandatory and voluntary prepayments and scheduled payments in fiscal 1993 and the first half of fiscal 1994. ESOP expense for the second quarter of fiscal 1994 increased $3,335,000, or 37%, to $12,300,000 from $8,965,000 for the second quarter of fiscal 1993. ESOP expense for the first half of fiscal 1994 also increased 37%, or $6,629,000, to $24,599,000 from $17,970,000 for the first half of fiscal 1993. These increases resulted primarily from changes in eligibility requirements, which increased the number of employees who participate in the ESOP. Stock option expense for the second quarter and first half of fiscal 1994 decreased from the same periods of the previous year due to a one-time charge during the second quarter of fiscal 1993 of $21.3 million related to the vesting of certain options held by a former employee and director. Under the terms of the 1992 Stock Option Plan, upon the satisfaction of certain financial targets and the termination of his employment, all of the employee's options vested immediately and the option prices were reduced to $.25 per share. During December 1993, the former employee and director exercised approximately 2.2 million options to purchase shares of the Company's common stock and surrendered approximately 570,000 of such optioned shares (valued at approximately $14.2 million) as consideration for the payment of required withholding taxes. As a result, the Company was required to make withholding tax payments on behalf of the former employee of approximately $14.2 million which was charged against additional paid-in capital. This charge was offset by a tax benefit recorded of approximately $9.4 million related to additional stock option expense allowable for income tax purposes. The financial and statistical data presented below for the fiscal years ended September 30, 1991, 1992, and 1993 is "same store" data for the core hospitals in operation as of September 30, 1993, and differs from amounts reported above, amounts previously reported and amounts presented below under "Business." SELECTED "SAME STORE" PSYCHIATRIC HOSPITAL OPERATING DATA FISCAL YEAR ENDED SEPTEMBER 30
1991 % CHANGE 1992 % CHANGE 1993 % CHANGE -------------- ----------- -------------- ----------- -------------- ----------- Number of psychiatric hospitals..... 74 -- 74 -- 74 -- Average licensed beds............... 6,920 5 6,936 -- 6,938 -- Licensed bed days................... 2,525,900 5 2,538,524 1 2,532,464 -- Total inpatient days (1)............ 1,445,614 (10) 1,388,915 (4) 1,350,835 (3) Total equivalent outpatient days (2)................................ 54,948 24 75,345 37 106,263 41 Total equivalent patient days....... 1,500,562 (9) 1,464,260 (2) 1,457,098 (1) Occupancy rate (3).................. 57.2% (14) 54.7% (4) 53.3% (3) Admissions.......................... 70,565 6 78,597 11 85,158 8 Average length of stay (days)....... 20.4 (15) 17.8 (13) 15.8 (11) Psychiatric net revenue (in thousands) (4)..................... $ 810,451 1 $ 847,349 5 $ 838,775 (1) Net revenue per equivalent patient day (4)............................ $ 540 11 $ 579 7 $ 576 (1) - ------------------------------ (1) Provision of care to one inpatient for one day. (2) Represents outpatient utilization computed by dividing gross outpatient revenue by gross inpatient revenue per day. (3) Inpatient days as a percentage of licensed bed days. (4) Includes inpatient and outpatient revenue. Excludes revenue from non-psychiatric operations.
34 FISCAL 1992 COMPARED TO FISCAL 1993. The Company had 1,350,835 patient days in fiscal 1993, a decrease of 38,080, or 3%, from 1,388,915 in fiscal 1992. The decrease in patient days occurred despite an increase of 6,561, or 8%, in admissions from 78,597 in fiscal 1992 to 85,158 in fiscal 1993. The decrease in average length of stay was caused by stringent criteria regarding inpatient treatment by payors and changes in program mix. The Company's net revenue decreased $22,798,000, or 2%, from $920,705,000 in fiscal 1992 to $897,907,000 in fiscal 1993. Of this decline, $13,410,000 resulted from the disposal of hospitals which were considered core hospitals in fiscal 1992, and $814,000 was related to non-psychiatric operations. Net revenue at the "same store" core hospitals in operation at September 30, 1993 decreased to $838,775,000 in fiscal 1993 as compared to $847,349,000 for fiscal 1992, a decrease of $8,574,000, or 1%. Net revenue per equivalent patient day also decreased 1% in fiscal 1993 from $579 in fiscal 1992 to $576 in fiscal 1993. The decreases were primarily the result of an increase in the percentage of business the Company derived from Medicare and Medicaid patients during fiscal 1993. The increase in Medicaid patients results primarily from certain state Medicaid programs which have begun reimbursing for psychiatric coverages. The Company believes the increase in Medicare patients results from new programs started in certain markets for senior patients and from the general aging of the population. Net revenue in 1993 includes approximately $8 million over the prior year from the normal settlement of reimbursement issues. In fiscal 1993, gross outpatient revenue increased 53% to $100,376,000 from $65,686,000 in fiscal 1992. The Company's operating and administrative expenses declined from $671,208,000 in fiscal 1992 to $640,847,000 in fiscal 1993, a decrease of $30,361,000, or approximately 5%. The decrease in fiscal 1993 resulted primarily from reductions in salaries and benefits and purchased services and the sale of two facilities during the year. The reductions in salaries and benefits and purchased services were the result of the Company's continued focus on controlling its variable costs including a decrease in the number of employees and reduced fees for professional services. The Company's bad debt expense increased $2,093,000, or 3%, from $65,207,000 in fiscal 1992 to $67,300,000 in fiscal 1993. Bad debt expenses as a percentage of net revenue were 7.5% for fiscal 1993. The Company anticipates future increases in bad debt expenses due to increased deductibles and co-insurance and reduced annual and lifetime psychiatric maximum payment limits for individual patients, which will result in the Company not collecting full charges on an increasing number of patients. Depreciation and amortization expense decreased $12,375,000, or 32%, in fiscal 1993 from $38,757,000 in fiscal 1992 to $26,382,000 in fiscal 1993 due to the writedown of depreciable property and equipment and the write-off of deferred charges which occurred upon consummation of the Reorganization and the implementation of fresh start accounting. Net interest expense decreased $107,778,000, or 59%, in fiscal 1993 to $74,156,000 as compared to $181,934,000 in fiscal 1992 due to the reduction of debt upon consummation of the Reorganization and the significant debt reductions which occurred since consummation of the Reorganization. ESOP expense for fiscal 1993 increased $7,349,000, or 19% to $45,874,000 as compared to $38,525,000 for fiscal 1992 due primarily to increased contributions to the ESOP, which were required as a result of larger debt service requirements in fiscal 1993. Also, the ESOP plan was amended to permit broader participation in the plan which increased the number of employees eligible to receive an ESOP contribution in calendar 1993. Upon consummation of the Reorganization, the Company implemented the 1992 Stock Option Plan. A former employee and director of the Company was granted options under the 1992 Stock Option Plan to purchase approximately 2.2 million shares at exercise prices of either $4.36 per share or $9.60 per share. On March 4, 1993, all of the options issued to the former employee and director vested and the option prices were reduced to $.25 per share, which resulted in the Company recognizing approximately $21.3 million in additional stock option expense during the second quarter of fiscal 1993. The remaining expenses related to the 1992 Stock Option Plan were due to increases in the market price of the underlying Common Stock and the impact of additional shares vesting in fiscal 1993. As of September 30, 1993, the Company had estimated tax net operating loss (NOL) carryforwards of approximately $171 million available to reduce future federal taxable income. These NOL carryforwards expire in 2006 and 2007 and are subject to examination by the Internal Revenue Service. Due to the 35 ownership change which occurred as a result of the Reorganization, the Company's utilization of NOLs generated prior to the consummation of the Reorganization is significantly limited. The Internal Revenue Service is currently examining the Company's income tax returns for fiscal 1989 through 1992. Adjustments arising from such examination could reduce or eliminate the NOL carryforwards. In Management's opinion, adequate provisions have been made for any adjustments which may result from such examinations. The Company's tax provision in fiscal 1993 results primarily from the fact that the amortization of reorganization value in excess of amounts allocable to identifiable assets is not deductible for tax purposes. FISCAL 1991 COMPARED TO FISCAL 1992. The Company had 1,388,915 patient days in fiscal 1992, a decrease of 56,699, or 4%, as compared to 1,445,614 in fiscal 1991. The decrease in patient days occurred despite an increase of 8,032, or 11%, in admissions from 70,565 in fiscal 1991 to 78,597 in fiscal 1992. The decrease in patient days was due primarily to a 13% decrease in the average length of stay from 20.4 to 17.8 caused by changes in program mix and stringent criteria regarding inpatient treatment by third-party payors. Net revenue for the Company's hospitals increased to $920,705,000 in fiscal 1992 from $868,264,000 in fiscal 1991, for an increase of $52,441,000, or 6%. Non-psychiatric net revenue increased $14,832,000 relating primarily to the Company's general hospital which is operated by an unaffiliated third party. Hospitals which were no longer in operation at September 30, 1993 accounted for $711,000 of the increase. The net revenue for the Company's "same store" core hospitals in operation at September 30, 1993 increased $36,898,000, or 5%, to $847,349,000 in fiscal 1992 from $810,451,000 in fiscal 1991. Net revenue per equivalent patient day for the "same store" hospitals increased from $540 in fiscal 1991 to $579 in fiscal 1992, an increase of $39, or 7%, per equivalent patient day. These increases were due to increases in hospital charges, increases in outpatient revenue and approximately $12.3 million in normal settlements of open reimbursement issues related to contractual and cost-based programs. The Company's operating and administrative expenses increased $14,380,000, or approximately 2%, in fiscal 1992. The increase from $656,828,000 to $671,208,000 resulted primarily from increased salaries and benefits, supply expenses and professional fees as a result of increased admissions in the Company's hospitals. The Company's bad debt expense increased $13,590,000, or 26%, in fiscal 1992 to $65,207,000 from $51,617,000. Bad debt expenses as a percentage of net revenue were 7.1% for fiscal 1992. Depreciation and amortization expense decreased $9,902,000, or 20%, in fiscal 1992 as compared to fiscal 1991 due primarily to the decrease in amortization of preopening costs. Upon consummation of the Plan the Company began amortization of the excess of reorganization value over the value of identifiable assets, recorded in connection with the implementation of fresh start accounting. Related amortization during fiscal 1992 was $7,167,000. Interest expense for fiscal 1992 decreased 22%, or $50,284,000, to $181,934,000 from $232,218,000 for fiscal 1991. The decrease was due to the restructuring of the debt and payments made during the fiscal year. ESOP expense increased $42,487,000 during fiscal 1992 over fiscal 1991. The increase was due to reductions in ESOP expense recorded in fiscal 1991 to reflect adjustments to its previously estimated fiscal 1990 and 1991 contributions. Upon consummation of the Plan during fiscal 1992, the Company's deferred compensation plan was discontinued and the 1992 Stock Option Plan was implemented. During fiscal 1990, the Company recorded a charge of $105 million for the write-down of certain assets to their estimated net recoverable value, closing costs and estimated operating losses to the estimated disposal date on certain Non-core facilities, professional and advisory fees, write-off of development projects, severance pay related to organizational changes and other estimated restructuring costs. During fiscal 1991, the Company recorded an additional charge of $45 million for restructuring costs due primarily to the increased time required to complete the Restructuring. LIQUIDITY AND SOURCES OF CAPITAL OPERATIONAL ACTIVITIES. During fiscal 1993, cash provided by operations decreased approximately $25.3 million, due primarily to the normal settlement of open reimbursement issues related to contractual and cost-based programs. 36 The number of days of net patient revenue in net patient accounts receivable was 62 days at March 31, 1994 and 61 days at September 30, 1993. Management believes that the Company will have adequate cash flow from operations to fund its operations, capital expenditures and debt service obligations over the next year. The Company had working capital deficiencies at September 30, 1992 and 1993 and at March 31, 1994 due primarily to the retention of liabilities for cost report settlements for the general hospitals sold on September 30, 1993, and $19.5 million and $13.9 million of long-term debt classified as current at September 30, 1992 and 1993, respectively, resulting from mandatory payments made in October 1992 and 1993. INVESTING ACTIVITIES. During fiscal 1993 and the first six months of fiscal 1994, the Company incurred approximately $11 million and $7 million, respectively, in capital expenditures, primarily for routine capital replacement. The Company also incurred expenditures of approximately $1.7 million for the acquisition of a business related to the implementation of the Company's new growth and expansion strategy. The capital outlays were financed from cash provided by operations. The Company anticipates that capital expenditures for fiscal 1994 relating to existing hospitals will be approximately $15 million. The Company also anticipates making capital expenditures of approximately $7 million during fiscal 1994 and 1995 to renovate certain of the Target Hospitals. The fiscal 1994 capital expenditures will be financed from cash provided by operations or from borrowings pursuant to the New Credit Agreement. Future cash flows provided by investing activities will be reduced by the amount of cash previously provided by the discontinued operations which was approximately $42.5 million in fiscal year 1993. However, the sale of the General hospitals allowed the Company to reduce its debt and save approximately $32.3 million in annual interest expense. FINANCING ACTIVITIES. Since consummation of the Reorganization in July 1992, the Company has made reductions in its long-term debt of approximately $692.7 million as of March 31, 1994. This debt reduction was made from a portion of the net proceeds from the sale of the general hospitals ($310.3 million), sale of other assets ($27.3 million), mandatory prepayments from excess cash ($108.6 million) and voluntary and scheduled payments ($246.5 million). Capital expenditures have been funded from internally generated funds since the Reorganization. In connection with the Reorganization, the Company entered into the Old Credit Agreement and issued the 7 1/2% Senior Subordinated Debentures. The Old Credit Agreement and the indenture for the 7 1/2% Senior Subordinated Debentures imposed severe restrictions on the Company's operations. The Old Credit Agreement limited the Company to $15 million of additional indebtedness, other than borrowings under the Old Credit Agreement. Other restrictions included limitations on capital expenditures, payment of dividends on capital stock, investments and sales of assets and stock of subsidiaries. On May 2, 1994, the Company entered into the New Credit Agreement and issued the Old Notes. The net proceeds from the sale of the Old Notes, together with borrowings pursuant to the New Credit Agreement, were used to refinance the indebtedness outstanding pursuant to the Old Credit Agreement, to retire the 7 1/2% Senior Subordinated Debentures and to refinance certain existing mortgage indebtedness of certain of the subsidiaries of the Company. See "Use of Proceeds." The Company expects to obtain increased operational and financial flexibility as a result of entering into the New Credit Agreement and issuing the Old Notes because the covenants contained in the New Credit Agreement and the Indenture for the Old Notes (which Indenture will also govern the New Notes) are less restrictive than those formerly in effect. However, the New Credit Agreement and the Indenture for the Old Notes contain a number of restrictive covenants, which, among other things, limit the ability of the Company and its Restricted Subsidiaries to incur other indebtedness, engage in transactions with affiliates, incur liens, make certain restricted payments, and enter into certain business combination and asset sale transactions. The New Credit Agreement also limits the Company's ability to incur capital expenditures and requires the Company to maintain certain specified financial ratios. A failure by the Company to maintain such financial ratios or to comply with the restrictions contained in the New Credit Agreement, the Indenture for the Old Notes or other agreements relating to the Company's debt could cause such indebtedness (and by reason of cross-acceleration provisions, other indebtedness) to become immediately due and payable. See "Description of the New Notes"; "Summary of New Credit Agreement." There are no restrictions on the ability of the Guarantors to make distributions to the Company. 37 The New Credit Agreement permits the Company to contribute the assets of hospitals and related medical facilities to joint ventures that conduct a healthcare business, provided that certain conditions are satisfied and that the aggregate fair market value or book value, whichever is greater, of all such facilities contributed to joint ventures with respect to which the Company and its wholly-owned subsidiaries do not have a majority of the equity interests or are not entitled to elect or appoint the directors, managers or trustees, as applicable, does not exceed $100 million. Furthermore, the New Credit Agreement permits the Company and its "restricted subsidiaries," (as defined in the New Credit Agreement) subject to the satisfaction of certain conditions, to invest up to $70 million plus the lesser of $30 million and an amount equal to "accumulated excess cashflow" (as defined in the New Credit Agreement) of cash and other assets (other than hospitals and related medical facilities) in subsidiaries of the Company formed to pursue strategic investments and joint ventures in clinical services and management information services and to invest up to $80 million in other types of investments. See "Summary of New Credit Agreement -- Affirmative, Negative and Financial Covenants." The Indenture also contains provisions that permit the Company and its Restricted Subsidiaries to make investments in non-guarantors. The provisions contained in the Indenture are less restrictive than those contained in the New Credit Agreement and are, therefore, not relevant to the ability of the Company and its Restricted Subsidiaries to make investments in non-guarantors as long as the New Credit Agreement is in effect. See "Description of the New Notes -- Certain Covenants - -- Limitation on Restricted Payments." The Company intends to make investments in Permitted Joint Ventures and Unrestricted Subsidiaries to the extent it believes doing so will be consistent with its business strategy. To the extent the Company or its Restricted Subsidiaries make investments of the type described above, the assets available for debt payment and guarantee obligations could be diminished. 38 BUSINESS GENERAL Charter Medical Corporation ("Charter" or the "Company") is a leading private provider of behavioral healthcare services and one of the largest owners and operators of private psychiatric hospitals in the United States. Approximately 46,900 patients were admitted to the Company's psychiatric hospitals during the six-month period ended March 31, 1994. In contrast, its next largest competitor reported approximately 19,600 admissions during its two most recent fiscal quarters. As of March 31, 1994, the Company operated 73 psychiatric hospitals and two free-standing residential treatment centers with an aggregate capacity of 6,970 licensed beds. In addition, the Company operates 120 outpatient centers staffed by behavioral health professionals, 68 of the Company's hospitals operate partial hospitalization programs, 40 of the Company's hospitals operate intensive outpatient programs, and 14 hospitals operate residential treatment programs. Its next largest competitor operated 49 psychiatric hospitals and had 4,205 beds in service at such date. The Company uses the term "psychiatric hospitals" or "hospitals" to refer to facilities licensed as acute care psychiatric hospitals and facilities licensed as residential treatment centers. A residential treatment center offers less intensive and longer stay services than do acute care psychiatric hospitals. On June 30, 1994, the Company acquired 18 psychiatric hospitals, seven chemical-dependency treatment facilities, one residential treatment center and one physician outpatient practice from NME in connection with the Acquisition. Pursuant to the First Facilities Agreement, the Company has agreed to acquire, subject to the occurence of certain conditions, three additional psychiatric hospitals. Pursuant to the Subsequent Facilities Agreement, the Company has agreed to acquire, subject to the occurrence of certain conditions, 15 additional psychiatric hospitals, one additional chemical-dependency treatment facilities and one additional residential treatment center. A chemical-dependency treatment facility is a hospital that is licensed to treat only substance abuse patients. If completed in its entirety, the Acquisition will increase the number of behavioral healthcare facilities operated by the Company to 121, with an aggregate capacity of 10,466 licensed beds. Management believes that the Acquisition will assist the Company in implementing its strategy by increasing the Company's size, market position and geographic coverage. For example, the Acquisition will permit the Company to enter 16 new markets, including markets in the mid-Atlantic and northeastern United States. Management also believes that the introduction to the Target Hospitals of Charter's operating and financial control systems, continuum of care and marketing efforts, will increase the utilization and profitability of the Target Hospitals. See "Risk Factors -- Risks Related to Unsuccessful Operation of the Target Hospitals" and "-- Risks Related to Past Practices of NME." INDUSTRY OVERVIEW According to industry and government estimates, mental disorders affect approximately 40 million American adults (22% of the adult population) each year. Severe mental disorders, such as schizophrenia, manic depressive illness and severe depression, affect approximately five million people (2.8% of the adult population). Substance abuse disorders affect approximately 17 million adults (9.5% of the adult population). Smaller percentages of adolescents suffer from mental or substance abuse disorders. Management believes that a small percentage of those who reportedly suffer from mental or substance abuse disorders receive professional treatment. Direct expenditures in 1990, the latest year for which data are available, for treatment of persons suffering from mental and substance abuse disorders were approximately $67 billion. Management believes that demand for behavioral healthcare services should increase commensurate with the increase in the percentage of persons who seek treatment for their behavioral health disorders. Management anticipates that the percentage of persons who seek treatment will increase because of a continuing decline in the social stigma associated with behavioral disorders and a growing recognition by the government and employers of the indirect costs (such as lost productivity, work and vehicular accidents, and social welfare costs) of failing to treat such disorders. Management further believes that direct expenditures to private providers (including clinicians and hospitals) will increase as overall demand for behavioral healthcare services increases. Because of the requirement for cost-effective delivery of behavioral healthcare services, partial hospitalization and outpatient treatment should increasingly serve as alternatives to traditional inpatient treatment. 39 HOSPITAL OPERATIONS The Company's psychiatric hospitals are primarily located in well-populated urban and suburban locations in 26 primarily southern and western states in the United States. Fifteen of the Company's hospitals are affiliated with medical schools for residency and other post-graduate teaching programs. The Target Hospitals are located in 20 states. The Company does not currently operate psychiatric hospitals in five of these states: Colorado, Maryland, Minnesota, New Hampshire and New Jersey. The financial and statistical results from operations of the Noncore Hospitals for fiscal years 1991, 1992 and 1993 are not included in the Company's consolidated financial statements or the following table.
SELECTED PSYCHIATRIC HOSPITAL OPERATING DATA (1) FISCAL YEAR ENDED SEPTEMBER 30, ------------------------------------------------------------------ 1989 1990 1991 1992 1993 ---------- ---------- ---------- ---------- ---------- Number of psychiatric hospitals......... 80 91 80 79 74 Average licensed beds................... 6,683 7,660 7,284 7,288 7,145 Licensed bed days....................... 2,439,247 2,795,793 2,658,760 2,667,428 2,607,996 Total inpatient days (2)................ 1,735,478 1,768,387 1,494,844 1,430,815 1,373,835 Total equivalent outpatient days (3).... 38,321 50,247 56,336 77,901 107,386 Total equivalent patient days........... 1,773,799 1,818,634 1,551,180 1,508,716 1,481,221 Occupancy Rate (4)...................... 71.1% 63.3% 56.2% 53.6% 52.7% Admissions.............................. 66,042 74,254 73,120 81,311 86,794 Average Length of Stay (Days)........... 26.3 23.7 20.4 17.8 15.8 Psychiatric net revenue (in thousands) (5).................................... $846,938 $893,105 $838,167 $875,776 $853,792 Net revenue per equivalent patient day (5).................................... $477 $491 $540 $580 $576 - ------------------------ (1) For fiscal 1989 and 1990, the Selected Psychiatric Hospital Operating Data includes financial or statistical data for the Noncore Hospitals. (2) Provision of care to one inpatient for one day. (3) Represents outpatient utilization, computed by dividing gross outpatient revenue by gross inpatient revenue per day. (4) Inpatient days as a percentage of licensed bed days. (5) Includes inpatient and outpatient revenue. Excludes revenue from non-psychiatric operations.
The Company's facilities provide a continuum of behavioral care for children, adolescents and adults in their service area. These services include crisis stabilization; acute psychiatric services; acute chemical dependency services; partial (day and evening) hospitalization programs; intensive adolescent weekend services; outpatient services; support group services and aftercare, including programs such as ALCOHOLICS ANONYMOUS, NARCOTICS ANONYMOUS and OVEREATERS ANONYMOUS; and residential treatment. A typical treatment program of the Company integrates physicians and other patient-care professionals, and, for those patients who do not have a personal psychiatrist or other specialist, the hospital refers the patient to a member of its medical staff. A significant portion of psychiatric hospital admissions are provided by physician referrals, and physician relationships are an important aspect of the Company's ongoing business. Management believes that the quality of the Company's treatment programs, staff employees and physical facilities are important factors in maintaining good physician relationships. The Company's hospitals work closely with mental health professionals, non-psychiatric physicians, emergency rooms and community agencies that come in contact with individuals who may need treatment for mental illness or substance abuse. The Company's marketing efforts are directed at increasing general awareness of mental health and addictive disease and the services offered by the Company's hospitals. SEASONALITY The Company's business is seasonal in nature, with a reduced demand for certain services generally occurring in the fourth fiscal quarter and around major holidays, such as Thanksgiving and Christmas. The Company believes that business in the entire behavioral healthcare industry is seasonal and, therefore, does not expect the Acquisition to alter this aspect of the Company's business. 40 COMPETITION Each of the Company's hospitals competes with other hospitals, including psychiatric hospitals and general hospitals that have psychiatric units. Some of these hospitals are larger and have greater financial resources. Some competing hospitals are owned and operated by governmental agencies, others by nonprofit organizations supported by endowments and charitable contributions and others by proprietary hospital corporations. Psychiatric hospitals frequently draw patients from areas outside their immediate locale and, therefore, the Company's psychiatric hospitals may, in certain markets, compete with both local and more distant hospitals. The competitive position of a hospital is, to a significant degree, dependent upon the number and quality of physicians who practice at the hospital and who are members of its medical staff. In order to deliver cost-effective behavioral healthcare services, most of the Company's hospitals provide a range of alternatives to traditional inpatient treatment, including day hospitalization and on-and off-campus outpatient services. These alternative services may compete with private practicing mental health professionals and, in certain markets, with non-hospital facilities that provide full-and part-day outpatient treatment. In recent years, the competitive position of hospitals has been affected by the ability of such hospitals to obtain contracts with Preferred Provider Organizations ("PPO's"), Health Maintenance Organizations ("HMO's") and other managed care programs to provide inpatient and other services. Such contracts normally involve a discount from the hospital's established charges, but provide a base of patient referrals. These contracts also frequently provide for pre-admission certification and for concurrent length of stay reviews. The importance of obtaining contracts with HMO's and PPO's varies from market-to-market, depending on the individual market strength of the HMO's and PPO's. State certificate of need laws place limitations on the Company's and its competitors' ability to build new hospitals and to expand existing hospitals. Protection from new competition is reduced in those states where there is no certificate of need law. The Company operates 36 hospitals in 11 states (Arizona, Arkansas, California, Indiana, Kansas, Louisiana, Nevada, New Mexico, South Dakota, Texas and Utah) which do not have certificate of need laws applicable to hospitals. Sixteen of the Target Hospitals are in seven states (Arizona, Arkansas, California, Colorado, Indiana, Louisiana and Texas) which do not have certificate of need laws applicable to hospitals. INDUSTRY TRENDS The Company's psychiatric hospitals have been adversely affected by factors influencing the entire psychiatric hospital industry. Factors which affect the Company include (i) the imposition of more stringent length of stay and admission criteria by non-governmental insurance and other healthcare benefit programs; (ii) the failure of reimbursement rate increases from certain third-party payors that reimburse on a per diem or other discounted basis to offset increases in the cost of providing services; (iii) an increase in the percentage of its business that the Company derives from third-party payors that reimburse on a per diem or other discounted basis; (iv) a trend toward higher deductibles and co-insurance for individual patients; (v) a trend toward limiting employee health benefits, such as reductions in annual and lifetime limits on mental health coverage; and (vi) a trend toward agreements with payors where the Company agrees to assume the risk for the provision of treatment to all members of a particular group for a specified revenue amount. In response to these industry trends, the Company (i) developed a wider array of outpatient services, such as partial hospitalization and intensive outpatient programs; (ii) decentralized hospital management to increase the Company's responsiveness to local market conditions; (iii) pursued joint ventures and affiliations with other healthcare providers; and (iv) implemented more efficient operating and administrative expense controls. The Company's strategy is to become a nationwide integrated provider of high-quality, cost-effective behavioral healthcare services. To implement this strategy, management intends to expand the Company's partial hospitalization and outpatient programs in its existing markets and to enter approximately 14 new markets in the United States and Europe , in addition to the 16 new markets entered into as a result of the Acquisition. The Company's ability to enter such new markets will depend on whether or not, and how quickly, the Company is able to identify facilities it may acquire in such markets. The Company does not, on 41 the date hereof, have an agreement to acquire any behavioral healthcare facilities in any of the 14 new markets. Management also is seeking additional strategic alliances with, and additional acquisitions of, group psychiatric practices, mental health clinics, other behavioral healthcare providers and behavioral managed-care firms. Management believes that this strategy will enhance the Company's ability to obtain nationwide, area-wide and local contracts to be the exclusive or a preferred provider of behavioral healthcare services to major employers, third-party payors and managed-care firms. HEALTHCARE REFORM On October 27, 1993, President Clinton submitted to Congress the Administration's Proposal for comprehensive healthcare reform legislation. At present, six other comprehensive reform proposals have been introduced in the Congress, several of which are likely to be viewed by Congress as significant alternatives to the Administration's Proposal. A central component of the Administration's Proposal is the restructuring of health insurance markets through the use of "managed competition." Under the Administration's Proposal, states would be required to establish regional purchasing cooperatives, known as "regional alliances," that would be the exclusive source of insurance coverage for individuals and employers with less than 5,000 employees. All employers would be required to make available such coverage to their employees and contribute 80% of the premium, and all individuals would be required to enroll in an approved health plan. Regional alliances would contract with health plans that demonstrate an ability to provide consumers with a broad range of benefits, including hospital services. The federal government would provide subsidies to low income individuals and certain small businesses to help pay for the cost of coverage. These subsidies and other costs of the Administration's Proposal would be funded in significant part by reductions in payments by the federal Medicare and Medicaid programs to providers, including hospitals. The Administration's Proposal would also place stringent limits on the annual growth in health-plan insurance premiums. Certain aspects of the Administration's Proposal, such as reductions in Medicare and Medicaid payments, if adopted, could adversely affect the Company's business. In fiscal 1992 and 1993, the Company obtained 29% and 38%, respectively, of its gross psychiatric patient service revenue from the Medicare and Medicaid programs. Other aspects of the Administration's Proposal, such as universal health insurance coverage, could have a positive impact on the Company's business by reducing the amount of uncompensated care provided by the Company's hospitals. No assurance can be given that any reform proposal will be adopted or implemented or that any reform proposal which is ultimately adopted will not have a material adverse effect on the Company's financial condition and results of operations. In addition to the Administration's Proposal and other federal reform initiatives, state legislatures also have undertaken healthcare reform initiatives independent of federal reform. The States of Maine, Florida, California and Washington have adopted legislation based on managed competition. It is not possible at this time to predict what, if any, reforms will be adopted by the states, or when such reforms will be adopted and implemented. No assurance can be given that any such reforms will not have a material adverse effect upon the Company's revenues and earnings or upon the demand for the Company's services. SOURCES OF REVENUE Payments are made to the Company's hospitals by patients, by various insuring organizations (including self-insured employers), by the federal and state governments under Medicare, Medicaid, CHAMPUS and other programs, and by HMO's, PPO's and other managed care programs. Amounts received under government programs, HMO, PPO and other managed care arrangements, certain self-insured employers and certain Blue Cross plans are generally less than the hospital's established charges. The approximate percentages of gross patient revenue (which is revenue before deducting contractual allowances and discounts from established billing rates) derived by the Company's psychiatric hospitals from various payment sources for the last three fiscal years were as follows: 42 PERCENTAGE OF HOSPITAL GROSS REVENUE
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, MARCH 31, ------------------------ ------------------ 1991 1992 1993 1993 1994 ---- ---- ---- ------ ------ Medicare.......................................... 14% 18% 23% 21% 26% Medicaid.......................................... 8 11 15 14 16 ---- ---- ---- ------ ------ 22 29 38 35 42 HMO's and PPO's................................... 6 9 11 11 14 CHAMPUS........................................... 8 6 6 7 5 Other (primarily Blue Cross and Commercial Insurance)....................................... 64 56 45 47 39 ---- ---- ---- ------ ------ Total........................................... 100% 100% 100% 100% 100% ---- ---- ---- ------ ------ ---- ---- ---- ------ ------
The Company does not expect its current payor mix to be altered significantly as a result of the Acquisition. Most private insurance carriers reimburse their policyholders or make direct payments to the hospitals for charges at rates specified in their policies. The patient remains responsible to the hospital for any difference between the insurance proceeds and the total charges. Certain Blue Cross programs have negotiated reimbursement rates with certain of the Company's hospitals which are less than the hospital's charges. Most of the Company's hospitals have entered into contracts with HMO's, PPO's, certain self-insured employers and other managed care plans which provide for reimbursement at rates less than the hospital's normal charges. In addition to contracts entered into by individual hospitals with such managed care plans, the Company has entered into regional and national contracts with HMO's, PPO's, self-insured employers and other managed care plans that apply to all of the Company's hospitals in the geographic areas covered by a contract. The Company is seeking to obtain additional regional and national contracts. The Company expects its percentage of revenue from these payor sources to increase in the future. The Company believes that the Acquisition will assist the Company to obtain additional regional and national contracts by expanding the areas the Company serves. The Medicare program has changed significantly during the past years, and these changes have had and will continue to have significant effects on the Company's hospitals. Under the Medicare provisions of the Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA"), costs per Medicare case are determined for each of the Company's psychiatric hospitals. A target cost per case is established for each year (the "Target Rate"). If a hospital's costs per case are less than the Target Rate, the hospital receives a bonus of 50% of the difference between its actual costs per case and the Target Rate (limited to 5% of the Target Rate). These limits apply only to operating costs and do not apply to capital costs, including lease expense, depreciation and interest associated with capital expenditures. For cost reporting years that began prior to October 1, 1991, reimbursement was generally limited to the Target Rate. Effective for cost reporting years which began on or after October 1, 1991, hospitals with costs which exceed the Target Rate are paid an additional amount equal to 50% of the excess, up to 10% of the Target Rate. The Target Rate for each hospital is increased annually by the application of an "update factor" published in regulations and/or legislation. Most of the Company's hospitals participate in state operated Medicaid programs. Federal guidelines prohibit Medicaid funding for inpatient services within freestanding psychiatric hospitals for patients between the ages of 21 and 64. Each state government is responsible for establishing the Medicaid eligibility and coverage criteria, payment methodology and funding mechanisms which apply in that state, subject to federal guidelines. Accordingly, the level of Medicaid payments received by the Company's hospitals varies from state to state. In addition to the basic payment level for patient care, several state programs include a financial benefit for hospitals which treat a disproportionately large volume of Medicaid patients as a percentage of the total patient population. These "disproportionate share" benefits are subject to annual review and revision by the related state governments and could be substantially reduced or eliminated at any 43 point in the future. The Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") prohibits disproportionate share payments to hospitals which have a Medicaid utilization rate of less than 1% effective for state fiscal years ending in 1994. Beginning in state fiscal years ending in 1995, the amount of disproportionate share payments each hospital can receive will be limited through the use of formulas based generally on the cost of providing services to Medicaid and uninsured patients. The Administration's Proposal would eliminate Medicaid disproportionate share payments. The Company received approximately $1 million, $13 million and $15 million in Medicaid disproportionate share payments in fiscal 1991, 1992 and 1993, respectively. Within the statutory framework of the Medicare and Medicaid programs, there are substantial areas subject to administrative rulings and interpretations which may affect payments made under either or both of such programs. In addition, federal or state governments could reduce the future funds available under such programs or adopt additional restrictions on admissions and more stringent requirements for utilization of services. These types of measures could adversely affect the Company's operations. Although the Target Rates have been increased annually, the Company does not believe these increases have been sufficient to offset inflation in hospital operating costs. Final determination of amounts payable under Medicare and certain Medicaid programs are subject to review and audit. The Company's management believes that adequate provisions have been made for any adjustments that might result from such reviews or audits. Most of the Company's hospitals receive revenues from the CHAMPUS program. CHAMPUS provides payment for civilian medical services rendered to military dependents and retired military personnel. Effective January 1, 1989, CHAMPUS changed its method of reimbursing providers for drug and alcohol treatment services and inpatient psychiatric services. After that date, psychiatric hospitals were classified into two groups, each with different payment methods. The first group, classified as high volume CHAMPUS hospitals, are those hospitals with 25 or more CHAMPUS discharges during federal fiscal year 1988 or any fiscal year thereafter. (The Company has 52 hospitals included within this group.) These hospitals receive a per diem payment, subject to a limitation of $672 per day. The remainder of the Company's psychiatric hospitals are classified as low volume CHAMPUS hospitals. These hospitals receive a per diem based on a wage-adjusted regional rate. Effective October 1, 1991, CHAMPUS patients became subject to annual limits on the number of psychiatric days covered by the CHAMPUS program. Covered inpatient services are generally limited to 30 days for adult acute patients, 45 days for child and adolescent acute patients, and 150 days for residential treatment center patients. These limits have reduced the revenue the Company receives from the CHAMPUS program. The Company's Medicare revenue has been and may in the future be reduced under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended by The Budget Enforcement Act of 1990 and OBRA 93 (the "Budget Acts"). These laws remain in effect through fiscal year 1998, and require that federal spending automatically be reduced in amounts determined by calculations set out in the Budget Acts, if certain requirements relating to the amount of the federal deficit are not met. Under the Budget Acts, Medicare expenditures for a fiscal year can be reduced by no more than 4%. Medicaid funding is exempt from reductions under the Budget Acts. There were no reductions in fiscal 1991, 1992 or 1993. Payment reductions under the Budget Acts, if implemented in future years, could have a material adverse effect on the Company's net revenue. However, because the actual amount of the reduction for any fiscal year may vary according to the federal deficit, the financial impact of the Budget Acts on the Company cannot be predicted. REGULATION AND OTHER FACTORS Operations of hospitals are subject to substantial federal, state and local government regulation. Such regulations provide for periodic inspections or other reviews by state agencies, the United States Department of Health and Human Services (the "Department") and CHAMPUS to determine compliance with their respective standards of medical care, staffing, equipment and cleanliness necessary for continued 44 licensing or participation in the Medicare, Medicaid or CHAMPUS programs. The admission and treatment of patients at the Company's psychiatric hospitals are also subject to substantial state regulation and to federal regulation relating to confidentiality of medical records of drug and alcohol abuse patients. The obtaining of approvals for construction of new hospitals and for renovation of and additions to existing hospitals is subject to various governmental requirements, such as approval of sites and findings of community need for additional hospital facilities and services. In addition, in certain states, as a practical matter, it is necessary to pledge to provide various amounts of uncompensated care to indigent persons in order to obtain a certificate of need. Except for Arizona, Arkansas, California, Colorado, Indiana, Kansas, Louisiana, Nevada, New Mexico, South Dakota, Texas and Utah, all the states in which the Company presently operates hospitals or will operate a hospital following the Acquisition have adopted certificate of need or similar statutes. A certificate of need is issued for a specific maximum expenditure and the holder is required to complete the approved project within a specified time period. Federal law contains numerous provisions designed to insure that services rendered by hospitals to Medicare and Medicaid patients are medically necessary and are of a quality which meets professionally recognized standards and to insure that claims for reimbursement under the Medicare and Medicaid programs are properly filed. Among other things, services provided at the Company's hospitals are subject to periodic review by Peer Review Organizations ("PRO's"). All hospitals which participate in the Medicare program are subject to review by PRO's. PRO activities include reviews of certain admissions and services to determine medical necessity and to determine whether quality of care meets professionally recognized standards. PRO's have the authority to recommend to the Department that a provider who is in substantial noncompliance with the medical necessity and quality of care standards of a PRO or who has grossly and flagrantly violated an obligation to render quality care be excluded from participation in the Medicare program or be required to reimburse the federal government for certain payments previously made to the provider under the Medicare program. The Company's psychiatric hospitals have been subject to and have complied with various forms of utilization review since 1970. The Company has implemented a quality assurance program in each of its hospitals, which includes procedures for utilization review and retrospective patient care evaluation. The Medicare and Medicaid Patient and Program Protection Act of 1987 expanded the authority of the Department to exclude from participation in the Medicare and Medicaid programs those hospitals which engage in defined prohibited activities. The Department is required under this Act to exclude from participation in the Medicare and Medicaid programs any individual or entity that has been convicted of a criminal offense relating to the delivery of services under Medicare and Medicaid or to the neglect or abuse of patients. In addition, the Department has authority to exclude from participation in the Medicare program individuals or hospitals under certain other circumstances. These include engaging in illegal remuneration arrangements with physicians and other healthcare providers, license revocation, exclusion from some other government programs (such as CHAMPUS), filing claims for excess charges or for unnecessary services, failure to comply with conditions of participation and failure to disclose certain required information or to grant proper access to hospital books and records. The Department has authority to impose civil monetary penalties against any participant in the Medicare program which makes claims for payment for services which were not rendered or were rendered by a person or entity not properly licensed under state law. The Department also has authority to impose a penalty of not more than $2,000 for each improperly claimed service and an assessment equal to not more than twice the amount claimed for each service not rendered. Federal law makes it a felony, subject to certain exceptions, for a hospital to make false statements relating to claims for payments under the Medicare program, to engage in illegal remuneration arrangements with physicians and other healthcare providers, to make false statements relating to compliance with the Medicare conditions of participation, or to make false claims for Medicare or Medicaid payments. A number of states have adopted laws that also make illegal under state law certain remuneration and referral arrangements with physicians and other healthcare providers. 45 The laws of certain states prohibit the corporate practice of medicine and limit the scope of relationships between medical practitioners and other parties. Such laws will apply to the Company's acquisition of group psychiatric practices in such states. Under such laws, the Company is prohibited from practicing medicine or exercising control over the provision of medical services. Accordingly, the Company intends to enter into management agreements that will delegate to the Company the performance of administrative management and support functions which are required by physicians. The Company believes that the services it intends to provide to such group practices will not constitute the corporate practice of medicine under applicable state laws. In order to provide guidance to healthcare providers with respect to the statute that makes certain remuneration arrangements between hospitals and physicians and other healthcare providers illegal, the Department, in 1991 and 1992, issued final regulations outlining certain "safe harbor" practices, which, although potentially capable of inducing prohibited referrals of business, would not be subject to enforcement action under the illegal remuneration statute. The practices covered by the regulations include certain investment transactions, lease of space and equipment, personal services and management contracts, certain managed care contracts, sales of physician practices, referral services, warranties, discounts, payments to employees, group purchasing organizations and waivers of beneficiary deductibles and co-payments. Additional proposed safe harbors were published in 1993 by the Department. Certain transactions and agreements of the Company do not satisfy all the applicable criteria contained in the final and proposed safe harbor regulations that relate to such transactions and agreements. However, the Company believes that such transactions and agreements do not violate the statute that makes certain remuneration arrangements illegal. There can be no assurance that (i) government enforcement agencies will not assert that certain of these arrangements are in violation of the illegal remuneration statute or (ii) the statute will ultimately be interpreted by the courts in a manner consistent with the Company's practices. In 1989, Congress passed the Ethics in Patient Referrals Act of 1989, commonly referred to as the Stark Bill ("Stark I"). Stark I prohibited a physician from making a referral for clinical laboratory services for which payment may be made under Medicare, if the physician has a "financial relationship" with the entity to which the patient is referred. Prohibited financial relationships include both ownership and compensation arrangements, but are subject to several exceptions contained in such Act and its implementing regulations. On August 7, 1993, President Clinton signed the Physician Ownership and Referral Act of 1993 ("Stark II"), which expands the list of facilities and services to which Stark I applies, covering virtually all medical services except physician care. Stark II also extends the prohibition to include services reimbursed under Medicaid in addition to Medicare. Stark II extends the statutory provisions to the following services: inpatient and outpatient hospital services, radiology and other diagnostic services, radiation therapy, durable medical equipment, physical and occupational therapy, parenteral and enteral nutrition equipment and supplies, prosthetics and orthotics, home health services, and outpatient prescription drugs. The Act provides for civil sanctions in the event of a violation, including possible exclusion from the Medicare and Medicaid programs. The limitations or referrals contained in Stark II will become effective on January 1, 1995. Regulations implementing the statute are expected to be issued later in 1994. In 1989, CHAMPUS adopted regulations authorizing CHAMPUS to exclude from the CHAMPUS program any provider who has committed fraud or engaged in abusive practices. The regulations permit CHAMPUS to make its own determination of abusive practices without reliance on any actions of the Department. The term "abusive practices" is defined broadly to include, among other things, the provision of medically unnecessary services, the provision of care of inferior quality, and the failure to maintain adequate medical or financial records. A number of states have adopted hospital rate review legislation, which generally provides for state regulation of rates charged for various hospital services. Such laws are in effect in the states of Florida, Maryland and Wisconsin. The Company operates seven hospitals and five of the Target Hospitals are located in Florida. In Florida, the Health Care Board approves a budget for each hospital, which establishes a permitted level of revenues per discharge. If this level of permitted revenues per discharge is exceeded by a hospital in a particular year by more than a specified amount, certain penalties, including cash penalties, can be imposed. Six Target Hospitals are in Maryland. The Maryland Health Services Cost Review Commission 46 establishes all rates for one of such hospitals. One Target Hospital is in Wisconsin, in which rates are reviewed through the certificate-of-need process and rate hearings are subject to local public hearing requirements. In addition to hospital rate review legislation, a number of states have adopted or are considering state healthcare reform legislation generally designed (a) to reduce healthcare costs and insurance premiums and (b) to mandate or encourage universal health coverage. These state legislative initiatives contain a variety of mechanisms to achieve their goals, including formation of purchasing cooperatives, generally similar to the "managed competition" proposals pending in Congress. The Company's acquisition of group practices will also be subject to federal legislation which prohibits activities and arrangements which are designed to provide kickbacks or to induce the referral of business under Medicare and Medicaid programs. Many states have similar laws more broadly prohibiting kickbacks for the referral of any medically related business. Noncompliance with the federal anti-kickback legislation can result in exclusion from Medicare programs and civil and criminal penalties. Civil and criminal penalties are provided for violations of state anti-kickback laws. Statutes and regulations in effect in states other than those in which the Company presently does business may impose requirements on the opening and operation of facilities that are more burdensome than those imposed in states in which the Company currently does business. There can be no assurance that the Company will be able to comply with any such requirements, and, as a result, the expansion of the Company's business into certain other states may be limited. MEDICAL STAFFS AND EMPLOYEES At September 30, 1993, approximately 1,200 licensed physicians were active members of the medical staffs of the Company's hospitals. Many of these physicians also serve on the medical staffs of other hospitals. A number of these physicians serve in administrative capacities in the Company's hospitals. Most of these physicians are independent contractors who have private practices in addition to their duties for the Company, while certain of these physicians are employees of the Company. The medical and professional affairs of each hospital are supervised by the medical staff of the hospital, under the control of its board of trustees. The Company recruits physicians to serve in administrative capacities at psychiatric hospitals and to engage in private practice in communities where the Company's hospitals are located. The Company's agreements with recruited physicians generally provide for, among other things, reimbursement of relocation and office startup expenses and a guarantee of a specified level of physician income during the recruited physician's first year of practice. Registered nurses and certain other hospital employees are required to be licensed under the professional licensing laws of most states. The Company's hospital subsidiaries require such employees to maintain such professional licenses as a condition of employment. At September 30, 1993, the Company had approximately 6,400 full-time and 1,900 part-time employees. The Acquisition will increase the number of the Company's full-time employees by approximately 3,700 and the number of its part-time employees by approximately 2,900. The Company's hospitals have had generally satisfactory labor relations. They have, like most hospitals, experienced a high turnover among their hourly-paid employees and nurses and also experienced rising labor costs. In common with most hospitals, the Company's hospitals in recent years have experienced difficulty in recruiting and retaining registered nurses. LIABILITY INSURANCE Effective June 1, 1993, Plymouth Insurance Company, Ltd. ("Plymouth"), a wholly-owned Bermuda subsidiary of the Company, provides $25 million per occurrence general and hospital professional liability insurance for the Company's hospitals, including professional liability claims for occurrences prior to September 30, 1993, relating to the general hospitals sold on that date. For general hospitals the insurance coverage is subject to a $1.5 million deductible per occurrence. Effective for the policy year beginning on June 1, 1993, the Company eliminated its self-insurance deductible for psychiatric hospitals. Between 80% and 100% of the risk of losses from $1.5 million to $25 million per occurrence has been insured or reinsured with unaffiliated insurers; and the percentage so insured varies by layer. The Company also insures with an 47 unaffiliated insurer 100% of the risk of losses between $25 million and $100 million per occurrence. The Company's general and professional liability coverage is written on a "claims made or circumstances reported" basis. For the five years from June 1, 1988, through May 31, 1993, the Company had a similar general and hospital professional liability insurance program. For those years, the per occurrence deductible for psychiatric and general hospitals (with respect to which the Company was self-insured) was $3 million for the year ended May 31, 1989, $2.5 million for the years ended May 31, 1990 and 1991 and $2 million for the years ended May 31, 1992 and 1993. The Company believes that its coverage limits are adequate. HOSPITAL PROPERTIES The following table provides information relating to the 75 psychiatric hospitals operated by the Company as of March 31, 1994. Each hospital is owned or leased and is operated by a wholly-owned subsidiary of the Company.
DATE OF NUMBER OF ACQUISITION STATE/ LICENSED OR OPENING NAME COUNTRY CITY BEDS BY THE COMPANY - --------------------------------------------- --------------- --------------- --------- -------------- Charter Woods (2)............................ Alabama Dothan 75 June 1980 Charter Academy of Mobile (2)(3)............. Alabama Mobile 72 September 1987 Charter Hospital of Mobile (4)............... Alabama Mobile 84 June 1978 Charter North (2)............................ Alaska Anchorage 80 May 1984 Charter Hospital of East Valley (2).......... Arizona Chandler 80 June 1987 Charter Hospital of Glendale (2)............. Arizona Glendale 90 May 1987 Charter Vista (2)............................ Arkansas Fayetteville 65 March 1983 Charter Hospital of Little Rock (2).......... Arkansas Maumelle 60 May 1990 Charter Hospital of Corona (2)............... California Corona 92 December 1978 Charter Oak (2).............................. California Covina 95 September 1980 Charter Hospital of Long Beach (4)........... California Long Beach 227 January 1980 Charter Hospital of Mission Viejo (2)........ California El Toro 80 April 1990 Charter Hospital of Sacramento (2)........... California Roseville 80 August 1988 Charter Hospital of San Diego (2)............ California San Diego 80 May 1988 Charter Hospital of Thousand Oaks (2)........ California Thousand Oaks 80 March 1990 Charter Clinic Chelsea (4)................... England London 45 July 1980 Charter Nightingale.......................... England London 78 February 1987 Charter Glade (2)............................ Florida Ft. Myers 154 August 1983 Charter Hospital of Jacksonville (2)......... Florida Jacksonville 64 January 1987 Charter Hospital of Orlando-South (2)........ Florida Kissimmee 60 July 1989 Charter Hospital of Pasco (2)................ Florida Lutz 72 March 1990 Charter Hospital of Miami (2)................ Florida Miami 88 October 1986 Charter Springs (2).......................... Florida Ocala 92 October 1985 Charter Hospital of Tampa Bay (2)............ Florida Tampa 146 July 1985 Charter Winds (2)............................ Georgia Athens 80 July 1985 Charter Peachford (2)........................ Georgia Atlanta 224 January 1974 Charter Hospital of Augusta (2).............. Georgia Augusta 63 January 1987 Charter Lake (2)............................. Georgia Macon 118 September 1982 Charter Hospital of Savannah (2)............. Georgia Savannah 112 July 1972 Charter By-the-Sea (2)....................... Georgia St. Simons 101 September 1982 Charter Barclay (2).......................... Illinois Chicago 123 March 1978 Charter Beacon (2)........................... Indiana Fort Wayne 97 September 1985 Charter Hospital of Northwest Indiana (2).... Indiana Hobart 60 January 1990 Charter Hospital of Indianapolis (2)......... Indiana Indianapolis 80 March 1990
48
DATE OF NUMBER OF ACQUISITION STATE/ LICENSED OR OPENING NAME COUNTRY CITY BEDS BY THE COMPANY - --------------------------------------------- --------------- --------------- --------- -------------- Charter Hospital of Lafayette (2)............ Indiana Lafayette 64 September 1986 Charter Hospital of South Bend (2)........... Indiana Granger 60 January 1990 Charter Hospital of Terre Haute (2).......... Indiana Terre Haute 66 March 1988 Charter Hospital of Overland Park (2)........ Kansas Overland Park 80 November 1986 Charter Hospital of Wichita (2).............. Kansas Wichita 80 November 1986 Charter Ridge (2)............................ Kentucky Lexington 110 August 1982 Charter Hospital of Louisville (2)........... Kentucky Louisville 66 October 1978 Charter Hospital of Paducah (2).............. Kentucky Paducah 80 July 1985 Charter Hospital of Lake Charles (2)......... Louisiana Lake Charles 60 July 1985 Charter Forest (2)........................... Louisiana Shreveport 83 July 1985 Charter Hospital of Jackson (2).............. Mississippi Jackson 111 July 1985 Charter Hospital of Columbia (2)............. Missouri Columbia 96 December 1984 Charter Hospital of Las Vegas (2)............ Nevada Las Vegas 84 April 1986 Charter Hospital of Albuquerque (1)(4)....... New Mexico Albuquerque 80 March 1985 Charter Pines (2)............................ North Carolina Charlotte 60 April 1985 Charter Hospital of Greensboro (2)........... North Carolina Greensboro 100 July 1981 Charter Northridge (2)....................... North Carolina Raleigh 85 September 1984 Charter Hospital of Winston-Salem (2)........ North Carolina Winston-Salem 99 July 1981 Charter Hospital of Toledo (2)............... Ohio Maumee 38 September 1990 Charter Fairmount Institute.................. Pennsylvania Philadelphia 169 July 1985 Charter Hospital of Charleston (2)........... South Carolina Charleston 102 January 1990 Charter Hospital of Greenville (2)........... South Carolina Greer 60 August 1989 Charter Rivers (2)........................... South Carolina West Columbia 80 February 1983 Charter Hospital of Sioux Falls (2).......... South Dakota Sioux Falls 60 July 1989 La Metairie Clinic (2)....................... Switzerland Nyon 69 June 1985 Charter Lakeside (2)......................... Tennessee Memphis 204 August 1976 Charter Hospital of Austin (2)............... Texas Austin 108 January 1986 Charter Hospital of Corpus Christi (2)....... Texas Corpus Christi 80 June 1986 Charter Hospital of Ft. Worth (2)............ Texas Ft. Worth 80 January 1987 Charter Hospital of Grapevine (2)............ Texas Grapevine 80 September 1989 Charter Hospital of Kingwood (2)............. Texas Kingwood 80 October 1986 Charter Plains (2)........................... Texas Lubbock 80 February 1984 Charter Palms (2)............................ Texas McAllen 80 May 1983 Charter Hospital of Dallas (2)............... Texas Plano 116 August 1987 Charter Real (2)............................. Texas San Antonio 106 October 1985 Charter Hospital of Sugar Land (2)........... Texas Sugar Land 80 October 1986 Charter Canyon (2)........................... Utah Salt Lake City 62 January 1986 Charter Provo Canyon School (2)(3)........... Utah Provo 210 December 1985 Charter Hospital of Charlottesville (2)...... Virginia Charlottesville 75 July 1985 Charter Westbrook (2)........................ Virginia Richmond 210 April 1970 Charter Hospital of Milwaukee................ Wisconsin West Allis 80 May 1989 - ------------------------------ (1) Leasehold interest is mortgaged. (2) Assets of hospital facility are mortgaged. (3) Licensed as an intensive residential treatment center. (4) A leased hospital facility.
49 All of the Company's hospitals located in the United States have been accredited by the Joint Commission on Accreditation of Healthcare Organizations (the "Joint Commission"). The Joint Commission is a national commission which establishes standards relating to the physical plant, administration, quality of patient care, governing body and medical staffs of hospitals. The Company operates five leased hospitals, including one 150-bed general hospital, not listed above, which is managed by an unaffiliated third party. The lease and the management agreement expire in 1997. The remaining leased hospitals consist of four with terms expiring between 1996 and 2014, and one with a term expiring in 2069. The leases for two hospitals contain options to purchase these hospitals for nominal consideration at the end of their respective lease terms. The Company does not have an option to purchase the other leased hospitals. The Company owns or leases six hospital facilities which are not operated by the Company. These facilities are located in Torrance, California, Ft. Collins, Colorado, Bradenton and West Palm Beach, Florida, Santa Teresa, New Mexico and Pasadena, Texas. Two of the facilities have been leased to other operators, with options to purchase by the lessees, and four are held for sale or lease. Five of the six hospitals are subject to a mortgage. Sixty-nine of the Company's hospitals listed above are subject to mortgages. The stock of substantially all of the domestic subsidiaries of the Company has been pledged as collateral for the New Credit Agreement. The Company owns 11 medical office buildings (with an aggregate of approximately 140,000 square feet), which are located near certain of the Company's hospitals. These buildings have a total of approximately 140 tenants. Five of the Company's medical office buildings are subject to mortgages. The Company is primary lessee of office space for 105 outpatient centers located in 21 states. The leases for these centers aggregate approximately 188,000 square feet of office space, and generally have lease terms of less than five years. The following table provides information relating to the Target Hospitals. Each Target Hospital will be owned by a wholly-owned subsidiary of the Company. Following the Acquisition, the Company intends to sell or close any Target Hospital the continued operation of which is not consistent with the Company's strategy.
NUMBER OF LICENSED BEDS --------------------------------------------- CHEMICAL RESIDENTIAL STATE CITY PSYCHIATRIC DEPENDENCY TREATMENT TOTAL - -------------------- -------------------- ----------- ----------- ----------- ----- Arkansas (5) Texarkana 60 -- -- 60 Arizona (5) Tucson 40 -- 20 60 California (5) Cathedral City 80 -- -- 80 California Lakewood 21 48 21 90 California (5) La Mesa 88 11 -- 99 California Long Beach 80 -- -- 80 California (5) San Jose 80 -- -- 80 California (5) Visalia 64 -- -- 64 California Yorba Linda 80 -- -- 80 Colorado (5) Louisville (1) 72 -- -- 72 Florida (5) Bradenton 60 -- -- 60 Florida Largo 40 -- -- 40 Florida Largo 64 -- -- 64 Florida Orlando 60 20 -- 80 Florida Orlando 40 -- -- 40 Georgia Atlanta 40 -- -- 40 Georgia Atlanta -- -- 102 102 Georgia Smyrna (3) 108 -- -- 108 Georgia Stockbridge 50 -- -- 50
50
NUMBER OF LICENSED BEDS --------------------------------------------- CHEMICAL RESIDENTIAL STATE CITY PSYCHIATRIC DEPENDENCY TREATMENT TOTAL - -------------------- -------------------- ----------- ----------- ----------- ----- Illinois (5) Naperville (2) 92 -- -- 92 Indiana (5) Evansville 60 -- -- 60 Indiana Indianapolis 84 -- -- 84 Indiana Jeffersonville 100 -- -- 100 Indiana (5) Michigan City 89 -- -- 89 Louisiana (5) Lafayette 70 -- -- 70 Maryland (5) Bel Air -- 51 -- 51 Maryland (5) East New Market (3) -- 42 -- 42 Maryland (5) Gambrills -- 60 -- 60 Maryland (5) Rockville (1) 97 -- -- 97 Maryland (5) Rockville (1) -- -- 60 60 Maryland (5) Woolford (3) -- 40 -- 40 Minnesota (5) Waverly -- 40 -- 40 North Carolina (5) Asheville 110 20 9 139 New Hampshire (5) Nashua 80 20 -- 100 New Jersey (5) Lakehurst -- 24 -- 24 New Jersey (5) Summit 122 22 -- 144 Pennsylvania (5) Williamsburg (3) -- 95 -- 95 South Carolina Johns Island (3) 8 41 -- 49 Tennessee Memphis 134 -- -- 134 Texas (5) Webster 106 -- 44 150 Virginia Chesapeake -- 60 -- 60 Virginia (5) Leesburg (4) 77 -- -- 77 Virginia Norfolk 65 -- -- 65 Virginia Richmond 84 -- -- 84 Virginia Virginia Beach (3) 61 -- -- 61 Wisconsin Brown Deer 80 -- -- 80 - ------------------------------ (1) Land lease. (2) Joint venture. (3) Land and building leased. (4) Building leased. (5) Acquired on June 30, 1994.
51 DIVESTITURES AND CLOSINGS In addition to its sale of the general hospitals, since November, 1990, the Company sold or closed twelve psychiatric facilities. The Company leases, with options to purchase by the lessees, two facilities which it previously operated prior to fiscal 1991.
NUMBER OF LOCATION PSYCHIATRIC BEDS DATE CLOSED DATE SOLD (1) - ------------------------------------------------------- ------------------- ------------------- ------------------ SOLD Aurora, CO (6)......................................... 80 November, 1990 July, 1993 Redlands, CA (6)....................................... 89 January, 1991 January, 1991 Tuscon, AR (6)......................................... 60 April, 1991 April, 1991 Newport News, VA (6)................................... 60 March, 1992 March, 1992 Denver, CO (6)......................................... 60 July, 1992 October, 1993 Laredo, TX (6)......................................... 64 March, 1993 December, 1993 Bakersfield, CA........................................ 60 March, 1993 March, 1993 Decatur, AL............................................ 104 July, 1993 July, 1993 LEASED Ft. Collins, CO (6).................................... 60 December, 1990 (2) Santa Teresa, NM (6)................................... 72 June, 1991 (2) CLOSED Torrance, CA (6)....................................... 96 March, 1991 (3) Fountain Valley, CA (6)................................ 120 May, 1992 (4) West Palm Beach, FL (6)................................ 60 September, 1993 (5) Bradenton, FL.......................................... 60 September, 1993 (5) - ------------------------------ (1) Facilities sold for an aggregate sales price of $42.7 million. (2) Facilities leased, with options to purchase by lessees. (3) Leased facility, held for sublease. (4) Leased facility, lease terminated. (5) Held for sale or lease. (6) A non-core facility.
52 INTERNATIONAL OPERATIONS The Company owns and operates two psychiatric hospitals in London, England (a 45-bed hospital and a 78-bed hospital) and a 69-bed psychiatric hospital in Nyon, Switzerland. In July 1991, the Company began managing three psychiatric-substance abuse hospitals in Jeddah, Riyadh and Damman in the Kingdom of Saudi Arabia (with 180 beds each) pursuant to a fixed-price contract for a period of approximately three years. This contract expires during fiscal year 1994 and will not be renewed. These activities do not represent a significant portion of the Company's operations. The Company's international operations also include two wholly-owned insurance subsidiaries in Bermuda. Plymouth provides the insurance coverage described under "Liability Insurance." The second Bermuda subsidiary has not provided any insurance coverage since October 1, 1988. LITIGATION AND OTHER PROCEEDINGS Certain of the Company's subsidiaries are party to general and professional liability claims incident to the ordinary course of their business. In addition, a subsidiary of the Company that operates a psychiatric hospital is subject to a federal investigation of certain of its referral practices. See "-- Regulation and Other Factors." This subsidiary was among the Company's five largest hospitals based on its contribution to EBITDA during fiscal 1993. In the opinion of management, the ultimate resolution of such pending matters will not have a material adverse effect on the Company's financial position or results of operations. The Resolution Trust Corporation ("RTC"), for itself or in its capacity as conservator or receivor for 12 financial institutions, formerly held certain debt securities that were issued by the Company in 1988. RTC has indicated to the Company that it believes that certain financial statements and other disclosures made by the Company in connection with such debt securities contained materially misleading statements or material omissions and that such misleading statements or omissions resulted in an overvaluation of such debt securities. Specifically, the RTC has indicated its belief that the Company's financial statements overstated net income for the 1987 fiscal year and the first three quarters of the 1988 fiscal year due to understatement of contractual allowances and the allowance for bad debts and that the Company believed, but did not disclose, that the factors described under "-- Industry Trends" would occur in the foreseeable future. The Company believes that the financial institutions represented by RTC purchased in 1988 and 1989 $103.4 million face amount of subordinated debt securities originally issued by the Company in September 1988. Although the RTC has not disclosed to the Company its (or its financial institutions') trading losses from the purchases and sales of these subordinated debt securities, the RTC has disclosed the dates purchases and sales were made and the face amounts of the subordinated debt securities involved in these transactions. The Company believes that the trading losses were approximately $45 million. The Company has agreed to a tolling of the statute of limitations applicable to RTC's claims. Based on a review of relevant law and the facts known to the Company, the Company believes it has a substantial defense to a potential claim by RTC and that such claim would not have a material adverse effect on the Company's financial position or results of operations. 53 MANAGEMENT The following table sets forth the name, age, position and other information with respect to the directors and executive officers of Charter.
TERM EXPIRING POSITION WITH COMPANY, PRINCIPAL OCCUPATIONS NAME AND POSITION HELD AGE (FOR DIRECTORS) DURING PAST FIVE YEARS AND OTHER DIRECTORSHIPS - ----------------------------------- --- --------------- -------------------------------------------------------------------- Edwin M. Banks 31 1996 Securities Analyst, W.R. Huff Asset Management Co., L.P. Director (1988-present); Director since July, 1992. E. Mac Crawford 45 1997 Chairman of the Board of Directors, President and Chief Executive Director, Chairman and Chief Officer of the Company (since 1993); President and Chief Operating Executive Officer Officer of the Company (1992-1993); Executive Vice President -- Hospital Operations (1990-1992); Assistant to the President and Chairman (1990); President (1988-1990), Mulberry Street Investment Company; Director since 1990. Andre C. Dimitriadis 53 1995 Chairman and Chief Executive Officer, LTC Properties (a healthcare Director real estate investment trust) (since 1992); Director of Sun Healthcare Group (since 1993); Director of Home Care Management, Inc. (since 1993); Executive Vice President and Chief Financial Officer, Beverly Enterprises, Inc. (nursing homes) (1989-1992); Chief Financial Officer and Director, American Medical International, Inc. (hospitals) (1984-1989); Director since July, 1992. Lawrence W. Drinkard 54 1996 Executive Vice President and Chief Financial Officer (since 1994) of Director, Executive Vice President the Company; Senior Vice President -- Finance (1990-1993); Vice and Chief Financial Officer President (1987-1990); Treasurer (1986-1991); Director since January, 1991. William E. Hale 48 Senior Vice President -- Operations (since 1994) of the Company; Senior Vice President -- Chief Operating Officer of Behavioral Health Resources (1987-1993). Operations Raymond H. Kiefer 66 1997 Retired insurance executive (since 1992); President, Allstate Director Insurance Company (1989-1992); President, Personal Property and Casualty Company (1984-1989) (a subsidiary of Allstate Insurance Company); Director since July, 1992. Gerald L. McManis 57 1997 Chairman of the Board and President (since 1965) of McManis Director Associates, Inc. (strategy development and management consulting firm for healthcare and healthcare related companies); Director of MMI Companies, Inc. (since 1994). Director since February, 1994. C. Clark Wingfield 43 Vice President -- Administrative Services (since 1990); Vice Vice President -- Administrative President -- Human Resources (1990); Senior Executive Director -- Services Compensation and Benefits (1989-1990); Executive Director -- Compensation and Benefits (1987-1989).
54 EXECUTIVE COMPENSATION The following table sets forth, for the three fiscal years ended September 30, 1993, the compensation paid by the Company to the present Chief Executive Officer, the two other most highly compensated present executive officers and the former Chief Executive Officer: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION ---------------------- -------------------- OTHER ANNUAL OPTION/ ALL OTHER FISCAL SALARY COMPENSATION SARS LTIP COMPENSATION NAME AND PRINCIPAL POSITION YEAR ($) BONUS ($) ($)(1) (#)(2) PAYOUTS ($) ($)(3) - --------------------------- ---------- --------- --------- ------------- --------- ----------- ------------- E. Mac Crawford 1993 $ 520,000 $ 293,280 $ 711 -- -- $ 30,049 Chairman of the Board of 1992 500,000 903,650 * 572,990 -- * Directors, President and 1991 362,292 685,305 * -- -- * Chief Executive Officer Lawrence W. Drinkard 1993 350,000 197,400 $ 3,007 -- -- $ 29,806 Executive Vice President 1992 335,000 489,458 * 215,000 -- * and 1991 235,825 365,078 * -- -- * Chief Financial Officer C. Clark Wingfield 1993 225,000 110,790 $ 37,820 -- -- $ 31,000 Vice President -- 1992 215,000 217,975 * 30,000 $ 15,714 * Administrative Services William A. Fickling, Jr. 1993 415,000 -- $ 121,011 -- -- $ 2,474,941 Former Chairman of the 1992 800,000 726,000 * 2,220,336 -- * Board of Directors and 1991 691,696 605,234 * -- -- * Chief Executive Officer - ------------------------------ * Under the rules of the Commission, no disclosure is required for these items in 1992 and 1991. (1) Includes, for Mr. Wingfield, country club dues of $15,998, car allowance of $12,000 and an administrative services allowance of $7,939. The amounts for Messrs. Crawford and Drinkard are for the reimbursement of taxes due to the taxability of certain group life insurance coverages. The amount for Mr. Fickling includes the payment by the Company of tax preparation fees of $100,350. (2) Represents the number of stock options granted under the Company's 1992 Stock Option Plan. (3) Includes, for Mr. Fickling, severance pay of $2,075,000; an Annual Incentive Plan bonus of $242,849, as required by his employment agreement; $113,864 of accrued vacation pay paid to him subsequent to his termination; the book value of his company car of $12,613; ESOP contributions of $28,047; 401K plan contributions of $2,003; and premiums paid for term life insurance of $565. For the current executive officers, includes the following: (a) contributions to ESOP: $27,163, $27,734 and $28,294 for Mr. Crawford, Mr. Drinkard and Mr. Wingfield, respectively; (b) contributions to the Company's 401K Plan of $2,003, $1,144 and $1,969 for Mr. Crawford, Mr. Drinkard and Mr. Wingfield, respectively; and (c) premiums paid for term life insurance of $883, $928 and $737 for Mr. Crawford, Mr. Drinkard and Mr. Wingfield, respectively.
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1993 AND OPTION/SAR VALUES AT SEPTEMBER 30, 1993 The following table provides information related to options exercised by the executive officers during fiscal 1993, and the number and value of options held on September 30, 1993.
VALUE OF UNEXERCISED IN-THE-MONEY NUMBER OF UNEXERCISED OPTIONS/SARS AT OPTION/SARS AT SEPTEMBER 30, 1993 SHARES VALUE SEPTEMBER 30, 1993 ($)(2) ACQUIRED ON REALIZED -------------------------- ------------------------- NAME EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------- ------------- --------- ----------- ------------- ---------- ------------- E. Mac Crawford...................... 10,000 $ 170,775 336,244 229,196 $6,430,541 $ 4,415,461 Lawrence W. Drinkard................. 20,000 337,800 109,300 86,000 2,099,885 1,656,790 C. Clark Wingfield................... 12,000 215,430 6,150 12,000 115,590 231,180 William A. Fickling, Jr. (3)......... -- -- 2,238,861 -- 51,911,456 -- - ------------------------------ (1) Value is calculated based on the difference between the option exercise price and the closing market price of the Common Stock on the date of exercise, multiplied by the number of shares to which the exercise relates. (2) The closing price for the Company's Common Stock as reported by the American Stock Exchange on September 30, 1993 was $23.625. Value is calculated on the basis of the difference between the per share option exercise price (for in-the-money options, the per share option prices are $4.36 for Messrs. Crawford, Drinkard and Wingfield and $0.25 for Mr. Fickling) and $23.625, multiplied by the number of shares of Common Stock underlying the in-the-money options. (3) Chief Executive Officer of the Company until March 4, 1993.
55 EMPLOYMENT AGREEMENTS Upon consummation of the Plan on July 21, 1992, the Company entered into employment agreements with Messrs. Crawford and Drinkard, for terms beginning on July 21, 1992, and ending on September 30, 1995. The agreements provide for base salaries (Mr. Crawford - $500,000 and Mr. Drinkard - $335,000) and for bonuses and life and disability insurance benefits that are competitive with similar benefits for comparable positions within the investor-owned hospital industry. The agreements also provide for severance payments upon termination without cause (including certain constructive termination events), termination due to death or disability and termination due to a change in control of the Company. Upon any such termination, the employee will be paid the greater of his base salary through September 30, 1995 or his base salary for a period of two years and amounts accrued for the employee through the date of termination under the Annual Incentive Plan and other bonus plans, if any. The terms of the two employment agreements were negotiated by the Company and a committee of unsecured creditors prior to consummation of the Plan. DIRECTORS' FEES AND COMPENSATION During fiscal 1993, non-employee directors received annual compensation of $18,000 and a fee of $800 for each Board meeting attended. In addition, non-employee directors were paid $200 for each committee meeting attended ($800 if the committee meeting was not held in conjunction with a Board meeting) and on February 4, 1993, each director was granted an option under the Directors' Stock Option Plan to purchase 25,000 shares of the Company's common stock for an exercise price, which was equal to the fair market value on that date, of $14.56 per share. The Directors' Stock Option Plan is a noncompensatory plan, and therefore no expense was recognized. Effective October 1, 1993, non-employee directors receive annual compensation of $24,000 and a fee of $1,000 for each board meeting or committee meeting attended. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board has an Audit Committee and a Compensation Committee. There is no nominating committee of the Board; nominees for director are selected by the Board of Directors. AUDIT COMMITTEE. Audit Committee members during 1993 were Edwin M. Banks (Chairman) and Raymond H. Kiefer. The Audit Committee recommends to the Board of Directors the engagement of independent auditors of the Company, reviews the scope and results of audits of the Company, reviews the Company's internal accounting controls and the activities of the Company's internal audit staff and reviews the professional services furnished to the Company by its independent auditors. COMPENSATION COMMITTEE. Compensation Committee members during 1993 were Andre C. Dimitriadis (Chairman) and Michael D. Hernandez, whose term as a director expired in February 1994. The Compensation Committee is responsible for establishing the policies relating to and the components of executive officer compensation. 56 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 31, 1994, information concerning ownership of shares of Common Stock by directors and officers.
AMOUNT AND NATURE OF BENEFICIAL PERCENT OF TOTAL NAME OWNERSHIP OUTSTANDING - ------------------------------------------------------- ------------------ ------------------- E. Mac Crawford........................................ 336,876(1) 1.26% Lawrence W. Drinkard................................... 111,046(1) .42% William E. Hale........................................ 3,000(1) (3) C. Clark Wingfield..................................... 6,453(1) (3) Andre C. Dimitriadis................................... 10,000(2) (3) Raymond H. Kiefer...................................... 10,000(2) (3) Edwin M. Banks......................................... 10,500(2) (3) Michael D. Hernandez................................... 10,000(2) (3) Gerald L. McManis...................................... 5,000(2) (3) All directors and executive officers as a group (9 persons)....................... 502,875(4) 1.88% - ------------------------ (1) Includes 336,594, 109,599, 3,000 and 6,201 shares that Mr. Crawford, Mr. Drinkard, Mr. Hale and Mr. Wingfield, respectively, have the present right to acquire upon exercise of options and warrants. (2) Includes 10,000 shares for Mr. Dimitriadis, Mr. Kiefer, Mr. Banks and Mr. Hernandez and 5,000 shares for Mr. McManis that each have the present right to acquire upon the exercise of options. Mr. Hernandez's term as a director of the Company expired in February 1994. (3) Less than .1% of total outstanding. (4) Includes 500,394 shares that the directors and executive officers have the present right to acquire upon exercise of options and warrants.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MANAGEMENT SEVERANCE ARRANGEMENT. On July 21, 1992, the Company entered into an employment agreement with William A. Fickling, Jr., the former Chairman of the Board of Directors of the Company. The agreement provided for severance payments upon termination of his employment without cause. Mr. Fickling's employment was so terminated on March 4, 1993, and the Company recorded severance expense of approximately $2.1 million and paid Mr. Fickling approximately $243,000 in incentive bonus under the terms of the agreement. The $2.1 million severance settlement is being paid to Mr. Fickling in semi-monthly installments through September 1995. Upon consummation of the Plan, the Company implemented the 1992 Stock Option Plan. Mr. Fickling was granted options under the 1992 Stock Option Plan to purchase approximately 2.2 million shares at exercise prices of either $4.36 per share or $9.60 per share. Under the terms of the plan, if Mr. Fickling's employment with the Company were terminated without cause and certain financial targets were satisfied, the option prices would be reduced to $.25 per share and all options would become immediately vested. On March 4, 1993, all of Mr. Fickling's options vested and the option prices were reduced to $.25 per share. As of December 31, 1993, Mr. Fickling exercised all such options. AFFILIATE LEASE ARRANGEMENT. The Company owns 50% of the Charter Medical building in Macon, Georgia, and leases approximately 88,000 square feet of office space in such building for use as its corporate headquarters. The lease, which expires on September 30, 1994, provides for average annual rental payments of approximately $1,189,000 (approximately $13.50 average per square foot per year). Mr. Fickling and his father's estate each own 12.5% of the building. During fiscal 1993, each had an interest of approximately $149,000 in rental payments made by the Company. BEECH STREET. On September 15, 1993, the Company sold its 19.8% ownership interest (plus its right to acquire an additional 9.6% interest for approximately $2 million) in Beech Street of California, Inc. ("Beech Street") to the children of Mr. Fickling for approximately $5.5 million, plus the right to receive additional consideration, if certain events (i.e., a public offering of Beech Street stock or the sale of 50% or more of Beech Street's assets) occur within two years. The Company obtained a fairness opinion by an independent appraisal firm stating that the financial consideration was fair. The Company acquired its ownership interest 57 in Beech Street in a series of related transactions beginning in May, 1989, for a total purchase price of $2,956,000. Beech Street was, prior to May, 1989, a wholly owned subsidiary of Beech Street, Inc., in which Mr. Fickling beneficially owns a majority of the outstanding capital stock. During the period of its ownership, the Company received $1,242,000 in dividend distributions from Beech Street. Beech Street provides, among other things, utilization review services and operates preferred provider organizations ("PPOs") in various states. Under agreements effective January 1, 1991, Beech Street provides utilization review services and PPO services for the Company's self-insured medical plans. The Company paid approximately $124,000 to Beech Street during fiscal 1993 for utilization review services. Beech Street's PPO services permit the Company's employees and their covered dependents to utilize a Beech Street PPO. In fiscal 1993, the Company paid Beech Street a fixed fee per enrolled participant for PPO services (which aggregated approximately $87,000). The Company also has agreements with Beech Street where certain of the Company's hospitals provide services to employers (and their related employee and covered dependent groups) who have entered into agreements with Beech Street to utilize a Beech Street PPO for hospital and other healthcare services. Such agreements provide for covered services to be rendered under terms (including discounts for the hospital's normal charges) which management of the Company believes are customary for hospital PPO agreements. The Beech Street PPO reviews claims and serves as an intermediary between the Company's hospitals and the contracting employers. The Company derived approximately $21.4 million in revenues from these agreements during fiscal 1993. The aggregate discount from customary charges was 12% in fiscal 1993. In fiscal 1993, prior to the sale of Beech Street, Beech Street paid approximately $160,000 in management fees and expense reimbursements to Mulberry Street Investment Company ("Mulberry Street"). Mulberry Street provided senior level management and financial services for Beech Street. Mr. Fickling beneficially owns all of the capital stock of Mulberry Street. MANAGEMENT BUSINESS RELATIONSHIPS. During fiscal 1991 the Company's Board of Directors, with Mr. Fickling abstaining, authorized the payment by the Company of the reasonable legal expenses and out-of-pocket disbursements of the law firms serving as counsel to Mr. Fickling, his family and related trusts and entities in all matters reasonably related to the Restructuring, which services included not only matters relating to ownership of the Company's formerly outstanding Class B Common Stock and Series B, C and D Preferred Stock, but also services relating to other matters that were reasonable and appropriate to resolve or consider in connection with the Restructuring. During fiscal 1993 the Company paid aggregate fees and expenses of approximately $142,000 to such firms for such services. During fiscal 1993 the Company had two agreements in which Fickling & Walker Company, a licensed real estate brokerage firm of which the estate of Mr. Fickling's father owned 50%, represented the Company in the listing of improved parcels of real estate for sale. Fickling & Walker Company received a $48,750 commission from one such sale and, should the remaining parcel be sold at its estimated sales price, would receive $46,500 in additional commission. Gerald L. McManis, who was elected director on February 18, 1994, is the Chairman of the Board, President and owner of 92% of the stock of McManis Associates, Inc. ("MAI"), a healthcare development and management consulting firm. During fiscal 1993, MAI provided consulting services for the Company related to the development of strategic plans and a review of the Company's business processes. The Company incurred $1,003,000 in fees for such services during fiscal 1993, and reimbursed MAI $128,000 for expenses. THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER The Company sold the Old Notes to the Initial Purchasers on April 22, 1994 pursuant to the Purchase Agreement. The Initial Purchasers subsequently resold the Old Notes to "qualified institutional buyers" in reliance on Rule 144A under the Securities Act. As a condition to the Purchase Agreement, the Company entered into the Registration Rights Agreement, pursuant to which the Company agreed, for the benefit of all holders of the Old Notes, that it would, at its expense, (i) as soon as practicable after the initial issuance of the Old Notes, file a registration statement with the Commission with respect to a registered offer to 58 exchange the Old Notes for the New Notes and (ii) use its best efforts to cause such registration statement to be declared effective under the Securities Act by August 31, 1994 and cause the New Notes to be listed on a national securities exchange promptly after the consummation of the Exchange Offer. Charter also agreed that upon effectiveness of the Registration Statement, it would offer to all holders of the Old Notes an opportunity to exchange their securities for an equal principal amount of the New Notes. Further, Charter agreed that it would keep the Exchange Offer open for acceptance for not less than 20 business days, but in no event longer than 30 business days (subject to any extensions required by applicable law) after the date such Registration Statement was declared effective and would comply with Regulation 14E and Rule 13e-4 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the filing requirements of Rule 13e-4). A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The term "Holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Company or any other person who has obtained a properly completed bond power from the registered holder. The Exchange Offer is intended to satisfy certain of the Company's obligations under the Registration Rights Agreement. Based on existing interpretations of the Staff with respect to similar transactions, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided that such New Notes are acquired in the ordinary course of such holders' business and such holders are not engaged in, have no arrangement with any person to participate in, and do not intend to engage in, any public distribution of the New Notes. Each broker or dealer registered as such under Section 15 of the Exchange Act receiving New Notes in the Exchange Offer ("Participating Broker-Dealers") will be subject to a prospectus delivery requirement with respect to resales of such New Notes. Each Participating Broker-Dealer must acknowledge that it will deliver a resale prospectus in connection with any resale of such New Notes. The Letter of Transmittal which accompanies this Prospectus states that by so acknowledging and by delivering a resale prospectus, a Participating Broker-Dealer will not be deemed to admit to be acting in the capacity of an "underwriter" (within the meaning of Section 2(11) of the Securities Act). This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company has agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such New Notes for a period of 180 days from the date on which the Registration Statement of which this Prospectus is a part is first declared effective. Each holder of the Old Notes who wishes to exchange its Old Notes for New Notes in the Exchange Offer will be required to make certain representations to the Company in the accompanying Letter of Transmittal, including that (i) any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in a public distribution (within the meaning of the Securities Act) of the New Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act of the Company, or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. In addition, each holder who is not a broker-dealer will be required to represent that it is not engaged in, and does not intend to engage in, a public distribution of the New Notes. Each Participating Broker-Dealer who receives New Notes for its own account in exchange for Old Notes that were acquired by it as a result of market-making or other trading activities, will be required to acknowledge that it will deliver this Prospectus in connection with any resale by it of such New Notes. As a result of both the filing and the effectiveness of the Registration Statement of which this Prospectus forms a part and to the extent the Exchange Offer is consummated prior to August 31, 1994, certain prospective increases in the per annum interest rate of the Old Notes provided for in the Registration Rights Agreement will not occur. Accordingly, subject to the aforementioned interpretations of the Staff with respect to the free transferability of the New Notes received by holders in exchange for their Old Notes pursuant to the Exchange Offer and, as set forth in such interpretations, the ability of certain holders to 59 participate in the Exchange Offer, holders of Old Notes otherwise eligible to participate in the Exchange Offer and receive pursuant thereto freely tradeable New Notes but who elect not to tender their Old Notes for exchange, will not have any further registration rights under the Registration Rights Agreement and the Old Notes not so exchanged will remain "restricted securities" (within the meaning of the Securities Act) and subject to restrictions on transfer under the Securities Act. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal (together, the "Exchange Offer"), the Company will accept for exchange and exchange any and all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date. The Company will issue $1,000 principal amount of New Notes in exchange for each $1,000 principal amount of outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or all of their Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered only in integral multiples of $1,000. The form and terms of the New Notes are the same as the form and terms of the Old Notes except that (i) the New Notes have been registered under the Securities Act and will not bear legends restricting the transfer thereof, (ii) the holders of the New Notes will not be entitled to certain rights under the Registration Rights Agreement, which rights will terminate when the Exchange Offer is terminated and (iii) the New Notes have been given a series designation to distinguish the New Notes from the Old Notes. The New Notes will evidence the same debt as the Old Notes and will be entitled to the benefits of the Indenture. As of the date of this Prospectus, all $375,000,000 outstanding principal amount of the Old Notes were evidenced by global securities, registered in the name of CEDE & Co., as nominee for DTC, and held by Marine Midland Bank as securities custodian for CEDE & Co. As indicated elsewhere in this Prospectus, the Old Notes have been included in the PORTAL Market for trading among "qualified institutional buyers" pursuant to Rule 144A under the Securities Act. For purposes of administration, the Company has fixed the close of business on , 1994 as the record date for the Exchange Offer for purposes of determining the persons to whom this Prospectus and the accompanying Letter of Transmittal will be mailed initially. There will be no fixed record date for determining generally registered holders of Old Notes entitled to participate in the Exchange Offer. Holders of Old Notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware or the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with Regulation 14E and Rule 13e-4 under the Exchange Act (other than the filing requirements of Rule 13e-4). The Company shall be deemed to have accepted validly tendered Old Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering Holders for the purpose of receiving the New Notes from the Company. If any tendered Old Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein under "--Conditions" or otherwise, the certificates for any such unaccepted Old Notes will be returned, without expense, to the tendering Holder thereof as promptly as practicable after the Expiration Date. See "--Procedures for Tendering." Holders who tender Old Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the Exchange Offer. See "-- Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on , 1994, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. 60 In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will mail to the registered Holders an announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Old Notes, to extend the Exchange Offer or to terminate the Exchange Offer if any of the conditions set forth below under "-- Conditions" shall not have been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered Holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered Holders, and the Company will extend the Exchange Offer, in accordance with applicable rules of the Commission and published interpretations of the Staff, for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered Holders, if the Exchange Offer would otherwise expire during such five to ten business day period. Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. INTEREST ON THE NEW NOTES Each New Note will bear interest from its date of original issuance. Holders of Old Notes that are accepted for exchange and exchanged for New Notes will receive, in cash, accrued interest thereon to, but not including, the original issuance date of the New Notes. Such interest will be paid on the first interest payment date for the New Notes. Interest on the Old Notes accepted for exchange and exchanged in the Exchange Offer will cease to accrue on the date next preceding the date of original issuance of the New Notes. The New Notes will bear interest (as do the Old Notes) at a rate per annum of 11 1/4%, which interest will be payable semi-annually on each April 15 and October 15, commencing on October 15, 1994. PROCEDURES FOR TENDERING Only a Holder of Old Notes may participate in the Exchange Offer. The tender to the Exchange Agent of Old Notes by a Holder thereof as set forth below and the acceptance thereof by the Company will constitute a binding agreement between the tendering Holder and the Company upon the terms and subject to the conditions set forth in this Prospectus and in the accompanying Letter of Transmittal. Except as set forth below, a Holder who wishes to tender Old Notes for exchange pursuant to the Exchange Offer must transmit a properly completed and duly executed Letter of Transmittal, including all other documents required by such Letter of Transmittal, to the Exchange Agent at one of the addresses set forth below under "Exchange Agent" on or prior to the Expiration Date. In addition, either (i) certificates for such Old Notes must be received by the Exchange Agent together with the Letter of Transmittal or (ii) a timely Book-Entry Confirmation (as hereinafter defined) of such Old Notes, if such procedure is available, into the Exchange Agent's account at the Depositary (the "Book Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply with the guaranteed delivery procedures described below. By executing the accompanying Letter of Transmittal, each Holder will thereby make to the Company the representations set forth above in the third paragraph under the heading "-- Purpose and Effect of the Exchange Offer." The tender by a Holder and the acceptance thereof by the Company will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the accompanying Letter of Transmittal. THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT 61 TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTE SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered Holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. See "Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Old Notes tendered pursuant thereto are tendered (i) by a registered Holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered Holder of any Old Notes listed therein, such Old Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered Holder as such registered Holder's name appears on such Old Notes with the signature thereon guaranteed by an Eligible Institution. If the Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and DTC have confirmed to the Company that any financial institution that maintains a direct account with DTC (a "Participant") may utilize DTC's Automated Tender Offer Program ("ATOP") to tender Old Notes for exchange in the Exchange Offer. The Exchange Agent will request that DTC establish an account with respect to the Old Notes for purposes of the Exchange Offer within two business days after the date of this Prospectus. Any Participant may effect book-entry delivery of Old Notes by causing DTC to record the transfer of the tendering Participant's beneficial interests in the global Old Notes into the Exchange Agent's account in accordance with DTC's ATOP procedures for such transfer. However, the exchange of New Notes for Old Notes so tendered only will be made after timely confirmation (a "Book-Entry Confirmation") of such book-entry transfer of Old Notes into the Exchange Agent's account, and timely receipt by the Exchange Agent of an Agent's Message (as defined below) and any other documents required by the Letter of Transmittal. The term "Agent's Message" as used herein means a message, transmitted by DTC and received by the Exchange Agent and forming part of a Book-Entry Confirmation, which states that DTC has received an express acknowledgment from a Participant tendering Old Notes for exchange which are the subject of such Book-Entry Confirmation that such Participant has received and agrees to be bound by the terms and conditions of the Letter of Transmittal, and that the Company may enforce such agreement against such Participant. All questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Old Notes not properly tendered or any Old Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and 62 binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as the Company shall determine. Although the Company intends to notify Holders of defects or irregularities with respect to tenders of Old Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering Holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the Expiration Date. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available, (ii) who cannot deliver their Old Notes, the Letter of Transmittal or any other required documents to the Exchange Agent or (iii) who cannot complete the procedures for book-entry transfer, prior to the Expiration Date, may effect a tender if: (a) the tender is made through an Eligible Institution; (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the Holder, the certificate number(s) of such Old Notes and the principal amount of Old Notes tendered, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange trading days after the Expiration Date, the Letter of Transmittal (or facsimile thereof) together with the certificate(s) representing the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) such properly completed and executed Letter of Transmittal (or facsimile thereof), as well as the certificate(s) representing all tendered Old Notes in proper form for transfer (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility), and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their Old Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. To withdraw a tender of Old Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including the certificate number(s) and principal amount of such Old Notes, or, in the case of Old Notes transferred by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited), (iii) be signed by the Holder in the same manner as the original signature on the Letter of Transmittal by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the Trustee with respect to the Old Notes register the transfer of such Old Notes into the name of the person withdrawing the tender and (iv) specify the name in which any such Old Notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes which have been tendered but which are not accepted for exchange, will be returned to the Holder thereof without cost to such Holder as soon as practicable after withdrawal, 63 rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described above under " -- Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange New Notes for, any Old Notes, and may terminate or amend the Exchange Offer as provided herein before the acceptance of such Old Notes, if: (a) any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offer which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or any material adverse development has occurred in any existing action or proceeding with respect to the Company or any of its subsidiaries; or (b) any change, or any development involving a prospective change, in the business or financial affairs of the Company or any of its subsidiaries has occurred which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer; or (c) any law, statute, rule, regulation or interpretation by the Staff is proposed, adopted or enacted, which, in the sole judgment of the Company, might materially impair the ability of the Company to proceed with the Exchange Offer or materially impair the contemplated benefits of the Exchange Offer to the Company; or (d) any governmental approval has not been obtained, which approval the Company shall, in its sole discretion, deem necessary for the consummation of the Exchange Offer as contemplated hereby. If the Company determines in its sole discretion that any of the conditions are not satisfied, the Company may (i) refuse to accept any Old Notes and return all tendered Old Notes to the tendering Holders, (ii) extend the Exchange Offer and retain all Old Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of Holders to withdraw such Old Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Old Notes which have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered Holders, and the Company will extend the Exchange Offer, in accordance with applicable rules of the Commission and published interpretation of the Staff, for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered Holders, if the Exchange Offer would otherwise expire during such five to ten business day period. EXCHANGE AGENT Marine Midland Bank has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notices of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: Marine Midland Bank Corporate Trust Operations 140 Broadway - "A" Level New York, New York 10005-1180 Telephone: (212) 658-6433 Facsimile: (212) 658-6425 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers or others soliciting acceptances of the Exchange Offer. The Company, 64 however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith and will reimburse the Holders of the Old Notes for the reasonable fees and expenses of not more than one firm of counsel designated by the holders of a majority in principal amount of the Old Notes outstanding within the meaning of the Indenture to act as counsel for all Holders of Old Notes in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company. Such expenses include fees and expenses of the Exchange Agent and Trustee, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange Offer. If, however, certificates representing New Notes or Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered Holder of the Old Notes tendered, or if tendered Old Notes are registered in the name of any person other than the person signing the Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered Holder or any other persons) will be payable by the tendering Holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering Holder. ACCOUNTING TREATMENT The New Notes will be recorded at the same carrying value as the Old Notes, which is face value, as reflected in the Company's accounting records on the date of the exchange. Accordingly, no gain or loss for accounting purposes will be be recognized. TERMINATION OF CERTAIN RIGHTS Holders of the New Notes will not be entitled to the benefits of the Registration Rights Agreement, pursuant to which the Company agreed, for the benefit of holders of the Old Notes, that it would, at its expense, (i) as soon as practicable after the initial issuance of the Old Notes, file a registration statement with the Commission with respect to a registered offer to exchange the Old Notes for the New Notes and (ii) use its best efforts to cause such registration statement to be declared effective under the Securities Act by August 31, 1994 and to cause the New Notes to be listed on a national securities exchange promptly after the consummation of the Exchange Offer. In addition, pursuant to the Registration Rights Agreement, in the event that applicable interpretations of the Staff do not permit the Company to effect the Exchange Offer or if for any other reason the Exchange Offer is not consummated by August 31, 1994, or if the Initial Purchasers so request with respect to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer or if any holder of Old Notes is not eligible to participate in the Exchange Offer or does not receive freely tradeable New Notes in the Exchange Offer, the Company will, at its expense, (a) promptly file a shelf registration statement (a "Shelf Registration Statement") permitting resales from time to time of the Old Notes, (b) use its best efforts to cause such registration statement to become effective and (c) use its best efforts to keep such registration statement current and effective until three years from the date it becomes effective or such shorter period that will terminate when all the Old Notes covered by such registration statement have been sold pursuant thereto. The Company, at its expense, will provide to each holder of the Old Notes copies of the prospectus that is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted resales of the Old Notes from time to time. A holder of Old Notes who sells such Old Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement which are applicable to such holder (including certain indemnification obligations). In the event that the Exchange Offer is not consummated pursuant to its terms or the Shelf Registration Statement is not declared effective on or prior to August 31, 1994, the interest rate borne by the Old Notes shall be increased by 50 basis points per annum following such date. Such interest rate will increase by an 65 additional 25 basis points per annum at the beginning of each subsequent 60-day period, up to a maximum aggregate increase of 150 basis points per annum. Upon the consummation of the Exchange Offer or the effectiveness of the Shelf Registration Statement, as the case may be, the interest rate borne by the Old Notes will be reduced from and including the date on which either event occurs by the amount of any such increase over 11 1/4%. See "-- Resales of the New Notes" and "-- Consequences of Failure to Exchange." CONSEQUENCES OF FAILURE TO EXCHANGE The Old Notes that are not exchanged for New Notes pursuant to the Exchange Offer will remain "restricted securities" (within the meaning of the Securities Act). Accordingly, prior to the date that is three years after the later of the date of the original issue thereof and the last date on which the Company or any affiliate of the Company was the owner of such Old Notes (the "Resale Restriction Termination Date"), such Old Notes may be resold only (i) to the Company, (ii) to a person whom the seller reasonably believes is a "qualified institutional buyer" purchasing for its own account or for the account of another "qualified institutional buyer" in compliance with the resale limitations of Rule 144A, (iii) to an "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) that is an institution (an "Institutional Accredited Investor") that, prior to such transfer, furnishes to the Trustee a written certification containing certain representations and agreements relating to the restrictions on transfer of the Notes (the form of which letter can be obtained from the Trustee), (iv) pursuant to the limitations on resale provided by Rule 144 under the Securities Act (if available), (v) pursuant to the resale provisions of Rule 904 of Regulation S under the Securities Act, (vi) pursuant to an effective registration statement under the Securities Act or (vii) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such account be at all times within its control and to compliance with applicable state securities laws. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. RESALES OF THE NEW NOTES With respect to resales of New Notes, based on existing interpretations of the Staff, the Company believes that the New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act; provided such New Notes are acquired in the ordinary course of such holders' business and such holders have no arrangement with any person to participate in any public distribution of the New Notes. Each Participating Broker-Dealer receiving New Notes in the Exchange Offer will be subject to a prospectus delivery requirement with respect to resales of such New Notes. Each Participating Broker-Dealer must acknowledge that it will deliver a resale prospectus in connection with any resale of such New Notes. The Letter of Transmittal which accompanies this Prospectus states that by so acknowledging and by delivering a resale prospectus, a Participating Broker-Dealer will be deemed not to be acting in the capacity of an "underwriter" (within the meaning of Section 2(11) of the Securities Act). This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes where such Old Notes were acquired by such Participating Broker-Dealer as result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company has agreed to permit Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use this Prospectus in connection with the resale of such New Notes for a period of 180 days from the date on which the Registration Statement of which this Prospectus is a part is first declared effective. Each holder of the Old Notes who wishes to exchange its Old Notes for New Notes in the Exchange Offer will be required to make certain representations to the Company in the accompanying Letter of Transmittal, including that (i) any New Notes to be received by it will be acquired in the ordinary course of its business, (ii) it has no arrangement with any person to participate in a public distribution (within the meaning of the Securities Act) of the New Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of the Securities Act of the Company, or if it is such an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable to it. In addition, each holder who is not a broker-dealer will be required to represent that it is not engaged in, and does not intend to 66 engage in, a public distribution of the New Notes. Each Participating Broker-Dealer who receives New Notes for its own account in exchange for Old Notes that were acquired by it as a result of market-making or other trading activities, will be required to acknowledge that it will deliver a prospectus in connection with any resale by it of such Old Notes. For a description of the procedures for certain resales by broker-dealers, see "Plan of Distribution." PLAN OF DISTRIBUTION Each Participating Broker-Dealer that holds Old Notes that were acquired for its own account as a result of market-making or other trading activities (other than Old Notes acquired directly from the Company), may exchange such Old Notes for New Notes pursuant to the Exchange Offer. However, a Participating Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Securities Act and, therefore, will be required to deliver a prospectus satisfying the requirements of the Act in connection with any resales by it of such New Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of New Notes received in exchange for Old Notes in satisfaction of such prospectus-delivery requirement. The delivery by a Participating Broker-Dealer of this Prospectus in connection with resales of New Notes shall not be deemed to be an admission by such Participating Broker-Dealer that it is an "underwriter" within the meaning of the Act. The Company has agreed that it shall cause the Registration Statement of which this Prospectus is a part to remain current and continuously effective for a period of 180 days from the date on which such Registration Statement was first declared effective and that it shall supplement or amend from time to time this Prospectus to the extent necessary to permit this Prospectus (as so supplemented or amended) to be delivered by Participating Broker-Dealers in connection with their resales of New Notes. The Company will not receive any proceeds from any sale of New Notes by Participating Broker-Dealers or otherwise. New Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the New Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through dealers who may receive compensation in the form of commissions, concessions or allowances from any such Participating Broker-Dealer and/or the purchasers of any such New Notes. Any Broker-Dealer that resells New Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such New Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of New Notes and any commissions, concessions or allowances received by any such persons may be deemed to be underwriting compensation under the Securities Act. The accompanying Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period 180 days from the date on which the Registration Statement of which this Prospectus is a part is first declared effective, the Company will deliver to each holder of New Notes, without charge, as many copies of this Prospectus and any amendment or supplement to this Prospectus as such person may reasonably request. The Company has agreed to pay all expenses incident to the Exchange Offer other than commissions, concessions or allowances of any brokers or dealers and certain transfer taxes and will indemnify the holders of the New Notes (including any Participating Broker-Dealers) against certain liabilities, including liabilities under the Securities Act, or to the extent such indemnification is unavailable or insufficient, to contribute to any payments that such Participating Broker-Dealers may be required to make in respect thereof. 67 DESCRIPTION OF THE NEW NOTES GENERAL The New Notes will be issued under the Indenture, dated May 2, 1994, among the Company, the Guarantors and Marine Midland Bank, as trustee (the "Trustee"), pursuant to which the Old Notes were issued. For purposes of the following summary, the Old Notes and the New Notes shall be collectively referred to as the "Notes." The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and in effect on the Closing Date. The Notes are subject to all such terms, and holders of the Notes are referred to the Indenture and the Trust Indenture Act for a statement thereof. The following summary of certain provisions of the Indenture does not purport to be complete and is qualified in its entirety by reference to the Indenture, including the definitions therein of certain terms used below. A copy of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. The definitions of certain terms used in the following summary are set forth below under "Certain Definitions." Copies of the Indenture will be made available to prospective purchasers of the Notes upon request. The Notes will be general unsecured obligations of the Company, subordinate in right of payment to all Senior Indebtedness of the Company, and senior or PARI PASSU in right of payment to all existing and future subordinated Indebtedness of the Company. SUBSIDIARY GUARANTEES The Company's payment obligations under the Notes are jointly and severally guaranteed by the Guarantors. The obligations of each Guarantor under its Guarantee are full, unconditional and absolute, irrespective of any invalidity, illegality, unenforceability of any Note or the Indenture or any extension, compromise, waiver or release in respect of any obligation of the Company or any other Subsidiary Guarantor under any Note or the Indenture, or any modification or amendment of or supplement to the Indenture. The obligations of any Guarantor under its Guarantee are subordinated, to the same extent as the obligations of the Company in respect of the Notes, to the prior payment in full in cash of all Senior Indebtedness of such Guarantor, which will include any guarantee issued by such Guarantor of any Senior Indebtedness, including Indebtedness under the New Credit Agreement. The obligations of each Guarantor under its Guarantee are limited to the extent necessary to ensure that such Guarantee does not constitute a fraudulent conveyance under applicable law. See "Risk Factors -- Dependence on Distributions from Subsidiaries." Each Guarantor that makes a payment or distribution under its Guarantee shall be entitled to a contribution from each other Guarantor so long as exercise of such right does not impair the rights of holders of Notes under any Guarantee. A Guarantor shall be released and discharged from its obligations under its Guarantee under certain limited circumstances, including (i) upon the sale or dissolution of such Guarantor, (ii) upon the consummation of any transaction whereupon such Guarantor becomes a Permitted Joint Venture, and (iii) upon the consummation of any transaction whereupon the Company's and its Restricted Subsidiaries' Investment in such Guarantor constitutes a Permitted Minority Interest. Separate financial statements of the Guarantors are not included herein because such Guarantors are jointly and severally liable with respect to the Notes, and the Company believes that separate financial statements of the Guarantors are not material to investors and that the condensed consolidating financial information presented elsewhere in this Prospectus with respect to the Guarantors is more meaningful information in understanding the financial position of the Guarantors. PRINCIPAL, MATURITY AND INTEREST The Notes are limited in aggregate principal amount to $375 million and will mature on April 15, 2004. Interest on the Notes will accrue at the rate of 11 1/4% per annum and will be payable semi-annually on each April 15 and October 15, commencing on October 15, 1994, to the holder of record on the immediately preceding April 1 and October 1, whether or not a business day. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance. Interest will be computed on the basis of a 360-day year, comprised of twelve 30-day months. The Notes will be payable both as to principal and interest at the office or agency of the Company maintained for such purpose within the City of New York, Borough of Manhattan or, at the option of the Company, payment of 68 interest may be made by check mailed to the holders of the Notes at their respective addresses set forth in the register of holders of Notes. Unless otherwise designated by the Company, the Company's office or agency maintained for such purpose in the City of New York, Borough of Manhattan will be the office of the Trustee. The Notes will be issued in denominations of $1,000 and integral multiples thereof. OPTIONAL REDEMPTION The Notes are not redeemable at the option of the Company prior to April 15, 1999. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as a percentage of the principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning April 15 of the years indicated below:
REDEMPTION YEAR PRICES - ------------------------------------------------------------- ----------- 1999......................................................... 105.625% 2000......................................................... 103.750% 2001......................................................... 101.875% 2002 and thereafter.......................................... 100.000%
SINKING FUND The Notes are not subject to the benefit of any sinking fund. SELECTION AND NOTICE If less than all of the Notes are to be redeemed at any time, selection of the Notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, provided that Notes shall be redeemed in principal amounts of $1,000 or integral multiples thereof. Notice of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at its registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption. CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder of the Notes shall have the right to require the repurchase of such holder's Notes in whole or in part pursuant to the offer described below (the "Change of Control Offer") at a purchase price equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. Within 10 days following any Change of Control, the Company shall mail a notice to the Trustee and to each holder stating: (i) that the Change of Control Offer is being made pursuant to the "Change of Control" provision of the Indenture and that all Notes tendered and not subsequently withdrawn will be accepted for payment and paid for by the Company; (ii) the purchase price and the purchase date (which shall not be less than 30 days nor more than 60 days after the date such notice is mailed) (the "Change of Control Payment Date"); (iii) that any Note not tendered will continue to accrue interest and shall continue to be governed by the terms of the Indenture in all respects; (iv) that, unless the Company defaults in the payment thereof, all Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; (v) that holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes to be purchased to the Paying Agent at the address specified in the notice prior to the close of business on the business day next preceding the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their election on the terms and conditions set forth in such notice; and (vii) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each such new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On (or, in the case of clause (ii) of this paragraph, at the Company's election, before) the Change of Control Payment Date, the Company shall (i) accept for payment all Notes or portions thereof tendered and 69 not theretofore withdrawn, pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent immediately available funds sufficient to pay the purchase price of all Notes or portions thereof accepted for payment, and (iii) deliver or cause to be delivered to the Trustee all Notes so tendered, together with an officer's certificate specifying the Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Notes so tendered payment in an amount equal to the purchase price for such Notes, and the Trustee shall promptly authenticate and mail to such holder one or more certificates evidencing new Notes equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be in a principal amount of $1,000 or integral multiples thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Company will comply with the requirements of Regulation 14E and Rule 13e-4 (other than the filing requirements of such rule) under the Exchange Act, and any other securities laws and regulations thereunder that are applicable in connection with the repurchase of the Notes resulting from a Change of Control. SUBORDINATION The Indebtedness evidenced by the Notes (including, without limitation, principal, premium, if any, and interest) will be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any distribution to creditors upon any liquidation, dissolution, winding up, bankruptcy, reorganization, assignment for the benefit of creditors, marshalling of assets and liabilities, insolvency, receivership or similar proceedings relating to the Company, the holders of Senior Indebtedness will be entitled to receive payment in full of all obligations with respect to Senior Indebtedness before the holders of Notes receive any direct or indirect payment (excluding certain permitted equity or subordinated securities) on account of principal of, premium, if any, or interest on the Notes. Upon the final maturity of any Specified Senior Indebtedness by lapse of time, acceleration (unless waived, rescinded or annulled) or otherwise, all principal thereof and accrued and unpaid interest thereon and all accrued and unpaid expenses, fees and other amounts in respect thereof, shall first be paid in full in Cash, or such payment duly provided for in Cash or in a manner otherwise satisfactory to the holders of such Specified Senior Indebtedness, before any direct or indirect payment (excluding certain permitted equity or subordinated securities) is made on account of principal of, premium, if any, or interest on the Notes (other than amounts already deposited for defeasance or redemption pursuant to applicable provisions of the Indenture). The Company may not directly or indirectly pay principal of, premium, if any, or interest on the Notes and may not acquire or defease any Notes for Cash or property (in each case, excluding certain permitted equity or subordinated securities) if (i) a default in the payment of principal of or interest on any Specified Senior Indebtedness or in the payment of any letter of credit commission under the New Credit Agreement occurs and is continuing that permits, or upon the lapse of time would permit, the holders (or their agent) of such Specified Senior Indebtedness to accelerate its maturity or the maturity of which has been accelerated (a "Payment Default"); or (ii) a default, other than a Payment Default, on any Specified Senior Indebtedness occurs and is continuing that permits the holders (or the agent) of such Specified Senior Indebtedness to accelerate its maturity (a "Non-Payment Default"), and such default is either the subject of judicial proceedings or the Trustee or the Paying Agent receives a notice of the default from a Person who may give it pursuant to the terms of the Indenture. The Trustee in making any payment to the holders shall be entitled to assume that no Payment Default or Non-Payment Default has occurred unless it has received written notice to the contrary at least one business day prior to such payment. A Payment Default or Non-Payment Default with respect to Specified Senior Indebtedness does not suspend the rights of the Trustee or the holders of the Notes to accelerate the maturity of the Notes. See "Events of Default and Remedies." The Trustee or the Paying Agent shall resume payments on the Notes, and the Company may acquire the Notes, upon the earlier of (a) in the case of a Payment Default, the date such Payment Default is cured or waived, or (b) in the case of a Non-Payment Default, the 179th day after receipt of notice if the default is not the subject of judicial proceedings, if otherwise permitted under the terms of the Indenture at that time. During any consecutive 360-day period, only one such 179-day period may commence during which payment of principal of or interest on the Notes may not be made. No Non-Payment Default with respect to Specified 70 Senior Indebtedness which existed or was continuing on the date of the commencement of any such 179-day period will be, or can be, made the basis for the commencement of a second such 179-day period, whether or not within a period of 360 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days. As of May 31, 1994, the aggregate outstanding principal amount of Senior Indebtedness of the Company and the Guarantors was approximately $147.3 million. CERTAIN COVENANTS LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, (i) declare or pay any dividend or make any distribution on account of the Company's or any of its Restricted Subsidiaries' Capital Stock or other Equity Interests (other than dividends or distributions payable to the Company or any of its Restricted Subsidiaries or payable in shares of Capital Stock or other Equity Interests of the Company other than Redeemable Stock), (ii) purchase, repurchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company or any of its Subsidiaries from any Person (other than from the Company or any of its Restricted Subsidiaries); (iii) purchase, repurchase, redeem, prepay, defease, or otherwise acquire or retire for value (A) any Indebtedness of the Company that is subordinated in right of payment to the Notes or the Guarantees thereof, prior to scheduled maturity, repayment or sinking fund payment or (B) any Indebtedness of any Unrestricted Subsidiary or (iv) make Investments other than Permitted Investments (the foregoing actions set forth in clauses (i) through (iv) being referred to as "Restricted Payments"), if: (a) at the time of such Restricted Payment, a Default or Event of Default shall have occurred and be continuing or shall occur as a consequence thereof; or (b) such Restricted Payment, together with the aggregate of all other Restricted Payments made on or after the Closing Date exceeds the sum of (A) $30 million, (B) 50% of the Consolidated Net Income of the Company accrued on a cumulative basis for the period beginning on the first day of the first month following the Closing Date and ending on the last day of the last month immediately preceding the month in which such Restricted Payment occurs (or, if aggregate cumulative Consolidated Net Income for such period is a deficit, minus 100% of such deficit), (C) 100% of the aggregate net cash proceeds received by the Company after the Closing Date from the issuance or sale of Capital Stock or other Equity Interests of the Company (other than such Capital Stock or other Equity Interests issued or sold to a Subsidiary of the Company and other than Redeemable Stock), (D) the aggregate net cash proceeds received on or after the Closing Date by the Company from the issuance or sale of debt securities of the Company that have subsequently been converted into or exchanged for Capital Stock or other Equity Interests of the Company (other than Redeemable Stock) plus the aggregate Cash received by the Company at the time of such conversion or exchange, (E) 100% of the aggregate Cash received by the Company after the Closing Date upon the exercise of options or warrants (whether issued prior to or after the Closing Date) to purchase the Company's Capital Stock and (F) 100% of the aggregate net cash proceeds received by the Company or any Restricted Subsidiary from its Unrestricted Subsidiaries after the Closing Date on account of the return of Investments (other than the return of Permitted Investments in Unrestricted Subsidiaries) in such Unrestricted Subsidiaries; or (c) immediately after such Restricted Payment, the Company would not be permitted to incur $1.00 of additional Indebtedness pursuant to the first paragraph of "-- LIMITATION ON ADDITIONAL INDEBTEDNESS" below. The foregoing provisions will not prohibit (i) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; (ii) to the extent required under applicable law, or if the failure to do so would create a material risk of disqualification of the ESOP under the Internal Revenue Code, the acquisition by the Company of its common stock from the ESOP or from participants and beneficiaries of the ESOP; (iii) the 71 acquisition by the Company or any of its Restricted Subsidiaries of Equity Interests of the Company or such Restricted Subsidiary, if the exclusive consideration for such acquisition is the issuance by the Company or such Restricted Subsidiary of its Equity Interests; (iv) the purchase, redemption or acquisition by the Company, for nominal consideration, of rights under the Rights Plan prior to such time as such rights have become exercisable; (v) the redemption, repurchase, acquisition or retirement of Indebtedness of the Company or its Restricted Subsidiaries being concurrently refinanced by Refinancing Indebtedness permitted under "-- LIMITATION ON ADDITIONAL INDEBTEDNESS" below; (vi) the purchase, repayment, redemption, prepayment, defeasance, acquisition or retirement of any Indebtedness, if the exclusive consideration therefor is the issuance by the Company of its Equity Interests; (vii) the redemption, repurchase, acquisition or retirement of Equity Interests in a Permitted Joint Venture, provided that (A) after giving effect to such transaction, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) if consideration for such transaction is in excess of $5 million, such transaction is approved by a majority of the Disinterested Directors of the Company and (D) if consideration for such transaction is in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that such transaction is fair to the Company, from a financial point of view; (viii) dividend payments to the holders of minority interests in Permitted Joint Ventures, ratably in accordance with their respective Equity Interests or, if not ratably, then in accordance with the priorities set forth in the respective organizational documents for, and agreements among holders of Equity Interests in, such Permitted Joint Ventures; (ix) the Guarantee of Indebtedness of a Permitted Joint Venture if the incurrence of such Indebtedness is permitted under "-- LIMITATION ON ADDITIONAL INDEBTEDNESS" below and if such Guarantee is a Permitted Investment pursuant to clause (f) of the definition thereof; or (x) the acquisition or retirement of options and warrants upon the exercise thereof. The Company shall deliver to the Trustee within 60 days after the end of each of the Company's first three fiscal quarters (120 days after the end of the Company's fiscal year) in which a Restricted Payment is made under the first paragraph of this covenant, an officer's certificate setting forth each Restricted Payment made in such fiscal quarter, stating that each such Restricted Payment is permitted and setting forth the basis upon which the calculations required by the "Limitation on Restricted Payments" covenant were computed, which calculations may be based on the Company's financial statements included in filings required under the Exchange Act for such quarter or such year. For purposes of calculating the aggregate amount of Restricted Payments that are permitted under clause (b) of the first paragraph of "-- LIMITATIONS ON RESTRICTED PAYMENTS," the amounts expended for Restricted Payments permitted under clauses (ii) through (x) above shall be excluded. LIMITATION ON PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Indenture provides that the Company shall not, and shall not permit any of its Restricted Subsidiaries to, from and after the Closing Date, directly or indirectly, create or otherwise cause or permit to exist or become effective, or enter into any agreement with any Person that would cause, any encumbrance or restriction on the ability of any Restricted Subsidiary to (A) pay dividends or make any other distributions on its Capital Stock, the Capital Stock of any of its Restricted Subsidiaries or on any other interest or participation in, or measured by, its profits, which interest or participation is owned by the Company or any of its Restricted Subsidiaries, (B) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (C) make loans or advances to the Company or any of its domestic Restricted Subsidiaries, (D) transfer any of its properties or assets to the Company or any of its domestic Restricted Subsidiaries or (E) in the case of a Restricted Subsidiary that is required to be a Guarantor pursuant to the "Additional Guarantors" covenant, execute a Guarantee of the Notes or any renewals or refinancings thereof, except, in each case, for such encumbrances or restrictions existing under or by reason of (1) applicable law and regulation, (2) the Indenture, (3) the New Credit Agreement, and any replacement or substitute facility or facilities thereof, in each case to the extent that such encumbrances and restrictions are not materially more restrictive on the Company and its Restricted Subsidiaries than those contained in the New Credit Agreement as in effect on the Closing Date, (4) instruments evidencing Indebtedness of another Person which is assumed by, or which otherwise becomes the obligation of, such Restricted Subsidiary in connection with the acquisition by such Restricted Subsidiary of another Person (whether pursuant to a purchase of Equity Interests or assets) or in connection with any transaction whereby such Restricted Subsidiary becomes a Permitted Joint Venture, provided that (a) such 72 Indebtedness was not originally incurred in connection with or in anticipation of such acquisition or other transaction, (b) such restrictions apply only to such Restricted Subsidiary and its Subsidiaries and (c) except in the case of an acquisition or other transaction whereby such Restricted Subsidiary becomes a Permitted Joint Venture, immediately after such acquisition or other transaction, substantially all of such Restricted Subsidiary's operations or assets consist of those acquired, (5) restrictions upon the transfer of property or assets subject to Liens permitted under the "Limitation on Liens" covenant below, or (6) restrictions which are contained in instruments evidencing Indebtedness which refinances or refunds the Indebtedness described in clauses (3) and (4). ANTI-LAYERING. The Indenture provides that the Company shall not incur, create, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated in right of payment to any Senior Indebtedness and senior in any respect in right of payment to the Notes. LIMITATION ON ADDITIONAL INDEBTEDNESS. The Indenture provides that the Company shall not, and shall not permit any of its Restricted Subsidiaries, directly or indirectly, to create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness, unless, after giving PRO FORMA effect to the incurrence of such Indebtedness and the application of any of the proceeds therefrom to repay Indebtedness, the Consolidated Interest Coverage Ratio of the Company for the four fiscal quarters ending immediately prior to the date such additional Indebtedness is created, incurred, issued, assumed or guaranteed will be at least 2.25 to 1.0x, provided that such calculation shall give PRO FORMA effect to the acquisition of any Person, business, property or assets made since the first day of such four fiscal quarter period as if such acquisition had occurred at the beginning of such four quarter period. The foregoing limitations shall not apply to (i) Indebtedness under the New Credit Agreement or any replacement or substitute facility or facilities thereof (provided that Indebtedness under the New Credit Agreement or any replacement or substitute facility or facilities, including unused commitments, shall not at any time exceed $300 million in aggregate outstanding principal amount (including the available undrawn amount of any letters of credit issued under the New Credit Agreement or any replacement or substitute facility or facilities thereof)); (ii) Indebtedness of the Company and its Restricted Subsidiaries, which Indebtedness is in existence on the Closing Date; (iii) Indebtedness represented by the Notes and the Guarantees of the Notes; (iv) Indebtedness created, incurred, issued, assumed or guaranteed in exchange for or the proceeds of which are used to extend, refinance, renew, replace, substitute or refund Indebtedness permitted by clauses (ii) and (iii) of this covenant (the "Refinancing Indebtedness"); PROVIDED HOWEVER, that (A) the principal amount of such Refinancing Indebtedness shall not exceed the principal amount of Indebtedness (including unused commitments) so extended, refinanced, renewed, replaced, substituted or refunded (plus costs of issuance), (B) such Refinancing Indebtedness ranks, relative to the Notes, no more senior than the Indebtedness being refinanced thereby, (C) such Refinancing Indebtedness bears interest at a market rate and (D) such Refinancing Indebtedness (1) shall have an Average Life equal to or greater than the Average Life of the Indebtedness being extended, refinanced, renewed, replaced, substituted or refunded or (2) shall not have a scheduled maturity, principal repayment, sinking fund payment or mandatory redemption on or prior to the maturity of the Notes; (v) Indebtedness of the Company or any Restricted Subsidiary to any Restricted Subsidiary or to the Company; (vi) Indebtedness arising from guarantees, letters of credit, and bid or performance bonds securing any obligations of the Company or any Restricted Subsidiary incurred in the ordinary course of business; (vii) Indebtedness for borrowed money denominated in foreign currencies not to exceed an aggregate principal amount at any time equal to the equivalent in such foreign currencies of $5 million in U.S. Dollars, (viii) Capital Lease Obligations in an aggregate amount outstanding at any time not to exceed 5% of the Company's Consolidated Net Assets; (ix) Non-Recourse Indebtedness incurred in connection with the acquisition of real property by the Company or its Restricted Subsidiaries; (x) Guarantees of any Senior Indebtedness, (xi) Guarantees by any Restricted Subsidiary of any Indebtedness of the Company that is PARI PASSU with or subordinate in right of payment to the Notes, provided that (A) in the case of a Guarantee of Indebtedness that is PARI PASSU with the Notes, such Guarantee is PARI PASSU to the Guarantees of the Notes, and (B) in the case of a Guarantee of Indebtedness that is subordinate to the Notes, such Guarantee is similarly subordinated to the Guarantees of the Notes, (xii) Guarantees by the Company of Indebtedness of any Restricted Subsidiary that does not constitute Senior Indebtedness, provided that (A) in the case of the Company's Guarantee of Indebtedness of a Guarantor that is subordinate to such Guarantor's Guarantee of the Notes, the Company's Guarantee of 73 such Indebtedness is similarly subordinated to the Notes, and (B) in all other cases, the Company's Guarantee of such Indebtedness is on a PARI PASSU basis with the Notes, and (xiii) Indebtedness other than that permitted pursuant to the foregoing clauses (i) through (xii) provided that the aggregate outstanding amount of such additional Indebtedness does not at any time exceed $50 million, all or any portion of which Indebtedness, notwithstanding clause (i) above, may be incurred pursuant to the New Credit Agreement or any replacement or substitute facility or facilities thereof. LIMITATION ON LIENS. The Indenture provides that the Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien on any of their respective assets, now owned or hereinafter acquired, securing any Indebtedness that is PARI PASSU with or subordinated in right of payment to the Notes, unless the Notes are equally and ratably secured; PROVIDED that, if such Indebtedness which expressly by its terms is subordinate or junior in right of payment to any other Indebtedness of the Company is expressly subordinate to the Notes, the Lien securing such subordinate or junior Indebtedness shall be subordinate and junior to the Lien securing the Notes with the same relative priority as such subordinated or junior Indebtedness shall have with respect to the Notes. The Company and its Restricted Subsidiaries may at any time, directly or indirectly, create, incur, assume or suffer to exist any Lien on any of their respective assets, now owned or hereafter acquired, securing any Senior Indebtedness or any Non-Recourse Indebtedness permitted under the "Limitation on Additional Indebtedness" covenant. LIMITATION ON SALE OF SUBSIDIARY SHARES. The Indenture provides that the Company shall not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Equity Interests of a Restricted Subsidiary except to a Restricted Subsidiary or (ii) permit a Restricted Subsidiary to issue or sell any Equity Interests of such Restricted Subsidiary to any Person other than to the Company or to another Restricted Subsidiary; PROVIDED that (a) the Company and its Restricted Subsidiaries may consummate an Asset Sale of all of the Equity Interests owned by the Company and its Restricted Subsidiaries of such Restricted Subsidiary, (b) the Company may pledge, hypothecate or otherwise grant a Lien on any Equity Interests of any Restricted Subsidiary to the extent permitted under the "Limitation on Liens" covenant, and (c) the Company may sell or otherwise convey or dispose of any Equity Interest in such Restricted Subsidiary, and such Restricted Subsidiary may issue or sell any Equity Interest to any Person other than to the Company or to another Restricted Subsidiary, if (i) immediately after the consummation of such transaction such Restricted Subsidiary is or becomes a Permitted Joint Venture, provided that (A) after giving effect to such transaction, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) if such transaction involves the issuance or sale of Equity Interests having a fair market value in excess of $5 million, the transaction is approved by a majority of the Disinterested Directors of the Company, (D) if such transaction involves the issuance or sale of Equity Interests having a fair market value in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that such transaction is fair to the Company, from a financial point of view, and (E) the sum of (x) the Book Value of assets of such Restricted Subsidiary immediately prior to the transaction pursuant to which it became a Permitted Joint Venture, together with the Book Value of assets of all other Guarantors which have become Permitted Joint Ventures (determined for each such Guarantor as of the time immediately prior to the transaction pursuant to which it became a Permitted Joint Venture) and (y) the aggregate Book Values of Permitted Minority Investments of the Company and its Restricted Subsidiaries (the Book Value of each such Permitted Minority Investment determined as of the time such Investment was made), does not exceed $100 million; (ii) the Company's and its Restricted Subsidiaries' Investment in such Person becomes a Permitted Minority Investment, provided that (A) after giving effect to such transaction, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) the sum of (x) the Book Value of such Permitted Minority Investment, together with the aggregate Book Values of all other Permitted Minority Investments of the Company and its Restricted Subsidiaries (the Book Value of each such Permitted Minority Investment determined as of the date such Investment was made) and (y) the aggregate Book Value of assets of all Guarantors that have become Permitted Joint Ventures (determined for each such Guarantor as of the time immediately prior to the transaction pursuant to which it became a Permitted Joint Venture), do not exceed $100 million, (D) if such transaction involves the issuance or sale of Equity Interests having a fair market value in excess of $5 million, 74 the transaction is approved by a majority of the Disinterested Directors of the Company, and (E) if such transaction involves the issuance or sale of Equity Interests having a fair market value in excess of $25 million, the Company shall have received an opinion from a nationally recognized investment banking firm that such transaction is fair to the Company, from a financial point of view; or (iii) the Company's and its Restricted Subsidiaries' Investment in such Person otherwise constitutes a Permitted Investment. LIMITATION ON USE OF PROCEEDS FROM ASSET SALES. The Indenture provides that the Company and its Restricted Subsidiaries shall not, directly or indirectly, consummate any Asset Sale with or to any Person other than the Company or a Restricted Subsidiary, unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of any such Asset Sale at least equal to the fair market value of the asset sold or otherwise disposed of, (ii) at least 60% of the net proceeds from such Asset Sale are received in Cash at closing (unless (A) such Asset Sale is a lease, (B) such Asset Sale is in connection with the creation of, Investment in, or issuance or sale of Equity Interests by, a Permitted Joint Venture, or (C) such Asset Sale is in connection with the making of, or would result in, a Permitted Minority Investment) and (iii) with respect to any Asset Sale involving the Equity Interest of any Restricted Subsidiary (unless (A) such Restricted Subsidiary is, or as a result of such Asset Sale would be, a Permitted Joint Venture, or (B) as a result of such Asset Sale, the Company's and its Restricted Subsidiaries' Investment in such Restricted Subsidiary would constitute a Permitted Minority Investment), the Company shall sell all of the Equity Interests of such Restricted Subsidiary it owns. Within 270 days after the receipt of Net Cash Proceeds in respect of any Asset Sale, the Company must use all such Net Cash Proceeds either to invest in properties and assets in the healthcare or a healthcare related business (including, without limitation, a capital investment in the Company or any of its Restricted Subsidiaries) or to reduce Senior Indebtedness; PROVIDED, that when any non-Cash proceeds are liquidated, such proceeds (to the extent they are Net Cash Proceeds) will be deemed to be Net Cash Proceeds at that time. When the aggregate amount of Excess Proceeds (as defined below) exceeds $10 million, the Company shall make an offer (the "Excess Proceeds Offer") to apply the Excess Proceeds to repurchase the Notes at a purchase price equal to 100% of the principal amount of such Notes, plus accrued and unpaid interest to the date of purchase. The Excess Proceeds Offer shall be made substantially in accordance with the procedures for a Change of Control Offer described under "-- CHANGE OF CONTROL" above. To the extent that the aggregate principal amount of the Notes (plus accrued interest thereon) tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds, the Company may use such deficiency, or a portion thereof, for general corporate purposes. If the aggregate principal amount of the Notes surrendered by holders thereof exceeds the amount of Excess Proceeds, the Company shall select the Notes to be purchased in accordance with the procedures described above under "-- SELECTION AND NOTICE." "Excess Proceeds" shall mean any Net Cash Proceeds from an Asset Sale that is not invested or used to reduce Senior Indebtedness as provided in the second sentence of this paragraph. Notwithstanding the foregoing, any Asset Sale which results in Net Cash Proceeds of less than $3 million and all Asset Sales (including any Asset Sales which results in Net Cash Proceeds of less than $3 million) in any twelve consecutive-month period which result in Net Cash Proceeds of less than $10 million in the aggregate shall not be subject to the requirement of clause (ii) of the first sentence above. The Company will comply with the requirements of Regulation 14E and Rule 13e-4 (other than the filing requirements of such rule) under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes pursuant to an Excess Proceeds Offer. LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that neither the Company nor any of its Restricted Subsidiaries shall enter into any transaction or series of related transactions with (including, without limitation, the making of any Investment or guarantee in, to or for the benefit of), sell, lease, transfer or otherwise dispose of any of its properties or assets to, or for the benefit of, purchase or lease any property or assets from, or enter into an amendment of any contract, agreement with, or for the benefit of, any Affiliate of the Company or any of its Subsidiaries (other than the Company or any of its Restricted Subsidiaries), unless (i) such transaction or series of transactions is on terms that are substantially as favorable to the Company or the relevant Restricted Subsidiary, as the case may be, as those that could have been obtained in a comparable transaction on an arm's length basis from a Person that is not an Affiliate and (ii) except in the case of any transaction solely between the Company or a Restricted Subsidiary on the one hand and a Permitted Joint Venture on the other hand, including the formation and initial capitalization of 75 such Permitted Joint Venture, (A) with respect to a transaction or series of related transactions involving aggregate payments in excess of $1 million but less than $15 million, a majority of the Disinterested Directors of the Company shall approve by a resolution determining in good faith that such transaction or series of related transactions comply with the clause (i) above, and (B) with respect to a transaction or series of related transactions involving aggregate payments in excess of $15 million (other than cash transactions pursuant to insurance agreements with the Insurance Subsidiaries), the Company shall have received an opinion from a nationally recognized investment banking firm or, with respect to a transaction or a series of related transactions requiring the valuation of real property, a nationally recognized real estate appraisal firm, that such transaction or series of related transactions is fair to the Company, from a financial point of view. MERGER, CONSOLIDATION OR SALE OF ASSETS. The Indenture provides that the Company shall not consolidate with, merge with or into, or transfer all or substantially all of its assets (in one transaction or a series of related transactions) to, any Person or permit any party to merge with or into it unless: (i) the Company shall be the continuing Person, or the Person (if other than the Company) formed by such consolidation or into or with which the Company is merged or to which the properties and assets of the Company, substantially as an entity, are transferred shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company under the Notes and the Indenture and the Indenture remains in full force and effect; (ii) immediately before and immediately after giving effect to such transaction, no Event of Default and no Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction on a pro forma basis, the Consolidated Net Worth of the surviving entity is at least equal to the Consolidated Net Worth of the Company immediately prior to such transaction; and (iv) except in the case of a triangular merger for the sole purpose of forming a holding company, the surviving entity could, after giving pro forma effect to such transaction, incur $1.00 of Indebtedness pursuant to the first paragraph of "-- LIMITATION ON ADDITIONAL INDEBTEDNESS" above. The Indenture also provides that no Restricted Subsidiary shall consolidate with, or merge with or into, any Person or permit any party to merge with or into it unless the continuing Person, or the Person formed by such consolidation or into or with which a Restricted Subsidiary is merged is the Company or a Restricted Subsidiary, provided that if any Guarantor consolidates into, or merges with or into, a Restricted Subsidiary, either (i) such Restricted Subsidiary is or becomes a Guarantor; or (ii) immediately after the consummation of such transaction such Guarantor is a Permitted Joint Venture, provided that (A) after giving effect to such transaction, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) if such transaction involves a Guarantor with assets having a fair market value in excess of $5 million, the transaction is approved by a majority of the Disinterested Directors of the Company, (D) if such transaction involves a Guarantor having assets with a fair market value in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that such transaction is fair to the Company, from a financial point of view, and (E) the sum of (x) the Book Value of assets of such Guarantor immediately prior to such transaction, together with the Book Value of assets of all other Guarantors which have become Permitted Joint Ventures (determined for each such Guarantor as of the time immediately prior to the transaction pursuant to which it became a Permitted Joint Venture) and (y) the aggregate Book Values of Permitted Minority Investments of the Company and its Restricted Subsidiaries (the Book Value of each such Permitted Minority Investment determined as of the date such Investment was made), does not exceed $100 million; or (iii) immediately after the consummation of such transaction the Company's and its Restricted Subsidiaries' Investment in such Guarantor becomes a Permitted Minority Investment, provided that (A) after giving effect to such transaction, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) the sum of (x) the Book Value of such Permitted Minority Investment, together with the aggregate Book Values of all other Permitted Minority Investments of the Company and its Restricted Subsidiaries (the Book Value of each such Permitted Minority Investment determined as of the date such Investment was made), and (y) the aggregate Book Value of assets of all Guarantors that have become Permitted Joint Ventures (determined for each such Guarantor as of the time immediately prior to the transaction pursuant to which it became a Permitted Joint Venture), does not exceed $100 million, (D) if such Permitted Minority Investment is in excess of $5 million, the Permitted Minority Investment is 76 approved by a majority of the Disinterested Directors of the Company and (E) if such Permitted Minority Investment is in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that the Permitted Minority Investment is fair to the Company from a financial point of view. ADDITIONAL GUARANTORS. The Indenture provides that, after the Closing Date, the Company shall cause any Person which shall at any time be a Subsidiary of the Company, including any present Subsidiary of the Company which is not included among the Guarantors executing the Indenture, to become a Guarantor promptly after the date on which such Subsidiary first becomes a Guarantor under the New Credit Agreement or a Significant Subsidiary; PROVIDED, HOWEVER, that the Company shall not be required to cause any Permitted Joint Venture or any Unrestricted Subsidiary to become a Guarantor. PAYMENT FOR CONSENT. The Indenture provides that neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to obtaining any consent, waiver or amendment of, or direction in respect of, any of the terms or provisions of the Indenture or the Notes, unless such consideration is offered or agreed to be paid, and paid, to all holders of the Notes which so consent, waive, agree or direct to amend in the time frame set forth in solicitation documents relating to such consent, waiver, agreement or direction. PROVISIONS OF REPORTS AND OTHER INFORMATION. The Indenture provides that at all times while any Note is outstanding, the Company shall timely file with the Commission all such reports and other information as required by Section 13 or 15(d) of the Exchange Act, including, without limitation, Forms 10-K, 10-Q and 8-K. At such time as the Company is not subject to the reporting requirements of the Exchange Act, within fifteen days after the same would be required to be filed with the Commission if the Company then were subject to Section 13 or 15(d) of the Exchange Act, the Company will file with the Trustee and supply to each holder of the Notes, without cost, copies of its financial statements and certain other reports or information comparable to that which the Company would have been required to report pursuant to Section 13 and 15(d) of the Exchange Act, including, without limitation, the information that would be required by Forms 10-K, 10-Q and 8-K. EVENTS OF DEFAULT AND REMEDIES The Indenture provides that each of the following constitutes an Event of Default: (i) default for 30 days in payment of interest on the Notes; (ii) default in payment when due of principal of or premium, if any, on the Notes, whether at maturity, or upon acceleration, redemption or otherwise; (iii) failure by the Company to comply in any respect with any of its other agreements in the Indenture or the Notes which failure continues for 30 days after receipt of a written notice from the Trustee or holders of at least 25% of the aggregate principal amount of the Notes then outstanding, specifying such Default and requiring that it be remedied; (iv) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness (other than Non-Recourse Indebtedness) for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness is now existing or hereafter created, which default results from the failure to pay any such Indebtedness at its stated final maturity or results in the acceleration of such Indebtedness prior to its stated final maturity and the principal amount of such Indebtedness is at least $15 million, or the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness the maturity of which has been accelerated, aggregates $30 million or more; (v) failure by the Company or any Restricted Subsidiary to pay certain final judgments aggregating in excess of $10 million which judgments are not stayed within 60 days after their entry; (vi) except as permitted by the Indenture, the unenforceability or invalidity of any Guarantee of the Notes, or the disaffirmance thereof by any Guarantor; and (vii) certain events of bankruptcy or insolvency with respect to the Company and its Restricted Subsidiaries. If the Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each holder of the Notes notice of the Event of Default within 90 days after it becomes known to the Trustee, unless such Event of Default has been cured or waived. Except in the case of an Event of Default in 77 the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its trust officers in good faith determines that withholding the notice is in the interest of the holders of the Notes. If an Event of Default (other than an Event of Default resulting from bankruptcy, insolvency or reorganization) occurs and is continuing, the Trustee or the holders of at least 25% of the principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if such notice is given by such holders) (the "Acceleration Notice"), may, and the Trustee at the request of such holders shall, declare all unpaid principal of, premium, if any, and accrued interest on such Notes to be due and payable, (i) immediately if no amount is outstanding and no commitment is in effect under the Specified Senior Indebtedness or (ii) if any amount is outstanding or any commitment is in effect under the Specified Senior Indebtedness, upon the earlier of (A) five business days after delivery of the Acceleration Notice by the Trustee or the holders, as the case may be, to the Company and the agent or another designated representative of the holders of each and any Specified Senior Indebtedness outstanding or (B) acceleration of the Specified Senior Indebtedness, and thereupon the Trustee may, at its discretion, proceed to protect and enforce the rights of the holders of the Notes by appropriate judicial proceedings. Upon a declaration of acceleration, such principal, premium, if any, and accrued interest shall be due and payable. If an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization occurs, all unpaid principal of, premium, if any, and accrued interest on the Notes then outstanding shall IPSO FACTO become and be immediately due and payable without any declaration or other act on the part of the Company, the Trustee or any holder. The holders of at least 66 2/3% of the aggregate principal amount of the Notes outstanding by notice to the Trustee may rescind an acceleration and its consequences, except an acceleration due to default in payment of principal or interest on the Notes upon conditions provided in the Indenture. Subject to certain restrictions set forth in the Indenture, the holders of at least a 66 2/3% of the aggregate principal amount of the outstanding Notes by notice to the Trustee may waive an existing Default or Event of Default and its consequences, except a Default in the payment of principal of, premium, if any, or interest on, such Notes or a Default under a provision which requires consent of all holders to amend. When a Default or Event of Default is waived, it is cured and ceases to exist, but no waiver shall extend to any subsequent or other Default or impair any consequent right. A holder of Notes may not pursue any remedy with respect to the Indenture or the Notes unless: (i) the holder gives to the Trustee written notice of a continuing Event of Default; (ii) the holders of at least 25% in principal amount of such Notes outstanding make a written request to the Trustee to pursue the remedy; (iii) such holder or holders offer to the Trustee indemnity or security satisfactory to the Trustee against any loss, liability or expense; (iv) the Trustee does not comply with the request within 30 days after receipt thereof and the offer of indemnity or security; and (v) during such 30-day period the holders of 66 2/3% of the aggregate principal amount of the outstanding Notes do not give the Trustee a direction which is inconsistent with the request. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver a statement to the Trustee specifying such Default or Event of Default. DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES The Indenture provides that the Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding Notes ("legal defeasance"). Such legal defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes, except for (i) the rights of holders of outstanding Notes to receive solely out of the trust described below payments in respect of the principal of, premium, if any, and interests on such Notes when such payments are due, (ii) the obligations of the Company with respect to the Notes concerning issuing temporary Notes, registration of Notes, replacing mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions of the Indenture. The Company and the Guarantors may, at their option and at any time, elect to have their obligations under the provisions "Certain Covenants" and "Change of Control" discharged with respect to the outstanding Notes and the Guarantees thereof ("covenant defeasance"). Such covenant defeasance means that, with 78 respect to the outstanding Notes and the Guarantees thereof, the Company and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such provisions and such omission to comply shall not constitute a Default or an Event of Default. In order to exercise defeasance, (i) the Company must have irrevocably deposited with the Trustee, in trust, for the benefit of the holders of the Notes, cash in U.S. Dollars, U.S. Government Obligations (as defined in the Indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity of such principal (and premium, if any) or installment of interest or upon redemption; (ii) the Company shall have delivered to the Trustee an opinion of counsel stating that the holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred, which such opinion, in the case of legal defeasance, will state that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the Closing Date there has been a change in the applicable federal income tax laws or regulations or (C) there exists controlling precedent to such effect; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit; (iv) such defeasance shall not result in a breach or violation of or constitute a default under any material agreement or instrument to which the Company is a party or by which it is bound; and (v) the Company shall have delivered to the Trustee an officers' certificate and an opinion of counsel, each stating that all conditions precedent to such defeasance have been satisfied. TRANSFER AND EXCHANGE A holder may transfer or exchange Notes in accordance with the Indenture. The Registrar may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar is not required to register a transfer or exchange of any Note selected for redemption except for the unredeemed portion of any Note being redeemed in part. Also, the Registrar is not required to register a transfer or exchange of any Note for a period of 15 days before the mailing of a notice of redemption offer. The registered holder of a Note will be treated as the owner of it for all purposes. AMENDMENT, SUPPLEMENT AND WAIVER Subject to certain exceptions, the Indenture or the Notes may be amended or supplemented with the consent of the holders of 66 2/3% of the aggregate principal amount of the Notes then outstanding, and any existing Default or compliance with any provision may be waived (other than a continuing Default or Event of Default in the payment of principal or interest on any Note) with the consent of the holders of 66 2/3% of the aggregate principal amount of the then outstanding Notes. Without the consent of each holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting holder of Notes) (i) reduce the percentage of principal amount of the Notes whose holders must consent to an amendment or waiver, (ii) change the stated maturity or the time or currency of payment of the principal of, premium, if any, or any interest on, any Note or alter the redemption provisions with respect thereto, (iii) make any change in the subordination provisions of the Indenture that adversely affects the rights of any holder of the Notes under the subordination provisions of the Indenture, (iv) waive a default in the payment of the principal of, premium, if any, or interest on, any Note, (v) make any change to the "Change of Control" provisions of the Indenture or the provisions relating to the Excess Proceeds Offer, (vi) make any change to the "Anti-Layering" covenant, the "Additional Guarantors" covenant or the "Payment for Consent" covenant of the Indenture, (vii) make any change in the guarantee provisions of this Indenture that adversely affects the rights of any holder of the Notes or (viii) make any change in the provision of the Indenture containing the terms described in this paragraph. Notwithstanding the foregoing, without the consent of any holder of the Notes, the Company, the Guarantors and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for certificated or uncertificated Notes in addition to or in place of certificated or uncertificated Notes, to provide for the assumption of the Company's obligations to holders of the Notes in the case of a merger or consolidation, to make any change that does not adversely affect the 79 rights of any holder of the Notes, to supplement the Indenture to provide for additional Guarantors or to comply with any requirement of the Commission in connection with the qualification of the Indenture or the Trustee under the Trust Indenture Act. CONCERNING THE TRUSTEE The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must eliminate such conflict within 90 days or apply to the Commission for permission to continue or resign. The holders of 66 2/3% of the aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care and skill of a prudent man under the circumstances in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of the Notes, unless they shall have offered to the Trustee security or indemnity satisfactory to it against any loss, liability or expense. FORM AND BOOK-ENTRY PROCEDURES GLOBAL NOTE; BOOK-ENTRY FORM. The New Notes will initially be evidenced by three global certificates ("Global Notes") in definitive, fully registered form, without coupons, in the name of CEDE & Co. or another designated nominee ("DTC's Nominee") of DTC. Beneficial interests in the Global Notes will be exchangeable for certificated Notes as set forth in the Indenture. So long as DTC or DTC's Nominee is the registered holder and owner of a Global Note evidencing the New Notes, DTC or DTC's Nominee, as the case may be, will be considered the sole owner and holder of the underlying New Notes for all purposes of such New Notes and under the Indenture. In connection with the issuance of the New Notes, DTC will credit on its book-entry registration and transfer system the respective principal amounts of New Notes evidenced by the Global Notes deposited with it to the accounts of institutions that directly maintain accounts with DTC or DTC's Nominee ("participants"). Ownership of beneficial interests in the Global Notes will be limited to participants or Persons for whom such participants serve as nominee or custodian. Ownership of beneficial interests in the Global Notes will be identified on, and the transfer of those ownership interests will be effected only through, records maintained by DTC (with respect to participants' interests) or such participants (with respect to the beneficial owners for whom such participants serve as nominee or custodian). Beneficial owners will not receive written confirmation from DTC or DTC's Nominee of their purchase of Notes, but instead, should receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participant in DTC's system through which the beneficial owner executed the purchase transaction. Transfers of beneficial ownership interests in the Global Notes will be effected by entries made on the books of participants acting on behalf of beneficial owners. Payment of principal of, premium, if any, and interest on the Global Notes will be made to DTC or DTC's Nominee, as the case may be, as the registered owner and holder thereof. DTC or DTC's Nominee, upon receipt of any payment of principal or interest in respect of a Global Note evidencing any Notes held by it or DTC's Nominee, will immediately credit direct participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note for such Notes as reflected in the records maintained by DTC or DTC's Nominee. Payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in accordance with DTC's customary procedures and will be settled in next-day funds. The laws of certain U.S. states require that certain Persons take only physical delivery of securities in definitive form. Consequently, the ability to transfer beneficial interests in a Global Note 80 to such Persons may be limited. Because DTC can act only on behalf of its direct participants, who, in turn, act on behalf of indirect participants and certain banks, the ability of a Person having a beneficial interest in a Global Note to pledge such interest to Persons or entities that do not participate directly in the DTC system, or otherwise take actions in respect of such interest or exercise rights of beneficial ownership in the Global Notes, may be affected by the lack of a physical certificate evidencing such interest. DTC will take action permitted to be taken by a holder of Notes only at the direction of one or more participants to whose DTC account interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such participant or participants has or have given such direction. DTC is (i) a limited purpose trust company organized under the banking laws of the State of New York (and is a "banking organization" within the meaning of such laws), (ii) a member of the Federal Reserve System, (iii) a "clearing corporation" within the meaning of the New York Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. Direct participants in the DTC services system include securities brokers and dealers, commercial banks, trust companies and clearing corporations, and may include certain other organizations. DTC is owned by a number of its direct participants and by each of the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. The rules applicable to DTC and its participants are on file with the Commission. Neither DTC nor DTC's Nominee will consent or vote in any manner with respect to the Notes. Pursuant to its customary procedures, in the case of any matter as to which the consent or vote of holders of the Notes is sought, DTC will mail an Omnibus Proxy to the Company as soon as practicable after the record date for the determination of holders eligible to consent or vote on the matter to be acted upon. The Omnibus Proxy serves to assign DTC's Nominee's right to consent or vote to the direct participants whose accounts it maintains as of the record date. Notices of redemption and repurchase with respect to Notes held by direct participants in the DTC system will be forwarded to DTC's Nominee. In the case of a partial redemption, DTC's practice is to determine, by lot, the amount of the beneficial interest in the Notes to be redeemed of each of its direct participants. Beneficial owners who elect to participate in a tender offer or purchase of their securities, must provide notice of such election, through its participant (direct or indirect) in DTC's system, to the appropriate depositary, tender or purchase agent, and effect delivery of their Notes by causing the direct participant in DTC's system to transfer the indirect participant's interest in the Notes, as reflected in DTC's records, to such depositary, tender or purchase agent. The requirement for physical delivery of certificates evidencing the Notes in connection with the aforementioned transactions will be deemed satisfied when the beneficial ownership rights in the Global Notes are transferred by direct participants on DTC's records. The conveyance of all notices and other communications by DTC to its direct participants, among DTC's participants (direct and indirect) and by DTC's participants (direct and indirect) to owners of beneficial interests in the Notes is governed by customary arrangements among them, subject to statutory or regulatory requirements in effect with respect thereto from time to time. Although DTC has agreed to the foregoing procedures to facilitate transfers of interest in the Global Notes among participants of DTC, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Company nor the Trustee will have any responsibility for the performance by DTC or its participants of their respective obligations under the rules and procedures governing their operations. 81 The information set forth above concerning DTC and DTC's book-entry system has been obtained from sources believed by the Company to be reliable, but the Company assumes no responsibility for the accuracy thereof. CERTAIN DEFINITIONS Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. A Person shall be deemed to "control" (including the correlative meanings, the terms "controlling," "controlled by," and "under common control with") another Person if the controlling Person (a) possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of voting securities, by agreement or otherwise, or (b) owns, directly or indirectly, 10% or more of any class of the issued and outstanding equity securities of the controlled Person. "Asset Sale" means, with respect to any Person, the sale, lease, conveyance, disposition or other transfer by such Person of any of its assets (including by way of a sale-and-leaseback and including the sale or other transfer of any Equity Interests in any Restricted Subsidiary) which results in Net Cash Proceeds of $1 million or more. However, the following shall not constitute an Asset Sale: (i) unless part of a disposition including other assets or operations, (A) dispositions of Cash and Cash Equivalents, (B) payments on or in respect of non-Cash proceeds of Asset Sales, and (C) dispositions of Investments by foreign subsidiaries of the Company in Cash and instruments or securities or in certificates of deposit (or comparable instruments) with banks; (ii) the lease of (A) office space in a medical building to healthcare professionals or healthcare goods or services companies for their use or sublease to a similar user or (B) any portion of a hospital (unless the portions of any such hospital so leased in separate transactions constitute more than 50% of such hospital), in the ordinary course of business and in a manner consistent with either past practices or the healthcare industry generally, and (iii) the issuance or sale by the Company of any Equity Interests in the Company. "Average Life" means, as of the date of determination, with respect to any debt security, the quotient obtained by dividing (i) the sum of the products of the numbers of years from the date of determination to the dates of each successive scheduled principal payment (assuming the exercise by the obligor of such debt security of all unconditional (other than as to the giving of notice) extension options of each such scheduled payment date) of such debt security multiplied by the amount of such principal payment by (ii) the sum of all such principal payments. "Book Value" means, with respect to the assets of any Person, the book value of assets of such Person, net of depreciation and other charges and reserves taken with respect to such assets in accordance with GAAP. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease which would at such time be so required to be capitalized on the balance sheet in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock (including, without limitation, common and preferred stock), excluding warrants, options or other rights to acquire Capital Stock. "Cash" means money or currency or a credit balance in a Deposit Account. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency, instrumentality or sponsored corporation thereof which are rated at least A or the equivalent thereof by Standard & Poor's Corporation or at least A-2 or the equivalent thereof by Moody's Investor Services, Inc., and in each case having maturities of not more than one year from the date of acquisition, (ii) time deposits and certificates of deposit of any domestic commercial bank of recognized standing, having capital and surplus in excess of $100 million with maturities of not more than one year from the date of acquisition, (iii) repurchase obligations with a term of not more than thirty days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications 82 specified in clause (ii) above or any government securities dealer and (iii) commercial paper rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least P-1 or the equivalent thereof by Moody's Investor Services, Inc., in each case maturing within one year after the date of acquisition. "Change of Control" means (a) the sale, lease, transfer or other disposition in one or more related transactions of all or substantially all of the Company's assets, or the sale of substantially all of the Capital Stock or assets of the Company's Subsidiaries that constitutes a sale of substantially all of the Company's assets, to any Person or group (as such term is used in Section 13(d)(3) of the Exchange Act), (b) the merger or consolidation of the Company with or into another corporation, or the merger of another corporation into the Company or any other transaction, with the effect, in any such case, that the stockholders of the Company immediately prior to such transaction hold 50% or less of the total voting power entitled to vote in the election of directors, managers or trustees of the surviving corporation or, in the case of a triangular merger, the parent corporation of the surviving corporation resulting from such merger, consolidation or such other transaction, (c) any Person (except for the parent corporation of the surviving corporation in a triangular merger) or group acquires beneficial ownership of a majority in interest of the voting power or voting Capital Stock of the Company, or (d) the liquidation or dissolution of the Company. "Closing Date" means May 2, 1994. "Consolidated Interest Coverage Ratio" means the ratio of (A) Consolidated Net Income plus the sum of Interest Expense, taxes, depreciation and amortization of the Company and its Restricted Subsidiaries (to the extent such items were taken into account in computing the Net Incomes of the Company and each of such Restricted Subsidiaries) for the preceding four fiscal quarters to (B) the Interest Expense of the Company and its Restricted Subsidiaries for the preceding four fiscal quarters; provided that if the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays or redeems any Indebtedness subsequent to the commencement of the period for which the Consolidated Interest Coverage Ratio is being calculated but prior to the event for which the calculation of the Consolidated Interest Coverage Ratio is made, then the Consolidated Interest Coverage Ratio will be calculated giving pro forma effect to any such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuances or redemption of preferred stock, as if the same had occurred at the beginning of the applicable period. In making such calculations on a pro forma basis, interest attributable to Indebtedness bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period. "Consolidated Net Assets" means, with respect to any Person, the assets of such Person and its Subsidiaries, less intangible assets of such Person and its Subsidiaries (including, without limitation, franchises, patents, patent applications, trademarks and tradenames, goodwill, excess reorganization value, research and development expenses, and write-ups in the book value of any assets), on a consolidated basis, determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP, plus the sum of the amount allocated to excess reorganization value, ESOP expense and consolidated stock option expense (to the extent such items were taken into account in computing the Net Incomes of such Person and its Subsidiaries); provided, however, that (i) the Net Income of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid to the referent Person or a Restricted Subsidiary, (ii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded and (iii) the cumulative effect of a change in accounting principles shall be excluded. "Consolidated Net Worth" of the Company means consolidated stockholders' equity as determined in accordance with GAAP. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Deposit Account" means a demand, savings, passbook, money market or like account with a commercial bank, savings and loan association or like organization or a government securities dealer, other than an account evidenced by a negotiable certificate of deposit. 83 "Disinterested Director" means, with respect to any specific transaction, any director of the Company that does not have a direct or indirect interest (other than any interest resulting solely from such director's ownership of Equity Interests in the Company) in such transaction. "Equity Interests" means (a) Capital Stock, warrants, options or other rights to acquire Capital Stock (but excluding any debt security which is convertible into, or exchangeable for, Capital Stock), and (b) limited and general partnership interests, interests in limited liability companies, joint venture interests and other ownership interests in any Person. "ESOP" means the Employee Stock Ownership Plan of the Company as established on September 1, 1988, and effective as of January 1, 1988, as from time to time amended, and/or the trust created in accordance with such plan pursuant to the Trust Agreement between the Company and the trustee named therein, executed as of September 1, 1988, as the context in which the term "ESOP" is used permits. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession, as in effect on the Closing Date. "Guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantor" means (i) each of the Company's Subsidiaries on the Closing Date (other than Permitted Joint Ventures and Unrestricted Subsidiaries) and (ii) each other Person that executes a Guarantee of the obligations of the Company under the Notes and the Indenture from time to time in accordance with the provisions of the "Additional Guarantors" covenant, and their respective successors and assigns; PROVIDED, HOWEVER, that "Guarantor" shall not include any Person that is released from its Guarantee of the obligations of the Company under the Notes and the Indenture as provided under "-- SUBSIDIARY GUARANTEES" above. "Indebtedness" of any Person means, without duplication, (i) indebtedness of such Person for borrowed money or for the deferred purchase price of property or services (other than trade payables on terms of 365 days or less incurred in the ordinary course of business), (ii) all Capital Lease Obligations of such Person, (iii) all guarantees of such Person in respect of Indebtedness of others, (iv) at the date of determination thereof, the aggregate amount of all unreimbursed drawings in respect of letters of credit issued for the account of such Person (less the amount of Cash and Cash Equivalents on deposit securing such letters of credit) and (v) all indebtedness, obligations or other liabilities of such person or of others for borrowed money secured by a Lien on any property of such Person, whether or not such indebtedness, obligations or liabilities are assumed by such Person; PROVIDED, HOWEVER, that all or any portion of Indebtedness that becomes the subject of a defeasance (whether a legal defeasance or a "covenant" or "in substance" defeasance) shall, at all times that such defeasance remains in effect, cease to be treated as Indebtedness for purposes of this Indenture. "Interest Expense" of any Person means, for any period for which the determination thereof is to be made, (A) the sum of the aggregate amount of (i) interest in respect of Indebtedness (including all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing), (ii) all but the principal component of rentals in respect of Capital Lease Obligations, paid, accrued or scheduled to be paid or accrued by such Person during such period, (iii) capitalized interest and (iv) amortization of original issue discount and deferred financing costs, all as determined in accordance with GAAP, less (B) interest expense attributable to Unrestricted Subsidiaries. "Investment" means, when used with respect to any Person, any direct or indirect advance, loan or other extension of credit (other than the creation of receivables in the ordinary course of business) or capital contribution by such Person (by means of transfers of property (other than Equity Interests in the Company) to others or payments for property or services for the account or use of others, or otherwise) to any other Person, or any direct or indirect purchase or other acquisition by such Person of a beneficial interest in capital stock, bonds, notes, debentures or other securities issued by any other Person, or any Guarantee by 84 such Person of the Indebtedness of any other Person (in which case such Guarantee shall be deemed an Investment in such other Person in an amount equal to the aggregate amount of Indebtedness so guaranteed). "Insurance Subsidiaries" means, collectively, Golden Isle Assurance Company, Plymouth Insurance Company, Ltd., and any successors to any of the foregoing. "Lien" means any mortgage, pledge, security interest, charge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), or security agreement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement, other than notice filings not perfecting a security interest, under the Uniform Commercial Code or comparable law of any jurisdiction, domestic or foreign, in respect of any of the foregoing). "Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds of such Asset Sale in the form of Cash or Cash Equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not the interest, component thereof) when received in the form of Cash or Cash Equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company), casualty loss insurance proceeds, condemnation awards and proceeds from the conversion of other property received when converted to Cash or Cash Equivalents, net of (i) brokerage commissions and other fees and expenses related to such Asset Sale, (ii) provision for all taxes (whether or not such taxes will actually be paid or are payable) as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either, (A) in the case of a sale of all of the Equity Interests in any Restricted Subsidiary, is a direct obligation of such Restricted Subsidiary or (B) is required to be paid in connection with such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP, excluding, however, any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with any Asset Sale (including, without limitation, dispositions pursuant to sale-and-leaseback transactions), and excluding any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "New Credit Agreement" means (a) the Second Amended and Restated Credit Agreement, dated as of the Closing Date, among the Company, the banks and other financial institutions named therein and Bankers Trust Company, as Agent, (b) the Second Amended and Restated Subsidiary Credit Agreement, dated as of the Closing Date, among certain Subsidiaries of the Company named therein, the banks and other financial institutions named therein and Bankers Trust Company, as Agent, and (c) each note, guaranty, mortgage, pledge agreement, security agreement and other instruments and documents from time to time entered into pursuant to or in respect of either such credit agreement or any such guaranty, as each such credit agreement and other documents may be amended, restated, supplemented, extended, renewed or otherwise modified from time to time. "Non-Recourse Indebtedness" shall mean any Indebtedness of the Company or any of its Restricted Subsidiaries if the holder of such Indebtedness has no recourse, direct or indirect, absolute or contingent, to the general assets of the Company or any of its Restricted Subsidiaries. "Permitted Investments" means (a) any Investments in the Company or in a Restricted Subsidiary other than a Permitted Joint Venture; (b) any Investments in Cash or Cash Equivalents; (c) Investments by the Company or any Restricted Subsidiary in a Person, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary of the Company or (ii) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or, is liquidated into, the Company or a Restricted Subsidiary; (d) loans and advances to employees not exceeding $500,000 per individual at any one time and $5 million outstanding in the aggregate at any one time; (e) Investments in Group Practice 85 Affiliates, Inc. and its Subsidiaries, and in the Technologies and Management Information Unit and its Subsidiaries, not to exceed $70 million in the aggregate at any one time; (f) Investments in a Permitted Joint Venture, provided that (A) after giving effect to such Investment, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) if such Investment in such Permitted Joint Venture is in excess of $5 million, such Investment is approved by a majority of the Disinterested Directors of the Company and (D) if such Investment in such Permitted Joint Venture is in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that such Investment is fair to the Company, from a financial point of view; (g) Permitted Minority Investments, provided that (A) after giving effect to such Investments, the Company's Consolidated Interest Coverage Ratio is at least 2.00 to 1.0x, (B) no Default or Event of Default has occurred and is continuing or would result therefrom, (C) the sum of (x) the Book Value of such Permitted Minority Investment together with the aggregate Book Values of all other Permitted Minority Investments of the Company and its Restricted Subsidiaries (the Book Value of each such Permitted Minority Investment determined as of the date such Investment was made), and (y) the aggregate Book Value of assets of all Guarantors that have become Permitted Joint Ventures (determined for each such Guarantor as of the time immediately prior to the transaction pursuant to which it became a Permitted Joint Venture), does not exceed $100 million, (D) if such Permitted Minority Investment is in excess of $5 million, the Permitted Minority Investment is approved by a majority of the Disinterested Directors of the Company and (E) if such Permitted Minority Investment is in excess of $25 million, the Company has received an opinion from a nationally recognized investment banking firm that the Permitted Minority Investment is fair to the Company, from a financial point of view; (h) Investments constituting non-Cash proceeds of Asset Sales; (i) Investments by foreign subsidiaries of the Company in Cash and instruments or securities of the highest grade investment available in local currencies or in certificates of deposit (or comparable instruments) with banks with which such Subsidiary regularly transacts business; (j) Investments in foreign Unrestricted Subsidiaries not to exceed at any one time the equivalent in foreign currencies of $25 million in U.S. Dollars in the aggregate; and (k) additional Investments not to exceed $10 million outstanding at any one time. "Permitted Joint Venture" means a Subsidiary of the Company (i) which is not a Wholly-owned Subsidiary of the Company, (ii) which is in a healthcare or a healthcare related business and (iii) in which the Company or any Restricted Subsidiary (A) has at least a majority of the Equity Interests and (B) is entitled to elect or appoint the directors, managers or trustees thereof, as applicable. "Permitted Minority Investment" means any Investment in any Person (i) which is in the healthcare or healthcare related business and (ii) in which the Company and its Restricted Subsidiaries (A) have less than a majority of the Equity Interests or (B) are not entitled to elect or appoint the directors, managers or trustees thereof, as applicable. "Person" means any individual, corporation, partnership, joint venture, incorporated or unincorporated association, joint-stock company, limited liability company, trust, unincorporated organization or government or other agency or political subdivision thereof or other entity of any kind. "Redeemable Stock" means any Equity Interest which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable before the stated maturity of the Notes), or upon the happening of any event, matures or is mandatorily redeemable, in whole or in part, prior to the stated maturity of the Notes. "Restricted Subsidiary" means each of the Subsidiaries of the Company that has not been designated an Unrestricted Subsidiary. "Rights Plan" means the Company's Share Purchase Rights Plan, dated July 21, 1992, as amended, restated, supplemented or otherwise modified from time. "Senior Indebtedness" means the principal of and premium, if any, and interest on (such interest on Senior Indebtedness, wherever referred to in the Indenture, is deemed to include interest accruing after the filing of a petition initiating any proceeding pursuant to any bankruptcy law in accordance with and at the rate (including any rate applicable upon any default or event of default, to the extent lawful) specified in any document evidencing the Senior Indebtedness, whether or not the claim for such interest is allowed as a 86 claim after such filing in any proceeding under such bankruptcy law) and other amounts (including, but not limited to, fees, expenses, reimbursement obligations in respect of letters of credit and indemnities) due or payable from time to time on or in connection with any Indebtedness of the Company or any of its Restricted Subsidiaries incurred pursuant to the first paragraph of the "Limitations on Additional Indebtedness" covenant described above or permitted under clauses (i), (ii), (iv), (vi), (vii), (viii), (x) and (xiii) of the second paragraph of the "-- LIMITATIONS ON ADDITIONAL INDEBTEDNESS" described above, in each case whether outstanding on the Closing Date or thereafter created, incurred or assumed, unless, in the case of any particular Indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such Indebtedness shall not be senior in right of payment to the Notes. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness shall not include (a) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (b) any Indebtedness incurred after the Closing Date that is contractually subordinated in right of payment to any Senior Indebtedness, and (c) amounts owed (except to banks and other financial institutions) for goods, materials or services purchased in the ordinary course of business or for compensation to employees. "Significant Subsidiary" means any Subsidiary of the Company which has total assets in excess of $1 million or which holds the capital stock of a Significant Subsidiary. "Specified Senior Indebtedness" means Senior Indebtedness under the New Credit Agreement or any replacement or substitute facility or facilities thereof and each single issue of other Senior Indebtedness having an outstanding principal balance of $50 million or more. "Subsidiary" means any corporation, association, limited or general partnership, limited liability company, joint venture or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other Equity Interests entitled (without regard to the occurrence of any contingency) to vote generally in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Technologies and Management Information Unit" means the Subsidiary of the Company formed or to be formed for the purpose of conducting management and information systems businesses, which may include Strategic Advantage, Inc. "Unrestricted Subsidiary" means (i) any of Group Practice Affiliates, Inc. and its Subsidiaries, and the Technologies and Management Information Unit and its Subsidiaries, (ii) the Insurance Subsidiaries, (iii) certain foreign Subsidiaries of the Company, (iv) any Subsidiary of the Company or a Restricted Subsidiary (a) that, at the time of determination, shall be designated by the Board of Directors of the Company as an Unrestricted Subsidiary as provided below and (b) all of the Indebtedness of which shall be non-recourse to the Company and its Restricted Subsidiaries and (v) any Subsidiary of an Unrestricted Subsidiary; provided that, notwithstanding clause (iv)(b) above, the Company or any Subsidiary of the Company may guarantee, endorse, agree to provide funds for the payment or maintenance of, or otherwise become directly or indirectly liable with respect to, Indebtedness of an Unrestricted Subsidiary but only to the extent that the Company or such Subsidiary could make an Investment in such Unrestricted Subsidiary pursuant to the "Limitation on Restricted Payments" covenant and any such guarantee, endorsement or agreement shall be deemed an incurrence of Indebtedness by the Company or such Subsidiary for purposes of the "Limitation on Additional Indebtedness" covenant. The Board of Directors may designate any newly-acquired or newly-formed Subsidiary to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of any Restricted Subsidiary. Any such designation by the Board of Directors of the Company shall be evidenced by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an officers' certificate certifying that such designation complied with the foregoing conditions. "Wholly-owned Subsidiary" of any Person means any Subsidiary of such Person to the extent 95% or more of the entire voting share capital of such Subsidiary is owned by such Person (either directly or indirectly through Wholly-owned Subsidiaries). 87 SUMMARY OF NEW CREDIT AGREEMENT Concurrently with the sale of the Old Notes, the Company amended and restated its existing credit agreement by entering into a second amended and restated credit agreement dated as of May 2, 1994, with the banks and other financial institutions named therein, BTCo as agent and First Union National Bank of North Carolina ("First Union") as co-agent (the "New Company Credit Agreement"), and certain subsidiaries of the Company ("Subsidiary Borrowers") amended and restated their existing credit agreement by entering into a second amended and restated subsidiary credit agreement, dated as of May 2, 1994, with the banks and other financial institutions named therein, BTCo as agent and First Union as co-agent (the "New Subsidiary Credit Agreement"). BTCo, the agent under the Company and the Subsidiary Borrowers' existing credit agreements, will continue to serve as agent (the "Agent") under the New Company Credit Agreement and the New Subsidiary Credit Agreement. The following is a summary of the material terms of the New Company Credit Agreement and the New Subsidiary Credit Agreement. This summary is not a complete description of the New Company Credit Agreement and the New Subsidiary Credit Agreement and is qualified in its entirety by reference to the terms of the New Company Credit Agreement and the New Subsidiary Credit Agreement, copies of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. THE FACILITY The New Company Credit Agreement provides for a five-year reducing, revolving credit facility in favor of the Company in an aggregate committed amount of up to $300 million (the "Revolving Credit Commitment"). The Revolving Credit Commitment also will be available to the Subsidiary Borrowers under the New Subsidiary Credit Agreement. Extensions of credit under the Revolving Credit Commitment will be subject to certain customary conditions precedent and may take the form of revolving loans or letters of credit (up to an aggregate amount for letters of credit of $275 million) and shall be used (i) to refinance certain mortgage indebtedness of certain subsidiaries of the Company in the principal amount of approximately $14.7 million and the loans to certain subsidiaries of the Company outstanding under the existing credit agreements in the principal amount of approximately $46.8 million, which refinancing occurred on May 2, 1994, (ii) for continued credit enhancement of certain currently outstanding variable rate demand notes issued by or for the benefit of certain Subsidiary Borrowers, (iii) to pay the fees, costs and expenses incurred by the Company in connection with the Acquisition, the sale of the Notes and the entering into of the New Credit Agreement, and (iv) for working capital and other general corporate purposes, including to finance in part the Acquisition and to finance other permitted acquisitions and investments. At June 30, 1994, approximately $72.6 million in loans and $73.0 million of letters of credit were outstanding under the Revolving Credit Commitment. The Company expects to borrow additional amounts under the Revolving Credit Commitment in connection with the Acquisition of the remaining Target Hospitals covered by the First Facilities Agreement and the Target Hospitals covered by the Subsequent Facilities Agreement. COMMITMENT REDUCTIONS AND REPAYMENTS The Revolving Credit Commitment will automatically be reduced by the amounts and on the dates indicated below:
AMOUNT DATE - -------------- ----------------- $ 25,000,000 March 31, 1996 50,000,000 March 31, 1997 50,000,000 March 31, 1998 175,000,000 March 31, 1999
In addition to the scheduled reductions above and certain other mandatory reductions, the Revolving Credit Commitment shall be reduced (i) by an amount equal to 70% (or if a default or an event of default exists, 100%) of the net proceeds of certain asset sales, (ii) by an amount equal to 25% (or if a default or an event of default exists, 100%) of the net proceeds of certain issuances or sales of the Company's capital stock or other equity interests, except that no such reduction shall be required if the Company meets specified financial ratios and no default or event of default has occurred and is continuing, and (iii) by an amount equal to the principal amount of permitted subordinated indebtedness (including, without limitation, the Notes) subject to a required repurchase or repurchase offer by the Company as a result of any asset sale. All 88 such reductions described in the foregoing clauses (i) through (iii) shall be applied first on a PRO RATA basis to all scheduled reductions of the Revolving Credit Commitment other than the last scheduled reduction of the Revolving Credit Commitment, and thereafter to the last scheduled reduction. INTEREST The loans outstanding under the Revolving Credit Commitment bear interest at a rate per annum equal to (a) the sum of the Base Lending Rate plus 3/4%, or (b) at the option of the Company, the sum of the maximum reserve-adjusted one, two, three or six-month LIBOR plus 1 3/4%. The Base Lending Rate is the higher of (x) the rate announced from time to time as BTCo's prime lending rate, (y) the Federal Reserve's reported weekly average dealer offering rate for three-month certificates of deposit, adjusted for maximum reserves, plus 1/2 of 1%, and (z) the Federal Funds Rate plus 1/2 of 1%. At June 15, 1994, the interest rate per annum for amounts outstanding pursuant to the Revolving Credit Commitment was 6.125%. The applicable interest rates for loans bearing interest on the basis of the Base Lending Rate or LIBOR will be reduced by 1/4 of 1% per annum if at any time the Company meets a specified financial ratio and the Company's permitted subordinated indebtedness is given certain specified ratings by Standard & Poor's Corporation and Moody's Investors Services, Inc. and will be reduced by an additional 1/4 of 1% per annum if at any time the Company meets a certain more restrictive financial ratio and the Company's permitted subordinated indebtedness is given certain specified higher ratings by Standard & Poor's Corporation and Moody's Investors Services, Inc. Overdue principal and, to the extent permitted by law, overdue interest shall bear interest at a rate per annum equal to the greater of (i) the sum of the Base Lending Rate plus 2.75% per annum, and (ii) the sum of the interest rate otherwise applicable to such overdue amount plus 2.00% per annum. COMMISSIONS, FEES AND EXPENSES The Company and the Subsidiary Borrowers will pay, on a monthly basis in arrears, a commitment commission equal to 1/2 of 1% per annum of the daily average unutilized Revolving Credit Commitment. The commitment commission will be reduced to 3/8 of 1% per annum if at any time the Company meets a specified financial ratio and the Company's permitted subordinated indebtedness is given specified ratings by Standard & Poor's Corporation and Moody's Investors Services, Inc. The Company and the Subsidiary Borrowers will pay, on a monthly basis in arrears, a letter of credit commission equal to 1.75% per annum of the daily average amount available to be drawn under letters of credit under the New Company Credit Agreement or the New Subsidiary Credit Agreement. Letter of credit commissions will be reduced at all times and to the extent that the interest rate for Base Rate Loans provided above is reduced. The Company will also pay customary fees to issuing banks in connection with the issuance of letters of credit. The Agent will receive an annual fee, payable in advance in an amount previously agreed upon, as compensation for its services as Agent. The Company has reimbursed the Agent for all reasonable out-of-pocket expenses and costs in connection with the arrangement and commitment of the Revolving Credit Commitment, the preparation, execution and delivery of documentation evidencing the Revolving Credit Commitment, and will reimburse the Agent for such expenses and costs in connection with the preparation, execution and delivery of documentation relating to waivers, consents and amendments thereof, including the reasonable attorneys' fees and expenses of the Agent's counsel. In addition to the foregoing, the Company paid to BTCo for its account certain fees for the arrangement and committment of the Revolving Credit Commitment. GUARANTEES The New Company Credit Agreement and the New Subsidiary Credit Agreement are guaranteed by substantially all of the Company's existing subsidiaries and will also be guaranteed by each future 95% or more owned restricted subsidiary (other than certain foreign subsidiaries) of the Company having assets in excess of $500,000 or owning capital stock of such a subsidiary (collectively, the "Subsidiary Guarantors"). The Company shall continue to guarantee the obligations of the Subsidiary Borrowers under the New Subsidiary Credit Agreement. 89 SECURITY The Company's and the Subsidiary Borrowers' obligations under the New Credit Agreement, and the Company's and the Subsidiary Guarantors' guarantees of such obligations, are secured by substantially the same collateral securing the existing credit agreements, which includes substantially all of the real and personal property of the Company and its domestic subsidiaries, including pledges of all or a portion of the capital stock of substantially all of the Company's operating subsidiaries. Future Subsidiary Guarantors will be required to secure their respective guarantees of the New Company Credit Agreement and the New Subsidiary Credit Agreement with their respective personal property (other than the personal property of unrestricted subsidiaries and certain foreign subsidiaries) but, subject to certain exceptions, shall not be required to grant liens on any of their respective real property. AFFIRMATIVE, NEGATIVE AND FINANCIAL COVENANTS LIMITATIONS ON ADDITIONAL INDEBTEDNESS. The New Credit Agreement prohibits incurrence of additional indebtedness by the Company and its "restricted subsidiaries" (as defined in the New Credit Agreement) subject to the following exceptions: (a) subject to the satisfaction of certain financial incurrence tests, (i) the Company may incur up to an additional $125 million of subordinated indebtedness and (ii) the Company and its wholly-owned restricted subsidiaries may incur up to $75 million additional unsubordinated indebtedness outstanding at any time, provided that no more than $25 million may be incurred by wholly-owned restricted subsidiaries; (b) foreign restricted subsidiaries may incur up to $50 million of indebtedness outstanding at any time in connection with letters of credit or bonds obtained in connection with contracts for foreign projects ("Foreign Contracts Credit Support"); (c) the Company and its subsidiaries may incur certain intercompany indebtedness; (d) the Company and its subsidiaries may incur certain types of indebtedness in the ordinary course of business; and (e) restricted subsidiaries that are less than 95% owned may (i) incur indebtedness as a result of the contribution by the Company's and its subsidiaries' joint venture partners of assets securing such indebtedness and (ii) incur up to $75 million of other indebtedness outstanding at any time for all such joint ventures; provided that, the indebtedness described in this clause (e) shall be, in general, without recourse (by law or contract) to the Company and its other restricted subsidiaries. LIMITATIONS ON ASSET SALES, ETC. The New Credit Agreement prohibits sales and other dispositions of assets by the Company and its restricted subsidiaries, provided, that, subject to the satisfaction of certain conditions, the Company and its restricted subsidiaries may conduct sales and other disposition of assets having a fair market value not exceeding $200,000, either individually or in any series of related transactions, without restriction. The Company and its restricted subsidiaries may also conduct sales of assets having a fair market value in excess of $1 million provided that the asset is sold for an amount at least equal to its fair market value and that the consideration received from the sale consists of at least 70% in cash and/or the assumption of certain types of indebtedness. After the aggregate fair market value of assets over $200,000 sold exceeds $50 million, the sale of any asset with a fair market value greater than $5 million (excluding permitted investments in subsidiaries or joint ventures) requires consent of a specified percentage of the banks and other financial institutions that are parties to the New Credit Agreement. The Company and its restricted subsidiaries are also permitted to lease portions of hospitals and other facilities, licensed beds and certain other assets to third parties. RESTRICTIONS ON ADVANCES, INVESTMENTS AND LOANS, ETC. The New Credit Agreement prohibits the Company and its restricted subsidiaries from making advances and loans to, and equity investments (including capital contributions) in any person and direct and indirect guaranties of the obligations of any other person except that subject to certain terms and conditions: (a) the Company and its domestic restricted subsidiaries may make loans and advances to foreign restricted subsidiaries in an aggregate amount not to exceed $50 million outstanding at any time to provide cash collateral for Foreign Contracts Credit Support; (b) the Company and its restricted subsidiaries may make certain other intercompany investments; (c) the Company and its restricted subsidiaries may enter into certain transactions with its officers, employees, and directors; (d) the Company and its restricted subsidiaries may invest in certain cash equivalents and certain other investments made in the ordinary course of business; (e) so long as no default or event of default under the New Credit Agreement exists, and subject to the satisfaction of certain financial incurrence tests, the Company and its wholly-owned restricted subsidiaries may contribute hospitals and similar healthcare or tangible healthcare related assets (together with working capital) to joint ventures in the healthcare business 90 provided that the aggregate fair market value or book value, whichever is greater, of all such facilities contributed to joint ventures with respect to which the Company and its wholly-owned subsidiaries do not have a majority of the equity interests or are not entitled to elect or appoint the directors, managers or trustees, as applicable, does not exceed $100 million; (f) so long as no default or event of default under the New Credit Agreement exists and subject to the satisfaction of certain financial incurrence tests, the Company or its restricted subsidiaries may make, in the aggregate, up to $70 million of investments in subsidiaries of the Company formed to pursue strategic investments and joint ventures in clinical services and management information services; provided that the permitted amount of such Investments may be increased to the extent of the Company's "accumulated excess cash flow" (as defined in New Credit Agreement) by an aggregate amount not to exceed a total of $30 million; and (g) so long as no default or event of default under the New Credit Agreement exists and subject to the satisfaction of certain financial incurrence tests, the Company and its restricted subsidiaries may make up to $60 million of any other types of investments outstanding at any time; provided that the permitted amount of such investments shall be increased by $10 million on each of the first and second anniversaries of the execution and delivery of the New Credit Agreement; provided, further, that any funds invested under this clause (g) will reduce the permitted acquisition amounts (excluding amounts attributable to the Acquisition) described under the caption "-- Acquisitions and Construction, etc. of Hospitals." ACQUISITIONS AND CONSTRUCTION, ETC. OF HOSPITALS. Subject to certain terms and conditions, the New Credit Agreement permits the Company and its wholly-owned restricted subsidiaries to complete the Acquisition. In addition, subject to the satisfaction of certain financial incurrence tests and subject to certain other terms and conditions, the Company and its restricted subsidiaries shall be permitted to spend, in the aggregate, for the purpose of directly or indirectly acquiring or constructing hospitals or other healthcare or healthcare related assets (in addition to the Target Hospitals), up to $75 million; provided that the permitted amount of such expenditures may be increased by annual increments in an aggregate amount for all such increments not to exceed a total increase of $100 million. RESTRICTIONS ON CERTAIN CAPITAL EXPENDITURES. The aggregate amount of capital expenditures (other than those described under the caption "-- Acquisitions and Construction, etc. of Hospitals") by the Company and its restricted subsidiaries shall not exceed $35 million in any fiscal year of the Company; provided that (a) to the extent the aggregate amount of such capital expenditures is less than $35 million in any fiscal year, up to $10 million of the unused amount may be carried forward to the Company's next fiscal year, and (b) the amount the Company would otherwise be permitted to make in any fiscal year may be increased to the extent the Company has sufficient "accumulated excess cash flow" (as defined in the New Credit Agreement) to an aggregate amount not to exceed $50 million in such fiscal year. OTHER. The New Company Credit Agreement and the New Subsidiary Credit Agreement also contain affirmative covenants usual for facilities of this type and other negative covenants restricting the Company and its restricted subsidiaries from, among other things, (i) creating certain liens, (ii) entering into certain mergers, consolidations, joint ventures, partnerships, leases and sale-and-leaseback transactions, (iii) paying certain dividends and effecting certain other transactions involving the capital stock of the Company and its restricted subsidiaries, (iv) entering into certain transactions with affiliates, (v) incurring restrictions affecting dividends and other payments from subsidiaries, (vi) issuing subsidiary stock, and (vii) making voluntary prepayments or redemptions of subordinated indebtedness. In addition, the New Company Credit Agreement requires the Company to comply with certain financial covenants that will be tested on a quarterly basis. EVENTS OF DEFAULT The New Company Credit Agreement and the New Subsidiary Credit Agreement contain default provisions usual for facilities of this type, and also include an event of default for any change in control of the Company, as defined in substantially the same manner as the definition of Change of Control contained herein. See "Description of the New Notes." 91 FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER The following is a description of the material federal income tax consequences of the Exchange Offer to the holders of the Old Notes and the Company. The Company's counsel has issued an opinion to the Company, which opinion was filed as an exhibit to the Registration Statement of which this Prospectus is a part, stating that, in the opinion of such counsel, the material federal income tax consequences of the Exchange Offer to the holders of the Old Notes and to the Company are fairly and accurately set forth below. The exchange of Old Notes for New Notes pursuant to the Exchange Offer should not constitute a material modification of the Old Notes and, accordingly, such exchange should not constitute an exchange for federal income tax purposes. Accordingly, such exchange should have no federal income tax consequences to holders of Old Notes, either to those who exchange their Old Notes for New Notes or those who do not so exchange their Old Notes, and each holder of Old Notes would continue to be required to include interest on the Old Notes in its gross income in accordance with its method of accounting for federal income tax purposes. If the exchange of Old Notes for New Notes constitutes an exchange for federal income tax purposes, and both the Old Notes and the New Notes constitute "securities" for federal income tax purposes (which determination generally is made by reference to the initial term of the debt instrument, with debt instruments with initial terms of ten years or more being generally treated as securities and debt instruments with initial terms of less than five years being generally treated as not securities), a holder of Old Notes would recognize no gain or loss on the consummation of the Exchange Offer. If, in such event, the Old Notes or the New Notes did not constitute securities, (i) a holder would recognize gain or loss for federal income tax purposes in an amount equal to the difference between (a) the "issue price" of the New Notes and (b) the holder's adjusted tax basis in the Old Notes exchanged therefor, and (ii) (a) gain, if any, recognized by a holder on the exchange generally would be capital gain (if the Old Notes were held by such holder as capital assets), and would be short-term capital gain if the holder's holding period in the Old Notes was not more than one year, (b) a holder's initial tax basis in the New Notes would be their "issue price" determined on the date of the exchange, and (c) a holder's holding period for the New Notes would begin on the day after the date of the exchange. In each case, depending on the issue price of the New Notes, which would be determined on the date of exchange, a holder might be required to include original issue discount in gross income for federal income tax purposes in advance of the receipt of cash in respect thereof. LEGAL MATTERS The legality of the New Notes offered hereby will be passed upon for Charter by King & Spalding, 191 Peachtree Street, Atlanta, Georgia 30303-1763. EXPERTS The audited consolidated financial statements and schedules of Charter included in this Prospectus and elsewhere in this Registration Statement have been audited by Arthur Andersen & Co., independent public accountants, as indicated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The combined financial statements of the Selected Psychiatric Hospitals of National Medical Enterprises, Inc. as of May 31, 1993, and for each of the years in the two-year period ended May 31, 1993 included herein and in the Registration Statement have been so included in reliance upon the report of KPMG Peat Marwick, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. AVAILABLE INFORMATION Charter has filed with the Commission a Registration Statement on Form S-4 under the Securities Act for the Registration of the New Notes offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement, 92 certain items of which are contained in exhibits and schedules to the Registration Statement as permitted by the rules and regulations of the Commission. For further information with respect to the Company and the New Notes offered hereby, reference is made to the Registration Statement, including the exhibits thereto, and financial statements and notes filed as a part thereof. Statements made in this Prospectus concerning the contents of any document referred to herein are not necessarily complete. With respect to each such document filed with the Commission as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. Charter is subject to the informational requirements of the Exchange Act, and, in accordance therewith, files reports, proxy statements and other information with the Commission. Copies of such material can be obtained from the Public Reference Section of the Commission, at Room 1024, Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549 at prescribed rates. In addition, such reports, proxy statements and other information can be inspected and copied at public reference facilities referred to above and at Regional Offices of the Commission located at Room 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York 10048. Charter's Common Stock is listed for trading on the American Stock Exchange and reports, proxy statements and other information concerning Charter may be inspected at the office of the American Stock Exchange, 86 Trinity Place, New York, New York. If, at any time, Charter is not subject to the information requirements of the Exchange Act, Charter has agreed to furnish to holders of the New Notes financial statements, including notes thereto and with respect to annual reports, an auditor's report by an accounting firm of established national reputation and a "Management's Discussion and Analysis of Financial Condition and Results of Operations," and any other information that would be required by Form 10-K, Form 10-Q and Form 8-K. 93 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS
PAGE --------- CHARTER MEDICAL CORPORATION Audited Consolidated Financial Statements Report of independent public accountants............................................................... F-2 Consolidated balance sheets as of September 30, 1992 and 1993.......................................... F-3 Consolidated statements of operations for the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993............... F-4 Consolidated statements of changes in stockholders' equity (deficit) for the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993.................................................................................... F-5 Consolidated statements of cash flows for the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993............... F-6 Notes to consolidated financial statements............................................................. F-7 Unaudited Condensed Consolidated Financial Statements Condensed consolidated balance sheets as of September 30, 1993 and March 31, 1994...................... F-33 Condensed consolidated statements of operations for the quarters and six months ended March 31, 1993 and 1994.............................................................................................. F-34 Condensed consolidated statements of changes in stockholders' equity (deficit) for the quarter and six months ended March 31, 1994........................................................................... F-35 Condensed consolidated statements of cash flows for the six months ended March 31, 1993 and 1994....... F-36 Notes to condensed consolidated financial statements................................................... F-37 THE TARGET HOSPITALS Audited Combined Financial Statements as of and for the two years ended May 31, 1993 Report of independent public accountants............................................................... F-45 Combined balance sheet as of May 31, 1993.............................................................. F-46 Combined statements of operations for the years ended May 31, 1992 and 1993............................ F-47 Combined statements of cash flows for the years ended May 31, 1992 and 1993............................ F-48 Combined statements of owners' equity for the years ended May 31, 1992 and 1993........................ F-49 Notes to combined financial statements................................................................. F-50 Unaudited Combined Condensed Financial Statements Unaudited combined condensed balance sheet as of February 28, 1994..................................... F-56 Unaudited combined condensed statements of operations for the nine months ended February 28, 1993 and 1994.................................................................................................. F-57 Unaudited combined condensed statements of cash flows for the nine months ended February 28, 1993 and 1994.................................................................................................. F-58 Note to unaudited combined condensed financial statements.............................................. F-59
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Charter Medical Corporation: We have audited the accompanying consolidated balance sheets of Charter Medical Corporation (a Delaware Corporation) and subsidiaries as of September 30, 1992 and 1993, and the related consolidated statements of operations, changes in stockholders' equity (deficit), and cash flows for the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Charter Medical Corporation and subsidiaries as of September 30, 1992 and 1993, and the results of their operations and their cash flows for the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 2, the Company's reorganization plan was confirmed by the U.S. Bankruptcy Court on July 8, 1992 and became effective on July 21, 1992 (effective on July 31, 1992 for financial reporting purposes). In accordance with Statement of Position No. 90-7 of the American Institute of Certified Public Accountants, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," the Company was required to account for the reorganization using fresh start reporting. Accordingly, all consolidated financial statements prior to July 31, 1992 are not comparable to the consolidated financial statements for periods after the implementation of fresh start reporting. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index to the exhibits and financial statement schedules are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as whole. ARTHUR ANDERSEN & CO. Atlanta, Georgia November 15, 1993 (except with respect to the matters discussed in Notes 14 and 15, as to which the date is June 30, 1994) F-2 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) ASSETS
SEPTEMBER 30, SEPTEMBER 30, 1992 1993 ------------- ------------- Current Assets Cash, including cash equivalents of $104,710 in 1992 and $60,242 in 1993, at cost which approximates market........................................................... $ 140,803 $ 86,002 Accounts receivable, less allowance for doubtful accounts of $30,272 in 1992 and $28,843 in 1993..................................................................... 127,698 119,638 Supplies............................................................................. 5,784 5,051 Other current assets................................................................. 16,457 21,224 ------------- ------------- Total Current Assets............................................................... 290,742 231,915 Assets Restricted for Settlement of Unpaid Claims...................................... 67,456 81,608 Property and Equipment Land................................................................................. 101,892 95,886 Buildings and improvements........................................................... 324,921 310,649 Equipment............................................................................ 62,940 67,421 ------------- ------------- 489,753 473,956 Accumulated depreciation............................................................. (4,313) (30,098) ------------- ------------- 485,440 443,858 Construction in progress............................................................. 1,322 928 ------------- ------------- 486,762 444,786 Other Long-Term Assets................................................................. 12,891 22,676 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets............. 121,709 57,201 Net Assets of Discontinued Operations.................................................. 319,638 -- ------------- ------------- $ 1,299,198 $ 838,186 ------------- ------------- ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable..................................................................... $ 50,735 $ 52,264 Accrued salaries and wages........................................................... 32,120 28,298 Other accrued liabilities............................................................ 127,004 109,600 Current income taxes payable......................................................... 12,329 11,479 Current maturities of long-term debt and capital lease obligations................... 73,956 70,957 ------------- ------------- Total Current Liabilities.......................................................... 296,144 272,598 Long-Term Debt and Capital Lease Obligations........................................... 844,839 350,205 Deferred Income Tax Liabilities........................................................ 20,569 38,789 Reserve for Unpaid Claims.............................................................. 98,346 99,675 Deferred Credits and Other Long-Term Liabilities....................................... 28,876 19,621 Stockholders' Equity (Deficit) Preferred Stock, without par value Authorized -- 10,000,000 shares Issued and outstanding -- none..................................................... -- -- Common Stock, par value $0.25 per share Authorized -- 80,000,000 shares Issued and outstanding -- 24,827,656 shares in 1992 and 25,001,042 shares in 1993..................................................... 6,207 6,250 Other Stockholders' Equity (Deficit) Additional paid-in capital......................................................... 198,623 237,581 Accumulated deficit................................................................ (7,196) (59,423) Unearned compensation under ESOP................................................... (187,128) (122,724) Warrants outstanding............................................................... 283 274 Cumulative foreign currency adjustments............................................ (365) (4,660) ------------- ------------- 10,424 57,298 Commitments and Contingencies ------------- ------------- $ 1,299,198 $ 838,186 ------------- ------------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these balance sheets. F-3 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ---------- ------------- ------------- Net revenue................................................. $ 868,264 $ 777,855 $ 142,850 $ 897,907 ------------- ---------- ------------- ------------- Costs and expenses Operating and administrative expenses..................... 656,828 563,600 107,608 640,847 Bad debt expenses......................................... 51,617 50,403 14,804 67,300 Depreciation and amortization............................. 48,659 35,126 3,631 26,382 Amortization of reorganization value in excess of amounts allocable to identifiable assets......................... -- -- 7,167 42,678 Interest, net............................................. 232,218 169,244 12,690 74,156 ESOP expense (credit)..................................... (3,962) 33,714 4,811 45,874 Deferred compensation expense............................. 5,061 3,190 -- -- Stock option expense (credit)............................. -- -- (789) 38,416 Provision for restructuring of operations................. 45,000 -- -- -- ------------- ---------- ------------- ------------- 1,035,421 855,277 149,922 935,653 ------------- ---------- ------------- ------------- Loss from continuing operations before income taxes, reorganization items and extraordinary item................ (167,157) (77,422) (7,072) (37,746) Provision for income taxes.................................. -- 4,259 1,054 1,874 ------------- ---------- ------------- ------------- Loss from continuing operations before reorganization items and extraordinary item..................................... (167,157) (81,681) (8,126) (39,620) Discontinued operations: Income (Loss) from discontinued operations (1)........................................... 37,115 24,211 930 (14,703) Gain on disposal of discontinued operations (net of income tax provision of $42,838)................................ -- -- -- 10,657 ------------- ---------- ------------- ------------- Loss before reorganization items and extraordinary item..... (130,042) (57,470) (7,196) (43,666) Reorganization items: Professional fees and other expenses...................... -- (8,156) -- -- Adjust accounts to fair value............................. -- 83,004 -- -- Extraordinary item -- gain (loss) on early extinguishment or discharge of debt (net of income tax benefit of $5,298 in 1993)...................................................... -- 730,589 -- (8,561) ------------- ---------- ------------- ------------- Net income (loss)........................................... $ (130,042) $ 747,967 $ (7,196) $ (52,227) ------------- ---------- ------------- ------------- ------------- ---------- ------------- ------------- Average number of common shares outstanding (2)............. -- -- 24,828 24,875 ------------- ------------- ------------- ------------- Earnings (Loss) per common share (2): Loss from continuing operations before extraordinary item..................................................... -- -- $ (.33) $ (1.59) Income (Loss) from discontinued operations and gain on disposal of discontinued operations...................... -- -- .04 (.16) ------------- ------------- Loss before extraordinary item............................ -- -- (.29) (1.75) Extraordinary loss on early extinguishment of debt........ -- -- -- (.35) ------------- ------------- Net loss.................................................. -- -- $ (.29) $ (2.10) ------------- ------------- ------------- ------------- - -------------------------- (1) Net of income tax provisions of $79, $122 and $10,708 in the ten months ended July 31, 1992, the two months ended September 30, 1992 and fiscal 1993, respectively. (2) Shares and per share amounts for the periods ended September 30, 1991 and July 31, 1992 have not been presented because they are not meaningful due to the implementation of fresh start accounting and the substantial change in the number of shares outstanding subsequent to the consummation of the Plan.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-4 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ----------- ------------- ------------- Common Stock: Balance, beginning of period............................... $ -- $ -- $ 6,207 $ 6,207 Consummation of the Restructuring.......................... -- 6,207 -- -- Exercise of options and warrants........................... -- -- -- 43 ------------- ----------- ------------- ------------- Balance, end of period..................................... -- 6,207 6,207 6,250 ------------- ----------- ------------- ------------- Class B Common Stock: Balance, beginning of period............................... 3,679 3,537 -- -- Consummation of the Restructuring.......................... -- (3,537) -- -- Other...................................................... (142) -- -- -- ------------- ----------- ------------- ------------- Balance, end of period..................................... 3,537 -- -- -- ------------- ----------- ------------- ------------- Additional Paid-in Capital: Balance, beginning of period............................... 34,830 39,891 199,412 198,623 Deferred compensation and stock option expense (credit).... 5,061 3,190 (789) 38,416 Consummation of the Restructuring.......................... -- 364,888 -- -- Adjust accounts to fair value.............................. -- 3,993 -- -- Exercise of options and warrants........................... -- -- -- 542 Fresh start equity reclassifications....................... -- (212,550) -- -- ------------- ----------- ------------- ------------- Balance, end of period..................................... 39,891 199,412 198,623 237,581 ------------- ----------- ------------- ------------- Accumulated Deficit: Balance, beginning of period............................... (843,883) (945,222) -- (7,196) Net income (loss).......................................... (130,042) 747,967 (7,196) (52,227) Fresh start equity reclassifications....................... -- 215,479 -- -- Cumulative redeemable preferred stock dividend requirements.............................................. (24,853) (18,224) -- -- Reversal of warrant accretion.............................. 53,526 -- -- -- Other...................................................... 30 -- -- -- ------------- ----------- ------------- ------------- Balance, end of period..................................... (945,222) -- (7,196) (59,423) ------------- ----------- ------------- ------------- Unearned Compensation under ESOP: Balance, beginning of period............................... (238,760) (240,461) (193,990) (187,128) ESOP expense (credit)...................................... (3,962) 33,714 4,811 45,874 ESOP expense of discontinued operations.................... 2,261 12,757 2,051 18,530 ------------- ----------- ------------- ------------- Balance, end of period..................................... (240,461) (193,990) (187,128) (122,724) ------------- ----------- ------------- ------------- Warrants Outstanding: Balance, beginning of period............................... 57,519 3,993 283 283 Exercise of warrants....................................... -- -- -- (9) Consummation of the Restructuring.......................... -- 283 -- -- Adjust accounts to fair value.............................. -- (3,993) -- -- Reversal of warrant accretion.............................. (53,526) -- -- -- ------------- ----------- ------------- ------------- Balance, end of period..................................... 3,993 283 283 274 ------------- ----------- ------------- ------------- Cumulative Foreign Currency Adjustments: Balance, beginning of period............................... 1,661 (17) -- (365) Foreign currency translation gain (loss)................... (1,678) 3,088 (365) (4,295) Fresh start equity reclassifications....................... -- (3,071) -- -- ------------- ----------- ------------- ------------- Balance, end of period..................................... (17) -- (365) (4,660) ------------- ----------- ------------- ------------- Total Stockholders' Equity (Deficit)......................... $(1,138,279) $ 11,912 $ 10,424 $ 57,298 ------------- ----------- ------------- ------------- ------------- ----------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-5 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ----------- ------------- ------------- Cash Flows From Operating Activities Net income (loss).......................................... $ (130,042) $ 747,967 $ (7,196) $ (52,227) ------------- ----------- ------------- ------------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Income) Loss from discontinued operations............... (37,115) (24,211) (930) 14,703 Gain on sale of discontinued operations.................. -- -- -- (10,657) Depreciation and amortization............................ 48,659 35,126 10,798 69,060 Non-cash portion of provision for restructuring of operations.............................................. 12,828 -- -- -- ESOP expense (credit).................................... (3,962) 33,714 4,811 45,874 Deferred compensation and stock option expense (credit)................................................ 5,061 3,190 (789) 38,416 Non-cash interest expense................................ 78,796 38,245 917 7,866 Cash flows from changes in assets and liabilities, net of reorganization items and effects from sales of businesses: Accounts receivable, net............................... 27,388 (133) 10,960 7,909 Other current assets................................... 643 (7,492) (685) (2,541) Other long-term assets................................. 1,178 (8,761) 471 (5,239) Accounts payable and other accrued liabilities......... 105,762 76,354 25,401 (30,443) Income taxes payable................................... (4,858) 1,585 942 1,482 Reserve for unpaid claims.............................. 11,418 7,348 (1,479) 4,119 Reorganization items: Professional fees and other expenses................... -- (20,208) (6,161) -- Adjust accounts to fair value.......................... -- (83,004) -- -- Extraordinary (gain) loss on early extinguishment or discharge of debt....................................... -- (730,589) -- 8,561 Other.................................................... 6,076 7,810 1,300 (6,925) ------------- ----------- ------------- ------------- Total adjustments...................................... 251,874 (671,026) 45,556 142,185 ------------- ----------- ------------- ------------- Net cash provided by operating activities............ 121,832 76,941 38,360 89,958 ------------- ----------- ------------- ------------- Cash Flows From Investing Activities Capital expenditures....................................... (11,699) (8,868) (1,430) (11,101) Increase in assets restricted for settlement of unpaid claims.................................................... (5,866) (1,629) (16,438) (14,152) Proceeds from sale of assets (including discontinued operations)............................................... 36,566 3,008 -- 354,173 Cash flows from discontinued operations.................... 33,540 33,812 10,977 42,487 ------------- ----------- ------------- ------------- Net cash provided by (used in) investing activities...... 52,541 26,323 (6,891) 371,407 ------------- ----------- ------------- ------------- Cash Flows From Financing Activities Payments on debt and capital lease obligations............. (68,835) (120,197) (42,931) (533,942) Proceeds from issuance of debt............................. -- 1,462 -- 17,200 Proceeds from exercise of stock options and warrants....... -- -- -- 576 ------------- ----------- ------------- ------------- Net cash used in financing activities.................... (68,835) (118,735) (42,931) (516,166) ------------- ----------- ------------- ------------- Net increase (decrease) in cash and cash equivalents......... 105,538 (15,471) (11,462) (54,801) Cash and cash equivalents at beginning of period............. 62,198 167,736 152,265 140,803 ------------- ----------- ------------- ------------- Cash and cash equivalents at end of period................... $ 167,736 $ 152,265 $ 140,803 $ 86,002 ------------- ----------- ------------- ------------- ------------- ----------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. F-6 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1993 1. STRUCTURE OF THE COMPANY DISCONTINUED OPERATIONS On September 30, 1993, the Company sold its general hospitals and the related assets for a total sales price of approximately $338 million. The Company retained the assets and liabilities relating to these subsidiaries for professional liability claims incurred and cost report settlements for periods prior to September 30, 1993. Summarized results of the operations of the general hospitals were as follows (in thousands):
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ----------- ------------- ------------- Net revenue....................................... $ 305,650 $ 275,595 $ 57,631 $ 346,835 Operating and administrative and bad debt expenses......................................... 249,956 226,123 46,612 284,372 Depreciation and amortization..................... 12,947 11,334 2,422 15,123 Amortization of reorganization value in excess of amounts allocable to identifiable assets......... -- -- 5,333 32,000 Interest, net..................................... 3,336 1,836 371 1,955 ESOP expense...................................... 2,261 12,757 2,051 18,533 Provision for income taxes........................ -- -- 95 10,267 ------------- ----------- ------------- ------------- Net income (loss)................................. $ 37,150 $ 23,545 $ 747 $ (15,415) ------------- ----------- ------------- ------------- ------------- ----------- ------------- -------------
For the year ended September 30, 1993, the general hospitals were allocated income taxes based on their relative contribution to the Company's consolidated income tax liability before nondeductible amortization of reorganization value in excess of amounts allocable to identifiable assets. No allocation was made for periods prior to July 31, 1992, as the Company recorded no tax provision related to operations. On September 15, 1993, the Company sold its interest in Beech Street of California, Inc. ("Beech Street") (see Note 12). Beech Street operates preferred provider networks and provides utilization review services to third parties. Immediately prior to the sale, the Company owned 71.1% of the voting stock and 19.8% of the equity ownership of Beech Street. The operations of Beech Street were consolidated with the Company. Summarized results of Beech Street's operations were as follows (in thousands):
TEN MONTHS TWO MONTHS YEAR ENDED ENDED JULY ENDED YEAR ENDED SEPTEMBER 30, 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ----------- ------------- ------------- Net revenue............................................ $ 14,400 $ 16,671 $ 4,148 $ 25,596 Operating and administrative, bad debt and minority interest expenses..................................... 13,623 15,819 3,921 24,334 Other expenses, including income taxes................. 812 186 44 550 ------------- ----------- ------ ------------- Net income (loss)...................................... $ (35) $ 666 $ 183 $ 712 ------------- ----------- ------ ------------- ------------- ----------- ------ -------------
The net assets, results of operations and the gains on the sales of the general hospitals and Beech Street have been reported in the accompanying financial statements as discontinued operations. Therefore, the financial statements for all prior periods presented have been restated to segregate these amounts from continuing operations. F-7 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 1. STRUCTURE OF THE COMPANY (CONTINUED) CONSUMMATION OF THE RESTRUCTURING On June 2, 1992, the Company filed a voluntary petition under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Court"). The prepackaged plan of reorganization (the "Plan") effected a restructuring of the Company's debt and equity capitalization (the "Restructuring"). No subsidiaries of the Company were included in the filing. The Court confirmed the Company's Plan on July 8, 1992, and the Plan became effective on July 21, 1992 (the "Effective Date"). The consummation of the Plan resulted in, among other things, (i) a reduction of approximately $700 million in long-term debt, (ii) elimination of $233 million of preferred stock and (iii) the issuance of approximately 24.8 million shares of Common Stock to certain holders of debt securities, the preferred stockholders and common stockholders. Under the Plan, holders of claims and interests that were impaired received the following:
FOR EACH $1,000 OF PRINCIPAL AMOUNT OR SHARE, AS APPLICABLE, OF: THE HOLDER RECEIVED: - ------------------------------------------------------ ------------------------------------------------------ 13% Senior Discount Notes, representing an accreted $984.72 principal amount of Senior Secured Notes value of $984.72 at June 30, 1991 14% Senior Subordinated Debentures $430.98 principal amount of 7.5% Senior Subordinated Debentures and 38.681 shares of Common Stock 14.25% Subordinated Debentures $235.00 principal amount of 7.5% Senior Subordinated Debentures and 20.743 shares of Common Stock 15.85% Junior Subordinated Debentures 15.749 shares of Common Stock Series A Preferred Stock .357 of a share of Common Stock and .165 of a 2002 Warrant Series B Preferred Stock .882 of a share of Common Stock Series C Preferred Stock .539 of a share of Common Stock Series D Preferred Stock .011 of a share of Common Stock Common Stock .050 of a share of Common Stock
As a result of the consummation of the Plan, the financing under the $880 Million Credit Agreement between the Company and certain banks dated September 1, 1988, was replaced by new facilities under the Amended and Restated Credit Agreement dated July 21, 1992, among the Company and certain banks (the "Credit Agreement"). The Credit Agreement includes the Tranche A facility (the "Tranche A Facility"), the Tranche B facility (the "Tranche B Facility") and a new facility (the "Tranche C Facility") in the maximum principal amount of $75 million, subject to availability. Upon consummation of the Plan, the Company recognized an extraordinary gain on debt discharge of approximately $731 million which represented forgiveness of debt, principal and interest, reduced by the estimated fair value of common stock issued to certain debtholders of the Company. The Company's long-term debt was stated at the present value of amounts to be paid, based on market interest rates on July 31, 1992. This adjustment to present value resulted in an aggregate carrying amount for the Company's long-term debt which was less than the aggregate principal amount thereof, and will result in the amortization of the difference into interest expense over the terms of the debt instruments or, upon extinguishment of the debt prior to scheduled maturity, will result in a loss on debt extinguishment. F-8 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 2. FRESH START REPORTING The Company has accounted for the Restructuring by using the principles of fresh start accounting, as required by AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" due to the loss of control by the holders of the existing voting shares immediately before consummation of the Plan and because the reorganization value of approximately $1.3 billion is less than the total of liabilities before consummation of the Plan. These owners received less than 8% of the voting shares of the emerging entity. For accounting purposes, the Company assumed that the Plan was consummated on July 31, 1992. Under the principles of fresh start accounting, the Company's total assets were recorded at their assumed reorganization value, with the reorganization value allocated to identifiable tangible assets on the basis of their estimated fair value. Accordingly, the Company's property and equipment was reduced and its intangible assets were written off. In addition, the Company's accumulated deficit, common stock in treasury and cumulative foreign currency adjustments were eliminated. The excess of the reorganization value over the value of identifiable assets is reported as "reorganization value in excess of amounts allocable to identifiable assets" (the "Excess Reorganization Value"). The total reorganization value assigned to the Company's assets was estimated by calculating projected cash flows before debt service requirements, for a five-year period, plus an estimated terminal value of the Company (calculated using a multiple of approximately six (6) on projected EBITDA (which is net revenue less operating and administrative and bad debt expenses)), each discounted back to its present value using a discount rate of 12% (representing the estimated after-tax weighted cost of capital). This amount was approximately $1.2 billion and was increased by (i) the estimated net realizable value of assets to be sold of approximately $53 million and (ii) estimated cash in excess of normal operating requirements of approximately $48.5 million. The above calculations resulted in an estimated reorganization value of approximately $1.3 billion, of which the Excess Reorganization Value was $225 million, of which $129 million related to continuing operations. The Excess Reorganization Value is being amortized over three years. The Company believed three years was a reasonable life for this intangible asset because of uncertainties about the industry in 1992 as reflected in the Company's declining average inpatient length of stay,declining inpatient days, increased outpatient visits, and the fact that two competitors announced their intentions to close or sell certain psychiatric hospitals. The results of operations for the ten months ended July 31, 1992, show a reorganization item to adjust accounts to fair value which consists of: Excess Reorganization Value................................................. $ 225,000 Deferred Compensation Expense in excess of cash settlement amounts.......... 45,158 Reduction of Property and Equipment......................................... (128,388) Write-off of Goodwill....................................................... (45,538) Write-off of Other Intangibles.............................................. (11,794) Other Adjustments........................................................... (1,434) ----------- $ 83,004 ----------- -----------
As a result of the implementation of fresh start accounting, the financial statements of the Company after consummation of the Plan are not comparable to the Company's financial statements of prior periods. F-9 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 2. FRESH START REPORTING (CONTINUED) The effect of the Plan and the implementation of fresh start accounting on the Company's consolidated balance sheet as of July 31, 1992 was as follows (in thousands) (unaudited):
PRE-FRESH ADJUSTMENTS START TO RECORD FRESH START BALANCE SHEET PLAN FAIR VALUE BALANCE SHEET JULY 31, 1992 CONFIRMATION(A) ADJUSTMENTS(B) JULY 31, 1992 -------------- --------------- -------------- ------------- Cash............................................. $ 154,729 $ 154,729 Other current assets............................. 226,563 973 227,536 Property, plant and equipment: Land........................................... 104,679 18,039 122,718 Buildings and improvements..................... 719,569 (311,618) 407,951 Equipment...................................... 280,522 (165,258) 115,264 Construction in progress....................... 11,686 (258) 11,428 Accumulated depreciation....................... (330,445) 330,445 -- Other long-term assets........................... 66,145 (792) 65,353 Other intangible assets.......................... 87,739 (30,781) (56,958) -- Reorganization value in excess of amounts allocable to identifiable assets................ -- 225,000 225,000 -------------- ------------- $ 1,321,187 $ 1,329,979 -------------- ------------- -------------- ------------- Current liabilities, excluding current maturities of long-term debt............................... $ 396,726 (186,545) 7,353 $ 217,534 Long-term debt, including current maturities..... 1,716,816 (753,621) 963,195 Reserve for unpaid claims........................ 100,215 100,215 Deferred income taxes............................ 29,506 29,506 Other long-term liabilities...................... 7,617 7,617 Redeemable preferred stock....................... 233,066 (233,066) -- Stockholders' Equity (Deficit)................... (1,162,759) 1,142,451 32,220 11,912 -------------- ------------- $ 1,321,187 $ 1,329,979 -------------- ------------- -------------- ------------- - ------------------------ (a) To record the forgiveness of debt, the exchange of Preferred Stock and the issuance of Common Stock pursuant to the Plan. (b) To record the adjustments to state assets and liabilities at their estimated fair value, including the establishment of reorganization value in excess of amounts allocable to identifiable assets.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform with the fiscal 1993 presentation. For accounting purposes, the Company assumed that the Plan was consummated on July 31, 1992. The consolidated financial statements as of and for the two months ended September 30, 1992 and the year ended September 30, 1993 are presented for the Company after the consummation of the Plan. As discussed above, these statements were prepared under the principles of fresh start accounting and are not comparable F-10 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) to the statements of prior periods. Accordingly, a line has been used to separate the financial statements of the Company after the consummation of the Plan from those of the Company prior to the consummation of the Plan. PROPERTY AND EQUIPMENT As a result of the adoption of fresh start accounting, property and equipment were adjusted to their estimated fair value as of July 31, 1992 and historical accumulated depreciation was eliminated. Expenditures for renewals and improvements are charged to the property accounts; however, replacements, maintenance and repairs which do not improve or extend the life of the respective assets are expensed currently. The Company removes the cost and related accumulated depreciation from the accounts for property sold or retired, and any resulting gain or loss is included in operations. Property and equipment are written down to an estimated net realizable value when determined to be held for sale. Amortization of capital lease assets is included in depreciation expense. Depreciation is provided substantially on the straight-line method for financial reporting purposes; however, certain subsidiaries use accelerated methods for income tax purposes. Upon implementation of fresh start accounting, the average of the remaining useful lives of buildings and improvements was approximately 22 years. The general range of estimated useful lives is three to ten years for equipment. EXCESS REORGANIZATION VALUE Excess Reorganization Value is being amortized on a straight-line basis over three years. Amortization expense for the two months ended September 30, 1992 and the year ended September 30, 1993 was $7.2 million and $42.7 million, respectively. The unamortized Excess Reorganization Value of $58.6 million attributable to the general hospitals sold on September 30, 1993, reduced the gain from the disposal of such hospitals. Excess Reorganization Value was reduced by approximately $21 million during fiscal 1993 to reflect the recognition of tax benefits related to pre-Plan tax loss carryforwards. (See Note 8.) FOREIGN CURRENCY Changes in the cumulative translation of foreign currency assets and liabilities are presented as a separate component of stockholders' equity (deficit). Gains and losses resulting from foreign currency transactions, which were not material, are included in operations as incurred. NET REVENUE Net revenue is based on established billing rates, less estimated allowances for patients covered by Medicare and other contractual reimbursement programs and discounts from established billing rates. Amounts received by the Company for treatment of patients covered by Medicare and other contractual reimbursement programs, which may be based on cost of services provided or predetermined rates, are generally less than the established billing rates of the Company's hospitals. Final determination of amounts earned under contractual reimbursement programs is subject to review and audit by the appropriate agencies. Management believes that adequate provision has been made for any adjustments that may result from such reviews. CHARITY CARE The Company provides care without charge or at amounts less than its established rates to patients who meet certain criteria under its charity care policies. Because the Company does not pursue collection of amounts determined to be charity care, they are not reported as revenue. For fiscal year 1991 and the ten months ended July 31, 1992, the Company provided, at its established billing rates, approximately $34.2 million and $30 million, respectively, of such care. For the two months ended September 30, 1992 and the year ended September 30, 1993, the Company provided, at its established billing rates, approximately $5.8 million and $35.7 million, respectively, of such care. F-11 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTEREST, NET The Company records interest expense net of capitalized interest and interest income. Interest income for fiscal year 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1992 was approximately $8 million, $6.7 million, $.8 million, and $3.6 million, respectively. CASH AND CASH EQUIVALENTS Cash equivalents are short-term, highly liquid interest-bearing investments with a maturity of three months or less when purchased, consisting primarily of money market instruments. ASSETS RESTRICTED FOR THE SETTLEMENT OF UNPAID CLAIMS Assets restricted for the settlement of unpaid claims include marketable securities which are carried at amortized cost, which approximates market value. Transfer of such investments from the insurance subsidiaries to the Company or any of its other subsidiaries is subject to approval under the Credit Agreement and by certain regulatory authorities. NET LOSS PER COMMON SHARE Net loss per common share for the two months ended September 30, 1992 and the year ended September 30, 1993 was computed based on the weighted average number of shares of Common Stock outstanding during the period. Common stock equivalents (primarily options outstanding under the 1992 Stock Option Plan) were not dilutive and therefore were not included in the calculation. Per share amounts for the periods ended September 30, 1991 and July 31, 1992 have not been presented because they are not meaningful due to the implementation of fresh start accounting and the substantial change in the number of shares outstanding subsequent to the consummation of the Plan. INVESTMENTS Effective with the fiscal year beginning October 1, 1994 the Company will be required to adopt Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). Under SFAS 115, investments are to be classified into three categories: held to maturity, available for sale, and trading. Unrealized holding gains or losses shall be recorded for trading and available for sale securities. The Company believes the adoption of SFAS 115 will not have a material effect on the Company's financial statement or results of operations. 4. PROVISION FOR RESTRUCTURING OF OPERATIONS In response to its financial difficulties in fiscal 1990, the Company developed an operating plan, which included a divestiture plan for certain hospitals that were not performing well. The financial difficulties the Company was experiencing related to the Company's inability to make all its debt service payments. During the fourth quarter of fiscal 1991, the Company recorded, in addition to amounts recorded in fiscal 1990, a charge of $45 million to reflect revised estimates of the net recoverable value of hospitals to be sold or closed ($3.4 million), closing costs and estimated net operating losses to the estimated disposal date of certain facilities ($2.9 million), additional fees for certain financial advisors ($20 million), ESOP litigation related to the restructuring ($13.5 million) and legal and other costs for the Restructuring ($5.2 million). The additional fees were the result of the additional time required to complete the Restructuring. As of September 30, 1990, the original divestiture plan included 11 psychiatric hospitals and three general hospitals ("the Noncore Hospitals") which the Company did not consider part of its core operations and therefore planned to sell, lease or close. As of August 1, 1992, a psychiatric hospital was added to the Noncore Hospitals and a general hospital was removed from the group and no longer held for sale. As of October 1, 1993 a psychiatric hospital was removed from the Noncore Hospitals. F-12 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 4. PROVISION FOR RESTRUCTURING OF OPERATIONS (CONTINUED) Of the two general hospitals remaining in the divestiture plan, one hospital was included in the sale of the general hospitals discussed in Note 1, and the other hospital along with its related medical office building, a leased facility, was closed in fiscal 1992 and is held for sublease. Of the 11 psychiatric hospitals in the revised divestiture plan, five have been sold, two have been leased, one was a leased facility and the lease has been terminated and three have been closed and are held for sale or sublease. Additionally 2 psychiatric hospitals not included in the divestiture plan have been sold and a psychiatric hospital has been closed and is held for sale which was not originally in the divestiture plan.
NUMBER OF LOCATION PSYCHIATRIC BEDS DATE CLOSED DATE SOLD(1) - ------------------------------------------------------- ------------------- ------------------- ------------------- SOLD Aurora, CO(6).......................................... 80 November, 1990 July, 1993 Redlands, CA(6)........................................ 89 January, 1991 January, 1991 Tucson, AR(6).......................................... 60 April, 1991 April, 1991 Newport News, VA(6).................................... 60 March, 1992 March, 1992 Denver, CO(6).......................................... 60 July, 1992 October, 1993 Bakersfield, CA........................................ 60 March, 1993 March, 1993 Decatur, AL............................................ 104 July, 1993 July, 1993 LEASED Ft. Collins, CO(6)..................................... 60 December, 1990 (2) Santa Teresa, NM(6).................................... 72 June, 1991 (2) CLOSED Torrance, CA(6)........................................ 96 March, 1991 (3) Fountain Valley, CA(6)................................. 120 May, 1992 (4) Laredo, TX(6).......................................... 64 March, 1993 (5) West Palm Beach, FL(6)................................. 60 September, 1993 (5) Bradenton, FL.......................................... 60 September, 1993 (5) - ------------------------------ (1) Facilities sold for an aggregate sales price of $42.7 million. (2) Facilities leased, with options to purchase by lessees. (3) Leased facility, held for sublease. (4) Leased facility, lease terminated. (5) Held for sale or lease. (6) A non-core facility.
The Company also sold a substantially completed psychiatric hospital in October 1992. The consolidated balance sheet as of September 30, 1993, includes the following amounts related to the five hospitals and related medical office building, along with a number of parcels of unimproved real estate, held for disposition: Current assets..................................... $ 490 Property and equipment, net........................ 25,634 Other assets....................................... 12 Current liabilities................................ 6,964
5. BENEFIT PLANS The Company maintains an Employee Stock Ownership Plan (the "ESOP"), a noncontributory retirement plan that enables eligible employees to participate in the ownership of the Company. The ESOP borrowed approximately $455 million from the Company to acquire its ownership interest. At September 30, 1993, the ESOP owed the Company approximately $107.6 million. F-13 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 5. BENEFIT PLANS (CONTINUED) The Company has recorded unearned compensation to reflect the cost of Common Stock purchased by the ESOP but not yet allocated to participants' accounts. In the period that shares are allocated, or projected to be allocated, to participants, ESOP expense is recorded and unearned compensation is reduced. Interest expense on the remaining portion of the debt incurred to finance the ESOP transaction amounted to $26,965,000 and $16,169,000 for fiscal 1991 and the ten months ended July 31, 1992, respectively, and $2,472,000 and $10,380,000 for the two months ended September 30, 1992 and fiscal 1993, respectively, and is included in interest expense in the statements of operations. The Internal Revenue Service has ruled that the ESOP qualifies under Section 401 of the Internal Revenue Code of 1986, as amended. Such determination allows the Company to deduct its contributions to the ESOP for federal income tax purposes. In settlement of a class action lawsuit in April 1992, the Company agreed to (i) reduce by $30 million certain of the amounts owed to the Company by the ESOP; (ii) make payments totalling approximately $12 million for certain participants of the ESOP with such payments made through contributions to the 401-K Plan (as defined below), or in the event of the termination of such participants, directly to the participants and (iii) pay approximately $500,000 to certain former employees. The Company included, in the provision for restructuring of operations recorded in fiscal 1991, accruals for this settlement. (See Note 4) During fiscal 1992, the Company reinstated its cash accumulation plan (the "401-K Plan"), which had been discontinued as of January 1, 1988, upon the adoption of the ESOP. Effective January 1, 1992, employee participants could elect to voluntarily contribute up to 5% of their compensation to the 401-K Plan. Upon consummation of the Restructuring, on July 21, 1992, the 401-K Plan was amended and restated. Effective October 1, 1992, the Company began making contributions to the 401-K Plan based on employee compensation and contributions. The Company makes a discretionary contribution of 2% of each employee's compensation and matches 50% of each employee's contribution up to 3% of their compensation. During the year ended September 30, 1993, the Company made contributions of $2,539,000 to the 401-K Plan. F-14 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 6. LONG-TERM DEBT AND LEASES Information with regard to the Company's long-term debt and capital lease obligations at September 30, 1992 and 1993 follows (in thousands):
SEPTEMBER 30, SEPTEMBER 30, 1992 1993 ------------- ------------- Financing under the Credit Agreement: Tranche A Facility (6.5% at September 30, 1993) (net of discount of $19,294 in 1992).................................................... $ 314,187 $ 93,871 Tranche B Facility (5.525% and 8.375% at September 30, 1993) (including premium of $2,069 in 1992)............................... 138,811 67,619 Senior Secured Notes................................................... 217,061 -- 7.5% Senior Subordinated Debentures due 2003 (net of discount of $46,529 in 1992 and $43,997 in 1993).................................. 153,471 156,003 9.125% to 16% Mortgage and other collateralized notes payable through 1997.................................................................. 34,864 21,502 Variable rate secured notes due through 2013 (2.85% to 3.25% at September 30, 1993)................................................... 49,185 64,175 7.5% Swiss Bonds due currently......................................... 6,443 6,443 3% to 11.5% Capital lease obligations due through 2014................. 7,688 11,965 ------------- ------------- 921,710 421,578 Less amounts due within one year..................................... 73,956 70,957 Less debt service funds.............................................. 2,915 416 ------------- ------------- $ 844,839 $ 350,205 ------------- ------------- ------------- -------------
The initial carrying values of the financing under the Credit Agreement (the "Bank Financing") and the 7.5% Senior Subordinated Debentures due 2003 (the "Debentures") were based on market interest rates as of July 31, 1992. The aggregate scheduled maturities of long-term debt and capital lease obligations during the five years subsequent to September 30, 1993, follow: 1994 - -- $70,957,000; 1995 -- $31,868,000; 1996 -- $15,138,000; 1997 -- $69,405,000; and 1998 -- $1,638,000. The consolidated statement of operations for the year ended September 30, 1993 includes an extraordinary after-tax loss of $8,561,000 on early extinguishment of debt. This loss includes interest and fees incurred upon the retirement of the Senior Secured Notes, certain debt under the Credit Agreement and mortgages on the general hospitals and the write-off of the unamortized discount or premium remaining on the Bank Financing as a result of the prepayments made during 1993. CREDIT AGREEMENT The Bank Financing consists of the Tranche A Facility, the Tranche B Facility and the Tranche C Facility. TRANCHE A FACILITY Loans outstanding under the Tranche A Facility bear interest, payable monthly in arrears, at the following per annum rates: (i) from July 21, 1992 to and including June 30, 1993, Bankers Trust Company's Prime Lending Rate (the "Prime Rate", 6.0% at September 30, 1993); (ii) from July 1, 1993 to and including June 30, 1995, the Prime Rate plus .5% per annum; (iii) from July 1, 1995 to and including June 30, 1996, the Prime Rate plus .75% per annum; and (iv) from July 1, 1996 to September 30, 1997, the date of maturity, the Prime Rate plus 1% per annum. F-15 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 6. LONG-TERM DEBT AND LEASES (CONTINUED) In addition, the Tranche A Facility provides for the support of letters of credit securing certain outstanding industrial development bonds. Borrowings pursuant to the Tranche A Facility with respect to letter of credit drawings will bear interest at the Prime Rate plus 1.5% per annum for the first $40 million drawn and the Prime Rate plus 1% per annum for amounts drawn in excess of $40 million, in each case payable monthly in arrears. The Tranche A Facility requires the payment of a commission in connection with the support of letters of credit equal to 1.5% per annum, and the issuing banks' commitment also provides for the payment of a commission, in each case based on the daily average maximum aggregate amount that can be drawn under the letters of credit. As of September 30, 1993, letters of credit totalling approximately $73 million were outstanding under the Tranche A Facility. TRANCHE B FACILITY The financial institutions participating in the Tranche B Facility were allowed to select between two interest rate options. Accordingly, approximately 75% of the borrowings outstanding pursuant to the Tranche B Facility bear interest at a fixed rate of 8.375% per annum, with the remaining portion bearing interest at a rate per annum equal to 85% of the interest rate applicable to the Tranche A Facility, in each case payable monthly in arrears. Under the federal income tax laws, certain financial institutions are eligible to exclude from their gross income 50% of the interest received on loans of the type contemplated by the Tranche B Facility. The Credit Agreement provides that if an eligible holder of a loan under the Tranche B Facility loses any right to such interest exclusion, then the Company will be required to reimburse such holder in an amount based on the tax benefits lost by such holder plus penalties, interest and additions to the tax assessed against such holder. In addition, the interest rate on such loan will be increased by an amount sufficient to reimburse such holder for the loss of any such tax benefits. In the event mandatory principal repayments, as described below, with respect to the Tranche B Facility exceed applicable federal income tax limitations for purposes of deductibility, such excess will be applied instead to loans under the Tranche A Facility. TRANCHE C FACILITY Borrowings pursuant to the Tranche C Facility may not exceed the lesser of $75 million or the aggregate amount of the Company's voluntary prepayments of loans outstanding under the Tranche A and Tranche B Facilities. Loans outstanding under the Tranche C Facility bear interest at the same rates applicable to the Tranche A Facility. The Company may permanently reduce the banks' commitment with respect to the Tranche C Facility, subject to certain minimum amounts. The conditions to borrowings under the Tranche C Facility include the absence of any default or event of default under the Credit Agreement and a minimum borrowing of $5 million. The Company pays a commitment fee equal to .5% per annum on the daily average amount of available commitment under the Tranche C Facility. The Company currently has an available commitment of $50 million under the Tranche C Facility. MANDATORY PREPAYMENTS The Company is required to make certain prepayments to the Banks, which consist of (i) 80% of Excess Cash Flow (which, as defined by the Credit Agreement, is net income or loss adjusted for all non-cash items and certain cash items affecting net income or loss, plus certain other cash inflows (for example, certain asset sales proceeds), reduced by debt service requirements, capital expenditures and certain other cash outflows (for example, cash income tax payments) for each fiscal year), (ii) 100% of the Excess Cash (which, as defined by the Credit Agreement, is the amount by which cash and cash equivalents, as adjusted for certain items, exceeds $100 million as of each September 30) and (iii) 75% of net proceeds of asset sales. On October 14, 1993, the Company made prepayments totalling $13.9 million to the Banks which represented F-16 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 6. LONG-TERM DEBT AND LEASES (CONTINUED) estimated Excess Cash at September 30, 1993 and such amounts are included in current maturities at September 30, 1993. Additionally, on October 6, 1993, the Company made mandatory prepayments of approximately $3.2 million to the Banks which represented asset sale proceeds. SCHEDULED PRINCIPAL PAYMENTS The Company is required to make principal payments, with respect to the Tranche A Facility, of (i) $2.5 million on each March 31 and September 30 through September 30, 1995, (ii) $5 million each on March 31 and September 30, 1996, (iii) $25 million on March 31, 1997 and (iv) the remaining balance due on September 30, 1997. The Company is also required to make payments of approximately $23 million each on the Tranche B Facility on March 31 and September 30, 1994, approximately $14.3 million on March 31, 1995 and the remaining balance due on September 30, 1995. Any mandatory prepayments made by the Company on the Tranche A Facility and the Tranche B Facility, including the October 1993 prepayments discussed above, are applied to the final payments, while voluntary prepayments are applied at the option of the Company. COVENANTS The Credit Agreement contains certain financial tests, including amounts and ratios related to operating income, debt service payments and net worth. Additionally, the Credit Agreement and indenture for the Debentures place restrictions and limitations on the Company. Restrictions and limitations are placed on, among other things, additional indebtedness, capital expenditures, payments of dividends on capital stock, investments and sales of assets and stock of subsidiaries. COLLATERAL The obligations of the Company under the Credit Agreement are guaranteed by substantially all of the Company's domestic subsidiaries and are secured by a pledge of the stock of substantially all of the Company's subsidiaries, by a pledge of accounts receivable and by mortgages on substantially all of the real estate of the Company's domestic subsidiaries. SENIOR SECURED NOTES The Senior Secured Notes were issued upon consummation of the Plan in the original principal amount of approximately $234.8 million. On September 30, 1993, the Company purchased and placed in an irrevocable trust U.S. Treasury securities which matured in the amount of $158.8 million for the purpose of redeeming the Senior Secured Notes. The redemption of the Senior Secured Notes occurred on November 15, 1993. This defeasance transaction resulted in the removal of the debt and related accrued interest from the balance sheet as of September 30, 1993 with an after tax extraordinary loss of approximately $971,000. DEBENTURES Upon consummation of the Plan, the Debentures were issued in the principal amount of $200 million with a maturity date of February 15, 2003. The Debentures bear interest at a rate of 7.5% per annum, payable semi-annually on February 15 and August 15, and are redeemable at the option of the Company, in whole or in part, at specified redemption prices. However, the Credit Agreement prohibits the Company from redeeming the Debentures. The Debentures are general unsecured obligations of the Company subordinated in right of payment to the obligations outstanding under the Credit Agreement. The obligations of the Company under the indenture for the Debentures are guaranteed on a subordinated basis by substantially all of the Company's domestic subsidiaries. F-17 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 6. LONG-TERM DEBT AND LEASES (CONTINUED) At September 30, 1993 the carrying amount and fair value of the Debentures was $156 million and $176 million, respectively. The estimated fair value of the Company's Debentures is based upon the bid price on September 30, 1993, from quotes obtained by the Company. The fair value of the Company's other long-term debt obligations approximates their respective carrying amounts. LEASES The Company leases certain hospital facilities, some of which may be purchased during the term or at expiration of the leases. The book value of capital leased assets was approximately $8.3 million at September 30, 1993. The leases, which expire through 2069, generally require the Company to pay all maintenance, property tax and insurance costs. At September 30, 1993, aggregate amounts of future minimum payments under operating leases were as follows: 1994 -- $5 million; 1995 -- $3.9 million; 1996 - -- $2.8 million; 1997 -- $1 million; 1998 -- $.6 million; subsequent to 1998 -- $31.5 million. Operations for the year ended September 30, 1991, and the ten months ended July 31, 1992, included rental expenses on operating leases of $13.4 million and $10.4 million, respectively. Operations for the two months ended September 30, 1992 and the year ended September 30, 1993, included rental expenses on operating leases of $1.9 million and $11.3 million, respectively. 7. STOCKHOLDERS' EQUITY Pursuant to the Company's Restated Certificate of Incorporation, the Company is authorized to issue 80 million shares of Common Stock, $.25 par value per share, and 10 million shares of Preferred Stock, without par value. Under the terms of the Plan, approximately 24,828,000 shares of Common Stock were issued to certain holders of debt securities, the preferred stockholders, and common stockholders. No shares of Preferred Stock have been issued as of September 30, 1993. COMMON STOCK The Company is prohibited from paying dividends (other than dividends payable in shares of Common Stock) on its Common Stock under the terms of the Credit Agreement and the Debentures. The 1992 Stock Option Plan provides for the issuance of 3,437,939 options to purchase Common Stock. A summary of changes in options outstanding and other related information is as follows:
TEN MONTHS ENDED TWO MONTHS ENDED YEAR ENDED JULY 31, 1992 SEPTEMBER 30, 1992 SEPTEMBER 30, 1993 -------------------- -------------------- ------------------ Balance, beginning of period...................... -- 3,416,826 3,416,826 Granted......................................... 3,416,826 -- 21,750 Cancelled....................................... -- -- (27,000) Exercised....................................... -- -- (183,500) ---------- ---------- ------------------ Balance, end of period............................ 3,416,826 3,416,826 3,228,076 ---------- ---------- ------------------ ---------- ---------- ------------------ Option prices..................................... $4.36 - $9.60 $4.36 - $9.60 $.25 - $16.875 Price range of exercised options.................. -- -- $4.36 Average exercise price............................ -- -- $4.36
The exercise price of certain options will be reduced if a change in control of the Company occurs prior to July 1995 or, in the case of termination of employment of certain optionees without cause, if certain financial targets included in the Stock Option Plan are achieved. Options issued pursuant to the 1992 Stock Option Plan are exercisable upon vesting and expire through October 2000. As of September 30, 1993, 85% of the options outstanding were vested. The remaining F-18 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 7. STOCKHOLDERS' EQUITY (CONTINUED) options vest over the next two fiscal years if the Company achieves certain financial targets. If a change in control of the Company occurs, all options vest immediately prior to such event, and upon termination of employment of certain optionees without cause, all options granted to such optionees vest immediately, provided certain financial targets have been met. Upon the termination of the employment of the Company's former Chairman of the Board on March 4, 1993, and under the provisions of the 1992 Stock Option Plan, all of the former employee's options vested and the option prices were reduced to $.25 per share. Such options totalled 2,220,336 at September 30, 1993 and expire in April 1994. As a result, the Company recognized approximately $21.3 million in additional stock option expense during the second quarter of fiscal 1993. The remaining expenses during fiscal 1993 of $17.1 million related to the 1992 Stock Option Plan were due to increases in the market price of the underlying Common Stock and the impact of additional shares vesting in fiscal 1993. RIGHTS PLAN Also upon consummation of the Plan, the Company adopted a Share Purchase Rights Plan (the "Rights Plan"). Pursuant to the Rights Plan, each share of Common Stock also represents one Share Purchase Right (collectively, the "Rights"). The Rights trade automatically with the underlying shares of Common Stock. Upon becoming exercisable, but prior to the occurrence of certain events, each Right initially entitles its holder to buy one share of Common Stock from the Company at an exercise price of $60.00. The Rights will be distributed and become exercisable only if a person or group acquires, or announces its intention to acquire, Common Stock exceeding certain levels, as specified in the Rights Plan. Upon the occurrence of such events, the exercise price of each Right reduces to one-half of the then current market price. The Rights also give the holder certain rights in an acquiring company's common stock. The Company is entitled to redeem the Rights at a price of $.01 per Right at any time prior to the distribution of the Rights. The Rights have no voting power until exercised. COMMON STOCK WARRANTS The Company has two series of warrants outstanding, the 2002 Warrants and the 2006 Warrants. In connection with the Plan, the Company issued 114,690 of the 2002 Warrants to purchase one share each of the Company's Common Stock. These warrants, which expire on June 30, 2002, have an exercise price of $5.24 per share. During fiscal 1993, 3,713 shares were issued from the exercise of these warrants. The 2006 Warrants, which expire on September 1, 2006, were subject to certain adjustments as a result of the Plan, and accordingly, 146,791 of such warrants are currently outstanding with an exercise price of $38.70 per share. 8. INCOME TAXES Concurrent with the adoption of fresh start accounting, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income taxes are provided at the enacted marginal rates on the difference between the financial statement and income tax bases of assets and liabilities. Deferred income tax provisions or benefits are based on the change in the deferred tax assets and liabilities from period to period. F-19 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 8. INCOME TAXES (CONTINUED) The provision (benefit) for income taxes attributable to continuing operations consisted of the following (in thousands):
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ----------- ------------- ------------- Income taxes currently payable: Federal.................................... $ 500 $ 14 $ 3 $ 181 State...................................... 1,592 1,055 113 315 Foreign.................................... 1,100 803 461 986 Deferred income taxes: Federal.................................... (500) 2,387 477 370 State...................................... (1,592) -- -- (39) Foreign.................................... (1,100) -- -- 61 ------------- ----------- ------ ------ $ -- $ 4,259 $ 1,054 $ 1,874 ------------- ----------- ------ ------ ------------- ----------- ------ ------
The Company's income tax provision (benefit) attributable to continuing operations differs from that computed based on the statutory federal income tax rate for the following reasons (in thousands):
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ---------- ------------- ------------- Income tax benefit at federal statutory income tax rate........................ $ (44,214) $ (26,323) $ (2,404) $ (13,117) State income taxes, net of federal income tax benefit..................... -- 699 75 180 Amortization of Excess Reorganization Value.................................. -- -- 2,437 14,831 Losses for which no tax benefit has been recorded............................... 44,214 26,323 -- -- Other -- net............................ -- 3,560 946 (20) ------------- ---------- ------------- ------------- Income tax provision.................... $ -- $ 4,259 $ 1,054 $ 1,874 ------------- ---------- ------------- ------------- ------------- ---------- ------------- -------------
Under the federal income tax laws, the Company was not required to include in its federal taxable income any cancellation of debt income as a result of the debt forgiven pursuant to the Plan. Accordingly, no income taxes have been provided on the $731 million extraordinary gain on debt discharge in the statement of operations for the ten months ended July 31, 1992. As of September 30, 1993, the Company has estimated tax net operating loss ("NOL") carryforwards of approximately $171 million available to reduce future federal taxable income. These NOL carryforwards expire in 2006 and 2007 and are subject to examination by the Internal Revenue Service. Due to the ownership change which occurred as a result of the Restructuring, the Company's utilization of NOLs generated prior to the Effective Date is significantly limited. Based on these limitations and certain other factors, the Company has recorded a valuation allowance against the entire amount of the NOL deferred tax asset and other deferred tax assets that, in management's opinion, are not likely to be recovered. During 1993, due in part to the sale of the general hospitals, net income tax benefits of approximately $21.5 million were realized from the utilization of the pre-Effective Date NOLs and were recorded as a reduction in Excess Reorganization Value. F-20 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 8. INCOME TAXES (CONTINUED) Components of the net deferred income tax liability at September 30, 1992 and 1993 are as follows (in thousands):
SEPTEMBER 30, SEPTEMBER 30, 1992 1993 ------------- ------------- Deferred tax liabilities: Property and depreciation.................................. $ 33,803 $ 14,991 Long-term debt and interest................................ 24,626 44,157 ESOP....................................................... 5,536 17,013 Other, net................................................. 34,229 22,847 ------------- ------------- Total deferred tax liabilities............................. 98,194 99,008 ------------- ------------- Deferred tax assets: Operating loss carryforwards............................... (132,351) (66,122) Self-insurance reserves.................................... (44,305) (47,307) Restructuring costs........................................ (28,952) (25,397) Stock option expense....................................... (896) (14,898) Tax capitalization of costs expensed for book purposes..... (12,062) (10,030) Other, net................................................. (20,907) (29,879) ------------- ------------- Total deferred tax assets.................................. (239,473) (193,633) Valuation allowance........................................ 161,848 133,414 ------------- ------------- Deferred tax assets after valuation allowance.............. (77,625) (60,219) ------------- ------------- Net deferred tax liabilities................................. $ 20,569 $ 38,789 ------------- ------------- ------------- -------------
The reduction in the valuation allowance during 1993 was primarily due to the realization of NOL deferred tax assets discussed above. The Revenue Reconciliation Act of 1993 increased the federal statutory corporate tax rate from 34% to 35%, effective January 1, 1993. The effect of the increase was not material to the Company. The Internal Revenue Service is currently examining the Company's income tax returns for fiscal 1989 and 1990. In management's opinion, adequate provisions have been made for any adjustments which may result from these examinations. 9. OTHER ACCRUED LIABILITIES Other accrued liabilities include amounts due health insurance programs, primarily Medicaid and Medicare, of $74.8 million and $59.4 million at September 30, 1992 and 1993, respectively. Also included are accrued restructuring costs of $12.7 million and $14.5 million at September 30, 1992 and 1993, respectively, which relate primarily to remaining amounts to be paid under the terms of the ESOP settlement and to the accrued operating losses for non-core facilities held for sale. F-21 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 10. SUPPLEMENTAL CASH FLOW INFORMATION Below is supplemental cash flow information related to the year ended September 30, 1991, the ten months ended July 31, 1992, the two months ended September 30, 1992 and the year ended September 30, 1993 (see Note 1 for a discussion of the non-cash financing activities related to the consummation of the Plan) (in thousands):
TEN MONTHS TWO MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, JULY 31, SEPTEMBER 30, SEPTEMBER 30, 1991 1992 1992 1993 ------------- ---------- ------------- ------------- Federal and state income taxes paid, net of refunds received.................... $ 1,616 $ 2,944 $ 269 $ 11,136 Payments to ESOP........................ 51,561 40,697 23,000 69,123 Interest paid, net of amounts capitalized............................ 72,723 69,658 6,803 74,167
11. COMMITMENTS AND CONTINGENCIES The Company is self-insured for a substantial portion of its general and professional liability risks. The reserves for self-insured general and professional liability losses, including loss adjustment expenses, are based on actuarial estimates using the Company's historical claims experience adjusted for current industry trends. The reserve for unpaid claims is adjusted, as such claims mature, to reflect revised actuarial estimates based on actual experience. While management and its actuaries believe that the present reserve is reasonable, ultimate settlement of losses may vary from the amount provided. In addition to general and professional liability claims, the Company is subject to other claims, suits, surveys and investigations. This includes a federal investigation of certain business practices of a subsidiary of the Company that operates one psychiatric hospital. In the opinion of management, the ultimate resolution of such other pending matters will not have a material adverse effect on the Company's financial position or results of operations. The Resolution Trust Corporation ("RTC"), for itself or in its capacity as conservator or receivor for 12 financial institutions, formerly held certain debt securities that were issued by the Company in 1988. RTC has indicated to the Company that it believes that certain financial statements and other disclosures made by the Company in connection with such debt securities contained materially misleading statements or material omissions and that such misleading statements or omissions resulted in an overvaluation of such debt securities. Specifically, the RTC has indicated its belief that the Company's financial statements overstated net income for the 1987 fiscal year and the first three quarters of the 1988 fiscal year due to understatement of contractual allowances and the allowance for bad debts and that the Company believed, but did not disclose, that the factors described under "-- Industry Trends" would occur in the foreseeable future. The Company believes that the financial institutions represented by RTC purchased in 1988 and 1989 $103.4 million face amount of subordinated debt securities originally issued by the Company in September 1988. Although the RTC has not disclosed to the Company its (or its financial institutions') trading losses from the purchases and sales of these subordinated debt securities, the RTC has disclosed the dates purchases and sales were made and the face amounts of the subordinated debt securities involved in these transactions. The Company believes that the trading losses were approximately $45 million. The Company has agreed to a tolling of the statute of limitations applicable to RTC's claims. Based on a review of relevant law and the facts known to the Company, the Company believes it has a substantial defense to a potential claim by RTC and that such claim would not have a material adverse effect on the Company's financial position or results of operations. F-22 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company owns 50% of the Charter Medical Building in Macon, Georgia, and leases space in such building for use as its corporate headquarters. The lease, which expires on September 30, 1994, provides for an average annual rental of approximately $1,189,000. Mr. William A. Fickling, Jr., a former Director and former Chairman of the Board of Directors of the Company, and his father's estate own 25% of the building. In the opinion of management, such office space has been leased on terms as favorable as could be obtained from an unaffiliated party. As a result of the Company's partnership interest in the building, the Company received distributions of approximately $300,000 in fiscal 1993. On September 15, 1993, the Company sold its ownership interest in Beech Street to the children of Mr. Fickling for approximately $5.5 million, plus the right to receive additional consideration, if certain events (e.g. a public offering of Beech Street stock or if Beech Street sells 50% or more of its assets) occur within two years. The Company obtained a fairness opinion by an independent appraisal firm stating that the financial consideration was fair. The Company acquired its ownership interest in a series of related transactions beginning in May 1989, for a total purchase price of $2,956,000. During the period of its ownership, the Company received $1,242,000 in dividend distributions from Beech Street. Beech Street was, prior to May 1989, a wholly owned subsidiary of Beech Street, Inc., in which Mr. Fickling beneficially owns a majority of the outstanding stock. The Company also has agreements with Beech Street where certain of the Company's hospitals provide services to employers (and their related employee and covered dependent groups) who have entered into agreements with Beech Street to utilize a Beech Street Preferred Provider Organization ("PPO") for hospital and other healthcare services. Such agreements provide for covered services to be rendered under terms (including discounts from the hospital's normal charges) which management of the Company believes are customary for hospital PPO agreements. The Beech Street PPO reviews claims and serves as an intermediary between the Company's hospitals and the contracting employers. The Company derived approximately $11.5 million, $14.8 million and $21.4 million in revenue from these agreements during fiscal 1991, 1992 and 1993, respectively. The aggregate discount from customary charges was 17% in fiscal 1991 and 1992 and was 12% in fiscal 1993. Stanley S. Trotman, Jr., a Director of the Company from 1978 until July 1992, is a Managing Director of Kidder, Peabody & Company, Inc. ("Kidder"). While Mr. Trotman served as a Director, Kidder provided certain financial advisory services to the Company. During fiscal 1991 and 1992, the Company incurred approximately $1.7 million and $4.9 million, respectively, in fees and expenses with respect to such services. F-23 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended September 30, 1992 and 1993. Amounts presented below differ from amounts previously reported in the Company's Quarterly Reports on Form 10-Q due to the restatement of the consolidated financial statements to reflect as discontinued operations the sale of certain subsidiaries in the fourth quarter of fiscal 1993. Information for the fourth quarter of 1992 and loss per share data for 1992 are not presented because they are not meaningful due to the implementation of fresh start accounting and the consummation of the Restructuring. See Notes 1 and 2.
FISCAL QUARTERS ---------------------------------------------- FIRST SECOND THIRD FOURTH ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1992 Net revenue.................................................... $ 226,115 $ 241,184 $ 228,016 $ 225,390 Income (Loss) from continuing operations....................... (41,116) (28,555) (21,477) 1,341(a) Income from discontinued operations............................ 5,262 6,984 9,000 3,895(a) Net loss....................................................... (35,854) (21,571) (12,477) 810,673(a) 1993 Net revenue.................................................... $ 226,390 $ 233,160 $ 231,737 $ 206,620 Loss from continuing operations before extraordinary item...... (4,028) (16,879) (2,473) (16,240) Income (Loss) from discontinued operations and gain on disposal of discontinued operations.................................... (3,196) (2,812) (2,872) 4,834 Loss before extraordinary item................................. (7,224) (19,691) (5,345) (11,406) Net loss....................................................... (7,224) (19,691) (5,345) (19,967) Loss per common share: Loss from continuing operations before extraordinary item...... $ (0.16) $ (0.68) $ (0.10) $ (0.65) Net loss....................................................... (0.29) (0.79) (0.21) (0.80) - ------------------------ (a) The fourth quarter reflects the results of the implementation of fresh start accounting; therefore the results are not comparable to other quarters. See Note 2 for a discussion of the unusual and nonrecurring items in the quarter.
F-24 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) September 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) ASSETS
SEPTEMBER 30, 1992 ---------------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------ ------------ Current Assets Cash and cash equivalents............. $ 114,178 $ 2,140 $ 24,485 $ -- $ 140,803 Accounts receivable, net.............. 127,353 1,818 (1,473) -- 127,698 Supplies.............................. 5,361 80 343 -- 5,784 Other current assets.................. 6,126 84 23,091 (12,844) 16,457 ------------ ------------ ------------ ------------ ------------ Total Current Assets................ 253,018 4,122 46,446 (12,844) 290,742 Property and Equipment Land.................................. 93,797 6,275 1,820 -- 101,892 Buildings and improvements............ 309,903 5,250 9,768 -- 324,921 Equipment............................. 59,241 865 2,834 -- 62,940 ------------ ------------ ------------ ------------ ------------ 462,941 12,390 14,422 -- 489,753 Accumulated depreciation.............. (4,343) (75) 105 -- (4,313) ------------ ------------ ------------ ------------ ------------ 458,598 12,315 14,527 -- 485,440 Construction in progress.............. 719 571 32 -- 1,322 ------------ ------------ ------------ ------------ ------------ 459,317 12,886 14,559 -- 486,762 Other Long-Term Assets (1).............. 214,851 53,897 1,033,508 (1,221,909) 80,347 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets, net............................ -- -- 121,709 -- 121,709 Net Assets of Discontinued Operations... 221,262 4,844 93,532 -- 319,638 ------------ ------------ ------------ ------------ ------------ $ 1,148,448 $ 75,749 $ 1,309,754 $(1,234,753) $ 1,299,198 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable...................... $ 41,828 $ 392 $ 8,515 $ -- $ 50,735 Accrued expenses and other current liabilities.......................... 104,263 1,120 66,070 -- 171,453 Current maturities of long-term debt and capital lease obligations........ 8,407 32 65,517 -- 73,956 ------------ ------------ ------------ ------------ ------------ Total Current Liabilities........... 154,498 1,544 140,102 -- 296,144 Long-Term Debt and Capital Lease Obligations............................ 243,826 1,299 794,354 (194,640) 844,839 Deferred Income Taxes................... -- 492 20,077 -- 20,569 Reserve for Unpaid Claims............... -- 39,755 71,434 (12,843) 98,346 Deferred Credits and Other Long-Term Liabilities (1)........................ 107,005 -- 25,754 (103,883) 28,876 Stockholders' Equity Common Stock, par value $0.25 per share Authorized -- 80,000,000 shares Issued and outstanding -- 24,827,656 shares............................... 2,734 599 6,207 (3,333) 6,207 Other Stockholders' Equity Additional paid-in capital............ 645,975 28,815 443,887 (920,054) 198,623 Retained earnings (Accumulated deficit)............................. (3,897) 2,765 (6,064) -- (7,196) Unearned compensation under ESOP...... -- -- (187,128) -- (187,128) Warrants outstanding.................. -- -- 283 -- 283 Cumulative foreign currency adjustments.......................... (1,693) 480 848 -- (365) ------------ ------------ ------------ ------------ ------------ Stockholders' Equity................ 643,119 32,659 258,033 (923,387) 10,424 Commitments and Contingencies ------------ ------------ ------------ ------------ ------------ $ 1,148,448 $ 75,749 $ 1,309,754 $(1,234,753) $ 1,299,198 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ - ------------------------------ (1) Elimination entry related to intercompany receivables and payables and investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these balance sheets. F-25 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) ASSETS
SEPTEMBER 30, 1993 -------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ----------- ------------- ------------ ------------ ------------ Current Assets Cash and cash equivalents............... $ 45,147 $ 2,756 $ 38,099 $ -- $ 86,002 Accounts receivable, net................ 118,398 1,699 (459) -- 119,638 Supplies................................ 4,641 68 342 -- 5,051 Other current assets.................... 8,138 66 25,799 (12,779) 21,224 ----------- ------------- ------------ ------------ ------------ Total Current Assets.................. 176,324 4,589 63,781 (12,779) 231,915 Property and Equipment Land.................................... 89,440 5,432 1,014 -- 95,886 Buildings and improvements.............. 304,313 5,000 1,336 -- 310,649 Equipment............................... 64,621 863 1,937 -- 67,421 ----------- ------------- ------------ ------------ ------------ 458,374 11,295 4,287 -- 473,956 Accumulated depreciation................ (30,141) (487) 530 -- (30,098) Construction in progress................ 924 4 -- -- 928 ----------- ------------- ------------ ------------ ------------ 429,157 10,812 4,817 -- 444,786 Other Long-Term Assets (1)................ 354,034 63,890 934,480 (1,248,120) 104,284 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets, net.... -- -- 57,201 -- 57,201 ----------- ------------- ------------ ------------ ------------ $ 959,515 $ 79,291 $1,060,279 $(1,260,899) $ 838,186 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable........................ $ 41,977 $ 421 $ 9,866 $ -- $ 52,264 Accrued expenses and other current liabilities............................ 86,397 912 62,068 -- 149,377 Current maturities of long-term debt and capital lease obligations.............. 6,102 28 64,827 -- 70,957 ----------- ------------- ------------ ------------ ------------ Total Current Liabilities............. 134,476 1,361 136,761 -- 272,598 Long-Term Debt and Capital Lease Obligations . . 137,081 1,094 544,050 (332,020) 350,205 Deferred Income Taxes..................... -- 946 37,843 -- 38,789 Reserve for Unpaid Claims................. -- 45,816 66,638 (12,779) 99,675 Deferred Credits and Other Long-Term Liabilities (1).......................... 29,895 -- 19,459 (29,733) 19,621 Stockholders' Equity Common Stock, par value $0.25 per share Authorized -- 80,000,000 shares Issued and outstanding -- 25,001,042 shares............................... 2,833 586 6,250 (3,419) 6,250 Other Stockholders' Equity Additional paid-in capital............ 713,705 25,079 474,790 (975,993) 237,581 Retained earnings (Accumulated deficit)............................. (57,428) 5,580 (100,620) 93,045 (59,423) Unearned compensation under ESOP...... -- -- (122,724) -- (122,724) Warrants outstanding.................. -- -- 274 -- 274 Cumulative foreign currency adjustments.......................... (1,047) (1,171) (2,442) -- (4,660) ----------- ------------- ------------ ------------ ------------ 658,063 30,074 255,528 (886,367) 57,298 Commitments and Contingencies ----------- ------------- ------------ ------------ ------------ $ 959,515 $ 79,291 $1,060,279 $(1,260,899) $ 838,186 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ - ------------------------------ (1) Elimination entry related to intercompany receivables and payables and investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an Integral part of these balance sheets. F-26 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, 1991 --------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------- ------------ ------------ ------------ Net revenue...................................... $ 939,150 $ 20,721 $ (57,413) $ (34,194) $ 868,264 Costs and expenses Operating and administrative expenses.......... 879,087 15,517 (203,582) (34,194) 656,828 Bad debt expense............................... 55,924 196 (4,503) -- 51,617 Depreciation and amortization.................. 55,043 368 (6,782) 30 48,659 Interest, net.................................. 13,324 172 218,734 (12) 232,218 ESOP expense (credit).......................... (1,696) -- (2,248) (18) (3,962) Deferred compensation expense.................. -- -- 5,061 -- 5,061 Provision for restructuring of operations...... 2,219 -- 42,781 -- 45,000 ------------ ------------- ------------ ------------ ------------ 1,003,901 16,253 49,461 (34,194) 1,035,421 ------------ ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before income taxes.................................... (64,751) 4,468 (106,874) -- (167,157) Provision for income taxes....................... -- -- -- -- -- ------------ ------------- ------------ ------------ ------------ Income (Loss) from continuing operations......... (64,751) 4,468 (106,874) -- (167,157) Income (Loss) from discontinued operations . . 38,143 (110) (918) -- 37,115 ------------ ------------- ------------ ------------ ------------ Net income (loss)................................ $ (26,608) $ 4,358 $ (107,792) $ -- $ (130,042) ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities...................................... $ 456 $ (2,037) $ 123,401 $ 12 $ 121,832 Cash provided by (used in) investing activities...................................... 61,602 4,375 (13,424) (12) 52,541 Cash used in financing activities................ (36,450) (812) (31,573) -- (68,835) ------------ ------------- ------------ ------------ ------------ Net increase in cash and cash equivalents........ 25,608 1,526 78,404 -- 105,538 Cash and cash equivalents at beginning of period.......................................... 20,171 415 41,612 -- 62,198 ------------ ------------- ------------ ------------ ------------ Cash and cash equivalents at end of period....... $ 45,779 $ 1,941 $ 120,016 $ -- $ 167,736 ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-27 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE TEN MONTHS ENDED JULY 31, 1992 -------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ----------- ------------- ------------ ------------ ------------ Net revenue....................................... $ 818,308 $ 14,989 $ (32,279) $ (23,163) $ 777,855 Costs and expenses Operating and administrative expenses........... 709,559 10,931 (133,727) (23,163) 563,600 Bad debt expense................................ 55,150 56 (4,803) -- 50,403 Depreciation and amortization................... 39,316 343 (4,533) -- 35,126 Interest, net................................... 2,261 84 166,928 (29) 169,244 ESOP expense.................................... 31,477 -- 2,208 29 33,714 Deferred compensation expense................... -- -- 3,190 -- 3,190 ----------- ------------- ------------ ------------ ------------ 837,763 11,414 29,263 (23,163) 855,277 ----------- ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before income taxes, reorganization items and extraordinary item............................... (19,455) 3,575 (61,542) -- (77,422) Provision for income taxes........................ 1,393 372 2,494 -- 4,259 ----------- ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before reorganization items and extraordinary item...... (20,848) 3,203 (64,036) -- (81,681) Income (Loss) from discontinued operations........ 25,230 3,362 (4,381) -- 24,211 ----------- ------------- ------------ ------------ ------------ Income (Loss) before reorganization items and extraordinary item............................... 4,382 6,565 (68,417) -- (57,470) Reorganization items.............................. (206,274) -- 281,122 -- 74,848 Extraordinary gain (loss) on early discharge of debt............................................. (2,851) -- 733,440 -- 730,589 ----------- ------------- ------------ ------------ ------------ Net income (loss)................................. $(204,743) $ 6,565 $ 946,145 $ -- $ 747,967 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities... $ 85,616 $ 1,897 $ (10,572) $ -- $ 76,941 Cash provided by (used in) investing activities... 28,306 (618) (1,365) -- 26,323 Cash used in financing activities................. (63,192) -- (55,543) -- (118,735) ----------- ------------- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... 50,730 1,279 (67,480) -- (15,471) Cash and cash equivalents at beginning of period........................................... 45,779 1,941 120,016 -- 167,736 ----------- ------------- ------------ ------------ ------------ Cash and cash equivalents at end of period........ $ 96,509 $ 3,220 $ 52,536 $ -- $ 152,265 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-28 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE TWO MONTHS ENDED SEPTEMBER 30, 1992 ---------------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------ ------------ ------------ ------------ Net revenue............................. $ 149,152 $ 2,281 $ (3,472) $ (5,111) $ 142,850 Costs and expenses Operating and administrative expenses............................. 136,375 (98) (23,560) (5,109) 107,608 Bad debt expense...................... 15,110 (2) (304) -- 14,804 Depreciation and amortization......... 3,731 74 (172) (2) 3,631 Amortization of reorganization value in excess of amounts allocable to identifiable assets.................. -- -- 7,167 -- 7,167 Interest, net......................... (169) 1 12,829 29 12,690 ESOP expense.......................... 4,306 -- 534 (29) 4,811 Stock option expense (credit)......... -- -- (789) -- (789) ------------ ------------ ------------ ------------ ------------ 159,353 (25) (4,295) (5,111) 149,922 ------------ ------------ ------------ ------------ ------------ Income (Loss) from continuing operations before income taxes.................... (10,201) 2,306 823 -- (7,072) Provision for income taxes.............. 277 625 152 -- 1,054 ------------ ------------ ------------ ------------ ------------ Income (Loss) from continuing operations............................. (10,478) 1,681 671 -- (8,126) Income (Loss) from discontinued operations............................. 6,581 1,084 (6,735) -- 930 ------------ ------------ ------------ ------------ ------------ Net income (loss)....................... $ (3,897) $ 2,765 $ (6,064) $ -- $ (7,196) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities............................. $ 30,049 $ 10,491 $ (2,180) $ -- $ 38,360 Cash provided by (used in) investing activities............................. 9,603 (11,571) (4,923) -- (6,891) Cash used in financing activities....... (21,983) -- (20,948) -- (42,931) ------------ ------------ ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents............................ 17,669 (1,080) (28,051) -- (11,462) Cash and cash equivalents at beginning of period.............................. 96,509 3,220 52,536 -- 152,265 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period................................. $ 114,178 $ 2,140 $ 24,485 $ -- $ 140,803 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-29 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED SEPTEMBER 30, 1993 --------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ------------ ------------- ------------ ------------ ------------ Net revenue........................................ $ 922,221 $ 16,911 $ (20,514) $ (20,711) $ 897,907 Costs and expenses Operating and administrative expenses............ 876,792 11,913 (227,147) (20,711) 640,847 Bad debt expense................................. 68,086 121 (907) -- 67,300 Depreciation and amortization.................... 26,816 411 (845) -- 26,382 Amortization of reorganization value in excess of amounts allocable to identifiable assets........ (8) -- 42,686 -- 42,678 Interest, net.................................... (7,465) 36 81,585 -- 74,156 ESOP expense..................................... 41,563 -- 4,311 -- 45,874 Stock option expense............................. -- -- 38,416 -- 38,416 ------------ ------------- ------------ ------------ ------------ 1,005,784 12,481 (61,901) (20,711) 935,653 ------------ ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before income taxes and extraordinary item............... (83,563) 4,430 41,387 -- (37,746) Provision for (benefit from) income taxes.......... (30,313) 520 31,667 -- 1,874 ------------ ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before extraordinary item................................ (53,250) 3,910 9,720 -- (39,620) Discontinued operations Income (Loss) from discontinued operations....... 14,734 5,492 (34,929) -- (14,703) Gain (Loss) on disposal of discontinued operations...................................... 84,176 -- (73,519) -- 10,657 ------------ ------------- ------------ ------------ ------------ Income (Loss) before extraordinary item............ 45,660 9,402 (98,728) -- (43,666) Extraordinary loss on early extinguishment of debt.............................................. 314 -- 8,247 -- 8,561 ------------ ------------- ------------ ------------ ------------ Net income (loss).................................. $ 45,346 $ 9,402 $ (106,975) $ -- $ (52,227) ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities.... $ (404,185) $ 5,066 $ 489,077 $ -- $ 89,958 Cash provided by (used in) investing activities.... 374,462 (4,450) 1,395 -- 371,407 Cash used in financing activities.................. (39,308) -- (476,858) -- (516,166) ------------ ------------- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents....................................... (69,031) 616 13,614 -- (54,801) Cash and cash equivalents at beginning of period... 114,178 2,140 24,485 -- 140,803 ------------ ------------- ------------ ------------ ------------ Cash and cash equivalents at end of period......... $ 45,147 $ 2,756 $ 38,099 $ -- $ 86,002 ------------ ------------- ------------ ------------ ------------ ------------ ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-30 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 14. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) NOTES TO THE CONDENSED CONSOLIDATING FINANCIAL STATEMENTS GENERAL -- These condensed consolidating financial statements reflect the Guarantors under the 11 1/4% Senior Subordinated Notes and the New Credit Agreement consummated in May 1994. (See Note 15). The direct and indirect Guarantors are wholly owned by Charter or a Guarantor Subsidiary of Charter. Separate financial statements of the Guarantors are not presented because the Guarantors are jointly, severally and unconditionally liable under the guarantee, and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Guarantor Subsidiaries, and the separate financial statements are deemed not material to investors. DISTRIBUTIONS -- There are no restrictions on the ability of the Guarantor Subsidiaries to make distributions to Charter. 15. SUBSEQUENT EVENTS On March 30, 1994 the Company announced that it had entered into an asset purchase agreement with National Medical Enterprises, Inc. ("NME") providing for the purchase of substantially all of the assets of 36 psychiatric hospitals, eight chemical-dependency treatment facilities, two residential treatment centers and one physician outpatient practice (including related outpatient facilities and other associated assets, the "Target Hospitals"). The purchase price for the Target Hospitals will be approximately $146.9 million in cash plus an additional cash amount, estimated to be approximately $50.7 million, subject to adjustment, for the net working capital of the Target Hospitals at the closing of the acquisition. The Target Hospitals have an aggregate capacity of 3,496 licensed beds and are located in 20 states. During their fiscal year ended May 31, 1993 and the nine month period ended February 28, 1994, the Target Hospitals had, respectively, approximately 40,000 and 28,000 patient admissions, net revenue of approximately $407.5 million and $265.2 million and Target Hospital EBITDA (defined as net revenue less operating expenses and bad debt expenses) of approximately $55.1 million and $36.5 million. Subject to obtaining licensure and other regulatory approvals, the Company anticipates that it will purchase the Target Hospitals in multiple closings. See "The Acquisition" and "Target Hospital Selected Financial Information" elsewhere in this document. On May 2, 1994 the Company entered into a Second Amended and Restated Credit Agreement with certain financial institutions for a five-year reducing, revolving credit facility in an aggregate committed amount of $300 million (the "Revolving Credit Agreement"). Proceeds from the Revolving Credit Agreement were or will be used (i) to refinance certain mortgage indebtedness of certain subsidiaries of the Company in the principal amount of approximately $14.7 million and the loans to certain subsidiaries of the Company outstanding under the Credit Agreement in the principal amount of approximately $46.8 million, (ii) for continued credit enhancement of certain currently outstanding variable rate demand notes issued by or for the benefit of certain subsidiaries of the Company and (iii) for working capital and other general corporate purposes, including to finance, in part, the acquisition of the Target Hospitals and to finance other permitted acquisitions and investments. As of May 2, 1994, approximately $134.6 million in loans and letters of credit were outstanding under the Revolving Credit Agreement. The Revolving Credit Agreement will be reduced by the amounts and on the dates indicated below:
AMOUNT DATE - -------------- ----------------- $ 25,000,000 March 31, 1996 50,000,000 March 31, 1997 50,000,000 March 31, 1998 175,000,000 March 31, 1999
In addition to the scheduled reductions above, the Revolving Credit Agreement shall be reduced (i) by an amount equal to 70% (or if a default or an event of default exists, 100%) of the net proceeds of certain F-31 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SEPTEMBER 30, 1993 15. SUBSEQUENT EVENTS (CONTINUED) asset sales, (ii) by an amount equal to 25% (or if a default or an event of default exists, 100%) of the net proceeds of certain issuances or sales of the Company's capital stock or other equity interests, except that no such reduction shall be required if the Company meets specified financial ratios and no default or event of default has occurred and is continuing, and (iii) by an amount equal to the principal amount of permitted subordinated indebtedness (including, without limitation, the Notes (as defined below)) subject to a required repurchase or repurchase offer by the Company as a result of any asset sale. All such reductions described in the foregoing clauses (i) through (iii) shall be applied first on a pro rata basis to all scheduled reductions of the Revolving Credit Agreement other than the last scheduled reduction of the Revolving Credit Agreement, and thereafter to the last scheduled reduction. The loans outstanding under the Revolving Credit Agreement will bear interest (subject to certain potential adjustments) at a rate per annum equal to (a) the sum of the Base Lending Rate plus 3/4%, or (b) at the option of the Company, the sum of the maximum reserve-adjusted one, two, three or six-month LIBOR plus 1 3/4%. The Base Lending Rate is the higher of (x) the rate announced from time to time as Bankers Trust Company's prime lending rate, (y) the Federal Reserve's reported weekly average dealer offering rate for three-month certificates of deposit, adjusted for maximum reserves, plus 1/2 of 1%, and (z) the Federal Funds Rate plus 1/2 of 1%. Also on May 2, 1994, the Company issued $375 million of 11.25% Senior Subordinated Notes which mature on April 15, 2004 (the "Notes") and are general unsecured obligations of the Company. Interest on the Notes is payable semi-annually on each April 15 and October 15, commencing on October 15, 1994. Proceeds of $181.8 million from the sale of the Notes were used to defease and redeem the Company's outstanding 7.5% Senior Subordinated Debentures due 2003. Certain remaining proceeds will be used, along with proceeds from the Revolving Credit Agreement, to finance the acquisition of NME facilities discussed above. The Notes are guaranteed on an unsecured senior subordinated basis by substantially all of the Company's existing subsidiaries and certain subsidiaries created after the issuance of the Notes. The Notes are not redeemable at the option of the Company prior to April 15, 1999. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as a percentage of the principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning April 15 of the years indicated below:
REDEMPTION YEAR PRICES - ----------------------------------------- ----------- 1999..................................... 105.625% 2000..................................... 103.750% 2001..................................... 101.875% 2002 and thereafter...................... 100.000%
The indenture for the Notes contains certain covenants, which among other things, restrict the Company's ability and the ability of certain of the Company's subsidiaries to pay dividends, make unscheduled payments on indebtedness that is subordinated in right of payment to the Notes or make certain investments. The covenants also place limitations on the Company's ability to incur additional indebtedness or liens and places restrictions on the use of proceeds from asset sales. F-32 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) ASSETS
SEPTEMBER 30, MARCH 31, 1993 1994 ------------- ------------ Current Assets Cash and cash equivalents...................................................... $ 86,002 $ 40,535 Cash collateral account........................................................ 5,426 8,207 Accounts receivable, net....................................................... 119,638 129,117 Supplies....................................................................... 5,051 4,933 Other current assets........................................................... 15,798 13,748 ------------- ------------ Total Current Assets......................................................... 231,915 196,540 Property and Equipment Land........................................................................... 95,886 93,850 Buildings and improvements..................................................... 310,649 307,768 Equipment...................................................................... 67,421 69,017 ------------- ------------ 473,956 470,635 Accumulated depreciation....................................................... (30,098) (43,109) ------------- ------------ 443,858 427,526 Construction in progress....................................................... 928 2,194 ------------- ------------ 444,786 429,720 Other Long-Term Assets........................................................... 104,284 100,195 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets, net............................................................................. 57,201 41,601 ------------- ------------ $ 838,186 $ 768,056 ------------- ------------ ------------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable............................................................... $ 52,264 $ 39,021 Accrued expenses and other current liabilities................................. 149,377 135,041 Current maturities of long-term debt and capital lease obligations............. 70,957 41,010 ------------- ------------ Total Current Liabilities.................................................... 272,598 215,072 Long-Term Debt and Capital Lease Obligations..................................... 350,205 321,192 Deferred Income Taxes............................................................ 38,789 36,439 Reserve for Unpaid Claims........................................................ 99,675 98,268 Deferred Credits and Other Long-Term Liabilities................................. 19,621 14,976 Stockholders' Equity Preferred Stock, without par value Authorized -- 10,000,000 shares Issued and outstanding -- none............................................... -- -- Common Stock, par value $0.25 per share Authorized -- 80,000,000 shares Issued and outstanding -- 25,001,042 shares at September 30, 1993 and 26,750,950 shares at March 31, 1994..................................... 6,250 6,688 Other Stockholders' Equity Additional paid-in capital................................................... 237,581 240,162 Accumulated deficit.......................................................... (59,423) (62,166) Unearned compensation under ESOP............................................. (122,724) (98,125) Warrants outstanding......................................................... 274 182 Cumulative foreign currency adjustments...................................... (4,660) (4,632) ------------- ------------ 57,298 82,109 Commitments and Contingencies ------------- ------------ $ 838,186 $ 768,056 ------------- ------------ ------------- ------------
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these balance sheets. F-33 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE QUARTER FOR THE SIX MONTHS ENDED MARCH 31, ENDED MARCH 31, -------------------- -------------------- 1993 1994 1993 1994 --------- --------- --------- --------- Net Revenue........................................................ $ 233,160 $ 212,610 $ 459,550 $ 421,427 --------- --------- --------- --------- Costs and Expenses Operating and administrative expenses............................ 163,613 153,147 323,367 305,589 Bad debt expense................................................. 16,493 16,159 34,870 32,288 Depreciation and amortization.................................... 6,635 6,904 13,802 13,579 Amortization of reorganization value in excess of amounts allocable to identifiable assets................................ 10,750 7,800 21,500 15,600 Interest, net.................................................... 18,323 8,418 37,307 16,785 ESOP expense..................................................... 8,965 12,300 17,970 24,599 Stock option expense............................................. 29,016 656 31,277 6,851 --------- --------- --------- --------- 253,795 205,384 480,093 415,291 --------- --------- --------- --------- Income (Loss) from continuing operations before income taxes....... (20,635) 7,226 (20,543) 6,136 Provision for (Benefit from) income taxes.......................... (3,756) 6,103 364 8,879 --------- --------- --------- --------- Income (Loss) from continuing operations........................... (16,879) 1,123 (20,907) (2,743) Loss from discontinued operations (net of income tax provision of $3,178 and $6,123 for the quarter and six months, respectively)... (2,812) -- (6,008) -- --------- --------- --------- --------- Net Income (Loss).................................................. $ (19,691) $ 1,123 $ (26,915) $ (2,743) --------- --------- --------- --------- --------- --------- --------- --------- Average Number of Common Shares Outstanding........................ 24,857 26,743 24,842 25,936 --------- --------- --------- --------- --------- --------- --------- --------- Earnings per common share: Income (Loss) from continuing operations......................... $ (.68) $ .04 $ (.84) $ (.11) Loss from discontinued operations................................ (.11) -- (.24) -- --------- --------- --------- --------- Net Income (Loss)................................................ $ (.79) $ .04 $ (1.08) $ (.11) --------- --------- --------- --------- --------- --------- --------- ---------
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. F-34 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (IN THOUSANDS)
OTHER STOCKHOLDERS' EQUITY ------------------------------------------------------------------- CUMULATIVE COMMON STOCK ADDITIONAL UNEARNED FOREIGN -------------- PAID-IN ACCUMULATED COMPENSATION WARRANTS CURRENCY SHARES AMOUNT CAPITAL DEFICIT UNDER ESOP OUTSTANDING ADJUSTMENTS ------ ------ ---------- ----------- ------------ ----------- ----------- Balance at September 30, 1993...... 25,001 $6,250 $ 237,581 $ (59,423) $ (122,724) $ 274 $ (4,660) Additions (Deductions): Net loss......................... -- -- -- (3,866) -- -- -- ESOP expense..................... -- -- -- -- 12,299 -- -- Stock option expense accrual..... -- -- 6,195 -- -- -- -- Exercise of stock options........ 1,682 421 (14,096) -- -- -- -- Exercise of warrants............. 37 9 277 -- -- (91) -- Tax benefit related to exercise of stock options................ -- -- 9,424 -- -- -- -- Foreign currency translation loss............................ -- -- -- -- -- -- (642) ------ ------ ---------- ----------- ------------ ----- ----------- Balance at December 31, 1993....... 26,720 $6,680 $ 239,381 $ (63,289) $ (110,425) $ 183 $ (5,302) Additions (Deductions): Net income....................... -- -- -- 1,123 -- -- -- ESOP expense..................... -- -- -- -- 12,300 -- -- Stock option expense accrual..... -- -- 656 -- -- -- -- Exercise of stock options........ 30 8 120 -- -- -- -- Exercise of warrants............. 1 -- 5 -- -- (1) -- Foreign currency translation gain............................ -- -- -- -- -- -- 670 ------ ------ ---------- ----------- ------------ ----- ----------- Balance at March 31, 1994.......... 26,751 $6,688 $ 240,162 $ (62,166) $ (98,125) $ 182 $ (4,632) ------ ------ ---------- ----------- ------------ ----- ----------- ------ ------ ---------- ----------- ------------ ----- -----------
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. F-35 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
FOR THE SIX MONTHS ENDED MARCH 31, --------------------- 1993 1994 ---------- --------- Cash Flows From Operating Activities Net loss............................................................................. $ (26,915) $ (2,743) Adjustments to reconcile net loss to net cash provided by operating activities: Loss from discontinued operations................................................ 6,008 -- Depreciation and amortization.................................................... 35,302 29,179 ESOP expense..................................................................... 17,970 24,599 Stock option expense............................................................. 31,277 6,851 Non-cash interest expense........................................................ 2,950 1,375 Cash flows from changes in assets and liabilities, net of effects from sales and acquisitions of businesses: Accounts receivable, net....................................................... (12,433) (9,475) Other assets................................................................... (201) 4,443 Accounts payable and other accrued liabilities................................. (23,492) (21,829) Reserve for unpaid claims...................................................... 1,659 (847) Income taxes payable........................................................... (2,845) (9,057) Other liabilities.............................................................. 8,436 (5,464) Other............................................................................ (469) 1,515 ---------- --------- Total adjustments................................................................ 64,162 21,290 ---------- --------- Net cash provided by operating activities........................................ 37,247 18,547 ---------- --------- Cash Flows From Investing Activities Acquisitions of businesses........................................................... -- (1,733) Capital expenditures................................................................. (4,702) (6,964) Decrease in assets restricted for settlement of unpaid claims........................ 587 4,058 Proceeds from sale of assets......................................................... 11,882 7,857 Cash flows from discontinued operations.............................................. 19,698 -- ---------- --------- Net cash provided by investing activities........................................ 27,465 3,218 ---------- --------- Cash Flows From Financing Activities Proceeds from issuance of debt....................................................... 17,200 -- Payments on debt and capital lease obligations....................................... (117,001) (60,527) Proceeds from exercise of stock options and warrants................................. 141 866 Tax benefit related to exercise of stock options..................................... -- 9,424 Income tax payments made on behalf of stock optionee................................. -- (14,214) Increase in cash collateral account.................................................. (372) (2,781) ---------- --------- Net cash used in financing activities............................................ (100,032) (67,232) ---------- --------- Net decrease in cash and cash equivalents.............................................. (35,320) (45,467) Cash and cash equivalents at beginning of period....................................... 140,803 86,002 ---------- --------- Cash and cash equivalents at end of period............................................. $ 105,483 $ 40,535 ---------- --------- ---------- ---------
The accompanying Notes to Condensed Consolidated Financial Statements are an integral part of these statements. F-36 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1994 (UNAUDITED) NOTE A -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation, have been included. These financial statements should be read in conjunction with the audited consolidated financial statements of the Company for the year ended September 30, 1993, included in the Company's Annual Report on Form 10-K. NOTE B -- NATURE OF BUSINESS The Company's business is seasonal in nature, with a reduced demand for certain services generally occurring in the fourth fiscal quarter and around major holidays, such as Thanksgiving and Christmas. The Company's business is also subject to general economic conditions and other factors. Accordingly, the results of operations for the interim periods are not necessarily indicative of the results expected for the year. NOTE C -- SUPPLEMENTAL CASH FLOW INFORMATION Below is supplemental cash flow information related to the six months ended March 31, 1993 and 1994:
FOR THE SIX MONTHS ENDED MARCH 31, -------------------- 1993 1994 --------- --------- (IN THOUSANDS) Income taxes paid, net of refunds received........................... $ 9,525 $ 8,532 Interest paid, net of amounts capitalized............................ 36,184 16,331 Payments to ESOP..................................................... 52,669 30,000
NOTE D -- LONG-TERM DEBT AND LEASES Information with regard to the Company's long-term debt and capital lease obligations at September 30, 1993 and March 31, 1994 follows (in thousands):
SEPTEMBER 30, MARCH 31, 1993 1994 ------------- ---------- Financing under the Credit Agreement: Tranche A Facility (6.75% at March 31, 1994)............................ $ 93,871 $ 65,932 Tranche B Facility (5.7375% to 8.375% at March 31, 1994)................ 67,619 37,619 Debentures due 2003 (net of discount of $43,997 at September 30, 1993 and $42,622 at March 31, 1994)............................................... 156,003 157,378 8% to 16% Mortgage and other collateralized notes payable through 1998.... 21,502 19,916 Variable rate secured notes due through 2013 (2.15% to 2.5% at March 31, 1994).................................................................... 64,175 63,825 7.5% Swiss Bonds due currently............................................ 6,443 6,443 2.2% to 11.5% Capital lease obligations due through 2014.................. 11,965 11,780 ------------- ---------- 421,578 362,893 Less amounts due within one year...................................... 70,957 41,010 Less debt service funds............................................... 416 691 ------------- ---------- $ 350,205 $ 321,192 ------------- ---------- ------------- ----------
F-37 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE D -- LONG-TERM DEBT AND LEASES (CONTINUED) The Company made a mandatory payment under the Credit Agreement of approximately $3.1 million in January 1994 which represented actual excess cash over estimated excess cash at September 30, 1993. Additionally, in January 1994 the Company made a voluntary prepayment under the Credit Agreement of $30 million. On March 1, 1994 the Company made a mandatory prepayment under the Credit Agreement of approximately $1.9 million which represented 75% of net proceeds from asset sales and on March 31, 1994 made a scheduled payment of $2.5 million. NOTE E -- STOCKHOLDERS' EQUITY During December 1993, a former employee and director exercised approximately 2.2 million options to purchase shares of the Company's common stock and surrendered approximately 570,000 of such optioned shares, valued at approximately $14.2 million, as consideration for the payment of required withholding taxes. As a result, the Company was required to make withholding tax payments on behalf of the former employee of approximately $14.2 million which was charged against additional paid-in capital. This charge was offset by a tax benefit recorded in additional paid-in capital of approximately $9.4 million related to additional stock option expense deductible for income tax purposes. NOTE F -- CONTINGENCIES GENERAL AND PROFESSIONAL LIABILITY The Company is self-insured for a substantial portion of general and professional liability risks. The reserves for self-insured general and professional liability losses, including loss adjustment expenses, are based on actuarial estimates using the Company's historical claims experience adjusted for current industry trends. The reserve for unpaid claims is adjusted as such claims mature, to reflect revised actuarial estimates based on actual experience. While management and its actuaries believe that the present reserve is reasonable, ultimate settlement of losses may vary from the amount provided. LITIGATION In addition to general and professional liability claims, the Company is subject to other claims, suits, surveys and investigations. This includes a federal investigation of certain business practices of a subsidiary of the Company that operates one psychiatric hospital. In the opinion of management, the ultimate resolution of such other pending legal proceedings will not have a material adverse effect on the Company's financial position or results of operations. The Resolution Trust Corporation ("RTC"), for itself or in its capacity as conservator or receivor for 12 financial institutions, formerly held certain debt securities that were issued by the Company in 1988. RTC has indicated to the Company that it believes that certain financial statements and other disclosures made by the Company in connection with such debt securities contained materially misleading statements or material omissions and that such misleading statements or omissions resulted in an overvaluation of such debt securities. Specifically, the RTC has indicated its belief that the Company's financial statements overstated net income for the 1987 fiscal year and the first three quarters of the 1988 fiscal year due to understatement of contractual allowances and the allowance for bad debts and that the Company believed, but did not disclose, that the factors described under "--Industry Trends" would occur in the foreseeable future. The Company believes that the financial institutions represented by RTC purchased in 1988 and 1989 $103.4 million face amount of subordinated debt securities originally issued by the Company in September 1988. Although the RTC has not disclosed to the Company its (or its financial institutions') trading losses from the purchases and sales of these subordinated debt securities, the RTC has disclosed the dates purchases and F-38 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE F -- CONTINGENCIES (CONTINUED) Sales were made and the face amounts of the subordinated debt securities involved in these transactions. The Company believes that the trading losses were approximately $45 million. The Company has agreed to a tolling of the statute of limitations applicable to RTC's claims. Based on a review of relevant law and the facts known to the Company, the Company believes it has a substantial defense to a potential claim by RTC and that such claim would not have a material adverse effect on the Company's financial position or results of operations. NOTE G -- ACQUISITION On March 30, 1994 the Company announced that it had entered into an asset purchase agreement with National Medical Enterprises, Inc. ("NME") providing for the purchase of substantially all of the assets of 36 psychiatric hospitals, eight chemical-dependency treatment facilities, two residential treatment centers and one physician outpatient practice (including related outpatient facilities and other associated assets, the "Target Hospitals"). The purchase price for the Target Hospitals will be approximately $146.9 million in cash plus an additional cash amount, estimated to be approximately $50.7 million, subject to adjustment, for the net working capital of the Target Hospitals at the closing of the acquisition. The Target Hospitals have an aggregate capacity of 3,496 licensed beds and are located in 20 states. During their fiscal year ended May 31, 1993 and the nine month period ended February 28, 1994, the Target Hospitals had, respectively, approximately 40,000 and 28,000 patient admissions, net revenue of approximately $407.5 million and $265.2 million and Target Hospital EBITDA (defined as net revenue less operating expenses and bad debt expenses) of approximately $55.1 million and $36.5 million. Subject to obtaining licensure and other regulatory approvals, the Company anticipates that it will purchase the Target Hospitals in multiple closings. See "The Acquisition" and "Target Hospital Selected Financial Information" elsewhere in this document. NOTE H -- SUBSEQUENT EVENTS On May 2, 1994 the Company entered into a Second Amended and Restated Credit Agreement with certain financial institutions for a five-year reducing, revolving credit facility in an aggregate committed amount of $300 million (the "Revolving Credit Agreement"). Proceeds from the Revolving Credit Agreement were or will be used (i) to refinance certain mortgage indebtedness of certain subsidiaries of the Company in the principal amount of approximately $14.7 million and the loans to certain subsidiaries of the Company outstanding under the Credit Agreement in the principal amount of approximately $46.8 million, (ii) for continued credit enhancement of certain currently outstanding variable rate demand notes issued by or for the benefit of certain subsidiaries of the Company, and (iii) for working capital and other general corporate purposes, including to finance, in part, the acquisition of the Target Hospitals and to finance other permitted acquisitions and investments. As of May 2, 1994, approximately $134.6 million in loans and letters of credit were outstanding under the Revolving Credit Agreement. The Revolving Credit Agreement will be reduced by the amounts and on the dates indicated below:
AMOUNT DATE - -------------- ----------------- $ 25,000,000 March 31, 1996 50,000,000 March 31, 1997 50,000,000 March 31, 1998 175,000,000 March 31, 1999
In addition to the scheduled reductions above, the Revolving Credit Agreement shall be reduced (i) by an amount equal to 70% (or if a default or an event of default exists, 100%) of the net proceeds of certain F-39 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE H -- SUBSEQUENT EVENTS (CONTINUED) asset sales, (ii) by an amount equal to 25% (or if a default or an event of default exists, 100%) of the net proceeds of certain issuances or sales of the Company's capital stock or other equity interests, except that no such reduction shall be required if the Company meets specified financial ratios and no default or event of default has occurred and is continuing, and (iii) by an amount equal to the principal amount of permitted subordinated indebtedness (including, without limitation, the Notes (as defined below)) subject to a required repurchase or repurchase offer by the Company as a result of any asset sale. All such reductions described in the foregoing clauses (i) through (iii) shall be applied first on a pro rata basis to all scheduled reductions of the Revolving Credit Agreement other than the last scheduled reduction of the Revolving Credit Agreement, and thereafter to the last scheduled reduction. The loans outstanding under the Revolving Credit Agreement will bear interest (subject to certain potential adjustments) at a rate per annum equal to (a) the sum of the Base Lending Rate plus 3/4%, or (b) at the option of the Company, the sum of the maximum reserve-adjusted one, two, three or six-month LIBOR plus 1 3/4%. The Base Lending Rate is the higher of (x) the rate announced from time to time as Bankers Trust Company's prime lending rate, (y) the Federal Reserve's reported weekly average dealer offering rate for three-month certificates of deposit, adjusted for maximum reserves, plus 1/2 of 1%, and (z) the Federal Funds Rate plus 1/2 of 1%. Also on May 2, 1994, the Company issued $375 million of 11.25% Senior Subordinated Notes which mature on April 15, 2004 (the "Notes") and are general unsecured obligations of the Company. Interest on the Notes is payable semi-annually on each April 15 and October 15, commencing on October 15, 1994. Proceeds of $181.8 million from the sale of the Notes were used to defease and redeem the Company's outstanding 7.5% Senior Subordinated Debentures due 2003. Certain remaining proceeds will be used, along with proceeds from the Revolving Credit Agreement, to finance the acquisition of NME facilities discussed above. The Notes are guaranteed on an unsecured senior subordinated basis by certain of the Company's existing subsidiaries and certain subsidiaries created after the issuance of the Notes. Separate financial statements of the guarantor subsidiaries are not presented because the Company believes they are not material. The Notes are not redeemable at the option of the Company prior to April 15, 1999. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, at the redemption prices (expressed as a percentage of the principal amount) set forth below, plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning April 15 of the years indicated below:
REDEMPTION YEAR PRICES - --------------------------------------------------- ----------- 1999............................................... 105.625% 2000............................................... 103.750% 2001............................................... 101.875% 2002 and thereafter................................ 100.000%
The indenture for the Notes contains certain covenants which, among other things, restrict the Company's ability and the ability of certain of the Company's subsidiaries to pay dividends, make unscheduled payments on indebtedness that is subordinated in right of payment to the Notes or make certain investments. The covenants also place limitations on the Company's ability to incur additional indebtedness or liens and places restrictions on the use of proceeds from asset sales. F-40 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE I -- GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS) ASSETS
MARCH 31, 1994 -------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ----------- ------------- ------------ ------------ ------------ Current Assets Cash and cash equivalents............... $ 29,474 $ 8,674 $ 2,387 $ -- $ 40,535 Accounts receivable, net................ 129,231 1,937 (2,051) -- 129,117 Supplies................................ 4,557 67 309 -- 4,933 Other current assets.................... 5,971 105 22,343 (6,464) 21,955 ----------- ------------- ------------ ------------ ------------ Total Current Assets.................. 169,233 10,783 22,988 (6,464) 196,540 Property and Equipment Land.................................... 87,344 5,492 1,014 -- 93,850 Buildings and improvements.............. 300,316 5,132 2,320 -- 307,768 Equipment............................... 65,937 936 2,144 -- 69,017 ----------- ------------- ------------ ------------ ------------ 453,597 11,560 5,478 -- 470,635 Accumulated depreciation................ (42,405) (735) 31 -- (43,109) Construction in progress................ 2,181 7 -- 6 2,194 ----------- ------------- ------------ ------------ ------------ 413,373 10,832 5,509 6 429,720 Other Long-Term Assets (1)................ 403,903 63,565 1,117,657 (1,484,930) 100,195 Reorganization Value in Excess of Amounts Allocable to Identifiable Assets, net.... -- -- 41,601 -- 41,601 ----------- ------------- ------------ ------------ ------------ $ 986,509 $ 85,180 $1,187,755 $(1,491,388) $ 768,056 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable........................ $ 30,830 $ 597 $ 7,594 $ -- $ 39,021 Accrued expenses and other current liabilities............................ 90,551 858 41,582 2,050 135,041 Current maturities of long-term debt and capital lease obligations.............. 5,693 109 35,208 -- 41,010 ----------- ------------- ------------ ------------ ------------ Total Current Liabilities............. 127,074 1,564 84,384 2,050 215,072 Long-Term Debt and Capital Lease Obligations.............................. 134,990 1,451 547,750 (362,999) 321,192 Deferred Income Taxes..................... -- 971 38,064 (2,596) 36,439 Reserve for Unpaid Claims................. -- 42,504 62,415 (6,651) 98,268 Deferred Credits and Other Long-Term Liabilities (1).......................... 204,844 1,626 33,614 (225,108) 14,976 Stockholders' Equity Common Stock, par value $0.25 per share Authorized -- 80,000,000 shares Issued and outstanding -- 26,750,950 shares................................. 2,834 587 6,686 (3,419) 6,688 Other Stockholders' Equity Additional paid-in capital............ 717,603 30,455 467,795 (975,691) 240,162 Retained Earnings (Accumulated deficit)............................. (199,745) 7,041 47,512 83,026 (62,166) Unearned compensation under ESOP...... -- -- (98,125) -- (98,125) Warrants outstanding.................. -- -- 182 -- 182 Cumulative foreign currency adjustments.......................... (1,091) (1,019) (2,522) -- (4,632) ----------- ------------- ------------ ------------ ------------ Stockholders' Equity................ 519,601 37,064 421,528 (896,084) 82,109 Commitments and Contingencies ----------- ------------- ------------ ------------ ------------ $ 986,509 $ 85,180 $1,187,755 $(1,491,388) $ 768,056 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ - ------------------------------ (1) Elimination entry related to intercompany receivables and payables and investment in consolidated subsidiaries.
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these balance sheets. F-41 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE I -- GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED MARCH 31, 1993 -------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ----------- ------------- ------------ ------------ ------------ Net revenue....................................... $ 472,746 $ 7,215 $ (10,401) $ (10,010) $ 459,550 Costs and expenses Operating and administrative expenses........... 473,620 5,547 (145,789) (10,011) 323,367 Bad debt expense................................ 35,775 94 (999) -- 34,870 Depreciation and amortization................... 14,065 218 (481) -- 13,802 Amortization of reorganization value in excess of amounts allocable to identifiable assets.... -- -- 21,500 -- 21,500 Interest, net................................... (2,659) 30 39,936 -- 37,307 ESOP expense.................................... 16,625 -- 1,344 1 17,970 Stock option expense............................ -- -- 31,277 -- 31,277 ----------- ------------- ------------ ------------ ------------ 537,426 5,889 (53,212) (10,010) 480,093 ----------- ------------- ------------ ------------ ------------ Income (Loss) from continuing operations before income taxes and extraordinary item.............. (64,680) 1,326 42,811 -- (20,543) Provision for income taxes........................ -- -- -- 364 364 ----------- ------------- ------------ ------------ ------------ Income (Loss) from continuing operations.......... (64,680) 1,326 42,811 (364) (20,907) Income (Loss) from discontinued operations........ 16,170 2,971 (19,098) (6,051) (6,008) ----------- ------------- ------------ ------------ ------------ Net income (loss)................................. $ (48,510) $ 4,297 $ 23,713 $ (6,415) $ (26,915) ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities... $ (62,658) $ (1,596) $ 101,501 $ -- $ 37,247 Cash provided by investing activities............. 21,351 760 5,354 -- 27,465 Cash used in financing activities................. (6,369) -- (93,663) -- (100,032) ----------- ------------- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... (47,676) (836) 13,192 -- (35,320) Cash and cash equivalents at beginning of period........................................... 114,178 2,140 24,485 -- 140,803 ----------- ------------- ------------ ------------ ------------ Cash and cash equivalents at end of period........ $ 66,502 $ 1,304 $ 37,677 $ -- $ 105,483 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-42 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 1994 (UNAUDITED) NOTE I -- GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) CHARTER MEDICAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE SIX MONTHS ENDED MARCH 31, 1994 -------------------------------------------------------------------- CHARTER MEDICAL CORPORATION CONSOLIDATED GUARANTOR NONGUARANTOR (PARENT ELIMINATION CONSOLIDATED SUBSIDIARIES SUBSIDIARIES CORPORATION) ENTRIES TOTAL ----------- ------------- ------------ ------------ ------------ Net revenue....................................... $ 415,888 $ 10,591 $ 2,421 $ (7,473) $ 421,427 Costs and expenses Operating and administrative expenses........... 443,913 8,708 (139,558) (7,474) 305,589 Bad debt expense................................ 32,559 (44) (227) -- 32,288 Depreciation and amortization................... 12,768 454 357 -- 13,579 Amortization of reorganization value in excess of amounts allocable to identifiable assets.... -- -- 15,600 -- 15,600 Interest, net................................... (8,310) 11 25,090 (6) 16,785 ESOP expense.................................... 22,406 -- 2,090 103 24,599 Stock option expense............................ -- -- 6,851 -- 6,851 ----------- ------------- ------------ ------------ ------------ 503,336 9,129 (89,797) (7,377) 415,291 ----------- ------------- ------------ ------------ ------------ Income (Loss) before income taxes................. (87,448) 1,462 92,218 (96) 6,136 Provision for income taxes........................ -- -- -- 8,879 8,879 ----------- ------------- ------------ ------------ ------------ Net income (loss)................................. $ (87,448) $ 1,462 $ 92,218 $ (8,975) $ (2,743) ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------ CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Cash provided by (used in) operating activities... $ (14,423) $ 5,222 $ 27,748 $ -- $ 18,547 Cash provided by investing activities............. 1,250 723 1,245 -- 3,218 Cash used in financing activities................. (2,500) (27) (64,705) -- (67,232) ----------- ------------- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents...................................... (15,673) 5,918 (35,712) -- (45,467) Cash and cash equivalents at beginning of period........................................... 45,147 2,756 38,099 -- 86,002 ----------- ------------- ------------ ------------ ------------ Cash and cash equivalents at end of period........ $ 29,474 $ 8,674 $ 2,387 $ -- $ 40,535 ----------- ------------- ------------ ------------ ------------ ----------- ------------- ------------ ------------ ------------
The accompanying Notes to Condensed Consolidating Financial Statements are an integral part of these statements. F-43 NOTE I -- GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED) GENERAL -- These condensed consolidating financial statements reflect the Guarantors under the 11 1/4% Senior Subordinated Notes and the New Credit Agreement consummated in May 1994. (See Note H). The direct and indirect Guarantors are wholly owned by Charter or a Guarantor Subsidiary of Charter. Separate financial statements of the Guarantors are not presented because the Guarantors are jointly, severally and unconditionally liable under the guarantee, and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Guarantor Subsidiaries, and the separate financial statements are deemed not material to investors. DISTRIBUTIONS -- There are no restrictions on the ability of the Guarantor Subsidiaries to make distributions to Charter. F-44 The Board of Directors National Medical Enterprises, Inc. and Charter Medical Corporation: We have audited the accompanying combined balance sheets of the Selected Psychiatric Hospitals of National Medical Enterprises, Inc. (the "Selected Psychiatric Hospitals") as of May 31, 1993 and the related combined statements of operations, owners' equity and cash flows for each of the years in the two-year period ended May 31, 1993. These combined financial statements are the responsibility of management of National Medical Enterprises, Inc. ("NME"). Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As discussed in Note 9 to the combined financial statements, NME and certain of its subsidiaries at May 31, 1993 were engaged in various lawsuits and were the subject of governmental investigations concerning possible improper practices, some of which may have involved practices of certain of the Selected Psychiatric Hospitals. Subsequent to May 31, 1993, the majority of these lawsuits were settled, and on June 29, 1994, NME entered into a settlement agreement with certain Federal government agencies which finalized all of its open investigations of NME. While NME agreed to pay substantial amounts as part of these settlements and agreements, no settlement amounts have been specifically attributed to individual facilities. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of Selected Psychiatric Hospitals of National Medical Enterprises, Inc. as of May 31, 1993 and the results of their combined operations and their cash flows for each of the years in the two-year period ended May 31, 1993 in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick -------------------------------------- Los Angeles, California July 19, 1993, except as to Note 9, which is as of June 29, 1994 and Note 10, which is as of June 30, 1994. F-45 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. COMBINED BALANCE SHEET MAY 31, 1993 (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents....................................................... $ 4,071 Accounts receivable, net of allowance for bad debts............................. 56,944 Inventories of supplies, at cost................................................ 2,265 Prepaid expenses and other assets............................................... 2,605 --------- Total current assets........................................................ 65,885 Other long term assets............................................................ 9,192 Property, plant and equipment, net................................................ 286,462 Preopening costs and other intangible assets, at cost, net of accumulated amortization of $24,502.......................................................... 18,101 --------- $ 379,640 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................... $ 198 Accounts payable................................................................ 18,667 Employee compensation and benefits.............................................. 10,137 Allowance for loss on sale of selected hospitals................................ 6,464 Other current liabilities....................................................... 9,247 --------- Total current liabilities................................................... 44,713 Long-term debt, net of current portion............................................ 6,196 Minority interest................................................................. 4,390 Other long-term liabilities....................................................... 1,925 Due to owners and affiliates...................................................... 137,395 Commitments and contingencies Owners' equity.................................................................... 185,021 --------- $ 379,640 --------- ---------
See accompanying notes to combined financial statements. F-46 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. COMBINED STATEMENTS OF OPERATIONS YEARS ENDED MAY 31, 1992 AND 1993 (DOLLARS IN THOUSANDS)
1992 1993 ---------- ---------- Net operating revenues.................................................................... $ 537,218 $ 407,525 ---------- ---------- Operating and administrative expenses..................................................... 424,985 351,281 Intercompany fees and allocations......................................................... 66,962 53,252 Depreciation and amortization............................................................. 32,137 21,826 Provision for loss on sale of selected hospitals.......................................... 2,202 4,262 Minority interest in earnings of certain hospitals........................................ 1,652 1,185 Interest, net of capitalized portion of $314 in 1992 and $61 in 1993...................... 11,012 11,906 ---------- ---------- Total costs and expenses.............................................................. 538,950 443,712 ---------- ---------- Loss before income tax benefit............................................................ (1,732) (36,187) Income tax benefit........................................................................ (439) (13,121) ---------- ---------- Net loss.................................................................................. $ (1,293) $ (23,066) ---------- ---------- ---------- ----------
See accompanying notes to combined financial statements. F-47 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. COMBINED STATEMENTS OF CASH FLOWS YEARS ENDED MAY 31, 1992 AND 1993 (DOLLARS IN THOUSANDS)
1992 1993 ---------- ---------- Cash flows from operating activities: Net income (loss)....................................................................... $ (1,293) $ (23,066) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................................................... 32,137 21,826 Provisions for losses on accounts receivable.......................................... 36,812 20,273 Provision for minority interest....................................................... 1,652 1,185 Provision for loss on sale of selected hospitals...................................... 2,202 4,262 Non-cash income tax benefit........................................................... (439) (13,121) Changes in operating assets and liabilities: Accounts and notes receivable....................................................... 11,723 (11,232) Inventories of supplies............................................................. 431 2 Other current assets................................................................ (486) 4,664 Pre-opening costs................................................................... (18) (4,399) Accounts payable and other accrued expenses......................................... 3,904 (151) Other current liabilities........................................................... 1,074 (3,947) Minority interest................................................................... (1,465) (840) Other long term liabilities......................................................... (260) (191) ---------- ---------- Net cash provided by (used in) operating activities..................................... 85,974 (4,735) ---------- ---------- Cash flows from investing activities: Purchases of property, plant and equipment.............................................. (31,077) (30,421) ---------- ---------- Net cash used in investing activities................................................... (31,077) (30,421) ---------- ---------- Cash flows from financing activities: Proceeds from borrowings................................................................ 4,111 0 Principal payments on long term debt and capitalized leases............................. (1,688) (635) Net change in amounts due from parent and affiliates.................................... (53,667) 41,582 Dividends paid to owners................................................................ (6,186) (3,685) ---------- ---------- Net cash provided by (used in) financing activities..................................... (57,430) 37,262 ---------- ---------- Net increase (decrease) in cash and cash equivalents...................................... (2,533) 2,106 Cash and cash equivalents at beginning of period.......................................... 4,498 1,965 ---------- ---------- Cash and cash equivalents at end of period................................................ $ 1,965 $ 4,071 ---------- ---------- ---------- ----------
See accompanying notes to combined financial statements F-48 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. COMBINED STATEMENTS OF OWNERS' EQUITY YEARS ENDED MAY 31, 1992 AND 1993 (DOLLARS IN THOUSANDS)
TOTAL OWNERS' EQUITY ---------- Balance, May 31, 1991................................................................................. $ 219,251 Net loss.............................................................................................. (1,293) Dividends paid........................................................................................ (6,186) ---------- Balance, May 31, 1992................................................................................. 211,772 Net loss.............................................................................................. (23,066) Dividends paid........................................................................................ (3,685) ---------- Balance, May 31, 1993................................................................................. $ 185,021 ---------- ----------
See accompanying notes to combined financial statements. F-49 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS MAY 31, 1992 AND 1993 1. SIGNIFICANT ACCOUNTING POLICIES The combined financial statements have been prepared in connection with the acquisition by certain subsidiaries of Charter Medical Corporation (Charter) of substantially all of the assets of the 36 psychiatric hospitals, eight chemical-dependency treatment facilities, two residential treatment centers and one physician outpatient practice, including related outpatient facilities and other associated assets, (collectively the "Selected Hospitals") from various subsidiaries of National Medical Enterprises, Inc. ("NME"), which transaction is described in more detail in Note 10. The combined financial statements present the historical combined financial position and results of operations of the Selected Hospitals and, as a result, include certain assets and liabilities of the Selected Hospitals that Charter will not acquire or assume as part of the transaction described in Note 10. Several of the Selected Hospitals are owned and/or operated by partnerships in which NME currently owns a controlling interest. It is anticipated that NME's interest in these partnerships will be transferred as part of the transaction described in Note 10. These Selected Hospitals have been consolidated in the financial statements with the respective minority interests being recorded. Significant intercompany accounts and transactions between the Selected Hospitals have been eliminated. NET OPERATING REVENUES Net operating revenues consist primarily of net patient service revenues which are based on the hospitals' established billing rates less allowances and discounts principally for patients covered by Medicare, Medicaid and other contractual programs. These allowances and discounts were $324,555,000 in 1992 and $255,103,000 in 1993. Payments under these programs are based on either predetermined rates or the costs of services. Settlements for retrospectively determined rates are estimated in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Management believes that adequate provision has been made for adjustments that may result from final determination of amounts earned under these programs. Approximately 19% of net operating revenues in 1992 and approximately 29% of net operating revenues in 1993 is from the participation of the Selected Hospitals in Medicare and Medicaid programs. The Selected Hospitals provide care without charge or at amounts substantially less than their established rates to patients who meet certain financial or economic criteria. Because the Selected Hospitals do not pursue collection of amounts determined to qualify as charity care, they are not reported as gross revenue and are not included in deductions from revenue or in operating and administrative expenses. Bad debt expense for estimated uncollectible accounts receivable, net of recoveries, is included in operating and administrative expenses and was $36,812,000 in 1992 and $20,273,000 in 1993. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost, net of accumulated depreciation. The Selected Hospitals principally use the straight-line method of depreciation for buildings, improvements and equipment over their estimated useful lives as follows: buildings and improvements -- generally 20 to 50 years; equipment -- 3 to 15 years. INTANGIBLE ASSETS Preopening costs are generally amortized over 3 to 5 years. Costs in excess of the fair value of identifiable net assets of purchased businesses are generally amortized over 40 years. The straight-line method is used to amortize most intangible assets. F-50 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1992 AND 1993 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LEASES Capital leases are recorded at the beginning of the lease term as assets and liabilities at the lower of the present value of the minimum lease payments or the fair value of the assets. CASH EQUIVALENTS The Selected Hospitals treat highly liquid investments with an original maturity of three months or less as cash equivalents. INCOME TAXES The operations of the Selected Hospitals are included in the NME consolidated Federal income tax return and in various unitary and consolidated State income tax returns. NME charges or credits the Selected Hospitals for amounts from applicable separate State income tax returns, if any, and allocates to such hospitals a charge or credit for current and deferred income tax expense attributable to consolidated and unitary Federal and State income taxes. These allocations approximate income tax expense which would be calculated on a stand alone basis. Such allocations are recorded as Due to Owners and Affiliates. Deferred taxes assets and liabilities attributable to timing differences of the Selected Hospitals are recorded on the books of an affiliate. 2. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash, cash equivalents, accounts receivable, accounts payable and interest payable approximates fair value because of the short maturity of these instruments. The fair value of the Selected Hospitals' long-term debt, (1) calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loans, or (2) based on current rates available for debt of the same remaining maturities available to NME, also approximates carrying value. 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following at May 31, 1993 (in thousands): Land...................................................... $ 33,483 Buildings and improvements................................ 265,554 Constructions in progress................................. 2,195 Equipment................................................. 73,006 Facilities under capital leases........................... 1,548 --------- 375,786 Less accumulated depreciation............................. 89,324 --------- $ 286,462 --------- ---------
4. RELATED PARTY TRANSACTIONS Certain Selected Hospitals participate in the NME cash management program which requires that cash deposits be transferred to NME-controlled bank accounts. In this system, generally all cash accounts are zero-balance accounts. Increases and decreases in the NME intercompany account are principally a function F-51 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1992 AND 1993 4. RELATED PARTY TRANSACTIONS (CONTINUED) of cash flow and accrued interest (10% in 1992 and 1993) and noncash entries for certain overhead and expense transfers. Intercompany charges reflected in the combined financial statements are summarized as follows (in thousands):
1992 1993 --------- --------- Interest expense on intercompany borrowings....................................... $ 10,680 11,058 Insurance premiums................................................................ 7,470 9,563 Hospital management salaries, bonuses and data processing costs allocated from parent........................................................................... 11,058 12,099 Other corporate overhead allocations.............................................. 66,962 53,252 --------- --------- $ 96,170 85,972 --------- --------- --------- ---------
Total interest expense was calculated monthly at a rate of 10% on balances with NME and NME-owned entities for the years ended May 31, 1992 and 1993. Operating and administrative expenses include gross insurance premiums of approximately $7,470,000 and $9,563,000 paid to Health Facilities Insurance Corporation, Ltd. (HFIC), a wholly owned subsidiary of NME, for professional and other insurance coverage for the years ended May 31, 1992 and 1993, respectively. NME provides certain management and administrative services to the Selected Hospitals for which it charges a fee. Each of the Selected Hospitals is allocated a portion of the fee based on a specified percentage of gross revenues earned. Fees of $78,020,000 and $65,351,000 were paid to NME for the years ended May 31, 1992 and 1993, respectively. Of these amounts, $11,058,000 and $12,099,000 are reported as operating and administrative expenses in the accompanying statements of operations for the years ended May 31, 1992 and 1993, respectively. The remainder of these fees are included in intercompany fees and allocations in the accompanying combined statements of operations. 5. LONG-TERM DEBT Long-term debt of the Selected Hospitals at May 31, 1993 is as follows (in thousands): Notes secured by property, plant and equipment at rates ranging from 6% to 11.25%.................................. $ 5,423 Obligations under capital leases at rates ranging from 4.8% to 14.71%.................................................. 971 --------- 6,394 Less current portion........................................ 198 --------- $ 6,196 --------- ---------
F-52 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1992 AND 1993 5. LONG-TERM DEBT (CONTINUED) Minimum principal payments on long-term debt for the five years subsequent to May 31, 1993 are as follows (in thousands): 1994........................................................ $ 198 1995........................................................ 730 1996........................................................ 804 1997........................................................ 841 1998........................................................ 918 Thereafter.................................................. 2,903 --------- $ 6,394 --------- ---------
Interest paid to third parties totaled $668,000 and $915,000 during the years ended May 31, 1992 and 1993, respectively. 6. INCOME TAX BENEFIT Income tax benefits allocated by NME for the years ended May 31 consist of the following amounts (in thousands):
1992 1993 --------- ---------- Current payable Federal..................................................... $ (2,051) $ (16,219) State....................................................... 2,247 (2,166) --------- ---------- 196 (18,385) --------- ---------- Deferred taxes: Federal..................................................... (6) 4,144 State....................................................... (629) 1,120 --------- ---------- (635) 5,264 --------- ---------- Total tax benefit......................................... $ (439) $ (13,121) --------- ---------- --------- ----------
Effective June 1, 1993, NME adopted Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes" (SFAS 109). Among other provisions, this standard requires deferred tax balances to be determined using enacted tax rates for the years in which the taxes will actually be paid or refunds received. At May 31, 1993, deferred tax accounts recorded by an affiliate applicable to the Selected Hospitals' timing differences reflect the statutory rates that were in effect when the deferrals were initiated. Upon adoption, such deferred tax accounts applicable to the temporary differences of Selected Hospitals will be adjusted and the affiliate will recognize an income tax benefit on account of the change of method. Selected Hospitals will continue to receive an allocation of current and deferred income tax expense, modified to reflect the principles contained in SFAS 109. The main difference between the Federal statutory rate of 34% and the effective tax rate is attributable to state income taxes, net of Federal income tax benefit. F-53 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1992 AND 1993 7. LEASE OBLIGATIONS Future minimum lease payments for operating leases for the next five years are as follows (in thousands): 1994....................................................... $ 4,489 1995....................................................... 4,935 1996....................................................... 3,383 1997....................................................... 3,388 1998....................................................... 3,025 Thereafter................................................. 3,439 --------- $ 22,659 --------- ---------
Rental expense under operating leases, including contingent rent expense and short-term leases, was $10,365,000 in 1992 and $9,333,000 in 1993. 8. PROFESSIONAL AND GENERAL LIABILITY INSURANCE The professional and comprehensive general liability risks of the Selected Hospitals are insured by HFIC. The coverage provided is limited to $25,000,000 per occurrence with an annual aggregate limit of $25,000,000. HFIC reinsures risks in excess of $500,000 per occurrence with major insurance carriers. The Selected Hospitals also have umbrella coverage with major insurance carriers for losses above the limits provided by HFIC. The excess coverage provided is limited to $75,000,000 per occurrence with an annual aggregate limit of $75,000,000. Management believes that adequate provision has been made for adjustments that may result from final determination of amounts earned under the Medicare/Medicaid and other contractual programs described in Note 1. Such amounts, however, are necessarily based upon estimates and the amounts ultimately realized may vary substantially from these estimates. 9. OTHER CONTINGENCIES UNUSUAL LEGAL PROCEEDINGS At May 31, 1993, NME and certain of its subsidiaries, including those that own the Selected Hospitals, were involved in significant lawsuits and governmental investigations concerning possible improper practices related principally to its psychiatric business. The suits sought compensatory and punitive damages and, in some cases, attorneys fees. At May 31, 1993, neither the ultimate disposition of the unusual lawsuits, investigations and claims nor the amount of liabilities or losses arising from them could be determined. Furthermore, at May 31, 1993, NME and NME's subsidiaries expected to incur substantial legal charges until these matters could be disposed of, for which NME established a reserve. As of August 31, 1993, NME recorded additional reserves to estimate the cost of the ultimate disposition of the significant lawsuits, the majority of which have been settled subsequent to August 31, 1993. On June 29, 1994, NME entered into a settlement agreement with various federal agencies which becomes effective once approved by a federal judge. Pursuant to the terms of the agreement, NME is to pay approximately $362,700,000 to conclude the federal investigations. In addition, NME also reached an agreement-in-principle, which is expected to be finalized within 30 days, with 28 states to pay an additional $16,300,000 to resolve potential claims related to certain of its psychiatric hospitals. As a result, NME recorded an additional reserve at February 28, 1994 to estimate the costs of the ultimate disposition of all federal and state investigations. The aggregate amount of the reserves recorded in connection with these settlements and agreements as of February 28, 1994 amounted to $690,000,000. These settlements and agreements were reached in the F-54 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) MAY 31, 1992 AND 1993 9. OTHER CONTINGENCIES (CONTINUED) aggregate and were not allocated or apportioned to individual facilities. Accordingly, none of these reserves have been reflected in the accompanying combined financial statements, nor has any provision for any liability resulting from the ultimate disposition of these matters been recognized in such financial statements. 10. SUBSEQUENT EVENTS On November 30, 1993, NME decided to discontinue its psychiatric business by disposing of substantially all of its psychiatric hospitals and substance abuse facilities. Accordingly, the Selected Hospitals included in these financial statements have been written down by approximately $170,000,000 to their realizable value as of November 30, 1993. On March 29, 1994, NME entered into an asset sale agreement (the "Asset Sale Agreement") with Charter to sell substantially all the assets of the Selected Hospitals to certain subsidiaries of Charter. The transaction is subject to review by the Federal Trade Commission under the Hart-Scott-Rodino Act and other regulatory approvals. On June 28, 1994, NME and Charter received the necessary approvals on 30 of the 47 Selected Hospitals, and effective June 30, 1994, they closed the sale of 27 of the 30 facilities. NME and Charter are responding to the Federal Trade Commission's request for additional information related to the purchase of the remaining 17 facilities. Under the terms of the Asset Sale Agreement, the aggregate purchase price for substantially all of the assets (excluding working capital) of the Selected Hospitals is approximately $147,000,000. If one or more of the Selected Hospitals is not acquired due to certain conditions, the purchase price will be adjusted. Pursuant to the Asset Sale Agreement, certain working capital items also are to be sold to Charter for additional consideration equal to their net book value as of closing. F-55 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. UNAUDITED COMBINED CONDENSED BALANCE SHEET FEBRUARY 28, 1994 (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents....................................................... $ 2,019 Accounts receivable, net of allowance for bad debts............................. 65,707 Inventories of supplies, at cost................................................ 2,328 Assets held for sale............................................................ 126,943 Prepaid expenses and other assets............................................... 3,122 --------- Total current assets.......................................................... 200,119 Other long-term assets............................................................ 1,553 --------- $ 201,672 --------- --------- LIABILITIES AND OWNERS' EQUITY Current liabilities: Current portion of long-term debt............................................... $ 680 Accounts payable................................................................ 9,107 Employee compensation and benefits.............................................. 8,529 Accrued insurance............................................................... 12,270 Other current liabilities....................................................... 9,170 --------- Total current liabilities..................................................... 39,756 Long-term debt, net of current portion............................................ 5,169 Minority interests................................................................ 4,710 Other long-term liabilities....................................................... 1,446 Due to owners and affiliates...................................................... 73,655 Owners' equity.................................................................... 76,936 --------- $ 201,672 --------- ---------
See accompanying note to unaudited combined condensed financial statements. F-56 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. UNAUDITED COMBINED CONDENSED STATEMENTS OF OPERATIONS NINE MONTHS ENDED FEBRUARY 28, 1993 AND 1994 (DOLLARS IN THOUSANDS)
1993 1994 ---------- ----------- Net operating revenues................................................................... $ 309,273 $ 265,160 ---------- ----------- Operating and administrative expenses.................................................... 268,206 228,326 Intercompany fees and allocations........................................................ 42,540 40,086 Depreciation and amortization............................................................ 16,396 9,274 Provision for loss on sale of selected hospitals......................................... 4,262 170,289 Minority interests in earnings of certain selected hospitals............................. 921 320 Interest, net of capitalized portion..................................................... 8,578 9,076 ---------- ----------- Total costs and expenses............................................................... 340,903 457,371 ---------- ----------- Loss before income tax benefit........................................................... (31,630) (192,211) Income tax benefit....................................................................... (11,703) (71,118) ---------- ----------- Net loss................................................................................. $ (19,927) $ (121,093) ---------- ----------- ---------- -----------
See accompanying note to unaudited combined condensed financial statements. F-57 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. UNAUDITED COMBINED CONDENSED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED FEBRUARY 28, 1993 AND 1994 (DOLLARS IN THOUSANDS)
1993 1994 ---------- ----------- Cash flows from operating activities: Net loss............................................................................... $ (19,927) $ (121,093) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................................................ 16,396 9,274 Provisions for losses on accounts receivable......................................... 17,556 12,365 Minority interest in earnings of certain selected hospitals.......................... 921 320 Provision for loss on sale of selected hospitals..................................... 4,262 170,289 Non-cash income tax benefit.......................................................... (11,703) (71,118) Changes in operating assets and liabilities: Accounts receivable................................................................ (7,893) (21,127) Inventories of supplies............................................................ (182) (63) Other current assets............................................................... 4,288 (119) Pre-opening costs.................................................................. (2,720) (1,094) Accounts payable and other accrued expenses........................................ 1,018 1,100 Other current liabilities.......................................................... (3,972) (77) Other long term liabilities........................................................ (152) (479) ---------- ----------- Net cash provided by (used in) operating activities.................................... (2,108) (21,822) ---------- ----------- Cash flows from investing activities: Purchases of property, plant and equipment............................................. (24,340) (1,875) ---------- ----------- Net cash used in investing activities.................................................. (24,340) (1,875) ---------- ----------- Cash flows from financing activities: Principal payments on long term debt and capitalized leases............................ (469) (545) Net change in amounts due from owners and affiliates................................... 27,437 22,190 ---------- ----------- Net cash provided by (used in) financing activities.................................... 26,968 21,645 ---------- ----------- Net increase (decrease) in cash and cash equivalents..................................... 520 (2,052) Cash and cash equivalents at beginning of period......................................... 1,965 4,071 ---------- ----------- Cash and cash equivalents at end of period............................................... $ 2,485 $ 2,019 ---------- ----------- ---------- -----------
See accompanying note to unaudited combined condensed financial statements. F-58 SELECTED PSYCHIATRIC HOSPITALS OF NATIONAL MEDICAL ENTERPRISES, INC. NOTE TO UNAUDITED COMBINED CONDENSED INTERIM FINANCIAL STATEMENTS NINE MONTHS ENDED FEBRUARY 28, 1993 AND 1994 The unaudited combined condensed interim financial statements present the historical combined financial position and results of operations of the Selected Hospitals and, as a result, include certain assets and liabilities of the Selected Hospitals that Charter will not acquire or assume as part of the transaction. These financial statements reflect the adjustments that are, in the opinion of NME, necessary to present fairly the combined financial position and results of operations for the periods indicated. The adjustments are of a normal recurring nature, except for those items discussed in Notes 6 and 9 to the combined financial statements as of May 31, 1992 and May 31, 1993 and for the write-down of assets to realizable value discussed below. It is presumed that users of this interim financial information have read or have access to the combined financial statements of the Selected Hospitals for the preceding fiscal year (which appear elsewhere herein) and that the adequacy of additional disclosure needed for a fair presentation may be determined in that context. Accordingly, footnote and other disclosure which would substantially duplicate the disclosure in the annual financial statements contained elsewhere herein has been omitted. The interim financial information herein is not necessarily representative of operations for a full year for various reasons, including levels of occupancy, interest rates, facility acquisitions and disposals, revenue allowance and discount fluctuations, the timing of price changes, fluctuations in quarterly tax rates and the recording of unusual reserves. These same considerations apply to all year-to-year comparisons. On November 30, 1993, NME decided to discontinue its psychiatric business by disposing of substantially all of its psychiatric hospitals and substance abuse facilities. Accordingly, the Selected Hospitals included in these financial statements have been written down to their realizable value as of November 30, 1993. Such realizable value was determined based upon the terms of the proposed transaction with Charter. During the nine months ended February 28, 1994, NME adopted the provisions of Financial Accounting Standards No. 109, "Accounting for Income Taxes", and, accordingly, changed its tax allocation method to conform with the provisions of that statement. The allocated current and deferred income tax expense was not materially different than that which would have been allocated under NME's previous tax allocation methodology. Deferred tax assets and liabilities relating to the assets and liabilities of the Selected Hospitals are recorded on the books of an affiliate. As of June 1, 1993, these amounts were as follows (in thousands):
DEFERRED TAX ---------------------- ASSETS LIABILITIES --------- ----------- Depreciation and fixed asset basis differences..................................... $ -- 21,876 Receivables -- adjustments and allowances.......................................... 3,160 -- Cash basis accounting charge....................................................... -- 8,791 Intangible assets.................................................................. -- 4,592 Deferred Compensation.............................................................. 661 -- Other accrued liabilities.......................................................... 639 -- Investments........................................................................ -- 170 --------- ----------- $ 4,460 35,429 --------- ----------- --------- -----------
F-59 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CHARTER OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. -------------------------- TABLE OF CONTENTS
PAGE ----- Summary........................................ 1 The Company.................................... 10 Risk Factors................................... 10 The Acquisition................................ 14 Use of Proceeds................................ 17 Capitalization................................. 18 Selected Historical Consolidated Financial and Statistical Information...................... 19 Target Hospital Selected Financial Information.................................. 21 Unaudited Pro Forma Financial Information...... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 30 Business....................................... 39 Management..................................... 54 Executive Compensation......................... 55 Security Ownership of Certain Beneficial Owners and Management............................... 57 Certain Relationships and Related Transactions................................. 57 The Exchange Offer............................. 58 Plan of Distribution........................... 67 Description of the Notes....................... 68 Summary of New Credit Agreement................ 88 Federal Income Tax Consequences of the Exchange Offer........................................ 92 Legal Matters.................................. 92 Experts........................................ 92 Available Information.......................... 92 Index to Financial Statements.................. F-1
$375,000,000 [LOGO] CHARTER MEDICAL CORPORATION OFFER TO EXCHANGE ITS 11 1/4% SERIES A SENIOR SUBORDINATED NOTES DUE 2004 FOR ANY AND ALL OF ITS OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2004 ----------------------------- PROSPECTUS ----------------------------- , 1994 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company is a Delaware corporation. Section 145 of the Delaware General Corporation Law (the "DGCL") provides that a Delaware corporation has the power to indemnify its officers and directors in certain circumstances. Subsection (a) of Section 145 of the DGCL empowers a corporation to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of his service as director, officer, employee or agent of the corporation, or his service, at the corporation's request, as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding provided that such director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, provided that such director or officer had no reasonable cause to believe his conduct was unlawful. Subsection (b) of Section 145 empowers a corporation to indemnify any director or officer, or former director or officer, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit provided that such director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) or (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith; provided that indemnification provided for by Section 145 or granted pursuant thereto shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and empowers the corporation to purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under Section 145. Article VII of the By-laws of the Company provide in substance that the Company shall indemnify directors and officers against all liability and related expenses incurred in connection with the affairs of the Company if: (a), in the case of action not by or in the right of the Company, the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and (with respect to a criminal proceeding) had no reasonable cause to believe his conduct was unlawful; and (b), in the case of actions by or in the right of the Company, the director or officer acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, provided that no indemnification shall be made for a claim as to which the director or officer is adjudged liable for negligence or misconduct unless (and only to the extent that) an appropriate court determines that, in view of all the circumstances, such person is fairly and reasonably entitled to indemnity. II-1 In addition, Section 102(b)(7) of the DGCL permits Delaware corporations to include a provision in their certificates of incorporation eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provisions shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of dividends or other unlawful distributions, or (iv) for any transactions from which the director derived an improper personal benefit. Article Twelfth of the Company's Certificate of Incorporation sets for such a provision. For the undertaking with respect to indemnification, see Item 22 herein. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 2(a) Incorporation, Conveyance and Stock Purchase Agreement, dated August 16, 1993, among Quorum, Inc. and Charter Medical Corporation, et al., which was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated as of September 30, 1993, and which is incorporated herein by reference. 2(b) Amendment No. 1 to the Exhibit 2(a) agreement, dated September 30, 1993, which was filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, dated as of September 30, 1993, and which is incorporated herein by reference. 2(c) Asset Sale Agreement, dated March 29, 1994, between National Medical Enterprises, Inc., as Seller and Charter Medical Corporation, as Buyer, which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, and which is incorporated herein by reference. 2(d) Asset Sale Agreement (First Facilities), dated March 29, 1994, between National Medical Enterprises, Inc., as Seller, and Charter Medical Corporation, as Buyer. 2(e) Asset Sale Agreement (Subsequent Facilities), dated March 29, 1994, between National Medical Enterprises, Inc., as Seller, and Charter Medical Corporation, as Buyer. Exhibits 2(a), 2(b), 2(c), 2(d) and 2(e) do not contain copies of the exhibits and schedules to such agreements. Such agreements describe such exhibits and schedules. The Company agrees to furnish supplementally to the Commission, upon request, a copy of any omitted exhibit or schedule to such agreements. 3(a) Restated Certificate of Incorporation of the Company which was filed as Exhibit 3(a) to the Company's Annual Report on Form 10--K dated as of September 30, 1992, and is incorporated herein by reference. 3(b) Bylaws of the Company, as amended, which was filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10--Q dated as of March 31, 1993, and is incorporated herein by reference. 4(a) Indenture, dated as of May 2, 1994, among the Company, the Guarantors listed therein and Marine Midland Bank, as Trustee, relating to the 11 1/4% Senior Subordinated Notes due April 15, 2004 of the Company.* 4(b) Form of Class A Common Stock Purchase Warrant Certificate, dated September 1, 1988, for warrants sold to designee of Drexel Burnham Lambert Incorporated, which was filed as Exhibit 4.4 to the Company's Current Report on Form 8--K, dated September 1, 1988, and is incorporated herein by reference. 4(c) Form of Class A Common Stock Purchase Warrant Certificate, dated September 1, 1988, for warrants sold to certain institutional investors, which was filed as Exhibit 4.3 to the Company's Current Report on Form 8--K, dated September 1, 1988, and is incorporated herein by reference. 4(d) Warrant and Common Stock Registration and Participation Rights Agreement, dated as of September 1, 1988, among WAF Acquisition Corporation, the Company, William A. Fickling, Jr., certain affiliates of William A. Fickling, Jr. and the purchasers of the warrants issued on September 1, 1988, which was filed as Exhibit 4(h) to the Company's Annual Report on Form 10--K dated as of September 30, 1988, and is incorporated herein by reference. - ------------------------------ * Previously filed.
II-2 4(e) Second Amended and Restated Credit Agreement, dated as of May 2, 1994, among the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent.* 4(f) Second Amended and Restated Subsidiary Credit Agreement, dated as of May 2, 1994, among certain subsidiaries of the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent.* 4(g) Second Amended and Restated Company Stock and Notes Pledge Agreement, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent.* 4(h) Second Amended and Restated Subsidiary Stock and Notes Pledge Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Collateral Agent.* 4(i) Second Amended and Restated Subsidiary Pledge and Security Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Collateral Agent.* 4(j) Second Amended and Restated Company Pledge and Security Agreement (ESOP collateral), dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent.* 4(k) Second Amended and Restated FINCO Pledge and Security Agreement I, dated as of May 2, 1994, between CMFC, Inc. and Bankers Trust Company, as Collateral Agent.* 4(l) Second Amended and Restated Subsidiary Guaranty, dated as of May 2, 1994, executed by various subsidiaries of the Company.* 4(m) Second Amended and Restated Company Collateral Accounts Assignment Agreement, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Agent.* 4(n) Company Pledge and Security Agreement, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent.* 4(o) Second Amended and Restated FINCO Pledge and Security Agreement II, dated as of May 2, 1994, between CMCI, Inc. and Bankers Trust Company, as Collateral Agent.* 4(p) Second Amended and Restated Company Guaranty, dated as of May 2, 1994, executed by the Company.* 4(q) Second Amended and Restated Subsidiary Collateral Accounts Assignment Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Agent.* 4(r) Form of Amended and Restated Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents executed as of July 21, 1992, by 44 subsidiaries of the Company for the benefit of Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached, which was filed as Exhibit 4(q) to the Company's Current Report on Form 8-K dated as of July 21, 1992, and is incorporated herein by reference. 4(s) Form of Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents executed as of July 21, 1992, by 40 subsidiaries of the Company for the benefit of Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached, which was filed as Exhibit 4(q) to the Company's Current Report on Form 8-K dated as of July 21, 1992, and is incorporated herein by reference. 4(t) Form of Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents; Amended Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents; and Consolidated Agreement, executed as of May 2, 1994, by 71 subsidiaries of the Company and Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached.* The Registrants agree, pursuant to (b)(iii) of Item 601 of Regulation S--K, to furnish to the Commission, upon request, a copy of each agreement relating to long-term debt not being registered, where the total amount of debt under each such agreement does not exceed 10% of the Registrants' respective total assets on a consolidated basis. 4(u) Purchase Agreement, dated April 22, 1994, between the Company and Bear, Stearns & Co. Inc. and BT Securities Corporation.* - ------------------------ * Previously filed.
II-3 4(v) Exchange and Registration Rights Agreement, dated April 22, 1994 between the Company and Bear, Stearns & Co. Inc. and BT Securities Corporation.* 4(w) Amendment No. 1, dated as of June 9, 1994, to Second Amended and Restated Credit Agreement, dated as of May 2, 1994, among the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent. 5 Opinion of King & Spalding as to the legality of the securities being registered.* 8 Opinion of King & Spalding as to tax matters.* 10(a) Written description of Corporate Annual Incentive Plan for the year ended September 30, 1993, which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10--Q for the quarter ended March 31, 1993, and is incorporated herein by reference. 10(b) 1989 Non-Qualified Deferred Compensation Plan of the Company, adopted on January 1, 1989, as amended, which was filed as Exhibit 10(f) to the Company's Annual Report on Form 10--K dated as of September 30, 1989, and is incorporated herein by reference. 10(c) Written description of Corporate Annual Incentive Plan for the year ended September 30, 1993 which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 and which is incorporated herein by reference. 10(d) Directors' Stock Option Plan of the Company which was filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 and which is incorporated herein by reference. 10(e) Employment Agreement, dated July 21, 1992, between the Company and William A. Fickling, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company which was filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference. 10(f) Employment Agreement, dated July 21, 1992, between the Company and E. Mac Crawford, Director, President and Chief Operating Officer of the Company which was filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference. 10(g) Employment Agreement, dated July 21, 1992, between the Company and Lawrence W. Drinkard, Director and Senior Vice President - Finance (principal financial officer) of the Company which was filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference. 10(h) 1994 Stock Option Plan of the Company.* 10(i) Directors' Unit Award Plan of the Company.* 11 Statement regarding computation of per share earnings. 12 Statement regarding computation of ratios.* 21 List of subsidiaries of the Registrants.* 21(a) Amended list of subsidiaries of the Registrants. 23(a) Consent of Arthur Andersen & Co. 23(b) Consent of KPMG Peat Marwick. 23(c) Consent of King & Spalding (included in opinion filed as Exhibit 5).* 24 Powers of Attorney* 24(a) Additional Powers of Attorney. 25 Statement of Eligibility and Qualification on Form T--1 of Marine Midland Bank, as Trustee, under the Indenture relating to the Senior Subordinated Notes due April 15, 2004.* 99(a) Form of Letter of Transmittal (Proof of May 18, 1994)* 99(b) Form of Notice of Guaranteed Delivery (Proof of May 18, 1994)* 99(c) Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner (Proof of May 18, 1994)* 99(d) Form of Exchange Agent Agreement between the Company and Marine Midland Bank (Proof of May 18, 1994)* - ------------------------ * Previously filed.
II-4 (b) Financial Statement Schedules The following financial statement schedules are set forth on pages S-1 through S-4 hereof. Report of Arthur Andersen & Co. regarding financial statement schedules (included in the Report set forth on page F-2). V -- Property and Equipment VI -- Accumulated Depreciation, Depletion and Amortization of Property and Equipment VIII -- Valuation and Qualifying Accounts X -- Supplemental Income Statement Information
All other schedules are omitted as the required information is presented in the Company's consolidated financial statements or related notes or such schedules are not applicable. ITEM 22. UNDERTAKINGS. (a) The Registrants hereby undertake: (1) To file, during any period in which offers or sales are being made, a post-effective admendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of this Registration Statement through the date of responding to the request. (c) The Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in this Registration Statement when it became effective. (d) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Registrant of expenses incurred or paid by a director, officer or controlling person of such Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, such Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrants have duly caused this Amendment No. 1 to Registration Statement to be signed on their behalf by the undersigned, thereunto duly authorized, in the City of Macon, State of Georgia on July 1, 1994. CHARTER MEDICAL CORPORATION By:__________/s/_JOHN R. DAY__________ John R. Day Vice President -- Controller (Principal Accounting Officer) For the Registrants other than Charter Medical Corporation By:______/s/_CHARLOTTE A. SANFORD_____ Charlotte A. Sanford Treasurer of the Additional Registrants as shown below* Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to Registration Statement has been signed below by the following persons in the capacities indicated on July 1, 1994. CHARTER MEDICAL CORPORATION E. Mac Crawford ............................ President and Chairman of the Board of Directors (principal executive officer) Lawrence W. Drinkard ....................... Executive Vice President -- Finance and Director (principal financial officer) John R. Day ................................ Vice President -- Controller (principal accounting officer) Edwin M. Banks ............................. Director Andre C. Dimitriadis ....................... Director Raymond H. Kiefer .......................... Director Gerald L. McManis .......................... Director AMBULATORY RESOURCES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President
* In the case of Charter Medical of England Limited as Director II-6 Charlotte A. Sanford ....................... Treasurer ATLANTA MOB, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer BELTWAY COMMUNITY HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer C.A.C.O. SERVICES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CCM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joan Kradlak ............................... President Charlotte A. Sanford ....................... Treasurer CMCI, INC. Glenn A. McRae ............................. Director
II-7 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President James R. Bedenbaugh ........................ President Charlotte A. Sanford ....................... Treasurer CMFC, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President James R. Bedenbaugh ........................ President Charlotte A. Sanford ....................... Treasurer CMSF, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CPS ASSOCIATES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER ALVARADO BEHAVIORAL HEALTH SYSTEM, INC. Margie M. Smith ............................ Director Howard A. McLure ........................... Director James M. Filush ............................ Director Lawrence W. Drinkard ....................... President
II-8 Charlotte A. Sanford ....................... Treasurer CHARTER APPALACHIAN HALL BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER ARBOR INDY BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER AUGUSTA BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BAY HARBOR BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEACON BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director
II-9 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM AT FAIR OAKS, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM AT HIDDEN BROOK, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM AT LOS ALTOS, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM AT POTOMAC RIDGE, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President
II-10 Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM AT WARWICK MANOR, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF ATHENS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF AUSTIN, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF BAYWOOD, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF BRADENTON, INC. James M. Filush ............................ Director
II-11 Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CANOGA PARK, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CENTRAL GEORGIA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CHARLESTON, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CHARLOTTESVILLE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer
II-12 CHARTER BEHAVIORAL HEALTH SYSTEM OF CHICAGO, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CHULA VISTA, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF COLUMBIA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF CORPUS CHRISTI, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF DALLAS, INC. Glenn A. McRae ............................. Director
II-13 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF EVANSVILLE, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF FORT WORTH, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jim R. Johnson ............................. President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF JACKSON, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF JACKSONVILLE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-14 Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF JEFFERSON, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF KANSAS CITY, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF LAFAYETTE, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF LAKE CHARLES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer
II-15 CHARTER BEHAVIORAL HEALTH SYSTEM OF LAKEWOOD, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF MICHIGAN CITY, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF MOBILE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NASHUA, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NEVADA, INC. Glenn A. McRae ............................. Director
II-16 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NEW MEXICO, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Daivd A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NORTHERN CALIFORNIA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NORTHWEST ARKANSAS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF NORTHWEST INDIANA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-17 Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF PADUCAH, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF ROCKFORD, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF SAN JOSE, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF SAVANNAH, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer
II-18 CHARTER BEHAVIORAL HEALTH SYSTEM OF SOUTHERN CALIFORNIA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF TAMPA BAY, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF TEXARKANA, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF THE INLAND EMPIRE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF TOLEDO, INC. Glenn A. McRae ............................. Director
II-19 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF TUSCON, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF VIRGINIA BEACH, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF VISALIA, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF WASHINGTON, D.C., INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director
II-20 Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF WAVERLY, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF WINSTON-SALEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEM OF YORBA LINDA, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BEHAVIORAL HEALTH SYSTEMS OF ATLANTA, INC. James M. Filush ............................ Director
II-21 Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER BRAWNER BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER-BY-THE-SEA BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER CANYON BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER CANYON SPRINGS BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director
II-22 Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER CENTENNIAL PEAKS BEHAVIORAL SYSTEM, INC. James M. Filush ............................ Director Howard A. McLure ........................... Director Margie M. Smith ............................ Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER COLONIAL INSTITUTE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Donna Y. Wood .............................. President Charlotte A. Sanford ....................... Treasurer CHARTER COMMUNITY HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER COMMUNITY HOSPITAL OF DES MOINES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer
II-23 CHARTER CONTRACT SERVICES, INC. Glenn A. McRae ............................. Director John C. McCauley ........................... Director and Vice President Joseph M. Cobern ........................... Director Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER COVE FORGE BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER CRESCENT PINES BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER FAIRBRIDGE BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER FAIRMOUNT BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director
II-24 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER FENWICK HALL BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER FINANCIAL OFFICES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER FOREST BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER GRAPEVINE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-25 David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER GREENSBORO BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER HEALTH MANAGEMENT OF TEXAS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF COLUMBUS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF DENVER, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer
II-26 CHARTER HOSPITAL OF FT. COLLINS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF LAREDO, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF MIAMI, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF MOBILE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF NORTHERN NEW JERSEY, INC. Glenn A. McRae ............................. Director
II-27 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Donna Y. Wood .............................. President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF SANTA TERESA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF ST. LOUIS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER HOSPITAL OF TORRANCE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER INDIANAPOLIS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-28 Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER LAFAYETTE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER LAKEHURST BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER LAKESIDE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER LAUREL HEIGHTS BEHAVIORAL HEALTH SYSTEM, INC. Margie M. Smith ............................ Director Howard A. McLure ........................... Director James M. Filush ............................ Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer
II-29 CHARTER LAUREL OAKS BEHAVIORAL HEALTH SYSTEM, INC. Howard A. McLure ........................... Director Margie M. Smith ............................ Director James M. Filush ............................ Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER LINDEN OAKS BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER LITTLE ROCK BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER LOUISVILLE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEADOWS BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director
II-30 Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER MOB OF CHARLOTTESVILLE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDFIELD BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Howard A. McLure ........................... Director Margie M. Smith ............................ Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- CALIFORNIA, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- CLAYTON COUNTY, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-31 Donna Y. Wood .............................. President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- CLEVELAND, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- DALLAS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- LONG BEACH, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL -- NEW YORK, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William H. Freeman, Jr. .................... President Charlotte A. Sanford ....................... Treasurer
II-32 CHARTER MEDICAL (CAYMAN ISLANDS) LTD. John C. McCauley ........................... Director Glenn A. McRae ............................. Director Joseph M. Cobern ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL EXECUTIVE CORPORATION Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President C. Clark Wingfield ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL INFORMATION SERVICES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President C. Clark Wingfield ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL INTERNATIONAL, INC. Glenn A. McRae ............................. Director John C. McCauley ........................... Director and Vice President Joseph M. Cobern ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL INTERNATIONAL, S.A., INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-33 E. Mac Crawford ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL MANAGEMENT COMPANY Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President E. Mac Crawford ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL OF EAST VALLEY, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL OF ENGLAND LIMITED James Michael Filush ....................... Director Charlotte A. Sanford ....................... Director Howard Alex McLure ......................... Director CHARTER MEDICAL OF FLORIDA, INC. Joseph M. Cobern............................ Director Glenn A. McRae.............................. Director John C. McCauley............................ Director and Vice President Jon C. O'Shaughnessy........................ President Charlotte A. Sanford........................ Treasurer CHARTER MEDICAL OF NORTH PHOENIX, INC. Glenn A. McRae ............................. Director
II-34 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL OF ORANGE COUNTY, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William H. Freeman, Jr. .................... President Charlotte A. Sanford ....................... Treasurer CHARTER MEDICAL OF PUERTO RICO, INC. Joseph M. Coburn ........................... Director John C. McCauley ........................... Director Glenn A. McRae ............................. Director Joseph M. Cobern ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER MENTAL HEALTH OPTIONS, INC. Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Glenn A. McRae ............................. Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER MID-SOUTH BEHAVIORAL HEALTH SYSTEM, INC. Howard A. McLure ........................... Director Margie M. Smith ............................ Director James M. Filush ............................ Director
II-35 Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER MILWAUKEE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER MISSION VIEJO BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER NORTH BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER NORTH COUNSELING CENTER, INC. Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Glenn A. McRae ............................. Director David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer
II-36 CHARTER NORTHBROOKE BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER NORTHRIDGE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER NORTHSIDE HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER OAK BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER PALMS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director
II-37 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER PEACHFORD BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER PINES BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER PLAINS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jim R. Johnson ............................. President Charlotte A. Sanford ....................... Treasurer CHARTER PSYCHIATRIC HOSPITALS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-38 William H. Freeman, Jr. .................... President Charlotte A. Sanford ....................... Treasurer CHARTER REAL BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer CHARTER REGIONAL MEDICAL CENTER, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER RICHMOND BEHAVIORAL HEALTH SYSTEM, INC. Howard A. McLure ........................... Director Margie M. Smith ............................ Director James M. Filush ............................ Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER RIDGE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer
II-39 CHARTER RIVERS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER SAN DIEGO BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER SERENITY LODGE BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER SIOUX FALLS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER SOUTH BEND BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director
II-40 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER SPRINGS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER SPRINGWOOD BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER SUBURBAN HOSPITAL OF MESQUITE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER TERRE HAUTE BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-41 Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER THOUSAND OAKS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTER TIDEWATER BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER TREATMENT CENTER OF MICHIGAN, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer CHARTER WESTBROOK BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer
II-42 CHARTER WHITE OAK BEHAVIORAL HEALTH SYSTEM, INC. James M. Filush ............................ Director Margie M. Smith ............................ Director Howard A. McLure ........................... Director Lawrence W. Drinkard ....................... President Charlotte A. Sanford ....................... Treasurer CHARTER WICHITA BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer CHARTER WOODS BEHAVIORAL HEALTH SYSTEM, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER WOODS HOSPITAL, INC. Joseph M. Cobern ........................... Director Glenn A. McRae ............................. Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER OF ALABAMA, INC. Glenn A. McRae ............................. Director
II-43 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer CHARTER-PROVO SCHOOL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer CHARTERTON/LAGRANGE, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Vernon S. Westrich ......................... President Charlotte A. Sanford ....................... Treasurer DESERT SPRINGS HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer EMPLOYEE ASSISTANCE SERVICES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President
II-44 Elbert T. McQueen .......................... President Charlotte A. Sanford ....................... Treasurer FLORIDA HEALTH FACILITIES, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer GULF COAST EAP SERVICES, INC. Joseph M. Cobern ........................... Director Glenn A. McRae ............................. Director John C. McCauley ........................... Director and Vice President William E. Hale ............................ President Charlotte A. Sanford ....................... Treasurer GWINNETT IMMEDIATE CARE CENTER, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer HCS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Donna Y. Wood .............................. President Charlotte A. Sanford ....................... Treasurer
II-45 HOLCOMB BRIDGE IMMEDIATE CARE CENTER, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer HOSPITAL INVESTORS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Donna Y. Wood .............................. President Charlotte A. Sanford ....................... Treasurer MANDARIN MEADOWS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President William H. Freeman, Jr. .................... President Charlotte A. Sanford ....................... Treasurer METROPOLITAN HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer MIDDLE GEORGIA HOSPITAL, INC. Glenn A. McRae ............................. Director
II-46 Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer PACIFIC-CHARTER MEDICAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer PEACHFORD PROFESSIONAL, INC. Glenn A. McRae ............................. Director John C. McCauley ........................... Director and Vice President Joseph M. Cobern ........................... Director Jon C. O'Shaughnessy ....................... President Charlotte A. Sanford ....................... Treasurer RIVOLI, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer SCHIZOPRENIA TREATMENT AND REHABILITATION, INC. Margie M. Smith ............................ Director James M. Filush ............................ Director Joseph M. Cobern ........................... Director Kimberly H. Littrell ....................... President & CEO Charlotte A. Sanford ....................... Treasurer
II-47 SHALLOWFORD COMMUNITY HOSPITAL, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer SISTEMAS DE TERAPIA RESPIRATORIA S.A., INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President David A. Richardson ........................ President Charlotte A. Sanford ....................... Treasurer STUART CIRCLE HOSPITAL CORPORATION Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President W. Stephen Love ............................ President Charlotte A. Sanford ....................... Treasurer WESTERN BEHAVIORAL SYSTEMS, INC. Glenn A. McRae ............................. Director Joseph M. Cobern ........................... Director John C. McCauley ........................... Director and Vice President Joseph C. Little ........................... President Charlotte A. Sanford ....................... Treasurer
By: __________/s/_John R. Day_________ John R. Day Attorney-In-Fact II-48 SCHEDULE V -- PROPERTY AND EQUIPMENT (IN THOUSANDS)
BALANCE AT RETIREMENTS OTHER CHANGES BALANCE AT BEGINNING ADDITIONS AND/OR AND (DEDUCT) END OF CLASSIFICATION OF PERIOD AT COST DISPOSITIONS -- DESCRIBE PERIOD - --------------------------------------------- ---------- --------- ------------ ------------- ---------- YEAR ENDED SEPTEMBER 30, 1993 Land....................................... $ 101,892 $ -- $ 4,824 $ (1,251)(C) $ 95,886 69(E) Buildings and improvements................. 324,921 1,909 11,474 1,594(A) 310,649 (2,182)(C) 103(E) (4,222)(F) Equipment.................................. 62,940 6,792 3,043 1,001(A) 67,421 (277)(C) 8(E) Construction in progress................... 1,322 2,400 -- (2,595)(A) 928 (116)(C) (83)(E) ---------- --------- ------------ ------------- ---------- $ 491,075 $ 11,101 $ 19,341 $ (7,951) $ 474,884 ---------- --------- ------------ ------------- ---------- ---------- --------- ------------ ------------- ---------- TWO MONTHS ENDED SEPTEMBER 30, 1992 (SEE NOTE 2): Land....................................... $ 101,727 $ -- $ -- $ 165(C) $ 101,892 Buildings and improvements................. 324,534 469 37 436(A) 324,921 (477)(C) (4)(E) Equipment.................................. 61,320 1,601 74 68(A) 62,940 10(C) 15(E) Construction in progress................... 1,632 160 -- (504)(A) 1,322 34(C) ---------- --------- ------------ ------------- ---------- $ 489,213 $ 2,230 $ 111 $ (257) $ 491,075 ---------- --------- ------------ ------------- ---------- ---------- --------- ------------ ------------- ---------- TEN MONTHS ENDED JULY 31, 1992: Land....................................... $ 93,052 $ -- $ 350 $ 816(C) $ 101,727 (20)(E) 8,229(B) Buildings and improvements................. 575,877 1,227 3,540 12,848(A) 324,534 1,781(C) (1,857)(E) (261,802)(B) Equipment.................................. 147,817 4,021 2,321 472(A) 61,320 444(C) 568(E) 89,681(B) Construction in progress................... 11,091 2,820 -- (13,320)(A) 1,632 29(C) 1,270(E) (258)(B) ---------- --------- ------------ ------------- ---------- $ 827,837 $ 8,068 $ 6,211 $(340,481) $ 489,213 ---------- --------- ------------ ------------- ---------- ---------- --------- ------------ ------------- ---------- YEAR ENDED SEPTEMBER 30, 1991: Land....................................... $ 97,759 $ 42 $ 3,798 $ (813)(C) $ 93,052 (138)(E) Buildings and improvements................. 587,741 2,681 20,031 6,291(A) 575,877 (1,418)(C) (793)(E) 1,406(F) Equipment.................................. 147,088 5,908 4,790 946(A) 147,817 (334)(C) 35(E) (1,036)(F) Construction in progress................... 18,448 3,068 -- (7,237)(A) 11,091 (57)(C) (304)(D) (686)(E) (2,141)(F) ---------- --------- ------------ ------------- ---------- $ 851,036 $ 11,699 $ 28,619 $ (6,279) $ 827,837 ---------- --------- ------------ ------------- ---------- ---------- --------- ------------ ------------- ---------- - ------------------------------ (A) Reclassification of completed construction to property and equipment. (B) Adjust accounts to fair value pursuant to the implementation of fresh start accounting. (C) Adjustment for foreign currency translation. (D) Write-off of construction costs of discontinued projects. (E) Property reclassifications. (F) Adjustment to net realizable value of assets held for sale.
S-1 SCHEDULE VI -- ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY AND EQUIPMENT (IN THOUSANDS)
BALANCE AT RETIREMENTS OTHER CHANGES BALANCE AT BEGINNING AND/OR AND (DEDUCT) END OF CLASSIFICATION OF PERIOD ADDITIONS DISPOSITIONS -- DESCRIBE PERIOD - --------------------------------------------- ---------- --------- ------------ ------------- ---------- YEAR ENDED SEPTEMBER 30, 1993: Buildings and improvements................. $ 3,399 $ 14,402 $ 287 $ (750)(A) $ 16,710 (21)(B) (33)(C) Equipment.................................. 914 11,980 235 750(A) 13,388 (6)(B) (15)(C) ---------- --------- ------ ------------- ---------- $ 4,313 $ 26,382 $ 522 $ (75) $ 30,098 ---------- --------- ------ ------------- ---------- ---------- --------- ------ ------------- ---------- TWO MONTHS ENDED SEPTEMBER 30, 1992 (SEE NOTE 2): Buildings and improvements................. $ -- $ 2,765 $ -- $ (72)(A) $ 3,399 (7)(B) 713(C) Equipment.................................. -- 920 49 43(B) 914 ---------- --------- ------ ------------- ---------- $ -- $ 3,685 $ 49 $ 677 $ 4,313 ---------- --------- ------ ------------- ---------- ---------- --------- ------ ------------- ---------- TEN MONTHS ENDED JULY 31, 1992: Buildings and improvements................. $ 108,233 $ 14,799 $ 1,512 $ 2(A) $ -- 357(B) (713)(C) (121,166)(D) Equipment.................................. 74,431 12,879 1,184 70(A) -- 279(B) (86,475)(D) ---------- --------- ------ ------------- ---------- $ 182,664 $ 27,678 $ 2,696 $(207,646) $ -- ---------- --------- ------ ------------- ---------- ---------- --------- ------ ------------- ---------- YEAR ENDED SEPTEMBER 30, 1991: Buildings and improvements................. $ 91,658 $ 16,741 $ 3,006 $ 3,129(A) $ 108,233 (221)(B) (68)(C) Equipment.................................. 62,565 15,730 2,381 (1,253)(A) 74,431 (207)(B) (23)(C) ---------- --------- ------ ------------- ---------- $ 154,223 $ 32,471 $ 5,387 $ 1,357 $ 182,664 ---------- --------- ------ ------------- ---------- ---------- --------- ------ ------------- ---------- - ------------------------ (A) Property reserve reclassifications. (B) Adjustment for foreign currency translation. (C) Other reclassifications and adjustments. (D) Write-off of accumulated depreciation pursuant to the implementation of fresh start accounting.
S-2 SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
CHARGED TO BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COSTS AND ACCOUNTS -- DEDUCTIONS -- END OF CLASSIFICATION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD - --------------------------------------------- ---------- ---------- ----------- ------------- ---------- YEAR ENDED SEPTEMBER 30, 1993: Allowance for doubtful accounts............ $ 30,272 $ 67,300 $ 19,598(A) $ 89,272(C) $ 28,843 945(B) ---------- ---------- ----------- ------------- ---------- $ 30,272 $ 67,300 $ 20,543 $ 89,272 $ 28,843 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- TWO MONTHS ENDED SEPTEMBER 30, 1992 (SEE NOTE 2): Allowance for doubtful accounts............ $ 31,095 $ 14,804 $ 3,044(A) $ 18,931(C) $ 30,272 260(B) ---------- ---------- ----------- ------------- ---------- $ 31,095 $ 14,804 $ 3,304 $ 18,931 30,272 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- TEN MONTHS ENDED JULY 31, 1992: Allowance for doubtful accounts............ $ 30,734 $ 50,403 $ 15,837(A) $ 1,540(B) $ 31,095 2,513(B) 66,852(C) ---------- ---------- ----------- ------------- ---------- $ 30,734 $ 50,403 $ 18,350 $ 68,392 $ 31,095 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- YEAR ENDED SEPTEMBER 30, 1991: Allowance for doubtful accounts............ $ 36,316 $ 51,617 $ 19,900(A) $ 77,400(C) $ 30,734 301(B) ---------- ---------- ----------- ------------- ---------- $ 36,316 $ 51,617 $ 20,201 $ 77,400 $ 30,734 ---------- ---------- ----------- ------------- ---------- ---------- ---------- ----------- ------------- ---------- - ------------------------ (A) Recoveries of amounts previously charged to income. (B) Included in provision for restructuring of operations or reorganization items. (C) Accounts written off.
S-3 SCHEDULE X -- SUPPLEMENTAL INCOME STATEMENT INFORMATION (IN THOUSANDS)
TWO MONTHS TEN MONTHS YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30, JULY 31, SEPTEMBER 30, 1993 1992 1992 1991 ------------- ------------- ---------- ------------- (SEE NOTE 2) Advertising costs....................... $39,393 $6,485 $31,996 $37,104 ------------- ------ ---------- ------------- ------------- ------ ---------- ------------- Amortization of intangible assets: Capitalized preopening costs.......... (A) (A) (A) 11,500 Capitalized start-up costs............ (A) (A) (A) 764 Covenant not to compete............... (A) (A) (A) 478 Goodwill.............................. (A) (A) (A) 1,219 Other................................. (A) (A) (A) 426 ------------- $14,387 ------------- ------------- Amortization of reorganization value in excess of amounts allocable to identifiable assets.................... $42,678 $7,167 -- -- ------------- ------ ---------- ------------- ------------- ------ ---------- ------------- - ------------------------ (A) Certain items noted in Rule 12-11 of Regulation S-X have been excluded from the above schedule on the basis that each is less than 1% of net revenue as reported in the related Consolidated Statements of Operations.
S-4 INDEX TO EXHIBITS
EXHIBITS PAGE - ----------- --------- 2(a) Incorporation, Conveyance and Stock Purchase Agreement, dated August 16, 1993, among Quorum, Inc. and Charter Medical Corporation, et al., which was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K, dated as of September 30, 1993, and which is incorporated herein by reference............................................................ 2(b) Amendment No. 1 to the Exhibit 2(a) agreement, dated September 30, 1993, which was filed as Exhibit 2.2 to the Company's Current Report on Form 8-K, dated as of September 30, 1993, and which is incorporated herein by reference................................................... 2(c) Asset Sale Agreement, dated March 29, 1994, between National Medical Enterprises, Inc., as Seller and Charter Medical Corporation, as Buyer, which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, and which is incorporated herein by reference............................................................ 2(d) Asset Sale Agreement (First Facilities), dated March 29, 1994, between National Medical Enterprises, Inc., as Seller, and Charter Medical Corporation, as Buyer..................... 2(e) Asset Sale Agreement (Subsequent Facilities), dated March 29, 1994, between National Medical Enterprises, Inc., as Seller, and Charter Medical Corporation, as Buyer..................... Exhibits 2(a), 2(b), 2(c), 2(d) and 2(e) do not contain copies of the exhibits and schedules to such agreements. Such agreements describe such exhibits and schedules. The Company agrees to furnish supplementally to the Commission, upon request, a copy of any omitted exhibit or schedule to such agreements................................................................. 3(a) Restated Certificate of Incorporation of the Company which was filed as Exhibit 3(a) to the Company's Annual Report on Form 10--K dated as of September 30, 1992, and is incorporated herein by reference......................................................................... 3(b) Bylaws of the Company, as amended, which was filed as Exhibit 3(a) to the Company's Quarterly Report on Form 10--Q dated as of March 31, 1993, and is incorporated herein by reference................................................................................... 4(a) Indenture, dated as of May 2, 1994, among the Company, the Guarantors listed therein and Marine Midland Bank, as Trustee, relating to the 11 1/4% Senior Subordinated Notes due April 15, 2004 of the Company*.................................................................... 4(b) Form of Class A Common Stock Purchase Warrant Certificate, dated September 1, 1988, for warrants sold to designee of Drexel Burnham Lambert Incorporated, which was filed as Exhibit 4.4 to the Company's Current Report on Form 8--K, dated September 1, 1988, and is incorporated herein by reference............................................................ 4(c) Form of Class A Common Stock Purchase Warrant Certificate, dated September 1, 1988, for warrants sold to certain institutional investors, which was filed as Exhibit 4.3 to the Company's Current Report on Form 8--K, dated September 1, 1988, and is incorporated herein by reference................................................................................ 4(d) Warrant and Common Stock Registration and Participation Rights Agreement, dated as of September 1, 1988, among WAF Acquisition Corporation, the Company, William A. Fickling, Jr., certain affiliates of William A. Fickling, Jr. and the purchasers of the warrants issued on September 1, 1988, which was filed as Exhibit 4(h) to the Company's Annual Report on Form 10--K dated as of September 30, 1988, and is incorporated herein by reference............... 4(e) Second Amended and Restated Credit Agreement, dated as of May 2, 1994, among the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent*............................................... - ------------------------ * Previously filed.
4(f) Second Amended and Restated Subsidiary Credit Agreement, dated as of May 2, 1994, among certain subsidiaries of the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent*....................... 4(g) Second Amended and Restated Company Stock and Notes Pledge Agreement, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent*......................................................... 4(h) Second Amended and Restated Subsidiary Stock and Notes Pledge Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Collateral Agent*............................... 4(i) Second Amended and Restated Subsidiary Pledge and Security Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Collateral Agent*............................... 4(j) Second Amended and Restated Company Pledge and Security Agreement (ESOP collateral), dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent*....................................... 4(k) Second Amended and Restated FINCO Pledge and Security Agreement I, dated as of May 2, 1994, between CMFC, Inc. and Bankers Trust Company, as Collateral Agent*......................................................... 4(l) Second Amended and Restated Subsidiary Guaranty, dated as of May 2, 1994, executed by various subsidiaries of the Company*.......................... 4(m) Second Amended and Restated Company Collateral Accounts Assignment Agree- ment, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Agent*........................................................ 4(n) Company Pledge and Security Agreement, dated as of May 2, 1994, between the Company and Bankers Trust Company, as Collateral Agent*............... 4(o) Second Amended and Restated FINCO Pledge and Security Agreement II, dated as of May 2, 1994, between CMCI, Inc. and Bankers Trust Company, as Collateral Agent*......................................................... 4(p) Second Amended and Restated Company Guaranty, dated as of May 2, 1994, executed by the Company*.................................................. 4(q) Second Amended and Restated Subsidiary Collateral Accounts Assignment Agreement, dated as of May 2, 1994, among various subsidiaries of the Company and Bankers Trust Company, as Agent*.............................. 4(r) Form of Amended and Restated Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents executed as of July 21, 1992, by 44 subsidiaries of the Company for the benefit of Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached, which was filed as Exhibit 4(q) to the Company's Current Report on Form 8-K dated as of July 21, 1992, and is incorporated herein by reference............................. 4(s) Form of Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents executed as of July 21, 1992, by 40 subsidiaries of the Company for the benefit of Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached, which was filed as Exhibit 4(q) to the Company's Current Report on Form 8-K dated as of July 21, 1992, and is incorporated herein by reference.......................................... 4(t) Form of Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents; Amended Indenture of Mortgage, Deed to Secure Debt, Deed of Trust, Security Agreement and Assignment of Leases and Rents; and Consolidated Agreement, executed as of May 2, 1994, by 71 subsidiaries of the Company and Bankers Trust Company, as Agent, and various trustees as shown on individual subsidiary cover pages attached*........................................................... - ------------------------ * Previously filed.
The Registrants agree, pursuant to (b)(iii) of Item 601 of Regulation S--K, to furnish to the Commission, upon request, a copy of each agreement relating to long-term debt not being registered, where the total amount of debt under each such agreement does not exceed 10% of the Registrants' respective total assets on a consolidated basis........................... 4(u) Purchase Agreement, dated April 22, 1994, between the Company and Bear, Stearns & Co. Inc. and BT Securities Corporation*......................... 4(v) Exchange and Registration Rights Agreement, dated April 22, 1994 between the Company and Bear, Stearns & Co. Inc. and BT Securities Corporation*... 4(w) Amendment No. 1, dated as of June 9, 1994, to Second Amended and Restated Credit Agreement, dated as of May 2, 1994, among the Company, the financial institutions listed therein, Bankers Trust Company, as Agent, and First Union National Bank of North Carolina, as Co-Agent.............. 5 Opinion of King & Spalding as to the legality of the securities being registered*............................................................... 8 Opinion of King & Spalding as to tax matters*............................. 10(a) Written description of Corporate Annual Incentive Plan for the year ended September 30, 1993, which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10--Q for the quarter ended March 31, 1993, and is incorporated herein by reference....................................... 10(b) 1989 Non-Qualified Deferred Compensation Plan of the Company, adopted on January 1, 1989, as amended, which was filed as Exhibit 10(f) to the Company's Annual Report on Form 10--K dated as of September 30, 1989, and is incorporated herein by reference....................................... 10(c) Written description of Corporate Annual Incentive Plan for the year ended September 30, 1993 which was filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 and which is incorporated herein by reference................................. 10(d) Directors' Stock Option Plan of the Company which was filed as Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993 and which is incorporated herein by reference.............. 10(e) Employment Agreement, dated July 21, 1992, between the Company and William A. Fickling, Jr., Chairman of the Board of Directors and Chief Executive Officer of the Company which was filed as Exhibit 10(e) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference.......................................... 10(f) Employment Agreement, dated July 21, 1992, between the Company and E. Mac Crawford, Director, President and Chief Operating Officer of the Company which was filed as Exhibit 10(f) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference................................................................. 10(g) Employment Agreement, dated July 21, 1992, between the Company and Lawrence W. Drinkard, Director and Senior Vice President - Finance (principal financial officer) of the Company which was filed as Exhibit 10(g) to the Company's Annual Report on Form 10-K dated September 30, 1992 and which is incorporated herein by reference............................. 10(h) 1994 Stock Option Plan of the Company*.................................... 10(i) Directors' Unit Award Plan of the Company*................................ 11 Computation of earnings per share......................................... 12 Statement regarding computation of ratios*................................ 21 List of subsidiaries of the Registrants*.................................. 21(a) Amended list of subsidiaries of the registrant............................ 23(a) Consent of Arthur Andersen & Co........................................... 23(b) Consent of KPMG Peat Marwick.............................................. - ------------------------ * Previously filed.
23(c) Consent of King & Spalding (included in opinion filed as Exhibit 5)*...... 24 Powers of Attorney*....................................................... 24(a) Additional Powers of Attorney 25 Statement of Eligibility and Qualification on Form T--1 of Marine Midland Bank, as Trustee, under the Indenture relating to the Senior Subordinated Notes due April 15, 2004*................................................. 99(a) Form of Letter of Transmittal (Proof of May 18, 1994)*.................... 99(b) Form of Notice of Guaranteed Delivery (Proof of May 18, 1994)*............ 99(c) Form of Instruction to Registered Holder and/or Book-Entry Transfer Facility Participant from Owner (Proof of May 18, 1994)*.................. 99(d) Form of Exchange Agent Agreement between the Company and Marine Midland Bank (Proof of May 18, 1994)*............................................. - ------------------------ * Previously filed.
EX-2.D 2 EXHIBIT 2(D) First Facilities Execution Copy ASSET SALE AGREEMENT (FIRST FACILITIES) ****** NATIONAL MEDICAL ENTERPRISES, INC. As Seller AND CHARTER MEDICAL CORPORATION As Buyer Dated: March 29, 1994 ASSET SALE AGREEMENT (FIRST FACILITIES) Table of Contents PREAMBLE.......................................................................1 ARTICLE 1 ................................2 DEFINITIONS Section 1.1 Certain Defined Terms..............................................2 Section 1.2 Index of Other Defined Terms.......................................4 ARTICLE 2 ................................8 BASIC TRANSACTIONS Section 2.1 Purchased Assets...................................................8 Section 2.2 Excluded Assets...................................................13 Section 2.3 Assumed Liabilities...............................................15 Section 2.4 Excluded Liabilities..............................................17 Section 2.5 Purchase Price....................................................20 Section 2.6 Payment of Purchase Price.........................................20 (a) Payment of Tentative Purchase Price.................................20 (b) Determination of Interim Net Book Values............................21 (c) Determination of Final Net Book Values..............................22 (d) Seller as Agent of Subsidiaries.....................................24 Section 2.7 Allocation of Purchase Price......................................24 Section 2.8 Contingent Lease Obligations......................................25 Section 2.9 Remittances and Receivables.......................................25 (a) In General..........................................................25 (b) Receivables.........................................................27 (c) Straddle Patient Receivables........................................28 (i) Cut-Off Billings..........................................28 (ii) Cut-Off Billings Not Accepted.............................29 (d) Cooperation in Collecting Receivables and Excluded Assets...................................................30 (e) Non-Assignable Receivables..........................................30 (f) Collection Fee......................................................31 (i) Section 2.10 Employee Matters...............................................32 (a) Pension Plans......................................................32 (b) Retained Employees.................................................33 (c) Hiring of Retained Employees.......................................34 (d) Health Benefits....................................................35 (e) Acknowledgement of Responsibility..................................35 Section 2.11 Use of Names.....................................................36 Section 2.12 No Assignment If Breach; Seller's Discharge of Assumed Liabilities...........................................38 Section 2.13 Closings.........................................................40 (a) The First Closing..................................................40 (b) The Second Closing.................................................42 (c) The Final Closing..................................................42 (d) Deliveries by Seller...............................................43 (e) Deliveries by Buyer................................................44 (f) Escrow.............................................................44 Section 2.14 Purchase Price Adjustment........................................45 Section 2.15 Transfer of Assets in Corporate Form.............................47 Section 2.16 Assignment of Rights and Obligations to Buyer Subsidiaries...............................................47 Section 2.17 Data Processing Services.........................................49 Section 2.18 Rejection of Certain Contracts...................................50 Section 2.19 Remaining Schedules..............................................52 ARTICLE 3.................................52 REPRESENTATIONS AND WARRANTIES OF SELLER Section 3.1 Organization and Corporate Power..................................52 Section 3.2 Subsidiaries......................................................52 Section 3.3 Authority Relative to this Agreement..............................54 Section 3.4 Absence of Breach.................................................54 Section 3.5 Private Party Consents............................................55 Section 3.6 Governmental Consents.............................................55 Section 3.7 Brokers...........................................................56 Section 3.8 Title to Property.................................................56 Section 3.9 Assumed Contracts.................................................57 Section 3.10 Licenses.........................................................58 Section 3.11 U.S. Person; Resident of Georgia.................................58 Section 3.12 Employee Relations...............................................59 Section 3.13 Employee Plans...................................................59 (ii) Section 3.14 Litigation.......................................................60 Section 3.15 Inventory........................................................60 Section 3.16 Hazardous Substances.............................................61 Section 3.17 Financial Information............................................62 Section 3.18 Changes Since Balance Sheet......................................64 Section 3.19 Transferred Business Names.......................................66 Section 3.20 Compliance with Laws and Accreditation...........................66 Section 3.21 Cost Reports, Third Party Receivables and Conditions of Participation......................................67 Section 3.22 Medical Staff....................................................67 Section 3.23 Hill-Burton Care.................................................68 Section 3.24 Assets Used in the Operation of the Facilities.......................................................68 Section 3.25 Taxes............................................................68 Section 3.26 Lists of Other Data..............................................69 Section 3.27 Certain Transactions.............................................70 ARTICLE 4 ...............................70 REPRESENTATIONS AND WARRANTIES OF BUYER Section 4.1 Organization and Corporate Power..................................70 Section 4.2 Buyer Subsidiaries................................................70 Section 4.3 Authority Relative to this Agreement..............................71 Section 4.4 Absence of Breach.................................................72 Section 4.5 Private Party Consents............................................72 Section 4.6 Governmental Consents.............................................73 Section 4.7 Brokers...........................................................73 Section 4.8 Qualified for Licenses............................................73 Section 4.9 Financial Ability to Perform......................................73 Section 4.10 No Knowledge of Seller's Breach..................................73 Section 4.11 No Assurance.....................................................74 ARTICLE 5 ...............................74 COVENANTS OF EACH PARTY Section 5.1 Efforts to Consummate Transactions................................74 Section 5.2 Cooperation; Regulatory Filings...................................75 Section 5.3 Further Assistance................................................76 Section 5.4 Cooperation Respecting Proceedings................................76 (iii) Section 5.5 Expenses..........................................................77 Section 5.6 Announcements; Confidentiality....................................79 Section 5.7 Preservation of and Access to Certain Records...........................................................80 ARTICLE 6 ...............................82 ADDITIONAL COVENANTS OF SELLER Section 6.1 Conduct Pending Closing...........................................83 Section 6.2 Access and Information; Environmental Survey; Remediation or Adjustment........................................85 Section 6.3 Updating..........................................................88 Section 6.4 No Solicitation...................................................88 Section 6.5 Name Changes......................................................89 Section 6.6 Filing of Cost Reports............................................89 Section 6.7 Purchase of Supplies..............................................89 Section 6.8 Covenant Not to Compete...........................................90 (a) Covenant............................................................90 (b) Exceptions..........................................................91 (i) Psychiatric Facilities and Contracts Not Acquired By Buyer.........................................91 (ii) Facilities Outside Geographic Area........................91 (iii) Acute Hospitals...........................................91 (iv) Divestiture of Acquired Psychiatric Facilities................................................92 (v) Acquiring Entities........................................92 (c) Acute Hospital Affiliations.........................................92 (d) Covenant Period.....................................................94 (e) Severability........................................................94 (f) Injunctive Relief...................................................94 (g) Value...............................................................95 Section 6.9 Audited Statements................................................95 Section 6.10 Post-Closing Insurance...........................................95 Section 6.11 Use of Controlled Substance Licenses.............................96 Section 6.12 Non-Disturbance Agreements.......................................96 (iv) ARTICLE 7 ...............................97 ADDITIONAL COVENANTS OF BUYER Section 7.1 Waiver of Bulk Sales Law Compliance...............................97 Section 7.2 Resale Certificate................................................97 Section 7.3 Cost Reports and Audit Contests...................................97 Section 7.4 Tax Matters.......................................................98 Section 7.5 Letters of Credit.................................................98 Section 7.6 Conduct Pending Closing...........................................99 Section 7.7 Securities Offerings..............................................99 ARTICLE 8 ...............................99 BUYER'S CONDITIONS TO CLOSING Section 8.1 Performance of Agreement..........................................99 Section 8.2 Accuracy of Representations and Warranties.......................100 Section 8.3 Officers' Certificate............................................100 Section 8.4 Consents.........................................................100 Section 8.5 Absence of Injunctions...........................................101 Section 8.6 Opinion of Counsel...............................................102 Section 8.7 Title to Real Property...........................................102 Section 8.8 Receipt of Other Documents.......................................104 Section 8.9 Licenses and Permits.............................................105 Section 8.10 Casualty; Condemnation..........................................105 Section 8.11 Reasonable Assurances...........................................106 Section 8.12 Certain Events..................................................106 ARTICLE 9 ..............................106 SELLER'S CONDITIONS TO CLOSING Section 9.1 Performance of Agreement.........................................107 Section 9.2 Accuracy of Representations and Warranties.......................107 Section 9.3 Officers' Certificate............................................107 Section 9.4 Consents.........................................................107 Section 9.5 Absence of Injunctions...........................................108 Section 9.6 Opinion of Counsel...............................................109 Section 9.7 Receipt of Other Documents.......................................109 (v) ARTICLE 10 ..............................110 TERMINATION Section 10.1 Termination.....................................................110 Section 10.2 Effect of Termination...........................................111 ARTICLE 11 ..............................111 SURVIVAL AND REMEDIES; INDEMNIFICATION Section 11.1 Survival........................................................111 Section 11.2 Exclusive Remedy................................................112 Section 11.3 Indemnity by Seller.............................................112 Section 11.4 Indemnity by Buyer..............................................116 Section 11.5 Further Qualifications Respecting Indemnification.................................................117 Section 11.6 Procedures Respecting Third Party Claims........................118 ARTICLE 12 ..............................119 GENERAL PROVISIONS Section 12.1 Notices.........................................................119 Section 12.2 Attorneys' Fees.................................................120 Section 12.3 Successors and Assigns..........................................120 Section 12.4 Counterparts....................................................121 Section 12.5 Captions and Paragraph Headings.................................121 Section 12.6 Entirety of Agreement; Amendments...............................121 Section 12.7 Construction....................................................122 Section 12.8 Waiver..........................................................122 Section 12.9 Governing Law...................................................122 Section 12.10 Severability...................................................123 Section 12.11 Consents Not Unreasonably Withheld.............................123 Section 12.12 Time Is of the Essence.........................................123 (vi) EXHIBITS A. Forms of Bill of Sale and Assignment B. Form of Assignments with Respect to Real Property Leases C. Forms of Assumption Agreement D. Form of Purchasing Contract E. Remaining Schedules F. Form of Data Processing Services Contract LIST OF SCHEDULES A-1 Subsidiaries and Their Respective States of Incorporation; Ownership of Subsidiary Stock A-2 Facilities 2.1(a) Real property owned in fee by Subsidiaries 2.1(b) Real Property Leases 2.1(c) Venture Agreements 2.1(f) Other Assigned Contracts 2.1(h) Transferred Business Names 2.1(k) Prepayments 2.2(j) Other Excluded Assets 2.3(a) Capitalized Leases and Capitalized Lease Liabilities (vii) 2.3(f) Other Assumed Liabilities 2.4(i) Indebtedness 2.4(j) Other Excluded Liabilities 2.7 Allocation Schedule 2.10(a) Pension Plans 2.12(c) Schedule of Required Consents 2.13B Assigned EBITDA 3.5 Private Party Consents 3.7 Seller's Brokers 3.8(a) Liens 3.8(b)(i) Other Real Property and 3.8(b)(ii) 3.9 Assumed Contracts 3.10 Licenses 3.12 Certain Employee Relations Matters 3.14 Litigation 3.16 Environmental Matters 3.17(a) EBITDA Statements 3.17(b) Balance Sheet 3.18 Changes Since Balance Sheet (viii) 3.19 Conflicts With Transferred Business Names 3.20 Compliance With Laws and Accreditations 3.21 Cost Reports, Third Party Receivables and Conditions of Participation 3.22 Medical Staff 3.23 Hill-Burton Care 3.24 Assets Used in the Operation of the Facilities 3.26(a) Depreciation Schedules 3.26(b) Insurance 3.26(c) Employee Benefit Arrangements 3.26(d) Paid Time Off 3.26(e) Certain Contracts 3.26(f) Certain Indebtedness 3.26(g) Certain Financing Arrangements 3.26(h) Certain Contracts Related to Liens 3.27 Certain Transactions 4.5 Private Party Consents 4.7 Buyer's Brokers 4.11 Certain Scheduled Meetings 6.1 Exceptions to Conduct 6.7 National Purchasing Contracts (ix) 7.5 Letters of Credit 6.8(c) Specified Acute Hospitals 8.7(b) Disapproved Title Exceptions (x) ASSET SALE AGREEMENT (FIRST FACILITIES) This ASSET SALE AGREEMENT (the "AGREEMENT") is made and entered into as of the 29th day of March 1994 by and among NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("SELLER"), the Subsidiaries (as defined) and CHARTER MEDICAL CORPORATION, a Delaware corporation ("BUYER"), with reference to the following facts: A. Through wholly-owned subsidiary corporations listed on the Schedule (as defined in SECTION 1.1) hereto identified as SCHEDULE A-1 (the "SUBSIDIARIES"), Seller engages in the business of delivering psychiatric health care services to the public through the inpatient, outpatient and substance abuse recovery facilities, residential treatment centers and medical office buildings identified in SCHEDULE A-2 under the following facility numbers (such facilities, centers and buildings being herein sometimes referred to as the "FIRST FACILITIES" or simply the "FACILITIES"): NME No./Name City State - ------------ ---- ----- 1. Pinewood Hospital Texarkana AR 2. Tucson Psychiatric Institute Tucson AZ 5. Mill Creek Hospital Visalia CA 7. Canyon Springs Hospital Cathedral City CA 8. Oak Creek Hospital San Jose CA 12. Manatee Palms RTC Bradenton FL 20. Kingwood Hospital Michigan City IN 21. Arbor Hospital of Evansville Evansville IN 22. Acadian Oaks Hospital Lafayette LA 23. New Beginnings at Hidden Brook Bel Air MD 24. New Beginnings at Meadows Gambrills MD 26. New Beginnings at Waverly Waverly MN 28. Highland Hall Asheville NC 29. Nashua Brookside Hospital Nashua NH 30. New Beginnings at Lakehurst Lakehurst NJ 33. Baywood Hospital Webster TX 35. Tidewater Psychiatric Institute - Norfolk Norfolk VA 36. New Beginnings at Serenity Lodge Chesapeake VA 40. Centennial Peaks Hospital Louisville CO 44. New Beginnings at Warwick Manor E. New Market MD 45. Potomac Ridge Treatment Center Rockville MD 46. New Beginnings at White Oak Woolford MD 47. Fairbridge RTC Rockville MD 48. Fair Oaks Hospital Summit NJ 49. New Beginnings at Cove Forge Williamsburg PA 52. Springwood Psychiatric Institute Leesburg VA 53. Tidwater Psychiatric Institute - Virginia Beach Virginia Beach VA 55. Linden Oaks Hospital Naperville IL 69. NEPA Nashua NH 70. Alvarado Parkway Institute La Mesa CA B. Buyer desires to purchase from the Subsidiaries, through wholly-owned subsidiaries of the Buyer (each, a "BUYER SUBSIDIARY" and collectively, the "BUYER SUBSIDIARIES"), and Seller desires to cause the Subsidiaries to sell to the applicable Buyer Subsidiaries, such Facilities together with related assets (the "TRANSACTIONS"). C. Buyer and Seller are simultaneously with the execution of this Agreement entering into a separate asset sale agreement (the "SUBSEQUENT FACILITIES AGREEMENT") in respect of the other inpatient, outpatient and substance abuse recovery facilities, residential treatment centers and medical office buildings also identified in SCHEDULE A-2 (the "SUBSEQUENT FACILITIES"). NOW, THEREFORE, in consideration of the foregoing recitals and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 CERTAIN DEFINED TERMS. For purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" of a specified person shall mean any corporation, partnership, sole proprietorship or other person or entity which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity. The term "Affiliate" shall include, without limitation, (i) with respect to Seller, each Subsidiary, and (ii) with respect to Buyer, each Buyer Subsidiary. "Cost Report" means the cost report required to be filed, as of the end of a provider cost year or for any other required period, with cost-based Payors with respect to cost reimbursement. - 2 - "Environmental Law" shall mean any Law regulating or otherwise relating to Hazardous Materials, the environment, natural resources, pollution, environmental protection, waste management, industrial hygiene, health, or safety. "Hazardous Materials" means any chemicals, materials, substances, or items in any form, whether solid, liquid, gaseous, semisolid, or any combination thereof, whether waste materials, raw materials, chemicals, finished products, by-products, or any other materials or articles, which are regulated by or form the basis of liability under any Environmental Laws, including, without limitation, any hazardous waste, medical waste, biohazardous waste, industrial waste, special waste, solid waste, hazardous substance, pollutant, hazardous air pollutant, contaminant, asbestos, polychlorinated biphenyls ("PCBs"), petroleum (including, but not limited to, petroleum-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), coal (including, but not limited to, coal-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), natural gas (including, but not limited to, natural gas-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), formaldehyde, industrial solvents, flammables, explosives, and radioactive substances. "knowledge" of a party shall mean the best of the knowledge of any person who serves as of the date of this Agreement as a duly elected officer of such party. "Laws" shall mean all statutes, rules, regulations, ordinances, orders, codes, permits, licenses and agreements with or of federal, state, local and foreign governmental and regulatory authorities and any order, writ, injunction, settlement agreement or decree issued or approved by any court, arbitrator or governmental agency or in connection with any judicial, administrative or other non-judicial proceeding (including, without limitation, arbitration or reference). "Licenses" shall mean certificates of need, accreditations, registrations, licenses, permits and other consents or approvals of governmental agencies or accreditation organizations. "Payor" shall mean Medicare, Medicaid, CHAMPUS and Medically Indigent Assistance programs, Blue Cross, Blue Shield or any - 3 - other third party payor (including an insurance company and self-insured employer), or any health care provider (such as health maintenance organization, preferred provider organization, peer review organization, or any other managed care program). "Release" means any release, spill, emission, leaking, pumping, emptying, dumping, injection, abandonment, deposit, disposal, discharge, dispersal, leaching, or migration of Hazardous Materials (including, but not limited to, the abandonment or discarding of Hazardous Materials in barrels, drums, or other containers) into or within the environment, including, without limitation, the migration of Hazardous Materials into, under, on, through, or in the air, soil, subsurface strata, surface water, groundwater, drinking water supply, any sediments associated with any water bodies, or any other environmental medium, regardless of where such migration originates. "Schedule" shall mean a schedule from the master set of schedules and attachments developed for this Agreement and the Subsequent Facilities Agreement and which is listed in the Table of Contents for this Agreement. The parties agree that to the extent information in a schedule from the master set of schedules and attachments is listed by a facility name and/or by a facility number, such schedule shall, for purposes of this Agreement, be deemed to include only the information contained therein that is related to the First Facilities, unless this Agreement expressly refers to information contained therein that is related to the Subsequent Facilities. "Taxes" shall mean (i) all federal, state, county and local sales, use, property, recordation and transfer taxes, (ii) all state, county and local taxes, levies, fees, assessments or surcharges (however designated, including privilege taxes, room or bed taxes and user fees) which are based on the gross receipts, net operating revenues or patient days of a Facility for a period ending on, before or including the relevant Closing Date (as defined in SECTION 2.13) or a formula taking any one of the foregoing into account, and (iii) any interest, penalties and additions to tax attributable to any of the foregoing, but shall not include income and other taxes described in SECTIONS 2.4(a) and (b). Section 1.2 INDEX OF OTHER DEFINED TERMS. In addition to those terms defined above, the following terms shall have the respective meanings given thereto in the sections indicated below: - 4 - Defined Term Section ------------ ------- Account Parties 2.9(b) Accrued Operating Assets 2.5(b) Accrued Operating Expenses 2.3(g) Acquired Acute Hospitals 6.8(c) Acquisition Date 6.8(c) Acute Hospitals 6.8(b)(iii) Adjustment Sections 2.14 Agreement Preamble Allocation Schedule 2.7 Assumed Contracts 2.3(a) Assumed Guaranties 2.3(a) Assumed Liabilities 2.3 Balance Sheet 3.17(b) Buyer Preamble Buyer Subsidiary Preamble Charter Documents 3.4 Claim Notice 11.6 Closing Date 2.13 COBRA 2.10(d) Code 3.11 Collection Fee Base 2.9(f) Combined Receivables 3.17(d) Combined Subsidiaries 3.17(a) Competing Business 6.8(a) Consents 8.5 Consultant 6.2(b) Contingent Contract 2.18 Cost Report Settlements 2.2(i) Covenant Period 6.8(d) Covered Facilities 6.8(b)(ii) Covered Parties 6.8(a) Deductible Amount 11.3(b)(i)(B) Document Retention Period 5.7(b) EBITDA 3.17(a) EBITDA Statements 3.17(a) Eligible Receivables 2.9(b)(ii) Employee Benefit Arrangements 3.26(c) Environmental Survey 6.2(b) Equipment 2.1(d) - 5 - ERISA 2.10(a) Escrow Agent 2.13(f) Estimated Net Book Values 2.6(a) Excess Interim Payments 2.1(l) Excluded Assets 2.2 Excluded Liabilities 2.4 Exempted Competing Business 6.8(c) Facilities Recitals Final Closing 2.13 Final Closing Date 2.13 Final Net Book Values 2.6(c) Financial Schedule 3.17(b) First Closing 2.13 First Facilities Recitals Hired Employees 2.10(c) Hospital Records 5.7(a) HSR Act 3.4 Indemnitee 11.5 Indemnitor 11.5(a) Insurance Program 6.10 Intercompany Transactions 2.1(f)(y) Interim Net Book Values 2.6(b) Inventory 2.1(e) JCAHO 3.20 Leased Real Property 2.1(b) Loan Commitment Agreements 2.1(f) Loan Commitment Notes 2.1(f) Losses 11.3(a) Manuals 2.11(b) Material Adverse Effect 3.4 Multiemployer Plans 2.10(a) Net Book Values 2.5(b) 1993 EBITDA 2.13(b) Other Assigned Contracts 2.1(f) Original Closing Date 2.14 Owned Real Property 2.1(a) Paid Time Off 2.3(c) Panel 2.14 Patient Records 5.7(a) Pension Plans 2.10(a) Permitted Encumbrances 3.8(a) - 6 - Permitted Expansions 6.8(b)(iv) PHIS Employees 2.10(b)(i) PHIS System 2.17 Prepayments 2.1(k) Purchase Price 2.5 Real Property Leases 2.1(b) Receivables 2.1(l) Related Agreements 3.4 Reorganization 6.8(b)(v) Required First Facilities 2.13 Retained Employees 2.10(b)(iii) Schedule of Required Consents 2.12(c) Scheduled Closing 2.13 Second Closing 2.13 Seller Preamble Specified Acute Hospital 6.8(c) Specified Capacity 6.8(a) Straddle Patients 2.9(c) Straddle Patient Payments 2.9(c)(ii) Subject Transferred Assets 2.13 Subsequent Facilities Recitals Subsequent Facilities Agreement Recitals Subsidiaries Recitals TEFRA 2.9(c)(ii) Tentative Purchase Price 2.6(a) Termination Date 10.1(b) Third Party Claims 11.5(a) Title Insurer 8.7 Title Policies 8.7 Transactions Recitals Transferred Business Names 2.1(h) Transition Period 2.17 Trigger Amount 11.3(b)(i)(B) Unusual Proceedings 3.14 Venture Agreements 2.1(c) Ventures 2.1(c) WARN Act 2.10(e) Working Capital Adjustment Date 2.6(c) - 7 - ARTICLE 2 BASIC TRANSACTIONS Section 2.1 PURCHASED ASSETS. On the terms and subject to the conditions contained in this Agreement, Buyer shall, or shall cause the applicable Buyer Subsidiary to, purchase from each Subsidiary, and Seller shall cause each Subsidiary to sell, convey, assign, transfer and deliver to Buyer or the applicable Buyer Subsidiary, the following assets of each such Subsidiary that are used in and necessary for the conduct of the operations of the Facilities (the "TRANSFERRED ASSETS"), but excluding all Excluded Assets as defined in SECTION 2.2: (a) All of the Subsidiary's right, title and interest in and to the real property owned in fee (the "OWNED REAL PROPERTY") that is identified in SCHEDULE 2.1(a) on which Facilities are located and all other real property owned in fee by the Subsidiary and used in and necessary for the conduct of the operations of the Facilities, together with the Facilities, construction work- in-progress, and all other buildings, fixtures and improvements thereon, and all rights, privileges, permits and easements appurtenant thereto. (b) All of the Subsidiary's right, title and interest, as lessee or sublessee, in and to the leasehold estates and the related lease or sublease agreements (the "REAL PROPERTY LEASES") respecting land, Facilities, buildings, fixtures and real property improvements (whether owned or leased) (the "LEASED REAL PROPERTY") identified in SCHEDULE 2.1(b), together with all construction work-in-progress in respect of same and all rights, privileges and easements appurtenant thereto. (c) All of the Subsidiary's right, title and interest in and to the joint ventures or partnerships identified in SCHEDULE 2.1(c) hereto (the "VENTURES") that relate to partnerships or joint ventures that own or lease Facilities or other Transferred Assets, together with all of the Subsidiary's right, title and interest in and to the joint venture or partnership agreements, also identified in such Schedule (the "VENTURE AGREEMENTS"), that govern such partnerships or joint ventures, and, subject to the provisions of SECTION 7.6, in and to all distributions and allocations which the Subsidiary is entitled to receive as of the relevant Scheduled Closing (as defined in SECTION 2.13). - 8 - (d) All of the Subsidiary's right, title and interest in and to fixed machinery and equipment, other fixtures and fittings, moveable plant, machinery, equipment and furniture, trucks, tractors, trailers and other vehicles, tools and other similar items of tangible personal property (collectively, "EQUIPMENT") (i) that are not consumed, disposed of or held for sale or as inventory in the ordinary course of business, (ii) that are used, owned, held or leased by the Subsidiary as of the relevant Scheduled Closing, and (iii) that are used in and necessary for the conduct of the operations of the Facilities. (e) All of the Subsidiary's right, title and interest in and to inventories of supplies, drugs, food, janitorial and office supplies, maintenance and shop supplies, and other similar items of tangible personal property intended to be consumed, disposed of or sold in the ordinary course of business (collectively, the "INVENTORY") that are used, owned or held by the Subsidiary as of the relevant Scheduled Closing and that are used by the Subsidiary in and necessary for the conduct of the operations of the Facilities. (f) All of the Subsidiary's right, title and interest in and to all written contracts and agreements (the "OTHER ASSIGNED CONTRACTS") to which the Subsidiary is a party at the relevant Scheduled Closing, other than the Real Property Leases and the Venture Agreements, (i) that are listed on SCHEDULE 2.1(f), (ii) pursuant to which the Subsidiary paid or received less than $25,000 during its last fiscal year or pursuant to which it expects to pay or receive less than $25,000 during its current fiscal year, or (iii) with respect to Other Assigned Contracts not described in clauses (i) or (ii) above, for which Buyer has not provided Seller with written notice of its rejection of such contract or agreement within sixty (60) days following the relevant Scheduled Closing, PROVIDED THAT the Other Assigned Contracts shall not include any contract or agreement that relates to or covers healthcare facilities or operations of Seller other than the Facilities that are being sold, assigned, transferred or conveyed at such relevant Scheduled Closing except to the extent the portion of such contract or agreement related to such Facility may be assigned together with the sale, assignment, transfer or conveyance of such Facilities. SCHEDULE 2.1(f) contains a list by Facility of the following categories of Other Assigned Contracts pursuant to which a Subsidiary paid or received $25,000 or more during its last fiscal year or expects to pay or receive $25,000 or more during its current fiscal year: construction contracts relating to construction work-in- progress at the Facilities; Equipment - 9 - leases (whether operating or capitalized leases) and installment purchase contracts where the annualized lease or installment payments exceed $25,000; contracts or arrangements binding on a Facility which contain any covenant not to compete or otherwise significantly restrict the nature of the business activities in which the Facility may engage; provider agreements with Payors other than Medicare and Medicaid (as defined in SECTION 1.1); bridge and other loan commitment agreements (the "LOAN COMMITMENT AGREEMENTS") pursuant to which a Subsidiary has agreed to provide advances or income guarantees from time to time to lessors or sublessors under the Real Property Leases or to healthcare professionals, groups or entities providing services to the Facilities, together with promissory notes (the "LOAN COMMITMENT NOTES") evidencing amounts owed to the Subsidiary as a result of any such advances or guarantees; agreements with healthcare professionals; leases as lessor or sublessor; and any other contracts in force pursuant to which the Subsidiary paid or received over $25,000 during its last fiscal year or expects to pay or receive $25,000 or more during its current fiscal year. Notwithstanding the foregoing, the Other Assigned Contracts shall not include and SCHEDULE 2.1(f) need not contain: (w) Any contract which evidences indebtedness for money borrowed or the deferred portion of the purchase price for Owned Real Property and is therefore an Excluded Liability under the provisions of SECTION 2.4(i), unless the parties mutually agree, in accordance with the provisions of such SECTION 2.4(i), that such indebtedness will be assumed by Buyer, in which case the contract or contracts evidencing such indebtedness will be Transferred Assets, PROVIDED THAT if the indebtedness evidenced by any such contract is secured by a lien on any Transferred Asset, Seller shall cause such lien to be released at or prior to the relevant Scheduled Closing unless Buyer agrees to assume such indebtedness pursuant to SECTION 2.4(i); (x) Any contract respecting an intercompany transaction between the Subsidiary, on the one hand, and Seller or an Affiliate (as defined in SECTION 1.1) of Seller, on the other, whether or not such transaction relates to the provision of goods and services, tax sharing arrangements, payment arrangements, intercompany charges or balances, or the like ("INTERCOMPANY TRANSACTIONS"), except that transactions arising in connection with open purchase orders where the Seller has acted as an intermediary for - 10 - a Subsidiary and transactions between Seller or an Affiliate of Seller, on the one hand, and the ventures and partnerships described in SECTION 2.1(c) that are not wholly owned by Seller and its Affiliates, on the other hand, shall not be regarded as Intercompany Transactions; (y) Employment contracts, if any, between the Subsidiary or a Facility and the chief executive or chief financial officer of such Facility, whether or not such officer is a Hired Employee (as defined in SECTION 2.10(c)); and (z) Collective bargaining agreements in respect of the employees of a Facility, unless Buyer elects to assume such agreements (it being understood, however, that nothing herein is intended to affect Buyer's obligations with respect thereto, if any, under the National Labor Relations Act). (g) All of the Subsidiary's right, title and interest in and to the right to receive mail and other communications addressed to Seller or the Subsidiary insofar as such mail or other communication relates to the operation of the Facilities after the relevant Scheduled Closing, or to Receivables, Inventory, Prepayments or Accrued Operating Expenses (as herein defined). (h) All of the Subsidiary's right, title and interest in and to the business names set forth in SCHEDULE 2.1(h) (the "TRANSFERRED BUSINESS NAMES"). (i) All of the Subsidiary's right, title and interest in and to Licenses (as defined in SECTION 1.1) in favor of the Subsidiary as of the relevant Scheduled Closing that are related to, necessary for, or used in connection with the operation of the Facilities transferred in such Scheduled Closing as presently operated by the Subsidiary, PROVIDED THAT Licenses in favor of the Subsidiary shall be included in the Transferred Assets only to the extent they are lawfully transferable. (j) All of the Subsidiary's right, title and interest in and to unexpired warranties as of the relevant Scheduled Closing that are transferable to Buyer which the Subsidiary has received from third parties with respect to the Transferred Assets, including, but not limited to, such warranties as are set forth in any construction agreement, lease agreement, - 11 - equipment purchase agreement, consulting agreement or agreement for architectural and engineering services. (k) All of the Subsidiary's right, title and interest in and to advance payments, prepayments, prepaid expenses, deposits and the like (i) made by the Subsidiary or Seller on its behalf in the ordinary course of business with respect to Subject Transferred Assets (as defined in SECTION 2.13) prior to the relevant Scheduled Closing, (ii) which exist as of such Scheduled Closing, (iii) with respect to which Buyer will receive the benefit after the relevant Scheduled Closing, AND (iv) which Buyer agrees to acquire (Buyer hereby agreeing not to withhold such agreement unreasonably) (collectively, "PREPAYMENTS"), which Prepayments are listed by Facility, category and approximate amount as of November 30, 1993 (or a later date if mutually agreed upon), in SCHEDULE 2.1(k). (l) Subject to the further provisions of SECTION 2.9, all of the Subsidiary's right, title and interest as of the Closing in and to accounts receivable recorded by the Subsidiary as an account receivable from Payors, patients and other third parties (whether or not billed) arising from or in connection with the operation of the Facilities, together with rights to payment for services rendered through the relevant Closing Date to Straddle Patients referred to in SECTION 2.9(c) (collectively, "RECEIVABLES"), PROVIDED that any account receivable that would, under SECTIONS 2.9(b)(ii)(B) or (C), qualify as an "Eligible Receivable" as of the end of the month ending prior to the relevant Scheduled Closing shall, at the option of Buyer, not be a receivable included in the Scheduled Closing and shall be an Excluded Asset. The parties hereby acknowledge that interim payments made by a Payor that are in excess of the net carrying value of the Receivables with respect to which such interim payments are a credit against amounts that would otherwise be due from the Payor ("EXCESS INTERIM PAYMENTS") shall not be regarded as Receivables for any purpose of this Agreement, because such Excess Interim Payments do not reflect amounts which the recipient is entitled to retain for services rendered and such Excess Interim Payments are Excluded Assets and Excluded Liabilities under this Agreement. (m) All of the Subsidiary's right, title and interest in and to the goodwill of the businesses evidenced by the Transferred Assets, and, except for Excluded Assets, any and all other assets of the Subsidiary used in and necessary for the conduct of the operations of the Facilities as conducted prior to the relevant Scheduled Closing, whether or not such - 12 - assets have any value for accounting purposes, PROVIDED THAT with respect to NME Hospitals, Inc., NME Properties Corp., NME Psychiatric Properties, Inc., NME Specialty Hospitals, Inc. and any subsidiary of NME Specialty Hospitals, Inc. (including, without limitation, NME Psychiatric Hospitals, Inc.), only those assets described in SECTION 2.1(a)-(l) above (other than Excluded Assets) shall be included in the Transferred Assets. Section 2.2 EXCLUDED ASSETS. The following properties and assets (the "EXCLUDED ASSETS") are not included in Transferred Assets: (a) Except for the Inventory, Receivables, Prepayments and current amounts represented by the Loan Commitment Notes, all assets constituting working capital, whether cash, cash equivalents, securities, or other current assets, and all claims, choses in action, rights of recovery, rights of set-off, rights to refunds, and similar rights. (b) Except for the Transferred Business Names, Licenses and Other Assigned Contracts included in the Transferred Assets and except for manuals relating to equipment and other tangible property included in the Transferred Assets, all privileged or proprietary (to Seller or a Subsidiary) materials, documents, information, media, methods and processes owned by Seller or a Subsidiary, and any and all rights to use same, including, but not limited to, all intangible assets of an intellectual property nature such as trademarks, service marks and trade names (whether or not registered), computer software that is proprietary to Seller or a Subsidiary, all procedures and manuals that are proprietary to Seller or a Subsidiary, all promotional or marketing materials (including all marketing computer software), and any and all names under which the Subsidiaries or the Facilities have done business or offered programs, other than the Transferred Business Names, and all abbreviations and variations thereof, PROVIDED, HOWEVER, that Buyer shall have the rights set forth in SECTION 2.11. (c) The rights of Seller or any Subsidiary under any insurance policy, if any, included in the Transferred Assets which relate to any Excluded Asset or Excluded Liability (as defined in SECTION 2.4) (it being understood, however, that Buyer shall have no obligation to take any action under any such policy to seek any recovery except at the reasonable request, and at the sole expense, of Seller or a Subsidiary or to continue any such policies in force). - 13 - (d) The rights of Seller or of any Subsidiary to receive mail and other communications addressed to any of them with respect to Excluded Assets or Excluded Liabilities. (e) Subject to the provisions of SECTION 5.7, any and all business and patient records of or related to the operation of the Facilities, whether or not maintained at or by the Facilities. (f) All property, plant, equipment and other assets pertaining to the psychiatric healthcare business of Seller or any subsidiary of Seller that relate primarily to any general hospital, acute hospital or so-called "campus facility" of Seller or any subsidiary of Seller and all outpatient facilities and other assets primarily related thereto. (g) Any and all contracts and agreements pursuant to which a Subsidiary provides management services to third parties other than a Facility, except for such contracts and agreements as are specifically listed on SCHEDULE 2.1(f). (h) Subject to SECTIONS 2.17 and 6.7, any and all rights respecting computer and data processing hardware or firmware that is proprietary to Seller or any Affiliates of Seller, and any computer and data processing hardware or firmware, whether or not located at a Facility, that is part of a computer system the central processing unit for which is not located at a Facility. (i) All of the right, title and interest of Seller and the Subsidiaries in assets resulting from any resolution with Payors of amounts due with respect to Cost Reports ("COST REPORT SETTLEMENTS") to the extent such Cost Reports cover any period through the relevant Scheduled Closing with respect to a Facility and other rights of Seller respecting Cost Reports described in SECTION 6.6, including any assets or liabilities resulting from any gain or loss on the sale of the Facilities in connection with the Transactions. (j) (i) All amounts due to the Subsidiaries arising from Intercompany Transactions, (ii) assets that are the subject of the Subsequent Facilities Agreement, and (iii) such other assets, if any, specifically described in SCHEDULE 2.2(j) and assets which would be Transferred Assets except for the operating of SECTIONS 2.12, 6.2(c), 8.5, 8.7 or 9.5 or other provisions of this Agreement. - 14 - (k) All "800" telephone lines and related Equipment and contract rights and all advertising containing any name other than a Transferred Business Name. Seller shall remove at any time prior to or within thirty (30) days following the relevant Closing Date or, with respect to the Hospital Records (as defined in SECTION 5.7(a)), Seller may remove from time to time within the relevant Document Retention Period (as defined in SECTION 5.7(b)) (in each case, at Seller's expense, but without charge by Buyer for storage), any and all of the Excluded Assets from the Facilities, PROVIDED that Seller shall do so in a manner that does not unduly or unnecessarily disrupt Buyer's normal business activities at the Facilities. Section 2.3 ASSUMED LIABILITIES. Subject to the terms and conditions set forth in this Agreement, Buyer shall assume and pay, discharge and perform as and when due ONLY the following obligations and liabilities of Seller and the Subsidiaries and no others (the "ASSUMED LIABILITIES:), as such obligations and liabilities may exist at the time they are assumed by Buyer in accordance with the terms hereof: (a) All liabilities and obligations of the Subsidiaries which pertain to or are to be performed during the period following the relevant Closing Date, and which arise under any contract, license, permit, agreement, arrangement, understanding or undertaking included in the Transferred Assets, including the Real Property Leases, the Venture Agreements, the Other Assigned Contracts and the Licenses, and any obligation or liability (the "ASSUMED GUARANTEES") of Seller or any Affiliate of Seller (including letters of credit and performance bonds) which is in the nature of a guaranty of the foregoing (together, the "ASSUMED CONTRACTS"), including without limitations, the capitalized lease liabilities and obligations of the Facilities listed on SCHEDULE 2.3(a). (b) Without affecting the provisions of SECTIONS 2.1(k), 2.6(a), 2.6(b) or 2.6(c), all liabilities and obligations under open purchase orders at a Facility included in the Subject Transferred Assets that were entered into by Seller or a Subsidiary in the ordinary course of business with respect to operation of such Facility on or prior to the relevant Closing Date and which provide for the delivery of goods or services subsequent to the relevant Closing Date. - 15 - (c) All obligations and liabilities to any Hired Employee for paid time off that is vested and with respect to which the Hired Employee would be entitled to payment upon termination of his or her employment with Seller or an Affiliate of Seller (including, for all purposes of this Agreement, "old paid days leave," "paid time off," sick leave and vacation pay to the extent that they are vested rights that are subject to payment upon termination of employment; collectively, "PAID TIME OFF") through the relevant Closing Date in accordance with the employment policies of Seller and its Affiliates as they exist on the date of this Agreement; PROVIDED that if Seller satisfies any portion of such obligations and liabilities existing at the relevant Scheduled Closing by payment to a Hired Employee, then such payment shall be treated as a reduction of Accrued Operating Expense (as defined in SECTION 2.3(g)). (d) Without limiting Seller's representations and warranties contained in ARTICLE 3 or Buyer's rights under ARTICLE 11 for a breach thereof, all liabilities and obligations respecting any changes or improvements needed to the Facilities for them to be in material compliance following the relevant Scheduled Closing with respect to such Facilities with safety, building, fire, land use, access (including without limitation the Americans With Disabilities Act) or similar Laws (as defined in Section 1.1) respecting the physical condition of the Facilities. (e) All liabilities and obligations respecting employee matters assumed by Buyer pursuant to the provisions of SECTION 2.10. (f) Any liability or obligation which becomes an Assumed Liability by operating of SECTION 2.4(i) and such other liabilities and obligations pertaining to the Facilities, if any, specifically described in SCHEDULE 2.3(f). (g) Any accrued and unpaid liabilities (whether or not due) of the Subsidiaries in existence on the relevant Scheduled Closing Date which relate to the Facilities, which were incurred in the ordinary course of the operation of the Facilities and which represent (i) trade payables incurred to suppliers of goods or services; (ii) water, gas, electricity and other utility charges; (iii) license fees; (iv) rent, common area maintenance charges, operating expenses and other charges arising under the Real Property Leases; (v) insurance premiums (but only with respect to policies that will be continued in force by Buyer after the relevant Scheduled Closing); (vi) salaries and other payroll costs respecting Hired Employees - 16 - accrued in accordance with the normal accounting practices of Seller and the Subsidiaries (but not including bonuses or other incentive compensation or accrued benefits with respect to benefit plans that are not assumed by Buyer); (vii) Taxes, except for Taxes referred to in SECTION 5.5 relating to expenses of the Transactions and payroll taxes respecting employees who are not Hired Employees; and (viii) similar liabilities incurred in the ordinary course of the operations of the Facilities and customarily recorded as a current liability, other than the current portion of long-term liabilities and obligations (the liabilities referred to in this SECTION 2.3(g), together with the liabilities and obligations for Paid Time Off assumed under SECTION 2.3(c), being herein referred to as "ACCRUED OPERATING EXPENSES"). Section 2.4 EXCLUDED LIABILITIES. The parties agree that liabilities and obligations of Seller and the Subsidiaries not expressly described in SECTION 2.3 as Assumed Liabilities are not part of the Assumed Liabilities, and Buyer shall not assume or become obligated with respect to any other obligation or liability of Seller or any Subsidiary or any Affiliate of either of any nature whatsoever (whether express or implied, fixed or contingent, liquidated or unliquidated, known or unknown, accrued, due or to become due) (collectively, "EXCLUDED LIABILITIES"), including, but not limited to, the liabilities and obligations described in this Section, all of which shall remain the sole responsibility of Seller or the pertinent Subsidiary or Affiliate, as the case may be. Without limiting the generality of the foregoing, Buyer shall not assume and shall have no liability or obligation of any kind for or with respect to any of the following liabilities or obligations: (a) Subject to SECTION 5.5 respecting certain expenses incurred in connection with the Transactions, any of Seller's or any of the Subsidiaries' (or their respective Affiliates') liabilities or obligations (including, but not limited to, any liabilities or obligations under any tax sharing agreements) with respect to franchise taxes and with respect to foreign, federal, state or local taxes imposed upon or measured, in whole or in part, by the income for any period of Seller and/or such Subsidiaries or any member of a combined or consolidated group of companies of which Seller and/or such Subsidiaries are, or were at any time, a part, or with respect to interest, penalties or additions to any of such taxes, and any income, franchise, tax recapture, transfer tax, sales tax or use tax that may arise upon consummation of the transactions contemplated by this Agreement and be due or payable by Seller or any Subsidiary, it being - 17 - understood that Buyer shall not be deemed to be Seller's or any Subsidiary's transferee with respect to any such tax liability. (b) Any of Seller's or any of its Subsidiaries' or Affiliates' liabilities or obligations with respect to the recapture of foreign, federal, state or local tax deductions or credits taken by Seller or such Subsidiary imposed upon, or any taxable gain recognized by, Seller or such Subsidiary on account of the Transactions contemplated hereby. (c) Liabilities or obligations of Seller, its Affiliates or a Subsidiary arising from the breach by Seller or such Subsidiary on or prior to the relevant Closing Date of any term, covenant, or provision of any of the Assumed Contracts. (d) Liabilities or obligations of Seller, a Subsidiary or Seller's Affiliates now existing or which may hereafter exist by reason of any violation or alleged violation of Law or Laws by Seller or any of its Affiliates or by a Subsidiary, or by an employee or independent contractor of any of the foregoing where any of the foregoing is or is alleged to be responsible for the acts or omissions of any such person, occurring on or prior to the relevant Scheduled Closing Date. (e) Liabilities or obligations of Seller or a Subsidiary now existing or which may hereafter exist by reason of any liability to refund any payment or reimbursement received by Seller or a Subsidiary from any Payor which is attributable to any period of time ending on or prior to the relevant Closing Date respecting such Facilities for which such payment or reimbursement was received. (f) Liabilities or obligations of Seller or a Subsidiary under any Assumed Contract which would be included in the Transferred Assets but for the provisions of SECTION 2.12 unless Buyer is provided with the benefits thereunder as contemplated in SECTION 2.12. (g) Liabilities of Seller and the Subsidiaries arising from or in connection with litigation described in SECTION 3.14, including, but not limited to, the Unusual Proceedings described therein, and any and all liabilities or obligations of Seller and the Subsidiaries for claims for personal injury (including sickness, trauma, disease, pain and suffering, loss of future earnings, punitive damages and the like), property damage, and other damage and injury in existence (I.E., all elements of the claim - 18 - are complete) at or prior to the relevant Scheduled Closing, whether or not any claim has been made or litigation has been instituted with respect thereto and whether or not any claim is covered partially or fully by insurance. (h) Subject to SECTION 2.12, liabilities of Seller and the Subsidiaries incurred in connection with their obtaining any consent, authorization or approval necessary for them to sell, convey, assign, transfer or deliver any Transferred Asset to Buyer hereunder. (i) Any liability of Seller or a Subsidiary representing indebtedness for money borrowed or the deferred portion of the purchase price for any Owned Real Property or Equipment (and any refinancing thereof), including without limitation the indebtedness identified on SCHEDULE 2.4(i); PROVIDED that if, prior to the relevant Scheduled Closing, the parties mutually agree that any such indebtedness or obligation will be assumed by Buyer and further agree upon an equitable reduction in the cash portion of the Purchase Price (as defined in SECTION 2.5) to reflect Buyer's assumption of such indebtedness or obligation, then any such indebtedness or obligation will be deemed to constitute an Assumed Liability for all purposes of this Agreement; and PROVIDED FURTHER that with respect to any such indebtedness or obligation not so assumed by Buyer that constitutes a lien or encumbrance upon any Transferred Asset, Seller agrees that on or prior to the relevant Scheduled Closing it will either pay or discharge such indebtedness or liability in full or otherwise cause such lien or encumbrance to be removed from such Transferred Asset, so that such Transferred Asset is sold, conveyed, assigned, transferred and delivered to Buyer at such Scheduled Closing free and clear of such lien or encumbrance. (j) Such other liabilities and obligations, if any, specifically described in SCHEDULE 2.4(j) and liabilities which would be Assumed Liabilities but for the provisions of SECTIONS 2.12, 8.5, 8.7 or 9.5. (k) Amounts due from the Subsidiaries arising from Intercompany Transactions. (l) Liabilities and obligations respecting Cost Report Settlements to the extent such Cost Reports cover any period through the relevant Closing Date and other obligations of Seller respecting Cost Reports described in SECTION 6.6. - 19 - (m) Subject to SECTION 2.10(f), liabilities and obligations for bonuses, other incentive compensation and benefits under benefit plans to the extent not specifically included in Accrued Operating Expenses. Section 2.5 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") in the aggregate for all of the Transferred Assets shall be equal to the sum of (a) Ninety-One Million Four Hundred Sixty-Eight Thousand Dollars ($91,468,000), subject to such adjustments, if any, as may occur pursuant to Sections 2.12, 2.14, 6.2(c), 8.5, 8.7, or 9.5 or other provisions of this Agreement, including the book value as of the relevant Scheduled Closing of capitalized lease liabilities assumed and the value of any assumption of debt pursuant to SECTION 2.4(i), PLUS (b) an amount equal to the net book values as of the relevant Scheduled Closing of the Loan Commitment Notes, Inventory, Receivables and Prepayments (collectively, "ACCRUED OPERATING ASSETS") included in the Transferred Assets LESS Accrued Operating Expenses, plus (c) an amount (determined on the basis of the Venture's balance sheet) equal to the net book value as of the relevant Scheduled Closing of (i) the sum of each Venture's current assets and distributions payable to partners or venturers, LESS (ii) the sum of each such Venture's current liabilities, indebtness for money borrowed and capotalized lease liabilities, pro-rated in each case to the equity percentage in such Venture held by Seller and the Subsidiaries (the amounts in clauses (b) and (c) being referred to as the ("NET BOOK VALUES"). In addition, at the First Closing, Buyer shall pay to Seller the sum of Two Million Dollars ($2,000,000) for the covenant not to compete described in SECTION 6.8. Notwithstanding anything in this Agreement or in a Schedule hereto that might be construed to the contrary, Net Book Values will not be reduced by Seller's retained liability for Excess Interim Payments made by a Payor prior to the relevant Scheduled Closing that are in excess of the net carrying value of the Receivables transferred at such Scheduled Closing with respect to which such interim payments are a credit against amounts that would otherwise be due from the Payor. Section 2.6 PAYMENT OF PURCHASE PRICE. That portion of the Purchase Price due and payable for the Transferred Assets actually sold, assigned, transferred and conveyed to Buyer and the applicable Buyer Subsidiaries hereunder shall be paid as follows: (a) PAYMENT OF TENTATIVE PURCHASE PRICE. No less than five (5) business days prior to each Scheduled Closing, Seller shall deliver to Buyer a certificate executed on the Seller's behalf by a responsible officer - 20 - setting forth the Seller's estimate of what the Net Book Values will be as of such Scheduled Closing for the Subject Transferred Assets (as defined in SECTION 2.13) (the "ESTIMATED NET BOOK VALUES"), and additionally setting forth (i) the Net Book Values for the Subject Transferred Assets recorded by Seller as of the most recent month-end prior to the delivery of such certificate for which data is available, and (ii) the methodology used by Seller for updating changes in Net Book Values since such month-end data to arrive at such estimate. All determinations made with respect to the Net Book Values shall be based upon the internal records of, and the valuation methods customarily used by, Seller and the Subsidiaries, absent error, and consistent with generally accepted accounting principles with respect to the recording and accruing of the types of assets and liabilities included in Net Book Values. On the terms and subject to the conditions contained in this Agreement, at each Scheduled Closing Buyer shall pay to Seller, in the manner set forth herein, an amount equal to (iii) the portion of the Purchase Price arising under SECTION 2.5(a) (including any debt assumptions pursuant to SECTION 2.4(i)) due at such Scheduled Closing as calculated on the basis of the values assigned to the pertinent Subject Transferred Assets in the Allocation Schedule (as defined in SECTION 2.7) PLUS (iv) an amount equal to one hundred percent (100%) of the Estimated Net Book Values related to the Subject Transferred Assets, (the sum of clauses (iii) and (iv) being referred to as the "TENTATIVE PURCHASE PRICE"), LESS (v) the book value of any capitalized leases assumed at such Scheduled Closing, LESS (vi) the value of any debt assumed pursuant to SECTION 2.4(i) at such Scheduled Closing. (b) DETERMINATION OF INTERIM NET BOOK VALUES. As soon as practicable, but in no event later than sixty (60) days after each Scheduled Closing, Seller shall cause a schedule to be prepared and delivered to Buyer showing an interim calculation of the Net Book Values with respect to the Subject Transferred Assets (the "INTERIM NET BOOK VALUES") as of the relevant Closing Date derived by Seller from the internal books and records of Seller and the Subsidiaries and otherwise in accordance with the second sentence of SECTION 2.6(a) with respect to the Facilities included in such Subject Transferred Assets, as well as from a physical inventory, taken after the date hereof and prior to or as of such relevant Closing Date, of property which would constitute Inventory if the relevant Scheduled Closing had occurred on the date of such physical inventory. If such schedule as submitted by Seller is not challenged in writing by Buyer within thirty (30) days of its receipt of same, then it shall be - 21 - deemed accepted by Buyer. If it is so challenged, then, unless otherwise resolved by agreement of the parties within thirty (30) days from the date of Buyer's challenge or such later date as the parties may mutually agree upon, such disagreement shall be mutually submitted by the parties to their respective independent certificated public accountants for resolution. If such accountants cannot resolve the disagreement within thirty (30) days of such submission, then they shall submit the matter to a third accounting firm of national standing selected by them, whose determination shall be final and binding, and shall be rendered within thirty (30) days of the date on which the matter is submitted to such firm. Any such third accounting firm shall determine the issues in dispute following such procedures, consistent with the language of this Agreement, as it deems appropriate to the circumstances and with reference to the amounts in issue. No particular procedures are intended to be imposed upon such third accounting firm, it being the desire of the parties that any such dispute shall be resolved as expeditiously and inexpensively as reasonably practicable. In the event that the Interim Net Book Values differ from the Estimated Net Book Values, whether determined on the basis of the schedule prepared by Seller, or agreement of the parties, or decision by independent public accountants, as the case may be, then and in such event, within five (5) business days following such determination of the Interim Net Book Values, either Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case may be, in immediately available funds, the amount by which the Interim Net Book Values differs from the Estimated Net Book Values. The pendency of a dispute shall not affect the payment obligation hereunder of either Buyer or Seller to the extent such payment is not disputed. (c) DETERMINATION OF FINAL NET BOOK VALUES. Within ten (10) business days following expiration of six (6) months from each Scheduled Closing, Buyer shall provide a certificate to Seller, executed on Buyer's behalf by a responsible officer, setting forth a proposed calculation of final Net Book Values with respect to the Subject Transferred Assets (the "FINAL NET BOOK VALUES") as of the end of such six (6) month period (a "WORKING CAPITAL ADJUSTMENT DATE") which shall contain a reconciliation as of the relevant Closing Date of the Interim Net Book Values, adjusted only for (i) errors claimed by Buyer to exist in Seller's accruals for Accrued Operating Assets and Accrued Operating Expenses and the Ventures' calculations of partners' equity, partners' distributions payable and the net book value of Venture fixed assets, (ii) Buyer's ability to collect Receivables and the Ventures' ability to collect their accounts - 22 - receivable in existence as of the relevant Closing Date, on or before the Working Capital Adjustment Date, in excess of the carrying value therefor as of the relevant Closing Date net of reserves, and by Buyer's or a Venture's receipt of Excess Interim Payments, (iii) Buyer's inability to collect Receivables and the Ventures' inability to collect their accounts receivable in existence as of the relevant Closing Date, on or before the Working Capital Adjustment Date, in accordance with their net carrying values as of the relevant Closing Date, and (iv) Buyer's ability to pay Accrued Operating Expenses and the Ventures' ability to pay similar expenses of the Venture at less than their book value as of the relevant Closing Date or Buyer's or the Ventures' payment of the same at more than their book value as of the relevant Closing Date to the extent legally required to do so. For purposes of any such calculation, (v) the accuracy of Seller's or the Ventures' accrual for real and personal property taxes shall be based upon the last notice of tax assessment respecting such property prior to the relevant Scheduled Closing that does not reflect the Transactions contemplated to occur at the relevant Scheduled Closing, (vi) variable or undetermined charges arising under Real Property Leases shall be accrued as of the relevant Scheduled Closing on an historical basis, (vii) payments received on account of Receivables shall be applied in accordance with SECTIONS 2.9(b) and (c), and (viii) expenses for such items as real and personal property taxes, utility charges, charges arising under leases, insurance premiums and the like shall be pro-rated as of the relevant Scheduled Closing. In the event that Buyer elects to reassign to Seller any Loan Commitment Notes on or prior to the relevant Working Capital Adjustment Date, then the Final Net Book Values shall be deemed to be further reduced by an amount equal to the uncollected portion thereof, in which case Buyer shall execute such documents of reassignment as are reasonably satisfactory to Seller and such Loan Commitment Notes as are reassigned shall thereafter to be deemed to be Excluded Assets. Any dispute concerning Buyer's calculation of the Final Net Book Values that is unresolved for thirty (30) days shall be submitted for resolution by the parties' independent certified public accountants in accordance with the procedures contained in SECTION 2.6(b). Within five (5) business days following determination of the Final Net Book Values for a Scheduled Closing, either Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case may be, in immediately available funds, the amount by which the Final Net Book Values differ from the Estimated Net Book Values, as adjusted for payments, if any, on account of the Interim Net Book Values. The pendency of a dispute shall not affect the - 23 - payment obligation hereunder of either Buyer or Seller to the extent such payment is not disputed. (d) SELLER AS AGENT OF SUBSIDIARIES. Seller shall, at or prior to the relevant Scheduled Closing, cause each Subsidiary transferring Subject Transferred Assets thereat to irrevocably designate (with an original copy being provided to Buyer) Seller as its agent to receive on its behalf delivery of that portion of all payments made by Buyer hereunder to which such Subsidiary may be entitled as a result of its participation in such Scheduled Closing, including without limitation that portion of the Purchase Price attributable to the Subject Transferred Assets sold to Buyer by it, and to acknowledge that delivery of such payments, including the Purchase Price, to Seller in accordance with the terms of this Agreement shall be conclusive and binding evidence against such Subsidiary that any payments or consideration due to such Subsidiary in respect of the Subject Transferred Assets sold to Buyer by it, or in respect of other payments due to it from Buyer under the terms of this Agreement, have been delivered. Section 2.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated to the Transferred Assets on a Facility by Facility basis in accordance with SCHEDULE 2.7 (the "ALLOCATION SCHEDULE"), except that the portion of the Purchase Price attributable to the Net Book Values shall be allocated in accordance with the amounts actually paid therefor in accordance with the provisions of SECTIONS 2.5(b) and (c). Notwithstanding the foregoing, at least five (5) days prior to the First Closing (as defined in SECTION 2.13), Buyer and Seller shall in good faith agree upon reasonable modifications to the Allocation Schedule set forth in SCHEDULE 2.7 to reduce the aggregate amounts allocated therein to the First Facilities by the sum of Five Million Dollars ($5,000,000), and such modified Allocation Schedule shall thereafter be the Allocation Schedule for all purposes of this Agreement. Seller and Buyer shall, and Seller shall cause the Subsidiaries to, allocate the Purchase Price in accordance with the Allocation Schedule and allocate the Net Book Values portion thereof in accordance with the amounts paid therefor, to be bound by such allocations for all purposes, to account for and report the purchases and sales contemplated hereby for all purposes (including, without limitation, financial, accounting, Medicare reimbursement and federal and state tax purposes) in accordance with such allocations, and not to take any position (whether in financial statements, Cost Reports, tax returns, Cost Report or tax audits, or otherwise), including without limitation any claim to an adjustment in the basis of such assets by Buyer or its successors and - 24 - assigns for Medicare purposes which is inconsistent with such allocations without the prior written consent of the other party, except to the extent, if any, required by application Law or generally accepted accounting principles. Section 2.8 CONTINGENT LEASE OBLIGATIONS. With respect to each Real Property Lease for which Seller or a Subsidiary remains or will remain contingently liable after the relevant Scheduled Closing as lessee, sublessee, guarantor or assignor, Buyer hereby agrees to exercise its best efforts: (a) To cause the contingent liability of Seller or such Subsidiary, as the case may be, to be removed on or prior to any extension, renewal or modification of such Real Property Lease by Buyer or a Buyer Subsidiary; (b) To procure for Seller and the applicable Subsidiaries a security interest, in form reasonably satisfactory to Seller, in all of the right, title and interest of Buyer and the applicable Buyer Subsidiaries in such Real Property Lease, junior only to the security interest of Buyer's most senior secured lenders, in order to secure the due and punctual performance by Buyer and the applicable Buyer Subsidiaries of the Assumed Liabilities represented by such Real Property Lease; and (c) To procure for Seller and the applicable Subsidiaries the right to acquire such right, title and interest in such Real Property Lease, at fair market value, in the event that Buyer and the applicable Buyer Subsidiaries fail to pay, perform and discharge when due the Assumed Liabilities represented by such Real Property Lease and such failure results in Seller or any Subsidiary being required to pay, perform or discharge any of such Assumed Liabilities. Section 2.9 REMITTANCES AND RECEIVABLES. (a) IN GENERAL (i) All remittances, mail and other communications relating to the Excluded Assets or Excluded Liabilities received by Buyer or a Buyer Subsidiary at any time after a relevant Scheduled Closing shall be promptly turned over by Buyer to the addressee thereof, or if the addressee is no longer affiliated with Seller, to Seller, and pending such - 25 - delivery, Buyer shall have no interest in the same and shall hold such remittances, mail and other communications in trust for the benefit of Seller and the Subsidiaries. All remittances, mail and other communications relating to the Transferred Assets or the Assumed Liabilities received by Seller or any Subsidiary at any time after the relevant Scheduled Closing at which such Transferred Assets are transferred and such Assumed Liabilities are assumed by Buyer shall be promptly turned over by Seller or such Subsidiary to the addressee thereof, or if the addressee is no longer affiliated with Buyer, to Buyer, and pending such delivery, Seller or such Subsidiary shall have no interest in the same and shall hold such remittances, mail and other communications in trust for the benefit of Buyer. (ii) With regard to the Medicare, Medicaid and CHAMPUS programs, and any Blue Cross program that requires a Cost Report or retains the right of offset, Buyer and Seller mutually covenant and agree as follows. Seller acknowledges that, from time to time, Buyer or Buyer Subsidiaries, after a relevant Scheduled Closing, may receive a demand for payment in connection with overpayments or alleged overpayments from one or more of such programs, or both, which demand relates to the operation of a Facility prior to the relevant Scheduled Closing at which such Facility was included in the Subject Transferred Assets. Buyer shall provide notice to Seller of such demand within ten (10) days of Buyer's receipt of same. Seller covenants and agrees with Buyer that Seller shall, within thirty (30) days of its receipt of written notice from Buyer of such request for any such payment, which notice shall state the basis thereof in reasonable detail, pay in cash to Buyer an amount equal to any and all such overpayments claimed or (by an election made in writing, within twenty (20) days after receiving notice of any such demand) diligently pursue a contest of such claim of overpayment and indemnify and hold Buyer harmless from any liability resulting therefrom, but the right to contest without first paying shall not be available to Seller if the programs collect the alleged overpayment by means of a setoff against Buyer, unless Seller first reimburses Buyer in an amount equal to the amount so setoff, PROVIDED that in all events Buyer shall provide notice to Seller of such demand within ten (10) days of Buyer's receipt of same. Subject to the foregoing, if any such program, with or without notice, collects an alleged overpayment or other amount allegedly owed by Seller or a Subsidiary by offset against Buyer or Buyer Subsidiary, Seller shall promptly pay to Buyer an amount equal to such offset amount PROVIDED that Buyer shall have provided Seller with any - 26 - notice related to such offset within ten (10) days of Buyer's receipt of same, or, if no such notice was received by Buyer, Buyer shall have provided notice to Seller of such offset within ten (10) days of Buyer's obtaining notice of such offset being taken. Nothing in this SECTION 2.9(a)(ii) shall limit Buyer's obligations under SECTION 7.3. (b) RECEIVABLES. (i) Buyer shall exercise commercially reasonable efforts to collect Receivables. Any payments received by Buyer or its successors and assigns after a Scheduled Closing Date, from patients, Payors, clients, customers or others who are the obligors on Receivables transferred as of such Scheduled Closing Date (collectively, "ACCOUNT PARTIES"), shall be applied to the oldest remaining Receivables transferred as of such Scheduled Closing Date from such Account Party in the order in which they arose unless, in the case of an Account Party who is a patient, otherwise indicated by the patient's Payor. (ii) On the tenth day of the first month that begins at least thirty (30) days after a Scheduled Closing, on the tenth day of each month thereafter until the Working Capital Adjustment Date with respect to such Scheduled Closing, and on the tenth day following such Working Capital Adjustment Date, Buyer shall execute appropriate instruments of assignment to re-assign back to Seller, and shall turn over to Seller all evidences of and documents pertaining to, any Receivable which, as of the end of the immediately preceding month and/or such Working Capital Adjustment Date, as the case may be, was uncollected and which either (A) is a Receivable in respect of a non-Medicare patient as to which Buyer has decided to cease collection activity, or (B) is a Receivable in respect of a non-Medicare patient which, as of such month end or such Working Capital Adjustment Date, has remained unpaid for a period of at least one hundred eighty (180) days following the date of such patient's discharge from a Facility, (C) is a Receivable in respect of a Medicare patient which relates to amounts that represent such patient's deductible or co-insurance obligations, and which, as of such month end or Working Capital Adjustment Date, has remained unpaid for a period of at least one hundred eighty (180) days following the date after which the patient is first billed, or (D) is a Receivable from Medicare in respect of - 27 - a Medicare patient for which payment has been denied by Medicare PROVIDED that Buyer has filed a request for reconsideration within the period required. Such Receivables which are eligible to be turned over to Seller are herein referred to as "ELIGIBLE RECEIVABLES." Any Eligible Receivable that is assigned back to Seller within thirty (30) days following the first opportunity to do so under the provisions of this CLAUSE (ii) shall, for purposes of the adjustments contemplated by SECTION 2.6(c), be deemed to have not been collected by Buyer, and any Eligible Receivable that is NOT so assigned back to Seller within thirty (30) days following the first opportunity to do so under the provisions of this CLAUSE (ii) shall, for purposes of the adjustments contemplated by SECTION 2.6(c), be deemed to have been collected by Buyer. With respect to any such Eligible Receivable re-assigned back to Seller, Seller and the Subsidiaries shall be free to institute such collection efforts, including, without limitation, initiating such legal proceedings, with respect thereto as they shall, in their sole discretion determine. (iii) In the event of any adjustment in the Net Book Values arising under SECTION 2.6(c)(iii), then upon such determination, Buyer shall execute instruments of assignment, effective as of the relevant Working Capital Adjustment Date, respecting any unpaid Receivables which are not collected or deemed collected as of such date (it being agreed that any unpaid Receivables not so assigned shall be deemed collected as of or prior to such Working Capital Adjustment Date). (c) STRADDLE PATIENT RECEIVABLES. To compensate Seller and the Subsidiaries for services rendered and medicine, drugs and supplies provided through a Scheduled Closing Date with respect to patients ("STRADDLE PATIENTS") who were admitted to a Facility on or before the date of the Scheduled Closing in which such Facility was transferred and were discharged by the Facility after such Scheduled Closing Date, the following shall apply: (i) CUT-OFF BILLINGS. Seller shall, or shall cause the Subsidiaries to, prepare cut-off billings for all Straddle Patients as of the close of business on the relevant Closing Date. All payments (other than Excess Interim Payments) which are received by Buyer (or its successors in interest or assigns) after the relevant Closing Date with respect to Straddle Patients and which relate to - 28 - such cut-off billings shall constitute Receivables for purposes of calculating the Tentative Purchase Price and the Interim Net Book Values for such Scheduled Closing. (ii) CUT-OFF BILLINGS NOT ACCEPTED. If the Payor of any Straddle Patient cannot or does not for any reason accept cut-off billings, then Buyer shall notify Seller of same, and Seller shall, or shall cause the Subsidiaries to, deliver to Buyer a statement calculating the total charges made by Seller and the Subsidiaries for services rendered and medicine, drugs and supplies provided through the relevant Closing Date with respect to such Straddle Patient. Within ten (10) days following the discharge of each such Straddle Patient, Buyer shall deliver to Seller a statement reflecting the total charges for the services rendered and medicine, drugs and supplies billed to such Straddle Patient after the relevant Closing Date and the patient receivable (the "STRADDLE PATIENT PAYMENTS") of Buyer with respect to such Straddle Patient (including any cost per discharge limit imposed by the Tax Equity and Fiscal Responsibility Act of 1982, as amended ("TEFRA") and all deductibles and co-insurance payments). For purposes of calculating the Final Net Book Values for any Scheduled Closing, the pro rata share of the Straddle Patient Payments which shall be treated as a Receivable shall be equal to the amount obtained by multiplying the Straddle Patient Payments by a fraction, the numerator of which is the total charges of Seller and the Subsidiaries with respect to such Straddle Patient through the relevant Closing Date and the denominator of which is the total charges of Buyer, Seller and the Subsidiaries with respect to such Straddle Patient. Seller or Buyer, as may be applicable, may have such statements as submitted by Buyer or Seller verified by their respective independent public accountants within thirty (30) days from delivery. If such statements, as submitted by Buyer or Seller, are acceptable, then such statements shall fix the value of the services, medicine, drugs and supplies provided by Seller and the Subsidiaries, on the one hand, and by Buyer, on the other, to each such Straddle Patient. If any such statement is challenged by Seller or Buyer, then unless otherwise resolved by agreement of the parties within thirty (30) days of any such challenge, such statement shall be deemed in dispute, which dispute shall be resolved by the parties' independent certified public accountants. If such accountants cannot resolve the matter within thirty (30) days, then it shall be submitted by them to a third - 29 - accounting firm in accordance with the procedures contained in SECTION 2.6(b). If Seller or Buyer does not give written notice to the party preparing the statement of its challenge of such statement within the first said thirty (30) day period, the receiving party shall be deemed to have accepted the same. (d) COOPERATION IN COLLECTING RECEIVABLES AND EXCLUDED ASSETS. Buyer agrees to cooperate with Seller and the Subsidiaries and to provide access to records (both medical and financial) to assist in the collection, rebilling and auditing (by Seller or its representatives, including its independent public accountants) of the Receivables and the Excluded Assets (including, but not limited to, any and all Receivables from Account Parties or amounts due to or from any Payor). Without limiting the generality of the foregoing agreements of Buyer to cooperate with Seller, until six (6) months after the relevant Closing Date, (i) Seller may locate one or more of its or its subsidiaries' employees at any or all of the Facilities transferred at such Closing Date, without charge, in order to facilitate such collection, rebilling and auditing, (ii) Buyer shall provide such employees, without charge, adequate and proper space to facilitate the performance of such duties, and (iii) Buyer shall provide reasonable assistance of the employees of Buyer, without charge. (e) Non-Assignable Receivables. Notwithstanding anything in this Agreement that might be construed to the contrary, this Agreement shall not constitute an agreement to assign any Receivable (including any Receivable respecting a Straddle Patient) the assignment of which is either prohibited by Law or by the terms of any contract with a Payor. However, without limiting the generality of the foregoing, the Net Book Value of such non-assignable Receivables shall be included in the Net Book Values for all purposes of this Agreement, including, but not limited to, SECTIONS 2.5 through 2.7 and this SECTION 2.9, as modified by the provisions of this SECTION 2.9(e). That portion of the Purchase Price which, but for the provisions of this SECTION 2.9(e), would otherwise be attributable to the Net Book Value of such non-assignable Receivables shall be deemed to be a loan from Buyer to Seller and to the pertinent Subsidiary that will be repaid from the proceeds of such Receivables collected and held by Buyer and from the adjustments to Estimated Net Book Values contemplated by SECTIONS 2.6, 2.9(b), and 2.9(c). All procedures and requirements specified herein (including, without limitation, Buyer's obligations under SECTION 2.9(b)) for the collection of Receivables (including any Receivables in respect of a Straddle Patient) - 30 - shall be fully applicable to such non-assignable Receivables, except that (i) Buyer shall be deemed to collect and hold the proceeds of such non-assignable Receivables as agent for the Seller and the Subsidiaries and shall apply such proceeds to the repayment of such loan, and (ii) any provision herein that would otherwise require or provide for Buyer's "reassignment" of a Receivable (including an Eligible Receivable) that is non-assignable to Buyer in the first instance shall be construed to require or provide that Buyer, as agent for Seller and the Subsidiaries, return pertinent documentation respecting such Receivable to Seller and the Subsidiaries to permit collection of such Receivable by them (in accordance with such collection efforts and procedures as they, in their sole discretion, shall determine). (f) COLLECTION FEE. (i) Buyer shall be entitled to a collection fee equal to fifteen percent (15%) of the sum of the following amounts (the "COLLECTION FEE BASE"): (A) Cash collected, or deemed, under the provisions of this Agreement, to be collected by Buyer after a relevant Scheduled Closing in respect of (1) Receivables included in the Net Book Values that are acquired by Buyer at such Scheduled Closing, excluding Receivables that Buyer or a Buyer Subsidiary assigns or entrusts at or after such Scheduled Closing to an Affiliate of Seller for purposes of collection and (2) Excess Interim Payments; and (B) Cash remitted to a Facility after the relevant Scheduled Closing by any collection agency (excluding an Affiliate of Seller) with respect to accounts receivable that were assigned to such agency prior to such Scheduled Closing and that would be Receivables but for the provisions of paragraph 6 of SCHEDULE 2.2(j), PROVIDED THAT for purposes of calculating the collection fee, such cash remitted shall be deemed to be net of any collection agency discounts, fees and charges. Five (5) days prior to each Scheduled Closing, Buyer and Seller shall in good faith agree to an estimate of Excess Interim Payments for each Facility included in such Scheduled Closing. Absent - 31 - manifest error, such estimates shall be binding on Buyer and Seller. Fifteen percent (15%) of the total of such estimates for all Facilities included in each Scheduled Closing (the "Credit Amount") shall be credited against amounts due from Seller to Buyer as provided in Section 2.9(f)(ii). (ii) On the tenth day of the first month that begins at least sixty (60) days after a Scheduled Closing, on the tenth day of every other month thereafter until the Working Capital Adjustment Date, and on the tenth day following the Working Capital Adjustment Date, Buyer shall submit a report to Seller as of the nearest month-end specifying in reasonable detail its calculation of the Collection Fee Base for the period covered by such report. Within five (5) business days following receipt of each such report, Seller shall pay to Buyer, by wire transfer of immediately available funds, the collection fee due with respect to the Collection Fee Base covered by such report less the amount of any Credit Amount not previously used to offset amounts due under this provision. Any Receivable for which a collection fee is so paid shall, to the extent of such Receivable on which such a fee is paid, no longer qualify as an Eligible Receivable. Section 2.10 EMPLOYEE MATTERS. (a) PENSION PLANS. SCHEDULE 2.10(a) lists all "employee pension benefit plans" ("PENSION PLANS") within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") in which Retained Employees (as defined in SUBSECTION(b) below) directly employed to work at the Facilities participate. Seller shall, or shall cause the Subsidiaries to, (i) terminate as of the relevant Closing Date the active participation of all such employees in the Pension Plans who constitute Hired Employees, (ii) cause the Pension Plans to make timely appropriate distributions following the relevant Closing Date, to the extent required, to such employees in accordance with, and to the extent permitted by, the terms and conditions of such Pension Plans, and (iii) in connection with the termination of the active participation of all such employees in such Pension Plans, comply, and cause each Pension Plan to comply, with all applicable Laws. Prior to the relevant Closing Date, Seller shall have delivered to Buyer, for information purposes only, forms of any letters or other written communications which Seller or the Subsidiaries shall distribute generally to such - 32 - employees notifying them of their rights in respect of their cessation of active participation in the Pension Plans. There are no "multiemployer plans" within the meaning of Section 3(37) of ERISA ("MULTIEMPLOYER PLANS") in which Retained Employees directly employed to work at the Facilities participate. (b) RETAINED EMPLOYEES. (i) Buyer shall have the right to offer to hire at each Scheduled Closing each of the direct employees of Seller or an Affiliate of Seller, who is not a Facility's chief executive or chief financial officer and who, as of such Scheduled Closing, works at the Facilities (including any such direct employees who are on medical disability or leaves of absence and who worked at the Facilities immediately prior to such disability or leave) included in the Subject Transferred Assets, and shall additionally have the right to offer to hire at the First Closing up to five (5) employees of Seller selected by Buyer who are primarily employed at Seller's Fairfax, Virginia regional office in connection with Seller's PHIS System described in SECTION 2.17 (whether direct or indirect employees with respect to the PHIS System, the "PHIS EMPLOYEES"), PROVIDED that Buyer may not offer to hire those employees covered by this clause (i), if any, who are designated by Seller at least five (5) days prior to the relevant Scheduled Closing and PROVIDED FURTHER that Buyer shall extend offers of employment to a sufficient number of employees at each Facility so as to avoid any liability on the part of Seller and the Subsidiaries under the WARN Act (as defined in SECTION 2.10(e)) with respect to the Transactions contemplated hereby. Seller will advise Buyer of the number of employees terminated at each Facility during the ninety (90) day period preceding the relevant Scheduled Closing. (ii) Buyer shall additionally have the right to offer to hire at each Scheduled Closing such other employees of Seller and its Affiliates who are mutually agreed upon by Buyer and Seller and who are either (A) indirect employees with respect to the operation of the Facilities included in the Subject Transferred Assets, or (B) a chief executive or chief financial officer of a Facility included in the Subject Transferred Assets, PROVIDED that in the event that Buyer wishes to hire a chief executive or chief financial officer and Seller does not agree to such hiring, Seller - 33 - shall not employ such chief executive or chief financial officer in such capacity at a healthcare facility operated or managed by Seller or its subsidiaries for a period of at least one (1) year following such Scheduled Closing. (iii) All such direct and indirect employees to whom Buyer has the right to make offers of employment pursuant to clauses (i) or (ii) above are herein referred to as "RETAINED EMPLOYEES." (iv) Any such offer of employment to a Retained Employee by Buyer shall be to perform comparable services, in such position and for such compensation as is comparable to the position such Retained Employee held with, and the compensation paid to such Retained Employee by, Seller or any of its subsidiaries as of the Scheduled Closing. Seller or its Affiliates shall have the right (but not the obligation) to employ or offer to employ any Retained Employee (including, but not limited to, the chief executive officer and the chief financial officer of each Facility without regard to the provisions of SECTION 2.10(b)(ii)(B)) who declines Buyer's offer of employment. (c) HIRING OF RETAINED EMPLOYEES. Buyer shall hire at each Scheduled Closing each Retained Employee who elects to accept employment with Buyer (the "HIRED EMPLOYEES") and shall continue to employ each such Hired Employee for a period of no less than ninety (90) days following the relevant Closing Date, unless the employment of such Hired Employee is terminated for cause or as a result of the Hired Employee's resignation. Subject to the proviso to SECTION 2.3(c), Buyer agrees to give the Hired Employees full credit for the Paid Time Off earned or accrued by them during, and to which they are entitled as a result of, their employment by Seller and/or its subsidiaries, by allowing such Hired Employees such Paid Time Off as to which such Hired Employees would have been entitled as of the relevant Closing Date under the policies of Seller and/or its subsidiaries if such Hired Employees had remained employees of Sellers and/or its subsidiaries and, upon termination of employment, by making full payment to such Hired Employees of the Paid Time Off that such employees would have received had they taken such Paid Time Off. - 34 - (d) HEALTH BENEFITS. Buyer shall provide the Hired Employees a program of health care benefits which is comparable in the aggregate to the program of health care benefits currently provided by Seller or its pertinent Subsidiaries, as the case may be, PROVIDED, HOWEVER, that such health care benefits shall be immediately available to the Hired Employees as of the relevant Closing Date, and the Hired Employees shall become as of the relevant Closing Date participants thereunder, without regard to any applicable waiting period or any limitation with respect to preexisting conditions except insofar as such waiting period or limitation gives full credit to such Hired Employees for the period of time during which he or she was employed by Seller and its Affiliates and, PROVIDED, FURTHER, that Buyer may make modifications or changes in such health care benefits at any time following a Scheduled Closing. Buyer acknowledges and agrees that, with respect to the Hired Employees, Buyer is a successor employer for purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), that the Hired Employees will not, as a result, be deemed to have had a termination of employment for purposes of COBRA and that any COBRA notices or coverages required to be given or made available to any Hired Employee shall be given or made by Buyer and not Seller or the Subsidiaries, PROVIDED that Buyer does not assume, and shall not be deemed to have assumed, any COBRA obligations which Seller or any Subsidiary may have to former employees of Seller or such Subsidiary whose employment was terminated on or prior to the relevant Closing Date, or to any Retained Employees who do not accept employment with Buyer, and PROVIDED further that Seller shall be responsible for any COBRA coverages required to be made available to any Hired Employee who is entitled to COBRA coverage under existing plans of Seller or any Subsidiary as a result of the Transactions. (e) ACKNOWLEDGEMENT OF RESPONSIBILITY. Buyer acknowledges and agrees that as of the date and time a Scheduled Closing is effective, Buyer shall be considered for purposes of the Worker Adjustment and Retraining Notification Act (the "WARN ACT") the employer of the Retained Employees related to the Transferred Assets transferred at such Scheduled Closing and that Buyer (and not Seller or the Subsidiaries) shall thereupon be responsible for complying with the WARN Act with respect to such Retained Employees and that prior to such time none of such Retained Employees shall be, nor shall they be deemed to be, terminated. Buyer shall indemnify and hold Seller and its Affiliates harmless, in accordance with SECTIONS 11.4, 11.5 and 11.6, from and against all Losses (i) resulting from any compliance obligation (including, without limitation, the - 35 - obligation to give notice or pay money) that Seller and its Affiliates or Buyer has under the WARN Act arising from the termination of any Retained Employee or (ii) resulting from any claims of the Hired Employees (including, without limitation, claims for health care coverage or benefits); PROVIDED, HOWEVER, Buyer shall neither be responsible for, nor indemnify Seller and its Affiliates for the consequences of any WARN event which may be caused by the actions of Seller or its Affiliates with respect to employees whom Seller and its Affiliates retain pursuant to rights set forth in SECTION 2.10(b) above. Notwithstanding the foregoing, nothing in this SECTION 2.10 shall, or shall be deemed to, create any rights in favor of any person not a party hereto or to constitute an employment agreement or condition of employment for any employee of Seller or any Affiliate of Seller or any Retained Employee. Section 2.11 USE OF NAMES. (a) Although trade names of Seller and the Subsidiaries, other than the Transferred Business Names, are Excluded Assets, such names appear on certain of the fixed Transferred Assets, such as certain fixtures and Equipment, and on supplies, materials, stationery and similar consumable items which will be on hand at the Facilities at a Scheduled Closing with respect to such Facilities. Notwithstanding that such names are Excluded Assets, Buyer shall be entitled to use such consumable items for a period of three (3) months following the Scheduled Closing in which such items are transferred and shall have up to six (6) months following such Scheduled Closing to remove such names from fixed Transferred Assets, PROVIDED that Buyer shall not send correspondence or other materials to third parties on any stationery that contains a trade name (other than a Transferred Business Name) of Seller or any Affiliate of Seller. (b) Seller hereby grants to Buyer, for the period from the relevant Closing Date through the expiration of the ninetieth day thereafter, the non- exclusive right and license to use, solely in connection with the operation of the Facilities transferred on such Closing Date, the clinical policy and procedures manuals of Seller and/or the Subsidiaries (the "MANUALS") presently used at such Facilities. Such license shall be on the following terms and conditions: - 36 - (i) Buyer shall accept the Manuals in their present condition, "AS IS" and "WITH ALL FAULTS" and without any representation or warranty of any kind whatsoever, either express or implied, by Seller, including, but not limited to, any representation or warranty that the Manuals are adequate for Buyer's operation of the relevant Facilities after the relevant Scheduled Closing or are in compliance with any Laws; (ii) Buyer agrees that Seller shall have no obligation whatsoever to update or otherwise revise the Manuals, even if Seller or its Affiliates are revising similar manuals at other healthcare facilities, and that Buyer shall have sole responsibility for updating and revising such manuals; (iii) Buyer acknowledges and agrees that the Manuals are confidential and proprietary information of Seller and its Affiliates and Buyer agrees that it will not, directly or indirectly, reproduce, distribute or disclose the contents of the Manuals except as may be required in the operation of such Facilities (including, but not limited to, as may be required by any Laws) and shall exercise due care to otherwise preserve and protect the proprietary nature thereof, PROVIDED that Seller and the Subsidiaries acknowledge that the Manuals used by Buyer and the Buyer Subsidiaries more likely than not contain information that is substantially similar to information contained in the Manuals; (iv) Upon the termination of Buyer's use of the Manuals pursuant to this Section, Buyer shall return to Seller all originals and copies of the Manuals; and (v) Buyer shall implement its own policy and procedure manuals promptly following the relevant Closing Date, and in any event by the date on which the license hereby granted to Buyer terminates. (c) Notwithstanding the assignment to Buyer of the Transferred Business Names, Seller and its Affiliates and their assignees shall have the nonexclusive right to use such Transferred Business Names, consistent with past practices, in connection with the operation of previously and currently operated healthcare facilities of Seller and its Affiliates not included in the Transferred Assets, and Buyer, on behalf of - 37 - itself and each Buyer Subsidiary, hereby grants Seller and its Affiliates and their assignees a fully paid-up, perpetual right and license to use such Transferred Business Names in such manner in connection with the operation of such facilities, such license to be effective as of the relevant Scheduled Closing in which such Transferred Business Names are assigned to Buyer and the Buyer Subsidiaries. Section 2.12 NO ASSIGNMENT IF BREACH; SELLER'S DISCHARGE OF ASSUMED LIABILITIES. (a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any Transferred Asset, or assume any Assumed Liability, if the attempted assignment or assumption of the same, as a result of the absence of the consent or authorization of a third party or failure of a right of first refusal notice period to expire, would constitute a breach or default under any lease, agreement, encumbrance or commitment, would violate any Law or would in any way adversely affect the rights, or increase the obligations, of Buyer, Seller or any Subsidiary with respect thereto; PROVIDED that the assignment of any contract, including without limitation Medicare, Medicaid and similar provider agreements, which may lawfully be made subject to customary conditions subsequent (such as needs surveys, evaluations of Buyer or other determinations by the counterparties to such agreements) shall be deemed not to constitute a default under, or to in any way adversely affect the rights or increase the obligations of Buyer with respect to, such lease, agreement, encumbrance or commitment, whether or not such condition or conditions subsequent are met on or prior to the relevant Scheduled Closing. Except as provided in SECTION 2.12(c), if any such consent or authorization is not obtained, or if an attempted assignment or assumption would be ineffective or would adversely affect the rights or increase the obligations of Seller, a Subsidiary or Buyer, with respect to any such lease, agreement, encumbrance or commitment, so that Buyer would not, in fact, receive all such rights, or assume the obligations, of Seller or Subsidiary with respect thereto as they exist prior to such attempted assignment or assumption, then Seller and Buyer shall, and Seller shall cause each Subsidiary to, enter into such reasonable cooperative arrangements as may be reasonably acceptable to both Buyer and Seller (including without limitation, sublease, agency, management, indemnity or payment arrangements and enforcement at the cost and for the benefit of Buyer of any and all rights of Seller and the Subsidiaries -38- against an involved third party) to provide for or impose upon Buyer the benefits of such Transferred Asset or the obligations of such Assumed Liability, as the case may be, and any transfer or assignment to Buyer by Seller or a Subsidiary of any such Transferred Asset, or any assumption by Buyer of any such Assumed Liability, which shall require such consent or authorization of a third party that is not obtained shall be made subject to such consent or authorization being obtained. Except as provided in SECTION 2.12(c), if the parties cannot agree on any such arrangement, or any such arrangement would not be reasonably practicable, to provide Buyer with materially all the benefits of such Transferred Asset or materially all the obligations of such Assumed Liability, then such Transferred Asset or Assumed Liability, as the case may be, shall be excluded from the Transactions and shall be deemed to be an Excluded Asset or an Excluded Liability, as the case may be, and Buyer and Seller shall negotiate in good faith an equitable adjustment in the Purchase Price, or resolve any disagreement respecting such adjustment, in accordance with the procedures of SECTION 2.14. (b) Notwithstanding any other provision of this Agreement, during the period between the date hereof and the relevant Scheduled Closing, Seller may, for the purpose of facilitating consummation of the Transactions and with the consent of Buyer (which will not be unreasonably withheld), cause any Subsidiary to acquire a fixed asset, or any direct or indirect interest therein, that results in the simultaneous discharge of all or any part of a liability that exists as of the date hereof which, but for such acquisition, would be an Assumed Liability; PROVIDED that in each such case it gives prompt notice of such acquisition to Buyer. In the event of any such acquisition, Buyer and Seller shall negotiate in good faith an equitable adjustment to the Purchase Price, or resolve any disagreement respecting such adjustment, in accordance with the procedures of SECTION 2.14. (c) The provisions of SCHEDULE 2.12(a) notwithstanding, neither Buyer nor Seller shall be obligated to close with respect to a given Facility if any private third party consent or authorization in respect of Transferred Assets and Assumed Liabilities related to such Facility that is enumerated in SECTION 2.12(c) (the "SCHEDULE OF REQUIRED CONSENTS") is not obtained, unless both Buyer and Seller waive in writing their respective conditions precedent that such consent or authorization be obtained prior to the transfer of such Facility. With respect to all other private third party consents or authorizations with respect to such Facility -39- that have not been obtained by the relevant Scheduled Closing, if the parties have not entered into a cooperative arrangement in respect of the Transferred Asset or Assumed Liability to which such consent or authorization relates, then, subject to the provisions of SECTION 2.18 regarding Buyer's right to reject certain contracts within sixty (60) days following the Scheduled Closing at which such contracts are assigned or purported to be assigned, (i) Buyer hereby agrees to accept the assignment of any such pertinent Transferred Asset, and to assume any such pertinent Assumed Liability, as the case may be, whether or not such assignment or assumption is made subject to such consent or authorization being obtained after the relevant Scheduled Closing, and (ii) the parties agree to continue to cooperate with one another, pursuant to the provisions of SECTIONS 5.2 and 5.3, to obtain any such requisite consent. Section 2.13 CLOSINGS. All of Seller's and the Subsidiaries' right, title and interest in a Facility and all other Transferred Assets and Assumed Liabilities which relate to, or constitute a part of, a Facility shall be transferred to Buyer or the applicable Buyer Subsidiaries at a "SCHEDULED CLOSING" (as defined below). Subject to the terms and conditions hereof, the Transferred Assets shall be transferred to Buyer at one of three Scheduled Closings: The "FIRST CLOSING" (as defined below), the "SECOND CLOSING" (as defined below) or the "FINAL CLOSING" (as defined below). The First Closing, Second Closing and Final Closing, collectively, are the "Scheduled Closings" and each is a "Scheduled Closing." A date on which a Scheduled Closing actually occurs is a "CLOSING DATE," and the Closing Date of the Final Closing is the "FINAL CLOSING DATE." A Scheduled Closing shall be effective for all purposes as to each Facility which is the subject of such Scheduled Closing (and the Transferred Assets and Assumed Liabilities related thereto or constituting a part thereof) (collectively, the "SUBJECT TRANSFERRED ASSETS") at 11:59 p.m. on the relevant Closing Date, as determined by reference to the local time zone in which the Facility is located. Notwithstanding the foregoing, either the First or Second Closing may also be a Final Closing and if the First Closing is the Final Closing, there shall be no Second Closing. Scheduled Closings shall occur in accordance with the following provisions: (a) THE FIRST CLOSING. Provided that no Scheduled Closing shall occur after the Termination Date set forth in SECTION 10.1(b), the "FIRST CLOSING" shall occur at a mutually agreeable time and place or places within five (5) business days (unless another date is mutually -40- agreed upon by Buyer and Seller) after the first date on which all of the conditions are set forth in ARTICLE 8 and ARTICLE 9 hereof are capable of being satisfied or are waived (i) as to Facility Nos. 29, 48 and 55 (the "REQUIRED FIRST FACILITIES"), and (ii) as to the Transferred Assets and Assumed Liabilities in respect of First Facilities that account in the aggregate for at least Twenty-Seven Million Dollars ($27,000,000) of the EBITDA (as defined in SECTION 3.17(a)) assigned to Facilities for this purpose as shown on SCHEDULE 2.13B hereto, and all Facilities, Transferred Assets and Assumed Liabilities sold, assigned, conveyed, transferred, delivered and assumed at the First Closing shall be the Subject Transferred Assets with respect to the First Closing; PROVIDED THAT: (A) If the conditions set forth in ARTICLES 8 and 9 with respect to any of the Required First Facilities have not been met by the First Closing, then at the option of Buyer, the condition set forth in clause (a)(i) above may be waived to permit the First Closing to occur, in which case any of the Required First Facilities not included in the First Closing will, to the extent the conditions set forth in ARTICLES 8 and 9 with respect thereto are otherwise satisfied, be Subject Transferred Assets at the Second Closing or the Final Closing; (B) At the option of Buyer, exercisable by written notice to Seller at least five (5) business days prior to the First Closing, Buyer may elect to defer until the Second Closing or the Final Closing (but in no event later than the Termination Date) consummation of the Transactions respecting one or more of the Facilities denominated on SCHEDULE A-2 as Facility Nos. 35, 36 and 53; and (C) In the event that Buyer elects to exercise either or both of the options set forth in paragraphs (A) or (B) above, then the amounts set forth in clause (a)(ii) above shall be reduced by the EBITDA set forth on SCHEDULE 2.13(B) for the Facilities that the Buyer excludes from the Subject Transferred Assets pursuant to such options. Upon consummation at the First Closing of Transactions in compliance with the foregoing provisions, any remaining Transactions in respect of Facilities that were not consummated at such Closing may be consummated at a subsequent Closing subject to the provisions of ARTICLE 8 and -41- ARTICLE 9 and to the provisions of this SECTION 2.13 with respect to such Closings. (b) THE SECOND CLOSING. Provided that the First Closing has occurred and that no Scheduled Closing shall occur after the Termination Date, the "SECOND CLOSING" shall occur at a mutually agreeable time and place or places, on the date which is within five (5) business days (unless another date is mutually agreed upon by Buyer and Seller) after the first date on which all of the conditions set forth in ARTICLE 8 and ARTICLE 9 hereof are capable of being satisfied or are waived as to any additional First Facilities and the Transferred Assets and Assumed Liabilities related thereto or constituting a part thereof that are not the subject of the First Closing, and the First Facilities and the Transferred Assets and Assumed Liabilities shall be the Subject Transferred Assets with respect to the Second Closing, PROVIDED that the Second Closing shall be held, in any event, within thirty (30) days of the First Closing with respect to any First Facilities for which the conditions to Closing, including those set forth in this Section 2.13, have been met or waived as of such date. (c) THE FINAL CLOSING. Provided that a First Closing has occurred, the "FINAL CLOSING" shall occur with respect to First Facilities that are not the subject of the First or Second Closings at a mutually agreeable place or places and at a mutually agreeable time as follows: (i) If all of the conditions set forth in ARTICLES 8 and 9 hereof and in this SECTION 2.13 are capable of being satisfied or are waived on or prior to the Termination Date as to all First Facilities that are not included in the First Closing or the Second Closing, then the Final Closing shall occur (A) within five (5) business days (unless another date is mutually agreed upon by Buyer and Seller) after the first date upon which such conditions may be satisfied or are waived, but in no event later than the Termination Date or (B) if the only Facilities subject to the Final Closing are one or more of Facilities Nos. 35, 36 and 53, on such date as the parties shall mutually agree, but no later than the Termination Date. (ii) If all of the conditions set forth in ARTICLES 8 and 9 hereof and in this SECTION 2.13 are capable of being satisfied or are waived on or prior to the Termination Date as to some, but not all, of the Facilities that are not included in the First Closing or the -42- Second Closing, then the Final Closing shall occur within five (5) business days after the identity of the Facilities as to which such conditions will not be satisfied has become reasonably manifest or has been mutually agreed upon by the parties, but in no event shall such Final Closing occur later than the Termination Date. (d) DELIVERIES BY SELLER. At each Scheduled Closing Seller shall deliver, or cause the Subsidiaries to deliver, to Buyer: (i) A Bill or Bills of Sale and Assignment in substantially the form of EXHIBIT A executed by each Subsidiary with respect to the Subject Transferred Assets of the Subsidiary covered thereby; (ii) Grant deeds (or equivalent special or limited warranty deeds for Owned Real Properties outside California), properly executed and acknowledged by each Subsidiary with respect to the Owned Real Properties of the Subsidiary included in the Subject Transferred Assets; (iii) Separate assignments and assumptions in substantially the form of EXHIBIT B executed by each Subsidiary with respect to each Real Property Lease of the Subsidiary included in the Subject Transferred Assets that is designated by either Buyer or Seller; (iv) Instruments of transfer, sufficient to transfer personal property interests of each Subsidiary that are included in the Subject Transferred Assets but not otherwise transferred by the Bills of Sale and Assignment referred to in CLAUSE (i) above, executed by each Subsidiary in the form customarily used in commercial transactions in the areas in which such other personal property of such Subsidiary is located; (v) Such other instruments of transfer, executed by each of the pertinent Subsidiaries necessary to transfer to and vest in Buyer all of Seller's and the Subsidiaries' rights, title and interest in and to the Subject Transferred Assets or which may be required by the Title Insurer (as defined in SECTION 8.7), including owner's and lessee's affidavits, if any; and -43- (vi) Possession of the Subject Transferred Assets. All such documents of transfer shall be in a form and substance reasonably satisfactory to Buyer. (e) DELIVERIES BY BUYER. At each Scheduled Closing, Buyer shall deliver to Seller: (i) Immediately available funds, by way of wire transfer to an account or accounts designated by Seller, in an amount equal to the amounts then due pursuant to SECTIONS 2.5 and 2.6.(a) (including, with respect to the First Closing, the amount due for the covenant not to compete as specified by the last sentence of SECTION 2.5), as adjusted by the expenses due at such Scheduled Closing pursuant to SECTION 5.5; (ii) Separate assignments and assumptions in substantially the form of EXHIBIT C executed by Buyer and the applicable Buyer Subsidiaries with respect to each Real Property Lease included in the Subject Transferred Assets that is designated by either Buyer or Seller; and (iii) An Assumption Agreement or Assumption Agreements with respect to the Assumed Liabilities assumed at such Scheduled Closing, in substantially the form of EXHIBIT C, executed by Buyer and the applicable Buyer Subsidiaries in favor of Seller and each of the applicable Subsidiaries. All such documents of transfer shall be in a form and substance reasonably satisfactory to Seller. (f) ESCROW. If either of the parties desires to consummate a Scheduled Closing through an escrow, an escrow shall be opened with, and the escrow agent shall be, Chicago Title Company (the "ESCROW AGENT"), by depositing a fully executed copy of this Agreement with Escrow Agent to serve as escrow instructions. This Agreement shall be considered the primary escrow instructions between the parties, but the parties shall execute such additional escrow instructions as Escrow Agent shall require and the parties may agree upon in order to clarify the duties and responsibilities of Escrow Agent. In the event of any conflict between this Agreement and such additional escrow instructions, this Agreement -44- shall prevail. If a Scheduled Closing is to be consummated through the Escrow Agent, then on or prior to the Closing Date, Buyer shall cause the funds required by SUBSECTION (e)(i) above to be wired to Escrow Agent, and the parties shall deliver the instruments of sale, assignment, conveyance and assumption called for by SUBSECTIONS (d) and (e) above to be delivered to the Escrow Agent, and on the Closing Date, the ESCROW AGENT shall close the escrow with respect to such Scheduled Closing by: (i) Causing the deeds for the Owned Real Properties, the assignments of the Real Property Leases, and any other documents which the parties may mutually designate to be recorded in the official records of the appropriate counties in which the pertinent Subject Transferred Assets are located; (ii) Delivering to Seller by wire transfer of immediately available funds, to an account or accounts designated by Seller, the amounts called for by SUBSECTION (e)(i) above; and (iii) Delivering to Buyer or Seller, as the case may be, the other instruments referred to in SUBSECTIONS (d) and (e) above. (g) ABILITY TO CLOSE WITHOUT REGARD TO SUBSEQUENT FACILITIES. Without limiting the generality of the foregoing, the parties hereby expressly acknowledge that the Transactions related to the First Facilities may be consummated if the conditions thereto are satisfied or waived, irrespective of whether transactions in respect of the Subsequent Facilities that are contemplated by the Subsequent Facilities Agreement are previously, concurrently or subsequently consummated. Section 2.14 PURCHASE PRICE ADJUSTMENT. If circumstances exist that require the parties to negotiate in good faith equitable adjustments in the Purchase Price pursuant to the provisions of SECTION 2.12 (respecting absence of consents), SECTIONS 8.5 and 9.5 (dealing with certain prohibitions and restraints), SECTION 6.2(c) (respecting Seller's obligations with respect to environmental conditions), SECTION 8.7 (respecting the condition of title to interests in real property) or SECTION 8.10 (respecting casualty losses or condemnation) (SECTIONS 2.12, 6.2(c), 8.5, 8.7, 8.10, 9.5 and this SECTION 2.14 being collectively referred to as the "ADJUSTMENT SECTIONS"), then and in any of such events, such negotiations, and the resolution of disagreements arising therefrom, shall be conducted in accordance with the -45 provisions of this SECTION 2.14. The parties shall negotiate such equitable adjustments in the Purchase Price in good faith prior to any relevant Closing Date (as may be extended by mutual agreement of the parties), PROVIDED, that any adjustment in the Purchase Price shall be consistent with the Allocation Schedule. If the parties are unable to agree by the day prior to such relevant Closing Date, then such relevant Closing Date (the "ORIGINAL CLOSING DATE") (and the Termination Date, if necessary) shall be extended for up to fifteen (15) business days to provide for the opportunity to resolve such disagreement pursuant to the provisions of this SECTION 2.14. On the day a Scheduled Closing would have occurred but for the absence of agreement between the parties, each party shall designate an individual (who may not be a present or former officer, director, partner or employee of the party or of any present or former investment banker, accounting firm, law firm or attorney of or for the party) to mediate such disagreement, and advise the other party in writing of the identity of such individual, which advice shall be accompanied by a list of up to ten (10) suggested neutral individuals to serve as a third mediator. The mediators originally designated by each party shall promptly confer about the selection of a third mediator from such lists, and within five (5) business days following the Original Closing Date (or Termination Date, as the case may be), the originally designated mediators shall agree upon and (subject to availability) select the third mediator from the lists submitted by the parties or otherwise, PROVIDED that if the originally designated mediators cannot agree upon a third mediator by such date, the third mediator shall be a retired judge designated by Judicial and Arbitration Mediation Services, Inc., located in Los Angeles, California. The three mediators so selected are herein referred to as the "PANEL". Within two (2) business days following the designation of the third mediator, each party shall submit to the Panel in writing, its proposed equitable adjustments in the Purchase Price. Such proposals shall be materially in accordance with the last proposals made by such party to the other party during the course of the aforementioned good faith negotiations between the parties. The parties shall additionally submit such memoranda, arguments, briefs and evidence in support of their respective positions, and in accordance with such procedures, as a majority of the Panel may determine. Within seven (7) business days following the designation of the third mediator, as to each adjustment of the Purchase Price about which there is disagreement, the Panel shall, by majority vote, select the proposed adjustment of the Purchase Price proposed by one of the parties, it being agreed that the Panel shall have no authority to alter any such proposal in any way. Thereafter, the parties shall, subject to the terms and conditions of this -46- Agreement, consummate the Transactions on the basis of such adjustments at a mutually agreeable time and place or places, in accordance with and subject to the provisions of SECTION 2.13, which shall be no later than the fifteenth (15th) business day following the Original Closing Date or such later date as the parties may agree upon. Subject to the foregoing, the Panel may determine the issues in dispute following such procedures, consistent with the language of this Agreement, as it deems appropriate to the circumstances and with reference to the amounts in issue, but in any event consistent with the Allocation Schedule to the extent applicable. No particular procedures are intended to be imposed upon the Panel, it being the desire of the parties that any such disagreement shall be resolved as expeditiously and inexpensively as reasonably practicable. No member of the Panel shall have any liability to the parties in connection with service on the Panel, and the parties shall provide such indemnities to the members of the Panel as they shall request. Section 2.15 TRANSFER OF ASSETS IN CORPORATE FORM. If Buyer consents in writing in its sole and absolute discretion, Seller may, prior to any Scheduled Closing, cause any Transferred Asset or Assumed Liability to be assigned and transferred by way of an assignment to Buyer of the stock of a subsidiary of Seller (including the stock of any Subsidiary), in which case all right, title and interest of Seller and any of its Affiliates in such subsidiary (which shall constitute all of the outstanding capital stock and rights to acquire capital stock in such subsidiary) shall be transferred to Buyer at the Scheduled Closing as a Subject Transferred Asset. Any such agreement of the parties shall become an amendment to this Agreement. Section 2.16 ASSIGNMENT OF RIGHTS AND OBLIGATIONS TO BUYER SUBSIDIARIES. Notwithstanding any contrary provisions contained herein, the parties hereto agree that, prior to a Scheduled Closing, Buyer, in its sole discretion, may assign any or all of its rights and obligations with respect to the Subject Transferred Assets and the Assumed Liabilities to be transferred at such Scheduled Closing to one or more Buyer Subsidiaries, PROVIDED that no such assignment shall relieve Buyer of any obligation or liability to Seller hereunder, and PROVIDED further that the following shall apply: (a) Buyer will provide Seller with prompt written notice of any such assignment. -47- (b) No such assignment shall be effected if the making of the assignment will result in Seller's inability to obtain any consent or authorization reasonably required to consummate the Transactions or to avoid economic detriment to the Seller arising from the consummation of the Transactions. (c) Each such Buyer Subsidiary that is an assignee of Buyer shall irrevocably appoint Buyer as its sole and exclusive representative and agent authorized to act for and to receive notices and payments on behalf of the Buyer Subsidiaries in all matters arising from or related to this Agreement and the Transactions. (d) As a condition to Seller's agreement to such assignments, Buyer hereby agrees that Buyer will at all times be the ultimate parent entity of the consolidated group of companies of which Buyer is a group member or that, in the event of any reorganization involving Buyer and its subsidiaries, the ultimate parent entity of the consolidated group of companies emerging from such reorganization that includes Buyer and its successors and assigns shall, prior to any such reorganization, execute such documents as are reasonably necessary to confirm the assumption by such ultimate parent entity of Buyer's obligations to Seller hereunder. (e) Buyer shall remain jointly and severally liable to Seller and the Subsidiaries and to third parties with respect to any Assumed Liabilities transferred to a Buyer Subsidiary, and, without limiting the generality of the foregoing, hereby absolutely and unconditionally guarantees the full, prompt and faithful performance by each Buyer Subsidiary of all covenants and obligations to be performed by such Buyer Subsidiary under this Agreement and any Related Agreement (as defined in SECTION 3.4) which are assigned to such Buyer Subsidiary, including but not limited to, the payment of all sums stipulated to be paid by such Buyer Subsidiary pursuant to such assignment, it being understood that each such covenant and obligation constitutes the direct and primary obligation of Buyer and that a separate action or actions may be brought and prosecuted against Buyer whether action is brought against the pertinent Buyer Subsidiary or whether such Buyer Subsidiary is joined in any such action or actions (Buyer hereby waiving any right to require Seller or a Subsidiary to proceed against a Buyer Subsidiary). Buyer hereby authorizes Seller, without notice and without affecting Buyer's liability hereunder, from time to time to (x) renew, compromise, extend, accelerate, or otherwise change the terms of any obligation of a Buyer -48- Subsidiary hereunder with the agreement of such Buyer Subsidiary, (y) take and hold security for the obligations guaranteed, and exchange, enforce, waive and release any such security, and (z) apply such security and direct the order or manner of sale thereof as Seller in its discretion may determine. Buyer hereby further waives: (i) Any defense that may arise by reason of the incapacity or lack of authority of any Buyer Subsidiary; (ii) Any defense based upon a statute or rule of law which provides that the obligations of a surety must be neither larger in amount nor in other respects more burdensome than those of the principal; and (iii) Any duty on the part of Seller or a Subsidiary to disclose to Buyer any facts that Seller or a Subsidiary may now or hereafter know about a Buyer Subsidiary. Section 2.17 DATA PROCESSING SERVICES. In order to facilitate the transition of the Facilities from Seller's to Buyer's ownership, from and after the First Closing until the expiration of eight (8) months after the later of the Final Closing or the last closing to occur under the Subsequent Facilities Agreement (the "TRANSITION PERIOD"): (a) Seller will provide Buyer, at no charge, with data processing services from Seller's Psychiatric Hospital Information System (the "PHIS SYSTEM") that support the collection of Receivables acquired by Buyer hereunder and of "Receivables," as defined in the Subsequent Facilities Agreement, acquired by Buyer, if any, pursuant to the Subsequent Facilities Agreement. (b) Seller shall, at no charge to Buyer, provide the PHIS Employees with reasonable access to the PHIS System on-site at Seller's Fairfax, Virginia offices from which the PHIS System is operated, and Buyer hereby agrees that such PHIS Employees will be made reasonably available to Seller, at no charge to Seller, to provide assistance to Seller in connection with Seller's operation of the PHIS System. Seller may require, as a condition of such access, that such PHIS Employees comply with such security and safety measures as Seller may reasonably impose. -49- (c) Seller will provide Buyer, at no charge, with reasonable access to Seller's data processing training center in Fairfax, Virginia for the purpose of training employees with respect to data services utilized by the First Facilities and the Subsequent Facilities (to the extent any are acquired pursuant to the Subsequent Facilities Agreement). (d) Seller agrees to cause to be made available to the First Facilities and the Subsequent Facilities (to the extent any are acquired pursuant to the Subsequent Facilities Agreement) the customary support services that have been provided to the Facilities by up to three (3) employees at the so-called "Help Desk" of Seller located in Fairfax, Virginia, which provides telephone assistance to First and Subsequent Facilities in connection with management information services and facility accounting. At the First Closing, Buyer will be entitled to purchase from Seller certain excess computer equipment associated with the PHIS System (together with certain agreements related to such equipment) for One Dollar ($1.00). In addition, within thirty (30) days following Seller's closure of its operations at its Fairfax, Virginia offices, Seller shall notify Buyer of such event, and Buyer shall have the right to purchase certain additional equipment associated with the PHIS System (to the extent owned by Seller) (together with certain agreements related to such equipment), for the sum of One Dollar ($1.00). Such purchases, as well as Seller's provision of services pursuant to paragraphs (a) and (d) above, shall be subject to the further terms and conditions of a Data Processing Services Contract to be executed by the parties at the First Closing substantially in the form of EXHIBIT F hereto. Section 2.18 REJECTION OF CERTAIN CONTRACTS. The provisions of this SECTION 2.18 shall apply to the following categories of Assumed Contracts: (i) those subject to the provisions of SECTION 2.1(f)(iii); (ii) those subject to the provisions of the second sentence of SECTION 2.12(c); and (iii) those subject to SECTION 6.1(f) that are entered into by Seller or a Subsidiary after the date hereof in violation of SECTION 6.1(f). With respect to each such contract (a "CONTINGENT CONTRACT"): (a) Buyer or the pertinent Buyer Subsidiary shall have the right to reject such Contingent Contract by giving a written notice of such rejection to Seller within sixty (60) days following the relevant Scheduled Closing, such written notice to be accompanied by originals of the contract -50- then in Buyer's or the Buyer Subsidiary's possession, copies of any written communications between Buyer or the Buyer Subsidiary and the counterparty to such contract relating to the subject matter thereof, and instruments evidencing the reassignment of such contract to Seller or the pertinent Subsidiary in form reasonably satisfactory to Buyer and Seller, in which case such contract shall be treated as an Excluded Asset, and the liabilities related thereto shall be treated as an Excluded Liability, for all purposes of this Agreement, subject to the further provisions of this SECTION 2.18. (b) In the event that Seller or the pertinent Subsidiary incurs any costs in connection with the termination of any such Contingent Contract so rejected by Buyer (including payments during any applicable notice period required to terminate such contract) and Buyer or the pertinent Buyer Subsidiary continues to do business with the counterparty to such contract related to the subject matter thereof during any period for which Seller or the applicable Subsidiary is obligated to make payments to such counterparty, then Buyer will reimburse Seller for one-half of the payments that Seller or the applicable Subsidiary is obligated to make to such counterparty in connection with such termination, but not in excess of one-half of the payments that Seller or the applicable Subsidiary is obligated to make to such counterparty under such contract for a period of ninety (90) days. (c) With respect to any Contingent Contract subject to clause (ii) of this SECTION 2.18 that is not also subject to either clause (i) or clause (iii) of this SECTION 2.18 and that is not rejected by Buyer pursuant to SUBSECTION (a) above, Buyer agrees to indemnify and hold harmless Seller and the Subsidiaries, in accordance with the provisions of SECTIONS 11.3 through 11.6, from and against any and all Losses arising from or related to the lack of any consent or authorization in connection with the assignment of such Contingent Contract to Buyer (or the pertinent Buyer Subsidiary) hereunder. (d) In the event Buyer rejects a Contingent Contract pursuant to SUBSECTION (a), then, notwithstanding any other provision of this Agreement, Seller shall have no liability to Buyer and the Buyer Subsidiaries for Losses under the provisions of SECTIONS 11.3 through 11.6 related to such Contingent Contract for the period prior to such rejection or for the amounts due Seller under SUBSECTION (b) above. -51- (e) With respect to any Contingent Contract subject to clause (iii) of this SECTION 2.18 that appears on an updated SCHEDULE 2.1(f) delivered pursuant to SECTION 6.3 and that is NOT rejected by Buyer pursuant to SUBSECTION (a) above, then, notwithstanding any other provision of this Agreement, Seller shall have no liability to Buyer and the Buyer Subsidiaries for Losses under the provisions of SECTIONS 11.3 through 11.6 for violation of SECTION 6.1(f) with respect to such Contingent Contract. Section 2.19 REMAINING SCHEDULES. Notwithstanding anything to the contrary herein, this Agreement shall be deemed cancelled and of no further force and effect if the parties shall have failed to agree upon the Schedules enumerated in EXHIBIT E, if any, within five (5) business days following the date hereof, the parties hereby agreeing to cooperate with one another in good faith and to work expeditiously to agree upon such Schedules within such period. Such agreement shall be evidenced by a duly executed amendment of this Agreement that deletes this SECTION 2.19. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below: Section 3.1 ORGANIZATION AND CORPORATE POWER. Seller is a corporation duly incorporated and validly existing under the laws of, and is authorized to exercise its corporate powers, rights and privileges and is in good standing in, the State of Nevada and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. Section 3.2 SUBSIDIARIES. (a) Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation (which, in the case of Subsidiaries existing on the date of this Agreement, is indicated on SCHEDULE A-1). Each Subsidiary has all requisite power and authority (corporate and otherwise) to carry on its business as -52- presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. (b) All of the outstanding capital stock of each Subsidiary has been duly authorized and is validly issued, fully paid and nonassessable and, except as indicated on SCHEDULE A-1, is owned beneficially and of record by Seller or another subsidiary of Seller as indicated on SCHEDULE A-1. Except as provided in SCHEDULE A-1, there are no (i) rights, subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire any shares of capital stock of any Subsidiary, or (ii) securities or obligations of any kind convertible into or exchangeable for any shares of capital stock of any Subsidiary, or (iii) obligations of any kind obligating Seller to sell or dispose of all or any part of Seller's ownership interest therein. The Subsidiaries listed on SCHEDULE A-1 are, on the date hereof, the only subsidiaries of Seller that have any right or interest in, or title to the Facilities. (c) The board of directors of each Subsidiary and, if required, its shareholders, have duly and effectively authorized (i) the sale of the Transferred Assets to be sold by such Subsidiary and (ii) the execution, delivery and performance of the Related Agreements (as defined in SECTION 3.4) and all other agreements contemplated hereby and thereby to which such Subsidiary is a party. No other corporate act or proceeding on the part of any Subsidiary, its board of directors or its shareholders is necessary to authorize any Related Agreement or other agreement contemplated hereby and thereby or the transactions contemplated hereby and thereby. (d) The Related Agreements and all other agreements contemplated hereby and thereby to which any Subsidiary is a party will, as of each Scheduled Closing, have been duly executed and delivered by each such Subsidiary, and each such agreement, when executed and delivered, will constitute a valid and binding obligation of such Subsidiary, enforceable against such Subsidiary in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable -53- defenses and to the discretion of the court before which any proceeding may be brought. Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and performance of this Agreement and all other agreements contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly and effectively authorized by the board of directors of Seller; no other corporate act or proceeding on the part of Seller, its board of directors or its shareholders is necessary to authorize this Agreement, any such other agreement or the transactions contemplated hereby and thereby. This Agreement has been, and each of the other agreements contemplated hereby will, as of each Scheduled Closing, have been, duly executed and delivered by Seller, and this Agreement constitutes, and each such other agreement when executed and delivered will constitute, a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 3.4 ABSENCE OF BREACH. Subject to the provisions of SECTIONS 3.5 and 3.6 below regarding private party and governmental consents, and except for compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and any regulatory or licensing Laws applicable to the businesses and assets represented by the Transferred Assets, the execution, delivery and performance by Seller of this Agreement and all other agreements contemplated hereby or executed in connection herewith (not including the Subsequent Facilities Agreement, the "RELATED AGREEMENTS"), and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements entered into by the Subsidiaries, do not, (a) conflict with or result in a breach of any of the provisions of the Articles or Certificates of Incorporation or Bylaws or similar charter documents (the "CHARTER DOCUMENTS") of Seller or of any of the Subsidiaries, (b) contravene any Law or cause the suspension or revocation of any License presently in effect, which affects or binds Seller or any of the Subsidiaries, or any of their properties, except -54- where such contravention, suspension or revocation will not have a Material Adverse Effect (as defined below) on the Transferred Assets and will not affect the validity or enforceability of this Agreement and the Related Agreements or the validity of the Transactions contemplated hereby and thereby, or (c) conflict with or result in a breach of or default (with or without notice or lapse of time or both) under any indenture or loan or credit agreement or any other agreement or instrument to which Seller or any of the Subsidiaries is a party or by which it or they or any of their properties may be affected or bound, the effect of which conflict, breach, or default, either individually or in the aggregate, would be a Material Adverse Effect on the Transferred Assets. As used herein, a "MATERIAL ADVERSE EFFECT": (x) when used with respect to the Transferred Assets, means a material adverse effect on the Transferred Assets and on the businesses operated therefrom, including their condition (financial or otherwise) and results of operations, taken as a whole; (y) when used with respect to any portion of the Transferred Assets (including, without limitation, a Facility), means a material adverse effect on such portion of the Transferred Assets and on the businesses operated therefrom, including their condition (financial or otherwise) and results of operations, taken as a whole; and (z) when used with respect to an entity, such as Seller, a Subsidiary or Buyer, means a material adverse effect on the business, condition (financial or otherwise) and results of operations of such entity taken as a whole (including any subsidiaries of such entity.) Section 3.5 PRIVATE PARTY CONSENTS. Except as set forth in SCHEDULE 3.5, the execution, delivery and performance by Seller of this Agreement and the Related Agreements, and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be performed by the Subsidiaries, do not require the authorization, consent or approval of any nongovernmental third party of such a nature that the failure to obtain the same would have a Material Adverse Effect on the Transferred Assets or a Facility. Section 3.6 GOVERNMENTAL CONSENTS. The execution, delivery and performance by Seller of this Agreement and the Related Agreements, and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be performed by the Subsidiaries, do not require the authorization, con- -55- sent, approval, certification, license or order of, or any filing with, any court or governmental agency of such a nature that the failure to obtain the same would have a Material Adverse Effect on the Transferred Assets or a Facility, except for compliance with the HSR Act and except for such governmental authorizations, consents, approvals, certifications, licenses and orders that customarily accompany the transfer of health care facilities such as the Facilities. Section 3.7 BROKERS. Except as shown on SCHEDULE 3.7, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the Transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Seller or any of its Affiliates. Seller shall be solely responsible for the payment of any such fee or commission to any person or entity listed on SCHEDULE 3.7 as an exception to the foregoing. Section 3.8 TITLE TO PROPERTY. (a) Each Subsidiary has good and defensible title, or valid and effective leasehold rights in the case of leased property, to all tangible personal property included in the Transferred Assets to be sold, conveyed, assigned, transferred and delivered to Buyer by such Subsidiary, free and clear of all liens, charges, claims, pledges, security interests, equities and encumbrances of any nature whatsoever, except for those created or allowed to be suffered by Buyer and except for the following (individually and collectively, the "PERMITTED ENCUMBRANCES"): (i) the lien of current taxes not delinquent, (ii) liens listed on SCHEDULES 3.8(a) AND 3.8(b), (iii) the Assumed Liabilities, (iv) such consents, authorizations, approvals and licenses referred to in SECTIONS 3.5 and 3.6 and (v) liens, charges, claims, pledges, security interests, equities and encumbrances which will be discharged or released either prior to, or substantially simultaneously with, the Scheduled Closing at which such property is sold, conveyed, assigned and transferred to Buyer and other possible minor matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or intended use of such property. All such tangible personal property is in good operating condition and repair, subject to ordinary wear and tear and ordinary and routine maintenance, and is reasonably adequate for the operation of the Facilities as they are presently operated. -56- (b) Except as set forth on SCHEDULE 3.8(b), and except for the Owned Real Property and the Leased Real Property, no Subsidiary owns any fee or leasehold or other interests in any real property used in and necessary for the conduct of the operations of any Facility as presently conducted. Each Subsidiary has good and marketable title to all Owned Real Property, or valid and effective leasehold rights in the case of the Leased Real Property, included in the Transferred Assets to be sold, conveyed, transferred and delivered to Buyer by such Subsidiary, free and clear of all liens except for those created or allowed to be suffered by Buyer and except for the following: (i) Permitted Encumbrances, (ii) liens (not including liens for borrowed money or the deferred purchase price of property) that do not materially impair the use of the Owned Real Property subject thereto, as such Owned Real Property is being used on the date hereof, (iii) easements and similar encumbrances disclosed by current standard ALTA Preliminary Title Reports, delivered to and approved by Buyer prior to the date hereof (except for such easements or similar encumbrances shown on SCHEDULE 8.7(b)), and (iv) zoning, set back, building and other similar restrictions including, without limitation, restrictions and requirements affecting the Owned Real Property and the Leased Real Property imposed by deeds, leases, development agreements, declarations, and redevelopment authorities, which are not being violated in any manner that would cause a Material Adverse Effect on any Facility as currently used and operated. The condition of the Owned and Leased Real Property is such that it will not materially adversely affect the operations of the Transferred Assets on or from such Owned and Leased Real Property. All of the improvements on land included in the Transferred Assets are in good condition and repair, subject to those matters disclosed in SECTION 3.16 or SCHEDULE 3.16, ordinary wear and tear and ordinary and routine maintenance, and in view of the purpose for which such improvements are being used, free of any material structural or engineering defects. Section 3.9 ASSUMED CONTRACTS. Except for such matters that, when viewed in the aggregate, do not have a Material Adverse Effect on a Facility, (a) there is no liability to any person by reason of the default by Seller or a Subsidiary under any Assumed Contract, (b) neither Seller nor any Subsidiary has received written or other notice that any person intends to cancel or terminate any Assumed Contract, (c) all of the Assumed Contracts are in full force and effect and without any material default by any party or to the knowledge of Seller and the Subsidiaries, any event which, with the passage of time or the giving of notice or both -57- would be such a material default, (d) subject to the provisions of SECTIONS 3.5 and 3.6, the consummation of the transactions contemplated by this Agreement will not constitute and, to the best of Seller's current actual knowledge, no event has occurred which, with or without the passage of time or the giving of notice or both, would constitute a material breach or default by Seller or a Subsidiary of such Assumed Contract, or would cause the acceleration of any obligation of Seller or any Subsidiary or the creation of any lien (except for Permitted Encumbrances) upon any Transferred Asset, and (e) neither Seller nor any Subsidiary has waived any right under any Assumed Contract; PROVIDED that Seller makes no separate representation or warranty under this SECTION 3.9 respecting compliance with the provisions of any Assumed Contract related to title to or condition of property, licenses, environmental conditions, hazardous substances or environmental laws, taxes, or compliance with laws generally, it being the intent of the parties that warranties respecting such matters shall be made exclusively under the provisions of SECTIONS 3.8, 3.10, 3.16, 3.20 and 3.25. Seller has previously delivered to Buyer true and complete copies of all written Assumed Contracts except where the failure to so deliver a copy thereof will not have a Material Adverse Effect on a Facility. Section 3.10 LICENSES. Except as set forth on SCHEDULE 3.10, (a) the Subsidiaries possess all Licenses necessary for their operation of the Facilities at the locations and in the manner presently operated (other than such Licenses the absence of which would not have a Material Adverse Effect on a Facility), (b) if required, such Facilities are accredited by applicable accrediting agencies as necessary for their operations in the manner presently operated, and (c) such Facilities are certified for participation in the Medicare program and have current and valid provider contracts with such program. SCHEDULE 3.10 lists each License held by a Subsidiary and related to the ownership or operation of a Facility and a true and correct copy of each has previously been delivered to Buyer by Seller (other than such Licenses the absence of which would not have a Material Adverse Effect on a Facility). All such Licenses are in full force and effect. Section 3.11 U.S. PERSON; RESIDENT OF GEORGIA. Neither Seller nor any Subsidiary is a "foreign person" for purposes of Section 1445 of the Internal Revenue Code of 1986, as amended (the "CODE"), or any other Laws requiring withholding of amounts paid to foreign persons. For purposes of the withholding tax imposed by Section 48-7-128 of the -58- Official Code of Georgia Annotated, each Subsidiary that owns Transferred Assets constituting Owned Real Property located in Georgia and related tangible personal property is a corporation the principal place of business of which is located in the State of Georgia. The Seller shall, or shall cause the relevant Subsidiaries to, provide an appropriate affidavit of each such Subsidiary's residence. Seller acknowledges that jurisdictions other than Georgia may impose withholding obligations similar to those imposed by Georgia and that it is Seller's obligation to provide evidence of exemptions from such withholding taxes. Section 3.12 EMPLOYEE RELATIONS. With respect to the Retained Employees, except as set forth on SCHEDULE 3.12: (a) Neither Seller, nor any Subsidiary nor any Facility is a party to any agreement with any union, trade association or other similar employee organization, no written demand has been made for recognition by a labor organization, and to Seller's knowledge it has received no notice of any union organizing activities by or with respect to any such employees; (b) There are no controversies (including, without limitation, any unfair labor practice complaints, labor strikes, arbitrations, disputes, work slowdowns or work stoppages) pending, or to the best of Seller's current actual knowledge, threatened, which could have a Material Adverse Effect on any Facility; and (c) Each Subsidiary has been and is in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, and wages and hours (including, but not limited to, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 and the Family and Medical Leave Act). Section 3.13 EMPLOYEE PLANS. (a) With respect to each Multiemployer Plan, there has occurred no "complete withdrawal" or "partial withdrawal," as each is defined in Sections 4203 and 4205, respectively, of ERISA, and all -59- payments required to be made to such Multiemployer Plans by a Subsidiary under any collective bargaining agreement have been made. (b) Neither Buyer nor any Buyer Subsidiary shall have any obligation or liability to Seller, any Subsidiary or any present or former employee of any of them for or with respect to any benefit plan, employee benefit plan or employee health or welfare program or other Employee Benefit Arrangements (as defined in SECTION 3.26(c)), except for specifically listed Assumed Liabilities and other express obligations of Buyer and the Buyer Subsidiaries under this Agreement. Section 3.14 LITIGATION. Except for (a) matters associated with or within the scope of the significant legal proceedings and investigations of an unusual nature referred to in Seller's filings with the Securities and Exchange Commission (the "UNUSUAL PROCEEDINGS"), (b) ordinary routine claims and litigation incidental to the businesses represented by the Facilities (including, but not limited to, actions for negligence, professional malpractice, workers' compensation claims, so-called "slip-and-fall" claims and the like), (c) governmental inspections and reviews customarily made of businesses such as those operated from the Facilities, and (d) as set forth on SCHEDULE 3.14, there are no actions, suits, claims, or proceedings pending, or to the knowledge of Seller or any Subsidiary, threatened against or affecting the Transferred Assets or relating to the operations of the Facilities, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, agency or instrumentality. The claims and litigation referred to in CLAUSE (b) above are covered by insurance currently maintained by Seller except where the failure to be so covered (i) would not have a Material Adverse Effect on any Facility or (ii) is of a nature that is not ordinarily subject to insurance coverage (E.G., demands for punitive damages). Neither Seller nor any Subsidiary is in default under any judgment, order or decree of any governmental agency or authority applicable to the conduct of the business conducted at the Facilities. Except as disclosed on SCHEDULE 3.14, there is no condemnation proceeding pending or, to the knowledge of Seller or any Subsidiary, threatened against any of the Owned or Leased Real Property. SCHEDULE 3.14 includes an accurate and complete list of each malpractice claim or lawsuit pending or to Seller's or any Subsidiary's knowledge, threatened against any Facility or Subsidiary. Section 3.15 INVENTORY. All Inventory included in the Transferred Assets and included in the Net Book Values will consist of a quality and -60- quantity usable and salable in the ordinary course of business, except for items of obsolete materials and materials of below-standard quality at any given Facility, all of which in the aggregate are immaterial to the financial condition or results of operations of the businesses operated from such Facility taken as a whole, or have been, or prior to the relevant Scheduled Closing will be, written down to realizable market value. Section 3.16 HAZARDOUS SUBSTANCES. To Seller's and the Subsidiaries' knowledge, except as disclosed by the Environmental Survey (as defined in SECTION 6.2(b)) or otherwise on SCHEDULE 3.16: (a) There has not been a Release of Hazardous Material on or otherwise affecting the Owned Real Properties or the Leased Real Properties, (other than Releases involving de minimis quantities of Hazardous Materials) that would: (i) constitute a violation of any Environmental Law by Seller or the Subsidiaries, or by any third party if the effect of such violation by such third party imposes a remediation obligation on the part of Seller or any Subsidiary; (ii) trigger any release-reporting obligations of Seller or the Subsidiaries under any Environmental Law; or (iii) trigger any clean-up or remediation obligations or Seller or the Subsidiaries under any Environmental Law; (b) Seller and the Subsidiaries have complied with and currently are in compliance in all material respects with all Environmental Laws that govern the Owned Real Properties, the Leased Real Properties, and the businesses operated from any such properties; (c) Seller and the Subsidiaries have obtained all material Licenses required under the Environmental Laws for operation of their businesses related to the Owned Real Properties and the Leased Real Properties, have complied with and currently are in compliance in all material respects with all such Licenses, and have not received any notice that: (i) any such existing License will be revoked; or (ii) any pending application for any new such License will be denied; (d) Seller and the Subsidiaries have not received any currently outstanding notice of any proceedings, action, or other claim or liability arising under any Environmental Laws (including, without limitation, notice of potentially responsible party status under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. (section)9601 et seq. or any state counterpart) from any person -61- or governmental agency regarding the Owned Real Properties, the Leased Real Properties, or the businesses operated from such properties; (e) Neither Seller nor any Subsidiary has received any currently outstanding notice, which notice is specifically directed to an Owned or Leased Real Property (rather than to all property owners or operators in a given geographic area), that any of the Owned Real Properties or any of the Leased Real Properties is the subject of a material deed restriction, material title-transfer restriction, other material land-use restriction, or material lien arising in each case under any Environmental Law; (f) Neither the Owned Real Properties, the Leased Real Properties, nor any of the businesses conducted on any such properties is the subject of any outstanding order, decree, or agreement with or involving any governmental agency, court, or other party respecting any material aspect of the operation of such properties and businesses that relates to or arises under any Environmental Law (other than orders, decrees or agreements affecting or directed to the healthcare industry generally, or in the case of Leased Real Properties, lease agreements requiring compliance with applicable Environmental Law); (g) No portion of the Owned Real Properties or Leased Real Properties contains or has ever contained any underground storage tank, surface impoundment or similar device used for the management of wastewater, or other waste management unit dedicated to the disposal, treatment, or long-term (greater than 90 days) storage of waste materials; and (h) Neither Seller, any Subsidiary nor any other person has improperly disturbed or encroached upon any floodplain areas, waters, or wetlands associated with any of the Owned Real Properties or Leased Real Properties in violation of any Environmental Law. Section 3.17 FINANCIAL INFORMATION. (a) Attached hereto as SCHEDULE 3.17(a) is an unaudited statement of combined earnings from the operations of the Transferred Assets and Assumed Liabilities of the First Facilities and Subsequent Facilities (as they were comprised on the as of date of such Schedule) before interest, income taxes, depreciation and amortization ("EBITDA") -62- for the fiscal year ended May 31, 1993 and for the fiscal period ended November 30, 1993 (collectively, the "EBITDA STATEMENTS"). The EBITDA Statements present fairly the combined EBITDA of such operations, taken as a whole, as of the dates and for the periods shown, and were derived from and are in accordance with the internal books and records of the Subsidiaries as well as the "Subsidiaries" defined in the Subsequent Facilities Agreement (the "COMBINED SUBSIDIARIES") and the regularly prepared unaudited internal financial statements of the First Facilities and the Subsequent Facilities, which are prepared in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of Seller. (b) Attached hereto as SCHEDULE 3.17(b) is an internally prepared unaudited combined statement of certain assets and liabilities of the First Facilities and the Subsequent Facilities as of November 30, 1993 (the "BALANCE SHEET"; collectively, the Balance Sheet and the EBITDA Statements are the "FINANCIAL SCHEDULE"). The Balance Sheet has been prepared from, and is in accordance with, the internal books and records of the Combined Subsidiaries and presents fairly the financial condition of the First Facilities and the Subsequent Facilities with respect to the Transferred Assets and Assumed Liabilities that are the subject of this Agreement and the Subsequent Facilities Agreement, taken as a whole, as of the date shown. The Balance Sheet was prepared in accordance with Seller's practices for the preparation of internal financial statements, consistently applied, and is in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of Seller. (c) Notwithstanding the foregoing, (i) the Financial Schedule does not (A) reflect all intercompany eliminations, adjustments and accruals that are reflected in financial statements of Seller, (B) reflect any reserves for the Unusual Proceedings, (C) reflect any anticipation of the divestiture of the Transferred Assets that are the subject of this Agreement and the Subsequent Facilities Agreement and any adjustments to the carrying values of such assets occasioned thereby, (D) contain footnotes or other explanatory material associated with financial statements prepared in accordance with generally accepted accounting principles, or (E) contain normal year-end adjustments with respect to interim periods, (ii) the EBITDA Statements do not reflect allocations of indirect costs and non-hospital overhead or the corresponding cost reimbursement impact of claiming such costs in a Cost Report relating to First Facilities or -63- Subsequent Facilities, and (iii) certain earnings, assets and liabilities have been excluded from the EBITDA Statements or the Balance Sheets, as applicable, as noted in the footnotes or other explanatory material associated with the Financial Statements. In addition, the Financial Schedule is to be read in conjunction with, and is subject to, all notes and other explanatory material set forth therein. (d) The Balance Sheet reflects the amount of Receivables, as well as "Receivables" as defined in the Subsequent Facilities Agreement (together, the "COMBINED RECEIVABLES"), which for this purpose may include Eligible Receivables (including "Eligible Receivables" as defined in the Subsequent Facilities Agreement) as of the date thereof, net of allowances customarily recorded by the Combined Subsidiaries for uncollectible and doubtful accounts, and contractual allowances pursuant to agreements with Payors, all in conformity with Seller's practices for the preparation of internal financial statements and in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of the Seller. To the knowledge of Seller and each such Subsidiary, all such Combined Receivables included in the Balance Sheet represent amounts validly owed to the applicable Combined Subsidiary by reason of the provision of goods, services and other consideration by such Combined Subsidiary, and, to the knowledge of Seller and each such Combined Subsidiary, are not valued in excess of the amounts expected to be collected with respect thereto. Each such Combined Subsidiary maintains its accounting records in sufficient detail to substantiate the Combined Receivables reflected on the Balance Sheet. Since the date of Seller's most recent audited financial statements, neither Seller nor any such Combined Subsidiary has changed any principle or practice with respect to the recordation of accounts receivable or the calculation of reserves therefor, or any material collection, discount or write-off policy or procedure. Section 3.18 CHANGES SINCE BALANCE SHEET. Since the date of the Balance Sheet and up to and including the date of this Agreement, other than as contemplated or permitted by this Agreement, the Subsidiaries have conducted the businesses represented by the Transferred Assets only in the ordinary and normal course, except for (i) matters associated with the Unusual Proceedings, (ii) as shown on SCHEDULE 3.18, (iii) the institution or completion of compliance programs, or (iv) events in anticipation of the divestiture of the Transferred Assets, and there has not been: -64- (a) Any entry into or termination by Seller or a Subsidiary of any material commitment, contract, agreement or transaction (including, without limitation, any borrowing or lending transaction or capital expenditure) related to the Transferred Assets except for transactions in the ordinary course of business and renegotiation of credit agreements to which Seller and certain of its subsidiaries are parties which renegotiations will not have a Material Adverse Effect on the Transferred Assets or on any Facility; (b) Any casualty, physical damage, destruction or physical loss respecting, or change in the physical condition of, any Facility or Equipment that has had a Material Adverse Effect on a Facility; (c) Any transfer of or rights granted under any contract which would have been an Assumed Contract on the date of the Balance Sheet except for transactions in the ordinary course of business; (d) Other than in the ordinary course of business, (i) any sale or other disposition of any fixed asset included in the Balance Sheet having a net book value in excess of $100,000, or (ii) any material mortgage, pledge or imposition of any lien or other encumbrances on any such asset, or (iii) sales or dispositions of, or the imposition of material encumbrances on, fixed assets included in such Balance Sheet having a net book value that exceeds $1,000,000 in the aggregate, or (iv) any sale or other disposition of Inventories included in the Balance Sheet; (e) Any material amendment (other than general amendments which the carrier makes for a category of policy) or termination of any material insurance policy or failure to renew any material insurance policy covering the Transferred Assets; (f) Any default or breach by Seller or a Subsidiary under any contract that would have been an Assumed Contract on the date of the Balance sheet which, when viewed individually or in the aggregate of all such breaches or defaults, has had a Material Adverse Effect on any Facility; (g) Any material adverse change in the trend of the business, financial condition or results of operations of any Facility as compared to the trend of the business, financial condition or results of operations, as -65- applicable, of such Facility for the two year period ended November 30, 1993; or (h) Any increase made in the compensation levels of any chief executive officer or chief financial officer of any Facility, or any general increase made in the compensation levels of the other Retained Employees, except in the ordinary course of business. Section 3.19 TRANSFERRED BUSINESS NAMES. Seller or one of the Subsidiaries owns or has the right to use the Transferred Business Names, free of any liens. SCHEDULE 2.1(h) sets forth for each Transferred Business Name, if any, that is the subject of a trademark registration the date of registration, the registration number and the expiration date. To the knowledge of Seller and the Subsidiaries, no aspect of registered trademarks included in the Transferred Business Names, if any, has been adjudged invalid or unenforceable or has been cancelled or revoked. Except as set forth on SCHEDULE 3.19, to the knowledge of Seller and the Subsidiaries, the use by the Subsidiaries of the Transferred Business Names in connection with the Facilities does not conflict with or violate any valid rights of third parties, including any patents, trademarks, trade names or copyrights of others, in any way which would have a Material Adverse Effect on the Transferred Assets or a Facility; neither Seller nor any Subsidiary has received any notice of a conflict with the asserted rights of others in connection therewith which, if determined adversely, would have a Material Adverse Effect on any Facility. Neither Seller nor any of the Subsidiaries is obligated to pay any amount, whether as a royalty, license fee or other payment, to any person in order to use any of the Transferred Business Names. Section 3.20 COMPLIANCE WITH LAWS AND ACCREDITATION. To Seller's and each Subsidiary's knowledge, Seller and each Subsidiary has complied in all material respects with all laws, regulations and orders, and as materially required for participation in the Medicare, CHAMPUS and Medicaid reimbursement programs and is in material compliance with the indigent care conditions, if any, contained in or related to certificates of need obtained by it except (a) as set forth in SCHEDULE 3.20, (b) as described in SECTIONS 3.10, 3.12, 3.16, and 3.21 and the SCHEDULES, if any related thereto, and (c) for matters related to the Unusual Proceedings. With respect to each Facility, Seller has previously delivered to Buyer true and complete copies of the most recent Joint Commission on Accreditation of Health Care Organizations ("JCAHO") accreditation survey report and -66- deficiency list, if any; the most recent Statement of Deficiencies and Plan of Correction on Form HCFA-2567; the most recent state licensing report and list of deficiencies, if any; the most recent fire marshall's survey and deficiency list, if any; and the corresponding plans of correction or other responses except, in each case, such surveys, reports or deficiency lists which do not reflect any deficiency which would have a Material Adverse Effect on any Facility. Seller or the relevant Subsidiary has taken or is in the process of taking all reasonable steps to correct all material deficiencies noted therein and a description of any material uncorrected deficiency is listed in SCHEDULE 3.20. There are no provisions in, or other agreements to which Seller or a Subsidiary is a party relating to any Licenses, which would preclude or limit Buyer from operating the Transferred Assets substantially as they are now operated and using the beds of any Facility substantially as they are currently classified. Section 3.21 COST REPORTS, THIRD PARTY RECEIVABLES AND CONDITIONS OF PARTICIPATION. The Cost Reports of the Facilities for Medicare, Medicaid (if required) and Blue Cross (if required) reimbursement have been audited through the periods set forth in SCHEDULE 3.21, and Blue Cross and Medicare Cost Reports of the Facilities were filed when due. Except for matters related to the Unusual Proceedings, and as set forth in SCHEDULE 3.21: to the knowledge of Seller, (a) neither Seller nor any Subsidiary has received notice of any material dispute between a Facility and Blue Cross, governmental authorities or the Medicare fiscal intermediary regarding such Cost Reports for periods subsequent to the period specified in SCHEDULE 3.21 other than with respect to adjustments thereto made in the ordinary course of business which do not involve individual amounts in excess of ten thousand dollars ($10,000) per Cost Report; (b) there are no pending or threatened material claims by any of such programs against any Facility; (c) each Facility currently meets, without material exception, the conditions for participation in the Medicare program; and (d) no Facility has been subject to loss of waiver of liability for utilization review denials with respect to any such program during the past two years. Section 3.22 MEDICAL STAFF. Seller has previously delivered to Buyer, with respect to each Facility, a true and correct copy of the blank forms generally used with respect to medical staff privilege and membership application or delineation of privilege; all current medical staff bylaws, rules and regulations and amendments thereto respecting Facilities; and all written contracts with physicians, physician groups, or -67- other members of the medical staffs of the Facilities. With regard to the active medical staffs of the Facilities, there are no material pending or threatened disciplinary or corrective actions or appeals therefrom involving physician applicants or active medical staff members except as set forth in SCHEDULE 3.22. SCHEDULE 3.22 also sets forth a materially complete and accurate list and description of (a) the name of each member of the medical staff of each Facility as of the date shown on such Schedule, (b) the approximate age of each active medical staff member as of such date, (c) the specialty, if any, of each medical staff member, (d) readily available reports regarding the number of patient admissions of each medical staff member for the period shown on such SCHEDULE 3.22, and (e) readily available reports regarding the aggregate patient days of patients admitted by each medical staff member for the period shown on such SCHEDULE 3.22. Section 3.23 HILL-BURTON CARE. Except as set forth in SCHEDULE 3.23, no Subsidiary or Facility has an outstanding loan, grant or loan guarantee pursuant to the Hill-Burton Act (42 U.S.C. (Section) 291a, et seq.) and the transactions contemplated hereby will not result in any obligation on the part of the Buyer or a Buyer Subsidiary to repay any such loans, grants or loan guarantees or provide uncompensated care in consideration thereof. Section 3.24 ASSETS USED IN THE OPERATION OF THE FACILITIES. There are no assets or properties that are used in and necessary for the conduct of the operations of the Facilities that are owned by Seller and the Subsidiaries, and which individually or in the aggregate, are necessary for the operation of the Facilities that are not included in the Transferred Assets except for such Assumed Contracts which Buyer has elected or will elect to reject pursuant to SECTION 2.18. Except as set forth in SCHEDULE 3.24 and subject to SECTION 2.18, the Transferred Assets include all assets and properties that are properly recordable on the Balance Sheet, other than assets and properties disposed of by the Seller or a Subsidiary in the ordinary course of business since the date of the Balance Sheet and without violation of this Agreement. Section 3.25 TAXES. All tax returns of every kind (including, without limitation, returns of all income taxes, franchise taxes, real and personal property taxes, intangibles taxes, patient revenue or other healthcare taxes, withholding taxes, employee compensation taxes and all other taxes of any kind applicable to Seller or any Subsidiary) that are due -68- to have bene filed in accordance with applicable laws have been duly filed, and all taxes shown to be due and payable on such returns have been paid in full. Section 3.26 LISTS OF OTHER DATA. SCHEDULE 2.1(f) contains a list, materially complete and correct as of the dates shown thereon, of the Other Assigned Contracts, and SCHEDULES 3.26(a) through (h) contain lists or other information, materially complete and correct as of the dates shown thereon, of the following: (a) The most recent regularly generated depreciation schedules related to tangible personal property constituting Equipment, together with copies of such schedules; (b) A brief description of all insurance in force covering (i) fixed assets that would constitute Transferred Assets, or (ii) the operations of any Facility as of such date; (c) All compensation, bonus, incentive, deferred payments, retirement, pension, severance, profit-sharing, stock purchase and stock option plans, group life, automobile, medical, dental, disability, welfare or other employee benefit plans or insurance policies, and other similar arrangements (collectively, "EMPLOYEE BENEFIT ARRANGEMENTS") generally applicable to the Retained Employees or a substantial part thereof or generally applicable to the chief executive or chief financial officers, or a substantial part thereof, of the Facilities as of such date; (d) The aggregate accrued Paid Time Off for all employees at each Facility, as of the date shown; (e) Any contract relating to clean-up, abatement or other actions in connection with the remediation of any existing environmental liabilities or relating to the performance of any environmental audit or study with respect to the Facilities other than with respect to the Environmental Survey and entered into in the three years preceding the date hereof; (f) Any indenture, mortgage, loan, credit or other written contract under which any of the Subsidiaries, directly or indirectly, is indebted for money borrowed or is the issuer of any note, bond, indenture or other evidence of indebtedness for money borrowed or guarantor of -69- similar financial obligations of others, whether or not reflected on the Balance Sheet; (g) Any contract with any bank, finance company or similar organization pursuant to which such organization acquires receivables from the Subsidiaries; and (h) Any contract granting any person a lien, security interest or mortgage on any Transferred Asset (other than Permitted Encumbrances), including, without limitation, any factoring agreement or agreement for the assignment of accounts receivable or inventory. Section 3.27 CERTAIN TRANSACTIONS. Except as set forth in SCHEDULE 3.27, and except for remuneration as employees, since November 30, 1992 (i) no Facility has been a party to any transaction or series of similar transactions in which the amount involved exceeds $60,000 and in which the chief executive officer, chief financial officer or medical director of such Facility has a direct or indirect material interest, and (ii) no chief executive officer, chief financial officer or medical director of any Facility has been indebted to Seller or any Subsidiary in an amount in excess of $60,000. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below: Section 4.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation duly incorporated and validly existing under the laws of, and is authorized to exercise its corporate powers, rights and privileges and is in good standing in, the State of Delaware and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. Section 4.2 BUYER SUBSIDIARIES. -70- (a) As of each Scheduled Closing, each Buyer Subsidiary will be a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. Each Buyer Subsidiary will have, at the First Closing and at each Scheduled Closing thereafter, all requisite power and authority (corporate and otherwise) to carry on its business as then conducted and to own or lease and operate its properties and assets then owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. (b) The board of directors of each Buyer Subsidiary and, if required, its shareholders, will have, by the date of the First Closing, duly and effectively authorized (i) the purchase of the Transferred Assets to be purchased by such Buyer Subsidiary; and (ii) the execution, delivery and performance of the Related Agreements and all other agreements contemplated hereby and thereby to which such Buyer Subsidiary is a party. No other corporate act or proceeding on the part of any Buyer Subsidiary, its board of directors or its shareholders will be necessary to authorize any Related Agreement or other agreement contemplated hereby and thereby or the transactions contemplated hereby and thereby. (c) The Related Agreements and all other agreements contemplated hereby and thereby to which any Buyer Subsidiary is a party will, as of each Scheduled Closing, have been duly executed and delivered by each such Buyer Subsidiary, and each such agreement, when executed and delivered will constitute, a valid and binding obligation of such Buyer Subsidiary, enforceable against such Buyer Subsidiary in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and effectively authorized by the board of directors of Buyer; no other corporate act or proceeding on the part of Buyer, its board of directors or shareholders is necessary to authorize this Agreement, any such Related Agreement or the transactions contemplated -71 hereby and thereby. This Agreement has been, and each of the Related Agreements contemplated hereby will, as of each Scheduled Closing, have been, duly executed and delivered by Buyer and by each applicable Buyer Subsidiary, and this Agreement constitutes, and each such Related Agreement when executed and delivered will constitute, a valid and binding obligation of Buyer and each Buyer Subsidiary party thereto, enforceable against Buyer and each Buyer Subsidiary party thereto, in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 4.4 ABSENCE OF BREACH. Subject to the provisions of SECTIONS 4.5 and 4.6 below regarding private party and governmental consents, and except for compliance with the requirements of the HSR Act and any regulatory or licensing Laws applicable to the businesses and assets represented by the Transferred Assets, the execution, delivery and performance by Buyer of this Agreement and the Related Agreements, and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions to be performed by them and contemplated by this Agreement and the Related Agreements entered into by the Buyer Subsidiaries, do not, (a) conflict with or result in a breach of any of the provisions of Charter Documents of Buyer or of any of the Buyer Subsidiaries, (b) contravene any Law or cause the suspension or revocation of any License presently in effect, which affects or binds Buyer or any of the Buyer Subsidiaries or any of their material properties, or (c) conflict with or result in a breach of or default under any indenture or loan or credit agreement or any other agreement or instrument to which Buyer or any of the Buyer Subsidiaries is a party or by which it or they or any of their properties may be affected or bound. Section 4.5 PRIVATE PARTY CONSENTS. Except as set forth on SCHEDULE 4.5, the execution, delivery and performance by Buyer of this Agreement and the Related Agreements and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be -72- performed by the Buyer Subsidiaries, do not require the authorization, consent or approval of any non-governmental third party. Section 4.6 GOVERNMENTAL CONSENTS. The execution, delivery and performance by Buyer of this Agreement and the Related Agreements, and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be executed, delivered or performed by the Buyer Subsidiaries, do not require the authorization, consent, approval, certification, license or order of, or any filing with, any court or governmental agency, except for compliance with the HSR Act and except for such governmental authorizations, consents, approvals, certifications, licenses and orders that customarily accompany the transfer of health care facilities such as the Facilities. Section 4.7 BROKERS. Except as set forth on SCHEDULE 4.7, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Buyer or any of its Affiliates. Buyer shall be solely responsible for the payment of any such fee or commission to any person or entity listed on SCHEDULE 4.7 as an exception to the foregoing. Section 4.8 QUALIFIED FOR LICENSES. Buyer or a Buyer Subsidiary is qualified to obtain any Licenses and program participations necessary for the operation by Buyer or a Buyer Subsidiary of the Transferred Assets as of the relevant Scheduled Closing in the same manner as the Transferred Assets are presently operated by Seller and the Subsidiaries. Section 4.9 FINANCIAL ABILITY TO PERFORM. Buyer has liquid capital or committed sources therefor sufficient to permit it to perform timely its obligations hereunder, including, but not limited to, the payment of the Tentative Purchase Price to Seller at the Scheduled Closings and the other payments to Seller required hereunder. Promptly after its receipt of letters of commitment or other documents related to the financing of its obligations hereunder, Buyer will provide copies of the same to Seller. Section 4.10 NO KNOWLEDGE OF SELLER'S BREACH. Neither Buyer nor, to the knowledge of Buyer, any of its Affiliates has knowledge of any -73- breach of any representation or warranty by Seller or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller as promptly as practicable if any such information comes to its attention before any relevant Closing Date. Section 4.11 NO ASSURANCE. Buyer acknowledges and agrees that the rates or bases used in calculating payments or reimbursements to it or a Buyer Subsidiary by any Payor (including but not limited to Medicare) may differ from the rates and bases used in calculating such payments or reimbursements to Seller and the Subsidiaries. In entering into the transactions contemplated by this Agreement and the Related Agreements, Buyer is relying solely on the express representations, warranties and covenants of Seller and the Subsidiaries contained in this Agreement and the Related Agreements and upon no other representations or statements of Seller, the Subsidiaries or any of their representatives, and acknowledges and agrees that nothing in this Agreement or the Related Agreements shall be deemed to create any implied duty, disclosure obligation or responsibility on the part of Seller or the Subsidiaries. Buyer further acknowledges that during the course of the due diligence investigation, material information related to the matters that are the subject of the Unusual Proceedings may not have been discovered by or disclosed to it. Seller represents and warrants that, at those scheduled confidential meetings held among counsel for Buyer and Seller on the dates referenced in SCHEDULE 4.11, which meetings were held for the purpose of conducting Buyer's due diligence regarding the Unusual Proceedings, statements of fact concerning the Unusual Proceedings made by Seller's counsel present at such meetings were not materially inaccurate. ARTICLE 5 COVENANTS OF EACH PARTY Section 5.1 EFFORTS TO CONSUMMATE TRANSACTIONS. Subject to the terms and conditions herein provided including, without limitation, ARTICLES 8 and 9 hereof, each of the parties hereto agrees to use its reasonable commercial efforts to take, or to cause to be taken, all reasonable actions and to do, or to cause to be done, all reasonable things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the Transactions contemplated hereby, including the satisfaction of all conditions thereto set forth herein. Such actions shall include, without limitation, exerting their -74- reasonable efforts to obtain the consents, authorizations and approvals of all private parties and governmental authorities whose consent is reasonably necessary to effectuate the Transactions contemplated hereby, and effecting all other necessary registrations and filings, including but not limited to filings under Laws relating to the transfer or obtaining of necessary Licenses, under the HSR Act and all other necessary filings with governmental authorities. Inasmuch as the Transactions in respect of the First Facilities may be consummated without regard to consummation of the transactions contemplated by the Subsequent Facilities Agreement, the parties hereby agree that, in order potentially to expedite the timing of the First Closing, the parties will make separate filings under the HSR Act with respect to the First Facilities. The foregoing notwithstanding, it shall be the responsibility of Buyer to use its reasonable commercial efforts and to act diligently and at its expense to obtain any authorizations, approvals and consents in connection with acquiring Licenses and program participations that will permit it to operate the Facilities after the Scheduled Closings, PROVIDED that Buyer will seek to obtain Licenses and program participations subject to the existing conditions under which the Subsidiaries operate the Facilities and will not seek to change the same until the Transferred Assets and Assumed Liabilities respecting the Facilities in question have been transferred to and assumed by Buyer. Seller and its Subsidiaries shall cooperate with Buyer's efforts to obtain the requisite regulatory consents, provided neither Seller nor any of its Subsidiaries shall be obligated to incur any liabilities or assume any obligations in connection therewith. Other than Buyer's and Seller's obligations under SECTION 5.5, neither party shall have any liability to the other if, after using its reasonable commercial efforts (and, in the case of Buyer's efforts to obtain requisite Licenses, acting diligently), it is unable to obtain any consents, authorizations or approvals necessary for such party to consummate the Transactions. As used herein, the terms "REASONABLE COMMERCIAL EFFORTS" or "REASONABLE EFFORTS" do not include the provision of any consideration to any third party or the suffering of any economic detriment to a party's ongoing operations for the procurement of any such consent, authorization or approval except for the costs of gathering and supplying data or other information or making any filings, fees and expenses of counsel and consultants and for customary fees and charges of governmental authorities and accreditation organizations. Section 5.2 COOPERATION; REGULATORY FILINGS. Prior to and after the Final Closing, upon prior reasonable written request, each party agrees to cooperate with the other in every reasonable commercial way to consum- -75- mate the Transactions. Notwithstanding the foregoing, all analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of either party hereto in connection with proceedings under or relating to the HSR Act or any other federal or state antitrust or fair trade law, or made or submitted by or on behalf of Buyer in connection with proceedings to obtain the Licenses and program participations referred to in SECTION 5.1 hereof, shall be subject to the joint approval or disapproval and the joint control of Buyer and Seller, acting with the advice of their respective counsel, it being the intent of the foregoing that the parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analysis, presentation, memorandum, brief, argument, appearance, opinion or proposal; PROVIDED that nothing herein shall prevent either party hereto or any of their Affiliates or their authorized representatives from (a) making or submitting any such analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal in response to a subpoena or other legal process or as otherwise required by Law, or (b) submitting factual information to the United States Department of Justice, the Federal Trade Commission, any other governmental agency or any court or administrative law judge in response to a request therefor or as otherwise required by Law. Section 5.3 FURTHER ASSISTANCE. From time to time, at the reasonable request of either party, whether on or after a Scheduled Closing, without further consideration, either party, at its expense and within a reasonable amount of time after request hereunder is made, shall execute and deliver such further instruments of assignment, transfer and assumption and take such other action as may be reasonably required to more effectively assign and transfer the Transferred Assets to, and vest the Assumed Liabilities in, Buyer, deliver or make the payment of the Purchase Price to Seller or any amounts due from one party to the other pursuant to the terms of this Agreement or confirm Seller's ownership of the Excluded Assets and obligations with respect to the Excluded Liabilities. Section 5.4 COOPERATION RESPECTING PROCEEDINGS. After the Scheduled Closings, upon prior reasonable written request, each party shall cooperate with the other, at the requesting party's expense (but including only out-of-pocket expenses to third parties and not the costs incurred by any party for the wages or other benefits paid to its officers, directors or employees), in furnishing information, testimony and other assistance in -76- connection with any inquiries, actions, tax or Cost Report audits, proceedings, arrangements or disputes involving either of the parties hereto (other than in connection with disputes between the parties hereto) and based upon contracts, arrangements or acts of Seller or any of the Subsidiaries which were in effect or occurred on or prior to any Scheduled Closing and which relate to the Transferred Assets, including, without limitation, arranging discussions with (and the calling as witness of) officers, directors, employees, agents, and representatives of Buyer. Section 5.5 EXPENSES. Whether or not the Transactions contemplated hereby are consummated, except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. Notwithstanding the foregoing: (a) Costs associated with preliminary title reports and title policies shall be borne by Seller up to the costs that would have been incurred had the title policies been standard coverage policies of title insurance, and the remaining costs, if any, including costs for Extended Coverage and any surveys in connection therewith, shall be borne by Buyer; (b) All costs of the Environmental Survey referred to in SECTION 6.2(b) shall be borne one-half by Buyer and one-half by Seller, other than any cost incurred in connection with any "Phase II" investigation conducted by Buyer's environmental consultant (which shall be borne by Buyer); (c) All escrow charges, appraisal fees, and charges of any neutral independent public accountant or mediator, and related costs, shall be borne one-half by Buyer and one-half by Seller (it being agreed that each party shall bear the costs of its own independent public accountant or designated mediator); (d) All recording costs and charges respecting real property will be borne one-half by Seller and one-half by Buyer; (e) All transfer taxes respecting real property will be borne one-half by Buyer and one-half by Seller; -77- (f) All fees and expenses relating to the filings under the HSR Act shall be borne by the party incurring such fees and expenses; (g) All fees and charges of governmental authorities and accreditation agencies in connection with the transfer, issuance or authorization of any License, accreditation or program participation shall be borne by Buyer; (h) All fees or costs associated with the issuance of any bond or the establishment of any escrow required by SECTION 2.10(a) shall be borne by Buyer. (i) All fees, charges or costs (other than internal costs of Seller or any Subsidiary), including auditing fees and expenses, incurred as a result of Buyer's compliance with the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, and the rules and regulations thereunder, shall be borne by Buyer; (j) Out-of-pocket costs incurred by Seller and the Subsidiaries in connection with providing transitional assistance to Buyer shall be borne by Buyer, whether such assistance is provided before or after a Scheduled Closing, including costs associated with attendance at meetings requested by Buyer; (k) All liabilities or obligations of Seller or a Subsidiary for Taxes in the nature of sales taxes incurred as a result of the sale of the Transferred Assets hereunder to Buyer shall be borne one-half by Seller and one-half by Buyer; and (l) All fees, charges and costs of economists and other experts, if any, jointly retained by Buyer and Seller in connection with submissions made to any government agency and advice in connection therewith respecting approval of the Transactions, including proceedings under the HSR Act, will be borne one-half by Buyer and one-half by Seller. All such charges and expenses shall be promptly settled between the parties at the relevant Scheduled Closing or upon termination or expiration of further proceedings under this Agreement, or with respect to such charges and expenses not determined as of such time, as soon thereafter as is reasonably practicable. -78- Section 5.6 ANNOUNCEMENTS; CONFIDENTIALITY. Prior to the Final Closing Date, no press or other public announcement, or public statement or comment in response to any inquiry, relating to the transactions contemplated by this Agreement shall be issued or made by Buyer or Seller or any Subsidiary without the joint approval of Buyer and Seller; PROVIDED that a press release or other public announcement, regulatory filing, statement or comment made without such joint approval shall not be in violation of this Section if it is made in order to comply with applicable securities Laws or stock exchange policies and in the reasonable judgment of the party making such release or announcement, based upon advice of counsel, prior review and joint approval, despite reasonable efforts to obtain the same, would prevent dissemination of such release or announcement in a timely enough fashion to comply with such Laws or policies, PROVIDED that in all instances prompt notice from one party to the other shall be given with respect to any such release, announcement, statement or comment. Subject to the foregoing, the parties hereto recognize and agree that all information, instruments, documents and details concerning the businesses of Buyer, Seller and the Subsidiaries are strictly confidential, and Seller and Buyer expressly covenant and agree with each other that, prior to and after the Scheduled Closings, they will not, nor will they allow any of their respective officers, directors, employees, representatives or agents (including professional advisors) to disclose or publicly comment upon any matters relating to the business of the other or relating to this Agreement, including, without limitation, the terms, timing or progress of the transactions contemplated hereby, or its negotiation, terms, provisions or conditions, including Purchase Price, except for disclosure to their respective professional advisors and lenders or prospective financing sources (each of whom shall agree not to disclose the same) which is reasonably necessary to effectuate the Transactions contemplated hereby and in a manner consistent with the provisions of this Agreement. Each party shall keep all information (i) obtained from the other either before or after the date of this Agreement, or (ii) related to Buyer's proposed purchase of the Transferred Assets, Seller's proposed sale of the Transferred Assets, the contents of this Agreement or the negotiation of this Agreement confidential, and neither party shall reveal such information to, nor produce copies of any written information for, any person outside its management group or its professional advisors (including lenders and prospective financing sources) without the prior written consent of the other party, unless such party is compelled to disclose such information by judicial or administrative process or by any other requirements of Law or disclosure is reasonably necessary to obtain -79- a License or a consent listed on the Schedule of Required Consents. If the Transactions contemplated by this Agreement should fail to close for any reason, each party shall return to the other as soon as practicable all originals and copies of written information provided to such party by or on behalf of the other party and none of such information shall be used by either party, or their employees, agents or representatives in the business operations of any person. Notwithstanding the foregoing, (i) each party's obligations under this Section shall not apply to any information or document which is or becomes available to the public other than as a result of a disclosure by the other party in violation of this Agreement or other obligation of confidentiality under which such information may be held or becomes available to the party on a non-confidential basis from a source other than the other party or its officers, directors, employees, representatives or agents and (ii) without the prior written consent of Seller, or except as may be required by Law (as determined by the written opinion of independent counsel in form and substance satisfactory to Seller) the schedules to this Agreement shall not be disclosed to or filed with any person (including any governmental entity or regulatory board) if such filing or disclosure could result in such schedules becoming available to the public. The parties' obligations under this Section shall survive the termination of this Agreement. Nothing in this Section shall, or is intended to, impair or modify any of the rights or obligations of Buyer or its Affiliates under that certain letter agreement dated as of September 15, 1993, all of which remain in effect until termination of such letter agreement in accordance with its terms. Section 5.7 PRESERVATION OF AND ACCESS TO CERTAIN RECORDS. (a) As set forth in Section 2.2(e), all or any portion of the medical, clinical and other records directly or indirectly associated with the admission, care and treatment of patients on or prior to the relevant Closing Date on which the relevant Facility is transferred (collectively, for all Facilities, the "PATIENT RECORDS") and all financial and other records of, or located at, a Facility for the period ending on or prior to the relevant Closing Date, whether or not maintained at or by a Facility (the Patient Records and such other records for all Facilities are collectively referred to as the "HOSPITAL RECORDS") shall be Excluded Assets. Notwithstanding the foregoing, the parties will cooperate in providing copies and access to such records as set forth below. -80- (b) Notwithstanding that the Hospital Records are Excluded Assets, to the extent required by applicable Law or at Seller's election, Seller may choose not to remove the Hospital Records from a transferred Facility or otherwise acquire possession of them after a Scheduled Closing. Unless and until removed by Seller, the Buyer shall, in accordance with applicable Laws, maintain the Hospital Records at the Facilities (or at such other mutually approved locations) at Buyer's cost, and as agent of and bailee for Seller, until the expiration of seven (7) years from the relevant Scheduled Closing (and, if at the expiration thereof any tax or Payor audit or judicial proceeding is in progress or the applicable statute of limitations has been extended, for such longer period as such audit or proceeding is in progress or such statutory period is extended) (the "DOCUMENT RETENTION PERIOD"). After a Scheduled Closing and subject to applicable Laws, Buyer shall grant Seller full access to the Hospital Records (including any Patient Records) as needed for any lawful purpose (including Seller's inspection and copying of same), and Seller shall have the same rights of access to inspect and copy (at Seller's cost) any or all of the Hospital Records that Seller had prior to the Scheduled Closing. Buyer shall instruct the appropriate employees of the Facilities to cooperate in providing access to such records to Seller and its authorized representatives as contemplated herein. Access to such records shall be, wherever reasonably possible, during normal business hours, with reasonable prior written notice to Buyer of the time when such access shall be needed. Seller's employees, representatives and agents shall conduct themselves in such a manner so that Buyer's normal business activities shall not be unduly or unnecessarily disrupted. After the expiration of the aforementioned Document Retention Period, Buyer shall not, without ninety-one (91) days' prior written notification to Seller, destroy any Hospital Records in its possession. Within ninety (90) days after its receipt of such notice of intent to destroy, Seller shall have the right, at its own expense, to require Buyer to deliver any such records to Seller in accordance with Seller's reasonable instructions. Buyer shall adopt a record retention policy with respect to the Hospital Records which requires that all Hospital Records be maintained for the Document Retention Period and destroyed only after compliance with the notice provisions of this SUBSECTION (b) (including the passage of time), and shall take all reasonable steps necessary to inform its employees of such policy. (c) Buyer acknowledges and agrees that Seller shall have the right to remove, and may remove, from time to time on or prior to the relevant Closing Date and during the Document Retention Period any or -81- all of the Hospital Records. In the event of Seller's removal of any Hospital Records from a Facility, it shall, at Seller's cost and subject to applicable Laws, provide Buyer with copies (or originals, if required by applicable law or accreditation standards) of the following Hospital Records if Buyer elects to retain such copies: (i) the Patient Records for patients who are patients of the Facilities at the relevant Scheduled Closing or who are the subject of Receivables transferred to Buyer hereunder, (ii) the personnel records of the Hired Employees, and (iii) any records Buyer would be required to have to comply with accreditation standards. If the Hospital Records are removed by Seller, then it shall maintain such Hospital Records at its expense during such period of time and at such location as is deemed appropriate by Seller in its sole and absolute discretion. For so long as the Hospital Records are maintained by Seller, Seller shall make Hospital Records (other than those protected by or subject to the attorney-client privilege) available to Buyer, subject to applicable Laws, as needed by Buyer for any lawful purpose and if reasonably necessary to permit Buyer to operate the Facilities or other Transferred Assets. Seller shall instruct its appropriate employees to cooperate in providing access to such records to Buyer and its authorized representatives as contemplated herein. Buyer's access to such Hospital Records shall be during normal business hours, with reasonable prior written notice to Seller of the time when such access shall be needed. Buyer may make copies of or extracts from any such Hospital Records to which Buyer has access hereunder at Buyer's sole cost and expense. Notwithstanding the foregoing, Buyer's access to, or right to copies of, any Patient Records shall be subject to any applicable Law, accreditation standard or rule of confidentiality or privilege. (d) After Closing, Buyer or the applicable Buyer Subsidiary shall have the right to assign to an entity which purchases from Buyer or a Buyer Subsidiary a Facility or substantially all the assets of a Facility, all of the rights of Buyer under this SECTION 5.7, provided that such entity expressly assumes all obligations of Buyer under this SECTION 5.7 with respect to the purchased Facility. ARTICLE 6 ADDITIONAL COVENANTS OF SELLER Seller hereby additionally covenants, promises and agrees as follows: -82- Section 6.1 CONDUCT PENDING CLOSING. Prior to consummation of the Transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Buyer shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, and except for actions taken pursuant to Assumed Contracts, or which arise from or are related to the anticipated transfer of the Transferred Assets, the conduct or resolution of the Unusual Proceedings or effectuation of ongoing compliance programs, or as otherwise contemplated by this Agreement or disclosed in SCHEDULE 6.1 or another Schedule to this Agreement, Seller shall, and shall cause the Subsidiaries to: (a) Conduct the business represented by, and otherwise deal with, the Transferred Assets only in the usual and ordinary course, materially consistent with practices followed prior to the execution of this Agreement; (b) Use reasonable efforts to keep intact the Transferred Assets and the business they represent and to preserve relationships beneficial to such business that doctors, patients, Payors, suppliers, employees and others have with the Facilities; (c) Except as required by their terms, not amend, terminate, renew, fail to renew or renegotiate any material contract, except in the ordinary course of business and consistent with practices of the recent past, or default (or take or omit to take any action that, with or without the giving of notice or passage of time, would constitute a default) in any of its obligations under any such contracts, that would be an Assumed Contract as of the date hereof; (d) Not (i) sell, lease, transfer or dispose of, or make any contract for the sale, lease, transfer or disposition of, any assets or properties which would be included in the Transferred Assets in an amount in excess of $1,000,000 in the aggregate (other than sales in the ordinary course of business); (ii) incur, assume, guaranty, or otherwise become liable in respect of any indebtedness for money borrowed which would result in Buyer assuming such liability hereunder after the Closing; (iii) purchase or make any contract for the purchase of a material amount of assets or properties which would be included in the Transferred Assets (other than purchases in the ordinary course of business and other than capital expenditures within the aggregate thresholds set forth in clause (v) below); (iv) accelerate or delay the purchase of Inventory, or the -83- payment of amounts due to or from the Subsidiaries in a manner inconsistent with past practice; (v) make any new commitments which would require an expenditure of more than $50,000 in the aggregate other than in the ordinary course of business; (vi) encumber or voluntarily subject to any lien any Transferred Asset (except for Permitted Encumbrances); or (vii) assign or transfer accounts receivable to collection agencies in a manner inconsistent with past practice. (e) Maintain in force and effect the insurance policies identified in SECTION 3.26(b). (f) Not enter into any contract or amendment of a contract that, had such contract or amendment been entered into prior to the date hereof, would have been included on SCHEDULE 2.1(f), unless Buyer has failed to disapprove of such contract or amendment in a written notice to Seller given within two (2) business days of Seller's written notice to Buyer of such contract or amendment accompanied by a copy thereof, PROVIDED that Buyer's disapproval of such contract or amendment shall not be unreasonable, and PROVIDED further that any contract entered into in violation of this SECTION 6.1(f) shall be subject to the provisions of SECTION 2.18; (g) Not grant any general or uniform increase in the rates of pay or benefits to Retained Employees (or a class thereof) or any increase in salary or benefits of any chief executive or financial officer of any Facility, except for compensation previously agreed to prior to the date hereof; or (h) Subject to SECTION 6.3, not take any action which would cause any of Seller's representations and warranties set forth in ARTICLE 3 to be false as of the relevant Scheduled Closing; PROVIDED that nothing in this Section shall (i) obligate Seller or any Subsidiary to make expenditures other than in the ordinary course of business and consistent with practices of the recent past or to otherwise suffer any economic detriment, (ii) preclude Seller from paying, prepaying or otherwise satisfying any liability which, if outstanding as of a Closing Date, would be an Assumed Liability or an Excluded Liability, (iii) preclude Seller from incurring any liabilities or obligations to any third party in connection with obtaining such party's consent to any transaction contemplated by this Agreement or the Related Agreements PROVIDED such -84- liabilities and obligations under this CLAUSE (iii) shall be Excluded Liabilities pursuant to SECTION 2.4(h) hereof if not approved in advance by Buyer (which approval shall not be unreasonably withheld), or (iv) preclude Seller from instituting or completing any program designed to promote compliance or comply with Laws or other good business practices respecting the Facilities. Section 6.2 ACCESS AND INFORMATION; ENVIRONMENTAL SURVEY; REMEDIATION OR ADJUSTMENT. (a) Subject to the restrictions set forth in SECTION 5.6 respecting confidentiality and provided that Buyer has complied with each and every provision thereof, Seller shall, and shall cause the Subsidiaries to, afford Buyer, and the counsel, accountants and other representatives of Buyer, reasonable access, throughout the period from the date hereof to the relevant Closing Date, to the Transferred Assets and the employees, personnel and medical staff associated therewith and all the properties, books, contracts, commitments, Cost Reports and records respecting the Transferred Assets (regardless of where such information, may be located) which Seller has or to which it has access. Such access shall be afforded to Buyer after no less than 24 hours prior written notice, during normal business hours and only in such manner so as not to disturb patient care or to interfere with the normal operations of the Facilities; PROVIDED, however, that, notwithstanding the foregoing and subject to the provisions concerning nondisclosure set forth in SECTION 5.6, without first obtaining the written consent of Mr. Donald Thayer which consent shall not be unreasonably withheld, neither Buyer nor its counsel, accountants and other representatives shall tour or visit the Facilities or contact any of the employees, personnel or medical staff thereof; and PROVIDED further that until the first to occur of the Termination Date or the Final Closing, under no circumstances shall Buyer directly or indirectly solicit the employment of any employees of Seller or its Subsidiaries, except as Hired Employees pursuant to the terms hereof or except as may be permitted with the prior written consent of a responsible officer of Seller. Seller's covenants under this Section are made with the understanding that Buyer shall use all such information in compliance with all Laws. The foregoing notwithstanding, Buyer acknowledges and agrees that Buyer's access to the books and records of the Transferred Assets shall not include access to, and Seller shall not have any obligation to deliver to Buyer, any information concerning any alleged dispute or any pending litigation, investigation or proceeding involving Seller or its Affiliates that is protected by or subject -85- to the attorney-client privilege, or the disclosure of which is restricted by an agreement entered into in connection with such dispute, litigation, investigation or proceeding or an order entered by any court, or (in the case of the Unusual Proceedings) certain non-public information; moreover, Buyer shall not have access to patient or employee records or any other records the disclosure of which would be prohibited by any Law, accreditation standards, or rule or agreement (express or implied) of confidentiality, except that Buyer may be granted access to such records to the extent they are appropriately reacted and in conformity with such reasonable procedures as may be required to conform to any such requirements of Law, accreditation standards or rule or agreement of confidentiality. (b) Seller has provided (or, with respect to Facility No. 30, will reasonably soon provide) to Buyer copies of an environmental survey conducted with respect to each of the Facilities (the "ENVIRONMENTAL SURVEY"). The Environmental Survey was conducted by an environmental consulting firm or firms (the "CONSULTANT") in accordance with applicable professional standards in effect at the time the Environmental Survey was conducted and such reasonable procedures as were determined by Seller. In the event of a disagreement between Buyer and Seller concerning the procedures employed by the Consultant, Buyer may at Buyer's expense employ a separate environmental consultant to conduct such procedures requested by Buyer (subject to Seller's prior approval of such procedures, which shall not unreasonably be withheld), and the findings of the Buyer's Environmental consultant shall be included as an addendum to the Environmental Survey. The results of any such Environmental Survey shall be delivered to and owned by Seller, and all proceedings in connection with the Environmental Survey and the results thereof shall be subject to the confidentiality provisions of SECTION 5.6. Buyer acknowledges and agrees that the Environmental Survey is and shall be only an initial "Phase I" environmental site assessment. If subsequently determined by Seller, the Consultant and the Buyer, to be necessary or prudent to conduct sampling, laboratory analyses, or additional investigation work at any of the Facilities, Seller shall direct the Consultant to undertake a further "Phase II" investigation involving additional investigation and appropriate sampling and laboratory analyses respecting such Facilities the results of which are to be included in the Environmental Survey. In any "Phase II" investigation, Seller shall give Buyer no less than 24 hours' notice before the Consultant enters onto any Facility, and the "Phase II" Environmental Survey shall be conducted so as not to interfere with the - 86 - normal operation of the Facilities. Buyer shall be permitted to have one of its employees or agents present during all inspections of, and sample gatherings (including borings) from the soil or any floor tile, insulation or other internal component of, a Facility and shall be entitled to split samples upon Buyer's request. In the event that Buyer considers it necessary to conduct any "Phase II" investigation work that Seller refuses to order, Buyer may at Buyer's expense employ a separate environmental consultant to conduct such "Phase II" investigation work at least thirty (30) days before the First Closing. Buyer shall give Seller no less than 24 hours' notice before Buyer's environmental consultant enters onto any Facility, and any such "Phase II" work performed by Buyer's environmental consultant shall be conducted so as not to interfere with the normal operations of the Facilities. Seller shall be permitted to have one of its employees or agents present during all inspections of and sample gatherings (including borings) from the soil or any floor tile, insulation, or other internal component of a Facility performed by Buyer's environmental consultant and shall be entitled to split samples upon Seller's request. Buyer shall be liable for any repairs or other costs required to correct damage to the Facilities resulting from such "Phase II" investigation. The findings of any Phase II investigation prepared by Buyer's environmental consultant shall be included as an addendum to the Environmental Survey. Notwithstanding the foregoing, Seller may elect not to permit Buyer to conduct a "Phase II" investigation through its own environmental consultant, in which case Buyer can exclude the affected Facility, and the Transferred Assets and Assumed Liabilities respecting such Facility from the Transactions, in which case the parties shall negotiate in good faith an equitable adjustment to the Purchase Price, or if they cannot agree upon the same, such adjustment shall be determined in accordance with SECTION 2.14. (c) With respect to any matters disclosed by such Environmental Survey or listed on SCHEDULE 3.16 that would constitute a breach of Seller's warranties in SECTION 3.16 but for the qualifications to such warranties based on Seller's knowledge or disclosures in the Environmental Survey or on such SCHEDULE 3.16, Seller will at its election, either (i) clean up or otherwise remediate such matters in a reasonable manner prior to the Closing Date related to such Facility, at its expense; or (ii) agree in writing prior to the Closing Date to reimburse Buyer for the costs specified in such written agreement of such reasonable clean-up or remediation incurred by Buyer after the Closing Date related to such Facility, and to promptly reimburse Buyer after Buyer incurs such - 87 - expenses subsequent to the Closing Date related to such Facility; or (iii) elect to exclude the affected Facility, and Transferred Assets and Assumed Liabilities respecting such Facility, from the Transactions, in which case the parties shall negotiate in good faith an equitable adjustment to the Purchase Price, or if they cannot agree upon the same, such adjustment shall be determined in accordance with SECTION 2.14; PROVIDED, however, that in no case will Seller be required to remove or otherwise remediate (or bear the costs of same) any Hazardous Materials used as construction materials in structures or improvements constituting the Facilities, or in equipment contained therein, unless the current condition of such Hazardous Materials has resulted in either: (i) noncompliance with any Environmental Law or License issued pursuant to an Environmental Law; or (ii) an unreasonable hazard to human health, human safety or the environment. Section 6.3 UPDATING. Seller shall notify Buyer of any changes or additions to any of Seller's Schedules to this Agreement with respect to a particular Facility or the Transferred Assets or Assumed Liabilities related thereto by the delivery of updates thereof, if any, as of a reasonably current date prior to the relevant Scheduled Closing not later than three (3) business days prior to the Scheduled Closing with respect to such Subject Transferred Assets, PROVIDED, however, that the Financial Schedule shall not be updated to cover any period or periods subsequent to the respective dates thereof. No such updates made pursuant to this Section shall be deemed to cure any breach of any representation or warranty made in this Agreement, unless Buyer specifically agrees thereto in writing, nor shall any such notification be considered to constitute or give rise to a waiver by Buyer of any condition set forth in this Agreement. Section 6.4 NO SOLICITATION. Seller will not, and shall cause the Subsidiaries not to, and will use its best efforts to cause its and their officers, employees, agents and representatives (including any investment banker) not to, directly or indirectly, solicit, encourage or initiate any discussions with, or, subject to fiduciary duties to shareholders, negotiate or otherwise deal with, or provide any information to, any corporation, partnership, person or other entity or group, other than Buyer and its officers, employees and agents, concerning any sale of or similar transactions involving the Transferred Assets or the stock of the Subsidiaries. None of the foregoing shall prohibit providing information to others in a manner in keeping with the ordinary conduct of Seller's or the Subsidiaries' businesses. Seller shall notify Buyer promptly of any - 88 - inquiry, proposal or offer received by Seller concerning the sale of or similar transactions involving the Transferred Assets or the stock of the Subsidiaries. Subject to the foregoing, in the exercise of its aforementioned fiduciary duties to shareholders, Seller may terminate this Agreement on written notice to Buyer, which termination shall have the effect set forth in SECTION 10.2, PROVIDED that upon consummation prior to the first anniversary of this Agreement of any transaction or transactions with one or more third parties covering substantially all of the Transferred Assets, Seller shall be obligated to pay Buyer the sum of Fifteen Million Dollars ($15,000,000), and PROVIDED further that the payment of such sum shall be deemed to constitute liquidated damages in lieu of any and all other liability of Seller and the Subsidiaries to Buyer and the Buyer Subsidiaries in connection with or related to or arising from this Agreement or the transactions contemplated hereby, or in connection with or related to or arising from the termination thereof. Section 6.5 NAME CHANGES. To the extent that the corporate names of any of the Subsidiaries incorporate or are substantially similar to the Transferred Business Names, Seller agrees to cause the Subsidiaries promptly after the relevant Scheduled Closing to take all action necessary to change such names so as not to incorporate or be substantially similar to the Transferred Business Names. Section 6.6 FILING OF COST REPORTS. Seller shall cause to be prepared and timely filed all Cost Reports and all other filings which are required to be filed with Medicare and any other cost-based Payors with respect to the operations of the Facilities for any and all periods ending on or prior to a relevant Closing Date. Seller and the Subsidiaries shall retain all rights to any amounts receivable from Medicare or other Payors with respect to such reports or filings or with respect to such periods and, as between Buyer, on the one hand, and Seller and Subsidiaries, on the other, shall remain obligated for all amounts due Medicare or such other Payors with respect to such reports or filings or with respect to such periods, and the parties hereby acknowledge and agree that Buyer is not being assigned or otherwise receiving and is not hereby assuming any of the same. Seller's rights shall include, without limitation, the right to dispute or to appeal any determinations relating to such reports. Section 6.7 PURCHASE OF SUPPLIES. Buyer may request Seller or its Affiliates to permit Facilities transferred at such Scheduled Closing to participate in specified national purchasing contracts of Seller or its - 89 - Affiliates for a fee to be agreed upon. If Buyer wishes to enter into such an agreement with Seller, it shall notify Seller no later than five (5) days prior to such Scheduled Closing, and at the Scheduled Closing the parties shall execute a Purchasing Contract substantially in the form of EXHIBIT D hereto. SCHEDULE 6.7 lists all of the national purchasing contracts of Seller and its Affiliates in effect as of the date hereof which do not preclude participation by persons which are not Affiliates of Seller. Section 6.8 COVENANT NOT TO COMPETE. (a) COVENANT. Subject to the further provisions of this SECTION 6.8, during the "Covenant Period" (as defined in SECTION 6.8(d)), none of the Subsidiaries, Seller or any other subsidiaries of Seller in which Seller owns a majority of the voting interests (collectively, "COVERED PARTIES") shall, directly or indirectly (whether through a majority-owned subsidiary or otherwise), in any Specified Capacity (as defined in this SECTION 6.8), engage in the business of delivering mental health or alcohol or substance abuse services through the operation of a hospital or otherwise, including without limitation through the delivery of inpatient, partial hospitalization, residential or outpatient services (as limited by the provisions of SECTION 6.8(b), a "COMPETING BUSINESS"). For purposes hereof, the term "SPECIFIED CAPACITY" shall mean, subject to SECTION 6.8(b), each of the following capacities: (i) As an operator, manager or sole owner of the Competing Business, whether directly or indirectly; (ii) As a constituent partner, joint venturer or equity shareholder of an entity engaged in the Competing Business if the voting equity interest held is greater than 10% of all voting equity interests in such entity; (iii) As a lender of money to, or a guarantor of indebtedness for money borrowed by, any other entity engaged in a Competing Business in a principal amount in excess of $1,000,000, except for (A) loans or guarantees made in the ordinary course of business and not as an investment in such entity; (B) loans or guarantees made or entered into in connection with the sale of a Competing Business by a Covered Party; or (C) loans represented by publicly traded instruments. - 90 - (b) EXCEPTIONS. The provisions of this SECTION 6.8 shall not apply to and shall not prohibit the following: (i) PSYCHIATRIC FACILITIES AND CONTRACTS NOT ACQUIRED BY BUYER. The conduct of a Competing Business from any facility (including renovations and expansions thereof) at which a Covered Party, in any Specified Capacity, primarily engages in a Competing Business as of the Final Closing, or pursuant to any contract (including modifications, extensions and renewals thereof) under which a Covered Party, in any Specified Capacity, engages in a Competing Business as of the Final Closing, if (A) such facility, contract or Specified Capacity is NOT acquired or assumed by Buyer or a Buyer Subsidiary pursuant to this Agreement, or (B) such facility, contract or Specified Capacity is, after the Final Closing, reacquired by a Covered Party from Buyer or a Buyer Subsidiary pursuant to this Agreement; (ii) FACILITIES OUTSIDE GEOGRAPHIC AREA. The conduct of a Competing Business from any location that is not within twenty-five (25) miles of a Facility (not including satellite locations) that (A) was acquired by Buyer or a Buyer Subsidiary pursuant to this Agreement, and (B) at the time in question, is still owned, operated or managed by Buyer or by a person or entity which, directly or indirectly, controls, is controlled by or is under common control with Buyer (Facilities meeting the requirements of both clauses (A) and (B) being herein referred to as "COVERED FACILITIES"); (iii) ACUTE HOSPITALS. The conduct of a Competing Business from or through any hospital, commonly referred to as an acute care hospital, that is licensed to provide general medical and surgical services, including related facilities that operate on the same campus as, or under the auspices of, such acute care hospital (such hospitals and related facilities being herein referred to as "ACUTE HOSPITALS"), including the provision of management services to an Acute Hospital, PROVIDED THAT the conduct of any Competing Business from or through a Specified Acute Hospital or an Acquired Acute Hospital (as each such term is defined in SECTION 6.8(c)) shall be subject to the further provisions of SECTION 6.8(c); - 91 - (iv) DIVESTITURE OF ACQUIRED PSYCHIATRIC FACILITIES. Other than an Acquired Acute Hospital, the conduct of a Competing Business in a Specified Capacity first acquired by any Covered Party after the date hereof as part of the acquisition of interests in healthcare assets other than the Competing Business, PROVIDED THAT no Covered Party engages in such Competing Business after the expiration of twelve (12) months from such acquisition and no such Competing Business is expanded during such twelve (12) month period, except for expansions for which regulatory approval exists, or for which capital expenditures have been undertaken or are in process, or which are required by existing contracts (together, "PERMITTED EXPANSIONS"); or (v) ACQUIRING ENTITIES. The conduct of a Competing Business for, on behalf of, or by (A) any entity that is not a Covered Party that acquires majority ownership or substantially all the assets of a Covered Party after the date hereof, (B) any entity that is not a Covered Party that acquires a Competing Business from a Covered Party after the date hereof, (C) any surviving entity (other than a Covered Party) of a consolidation, merger, reorganization or spinoff (each, a "REORGANIZATION") involving a Covered Party as a result of which shareholders directly or indirectly owning a majority of such Covered Party immediately before such Reorganization do not own a majority of such surviving entity immediately after such Reorganization, or (D) any majority-owned subsidiary of any such acquiring or surviving entity that is not a Covered Party. (c) ACUTE HOSPITAL AFFILIATIONS. With respect to an Acute Hospital listed on SCHEDULE 6.8(c) (a "SPECIFIED ACUTE HOSPITAL"), and except as set for the below, the exception provided by SECTION 6.8(b)(iii) above shall apply but only to the extent such Specified Acute Hospital conducts a Competing Business (including Permitted Expansions, the "EXEMPTED COMPETING BUSINESS") on the Scheduled Closing Date with respect to the Facility shown on SCHEDULE 6.8(c) as the Specified Acute Hospital's "Affiliation Facility." On and after such Scheduled Closing Date, a Specified Acute Hospital shall not expand its services or its Competing Business beyond the Exempted Competing Business except in accordance with, and subject to, CLAUSES (i) through (iii) below. With respect to any Acute Hospital acquired by a Covered Party after the date of this Agreement and which is within twenty (20) miles of a Covered Facility (an "ACQUIRED ACUTE HOSPITAL"), the exception provided by SECTION - 92 - 6.8(b)(iii) shall apply but only to the extent of such Acquired Acute Hospital's Exempted Competing Business on the date the acquisition of such Acquired Acute Hospital is consummated (the "ACQUISITION DATE"). On and after such Acquisition Date, an Acquired Acute Hospital shall not expand its services or its Competing Business beyond the Exempted Competing Business except in accordance with, and subject to, CLAUSES (i) through (iii) below. (i) Seller or its relevant Affiliate must first provide Buyer notice that it proposes to expand its services or Competing Business beyond the Exempted Competing Business, and shall briefly describe the nature and scope of the expanded Competing Business in which it proposes to engage. Within thirty (30) days following its receipt of such notice, Buyer shall cause (A) the Affiliation Facility with respect to a Specified Acute Hospital (as noted in SCHEDULE 6.8(c)) to offer the Specified Acute Hospital the opportunity to enter into an affiliation agreement with its Affiliation Facility, or (B) the closest Covered Facility with respect to an Acquired Acute Hospital to offer the Acquired Acute Hospital the oportunity to enter into an affiliation agreement. All affiliation agreements must be on customary industry terms, pursuant to which the relevant Covered Facility will agree to provide all services comprising the expanded Competing Business to Payors and patients of, and to subscribers or other participants in services or programs provided by, the Acute Hospital at the Covered Facility's usual and customary prices, terms and conditions which the parties shall negotiate expeditiously and in good faith. The term of the affiliation agreement shall be for the Covenant Period for such Specified or Acquired Acute Hospital and shall give the Specified Acute Hospital or Acquired Acute Hospital, as the case may be, the right to extend the agreement for two successive one-year periods. (ii) The Covered Facility must have the capacity to provide the desired services in a quantity and manner comparable to the quantity and manner in which such services are proposed to be provided by the Specified or Acquired Acute Hospital. (iii) The entry into such affiliation agreement by the Specified Acute Hospital or Acquired Acute Hospital, and the performance thereof by the Specified Acute Hospital or Acquired Acute Hospital (including, without limitation, the failure to provide - 93 - such Competing Business by the Specified Acute Hospital or Acquired Acute Hospital) will not violate or conflict with, or cause a default under, the terms of any License, accreditation standard or Payor contract to which the Specified Acute Hospital or Acquired Acute Hospital is then subject. If the terms and conditions set forth in CLAUSE (i) through (iii) (other than the first sentence of CLAUSE (i)) are not met as to the expanded Competing Business of a Specified or Acquired Acute Hospital, the exception provided by SECTION 6.8(b)(iii) above shall apply to such expanded Competing Business of such Specified or Acquired Acute Hospital. (d) COVENANT PERIOD. The term of the covenant (the "COVENANT PERIOD") set forth in SECTION 6.8(a) shall expire on the third anniversary of the Final Closing, except (i) as to a Specified Acute Hospital, the covenant shall expire on the earlier of the third anniversary of the Final Closing or the date on which such Specified Acute Hospital's Affiliation Facility is no longer a Covered Facility, and (ii) as to an Acquired Acute Hospital, the covenant shall expire on the earlier of the third anniversary of the Final Closing or the second anniversary of the Acquisition Date for such Acquired Acute Hospital. (e) SEVERABILITY. To the extent that this covenant or any provision of this SECTION 6.8 shall be deemed illegal or unenforceable by a court or other tribunal of competent jurisdiction with respect to (i) any geographic area, (ii) any part of the time period covered by this covenant, (iii) any activity or Specified Capacity covered by this covenant, or (iv) any other aspect of this covenant, such determination shall not affect this covenant with respect to any other geographic area, time period, activity or other aspect covered by this covenant. (f) INJUNCTIVE RELIEF. Each of the parties to this Agreement acknowledges that (i) the covenant and restrictions contained in this SECTION 6.8 are necessary, fundamental and required for the protection of the business of Buyer and its operation (through the Buyer Subsidiaries) of the Facilities; (ii) this covenant relates to matters which are of a special character and which give this covenant a special value; and (iii) a breach of the covenant contained in this SECTION 6.8 will result in irreparable harm and damages to Buyer and Buyer Subsidiaries which cannot be adequately compensated for by a monetary award. Accordingly, it is expressly agreed that in addition to all other remedies available in law or - 94 - in equity, Buyer and Buyer Subsidiaries shall be entitled to the remedy of a temporary restraining order, preliminary injunction or such other form of injunctive or equitable relief as may be issued by any court of competent jurisdiction to restrain or enjoin a Covered Party from breaching this covenant or any provision of this SECTION 6.8 or otherwise to specifically enforce the provisions of this covenant. (g) VALUE. The parties agree that the value of the covenant contained in this SECTION 6.8 is the value assigned to it in SECTION 2.5 and that each will account for and report the value of such covenant in accordance with such valuation and all of the terms and provisions of SECTION 2.7. Section 6.9 AUDITED STATEMENTS. Prior to and after any relevant Scheduled Closing, Seller shall make the books and records (other than those protected by or subject to the attorney-client privilege) and unaudited financial statements of the Subsidiaries which are related to the Facilities and are for periods prior to such Scheduled Closing available to Buyer and Buyer's and Seller's independent accountants at reasonable times and in a manner so as to not unduly interfere with Seller's operations, and otherwise cooperate with Buyer in order to permit an audit of the Subsidiaries' financial statements for periods prior to such Scheduled Closing. Seller shall reasonably cooperate in assisting Buyer in obtaining and preparing all necessary information for the timely filing of any documents required to be filed by Buyer under the Securities Exchange Act of 1934 related to the transactions contemplated hereby. Without limiting the effect of SECTION 5.5 of this Agreement, the audit and the out-of-pocket costs of Seller's cooperation in obtaining and preparing any information (including, without limitation, all services of Seller's independent accountants rendered in connection therewith) will be paid for by Buyer. Section 6.10 POST-CLOSING INSURANCE. Seller for five years after the Final Closing, shall maintain its existing comprehensive general liability and hospital professional liability insurance coverages with respect to the Facilities for all periods prior to the Closing in substantially their present form as described on SCHEDULE 3.26(b) (the "INSURANCE PROGRAM"), provided that (a) Seller shall have the right to reduce (but not increase beyond $2,000,000 per occurrence) the existing deductible under the Insurance Program and (b) shall have the right to cancel or terminate, or have cancelled or terminated, the coverages under the Insurance Program - 95 - so long as Seller acquires (from (i) its present insurance company or (ii) another reasonably acceptable insurance company under a reasonably acceptable policy) an extended discovery period of not less than five years after any such cancellation or termination for periods prior to the Final Closing. Such Insurance Program, if maintained, shall be maintained at Seller's expense, and if such Insurance Program is maintained Seller shall cause Buyer and each Buyer Subsidiary to be named as an additional insured with respect to the applicable Facility and Seller shall provide Buyer with copies thereof and copies of renewals prior to the expiration of the prior policy or policies. Seller shall use commercially reasonable efforts to avoid invalidating the insurance policies referred to in this SECTION 6.10. Section 6.11 USE OF CONTROLLED SUBSTANCE LICENSES. To the extent permitted by Law, Buyer shall have the right, for a period not to exceed sixty (60) days following a relevant Scheduled Closing, to operate under the Licenses of the Subsidiaries relating to controlled substances and the operation of pharmacies, until Buyer is able to obtain such Licenses for itself. Seller shall cause the pertinent Subsidiaries to execute and deliver to Buyer any powers of attorney and other instruments which Buyer or the appropriate governmental agency may reasonably require in connection with Buyer's use of such Licenses. Buyer acknowledges that it shall apply for all such Licenses as soon as reasonably possible before or after the relevant Scheduled Closing and diligently pursue such applications in accordance with SECTION 5.1. Section 6.12 NON-DISTURBANCE AGREEMENTS. Seller hereby agrees to exercise its reasonable commercial efforts, prior to the relevant Scheduled Closing, to obtain from each existing mortgagee of each Facility identified below a non-disturbance agreement providing in substance that in the event the lessor or sublessor of such Facility defaults in its obligations to the mortgagee respecting indebtedness existing at the relevant Scheduled Closing and as a result thereof the mortgagee forecloses upon, exercises a power of sale or otherwise succeeds to the ownership of such property, then and in such event, such foreclosure or other change in ownership shall not terminate or affect the validity of the Real Property Lease respecting such Facility assigned to Buyer hereunder, PROVIDED THAT Buyer hereby agrees that, in connection with Seller's obtaining any such non-disturbance agreement, Buyer will execute such reasonable agreements in favor of such mortgagee confirming the attornment of Buyer to such mortgagee or its assigns, and subordinating the - 96 - Real Property Lease to the interest of such mortgagee, under such circumstances. In the event that Seller shall be unable to obtain any such non-disturbance agreement and the lessor's or sublessor's default under indebtedness existing at the relevant Scheduled Closing results in the termination of any such Real Property Lease prior to the expiration of the current term and any renewal terms available in the Real Property Lease as of the relevant Scheduled Closing, then Seller shall indemnify Buyer, in accordance with the provisions of SECTION 11.3(a)(ii), for Losses arising therefrom but not in excess of the portion of the Purchase Price allocated to such Facility in the Allocation Schedule, PROVIDED THAT Buyer shall provide Seller with notice of any such default or claimed default by the lessor or sublessor reasonably promptly following Buyer's receipt of any notice or knowledge respecting same. The Facilities and Real Property Leases to which this Section shall apply are the Real Property Leases respecting the hospitals numbered as Facility Nos. 40, 44, 46, and 49. ARTICLE 7 ADDITIONAL COVENANTS OF BUYER Section 7.1 WAIVER OF BULK SALES LAW COMPLIANCE. Subject to the indemnification provisions of SECTION 11.3(a)(iii) hereof, Buyer hereby waives compliance by Seller and the Subsidiaries with the requirements, if any, of Article 6 of the Uniform Commercial Code as in force in any state in which Transferred Assets are located and all other similar laws applicable to bulk sales and transfers. Section 7.2 RESALE CERTIFICATE. Buyer agrees to furnish to Seller and the Subsidiaries any resale certificate or certificates or other similar documents reasonably requested by Seller to comply with pertinent sales and use tax laws. Section 7.3 COST REPORTS AND AUDIT CONTESTS. After each Scheduled Closing and for the period of time necessary to conclude any pending or potential audit or contest of any Cost Reports with respect to the Facilities transferred at such Scheduled Closing that include periods ending on or before the relevant Closing Date, Buyer shall (a) properly keep and preserve all financial books and records delivered to Buyer by Seller and the Subsidiaries (if any) and utilized in preparing such Cost Reports, including, without limitation, accounts payable invoices, Medicare logs and billing information in accordance with SECTION 5.7, and - 97 - (b) within five (5) days of Buyer's receipt of the same, forward to Seller all information received from Payors relating to periods prior to and as of the relevant Closing Date including, without limitation, Cost Report Settlements, notices of program reimbursements, demand letters for payment and proposed audit adjustments. Upon reasonable written notice by Seller, Seller (or its agents) shall be entitled, at Seller's expense, during regular business hours, to have access to, inspect and make copies of all such books and records. Upon the reasonable request of Seller, Buyer shall assist Seller and the Subsidiaries in obtaining information deemed by Seller to be necessary or desirable in connection with any audit or contest of such reports. To the extent required to meet its obligations under this Section, Buyer shall provide the reasonable support of its employees at no cost to Seller. Section 7.4 TAX MATTERS. After each Scheduled Closing, Buyer shall be responsible for causing its employees, at no cost to Seller ,to assist Seller and the Subsidiaries, in the same manner and to the extent that personnel of the Facilities currently provide such assistance, in the preparation and filing of all returns relating to taxes imposed upon the businesses operated through the Transferred Assets that relate to periods ending on or prior to the relevant Scheduled Closing but are due after the relevant Closing Date and that are not related to Taxes included in the Assumed Liabilities, including without limitation, income tax and information returns. It is further acknowledged by Buyer that Taxes (including, without limitation, the Florida indigent care tax) imposed upon the right or privilege to do business from the Facilities after the Closing shall be Buyer's responsibility even if measured by gross receipts, net operating revenues or patient days for a period ending on, before or including a Closing Date and that Taxes included in Accrued Operating Expense shall be only those properly accruable, in accordance with generally accepted accounting principles, for the right or privilege of doing business through the relevant Closing Date. Buyer further agrees to exercise its reasonable commercial efforts to have the income tax year of any venture or partnership referred to in SECTION 2.1(c) terminated as of the relevant Scheduled Closing with respect to the pertinent Subsidiary or Subsidiaries transferring its interests therein. Section 7.5 LETTERS OF CREDIT. Subject to the terms and conditions hereof, at the relevant Scheduled Closing, Buyer shall cause letters of credit and indemnity or performance bonds to be provided to substitute for those letters of credit and bonds listed in Schedule 7.5, so that at and as - 98 - of such Scheduled Closing Seller and its Affiliates shall have no further obligation to provide such designated letters of credit or bonds. Section 7.6 CONDUCT PENDING CLOSING. Prior to consummation of the Transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Seller shall otherwise consent in writing, Buyer shall not, and shall not permit any Buyer Subsidiary to, take any action which would cause any of Buyer's representations and warranties set forth in ARTICLE 4 to be false as of the relevant Scheduled Closing. Section 7.7 SECURITIES OFFERINGS. Buyer hereby agrees to indemnify and hold harmless Seller and each of its Affiliates, in accordance with the provisions of SECTION 11.4(a)(ii), against any and all Losses, as incurred, arising out of the offer or sale by Buyer of securities, except to the extent that such Loss arises from any untrue statement or alleged untrue statement of a material fact contained in any such securities offering materials or prospectus used by Buyer or its representatives, or from the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, which untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with written information furnished to Buyer by Seller under a cover letter from Seller's counsel stating that such information is expressly for use in such offering materials or prospectus. ARTICLE 8 BUYER'S CONDITIONS TO CLOSING The obligations of Buyer to consummate the Transactions with respect to a Facility and the Transferred Assets and Assumed Liabilities related thereto shall be subject to the requirements of SECTION 2.13 and to the fulfillment at or prior to the relevant Scheduled Closing of the following conditions, unless Buyer waives in writing such fulfillment: Section 8.1 PERFORMANCE OF AGREEMENT. Seller shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or prior to the Scheduled Closing. - 99 - Section 8.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller set forth in ARTICLE 3 of this Agreement shall be true in all respects as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Scheduled Closing) and as of the Scheduled Closing (as updated by the revising of Schedules contemplated by SECTION 6.3) as if made as of such time, except where such inaccuracy or inaccuracies would not individually or in the aggregate result in a Material Adverse Effect on the Facility in question. Section 8.3 OFFICERS' CERTIFICATE. Buyer shall have received from Seller an officers' certificate, executed on Seller's behalf by its chief executive officer, president, chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the knowledge of such individual, the conditions in SECTIONS 8.1 and 8.2 above have been met. Section 8.4 CONSENTS. The waiting period under the HSR Act shall have expired or been terminated, and, subject to the provisions of SECTION 2.12, all approvals, consents, authorizations and waivers from governmental and accreditation agencies the absence of which would render Buyer unable to operate the facility in the manner operated prior to such Scheduled Closing, and all approvals, consents, authorizations and waivers from other third parties to the extent shown on the Schedule of Required Consents (collectively "CONSENTS") required for Buyer to consummate the Transactions with respect to such Facility, shall have been obtained, except that a Consent from a third party to the sale and assignment of a Transferred Asset, such as a Medicare or Medicaid provider agreement, or the assumption of an Assumed Liability with respect thereto, shall not constitute a condition to Buyer's consummation of the Transactions with respect to a Facility if such sale, assignment or assumption may lawfully be made subject to a customary condition subsequent that the Consent be obtained from the third party based upon determinations of such third party, including without limitation needs surveys or evaluations of Buyer, to be completed after the Scheduled Closing. As to each of the Real Property Leases listed on the Schedule of Required Consents, Buyer shall have received an estoppel certificate, identifying the lease and stating that such lease is in full force and effect, that the lessee under such lease is current in all of its obligations under such lease and that the lessor is not aware of any default by lessee under such lease. - 100 - Section 8.5 ABSENCE OF INJUNCTIONS. There shall be no: (a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or governmental agency which directs that the Transactions related to such Facility contemplated hereby shall not be consummated as herein provided or compels or would compel Buyer to dispose of or discontinue, or materially restrict the operations of, such Facility or any significant portion of the Transferred Assets with respect thereto as a result of the consummation of the Transactions contemplated hereby; (b) Suit, action or other proceeding by any governmental agency pending before any court, governmental agency or non-governmental, self- regulatory organization, or threatened (pursuant to a written notification), wherein such complainant seeks the restraint or prohibition of the consummation of the Transactions related to such Facility or asserts the illegality of the Transactions related to such Facility; or (c) Action taken or law enacted, promulgated or deemed applicable to the Transactions related to such Facility, by any governmental agency which would render consummation of such Transactions illegal or which would threaten the imposition of any penalty or material economic detriment upon Buyer if such Transactions were consummated; PROVIDED THAT: (i) The parties will use their reasonable efforts to litigate against, or to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, law or penalty; (ii) In the event that (A) the First Closing has occurred, (B) there is such a pending or threatened suit, action, proceeding, injunction, restraining order or other order, made, sought, issued, initiated or obtained by a governmental agency in respect of Transactions contemplated to occur at the Final Closing, and (C) on or prior to the original Termination Date for the Final Closing, the parties and such agency have entered into a written agreement which would resolve such controversy but such agreement is subject to final agency approval that has not been obtained on or prior to the fifth business day before the original Termination Date for the Final Closing, then and in such events the original Termination Date for the Final Closing shall be extended to the fifth business day - 101 - following such final agency approval if the date of such approval is within five (5) business days of the end of a month or the original Termination Date for the Final Closing shall be extended to the end of the month in which such approval is obtained if the date of such approval is not within five (5) business days of the end of the month, but in no event shall the original Termination Date for the Final Closing be extended for more than three (3) calendar months from the original Termination Date; and (iii) Clauses (a) through (c) above notwithstanding, the effect of any such event, action or suit shall be to exclude the affected Facility from the Scheduled Closing and, if such Facility is not transferred in a subsequent Closing, to adjust the Purchase Price pursuant to the Allocation Schedule. Section 8.6 OPINION OF COUNSEL. Buyer shall have received, on and as of the Closing Date, an opinion of Mr. Scott Brown, general counsel to Seller, substantially as to the matters set forth in SECTIONS 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.14, subject to customary conditions and limitations. Section 8.7 TITLE TO REAL PROPERTY. Title to Transferred Assets related to the Facility comprised of interests in real property shall have been evidenced by the willingness of Chicago Title Insurance Company (or an Affiliate thereof) (the "TITLE INSURER") to issue at regular rates ALTA (or the local equivalents thereof) owner's, or lessee's, as the case may be, extended coverage policies of title insurance (1990 Form B) (the "TITLE POLICIES"), with the survey exception removed, in amounts equal to the respective portions of the Purchase Price allocated to such interests, showing title to such interests in such real property vested in Buyer subject to transfer of such interest to Buyer. Each such Title Policy shall be free of exceptions relating to (i), except for Title Policies respecting Facilities located in Texas, any claim which arises out of the transaction vesting in Buyer the estate or interest insured by the Title Policy, by reason of the operation of federal bankruptcy, state insolvency or similar creditors' rights laws, and (ii) rights of the United States of America, and the state in which the real property covered by the Title Policy is located, or either or them, to recover any federal funds advanced as provided in the Hill-Burton Act, 42 U.S.C. Sections 291 et. seq. Such Title Policies shall additionally be free of all other exceptions, including other standard exceptions, other than the following: - 102 - (a) A lien or liens to secure payment of real estate taxes, not delinquent; (b) Exceptions, other than those listed on SECTION 8.7(b), disclosed by current standard ALTA Preliminary Title Reports, delivered to and approved (except as shown on SECTION 8.7(b)) by Buyer prior to the date hereof (as indicated by Buyer's signature of approval appended thereto) together with copies of all documents underlying the exceptions contained therein; and (c) Other possible minor matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or intended use of such real property, including such minor matters as may be disclosed by surveys taken after the date hereof. The willingness of the Title Insurer to issue the Title Policies shall be evidenced either by the issuance thereof at the relevant Scheduled Closing or the written commitments or binders, dated as of the relevant Scheduled Closing, of the Title Insurer to issue such Title Policies within a reasonable time after the relevant Closing Date, subject to actual transfer of the real property in question. If the Title Insurer is unwilling to issue any such Title Policy, it shall be required to provide Buyer and Seller, in writing, notice setting forth the reason(s) for such unwillingness on or before the relevant Closing Date. Seller shall have the right to seek to cure any defect which is the reason for such unwillingness, and, if such notice to the Title Insurer is given less than ten (10) business days prior to the then Scheduled Closing, then the relevant Closing Date (and, to the extent necessary, the Termination Date) shall be extended for a period of up to ten (10) business days to provide to Seller such opportunity to cure. In the event that, despite Seller's efforts to cure, the Title Insurer remains unwilling to issue any such Title Policy on the Final Closing Date (as may be extended as provided herein), then, at the election of Buyer, and without affecting the other conditions of the parties to consummation of the Transactions, such real property interests not covered by such a Title Policy shall be deemed to be Excluded Assets, and liabilities associated therewith that would otherwise be Assumed Liabilities shall be deemed to be Excluded Liabilities; and Buyer and Seller shall negotiate in good faith prior to the Final Closing Date an adjustment in the Purchase Price based on the Allocation Schedule. If the parties cannot agree upon such adjustment, then the disagreement shall be resolved in accordance with SECTION 2.14. - 103 - Notwithstanding the foregoing, Buyer may accept such title to any such interests as the pertinent Subsidiary may be able to convey, and such title insurance with respect to the same as the Title Insurer is willing to issue, in which case such interests shall be conveyed as part of the Transferred Assets without reduction of the Purchase Price or any credit or allowance against the same and without any other liability on the part of Seller or the Subsidiaries. Section 8.8 RECEIPT OF OTHER DOCUMENTS. Buyer shall have received the following: (a) Certified copies of the resolutions of Seller's and each relevant Subsidiary's board of directors respecting this Agreement, the Related Agreements and the Transactions, together with certified copies of any shareholder resolutions which are necessary to approve the execution and delivery of this Agreement and any Agreements and/or the performance of the obligations of Seller and the Subsidiaries hereunder and thereunder; (b) Certified copies of Seller's and each relevant Subsidiary's Charter Documents, together with a certificate of the corporate secretary of each that none of such documents have been amended; (c) One or more certificates as to the incumbency of each officer of Seller or of any Subsidiary who has signed the Agreement, any Related Agreement or any certificate, document or instrument delivered pursuant to the Agreement or any Related Agreement; (d) Good standing certificates for Seller and each of the relevant Subsidiaries from the Secretaries of State of their respective states of incorporation, dated as of a date not earlier than fifteen (15) business days prior to the relevant Closing Date; (e) Copies of all third party and governmental consents, permits and authorizations that Seller or any Subsidiary has received in connection with the Agreement, the Related Agreements and the Transactions to occur at the relevant Scheduled Closing; and (f) Certificates of non-foreign status in the form required by Section 1445 of the Code duly executed by Seller and the relevant Subsidiaries. - 104 - Section 8.9 LICENSES AND PERMITS. The Buyer shall have obtained any and all authorizations, approvals and consents in connection with acquiring Licenses that will permit it to operate the Facility after the relevant Scheduled Closing substantially as operated by the relevant Subsidiary immediately prior to the relevant Scheduled Closing. Section 8.10 CASUALTY; CONDEMNATION. (a) CASUALTY. If any part of the Transferred Assets related to the Facility are damaged, lost or destroyed (whether by fire, theft, vandalism or other casualty) in whole or in part prior to the relevant Scheduled Closing, and the fair market value of such damage or destruction is less than thirty percent (30%) of the allocated portion of the Purchase Price for such Facility set forth in the Allocation Schedule, Seller shall, at its option, either (i) reduce the Purchase Price by the fair market value of the assets destroyed, such value to be determined as of the date immediately prior to such destruction or, as the case may be, by the estimated cost to restore damaged assets, (ii) provided that the proceeds are obtainable without delay and are sufficient to fully restore the damaged assets, upon the relevant Scheduled Closing transfer the proceeds or the rights to the proceeds of applicable insurance to Buyer, and Buyer may restore the improvements, or (iii) repair or restore such damages or destroyed improvements. If any part of the Transferred Assets related to the Facility are damaged, lost or destroyed (whether by fire, theft, vandalism or other cause or casualty) in whole or in part prior to the relevant Scheduled Closing and the fair market value of such damages is greater than thirty percent (30%) of such allocated portion of the Purchase Price, Buyer may elect either to (i) require Seller upon the relevant Scheduled Closing to transfer the proceeds (or the right to the proceeds) of applicable insurance to Buyer and Buyer may restore the improvements, or (ii) terminate this Agreement with respect to the damaged assets or Facility only, with a reduction in the Purchase Price determined as follows. The reduction in Purchase Price shall be mutually determined by Buyer and Seller on the basis of the Allocation Schedule, or if the Buyer and Seller fail to agree, then such reduction shall be determined in accordance with SECTION 2.14. (b) CONDEMNATION. From the date hereof until the relevant Scheduled Closing, in the event that any portion of the Transferred Assets related to the Facility becomes subject to or is threatened with any condemnation or eminent domain proceedings (except for an immaterial - 105 - portion), then Buyer, at its sole option, may elect to terminate this Agreement with respect only to that part which is condemned or threatened to be condemned with a reduction in the Purchase Price determined as provided in SECTION 8.10(a). Section 8.11 REASONABLE ASSURANCES. There shall not have been any actions taken by the United States government to indicate that it is reasonably likely that either the Unusual Proceedings or any proceeding, investigation, claim or lawsuit relating thereto, in each case relating to periods prior to the relevant Scheduled Closing, (a) shall be applied to or be expanded to include an assertion against Buyer or the applicable Buyer Subsidiaries with respect to their operation of the Facility after the relevant Scheduled Closing, or (b) would be the basis of any investigation or proceeding to exclude Buyer or the applicable Buyer Subsidiaries from participation in any government healthcare program with respect to the operations of the Facility after the relevant Scheduled Closing, or (c) would result in the Transferred Assets being subjected to forfeiture under 18 U.S.C. Section 1961-1966 or otherwise. Section 8.12 CERTAIN EVENTS. During the thirty (30) days preceding the date of the relevant Scheduled Closing, there shall not have occurred or be continuing (a) any suspension of trading on the New York Stock Exchange or material governmental restrictions (not in force on the date hereof) on trading in securities generally, or (b) any banking moratorium declared by Federal, California or New York authorities, or (c) any material disruption of or any material adverse change in the financial, banking or capital markets, or (d) any outbreak or material escalation of hostilities affecting the United States of America or other calamity, panic or crisis, the effect of which on the financial markets of the United States in each case described in clauses (a), (b), (c) or (d) above, is that lending institutions have generally ceased providing funding for transactions of the size contemplated hereby, PROVIDED that the occurrence of such event shall operate only to delay the Scheduled Closing (and extend the Termination Date, if necessary) until the tenth day following the date upon which lending institutions generally have resumed providing funding for transactions of the size contemplated hereby and that such delay may not extend the original Termination Date for more than sixty (60) days, after which time there shall be deemed to be a failure of this condition. ARTICLE 9 SELLER'S CONDITIONS TO CLOSING - 106 - The obligations of Seller to consummate the Transactions with respect to a Facility and the Transferred Assets and Assumed Liabilities related thereto shall be subject to the fulfillment at or prior to the relevant Scheduled Closing of the following conditions, unless Seller waives in writing such fulfillment: Section 9.1 PERFORMANCE OF AGREEMENT. Buyer shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or prior to the Scheduled Closing. Section 9.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth in ARTICLE 4 of this Agreement shall be true in all material respects as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Scheduled Closing) and as of the Scheduled Closing as if made as of such time. Section 9.3 OFFICERS' CERTIFICATE. Seller shall have received from Buyer an officers' certificate, executed on Buyer's behalf by its chief executive officer, president, chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the actual knowledge of such individual, the conditions in SECTIONS 9.1 and 9.2 above have been met. Section 9.4 CONSENTS. The waiting period under the HSR Act shall have expired or been terminated, and, subject to the provisions of SECTION 2.12, all Consents required for Seller to consummate the Transactions with respect to such Facility shall have been obtained, except that a Consent from a third party to the sale and assignment of a Transferred Asset, such as a Medicare or Medicaid provider agreement, or the assumption of an Assumed Liability with respect thereto, shall not constitute a condition to Seller's consummation of the Transactions with respect to such Facility if such sale, assignment or assumption may lawfully be made subject to a customary condition subsequent that the Consent be obtained from the third party based upon determinations of such third party, including without limitation needs surveys or evaluations by Buyer, to be completed after the Scheduled Closing, whether or not such third party indicates prior to the Scheduled Closing that any such Consent is likely or not likely to be given. - 107 - Section 9.5 ABSENCE OF INJUNCTIONS. There shall be no: (a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or governmental agency which directs that the Transactions related to such Facility contemplated hereby shall not be consummated as herein provided; (b) Suit, action or other proceeding by any governmental agency pending before any court, governmental agency or non-governmental, self- regulatory organization, or threatened (pursuant to a written notification), wherein such complainant seeks the restraint or prohibition of the consummation of the Transactions related to such Facility or asserts the illegality of the Transactions related to such Facility; or (c) Action taken, or law enacted, promulgated or deemed applicable to the Transactions related to such Facility, by any governmental agency which would render consummation of such Transactions illegal or which would threaten the imposition of any penalty or material economic detriment upon Seller or the Subsidiaries if such Transactions were consummated; PROVIDED THAT: (i) The parties will use their reasonable efforts to litigate against, or to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, law or penalty; (ii) In the event that (A) the First Closing has occurred, (B) there is such a pending or threatened suit, action, proceeding, injunction, restraining order or other order, made, sought, issued, initiated or obtained by a governmental agency in respect of Transactions contemplated to occur at the Final Closing, and (C) on or prior to the original Termination Date for the Final Closing, the parties and such agency have entered into a written agreement which would resolve such controversy but such agreement is subject to final agency approval that has not been obtained on or prior to the fifth business day before the original Termination Date for the Final Closing, then and in such events the original Termination Date for the Final Closing shall be extended to the fifth business day following such final agency approval if the date of such approval is within five (5) business days of the end of the month or the original Termination Date for the Final Closing shall be extended to the end of the month in - 108 - which such approval is obtained if the date of such approval is not within five (5) business days of the end of a month, but in no event shall the original Termination Date for the Final Closing be extended for more than three (3) calendar months from the original Termination Date; and (iii) Clauses (a) through (c) above notwithstanding, the effect of any such event, action or suit shall be to exclude the affected Facility from the Scheduled Closing and, if such Facility is not transferred in a subsequent Closing, to adjust the Purchase Price pursuant to the Allocation Schedule. Section 9.6 OPINION OF COUNSEL. Seller shall have received, on and as of the Closing Date, an opinion of King & Spalding, counsel to Buyer, substantially as to the matters set forth in SECTIONS 4.1, 4.2, 4.3, 4.4, and 4.5, subject to customary conditions and limitations. Section 9.7 RECEIPT OF OTHER DOCUMENTS. Seller shall have received the following: (a) Certified copies of the resolutions of Buyer's and each relevant Buyer Subsidiary's board of directors respecting this Agreement, the Related Agreements and the Transactions; (b) Certified copies of Buyer's and each relevant Buyer Subsidiary's Charter Documents, together with a certificate of Buyer's and each Buyer Subsidiary's corporate secretary that none of such documents have been amended; (c) One or more certificates as to the incumbency of each officer of Buyer who has signed the Agreement, any Related Agreement, or any certificate, document or instrument delivered pursuant to the Agreement or any Related Agreement; (d) Good standing certificates for Buyer and for each relevant Buyer Subsidiary from the Secretaries of State of their respective states of incorporation, dated as of a date not earlier than fifteen (15) business days prior to the relevant Closing Date; - 109 - (e) Copies of all third party and governmental consents, permits and authorizations that Buyer has received in connection with the Agreement, the Related Agreements and the Transactions; and (f) A certificate of Buyer executed on its behalf by the Chief Executive Officer and the Chief Financial Officer of Buyer stating that to the best of their knowledge and belief, specifying in reasonable detail their basis for same, after giving effect to the Transactions, neither Buyer nor any relevant Buyer Subsidiary is insolvent or will be rendered insolvent by obligations incurred in connection therewith, or will be left with unreasonably small capital with which to engage in their businesses, or will have incurred obligations beyond their respective abilities to perform the same as and when due. ARTICLE 10 TERMINATION Section 10.1 TERMINATION. Any Transactions contemplated hereby that have not been consummated may be terminated: (a) At any time, by mutual written consent of Seller and Buyer; or (b) By either Buyer or Seller upon written notice to the other party, if (i) the relevant Scheduled Closing shall not have occurred by its Termination Date; or (ii)(A) in the case of termination by Seller, the conditions set forth in SECTION 2.13 and ARTICLE 9 for the relevant Scheduled Closing cannot reasonably be met by its Termination Date or Seller has terminated this Agreement pursuant to SECTION 6.4, and (B) in the case of termination by Buyer, the conditions set forth in SECTION 2.13 and ARTICLE 8 for the relevant Scheduled Closing cannot reasonably be met by its Termination Date, unless in either of the cases described in CLAUSES (A) or (B), the failure of the condition is the result of the material breach of this Agreement by the party seeking to terminate. The Termination Date for the First Closing shall be September 1, 1994, and provided the First Closing has occurred, the Termination Date for any subsequent Scheduled Closing and the Final Closing shall be September 30, 1994; PROVIDED THAT if the "Termination Date" for the "Final Closing" under the Subsequent Facilities Agreement has been extended beyond September 30, 1994, then the Termination Date for the Final Closing under this Agreement shall likewise be extended, and PROVIDED FURTHER THAT, - 110 - notwithstanding any provisions in this Agreement which may be construed to the contrary, under no circumstances shall the Termination Date for the Final Closing under this Agreement occur after the first to occur of the "Final Closing" or the "Termination Date" therefor under the Subsequent Facilities Agreement. Each such date, or such later date as may be specifically provided for in this Agreement (including any date arising under operation of SECTIONS 8.5(C)(ii) and 9.5(C)(ii) hereof) or agreed upon by the parties, is herein referred to as the "TERMINATION DATE." Each party's right of termination hereunder is in addition to any other rights it may have hereunder or otherwise. Section 10.2 EFFECT OF TERMINATION. If there has been a termination pursuant to SECTION 10.1 prior to the First Closing, then this Agreement shall be deemed terminated, and all further obligations of the parties hereunder shall terminate, except that the obligations set forth in SECTIONS 5.5 and 5.6 and in ARTICLES 11 and 12 shall survive. In the event of termination of this Agreement as provided above, there shall be no liability on the part of a party to another under and by reason of this Agreement or the transactions contemplated hereby except as set forth in ARTICLE 11 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by the provisions of this Agreement. In the event of a termination after the First Closing, then all further obligations of the parties respecting Transactions that have not been consummated shall terminate, except that the obligations set forth in SECTIONS 5.5 and 5.6 and in ARTICLES 11 and 12 shall survive, and there shall be no liability on the part of a party to another in respect of such unconsummated Transactions except as set forth in ARTICLE 11 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by this Agreement. The foregoing provisions shall not, however, limit or restrict the availability of specific performance or other injunctive or equitable relief to the extent that specific performance or such other relief would otherwise be available to a party hereunder. ARTICLE 11 SURVIVAL AND REMEDIES; INDEMNIFICATION Section 11.1 SURVIVAL. Except as may be otherwise expressly set forth in this Agreement, the representations, warranties, covenants and agreements of Buyer and Seller set forth in this Agreement, or in any writing required to be delivered in connection with this Agreement, shall - 111 - survive the Scheduled Closings and the consummations of the Transactions. Section 11.2 EXCLUSIVE REMEDY. Absent intentional fraud or unless otherwise specifically provided herein, the sole exclusive remedy for damages of a party hereto for any breach of the representations, warranties, covenants and agreements of the other party contained in this Agreement and the Related Agreements shall be the remedies contained in this ARTICLE 11. Notwithstanding the foregoing, with respect to any matters associated with any of the Owned Real Properties or Leased Real Properties involving environmental contamination or noncompliance with any applicable Environmental Law, if the First Closing occurs, nothing in this ARTICLE 11 shall limit or restrict a party's rights or remedies against, or obligations to, another party or any third party arising under any Environmental Law, if such matter (a) was in existence on or prior to the relevant Scheduled Closing, (b) was not identified in the Environmental Survey or SCHEDULE 3.16 (or an update thereto pursuant to SECTION 6.3), (c) was unknown to Seller or any Subsidiary as of the relevant Scheduled Closing, and (d) would not constitute a breach of Seller's warranties in SECTION 3.16. Section 11.3 INDEMNITY BY SELLER. (a) Seller shall indemnify Buyer and the Buyer Subsidiaries and hold them harmless from and against any and all claims, demands, suits, loss, liability, damage and expense, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment (collectively "LOSSES"), which they may sustain or suffer or to which they may become subject as a result of: (i) The inaccuracy of any representation or the breach of any warranty made by Seller herein or by Seller or a Subsidiary in a Related Agreement, PROVIDED, that any such inaccuracy or breach shall be determined without regard to any qualification of such representation or warranty relating to materiality or any Material Adverse Effect; (ii) The nonperformance or breach of any covenant or agreement made or undertaken by Seller in this Agreement or by Seller or a Subsidiary in a Related Agreement; and - 112 - (iii) If a Scheduled Closing occurs, the failure of Seller of any Subsidiary to pay, discharge or perform as and when due, any of the Excluded Liabilities (including, without limitation, the Excluded Liabilities enumerated in SECTIONS 2.4(C), (D), (E) and (G), and any Losses as a result of or in connection with the failure of Seller and the Subsidiaries to comply with any Bulk Sales Laws referred to in SECTION 7.1). (b) The indemnification obligations of Seller provided above shall, in addition to the qualifications and conditions set forth in SECTIONS 11.5 and 11.6, be subject to the following qualifications: (i) Buyer and the Buyer Subsidiaries shall not be entitled to indemnity under SUBSECTION (A)(i) above (except for claims arising under SECTIONS 3.1, 3.2, 3.3 and 3.7) unless: (A) Written notice to Seller of such claim specifying the basis thereof is made, or an action at law or in equity with respect to such claim is served, before the second anniversary of the earlier to occur of the relevant Closing Date or the date on which this Agreement is terminated, as the case may be; (B) If a Scheduled Closing occurs, the Losses sustained or suffered by Buyer and the Buyer Subsidiaries or to which they may be subject as a result of circumstances described in such SUBSECTION (a)(i) and in SECTION 11.3(A)(i) of the Subsequent Facilities Agreement exceed, in the aggregate, the sum of Three Million Dollars ($3,000,000) (the "TRIGGER AMOUNT"), in which case Buyer and the Buyer Subsidiaries shall be entitled only to recover the amount by which such aggregate Losses exceed Two Million Dollars ($2,000,000) (the "DEDUCTIBLE AMOUNT"), PROVIDED, however, that individual claims of Two Thousand Dollars ($2,000) or less shall not be aggregated for purposes of calculating either the Trigger Amount, the Deductible Amount or the excess of Losses over the Deductible Amount; (C) If a Scheduled Closing occurs, in no event shall Seller be liable to Buyer and the Buyer Subsidiaries under SUBSECTION (A)(i) for Losses in the nature of conse- - 113 - quential damages, lost profits, damage to reputation or the like, but such damages shall be limited to out-of-pocket Losses and diminution in value; and (D) If a Scheduled Closing occurs, in no event shall Seller be liable to Buyer and the Buyer Subsidiaries under SUBSECTION (a)(i) of this Agreement and under SECTION 11(a)(i) of the Subsequent Facilities Agreement for amounts which, in the aggregate, exceed the sum of (x) that portion of the Purchase Price paid pursuant to SECTION 2.5(a) of this Agreement and pursuant to SECTION 2.5(a) of the Subsequent Facilities Agreement for assets actually acquired and (y) the amount paid pursuant to the penultimate sentence of SECTION 2.5 of this Agreement and pursuant to the penultimate sentence of SECTION 2.5(a) of the Subsequent Facilities Agreement; PROVIDED that in the event Buyer and the Buyer Subsidiaries make claims in the aggregate for Losses with respect to a Facility that exceed seventy-five percent (75%) of the portion of the Purchase Price allocated to such Facility in the Allocation Schedule, then substantially concurrently with the making of such claim or claims, Buyer shall cause such Facility to be offered in writing for resale to Seller at a cash price equal to such allocated portion of the Purchase Price less amounts, if any, previously paid by Seller to Buyer with respect to Buyer's claims for Losses with respect to such Facility and on an "as is, where is" basis, in which case: (1) Seller shall have thirty (30) days to accept such offer in writing; (2) If Seller accepts such offer, it shall have one hundred fifty (150) days to close such transaction; (3) At the closing of such transaction, Buyer shall cause all of the right, title and interest of its Affiliates in such Facility and related assets to be conveyed to Seller (or a designee of Seller) in the same condition of title as the Facility and related assets were originally sold, assigned, transferred and conveyed by Seller and the Subsidiaries hereunder, - 114 - and Seller (or such designee) shall assume disclosed operating liabilities of the Facility of the same types as the Assumed Liabilities PROVIDED that if the dollar amount of such liabilities exceeds the dollar amount of the Assumed Liabilities respecting such Facility originally assumed by Buyer hereunder, then there shall be a dollar-for-dollar reduction in the purchase price payable by Seller (or its designee) to the extent of such excess; and (4) Simultaneous with such closing, Buyer and the Buyer Subsidiaries shall release Seller from further liability under SUBSECTION (a)(i) for Losses with respect to such Facility. (ii) If a Scheduled Closing occurs, Buyer and the Buyer Subsidiaries shall not be entitled to indemnity under SUBSECTIONS (a)(ii)-(iii) above except for out-of-pocket Losses actually suffered or sustained by them or to which they may become subject as a result of circumstances described in such SUBSECTIONS (a)(ii)-(iii), and such indemnity shall not include Losses in the nature of consequential damages, lost profits, diminution in value, damage to reputation or the like; except that the provisions of this clause (b)(ii) shall not apply to breaches of SECTIONS 5.6 and 6.8, PROVIDED that the liability of Seller and the Subsidiaries for breaches of such Sections shall be subject to the provisions of SUBSECTION (b)(i)(D) above and that the liability of Seller and the Subsidiaries for breaches of such Sections shall be aggregated with the liability of Seller under SUBSECTION (a)(i) for purposes of SUBSECTION (b)(i)(D). (iii) Seller shall have no liability for Losses arising from the breach of any warranty related to Net Book Values, including without limitation the warranties contained in SECTIONS 3.17 and 3.18, and no such Losses shall be applied against the Trigger Amount or the Deductible Amount or the excess of Losses over the Deductible Amount, it being agreed that the liability of the Seller with respect to Net Book Values, if any, shall be resolved in accordance with the provisions of SECTIONS 2.6(a), (b) and (c). - 115 - Section 11.4 INDEMNITY BY BUYER. (a) Buyer shall indemnify Seller and the Subsidiaries and hold Seller and the Subsidiaries harmless from and against any and all Losses which they may sustain or suffer or to which they may become subject as a result of: (i) The inaccuracy of any representation or the breach of any warranty made by Buyer herein or by Buyer or a Buyer Subsidiary in a Related Agreement, PROVIDED that any such inaccuracy or breach shall be determined without regard to any qualification of such representation or warranty relating to materiality or any Material Adverse Effect; (ii) The nonperformance or breach of any covenant or agreement made or undertaken by Buyer in this Agreement or by Buyer or a Buyer Subsidiary in a Related Agreement; (iii) If a Scheduled Closing occurs, the failure of Buyer to pay, discharge or perform as and when due, any of the Assumed Liabilities; and (iv) If a Scheduled Closing occurs, the ongoing operations of Buyer and the Transferred Assets after the relevant Closing Date, including but not limited to the continuation or performance by Buyer after the relevant Closing Date of any agreement or practice of the Seller or the Subsidiaries. (b) The indemnification obligations of Buyer provided above shall, in addition to the qualifications and conditions set forth in SECTIONS 11.5 and 11.6, be subject to the following qualifications: (i) Seller and the Subsidiaries shall not be entitled to indemnity under SUBSECTION (a)(i) above (except for claims under SECTIONS 4.1, 4.2, 4.3 and 4.7) unless: (A) Written notice to Buyer of such claim specifying the basis thereof is made, or an action at law or in equity with respect to such claim is served, before the second anniversary of the earlier to occur of the relevant - 116 - Closing Date or the date on which this Agreement is terminated, as the case may be; (B) If a Scheduled Closing occurs, the Losses sustained or suffered by Seller and the Subsidiaries or to which they may be subject as a result of circumstances described in such SUBSECTION (a)(i) and in SECTION 11.4(a)(i) of the Subsequent Facilities Agreement exceed, in the aggregate, the Trigger Amount, in which case Seller and the Subsidiaries shall be entitled only to recover the amount by which such Losses exceed, in the aggregate, the Deductible Amount, PROVIDED, however, that individual claims of Two Thousand Dollars ($2,000) or less shall not be aggregated for purposes of calculating either the Trigger Amount, the Deductible Amount or the excess of Losses over the Deductible Amount; and (C) If a Scheduled Closing occurs, in no event shall Buyer be liable to Seller and the Subsidiaries under SUBSECTION (a)(i) for Losses in the nature of consequential damages, lost profits, damage to reputation or the like, but such damages shall be limited to out-of-pocket Losses and diminution in value. (ii) If a Scheduled Closing occurs, Seller and the Subsidiaries shall not be entitled to indemnity under SUBSECTIONS (a)(ii)-(iv) above except for out-of-pocket Losses actually suffered or sustained by them or to which they may become subject as a result of circumstances described in such SUBSECTIONS (a)(ii)-(iv), and such indemnity shall not include Losses in the nature of consequential damages, lost profits, diminution in value, damage to reputation or the like, except that the provisions of this clause (b)(ii) shall not apply to breaches of SECTIONS 5.6 or 5.7. Section 11.5 FURTHER QUALIFICATIONS RESPECTING INDEMNIFICATION. The right of a party (an "INDEMNITEE") to indemnity hereunder shall be subject to the following additional qualifications: (a) The Indemnitee shall promptly upon its discovery of facts or circumstances giving rise to a claim for indemnification, including receipt by it of notice of any demand, assertion, claim, action or proceed- - 117 - ing, judicial, governmental or otherwise, by any third party (such third party actions being collectively referred to herein as "THIRD PARTY CLAIMS"), give notice thereof to the indemnifying party (the "INDEMNITOR"), such notice in any event to be given within sixty (60) days from the date the Indemnitee obtains actual knowledge of the basis or alleged basis for the right of indemnity or such shorter period as may be necessary to avoid material prejudice to the Indemnitor; and (b) In computing Losses, such amounts shall be computed net of any related recoveries to which the Indemnitee is entitled under insurance policies or other related payments received or receivable from third parties and net of any tax benefits actually received by the Indemnitee or for which it is eligible, taking into account the income tax treatment of the receipt of indemnification. Section 11.6 PROCEDURES RESPECTING THIRD PARTY CLAIMS. In providing notice to the Indemnitor of any Third Party Claim (the "CLAIM NOTICE"), the Indemnitee shall provide the Indemnitor with a copy of such Third Party Claim or other documents received and shall otherwise make available to the Indemnitor all relevant information material to the defense of such claim and within the Indemnitee's possession. The Indemnitor shall have the right, by notice given to the Indemnitee within fifteen (15) days after the date of the Claim Notice, to assume and control the defense of the Third Party Claim that is the subject of such Claim Notice, including the employment of counsel selected by the Indemnitor after consultation with the Indemnitee, and the Indemnitor shall pay all expenses of, and the Indemnitee shall cooperate fully with the Indemnitor in connection with, the conduct of such defense. The Indemnitee shall have the right to employ separate counsel in any such proceeding and to participate in (but not control) the defense of such Third Party Claim, but the fees and expenses of such counsel shall be borne by the Indemnitee unless the Indemnitor shall agree otherwise; PROVIDED, HOWEVER, if the named parties to any such proceeding (including any impleaded parties) include both the Indemnitee and the Indemnitor, the Indemnitor requires that the same counsel represent both the Indemnitee and the Indemnitor, and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Indemnitee shall have the right to retain its own counsel at the cost and expense of the Indemnitor. If the Indemnitor shall have failed to assume the defense of any Third Party Claim in accordance with the provisions of this Section, then the Indemnitee shall have the absolute right to control - 118 - the defense of such Third Party Claim, and, if and when it is finally determined that the Indemnitee is entitled to indemnification from the Indemnitor hereunder, the fees and expenses of Indemnitee's counsel shall be borne by the Indemnitor, PROVIDED that the Indemnitor shall be entitled, at its expense, to participate in (but not control) such defense. The Indemnitor shall have the right to settle or compromise any such Third Party Claim for which it is providing indemnity so long as such settlement does not impose any obligations on the Indemnitee (except with respect to providing releases of the third party). The Indemnitor shall not be liable for any settlement effected by the Indemnitee without the Indemnitor's consent except where the Indemnitee has assumed the defense because Indemnitor has failed or refused to do so. The Indemnitor may assume and control, or bear the costs, of any such defense subject to its reservation of a right to contest the Indemnitee's right to indemnification hereunder, PROVIDED that it gives the Indemnitee notice of such reservation within fifteen (15) days of the date of the Claim Notice. ARTICLE 12 GENERAL PROVISIONS Section 12.1 NOTICES. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by telegraphic, facsimile or other electronic means, by overnight air courier or by mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by telegraphic, facsimile or other electronic means, (b) one business day after having been delivered to an air courier for overnight delivery or (c) three business days after having been deposited in the mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by a party hereto): If to Seller, addressed to: National Medical Enterprises 2700 Colorado Avenue Santa Monica, CA 90404 Attn: Treasurer Facsimile: (310) 998-6507 - 119 - with a copy to counsel for Seller: National Medical Enterprises 2700 Colorado Avenue Santa Monica, CA 90404 Attn: General Counsel Facsimile: (310) 998-6956 and Munger, Tolles & Olson 355 South Grand Avenue 35th Floor Los Angeles, CA 90071 Attn: Robert L. Adler Facsimile: (213) 687-3702 If to Buyer, addressed to: Charter Medical Corporation 577 Mulberry St. Macon, GA 31298 Attn: Executive Vice President - Finance Facsimile: (912) 751-2832 with a copy to counsel for Buyer: King & Spalding 191 Peachtree Street Atlanta, GA 30303-1763 Attn: Robert W. Miller Facsimile: (404) 572-5144 Section 12.2 ATTORNEYS' FEES. In any litigation or other proceeding relating to this Agreement, including litigation with respect to any Related Agreement (but excluding any proceedings under SECTIONS 2.6(b), 2.6(c) or 2.14), the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees. Section 12.3 SUCCESSORS AND ASSIGNS. The rights under this Agreement shall not be assignable or transferable nor the duties delegable - 120 - by either party without the prior written consent of the other; and nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their permitted successors- in-interest and permitted assignees, any rights or remedies under or by reason of this Agreement unless so stated to the contrary. Notwithstanding the foregoing, (a) Buyer may grant to its lenders a security interest in its rights under this Agreement, and (b) subject to the terms and provisions of SECTION 5.7, Buyer may assign its rights under SECTION 5.7 to the entities and in the circumstances described in SECTION 5.7(d). Section 12.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 12.5 CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. Section 12.6 ENTIRETY OF AGREEMENT; AMENDMENTS. This Agreement (including the Schedules and Exhibits hereto), the other documents and instruments specifically provided for in this Agreement, and the Subsequent Facilities Agreement contain the entire understanding between the parties concerning the subject matter of this Agreement and such other documents and instruments and, except as expressly provided for herein, supersede all prior understandings and agreements, whether oral or written, between them with respect to the subject matter hereof and thereof. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement and such other documents and instruments which are not fully expressed herein or therein. This Agreement may be amended or modified only by an agreement in writing signed by each of the parties hereto. All Exhibits and Schedules attached to or delivered in connection with this Agreement are integral parts of this Agreement as if fully set forth herein. Without limiting the generality of the foregoing, this Agreement and the Subsequent Facilities Agreement shall, upon their execution, replace and substitute for that certain Asset Sale Agreement between the parties dated as of March 29, 1994 related to both the First Facilities and the Subsequent Facilities which shall be of no further force and effect, it being agreed that the effectiveness of this Agreement and of the Subsequent Facilities Agreement shall relate back from their actual - 121 - date of execution to and including March 29, 1994. The representations and warranties of the parties made herein shall likewise be deemed to have been made as of March 29, 1994. Section 12.7 CONSTRUCTION. This Agreement and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the person who drafted the various provisions of the same. Each and every provision of this Agreement and such other documents and instruments shall be construed as though the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or such other documents and instruments. Section 12.8 WAIVER. The failure of a party to insist, in any one or more instances, on performance of any of the terms, covenants and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of the parties with respect thereto shall continue in full force and effect. No waiver of any provision or condition of this Agreement by a party shall be valid unless in writing signed by such party or operational by the terms of this Agreement. A waiver by one party of the performance of any covenant, condition, representation or warranty of the other party shall not invalidate this Agreement, nor shall such waiver be construed as a waiver of any other covenant, condition, representation or warranty. A waiver by any party of the time for performing any act shall not constitute a waiver of the time for performing any other act or the time for performing an identical act required to be performed at a later time. Section 12.9 GOVERNING LAW. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of California, without regard to the principles of conflicts of law thereof, PROVIDED that the validity, interpretation and effect of any instruments by which real property is conveyed at a Scheduled Closing shall be governed by the laws of the state in which such real property is located. Any action arising under this Agreement shall be adjudicated (a) in Los Angeles, California, if brought by Buyer or its Affiliates against Seller, any Subsidiary or their respective Affiliates, and (b) in [Atlanta], Georgia, if brought by Seller or its Affiliates against Buyer, any Buyer Subsidiary or their respective Affiliates, provided that any cross-claim or - 122 - counterclaim shall also be adjudicated in the court in which the underlying action has been brought in accordance with this SECTION 12.9. Section 12.10 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be valid, binding and enforceable under applicable law, but if any provision of this Agreement is held to be invalid, void (or voidable) or unenforceable under applicable law, such provision shall be ineffective only to the extent held to be invalid, void (or voidable) or unenforceable, without affecting the remainder of such provision or the remaining provisions of this Agreement. Section 12.11 CONSENTS NOT UNREASONABLY WITHHELD. Wherever the consent or approval of any party is required under this Agreement, such consent or approval shall not be unreasonably withheld, unless such consent or approval is to be given by such party at the sole or absolute discretion of such party or is otherwise similarly qualified. Section 12.12 TIME IS OF THE ESSENCE. Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement. The parties acknowledge that each will be relying upon the timely performance by the other of its obligations hereunder as a material inducement to each party's execution of this Agreement. - 123 - IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. Buyer: CHARTER MEDICAL CORPORATION By /s/ Lawrence W. Drinkard ------------------------------- Name Lawrence W. Drinkard ------------------------ Title E.V.P./CFO ----------------------- Seller: NATIONAL MEDICAL ENTERPRISES, INC. By /s/ Raymond L. Mathiasen ------------------------------- Name Raymond L. Mathiasen ------------------------ Title Sr. V.P. - CFO ----------------------- - 124 - EX-2.E 3 EXHIBIT 2(E) Subsequent Facilities Execution Copy ASSET SALE AGREEMENT (SUBSEQUENT FACILITIES) ****** NATIONAL MEDICAL ENTERPRISES, INC. As Seller AND CHARTER MEDICAL CORPORATION As Buyer Dated: March 29, 1994 ASSET SALE AGREEMENT (SUBSEQUENT FACILITIES) Table of Contents PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 1. . . . . . . . . . . . . 2 DEFINITIONS Section 1.1 Certain Defined Terms . . . . . . . . . . . . . . . . . . 2 Section 1.2 Index of Other Defined Terms. . . . . . . . . . . . . . . 4 ARTICLE 2. . . . . . . . . . . . . 8 BASIC TRANSACTIONS Section 2.1 Purchased Assets. . . . . . . . . . . . . . . . . . . . . 8 Section 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . 13 Section 2.3 Assumed Liabilities . . . . . . . . . . . . . . . . . . . 15 Section 2.4 Excluded Liabilities. . . . . . . . . . . . . . . . . . . 17 Section 2.5 Purchase Price. . . . . . . . . . . . . . . . . . . . . . 20 Section 2.6 Payment of Purchase Price . . . . . . . . . . . . . . . . 20 (a) Payment of Tentative Purchase Price . . . . . . . . . . . . 21 (b) Determination of Interim Net Book Values. . . . . . . . . . 21 (c) Determination of Final Net Book Values. . . . . . . . . . . 22 (d) Seller as Agent of Subsidiaries . . . . . . . . . . . . . . 24 Section 2.7 Allocation of Purchase Price. . . . . . . . . . . . . . . 24 Section 2.8 Contingent Lease Obligations. . . . . . . . . . . . . . . 25 Section 2.9 Remittances and Receivables . . . . . . . . . . . . . . . 25 (a) In General. . . . . . . . . . . . . . . . . . . . . . . . . 25 (b) Receivables . . . . . . . . . . . . . . . . . . . . . . . . 27 (c) Straddle Patient Receivables. . . . . . . . . . . . . . . . 28 (i) Cut-Off Billings . . . . . . . . . . . . . . . . . . 28 (ii) Cut-Off Billings Not Accepted . . . . . . . . . . . 29 (d) Cooperation in Collecting Receivables and Excluded Assets . . . . . . . . . . . . . . . . . . . . . . 30 (e) Non-Assignable Receivables. . . . . . . . . . . . . . . . . 30 (f) Collection Fee. . . . . . . . . . . . . . . . . . . . . . . 31 (i) Section 2.10 Employee Matters . . . . . . . . . . . . . . . . . . . . 32 (a) Pension Plans . . . . . . . . . . . . . . . . . . . . . . . 32 (b) Retained Employees. . . . . . . . . . . . . . . . . . . . . 32 (c) Hiring of Retained Employees. . . . . . . . . . . . . . . . 34 (d) Health Benefits . . . . . . . . . . . . . . . . . . . . . . 34 (e) Acknowledgement of Responsibility . . . . . . . . . . . . . 35 Section 2.11 Use of Names . . . . . . . . . . . . . . . . . . . . . . 36 Section 2.12 No Assignment If Breach; Seller's Discharge of Assumed Liabilities . . . . . . . . . . . . . . . . . 37 Section 2.13 Closings . . . . . . . . . . . . . . . . . . . . . . . . 40 (a) The First Closing . . . . . . . . . . . . . . . . . . . . . 40 (b) The Second Closing. . . . . . . . . . . . . . . . . . . . . 41 (c) The Final Closing . . . . . . . . . . . . . . . . . . . . . 41 (d) Deliveries by Seller. . . . . . . . . . . . . . . . . . . . 42 (e) Deliveries by Buyer . . . . . . . . . . . . . . . . . . . . 43 (f) Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 2.14 Purchase Price Adjustment. . . . . . . . . . . . . . . . 44 Section 2.15 Transfer of Assets in Corporate Form . . . . . . . . . . 46 Section 2.16 Assignment of Rights and Obligations to Buyer Subsidiaries . . . . . . . . . . . . . . . . . . . 46 Section 2.17 Data Processing Services . . . . . . . . . . . . . . . . 48 ARTICLE 3. . . . . . . . . . . . . 50 REPRESENTATIONS AND WARRANTIES OF SELLER Section 3.1 Organization and Corporate Power. . . . . . . . . . . . . 50 Section 3.2 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 50 Section 3.3 Authority Relative to this Agreement. . . . . . . . . . . 51 Section 3.4 Absence of Breach . . . . . . . . . . . . . . . . . . . . 52 Section 3.5 Private Party Consents. . . . . . . . . . . . . . . . . . 53 Section 3.6 Governmental Consents . . . . . . . . . . . . . . . . . . 53 Section 3.7 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 3.8 Title to Property . . . . . . . . . . . . . . . . . . . . 54 Section 3.9 Assumed Contracts . . . . . . . . . . . . . . . . . . . . 55 Section 3.10 Licenses . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 3.11 U.S. Person; Resident of Georgia . . . . . . . . . . . . 56 Section 3.12 Employee Relations . . . . . . . . . . . . . . . . . . . 57 Section 3.13 Employee Plans . . . . . . . . . . . . . . . . . . . . . 57 Section 3.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . 58 Section 3.15 Inventory. . . . . . . . . . . . . . . . . . . . . . . . 58 (ii) Section 3.16 Hazardous Substances . . . . . . . . . . . . . . . . . . 58 Section 3.17 Financial Information. . . . . . . . . . . . . . . . . . 60 Section 3.18 Changes Since Balance Sheet. . . . . . . . . . . . . . . 62 Section 3.19 Transferred Business Names . . . . . . . . . . . . . . . 63 Section 3.20 Compliance with Laws and Accreditation . . . . . . . . . 64 Section 3.21 Cost Reports, Third Party Receivables and Conditions of Participation. . . . . . . . . . . . . . . 65 Section 3.22 Medical Staff. . . . . . . . . . . . . . . . . . . . . . 65 Section 3.23 Hill-Burton Care . . . . . . . . . . . . . . . . . . . . 66 Section 3.24 Assets Used in the Operation of the Facilities . . . . . . . . . . . . . . . . . . . . . . . 66 Section 3.25 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 66 Section 3.26 Lists of Other Data. . . . . . . . . . . . . . . . . . . 66 Section 3.27 Certain Transactions . . . . . . . . . . . . . . . . . . 68 ARTICLE 4. . . . . . . . . . . . . 68 REPRESENTATIONS AND WARRANTIES OF BUYER Section 4.1 Organization and Corporate Power. . . . . . . . . . . . . 68 Section 4.2 Buyer Subsidiaries. . . . . . . . . . . . . . . . . . . . 68 Section 4.3 Authority Relative to this Agreement. . . . . . . . . . . 69 Section 4.4 Absence of Breach . . . . . . . . . . . . . . . . . . . . 70 Section 4.5 Private Party Consents. . . . . . . . . . . . . . . . . . 70 Section 4.6 Governmental Consents . . . . . . . . . . . . . . . . . . 70 Section 4.7 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 4.8 Qualified for Licenses. . . . . . . . . . . . . . . . . . 71 Section 4.9 Financial Ability to Perform. . . . . . . . . . . . . . . 71 Section 4.10 No Knowledge of Seller's Breach. . . . . . . . . . . . . 71 Section 4.11 No Assurance . . . . . . . . . . . . . . . . . . . . . . 71 ARTICLE 5. . . . . . . . . . . . . 72 COVENANTS OF EACH PARTY Section 5.1 Efforts to Consummate Transactions. . . . . . . . . . . . 72 Section 5.2 Cooperation; Regulatory Filings . . . . . . . . . . . . . 73 Section 5.3 Further Assistance. . . . . . . . . . . . . . . . . . . . 74 Section 5.4 Cooperation Respecting Proceedings. . . . . . . . . . . . 74 Section 5.5 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 5.6 Announcements; Confidentiality. . . . . . . . . . . . . . 76 (iii) Section 5.7 Preservation of and Access to Certain Records. . . . . . . . . . . . . . . . . . . . . . . . . 78 ARTICLE 6. . . . . . . . . . . . . 80 ADDITIONAL COVENANTS OF SELLER Section 6.1 Conduct Pending Closing . . . . . . . . . . . . . . . . . 80 Section 6.2 Access and Information; Environmental Survey; Remediation or Adjustment. . . . . . . . . . . . . . . . 83 Section 6.3 Updating. . . . . . . . . . . . . . . . . . . . . . . . . 86 Section 6.4 No Solicitation . . . . . . . . . . . . . . . . . . . . . 86 Section 6.5 Name Changes. . . . . . . . . . . . . . . . . . . . . . . 87 Section 6.6 Filing of Cost Reports. . . . . . . . . . . . . . . . . . 87 Section 6.7 Purchase of Supplies. . . . . . . . . . . . . . . . . . . 87 Section 6.8 Covenant Not to Compete . . . . . . . . . . . . . . . . . 88 (a) Covenant. . . . . . . . . . . . . . . . . . . . . . . . . . 88 (b) Exceptions. . . . . . . . . . . . . . . . . . . . . . . . . 88 (i) Psychiatric Facilities and Contracts Not Acquired By Buyer. . . . . . . . . . . . . . . . 88 (ii) Facilities Outside Geographic Area . . . . . . . . 89 (iii) Acute Hospitals. . . . . . . . . . . . . . . . . . 89 (iv) Divestiture of Acquired Psychiatric Facilities. . . . . . . . . . . . . . . . . . . . 89 (v) Acquiring Entities . . . . . . . . . . . . . . . . 90 (c) Acute Hospital Affiliations . . . . . . . . . . . . . . . . 90 (d) Covenant Period . . . . . . . . . . . . . . . . . . . . . . 92 (e) Severability. . . . . . . . . . . . . . . . . . . . . . . . 92 (f) Injunctive Relief . . . . . . . . . . . . . . . . . . . . . 92 (g) Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Section 6.9 Audited Statements. . . . . . . . . . . . . . . . . . . . 93 Section 6.10 Post-Closing Insurance . . . . . . . . . . . . . . . . . 93 Section 6.11 Use of Controlled Substance Licenses . . . . . . . . . . 94 Section 6.12 Non-Disturbance Agreements . . . . . . . . . . . . . . . 94 ARTICLE 7. . . . . . . . . . . . . 95 ADDITIONAL COVENANTS OF BUYER Section 7.1 Waiver of Bulk Sales Law Compliance . . . . . . . . . . . 95 Section 7.2 Resale Certificate. . . . . . . . . . . . . . . . . . . . 95 (iv) Section 7.3 Cost Reports and Audit Contests . . . . . . . . . . . . . 95 Section 7.4 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . 96 Section 7.5 Letters of Credit . . . . . . . . . . . . . . . . . . . . 96 Section 7.6 Conduct Pending Closing . . . . . . . . . . . . . . . . . 96 ARTICLE 8. . . . . . . . . . . . . 97 BUYER'S CONDITIONS TO CLOSING Section 8.1 Performance of Agreement. . . . . . . . . . . . . . . . . 97 Section 8.2 Accuracy of Representations and Warranties. . . . . . . . 97 Section 8.3 Officers' Certificate . . . . . . . . . . . . . . . . . . 98 Section 8.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . 98 Section 8.5 Absence of Injunctions. . . . . . . . . . . . . . . . . . 98 Section 8.6 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 100 Section 8.7 Title to Real Property. . . . . . . . . . . . . . . . . . 100 Section 8.8 Receipt of Other Documents. . . . . . . . . . . . . . . . 102 Section 8.9 Licenses and Permits. . . . . . . . . . . . . . . . . . . 102 Section 8.10 Casualty; Condemnation . . . . . . . . . . . . . . . . . 102 Section 8.11 Reasonable Assurances. . . . . . . . . . . . . . . . . . 103 ARTICLE 9. . . . . . . . . . . . . 104 SELLER'S CONDITIONS TO CLOSING Section 9.1 Performance of Agreement. . . . . . . . . . . . . . . . . 105 Section 9.2 Accuracy of Representations and Warranties. . . . . . . . 105 Section 9.3 Officers' Certificate . . . . . . . . . . . . . . . . . . 105 Section 9.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . 105 Section 9.5 Absence of Injunctions. . . . . . . . . . . . . . . . . . 105 Section 9.6 Opinion of Counsel. . . . . . . . . . . . . . . . . . . . 107 Section 9.7 Receipt of Other Documents. . . . . . . . . . . . . . . . 107 ARTICLE 10. . . . . . . . . . . . . 108 TERMINATION Section 10.1 Termination. . . . . . . . . . . . . . . . . . . . . . . 108 Section 10.2 Effect of Termination. . . . . . . . . . . . . . . . . . 108 (v) ARTICLE 11. . . . . . . . . . . . . 109 SURVIVAL AND REMEDIES; INDEMNIFICATION Section 11.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . 109 Section 11.2 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . 109 Section 11.3 Indemnity by Seller. . . . . . . . . . . . . . . . . . . 110 Section 11.4 Indemnity by Buyer . . . . . . . . . . . . . . . . . . . 113 Section 11.5 Further Qualifications Respecting Indemnification. . . . . . . . . . . . . . . . . . . . . 115 Section 11.6 Procedures Respecting Third Party Claims . . . . . . . . 116 ARTICLE 12. . . . . . . . . . . . . 117 GENERAL PROVISIONS Section 12.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 117 Section 12.2 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 118 Section 12.3 Successors and Assigns . . . . . . . . . . . . . . . . . 118 Section 12.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . 119 Section 12.5 Captions and Paragraph Headings. . . . . . . . . . . . . 119 Section 12.6 Entirety of Agreement; Amendments. . . . . . . . . . . . 119 Section 12.7 Construction . . . . . . . . . . . . . . . . . . . . . . 119 Section 12.8 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 120 Section 12.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . 120 Section 12.10 Severability. . . . . . . . . . . . . . . . . . . . . . 120 Section 12.11 Consents Not Unreasonably Withheld. . . . . . . . . . . 121 Section 12.12 Time Is of the Essence. . . . . . . . . . . . . . . . . 121 (vi) EXHIBITS A. Forms of Bill of Sale and Assignment B. Form of Assignments with Respect to Real Property Leases C. Forms of Assumption Agreement D. Form of Purchasing Contract E. Remaining Schedules LIST OF SCHEDULES A-1 Subsidiaries and Their Respective States of Incorporation; Ownership of Subsidiary Stock A-2 Facilities 2.1(a) Real property owned in fee by Subsidiaries 2.1(b) Real Property Leases 2.1(c) Venture Agreements 2.1(f) Other Assigned Contracts 2.1(h) Transferred Business Names 2.1(k) Prepayments 2.2(j) Other Excluded Assets 2.3(a) Capitalized Leases and Capitalized Lease Liabilities 2.3(f) Other Assumed Liabilities (vii) 2.4(i) Indebtedness 2.4(j) Other Excluded Liabilities 2.7 Allocation Schedule 2.10(a) Pension Plans 2.12(c) Schedule of Required Consents 2.13B Assigned EBITDA 3.5 Private Party Consents 3.7 Seller's Brokers 3.8(a) Liens 3.8(b)(i) Other Real Property and 3.8(b)(ii) 3.9 Assumed Contracts 3.10 Licenses 3.12 Certain Employee Relations Matters 3.14 Litigation 3.16 Environmental Matters 3.17(a) EBITDA Statements 3.17(b) Balance Sheet 3.18 Changes Since Balance Sheet 3.19 Conflicts With Transferred Business Names 3.20 Compliance With Laws and Accreditations (viii) 3.21 Cost Reports, Third Party Receivables and Conditions of Participation 3.22 Medical Staff 3.23 Hill-Burton Care 3.24 Assets Used in the Operation of the Facilities 3.26(a) Depreciation Schedules 3.26(b) Insurance 3.26(c) Employee Benefit Arrangements 3.26(d) Paid Time Off 3.26(e) Certain Contracts 3.26(f) Certain Indebtedness 3.26(g) Certain Financing Arrangements 3.26(h) Certain Contracts Related to Liens 3.27 Certain Transactions 4.5 Private Party Consents 4.7 Buyer's Brokers 4.11 Certain Scheduled Meetings 6.1 Exceptions to Conduct 6.7 National Purchasing Contracts 7.5 Letters of Credit 6.8(c) Specified Acute Hospitals (ix) 8.7(b) Disapproved Title Exceptions (x) ASSET SALE AGREEMENT (SUBSEQUENT FACILITIES) This ASSET SALE AGREEMENT (the "AGREEMENT") is made and entered into as of the 29th day of March 1994 by and among NATIONAL MEDICAL ENTERPRISES, INC., a Nevada corporation ("SELLER"), the Subsidiaries (as defined) and CHARTER MEDICAL CORPORATION, a Delaware corporation ("BUYER"), with reference to the following facts: A. Through wholly-owned subsidiary corporations listed on the Schedule (as defined in SECTION 1.1) hereto identified as SCHEDULE A-1 (the "SUBSIDIARIES"), Seller engages in the business of delivering psychiatric health care services to the public through the inpatient, outpatient and substance abuse recovery facilities, residential treatment centers and medical office buildings identified in SCHEDULE A-2 under the following facility numbers (such facilities, centers and buildings being herein sometimes referred to as the "SUBSEQUENT FACILITIES" or simply the "FACILITIES"):
NME No. Name City State - ------- ---- ---- ----- 4. Los Altos Hospital & Medical Center Long Beach CA 6. Yorba Hills Hospital and Mental Health Center Yorba Linda CA 11. Bay Harbor Residential Treatment Center Largo FL 13. Laurel Oaks Hospital Orlando FL 14. Medfield Hospital Largo FL 15. Laurel Heights Hospital Atlanta GA 16. Brawner South Mental Health System Stockbridge GA 17. Brawner Midtown Mental Health System Atlanta GA 18. Arbor Hospital of Greater Indianapolis Indianapolis IN 19. Jefferson Hospital Jeffersonville IN 32. MidSouth Hospital Memphis TN 34. Psychiatric Institute of Richmond Richmond VA 37. Northbrooke Hospital Brown Deer WI 38. New Beginnings at Lakewood Lakewood CA 42. Brawner North Mental Health System Smyrna GA 50. Fenwick Hall Johns Island SC 59. Laurel Oaks Residential Treatment Center Orlando FL
B. Buyer desires to purchase from the Subsidiaries, through wholly-owned subsidiaries of the Buyer (each, a "BUYER SUBSIDIARY" and collectively, the "BUYER SUBSIDIARIES"), and Seller desires to cause the Subsidiaries to sell to the applicable Buyer Subsidiaries, such Facilities together with related assets (the "TRANSACTIONS"). C. Buyer and Seller are simultaneously with the execution of this Agreement entering into a separate asset sale agreement (the "FIRST FACILITIES AGREEMENT") in respect of the other inpatient, outpatient and substance abuse recovery facilities, residential treatment centers and medical office buildings also identified in SCHEDULE A-2 (the "FIRST FACILITIES"). NOW, THEREFORE, in consideration of the foregoing recitals and the agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 CERTAIN DEFINED TERMS. For purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" of a specified person shall mean any corporation, partnership, sole proprietorship or other person or entity which directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with the person specified. The term "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person or entity. The term "Affiliate" shall include, without limitation, (i) with respect to Seller, each Subsidiary, and (ii) with respect to Buyer, each Buyer Subsidiary. "Cost Report" means the cost report required to be filed, as of the end of a provider cost year or for any other period, with cost-based Payors with respect to cost reimbursement. "Environmental Law" shall mean any Law regulating or otherwise relating to Hazardous Materials, the environment, natural resources, pollution, environmental protection, waste management, industrial hygiene, health, or safety. - 2 - "Hazardous Materials" means any chemicals, materials, substances, or items in any form, whether solid, liquid, gaseous, semisolid, or any combination thereof, whether waste materials, raw materials, chemicals, finished products, by-products, or any other materials or articles, which are regulated by or form the basis of liability under any Environmental Laws, including, without limitation, any hazardous waste, medical waste, biohazardous waste, industrial waste, special waste, solid waste, hazardous substance, pollutant, hazardous air pollutant, contaminant, asbestos, polychlorinated biphenyls ("PCBs"), petroleum (including, but not limited to, petroleum-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), coal (including, but not limited to, coal-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), natural gas (including, but not limited to, natural gas-derived substances, waste or breakdown or decomposition products thereof, or any fraction thereof), formaldehyde, industrial solvents, flammables, explosives, and radioactive substances. "knowledge" of a party shall mean the best of the knowledge of any person who serves as of the date of this Agreement as a duly elected officer of such party. "Laws" shall mean all statutes, rules, regulations, ordinances, orders, codes, permits, licenses and agreements with or of federal, state, local and foreign governmental and regulatory authorities and any order, writ, injunction, settlement agreement or decree issued or approved by any court, arbitrator or governmental agency or in connection with any judicial, administrative or other non-judicial proceeding (including, without limitation, arbitration or reference). "Licenses" shall mean certificates of need, accreditations, registrations, licenses, permits and other consents or approvals of governmental agencies or accreditation organizations. "Payor" shall mean Medicare, Medicaid, CHAMPUS and Medically Indigent Assistance programs, Blue Cross, Blue Shield or any other third party payor (including an insurance company and self-insured employer), or any health care provider (such as a health maintenance organization, preferred provider organization, peer review organization, or any other managed care program). - 3 - "Release" means any release, spill, emission, leaking, pumping, emptying, dumping, injection, abandonment, deposit, disposal, discharge, dispersal, leaching, or migration of Hazardous Materials (including, but not limited to, the abandonment or discarding of Hazardous Materials in barrels, drums, or other containers) into or within the environment, including, without limitation, the migration of Hazardous Materials into, under, on, through, or in the air, soil, subsurface strata, surface water, groundwater, drinking water supply, any sediments associated with any water bodies, or any other environmental medium, regardless of where such migration originates. "Schedule" shall mean a schedule from the master set of schedules and attachments developed for this Agreement and the First Facilities Agreement and which is listed in the Table of Contents for this Agreement. The parties agree that to the extent information in a schedule from the master set of schedules and attachments is listed by a facility name and/or by a facility number, such schedule shall, for purposes of this Agreement, be deemed to include only the information contained therein that is related to the Subsequent Facilities, unless this Agreement expressly refers to information contained therein that is related to the First Facilities. "Taxes" shall mean (i) all federal, state, county and local sales, use, property, recordation and transfer taxes, (ii) all state, county and local taxes, levies, fees, assessments or surcharges (however designated, including privilege taxes, room or bed taxes and user fees) which are based on the gross receipts, net operating revenues or patient days of a Facility for a period ending on, before or including the relevant Closing Date (as defined in SECTION 2.13) or a formula taking any one of the foregoing into account, and (iii) any interest, penalties and additions to tax attributable to any of the foregoing, but shall not include income and other taxes described in SECTIONS 2.4(a) and (b). Section 1.2 INDEX OF OTHER DEFINED TERMS. In addition to those terms defined above, the following terms shall have the respective meanings given thereto in the sections indicated below: Defined Term Section ------------ ------- Account Parties 2.9(b) Accrued Operating Assets 2.5(b) - 4 - Accrued Operating Expenses 2.3(g) Acquired Acute Hospitals 6.8(c) Acquisition Date 6.8(c) Acute Hospitals 6.8(b)(iii) Adjustment Sections 2.14 Agreement Preamble Allocation Schedule 2.7 Assumed Contracts 2.3(a) Assumed Guaranties 2.3(a) Assumed Liabilities 2.3 Balance Sheet 3.17(b) Buyer Preamble Buyer Subsidiary Preamble Charter Documents 3.4 Claim Notice 11.6 Closing Date 2.13 COBRA 2.10(d) Code 3.11 Collection Fee Base 2.9(f) Combined Receivables 3.17(d) Combined Subsidiaries 3.17(a) Competing Business 6.8(a) Consents 8.5 Consultant 6.2(b) Contingent Contract 2.18 Cost Report Settlements 2.2(i) Covenant Period 6.8(d) Covered Facilities 6.8(b)(ii) Covered Parties 6.8(a) Deductible Amount 11.3(b)(i)(B) Document Retention Period 5.7(b) EBITDA 3.17(a) EBITDA Statements 3.17(a) Eligible Receivables 2.9(b)(ii) Employee Benefit Arrangements 3.26(c) Environmental Survey 6.2(b) Equipment 2.1(d) ERISA 2.10(a) Escrow Agent 2.13(f) Estimated Net Book Values 2.6(a) Excess Interim Payments 2.1(l) - 5 - Excluded Assets 2.2 Excluded Liabilities 2.4 Exempted Competing Business 6.8(c) Facilities Recitals Final Closing 2.13 Final Closing Date 2.13 Final Net Book Values 2.6(c) Financial Schedule 3.17(b) First Closing 2.13 First Facilities Recitals First Facilities Agreement Recitals Hired Employees 2.10(c) Hospital Records 5.7(a) HSR Act 3.4 Indemnitee 11.5 Indemnitor 11.5(a) Insurance Program 6.10 Intercompany Transactions 2.1(f)(y) Interim Net Book Values 2.6(b) Inventory 2.1(e) JCAHO 3.20 Leased Real Property 2.1(b) Loan Commitment Agreements 2.1(f) Loan Commitment Notes 2.1(f) Losses 11.3(a) Manuals 2.11(b) Material Adverse Effect 3.4 Multiemployer Plans 2.10(a) Net Book Values 2.5(b) 1993 EBITDA 2.13(b) Other Assigned Contracts 2.1(f) Original Closing Date 2.14 Owned Real Property 2.1(a) Paid Time Off 2.3(c) Panel 2.14 Patient Records 5.7(a) Pension Plans 2.10(a) Permitted Encumbrances 3.8(a) Permitted Expansions 6.8(b)(iv) Prepayments 2.1(k) Purchase Price 2.5 - 6 - Real Property Leases 2.1(b) Receivables 2.1(l) Related Agreements 3.4 Reorganization 6.8(b)(v) Retained Employees 2.10(b)(iii) Schedule of Required Consents 2.12(c) Scheduled Closing 2.13 Second Closing 2.13 Seller Preamble Specified Acute Hospital 6.8(c) Specified Capacity 6.8(a) Straddle Patients 2.9(c) Straddle Patient Payments 2.9(c)(ii) Subject Transferred Assets 2.13 Subsequent Facilities Recitals Subsidiaries Recitals TEFRA 2.9(c)(ii) Tentative Purchase Price 2.6(a) Termination Date 10.1(b) Third Party Claims 11.5(a) Title Insurer 8.7 Title Policies 8.7 Transactions Recitals Transferred Business Names 2.1(h) Trigger Amount 11.3(b)(i)(B) Unusual Proceedings 3.14 Venture Agreements 2.1(c) Ventures 2.1(c) WARN Act 2.10(e) Working Capital Adjustment Date 2.6(c) - 7 - ARTICLE 2 BASIC TRANSACTIONS Section 2.1 PURCHASED ASSETS. On the terms and subject to the conditions contained in this Agreement, Buyer shall, or shall cause the applicable Buyer Subsidiary to, purchase from each Subsidiary, and Seller shall cause each Subsidiary to sell, convey, assign, transfer and deliver to Buyer or the applicable Buyer Subsidiary, the following assets of each such Subsidiary that are used in and necessary for the conduct of the operations of the Facilities (the "TRANSFERRED ASSETS"), but excluding all Excluded Assets as defined in SECTION 2.2: (a) All of the Subsidiary's right, title and interest in and to the real property owned in fee (the "OWNED REAL PROPERTY") that is identified in SCHEDULE 2.1(a) on which Facilities are located and all other real property owned in fee by the Subsidiary and used in and necessary for the conduct of the operations of the Facilities, together with the Facilities, construction work- in-progress, and all other buildings, fixtures and improvements thereon, and all rights, privileges, permits and easements appurtenant thereto. (b) All of the Subsidiary's right, title and interest, as lessee or sublessee, in and to the leasehold estates and the related lease or sublease agreements (the "REAL PROPERTY LEASES") respecting land, Facilities, buildings, fixtures and real property improvements (whether owned or leased) (the "LEASED REAL PROPERTY") identified in SCHEDULE 2.1(b), together with all construction work-in-progress in respect of same and all rights, privileges and easements appurtenant thereto. (c) All of the Subsidiary's right, title and interest in and to the joint ventures or partnerships identified in SCHEDULE 2.1(c) hereto (the "VENTURES") that relate to partnerships or joint ventures that own or lease Facilities or other Transferred Assets, together with all of the Subsidiary's right, title and interest in and to the joint venture or partnership agreements, also identified in such Schedule (the "VENTURE AGREEMENTS"), that govern such partnerships or joint ventures, and, subject to the provisions of SECTION 7.6, in and to all distributions and allocations which the Subsidiary is entitled to receive as of the relevant Scheduled Closing (as defined in SECTION 2.13). - 8 - (d) All of the Subsidiary's right, title and interest in and to fixed machinery and equipment, other fixtures and fittings, moveable plant, machinery, equipment and furniture, trucks, tractors, trailers and other vehicles, tools and other similar items of tangible personal property (collectively "EQUIPMENT") (i) that are not consumed, disposed of or held for sale or as inventory in the ordinary course of business, (ii) that are used, owned, held or leased by the Subsidiary as of the relevant Scheduled Closing, and (iii) that are used in and necessary for the conduct of the operations of the Facilities. (e) All of the Subsidiary's right, title and interest in and to inventories of supplies, drugs, food, janitorial and office supplies, maintenance and shop supplies, and other similar items of tangible personal property intended to be consumed, disposed of or sold in the ordinary course of business (collectively, the "INVENTORY") that are used, owned or held by the Subsidiary as of the relevant Scheduled Closing and that are used by the Subsidiary in and necessary for the conduct of the operations of the Facilities. (f) All of the Subsidiary's right, title and interest in and to all written contracts and agreements (the "OTHER ASSIGNED CONTRACTS") to which the Subsidiary is a party at the relevant Scheduled Closing, other than the Real Property Leases and the Venture Agreements, (i) that are listed on SCHEDULE 2.1(f), (ii) pursuant to which the Subsidiary paid or received less than $25,000 during its last fiscal year or pursuant to which it expects to pay or receive less than $25,000 during its current fiscal year, or (iii) with respect to Other Assigned Contracts not described in clauses (i) or (ii) above, for which Buyer has not provided Seller with written notice of its rejection of such contract or agreement within sixty (60) days following the relevant Scheduled Closing, PROVIDED THAT the Other Assigned Contracts shall not include any contract or agreement that relates to or covers healthcare facilities or operations of Seller other than the Facilities that are being sold, assigned, transferred or conveyed at such relevant Scheduled Closing except to the extent the portion of such contract or agreement related to such Facilities may be assigned together with the sale, assignment, transfer or conveyance of such Facilities. SCHEDULE 2.1(f) contains a list by Facility of the following categories of Other Assigned Contracts pursuant to which a Subsidiary paid or received $25,000 or more during its last fiscal year or expects to pay or receive $25,000 or more during its current fiscal year: construction contracts relating to construction work-in- progress at the Facilities; Equipment - 9 - leases (whether operating or capitalized leases) and installment purchase contracts where the annualized lease or installment payments exceed $25,000; contracts or arrangements binding on a Facility which contain any covenant not to compete or otherwise significantly restrict the nature of the business activities in which the Facility may engage; provider agreements with Payors other than Medicare and Medicaid (as defined in SECTION 1.1); bridge and other loan commitment agreements (the "LOAN COMMITMENT AGREEMENTS") pursuant to which a Subsidiary has agreed to provide advances or income guarantees from time to time to lessors or sublessors under the Real Property Leases or to healthcare professionals, groups or entities providing services to the Facilities, together with promissory notes (the "LOAN COMMITMENT NOTES") evidencing amounts owed to the Subsidiary as a result of any such advances or guarantees; agreements with healthcare professionals; leases as lessor or sublessor; and any other contracts in force pursuant to which the Subsidiary paid or received over $25,000 during its last fiscal year or expects to pay or receive $25,000 or more during its current fiscal year. Notwithstanding the foregoing, the Other Assigned Contracts shall not include and SCHEDULE 2.1(f) need not contain: (w) Any contract which evidences indebtedness for money borrowed or the deferred portion of the purchase price for Owned Real Property and is therefore an Excluded Liability under the provisions of SECTION 2.4(i), unless the parties mutually agree, in accordance with the provisions of such SECTION 2.4(i), that such indebtedness will be assumed by Buyer, in which case the contract or contracts evidencing such indebtedness will be Transferred Assets, PROVIDED THAT if the indebtedness evidenced by any such contract is secured by a lien on any Transferred Asset, Seller shall cause such lien to be released at or prior to the relevant Scheduled Closing unless Buyer agrees to assume such indebtedness pursuant to SECTION 2.4(i); (x) Any contract respecting an intercompany transaction between the Subsidiary, on the one hand, and Seller or an Affiliate (as defined in SECTION 1.1) of Seller, on the other, whether or not such transaction relates to the provision of goods and services, tax sharing arrangements, payment arrangements, intercompany charges or balances, or the like ("INTERCOMPANY TRANSACTIONS"), except that transactions arising in connection with open purchase orders where the Seller has acted as an intermediary for - 10 - a Subsidiary and transactions between Seller or an Affiliate of Seller, on the one hand, and the ventures and partnerships described in SECTION 2.1(c) that are not wholly owned by Seller and its Affiliates, on the other hand, shall not be regarded as Intercompany Transactions; (y) Employment contracts, if any, between the Subsidiary or a Facility and the chief executive or chief financial officer of such Facility, whether or not such officer is a Hired Employee (as defined in SECTION 2.10(c)); and (z) Collective bargaining agreements in respect of the employees of a Facility, unless Buyer elects to assume such agreements (it being understood, however, that nothing herein is intended to affect Buyer's obligations with respect thereto, if any, under the National Labor Relations Act). (g) All of the Subsidiary's right, title and interest in and to the right to receive mail and other communications addressed to Seller or the Subsidiary insofar as such mail or other communication relates to the operation of the Facilities after the relevant Scheduled Closing, or to Receivables, Inventory, Prepayments or Accrued Operating Expenses (as herein defined). (h) All of the Subsidiary's right, title and interest in and to the business names set forth in SCHEDULE 2.1(h) the "TRANSFERRED BUSINESS NAMES"). (i) All of the Subsidiary's right, title and interest in and to Licenses (as defined in SECTION 1.1) in favor of the Subsidiary as of the relevant Scheduled Closing that are related to, necessary for, or used in connection with the operation of the Facilities transferred in such Scheduled Closing as presently operated by the Subsidiary, PROVIDED THAT Licenses in favor of the Subsidiary shall be included in the Transferred Assets only to the extent they are lawfully transferable. (j) All of the Subsidiary's right, title and interest in and to unexpired warranties as of the relevant Scheduled Closing that are transferable to Buyer which the Subsidiary has received from third parties with respect to the Transferred Assets, including, but not limited to, such warranties as are set forth in any construction agreement, lease agreement, - 11 - equipment purchase agreement, consulting agreement or agreement for architectural and engineering services. (k) All of the Subsidiary's right, title and interest in and to advance payments, prepayments, prepaid expenses, deposits and the like (i) made by the Subsidiary or Seller on its behalf in the ordinary course of business with respect to Subject Transferred Assets (as defined in SECTION 2.13) prior to the relevant Scheduled Closing, (ii) which exist as of such Scheduled Closing, (iii) with respect to which Buyer will receive the benefit after the relevant Scheduled Closing, AND (iv) which Buyer agrees to acquire (Buyer hereby agreeing not to withhold such agreement unreasonably) (collectively, "PREPAYMENTS"), which Prepayments are listed by Facility, category and approximate amount as of November 30, 1993 (or a later date if mutually agreed upon), in SCHEDULE 2.1(k). (l) Subject to the further provisions of SECTION 2.9, all of the Subsidiary's right, title and interest as of the Closing in and to accounts receivable recorded by the Subsidiary as an account receivable from Payors, patients and other third parties (whether or not billed) arising from or in connection with the operation of the Facilities, together with rights to payment for services rendered through the relevant Closing Date to Straddle Patients referred to in SECTION 2.9(c) (collectively, "RECEIVABLES"), PROVIDED that any account receivable that would, under SECTIONS 2.9(b)(ii)(B) or (C), qualify as an "Eligible Receivable" as of the end of the month ending prior to the relevant Scheduled Closing shall, at the option of Buyer, not be a receivable included in the Scheduled Closing and shall be an Excluded Asset. The parties hereby acknowledge that interim payments made by a Payor that are in excess of the net carrying value of the Receivables with respect to which such interim payments are a credit against amounts that would otherwise be due from the Payor ("EXCESS INTERIM PAYMENTS") shall not be regarded as Receivables for any purpose of this Agreement, because such Excess Interim Payments do not reflect amounts which the recipient is entitled to retain for services rendered and such Excess Interim Payments are Excluded Assets and Excluded Liabilities under this Agreement. (m) All of the Subsidiary's right, title and interest in and to the goodwill of the businesses evidenced by the Transferred Assets, and, except for Excluded Assets, any and all other assets of the Subsidiary used in and necessary for the conduct of the operations of the Facilities as conducted prior to the relevant Scheduled Closing, whether or not such - 12 - assets have any value for accounting purposes, PROVIDED THAT with respect to NME Hospitals, Inc., NME Properties Corp., NME Psychiatric Properties, Inc., NME Specialty Hospitals, Inc. and any subsidiary of NME Specialty Hospitals, Inc. (including, without limitation, NME Psychiatric Hospitals, Inc.), only those assets described in SECTION 2.1(a)-(l) above (other than Excluded Assets)shall be included in the Transferred Assets. Section 2.2 EXCLUDED ASSETS. The following properties and assets (the "EXCLUDED ASSETS") are not included in Transferred Assets: (a) Except for the Inventory, Receivables, Prepayments and current amounts represented by the Loan Commitment Notes, all assets constituting working capital, whether cash, cash equivalents, securities, or other current assets, and all claims, choses in action, rights of recovery, rights of set-off, rights to refunds, and similar rights. (b) Except for the Transferred Business Names, Licenses and Other Assigned Contracts included in the Transferred Assets and except for manuals relating to equipment and other tangible property included in the Transferred Assets, all privileged or proprietary (to Seller or a Subsidiary) materials, documents, information, media, methods and processes owned by Seller or a Subsidiary, and any and all rights to use same, including, but not limited to, all intangible assets of an intellectual property nature such as trademarks, service marks and trade names (whether or not registered), computer software that is proprietary to Seller or a Subsidiary, all procedures and manuals that are proprietary to Seller or a Subsidiary, all promotional or marketing materials (including all marketing computer software), and any and all names under which the Subsidiaries or the Facilities have done business or offered programs, other than the Transferred Business Names, and all abbreviations and variations thereof, PROVIDED, HOWEVER, that Buyer shall have the rights set forth in SECTION 2.11. (c) The rights of Seller or any Subsidiary under any insurance policy, if any, included in the Transferred Assets which relate to any Excluded Asset or Excluded Liability (as defined in SECTION 2.4) (it being understood, however, that Buyer shall have no obligation to take any action under any such policy to seek any recovery except at the reasonable request, and at the sole expense, of Seller or a Subsidiary or to continue any such policies in force). - 13 - (d) The rights of Seller or of any Subsidiary to receive mail and other communications addressed to any of them with respect to Excluded Assets or Excluded Liabilities. (e) Subject to the provisions of SECTION 5.7, any and all business and patient records of or related to the operation of the Facilities, whether or not maintained at or by the Facilities. (f) All property, plant, equipment and other assets pertaining to the psychiatric healthcare business of Seller or any subsidiary of Seller that relate primarily to any general hospital, acute hospital or so-called "campus facility" of Seller or any subsidiary of Seller and all outpatient facilities and other assets primarily related thereto. (g) Any and all contracts and agreements pursuant to which a Subsidiary provides management services to third parties other than a Facility, except for such contracts and agreements as are specifically listed on SCHEDULE 2.1(f). (h) Subject to SECTIONS 2.17 and 6.7, any and all rights respecting computer and data processing hardware or firmware that is proprietary to Seller or any Affiliate of Seller, and any computer and data processing hardware or firmware, whether or not located at a Facility, that is part of a computer system the central processing unit for which is not located at a Facility. (i) All of the right, title and interest of Seller and the Subsidiaries in assets resulting from any resolution with Payors of amounts due with respect to Cost Reports ("COST REPORT SETTLEMENTS") to the extent such Cost Reports cover any period through the relevant Scheduled Closing with respect to a Facility and other rights of Seller respecting Cost Reports described in SECTION 6.6, including any assets or liabilities resulting from any gain or loss on the sale of the Facilities in connection with the Transactions. (j) (i) All amounts due to the Subsidiaries arising from Intercompany Transactions, (ii) assets that are the subject of the First Facilities Agreement, and (iii) such other assets, if any, specifically described in SCHEDULE 2.5(j) and assets which would be Transferred Assets except for the operation of SECTIONS 2.12, 6.2(c), 8.5, 8.7 or 9.5 or other provisions of this Agreement. - 14 - (k) All "800" telephone lines and related Equipment and contract rights and all advertising containing any name other than a Transferred Business Name. Seller shall remove at any time prior to or within thirty (30) days following the relevant Closing Date or, with respect to the Hospital Records (as defined in SECTION 5.7(a)), Seller may remove from time to time within the relevant Document Retention Period (as defined in SECTION 5.7(b)) (in each case, at Seller's expense, but without charge by Buyer for storage), any and all of the Excluded Assets from the Facilities, PROVIDED that Seller shall do so in a manner that does not unduly or unnecessarily disrupt Buyer's normal business activities at the Facilities. Section 2.3 ASSUMED LIABILITIES. Subject to the terms and conditions set forth in this Agreement, Buyer shall assume and pay, discharge and perform as and when due ONLY the following obligations and liabilities of Seller and the Subsidiaries and no others (the "ASSUMED LIABILITIES"), as such obligations and liabilities may exist at the time they are assumed by Buyer in accordance with the terms hereof: (a) All liabilities and obligations of the Subsidiaries which pertain to or are to be performed during the period following the relevant Closing Date, and which arise under any contract, license, permit, agreement, arrangement, understanding or undertaking included in the Transferred Assets, including the Real Property Leases, the Venture Agreements, the Other Assigned Contracts and the Licenses, and any obligation or liability (the "ASSUMED GUARANTEES") of Seller or any Affiliate of Seller (including letters of credit and performance bonds) which is in the nature of a guaranty of the foregoing (together, the "ASSUMED CONTRACTS"), including without limitation, the capitalized lease liabilities and obligations of the Facilities listed on SCHEDULE 2.3(a). (b) Without affecting the provisions of SECTIONS 2.1(k), 2.6(a), 2.6(b) or 2.6(c), all liabilities and obligations under open purchase orders at a Facility included in the Subject Transferred Assets that were entered into by Seller or a Subsidiary in the ordinary course of business with respect to operation of such Facility on or prior to the relevant Closing Date and which provide for the delivery of goods or services subsequent to the relevant Closing Date. - 15 - (c) All obligations and liabilities to any Hired Employee for paid time off that is vested and with respect to which the Hired Employee would be entitled to payment upon termination of his or her employment with Seller or an Affiliate of Seller (including, for all purposes of this Agreement, "old paid days leave," "paid time off", sick leave and vacation pay to the extent that they are vested rights that are subject to payment upon termination of employment; collectively, "PAID TIME OFF") through the relevant Closing Date in accordance with the employment policies of Seller and its Affiliates as they exist on the date of this Agreement; PROVIDED that if Seller satisfies any portion of such obligations and liabilities existing at the relevant Scheduled Closing by payment to a Hired Employee, then such payment shall be treated as a reduction of Accrued Operating Expenses (as defined in SECTION 2.3(g)). (d) Without limiting Seller's representations and warranties contained in ARTICLE 3 or Buyer's rights under ARTICLE 11 for a breach thereof, all liabilities and obligations respecting any changes or improvements needed to the Facilities for them to be in material compliance following the relevant Scheduled Closing with respect to such Facilities with safety, building, fire, land use, access (including without limitation the Americans With Disabilities Act) or similar Laws (as defined in SECTION 1.1) respecting the physical condition of the Facilities. (e) All liabilities and obligations respecting employee matters assumed by Buyer pursuant to the provisions of SECTION 2.10. (f) Any liability or obligation which becomes an Assumed Liability by operation of SECTION 2.4(i) and such other liabilities and obligations pertaining to the Facilities, if any, specifically described in SCHEDULE 2.3(f). (g) Any accrued and unpaid liabilities (whether or not due) of the Subsidiaries in existence on the relevant Scheduled Closing Date which relate to the Facilities, which were incurred in the ordinary course of the operation of the Facilities and which represent (i) trade payables incurred to suppliers of goods and services; (ii) water, gas, electricity and other utility charges; (iii) license fees; (iv) rent, common area maintenance charges, operating expenses and other charges arising under the Real Property Leases; (v) insurance premiums (but only with respect to policies that will be continued in force by Buyer after the relevant Scheduled Closing); (vi) salaries and other payroll costs respecting Hired Employees - 16 - accrued in accordance with the normal accounting practices of Seller and the Subsidiaries (but not including bonuses or other incentive compensation or accrued benefits with respect to benefit plans that are not assumed by Buyer); (vii) Taxes, except for Taxes referred to in SECTION 5.5 relating to expenses of the Transactions and payroll taxes respecting employees who are not Hired Employees; and (viii) similar liabilities incurred in the ordinary course of the operation of the Facilities and customarily recorded as a current liability, other than the current portion of long-term liabilities and obligations (the liabilities referred to in this SECTION 2.3(g), together with the liabilities and obligations for Paid Time Off assumed under SECTION 2.3(c), being herein referred to as "ACCRUED OPERATING EXPENSES"). Section 2.4 EXCLUDED LIABILITIES. The parties agree that liabilities and obligations of Seller and the Subsidiaries not expressly described in SECTION 2.3 as Assumed Liabilities are not part of the Assumed Liabilities, and Buyer shall not assume or become obligated with respect to any other obligation or liability of Seller or any Subsidiary or any Affiliate of either of any nature whatsoever (whether express or implied, fixed or contingent, liquidated or unliquidated, known or unknown, accrued, due or to become due) (collectively, "EXCLUDED LIABILITIES"), including, but not limited to, the liabilities and obligations described in this Section, all of which shall remain the sole responsibility of Seller or the pertinent Subsidiary or Affiliate, as the case may be. Without limiting the generality of the foregoing, Buyer shall not assume and shall have no liability or obligation of any kind for or with respect to any of the following liabilities or obligations: (a) Subject to SECTION 5.5 respecting certain expenses incurred in connection with the Transactions, any of Seller's or any of the Subsidiaries' (or their respective Affiliates') liabilities or obligations (including, but not limited to, any liabilities or obligations under any tax sharing agreements) with respect to franchise taxes and with respect to foreign, federal, state or local taxes imposed upon or measured, in whole or in part, by the income for any period of Seller and/or such Subsidiaries or any member of a combined or consolidated group of companies of which Seller and/or such Subsidiaries are, or were at any time, a part, or with respect to interest, penalties or additions to any of such taxes, and any income, franchise, tax recapture, transfer tax, sales tax or use tax that may arise upon consummation of the transactions contemplated by this Agreement and be due or payable by Seller or any Subsidiary, it being - 17 - understood that Buyer shall not be deemed to be Seller's or any Subsidiary's transferee with respect to any such tax liability. (b) Any of Seller's or any of its Subsidiaries' or Affiliates' liabilities or obligations with respect to the recapture of foreign, federal, state or local tax deductions or credits taken by Seller or such Subsidiary imposed upon, or any taxable gain recognized by, Seller or such Subsidiary on account of the Transactions contemplated hereby. (c) Liabilities or obligations of Seller, its Affiliates or a Subsidiary arising from the breach by Seller or such Subsidiary on or prior to the relevant Closing Date of any term, covenant, or provision of any of the Assumed Contracts. (d) Liabilities or obligations of Seller, a Subsidiary or Seller's Affiliates now existing or which may hereafter exist by reason of any violation or alleged violation of Law or Laws by Seller or any of its Affiliates or by a Subsidiary, or by an employee or independent contractor of any of the foregoing where any of the foregoing is or is alleged to be responsible for the acts or omissions of any such person, occurring on or prior to the relevant Scheduled Closing Date. (e) Liabilities or obligations of Seller or a Subsidiary now existing or which may hereafter exist by reason of any liability to refund any payment or reimbursement received by Seller or a Subsidiary from any Payor which is attributable to any period of time ending on or prior to the relevant Closing Date respecting such Facilities for which such payment or reimbursement was received. (f) Liabilities or obligations of Seller or a Subsidiary under any Assumed Contract which would be included in the Transferred Assets but for the provisions of SECTION 2.12, unless Buyer is provided with the benefits thereunder as contemplated in SECTION 2.12. (g) Liabilities of Seller and the Subsidiaries arising from or in connection with litigation described in SECTION 3.14, including, but not limited to, the Unusual Proceedings described therein, and any and all liabilities or obligations of Seller and the Subsidiaries for claims for personal injury (including sickness, trauma, disease, pain and suffering, loss of future earnings, punitive damages and the like), property damage, and other damage and injury in existence (i.e., all elements of the claim - 18 - are complete) at or prior to the relevant Scheduled Closing, whether or not any claim has been made or litigation has been instituted with respect thereto and whether or not any claim is covered partially or fully by insurance. (h) Subject to SECTION 2.12, liabilities of Seller and the Subsidiaries incurred in connection with their obtaining any consent, authorization or approval necessary for them to sell, convey, assign, transfer or deliver any Transferred Asset to Buyer hereunder. (i) Any liability of Seller or a Subsidiary representing indebtedness for money borrowed or the deferred portion of the purchase price for any Owned Real Property or Equipment (and any refinancing thereof), including without limitation the indebtedness identified on SCHEDULE 2.4(i); PROVIDED that if, prior to the relevant Scheduled Closing, the parties mutually agree that any such indebtedness or obligation will be assumed by Buyer and further agree upon an equitable reduction in the cash portion of the Purchase Price (as defined in SECTION 2.5) to reflect Buyer's assumption of such indebtedness or obligation, then any such indebtedness or obligation will be deemed to constitute an Assumed Liability for all purposes of this Agreement; and PROVIDED FURTHER that with respect to any such indebtedness or obligation not so assumed by Buyer that constitutes a lien or encumbrance upon any Transferred Asset, Seller agrees that on or prior to the relevant Scheduled Closing it will either pay or discharge such indebtedness or liability in full or otherwise cause such lien or encumbrance to be removed from such Transferred Asset, so that such Transferred Asset is sold, conveyed, assigned, transferred and delivered to Buyer at such Scheduled Closing free and clear of such lien or encumbrance. (j) Such other liabilities and obligations, if any, specifically described in SCHEDULE 2.4(j) and liabilities which would be Assumed Liabilities but for the provisions of SECTIONS 2.12, 8.5, 8.7 or 9.5. (k) Amounts due from the Subsidiaries arising from Intercompany Transactions. (l) Liabilities and obligations respecting Cost Report Settlements to the extent such Cost Reports cover any period through the relevant Closing Date and other obligations of Seller respecting Cost Reports described in SECTION 6.6. - 19 - (m) Subject to SECTION 2.10(f), liabilities and obligations for bonuses, other incentive compensation and benefits under benefit plans to the extent not specifically included in Accrued Operating Expenses. Section 2.5 PURCHASE PRICE. The purchase price (the "PURCHASE PRICE") in the aggregate for all of the Transferred Assets shall be equal to the sum of (a) Fifty-Two Million Four Hundred Two Thousand Dollars ($52,402,000), subject to such adjustments, if any, as may occur pursuant to Sections 2.12, 2.14, 6.2(c), 8.5, 8.7, or 9.5 or other provisions of this Agreement, including the book value as of the relevant Scheduled Closing of capitalized lease liabilities assumed and the value of any assumption of debt pursuant to SECTION 2.4(i), PLUS (b) an amount equal to the net book values as of the relevant Scheduled Closing of the Loan Commitment Notes, Inventory, Receivables and Prepayments (collectively, "ACCRUED OPERATING ASSETS") included in the Transferred Assets LESS Accrued Operating Expenses, plus (c) an amount (determined on the basis of the Venture's balance sheet) equal to the net book value as of the relevant Scheduled Closing of (i) the sum of each Venture's current assets and distributions payable to partners or venturers, LESS (ii) the sum of each such Venture's current liabilities, indebtedness for money borrowed and capitalized lease liabilities, pro-rated in each case to the equity percentage in such Venture held by Seller and the Subsidiaries (the amounts in clauses (b) and (c) being referred to as the ("NET BOOK VALUES"). In addition, at the "First Closing" under this Agreement, Buyer shall pay to Seller the sum of One Million Dollars ($1,000,000) for the covenant not to compete described in SECTION 6.8. Notwithstanding anything in this Agreement or in a Schedule hereto that might be construed to the contrary, Net Book Values will not be reduced by Seller's retained liability for Excess Interim Payments made by a Payor prior to the relevant Scheduled Closing that are in excess of the net carrying value of the Receivables transferred at such Scheduled Closing with respect to which such interim payments are a credit against amounts that would otherwise be due from the Payor. Section 2.6 PAYMENT OF PURCHASE PRICE. That portion of the Purchase Price due and payable for the Transferred Assets actually sold, assigned, transferred and conveyed to Buyer and the applicable Buyer Subsidiaries hereunder shall be paid as follows: (a) PAYMENT OF TENTATIVE PURCHASE PRICE. No less than five (5) business days prior to each Scheduled Closing, Seller shall deliver to - 20 - Buyer a certificate executed on the Seller's behalf by a responsible officer setting forth the Seller's estimate of what the Net Book Values will be as of such Scheduled Closing for the Subject Transferred Assets (as defined in SECTION 2.13) (the "ESTIMATED NET BOOK VALUES"), and additionally setting forth (i) the Net Book Values for the Subject Transferred Assets recorded by Seller as of the most recent month-end prior to the delivery of such certificate for which data is available, and (ii) the methodology used by Seller for updating changes in Net Book Values since such month-end data to arrive at such estimate. All determinations made with respect to the Net Book Values shall be based upon the internal records of, and the valuation methods customarily used by, Seller and the Subsidiaries, absent error, and consistent with generally accepted accounting principles with respect to the recording and accruing of the types of assets and liabilities included in Net Book Values. On the terms and subject to the conditions contained in this Agreement, at each Scheduled Closing Buyer shall pay to Seller, in the manner set forth herein, an amount equal to (iii) the portion of the Purchase Price arising under SECTION 2.5(a) (including any debt assumptions pursuant to SECTION 2.4(i) due at such Scheduled Closing as calculated on the basis of the values assigned to the pertinent Subject Transferred Assets in the Allocation Schedule (as defined in SECTION 2.7) PLUS (iv) an amount equal to one hundred percent (100%) of the Estimated Net Book Values related to the Subject Transferred Assets, (the sum of clauses (iii) and (iv) being referred to as the "TENTATIVE PURCHASE PRICE"), LESS (v) the book value of any capitalized leases assumed at such Scheduled Closing, LESS (vi) the value of any debt assumed pursuant to SECTION 2.4(i) at such Scheduled Closing. (b) DETERMINATION OF INTERIM NET BOOK VALUES. As soon as practicable, but in no event later than sixty (60) days after each Scheduled Closing, Seller shall cause a schedule to be prepared and delivered to Buyer showing an interim calculation of the Net Book Values with respect to the Subject Transferred Assets (the "INTERIM NET BOOK VALUES") as of the relevant Closing Date derived by Seller from the internal books and records of Seller and the Subsidiaries and otherwise in accordance with the second sentence of SECTION 2.6(a) with respect to the Facilities included in such Subject Transferred Assets, as well as from a physical inventory, taken after the date hereof and prior to or as of such relevant Closing Date, of property which would constitute Inventory if the relevant Scheduled Closing had occurred on the date of such physical inventory. If such schedule as submitted by Seller is not challenged in writing by - 21 - Buyer within thirty (30) days of its receipt of same, then it shall be deemed accepted by Buyer. If it is so challenged, then, unless otherwise resolved by agreement of the parties within thirty (30) days from the date of Buyer's challenge or such later date as the parties may mutually agree upon, such disagreement shall be mutually submitted by the parties to their respective independent certified public accountants for resolution. If such accountants cannot resolve the disagreements within thirty (30) days of such submission, then they shall submit the matter to a third accounting firm of national standing selected by them, whose determination shall be final and binding, and shall be rendered within thirty (30) days of the date on which the matter is submitted to such firm. Any such third accounting firm shall determine the issues in dispute following such procedures, consistent with the language of this Agreement, as it deems appropriate to the circumstances and with reference to the amounts in issue. No particular procedures are intended to be imposed upon such third accounting firm, it being the desire of the parties that any such dispute shall be resolved as expeditiously and inexpensively as reasonably practicable. In the event that the Interim Net Book Values differ from the Estimated Net Book Values, whether determined on the basis of the schedule prepared by Seller, or agreement of the parties, or decision by independent public accountants, as the case may be, then and in such event, within five (5) business days following such determination of the Interim Net Book Values, either Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case may be, in immediately available funds, the amount by which the Interim Net Book Values differs from the Estimated Net Book Values. The pendency of a dispute shall not affect the payment obligation hereunder of either Buyer or Seller to the extent such payment is not disputed. (c) DETERMINATION OF FINAL NET BOOK VALUES. Within ten (10) business days following expiration of six (6) months from each Scheduled Closing, Buyer shall provide a certificate to Seller, executed on Buyer's behalf by a responsible officer, setting forth a proposed calculation of final Net Book Values with respect to the Subject Transferred Assets (the "FINAL NET BOOK VALUES") as of the end of such six (6) month period (a "WORKING CAPITAL ADJUSTMENT DATE") which shall contain a reconciliation as of the relevant Closing Date of the Interim Net Book Values, adjusted only for (i) errors claimed by Buyer to exist in Seller's accruals for Accrued Operating Assets and Accrued Operating Expenses and the Ventures' calculations of partners' equity, partners' distributions payable and the net book value of Venture fixed assets, (ii) Buyer's ability - 22 - to collect Receivables and the Ventures' ability to collect their accounts receivable in existence as of the relevant Closing Date, on or before the Working Capital Adjustment Date, in excess of the carrying value therefor as of the relevant Closing Date net of reserves, and by Buyer's or a Venture's receipt of Excess Interim Payments, (iii) Buyer's inability to collect Receivables and the Ventures' inability to collect their accounts receivable in existence as of the relevant Closing Date, on or before the Working Capital Adjustment Date, in accordance with their net carrying values as of the relevant Closing Date, and (iv) Buyer's ability to pay Accrued Operating Expenses and the Ventures' ability to pay similar expenses of the Venture at less than their book value as of the relevant Closing Date or Buyer's or the Ventures' payment of the same at more than their book value as of the relevant Closing Date to the extent legally required to do so. For purposes of any such calculation, (v) the accuracy of Seller's or the Ventures' accrual for real and personal property taxes shall be based upon the last notice of tax assessment respecting such property prior to the relevant Scheduled Closing that does not reflect the Transactions contemplated to occur at the relevant Scheduled Closing, (vi) variable or undetermined charges arising under Real Property Leases shall be accrued as of the relevant Scheduled Closing on an historical basis, (vii) payments received on account of Receivables shall be applied in accordance with SECTIONS 2.9(b) and (c) and (viii) expenses for such items as real and personal property taxes, utility charges, charges arising under leases, insurance premiums and the like shall be pro-rated as of the relevant Scheduled Closing. In the event that Buyer elects to reassign to Seller any Loan Commitment Notes on or prior to the relevant Working Capital Adjustment Date, then the Final Net Book Values shall be deemed to be further reduced by an amount equal to the uncollected portion thereof, in which case Buyer shall execute such documents of reassignment as are reasonably satisfactory to Seller and such Loan Commitment Notes as are reassigned shall thereafter to be deemed to be Excluded Assets. Any dispute concerning Buyer's calculation of the Final Net Book Values that is unresolved for thirty (30) days shall be submitted for resolution by the parties' independent certified public accountants in accordance with the procedures contained in SECTION 2.6(b). Within five (5) business days following determination of the Final Net Book Values for a Scheduled Closing, either Buyer shall pay to Seller, or Seller shall pay to Buyer, as the case may be, in immediately available funds, the amount by which the Final Net Book Values differ from the Estimated Net Book Values, as adjusted for payments, if any, on account of the Interim Net Book Values. The pendency of a dispute shall not affect the - 23 - payment obligation hereunder of either Buyer or Seller to the extent such payment is not disputed. (d) SELLER AS AGENT OF SUBSIDIARIES. Seller shall, at or prior to the relevant Scheduled Closing, cause each Subsidiary transferring Subject Transferred Assets thereat to irrevocably designate (with an original copy being provided to Buyer) Seller as its agent to receive on its behalf delivery of that portion of all payments made by Buyer hereunder to which such Subsidiary may be entitled as a result of its participation in such Scheduled Closing, including without limitation that portion of the Purchase Price attributable to the Subject Transferred Assets sold to Buyer by it, and to acknowledge that delivery of such payments, including the Purchase Price, to Seller in accordance with the terms of this Agreement shall be conclusive and binding evidence against such Subsidiary that any payments or consideration due to such Subsidiary in respect of the Subject Transferred Assets sold to Buyer by it, or in respect of other payments due to it from Buyer under the terms of this Agreement, have been delivered. Section 2.7. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated to the Transferred Assets on a Facility by Facility basis in accordance with SCHEDULE 2.7 (as the same will, pursuant to the First Facilities Agreement, be amended with respect to the First Facilities, the "ALLOCATION SCHEDULE"), except that the portion of the Purchase Price attributable to the Net Book Values shall be allocated in accordance with the amounts actually paid therefor in accordance with the provisions of SECTIONS 2.5(b) and (c). Seller and Buyer shall, and Seller shall cause the Subsidiaries to, allocate the Purchase Price in accordance with the Allocation Schedule and allocate the Net Book Values portion thereof in accordance with the amounts paid therefor, to be bound by such allocations for all purposes, to account for and report the purchases and sales contemplated hereby for all purposes (including, without limitation, financial, accounting, Medicare reimbursement and federal and state tax purposes) in accordance with such allocations, and not to take any position (whether in financial statements, Cost Reports, tax returns, Cost Report or tax audits, or otherwise), including without limitation any claim to an adjustment in the basis of such assets by Buyer or its successors and assigns for Medicare purposes which is inconsistent with such allocations without the prior written consent of the other party, except to the extent, if any, required by applicable Law or generally accepted accounting principles. - 24 - Section 2.8. CONTINGENT LEASE OBLIGATIONS. With respect to each Real Property Lease for which Seller or a Subsidiary remains or will remain contingently liable after the relevant Scheduled Closing as lessee, sublessee, guarantor or assignor, Buyer hereby agrees to exercise its best efforts: (a) To cause the contingent liability of Seller or such Subsidiary, as the case may be, to be removed on or prior to any extension, renewal or modification of such Real Property Lease by Buyer or a Buyer Subsidiary; (b) To procure for Seller and the applicable Subsidiaries a security interest, in form reasonably satisfactory to Seller, in all of the right, title and interest of Buyer and the applicable Buyer Subsidiaries in such Real Property Lease, junior only to the security interest of Buyer's most senior secured lenders, in order to secure the due and punctual performance by Buyer and the applicable Buyer Subsidiaries of the Assumed Liabilities represented by such Real Property Lease; and (c) To procure for Seller and the applicable Subsidiaries the right to acquire such right, title and interest in such Real Property Lease, at fair market value, in the event that Buyer and the applicable Buyer Subsidiaries fail to pay, perform and discharge when due the Assumed Liabilities represented by such Real Property Lease and such failure results in Seller or any Subsidiary being required to pay, perform or discharge any of such Assumed Liabilities. Section 2.9. REMITTANCES AND RECEIVABLES. (a) IN GENERAL. (i) All remittances, mail and other communications relating to the Excluded Assets or Excluded Liabilities received by Buyer or a Buyer Subsidiary at any time after a relevant Scheduled Closing shall be promptly turned over by Buyer to the addressee thereof, or if the addressee is no longer affiliated with Seller, to Seller, and pending such delivery, Buyer shall have no interest in the same and shall hold such remittances, mail and other communications in trust for the benefit of Seller and the Subsidiaries. All remittances, mail and other communications relating to the Transferred Assets or the Assumed Liabilities received by Seller or any Subsidiary at any time after the relevant Scheduled - 25 - Closing at which such Transferred Assets are transferred and such Assumed Liabilities are assumed by Buyer shall be promptly turned over by Seller or such Subsidiary to the addressee thereof, or if the addressee is no longer affiliated with Buyer, to Buyer, and pending such delivery, Seller or such Subsidiary shall have no interest in the same and shall hold such remittances, mail and other communications in trust for the benefit of Buyer. (ii) With regard to the Medicare, Medicaid and CHAMPUS programs, and any Blue Cross program that requires a Cost Report or retains the right of offset, Buyer and Seller mutually covenant and agree as follows. Seller acknowledges that, from time to time, Buyer or Buyer Subsidiaries, after a relevant Scheduled Closing, may receive a demand for payment in connection with overpayments or alleged overpayments from one or more of such programs, or both, which demand relates to the operation of a Facility prior to the relevant Scheduled Closing at which such Facility was included in the Subject Transferred Assets. Buyer shall provide notice to Seller of such demand within ten (10) days of Buyer's receipt of same. Seller covenants and agrees with Buyer that Seller shall, within thirty (30) days of its receipt of written notice from Buyer of such request for any such payment, which notice shall state the basis thereof in reasonable detail, pay in cash to Buyer an amount equal to any and all such overpayments claimed or (by an election made in writing, within twenty (20) days after receiving notice of any such demand) diligently pursue a contest of such claim of overpayment and indemnify and hold Buyer harmless from any liability resulting therefrom, but the right to contest without first paying shall not be available to Seller if the programs collect the alleged overpayment by means of a setoff against Buyer, unless Seller first reimburses Buyer in an amount equal to the amount so setoff, PROVIDED that in all events Buyer shall provide notice to Seller of such demand within ten (10) days of Buyer's receipt of same. Subject to the foregoing, if any such program, with or without notice, collects an alleged overpayment or other amount allegedly owed by Seller or a Subsidiary by offset against Buyer or Buyer Subsidiary, Seller shall promptly pay to Buyer an amount equal to such offset amount PROVIDED that Buyer shall have provided Seller with any notice related to such offset within ten (10) days of Buyer's receipt of same, or, if no such notice was received by Buyer, Buyer shall have provided notice to Seller of such offset within ten (10) days of Buyer's obtaining notice of such offset being taken. Nothing in this SECTION 2.9(a)(ii) shall limit Buyer's obligations under SECTION 7.3. - 26 - (b) RECEIVABLES. (i) Buyer shall exercise commercially reasonable efforts to collect Receivables. Any payments received by Buyer or its successors and assigns after a Scheduled Closing Date, from patients, Payors, clients, customers or others who are the obligors on Receivables transferred as of such Scheduled Closing Date (collectively, "ACCOUNT PARTIES"), shall be applied to the oldest remaining Receivables transferred as of such Scheduled Closing Date from such Account Party in the order in which they arose unless, in the case of an Account Party who is a patient, otherwise indicated by the patient's Payor. (ii) On the tenth day of the first month that begins at least thirty (30) days after a Scheduled Closing, on the tenth day of each month thereafter until the Working Capital Adjustment Date with respect to such Scheduled Closing, and on the tenth day following such Working Capital Adjustment Date, Buyer shall execute appropriate instruments of assignment to re-assign back to Seller, and shall turn over to Seller all evidences of and documents pertaining to, any Receivable which, as of the end of the immediately preceding month and/or such Working Capital Adjustment Date, as the case may be, was uncollected and which either (A) is a Receivable in respect of a non-Medicare patient as to which Buyer has decided to cease collection activity, or (B) is a Receivable in respect of a non-Medicare patient which, as of such month end or such Working Capital Adjustment Date, has remained unpaid for a period of at least one hundred eighty (180) days following the date of such patient's discharge from a Facility, (C) is a Receivable in respect of a Medicare patient which relates to amounts that represent such patient's deductible or co-insurance obligations, and which, as of such month end or Working Capital Adjustment Date, has remained unpaid for a period of at least one hundred eighty (180) days following the date after which the patient is first billed, or (D) is a Receivable from Medicare in respect of a Medicare patient for which payment has been denied by Medicare PROVIDED that Buyer has filed a request for reconsideration within the period required. Such Receivables which are eligible to be turned over to Seller are herein referred to as "ELIGIBLE RECEIVABLES." Any Eligible Receivable that is assigned back to Seller within thirty (30) days following the first opportunity to do so - 27 - under the provisions of this CLAUSE (ii) shall, for purposes of the adjustments contemplated by SECTION 2.6(c), be deemed to have not been collected by Buyer, and any Eligible Receivable that is NOT so assigned back to Seller within thirty (30) days following the first opportunity to do so under the provisions of this CLAUSE (ii) shall, for purposes of the adjustments contemplated by SECTION 2.6(c), be deemed to have been collected by Buyer. With respect to any such Eligible Receivable re- assigned back to Seller, Seller and the Subsidiaries shall be free to institute such collection efforts, including, without limitation, initiating such legal proceedings, with respect thereto as they shall, in their sole discretion determine. (iii) In the event of any adjustment in the Net Book Values arising under SECTION 2.6(c)(iii), then upon such determination, Buyer shall execute instruments of assignment, effective as of the relevant Working Capital Adjustment Date, respecting any unpaid Receivables which are not collected or deemed collected as of such date (it being agreed that any unpaid Receivables not so assigned shall be deemed collected as of or prior to such Working Capital Adjustment Date). (c) STRADDLE PATIENT RECEIVABLES. To compensate Seller and the Subsidiaries for services rendered and medicine, drugs and supplies provided through a Scheduled Closing Date with respect to patients ("STRADDLE PATIENTS") who were admitted to a Facility on or before the date of the Scheduled Closing in which such Facility was transferred and were discharged by the Facility after such Scheduled Closing Date, the following shall apply: (i) CUT-OFF BILLINGS. Seller shall, or shall cause the Subsidiaries to, prepare cut-off billings for all Straddle Patients as of the close of business on the relevant Closing Date. All payments (other than Excess Interim Payments) which are received by Buyer (to its successors in interest or assigns) after the relevant Closing Date with respect to Straddle Patients and which relate to such cut-off billings shall constitute Receivables for purposes of calculating the Tentative Purchase Price and the Interim Net Book Values for such Scheduled Closing. (ii) CUT-OFF BILLINGS NOT ACCEPTED. If the Payor of any Straddle Patient cannot or does not for any reason accept cut- - 28 - off billings, then Buyer shall notify Seller of same, and Seller shall, or shall cause the Subsidiaries to, deliver to Buyer a statement calculating the total charges made by Seller and the Subsidiaries for services rendered and medicine, drugs and supplies provided through the relevant Closing Date with respect to such Straddle Patient. Within ten (10) days following the discharge of each such Straddle Patient, Buyer shall deliver to Seller a statement reflecting the total charges for the services rendered and medicine, drugs and supplies billed to such Straddle Patient after the relevant Closing Date and the patient receivable (the "STRADDLE PATIENT PAYMENTS") of Buyer with respect to such Straddle Patient (including any cost per discharge limit imposed by the Tax Equity and Fiscal Responsibility Act of 1982, as amended ("TEFRA") and all deductibles and co-insurance payments). For purposes of calculating the Find Net Book Values for any Scheduled Closing, the pro rata share of the Straddle Patient Payments which shall be treated as a Receivable shall be equal to the amount obtained by multiplying the Straddle Patient Payments by a fraction, the numerator of which is the total charges of Seller and the Subsidiaries with respect to such Straddle Patient through the relevant Closing Date and the denominator of which is the total charges of Buyer, Seller and the Subsidiaries with respect to such Straddle Patient. Seller or Buyer, as may be applicable, may have such statements as submitted by Buyer or Seller verified by their respective independent public accountants within thirty (30) days from delivery. If such statements, as submitted by Buyer or Seller, are acceptable, then such statements shall fix the value of the services, medicine, drugs and supplies provided by Seller and the Subsidiaries, on the one hand, and by Buyer, on the other, to each such Straddle Patient. If any such statement is challenged by Seller or Buyer, then unless otherwise resolved by agreement of the parties within thirty (30) days of any such challenge, such statement shall be deemed in dispute, which dispute shall be resolved by the parties' independent certified public accountants. If such accountants cannot resolve the matter within thirty (30) days, then it shall be submitted by them to a third accounting firm in accordance with the procedures contained in SECTION 2.6(b). If Seller or Buyer does not give written notice to the party preparing the statement of its challenge of such statement within the first said thirty (30) day period, the receiving party shall be deemed to have accepted the same. - 29 - (d) COOPERATION IN COLLECTING RECEIVABLES AND EXCLUDED ASSETS. Buyer agrees to cooperate with Seller and the Subsidiaries and to provide access to records (both medical and financial) to assist in the collection, rebilling and auditing (by Seller or its representatives, including its independent public accountants) of the Receivables and the Excluded Assets (including, but not limited to, any and all Receivables from Account Parties or amounts due to or from any Payor). Without limiting the generality of the foregoing agreements of Buyer to cooperate with Seller, until six (6) months after the relevant Closing Date, (i) Seller may locate one or more of its or its subsidiaries' employees at any or all of the Facilities transferred at such Closing Date, without charge, in order to facilitate such collection, rebilling and auditing, (ii) Buyer shall provide such employees, without charge, adequate and proper space to facilitate the performance of such duties, and (iii) Buyer shall provide reasonable assistance of the employees of Buyer, without charge. (e) NON-ASSIGNABLE RECEIVABLES. Notwithstanding anything in this Agreement that might be construed to the contrary, this Agreement shall not constitute an agreement to assign any Receivable (including any Receivable respecting a Straddle Patient) the assignment of which is either prohibited by Law or by the terms of any contract with a Payor. However, without limiting the generality of the foregoing, the Net Book Value of such non-assignable Receivables shall be included in the Net Book Values for all purposes of this Agreement, including, but not limited to, SECTIONS 2.5 through SECTION 2.7 and this SECTION 2.9, as modified by the provisions of this SECTION 2.9(e). That portion of the Purchase Price which, but for the provisions of this SECTION 2.9(e), would otherwise be attributable to the Net Book Value of such non-assignable Receivables shall be deemed to be a loan from Buyer to Seller and to the pertinent Subsidiary that will be repaid from the proceeds of such Receivables collected and held by Buyer and from the adjustments to Estimated Net Book Values contemplated by SECTIONS 2.6, 2.9(b), and 2.9(c). All procedures and requirements specified herein (including, without limitation, Buyer's obligations under SECTION 2.9(b)) for the collection of Receivables (including any Receivables in respect of a Straddle Patient) shall be fully applicable to such non-assignable Receivables, except that (i) Buyer shall be deemed to collect and hold the proceeds of such non-assignable Receivables as agent for the Seller and the Subsidiaries and shall apply such proceeds to the repayment of such loan, and (ii) any provision herein that would otherwise require or provide for Buyer's "reassignment" of a Receivable (including an Eligible Receivable) that is - 30 - non-assignable to Buyer in the first instance shall be construed to require or provide that Buyer, as agent for Seller and the Subsidiaries, return pertinent documentation respecting such Receivable to Seller and the Subsidiaries to permit collection of such Receivable by them (in accordance with such collection efforts and procedures as they, in their sole discretion, shall determine). (f) COLLECTION FEE. (i) Buyer shall be entitled to a collection fee equal to fifteen percent (15%) of the sum of the following amounts (the "COLLECTION FEE BASE"): (A) Cash collected, or deemed, under the provision of this Agreement, to be collected by Buyer after a relevant Scheduled Closing in respect of (1) Receivables included in the Net Book Values that are acquired by Buyer at such Scheduled Closing, excluding Receivables that Buyer or a Buyer Subsidiary assigns or entrusts at or after such Scheduled Closing to an Affiliate of Seller for purposes of collection and (2) Excess Interim Payments; and (B) Cash remitted to a Facility after the relevant Scheduled Closing by any collection agency (excluding an Affiliate of Seller) with respect to accounts receivable that were assigned to such agency prior to such Scheduled Closing and that would be Receivables but for the provisions of paragraph 6 of SCHEDULE 2.2(i), PROVIDED THAT for purposes of calculating the collection fee, such cash remitted shall be deemed to be net of any collection agency discounts, fees and charges. Five (5) days prior to each Scheduled Closing, Buyer and Seller shall in good faith agree upon an estimate of Excess Interim Payments for each Facility included in such Scheduled Closing. Absent manifest error, such estimates shall be binding on Buyer and Seller. Fifteen percent (15%) of the total of such estimates for all Facilities included in each Scheduled Closing (the "Credit Amount") shall be credited against amounts due from Seller to Buyer as provided in Section 2.9(f)(ii). - 31 - (ii) On the tenth day of the first month that begins at least sixty (60) days after a Scheduled Closing, on the tenth day of every other month thereafter until the Working Capital Adjustment Date and on the tenth day following the Working Capital Adjustment Date, Buyer shall submit a report to Seller as of the nearest month-end specifying in reasonable detail its calculation of the Collection Fee Base for the period covered by such report. Within five (5) business days following receipt of each such report, Seller shall pay to Buyer, by wire transfer of immediately available funds, the collection fee due with respect to the Collection Fee Base covered by such report less the amount of any Credit Amount not previously used to offset amounts due under this provision. Any Receivable for which a collection fee is so paid shall, to the extent of such Receivable on which such a fee is paid, no longer qualify as an Eligible Receivable. Section 2.10 EMPLOYEE MATTERS. (a) PENSION PLANS. SCHEDULE 2.10(a) lists all "employee pension benefit plans" ("PENSION PLANS") within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") in which Retained Employees (as defined in SUBSECTION (b) below) directly employed to work at the Facilities participate. Seller shall, or shall cause the Subsidiaries to, (i) terminate as of the relevant Closing Date the active participation of all such employees in the Pension Plans who constitute Hired Employees, (ii) cause the Pension Plans to make timely appropriate distributions following the relevant Closing Date, to the extent required, to such employees in accordance with, and to the extent permitted by, the terms and conditions of such Pension Plans, and (iii) in connection with the termination of the active participation of all such employees in such Pension Plans, comply, and cause each Pension Plan to comply, with all applicable Laws. Prior to the relevant Closing Date, Seller shall have delivered to Buyer, for information purposes only, forms of any letters or other written communications which Seller or the Subsidiaries shall distribute generally to such employees notifying them of their rights in respect of their cessation of active participation in the Pension Plans. There are no "multiemployer plans" within the meaning of Section 3(37) of ERISA ("MULTIEMPLOYER PLANS") in which Retained Employees directly employed to work at the Facilities participate. - 32 - (b) RETAINED EMPLOYEES. (i) Buyer shall have the right to offer to hire at each Scheduled Closing each of the direct employees of Seller or an Affiliate of Seller, who is not a Facility's chief executive or chief financial officer and who, as of such Scheduled Closing, works at the Facilities (including any such direct employees who are on medical disability or leaves of absence and who worked at the Facilities immediately prior to such disability or leave) included in the Subject Transferred Assets, PROVIDED that Buyer may not offer to hire those employees covered by this clause (i), if any, who are designated by Seller at least five (5) days prior to the relevant Scheduled Closing and PROVIDED FURTHER that Buyer shall extend offers of employment to a sufficient number of employees at each Facility so as to avoid any liability on the part of Seller and the Subsidiaries under the WARN Act (as defined in SECTION 2.10(e)) with respect to the Transactions contemplated hereby. Seller will advise Buyer of the number of employees terminated at each Facility during the ninety (90) day period preceding the relevant Scheduled Closing. (ii) Buyer shall additionally have the right to offer to hire at each Scheduled Closing such other employees of Seller and its Affiliates who are mutually agreed upon by Buyer and Seller and who are either (A) indirect employees with respect to the operation of the Facilities included in the Subject Transferred Assets, or (B) a chief executive or chief financial officer of a Facility included in the Subject Transferred Assets, PROVIDED that in the event that Buyer wishes to hire a chief executive or chief financial officer and Seller does not agree to such hiring, Seller shall not employ such chief executive or chief financial officer in such capacity at a healthcare facility operated or managed by Seller or its subsidiaries for a period of at least one (1) year following such Scheduled Closing. (iii) All such direct and indirect employees to whom Buyer has the right to make offers of employment pursuant to clauses (i) or (ii) above are herein referred to as the "RETAINED EMPLOYEES." - 33 - (iv) Any such offer of employment to a Retained Employee by Buyer shall be to perform comparable services, in such position and for such compensation as is comparable to the position such Retained Employee held with, and the compensation paid to such Retained Employee by, Seller or any of its subsidiaries as of the Scheduled Closing. Seller or its Affiliates shall have the right (but not the obligation) to employ or offer to employ any Retained Employee (including, but not limited to, the chief executive officer and the chief financial officer of each Facility without regard to the provisions of SECTION 2.10(b)(ii)(B)) who declines Buyer's offer of employment. (c) HIRING OF RETAINED EMPLOYEES. Buyer shall hire at each Scheduled Closing each Retained Employee who elects to accept employment with Buyer (the "HIRED EMPLOYEES") and shall continue to employ each such Hired Employee for a period of no less than ninety (90) days following the relevant Closing Date, unless the employment of such Hired Employee is terminated for cause or as a result of the Hired Employee's resignation. Subject to the proviso to SECTION 2.3(c), Buyer agrees to give the Hired Employees full credit for the Paid Time Off earned or accrued by them during, and to which they are entitled as a result of, their employment by Seller and/or its subsidiaries, by allowing such Hired Employees such Paid Time Off as to which such Hired Employees would have been entitled as of the relevant Closing Date under the policies of Seller and/or its subsidiaries if such Hired Employees had remained employees of Seller and/or its subsidiaries and, upon termination of employment, by making full payment to such Hired Employees of the Paid Time Off that such employees would have received had they taken such Paid Time Off. (d) HEALTH BENEFITS. Buyer shall provide the Hired Employees a program of health care benefits which is comparable in the aggregate to the program of health care benefits currently provided by Seller or its pertinent Subsidiaries, as the case may be, PROVIDED, HOWEVER, that such health care benefits shall be immediately available to the Hired Employees as of the relevant Closing Date, and the Hired Employees shall become as of the relevant Closing Date participants thereunder, without regard to any applicable waiting period or any limitation with respect to preexisting conditions except insofar as such waiting period or limitation gives full credit to such Hired Employees for the period of time during which he or she was employed by Seller and its Affiliates and, PROVIDED - 34 - FURTHER, that Buyer may make modifications or changes in such health care benefits at any time following a Scheduled Closing. Buyer acknowledges and agrees that, with respect to the Hired Employees, Buyer is a successor employer for purposes of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), that the Hired Employees will not, as a result, be deemed to have had a termination of employment for purposes of COBRA and that any COBRA notices or coverages required to be given or made available to any Hired Employee shall be given or made by Buyer and not Seller or the Subsidiaries, PROVIDED that Buyer does not assume, and shall not be deemed to have assumed, any COBRA obligations which Seller or any Subsidiary may have to former employees of Seller or such Subsidiary whose employment was terminated on or prior to the relevant Closing Date, or to any Retained Employees who do not accept employment with Buyer, and PROVIDED further that Seller shall be responsible for any COBRA coverages required to be made available to any Hired Employee who is entitled to COBRA coverage under existing plans of Seller or any Subsidiary as a result of the Transactions. (e) ACKNOWLEDGEMENT OF RESPONSIBILITY. Buyer acknowledges and agrees that as of the date and time a Scheduled Closing is effective, Buyer shall be considered for purposes of the Worker Adjustment and Retraining Notification Act (the "WARN ACT") the employer of the Retained Employees related to the Transferred Assets transferred at such Scheduled Closing and that Buyer (and not Seller or the Subsidiaries) shall thereupon be responsible for complying with the WARN Act with respect to such Retained Employees and that prior to such time none of such Retained Employees shall be, nor shall they be deemed to be, terminated. Buyer shall indemnify and hold Seller and its Affiliates harmless, in accordance with SECTIONS 11.4, 11.5 and 11.6, from and against all Losses (i) resulting from any compliance obligation (including, without limitation, the obligation to give notice or pay money) that Seller and its Affiliates or Buyer has under the WARN Act arising from the termination of any Retained Employee or (ii) resulting from any claims of the Hired Employees (including, without limitation, claims for health care coverage or benefits); PROVIDED, HOWEVER, Buyer shall neither be responsible for, nor indemnify Seller and its Affiliates for the consequences of any WARN event which may be caused by the actions of Seller or its Affiliates with respect to employees whom Seller and its Affiliates retain Pursuant to rights set forth in SECTION 2.10(b) above. - 35 - Notwithstanding the foregoing, nothing in this SECTION 2.10 shall, or shall be deemed to, create any rights in favor of any person not a party hereto or to constitute an employment agreement or condition of employment for any employee of Seller or any Affiliate of Seller or any Retained Employee. SECTION 2.11 USE OF NAMES. (a) Although trade names of Seller and the Subsidiaries, other than the Transferred Business Names, are Excluded Assets, such names appear on certain of the fixed Transferred Assets, such as certain fixtures and Equipment, and on supplies, materials, stationery and similar consumable items which will be on hand at the Facilities at a Scheduled Closing with respect to such Facilities. Notwithstanding that such names are Excluded Assets, Buyer shall be entitled to use such consumable items for a period of three (3) months following the Scheduled Closing in which such items are transferred and shall have up to six (6) months following such Scheduled Closing to remove such names from fixed Transferred Assets, PROVIDED that Buyer shall not send correspondence or other materials to third parties on any stationery that contains a trade name (other than a Transferred Business Name) of Seller or any Affiliate of Seller. (b) Seller hereby grants to Buyer, for the period from the relevant Closing Date through the expiration of the ninetieth day thereafter, the non-exclusive right and license to use, solely in connection with the operation of the Facilities transferred on such Closing Date, the clinical policy and procedures manuals of Seller and/or the Subsidiaries (the "MANUALS") presently used at such Facilities. Such license shall be on the following terms and conditions: (i) Buyer shall accept the Manuals in their present condition, "AS IS" and "WITH ALL FAULTS" and without any representation or warranty of any kind whatsoever, either express or implied, by Seller, including, but not limited to, any representation or warranty that the Manuals are adequate for Buyer's operation of the relevant Facilities after the relevant Scheduled Closing or are in compliance with any Laws; (ii) Buyer agrees that Seller shall have no obligation whatsoever to update or otherwise revise the Manuals, even if - 36 - Seller or its Affiliates are revising similar manuals at other healthcare facilities, and that Buyer shall have sole responsibility for updating and revising such manuals; (iii) Buyer acknowledges and agrees that the Manuals are confidential and proprietary information of Seller and its Affiliates and Buyer agrees that it will not, directly or indirectly, reproduce, distribute or disclose the contents of the Manuals except as may be required in the operation of such Facilities (including, but not limited to, as may be required by any Laws) and shall exercise due care to otherwise preserve and protect the proprietary nature thereof, PROVIDED that Seller and the Subsidiaries acknowledge that the Manuals used by Buyer and the Buyer Subsidiaries more likely than not contain information that is substantially similar to information contained in the Manuals; (iv) Upon the termination of Buyer's use of the Manuals pursuant to this Section, Buyer shall return to Seller all originals and copies of the Manuals; and (v) Buyer shall implement its own policy and procedure manuals promptly following the relevant Closing Date, and in any event by the date on which the license hereby granted to Buyer terminates. (c) Notwithstanding the assignment to Buyer of the Transferred Business Names, Seller and its Affiliates and their assignees shall have the nonexclusive right to use such Transferred Business Names, consistent with past practices, in connection with the operation of previously and currently operated healthcare facilities of Seller and its Affiliates not included in the Transferred Assets, and Buyer, on behalf of itself and each Buyer Subsidiary, hereby grants Seller and its Affiliates and their assignees a fully paid-up, perpetual right and license to use such Transferred Business Names in such manner in connection with the operation of such facilities, such license to be effective as of the relevant Scheduled Closing in which such Transferred Business Names are assigned to Buyer and the Buyer Subsidiaries. Section 2.12 NO ASSIGNMENT IF BREACH; SELLER'S DISCHARGE OF ASSUMED LIABILITIES. - 37 - (a) Notwithstanding anything contained in this Agreement to the contrary, this Agreement shall not constitute an agreement to assign any Transferred Asset, or assume any Assumed Liability, if the attempted assignment or assumption of the same, as a result of the absence of the consent or authorization of a third party or failure of a right of first refusal notice period to expire, would constitute a breach or default under any lease, agreement, encumbrance or commitment, would violate any Law or would in any way adversely affect the rights, or increase the obligations, of Buyer, Seller or any Subsidiary with respect thereto; PROVIDED that the assignment of any contract, including without limitation Medicare, Medicaid and similar provider agreements, which may lawfully be made subject to customary conditions subsequent (such as needs surveys, evaluations of Buyer or other determinations by the counterparties to such agreements) shall be deemed not to constitute a default under, or to in any way adversely affect the rights or increase the obligations of Buyer with respect to, such lease, agreement, encumbrance or commitment, whether or not such condition or conditions subsequent are met on or prior to the relevant Scheduled Closing. Except as provided in SECTION 2.12(c), if any such consent or authorization is not obtained, or if an attempted assignment or assumption would be ineffective or would adversely affect the rights or increase the obligations of Seller, a Subsidiary or Buyer, with respect to any such lease, agreement, encumbrance or commitment, so that Buyer would not, in fact, receive all such rights, or assume the obligations, of Seller or Subsidiary with respect thereto as they exist prior to such attempted assignment or assumption, then Seller and Buyer shall, and Seller shall cause each Subsidiary to, enter into such reasonable cooperative arrangements as may be reasonably acceptable to both Buyer and Seller (including without limitation, sublease, agency, management, indemnity or payment arrangements and enforcement at the cost and for the benefit of Buyer of any and all rights of Seller and the Subsidiaries against an involved third party) to provide for or impose upon Buyer the benefits of such Transferred Asset or the obligations of such Assumed Liability, as the case may be, and any transfer or assignment to Buyer by Seller or a Subsidiary of any such Transferred Asset, or any assumption by Buyer of any such Assumed Liability, which shall require such consent or authorization of a third party that is not obtained shall be made subject to such consent or authorization being obtained. Except as provided in SECTION 2.12(c), if the parties cannot agree on any such arrangement, or any such arrangement would not be reasonably practicable, to provide Buyer with materially all the benefits of such Transferred Asset or materially all the obligations of such Assumed Liability, then such - 38 - Transferred Asset or Assumed Liability, as the case may be, shall be excluded from the Transactions and shall be deemed to be an Excluded Asset or an Excluded Liability, as the case may be, and Buyer and Seller shall negotiate in good faith an equitable adjustment in the Purchase Price, or resolve any disagreement respecting such adjustment, in accordance with the procedures of SECTION 2.14. (b) Notwithstanding any other provision of this Agreement, during the period between the date hereof and the relevant Scheduled Closing, Seller may, for the purpose of facilitating consummation of the Transactions and with the consent of Buyer (which will not be unreasonably withheld), cause any Subsidiary to acquire a fixed asset, or any direct or indirect interest therein, that results in the simultaneous discharge of all or any part of a liability that exists as of the date hereof which, but for such acquisition, would be an Assumed Liability; PROVIDED that in each such case it gives prompt notice of such acquisition to Buyer. In the event of any such acquisition, Buyer and Seller shall negotiate in good faith an equitable adjustment to the Purchase Price, or resolve any disagreement respecting such adjustment, in accordance with the procedures of SECTION 2.14. (c) The provisions of SECTION 2.12(a) notwithstanding, neither Buyer nor Seller shall be obligated to close with respect to a given Facility if any private third party consent or authorization in respect of Transferred Assets and Assumed Liabilities related to such Facility that is enumerated in SCHEDULE 2.12(c) (the "SCHEDULE OF REQUIRED CONSENTS") is not obtained, unless both Buyer and Seller waive in writing their respective conditions precedent that such consent or authorization be obtained prior to the transfer of such Facility. With respect to all other private third party consents or authorizations with respect to such Facility that have not been obtained by the relevant Scheduled Closing, if the parties have not entered into a cooperative arrangement in respect of the Transferred Asset or Assumed Liability to which such consent or authorization relates, then, subject to the provisions of SECTION 2.18 regarding Buyer's right to reject certain contracts within sixty (60) days following the Scheduled Closing at which such contracts are assigned or purported to be assigned, (i) Buyer hereby agrees to accept the assignment of any such pertinent Transferred Asset, and to assume any such pertinent Assumed Liability, as the case may be, whether or not such assignment or assumption is made subject to such consent or authorization being obtained after the relevant Scheduled Closing, and (ii) the parties agree to - 39 - continue to cooperate with one another, pursuant to the provisions of SECTIONS 5.2 and 5.3, to obtain any such requisite consent. Section 2.13 CLOSINGS. All of Seller's and the Subsidiaries' right, title and interest in a Facility and all other Transferred Assets and Assumed Liabilities which relate to, or constitute a part of, a Facility shall be transferred to Buyer or the applicable Buyer Subsidiaries at a "SCHEDULED CLOSING" (as defined below). Subject to the terms and conditions hereof, the Transferred Assets shall be transferred to Buyer at one of three Scheduled Closings: The "FIRST CLOSING" (as defined below), the "SECOND CLOSING" (as defined below) or the "FINAL CLOSING" (as defined below). The First Closing, Second Closing and Final Closing, collectively, are the "Scheduled Closings" and each is a "Scheduled Closing." A date on which a Scheduled Closing actually occurs is a "CLOSING DATE," and the Closing Date of the Final Closing is the "FINAL CLOSING DATE." A Scheduled Closing shall be effective for all purposes as to each Facility which is the subject of such Scheduled Closing (and the Transferred Assets and Assumed Liabilities related thereto or constituting a part thereof) (collectively, the "SUBJECT TRANSFERRED ASSETS") at 11:59 p.m. on the relevant Closing Date, as determined by reference to the local time zone in which the Facility is located. Notwithstanding the foregoing, either the First or Second Closing may also be a Final Closing and if the First Closing is the Final Closing, there shall be no Second Closing. Scheduled Closings shall occur in accordance with the following provisions: (a) THE FIRST CLOSING. Provided that no Scheduled Closing shall occur (i) before there is a "First Closing" under the First Facilities Agreement with respect to First Facilities, or (ii) after the Termination Date set forth in SECTION 10.1(b), the "FIRST CLOSING" with respect to Subsequent Facilities shall occur at a mutually agreeable time and place or places within five (5) business days (unless another date is mutually agreed upon by Buyer and Seller) after the first date on which all of the conditions set forth in ARTICLE 8 and ARTICLE 9 hereof are capable of being satisfied or are waived as to the Transferred Assets and Assumed Liabilities in respect of Subsequent Facilities that account in the aggregate for at least Eight Million Dollars ($8,000,000) of the EBITDA (as defined in SECTION 3.17(a)) assigned to Facilities for this purpose as shown on SCHEDULE 2.13B hereto, and all Facilities, Transferred Assets and Assumed Liabilities sold, assigned, conveyed, transferred, delivered and assumed at the First Closing shall be the Subject Transferred Assets with respect to - 40 - the First Closing. Upon consummation at the First Closing of Transactions in compliance with the foregoing provisions, any remaining Transactions in respect of Facilities that were not consummated at such Closing may be consummated at a subsequent Closing subject to the provisions of ARTICLE 8 and ARTICLE 9 and to the provisions of this SECTION 2.13 with respect to such Closings. (b) THE SECOND CLOSING. Provided that the First Closing has occurred and that no Scheduled Closing shall occur after the Termination Date, the "SECOND CLOSING" shall occur at a mutually agreeable time and place or places, on the date which is within five (5) business days (unless another date is mutually agreed upon by Buyer and Seller) after the first date on which all of the conditions set forth in ARTICLE 8 and ARTICLE 9 hereof are capable of being satisfied or are waived as to any additional Subsequent Facilities and the Transferred Assets and Assumed Liabilities related thereto or constituting a part thereof that are not the subject of the First Closing, and the Subsequent Facilities and the Transferred Assets and Assumed Liabilities related thereto that are included in the Transactions occurring at the Second Closing shall, for purposes of this Agreement, be the Subject Transferred Assets with respect to the Second Closing, PROVIDED that the Second Closing shall be held, in any event, within thirty (30) days of the First Closing with respect to any Subsequent Facilities for which the conditions to Closing, including those set forth in this SECTION 2.13, have been met or waived as of such date. (c) THE FINAL CLOSING. Provided that a First Closing has occurred, the "FINAL CLOSING" shall occur with respect to Subsequent Facilities that are not the subject of the First or Second Closings at a mutually agreeable place or places and at a mutually agreeable time as follows: (i) If all of the conditions set forth in ARTICLES 8 and 9 hereof and in this SECTION 2.13 are capable of being satisfied or are waived on or prior to the Termination Date as to all Subsequent Facilities that are not included in the First Closing or the Second Closing, then the Final Closing shall occur within five (5) business days (unless another date is mutually agreed upon by Buyer and Seller) after the first date upon which such conditions may be satisfied or are waived, but in no event later than the Termination Date. - 41 - (ii) If all of the conditions set forth in ARTICLES 8 and 9 hereof and in this SECTION 2.13 are capable of being satisfied or are waived on or prior to the Termination Date as to some, but not all, of the Facilities that are not included in the First Closing or the Second Closing, then the Final Closing shall occur within five (5) business days after the identity of the Facilities as to which such conditions will not be satisfied has become reasonably manifest or has been mutually agreed upon by the parties, but in no event shall such Final Closing occur later than the Termination Date. (d) DELIVERIES BY SELLER. At each Scheduled Closing Seller shall deliver, or cause the Subsidiaries to deliver, to Buyer: (i) A Bill or Bills of Sale and Assignment in substantially the form of EXHIBIT A executed by each Subsidiary with respect to the Subject Transferred Assets of the Subsidiary covered thereby; (ii) Grant deeds (or equivalent special or limited warranty deeds for Owned Real Properties outside California), properly executed and acknowledged by each Subsidiary with respect to the Owned Real Properties of the Subsidiary included in the Subject Transferred Assets; (iii) Separate assignments and assumptions in substantially the form of EXHIBIT B executed by each Subsidiary with respect to each Real Property Lease of the Subsidiary included in the Subject Transferred Assets that is designated by either Buyer or Seller; (iv) Instruments of transfer, sufficient to transfer personal property interests of each Subsidiary that are included in the Subject Transferred Assets but not otherwise transferred by the Bills of Sale and Assignment referred to in CLAUSE (i) above, executed by each Subsidiary in the form customarily used in commercial transactions in the areas in which such other personal property of such Subsidiary is located; (v) Such other instruments of transfer, executed by each of the pertinent Subsidiaries necessary to transfer to and vest in Buyer all of Seller's and the Subsidiaries' rights, title and - 42 - interest in and to the Subject Transferred Assets or which may be required by the Title Insurer (as defined in SECTION 8.7), including owner's and lessee's affidavits, if any; and (vi) Possession of the Subject Transferred Assets. All such documents of transfer shall be in a form and substance reasonably satisfactory to Buyer. (e) DELIVERIES BY BUYER. At each Scheduled Closing, Buyer shall deliver to Seller: (i) Immediately available funds, by way of wire transfer to an account or accounts designated by Seller, in an amount equal to the amounts then due pursuant to SECTIONS 2.5 and 2.6(a), as adjusted by the expenses due at such Scheduled Closing pursuant to SECTION 5.5; (ii) Separate assignments and assumptions in substantially the form of EXHIBIT C executed by Buyer and the applicable Buyer Subsidiaries with respect to each Real Property Lease included in the Subject Transferred Assets that is designated by either Buyer or Seller; and (iii) An Assumption Agreement or Assumption Agreements with respect to the Assumed Liabilities assumed at such Scheduled Closing, in substantially the form of EXHIBIT C, executed by Buyer and the applicable Buyer and the applicable Buyer Subsidiaries in favor of Seller and each of the applicable Subsidiaries. All such documents of transfer shall be in a form and substance reasonably satisfactory to Seller. (f) ESCROW. If either of the parties desired to consummate a Scheduled Closing through an escrow, an escrow shall be opened with, and the escrow agent shall be, Chicago Title Company (the "ESCROW AGENT"), by depositing a fully executed copy of this Agreement with Escrow Agent to serve as escrow instructions. This Agreement shall be considered the primary escrow instructions between the parties, but the parties shall execute such additional escrow instructions as Escrow Agent shall require and the parties may agree upon in order to clarify the duties - 43 - and responsibilities of Escrow Agent. In the event of any conflict between this Agreement and such additional escrow instructions, this Agreement shall prevail. If a Scheduled Closing is to be consummated through the Escrow Agent, then on or prior to the Closing Date, Buyer shall cause the funds required by SUBSECTION (e)(i) above to be wired to Escrow Agent, and the parties shall deliver the instruments of sale, assignment, conveyance and assumption called for by SUBSECTIONS (d) and (e) above to be delivered to the Escrow Agent, and on the Closing Date, the Escrow Agent shall close the escrow with respect to such Scheduled Closing by: (i) Causing the deeds for the Owned Real Properties, the assignments of the Real Property Leases, and any other documents which the parties may mutually designate to be recorded in the official records of the appropriate counties in which the pertinent Subject Transferred Assets are located; (ii) Delivering to Seller by wire transfer of immediately available funds, to an account or accounts designated by Seller, the amounts called for by SUBSECTION (e)(i) above; and (iii) Delivering to Buyer or Seller, as the case may be, the other instruments referred to in SUBSECTIONS (d) and (e) above. Section 2.14 PURCHASE PRICE ADJUSTMENT. If circumstances exist that require the parties to negotiate in good faith equitable adjustments in the Purchase Price pursuant to the provisions of SECTION 2.12 (respecting absence of consents), SECTIONS 8.5 and 9.5 (dealing with certain prohibitions and restraints), SECTION 6.2(c) (respecting Seller's obligations with respect to environmental conditions), SECTION 8.7 (respecting the condition of title to interests in real property) or SECTION 8.10 (respecting casualty losses or condemnation) (SECTIONS 2.12, 6.2(c), 8.5, 8.7, 8.10, 9.5 and this SECTION 2.14 being collectively referred to as the "ADJUSTMENT SECTIONS"), then and in any of such events, such negotiations, and the resolution of disagreements arising therefrom, shall be conducted in accordance with the provisions of this SECTION 2.14. The parties shall negotiate such equitable adjustments in the Purchase Price in good faith prior to any relevant Closing Date (as may be extended by mutual agreement of the parties), PROVIDED, that any adjustment in the Purchase Price shall be consistent with the Allocation Schedule. If the parties are unable to agree by the day prior to such relevant Closing Date, then such relevant Closing Date (the - 44 - "ORIGINAL CLOSING DATE") (and the Termination Date, if necessary) shall be extended for up to fifteen (15) business days to provide for the opportunity to resolve such disagreement pursuant to the provisions of this SECTION 2.14. On the day a Scheduled Closing would have occurred but for the absence of agreement between the parties, each party shall designate an individual (who may not be a present or former officer, director, partner or employee of the party or of any present or former investment banker, accounting firm, law firm or attorney of or for the party) to mediate such disagreement, and advise the other party in writing of the identity of such individual, which advice shall be accompanied by a list of up to ten (10) suggested neutral individuals to serve as a third mediator. The mediators originally designated by each party shall promptly confer about the selection of a third mediator from such lists, and within five (5) business days following the Original Closing Date (or Termination Date, as the case may be), the originally designated mediators shall agree upon and (subject to availability) select the third mediator from the lists submitted by the parties or otherwise, PROVIDED that if the originally designated mediators cannot agree upon a third mediator by such date, the third mediator shall be a retired judge designated by Judicial and Arbitration Mediation Services, Inc., located in Los Angeles, California. The three mediators so selected are herein referred to as the "PANEL". Within two (2) business days following the designation of the third mediator, each party shall submit to the Panel in writing, its proposed equitable adjustments in the Purchase Price. Such proposals shall be materially in accordance with the last proposals made by such party to the other party during the course of the aforementioned good faith negotiations between the parties. The parties shall additionally submit such memoranda, arguments, briefs and evidence in support of their respective positions, and in accordance with such procedures, as a majority of the Panel may determine. Within seven (7) business days following the designation of the third mediator, as to each adjustment of the Purchase Price about which there is disagreement, the Panel shall, by majority vote, select the proposed adjustment of the Purchase Price proposed by one of the parties, it being agreed that the Panel shall have no authority to alter any such proposal in any way. Thereafter, the parties shall, subject to the terms and conditions of this Agreement, consummate the Transactions on the basis of such adjustments at a mutually agreeable time and place or places, in accordance with and subject to the provisions of SECTION 2.13, which shall be no later than the fifteenth (15th) business day following the Original Closing Date or such later date as the parties may agree upon. Subject to the foregoing, the Panel may determine the issues in dispute following such procedures, - 45 - consistent with the language of this Agreement, as it deems appropriate to the circumstances and with reference to the amounts in issue, but in any event consistent with the Allocation Schedule to the extent applicable. No particular procedures are intended to be imposed upon the Panel, it being the desire of the parties that any such disagreement shall be resolved as expeditiously and inexpensively as reasonably practicable. No member of the Panel shall have any liability to the parties in connection with service on the Panel, and the parties shall provide such indemnities to the members of the Panel as they shall request. Section 2.15 TRANSFER OF ASSETS IN CORPORATE FORM. If Buyer consents in writing in its sole and absolute discretion, Seller may, prior to any Scheduled Closing, cause any Transferred Asset or Assumed Liability to be assigned and transferred by way of an assignment to Buyer of the stock of a subsidiary of Seller (including the stock of any Subsidiary), in which case all right, title and interest of Seller and any of its Affiliates in such subsidiary (which shall constitute all of the outstanding capital stock and rights to acquire capital stock in such subsidiary) shall be transferred to Buyer at the Scheduled Closing as a Subject Transferred Asset. Any such agreement of the parties shall become an amendment to this Agreement. Section 2.16 ASSIGNMENT OF RIGHTS AND OBLIGATIONS TO BUYER SUBSIDIARIES. Notwithstanding any contrary provisions contained herein, the parties hereto agree that, prior to a Scheduled Closing, Buyer, in its sole discretion, may assign any or all of its rights and obligations with respect to the Subject Transferred Assets and the Assumed Liabilities to be transferred at such Scheduled Closing to one or more Buyer Subsidiaries, PROVIDED that no such assignment shall relieve Buyer of any obligation or liability to Seller hereunder, and PROVIDED further that the following shall apply: (a) Buyer will provide Seller with prompt written notice of any such assignment. (b) No such assignment shall be effected if the making of the assignment will result in Seller's inability to obtain any consent or authorization reasonably required to consummate the Transactions or to avoid economic detriment to the Seller arising from the consummation of the Transactions. - 46 - (c) Each such Buyer Subsidiary that is an assignee of Buyer shall irrevocably appoint Buyer as its sole and exclusive representative and agent authorized to act for and to receive notices and payments on behalf of the Buyer Subsidiaries in all matters arising from or related to this Agreement and the Transactions. (d) As a condition to Seller's agreement to such assignments, Buyer hereby agrees that Buyer will at all times be the ultimate parent entity of the consolidated group of companies of which Buyer is a group member or that, in the event of any reorganization involving Buyer and its subsidiaries, the ultimate parent entity of the consolidated group of companies emerging from such reorganization that includes Buyer and its successors and assigns shall, prior to any such reorganization, execute such documents as are reasonably necessary to confirm the assumption by such ultimate parent entity of Buyer's obligations to Seller hereunder. (e) Buyer shall remain jointly and severally liable to Seller and the Subsidiaries and to third parties with respect to any Assumed Liabilities transferred to a Buyer Subsidiary, and, without limiting the generality of the foregoing, hereby absolutely and unconditionally guarantees the full, prompt and faithful performance by each Buyer Subsidiary of all covenants and obligations to be performed by such Buyer Subsidiary under this Agreement and any Related Agreement (as defined in SECTION 3.4) which are assigned to such Buyer Subsidiary, including but not limited to, the payment of all sums stipulated to be paid by such Buyer Subsidiary pursuant to such assignment, it being understood that each such covenant and obligation constitutes the direct and primary obligation of Buyer and that a separate action or actions may be brought and prosecuted against Buyer whether action is brought against the pertinent Buyer Subsidiary or whether such Buyer Subsidiary is joined in any such action or actions (Buyer hereby waiving any right to require Seller or a Subsidiary to proceed against a Buyer Subsidiary). Buyer hereby authorizes Seller, without notice and without affecting Buyer's liability hereunder, from time to time to (x) renew, compromise, extend, accelerate, or otherwise change the terms of any obligation of a Buyer Subsidiary hereunder with the agreement of such Buyer Subsidiary, (y) take and hold security for the obligations guaranteed, and exchange, enforce, waive and release any such security, and (z) apply such security and direct the order or manner of sale thereof as Seller in its discretion may determine. Buyer hereby further waives: - 47 - (i) Any defense that may arise by reason of the incapacity or lack of authority of any Buyer Subsidiary; (ii) Any defense based upon a statute or rule of law which provides that the obligations of a surety must be neither larger in amount nor in other respects more burdensome than those of the principal; and (iii) Any duty on the part of Seller or a Subsidiary to disclose to Buyer any facts that Seller or a Subsidiary may now or hereafter know about a Buyer Subsidiary. Section 2.17 DATA PROCESSING SERVICES. In order to facilitate the transition of the Facilities from Seller's to Buyer's ownership, the parties acknowledge that in the event Buyer acquires Subsequent Facilities hereunder from Seller, then Seller shall provide certain telephone assistance in connection with management information services and Facility accounting and shall also provide certain data processing services support for the collection of Receivables all in accordance with the terms of and for the period stated in the First Facilities Agreement. Section 2.18 REJECTION OF CERTAIN CONTRACTS. The provisions of this SECTION 2.18 shall apply to the following categories of Assumed Contracts: (i) those subject to the provisions of SECTION 2.1(f)(iii); (ii) those subject to the provisions of the second sentence of SECTION 2.12(c); and (iii) those subject to SECTION 6.1(f) that are entered into by Seller or a Subsidiary after the date hereof in violation of SECTION 6.1(f). With respect to each such contract (a "CONTINGENT CONTRACT"): (a) Buyer or the pertinent Buyer Subsidiary shall have the right to reject such Contingent Contract by giving a written notice of such rejection to Seller within sixty (60) days following the relevant Scheduled Closing, such written notice to be accompanied by originals of the contract then in Buyer's or the Buyer Subsidiary's possession, copies of any written communications between Buyer or the Buyer Subsidiary and the counterparty to such contract relating to the subject matter thereof, and instruments evidencing the reassignment of such contract to Seller or the pertinent Subsidiary in form reasonably satisfactory to Buyer and Seller, in which case such contract shall be treated as an Excluded Asset, and the liabilities related thereto shall be treated as an Excluded Liability, for all - 48 - purposes of this Agreement, subject to the further provisions of this SECTION 2.18. (b) In the event that Seller or the pertinent Subsidiary incurs any costs in connection with the termination of any such Contingent Contract so rejected by Buyer (including payments during any applicable notice period required to terminate such contract) and Buyer or the pertinent Buyer Subsidiary continues to do business with the counterparty to such contract related to the subject matter thereof during any period for which Seller or the applicable Subsidiary is obligated to make payments to such counterparty, then Buyer will reimburse Seller for one-half of the payments that Seller or the applicable Subsidiary is obligated to make to such counterparty in connection with such termination, but not in excess of one-half of the payments that Seller or the applicable Subsidiary is obligated to make to such counterparty under such contract for a period of ninety (90) days. (c) With respect to any Contingent Contract subject to clause (ii) of this SECTION 2.18 that is not also subject to either clause (i) or clause (iii) of this SECTION 2.18 and that is not rejected by Buyer pursuant to SUBSECTION (a) above, Buyer agrees to indemnify and hold harmless Seller and the Subsidiaries, in accordance with the provisions of SECTIONS 11.3 through 11.6, from and against any and all Losses arising from or related to the lack of any consent or authorization in connection with the assignment of such Contingent Contract to Buyer (or the pertinent Buyer Subsidiary) hereunder. (d) In the event Buyer rejects a Contingent Contract pursuant to SUBSECTION (a), then, notwithstanding any other provision of this Agreement, Seller shall have no liability to Buyer and the Buyer Subsidiaries for Losses under the provisions of SECTIONS 11.3 through 11.6 related to such Contingent Contract for the period prior to such rejection or for the amounts due Seller under SUBSECTION (b) above. (e) With respect to any Contingent Contract subject to clause (iii) of this SECTION 2.18 that appears on an updated SCHEDULE 2.1(f) delivered pursuant to SECTION 6.3 and that is NOT rejected by Buyer pursuant to SUBSECTION (a) above, then, notwithstanding any other provision of this Agreement, Seller shall have no liability to Buyer and the Buyer Subsidiaries for Losses under the provisions of SECTIONS 11.3 - 49 - through 11.6 for violation of SECTION 6.1(f) with respect to such Contingent Contract. Section 2.19 REMAINING SCHEDULES. Notwithstanding anything to the contrary herein, this Agreement shall be deemed cancelled and of no further force and effect if the parties shall have failed to agree upon the Schedules enumerated in EXHIBIT E, if any, within five (5) business days following the date hereof, the parties hereby agreeing to cooperate with one another in good faith and to work expeditiously to agree upon such Schedules within such period. Such agreement shall be evidenced by a duly executed amendment of this Agreement that deletes this SECTION 2.19. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below: Section 3.1 ORGANIZATION AND CORPORATE POWER. Seller is a corporation duly incorporated and validly existing under the laws of, and is authorized to exercise its corporate powers, rights and privileges and is in good standing in, the State of Nevada and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. Section 3.2 SUBSIDIARIES. (a) Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation (which, in the case of Subsidiaries existing on the date of this Agreement, is indicated on SCHEDULE A-1). Each Subsidiary has all requisite power and authority (corporate and otherwise) to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. - 50 - (b) All of the outstanding capital stock of each Subsidiary has been duly authorized and is validly issued, fully paid and nonassessable and, except as indicated on SCHEDULE A-1, is owned beneficially and of record by Seller or another subsidiary of Seller as indicated on SCHEDULE A-1. Except as provided in SCHEDULE A-1, there are no (i) rights, subscriptions, warrants, options, conversion rights or agreements of any kind outstanding to purchase or otherwise acquire any shares of capital stock of any Subsidiary, or (ii) securities or obligations of any kind convertible into or exchangeable for any shares of capital stock of any Subsidiary, or (iii) obligations of any kind obligating Seller to sell or dispose of all or any part of Seller's ownership interest therein. The Subsidiaries listed on SCHEDULE A-1 are, on the date hereof, the only subsidiaries of Seller that have any right or interest in, or title to the Facilities. (c) The board of directors of each Subsidiary and, if required, its shareholders, have duly and effectively authorized (i) the sale of the Transferred Assets to be sold by such Subsidiary and (ii) the execution, delivery and performance of the Related Agreements (as defined in SECTION 3.4) and all other agreements contemplated hereby and thereby to which such Subsidiary is a party. No other corporate act or proceeding on the part of any Subsidiary, its board of directors or its shareholders is necessary to authorize any Related Agreement or other agreement contemplated hereby and thereby or the transactions contemplated hereby and thereby. (d) The Related Agreements and all other agreements contemplated hereby and thereby to which any Subsidiary is a party will, as of each Scheduled Closing, have been duly executed and delivered by each such Subsidiary, and each such agreement, when executed and delivered, will constitute a valid and binding obligation of such Subsidiary, enforceable against such Subsidiary in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and performance of this Agreement and all other agreements - 51 - contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly and effectively authorized by the board of directors of Seller; no other corporate act or proceeding on the part of Seller, its board of directors or its shareholders is necessary to authorize this Agreement, any such other agreement or the transactions contemplated hereby and thereby. This Agreement has been, and each of the other agreements contemplated hereby will, as of each Scheduled Closing, have been, duly executed and delivered by Seller, and this Agreement constitutes, and each such other agreement when executed and delivered will constitute, a valid and binding obligation of Seller, enforceable against Seller in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 3.4 ABSENCE OF BREACH. Subject to the provisions of SECTIONS 3.5 and 3.6 below regarding private party and governmental consents, and except for compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and any regulatory or licensing Laws applicable to the businesses and assets represented by the Transferred Assets, the execution, delivery and performance by Seller of this Agreement and all other agreements contemplated hereby or executed in connection herewith (not including the First Facilities Agreement, the "RELATED AGREEMENTS"), and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements entered into by the Subsidiaries, do not, (a) conflict with or result in a breach of any of the provisions of the Articles or Certificates of Incorporation or Bylaws or similar charter documents (the "CHARTER DOCUMENTS") of Seller or of any of the Subsidiaries, (b) contravene any Law or cause the suspension or revocation of any License presently in effect, which affects or binds Seller or any of the Subsidiaries, or any of their properties, except where such contravention, suspension or revocation will not have a Material Adverse Effect (as defined below) on the Transferred Assets and will not affect the validity or enforceability of this Agreement and the Related Agreements or the validity of the Transactions contemplated hereby and thereby, or (c) conflict with or result in a breach of or default (with or - 52 - without notice or lapse of time or both) under any indenture or loan or credit agreement or any other agreement or instrument to which Seller or any of the Subsidiaries is a party or by which it or they or any of their properties may be affected or bound, the effect of which conflict, breach, or default, either individually or in the aggregate, would be a Material Adverse Effect on the Transferred Assets. As used herein, a "MATERIAL ADVERSE EFFECT": (x) when used with respect to the Transferred Assets, means a material adverse effect on the Transferred Assets and on the businesses operated therefrom, including their condition (financial or otherwise) and results of operations, taken as a whole; (y) when used with respect to any portion of the Transferred Assets (including, without limitation, a Facility), means a material adverse effect on such portion of the Transferred Assets and on the businesses operated therefrom, including their condition (financial or otherwise) and results of operations, taken as a whole; and (z) when used with respect to an entity, such as Seller, a Subsidiary or Buyer, means a material adverse effect on the business, condition (financial or otherwise) and results of operations of such entity taken as a whole (including any subsidiaries of such entity). Section 3.5 PRIVATE PARTY CONSENTS. Except as set forth in SCHEDULE 3.5, the execution, delivery and performance by Seller of this Agreement and the Related Agreements, and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be performed by the Subsidiaries, do not require the authorization, consent or approval of any non-governmental third party of such a nature that the failure to obtain the same would have a Material Adverse Effect on the Transferred Assets or a Facility. Section 3.6 GOVERNMENTAL CONSENTS. The execution, delivery and performance by Seller of this Agreement and the Related Agreements, and the execution and delivery by any Subsidiary of the Related Agreements to which it is a party, and the performance by the Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be performed by the Subsidiaries, do not require the authorization, consent, approval, certification, license or order of, or any filing with, any court or governmental agency of such a nature that the failure to obtain the same would have a Material Adverse Effect on the Transferred Assets or a Facility, except for compliance with the HSR Act and except for such governmental authorizations, consents, approvals, certifications, licenses - 53 - and orders that customarily accompany the transfer of health care facilities such as the Facilities. Section 3.7 BROKERS. Except as shown on SCHEDULE 3.7, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the Transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Seller or any of its Affiliates. Seller shall be solely responsible for the payment of any such fee or commission to any person or entity listed on SCHEDULE 3.7 as an exception to the foregoing. Section 3.8 TITLE TO PROPERTY. (a) Each Subsidiary has good and defensible title, or valid and effective leasehold rights in the case of leased property, to all tangible personal property included in the Transferred Assets to be sold, conveyed, assigned, transferred and delivered to Buyer by such Subsidiary, free and clear of all liens, charges, claims, pledges, security interests, equities and encumbrances of any nature whatsoever, except for those created or allowed to be suffered by Buyer and except for the following (individually and collectively, the "PERMITTED ENCUMBRANCES"): (i) the lien of current taxes not delinquent, (ii) liens listed on SCHEDULES 3.8(a) and 3.8(b), (iii) the Assumed Liabilities, (iv) such consents, authorizations, approvals and licenses referred to in SECTION 3.5 and 3.6, and (v) liens, charges, claims, pledges, security interests, equities and encumbrances which will be discharged or released either prior to, or substantially simultaneously with, the Scheduled Closing at which such property is sold, conveyed, assigned and transferred to Buyer and other possible minor matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or intended use of such property. All such tangible personal property is in good operating condition and repair, subject to ordinary wear and tear and ordinary and routine maintenance, and is reasonably adequate for the operation of the Facilities as they are presently operated. (b) Except as set forth on SCHEDULE 3.8(b), and except for the Owned Real Property and the Leased Real Property, no Subsidiary owns any fee or leasehold or other interests in any real used property used in and necessary for the conduct of the operations of any Facility as presently conducted. Each Subsidiary has good and marketable title to all - 54 - Owned Real Property, or valid and effective leasehold rights in the case of the Leased Real Property, included in the Transferred Assets to be sold, conveyed, transferred and delivered to Buyer by such Subsidiary, free and clear of all liens except for those created or allowed to be suffered by Buyer and except for the following: (i) Permitted Encumbrances, (ii) liens (not including liens for borrowed money or the deferred purchase price of property) that do not materially impair the use of the Owned Real Property subject thereto, as such Owned Real Property is being used on the date hereof, (iii) easements and similar encumbrances disclosed by current standard ALTA Preliminary Title Reports, delivered to and approved by Buyer prior to the date hereof (except for such easements or similar encumbrances shown on Schedule 8.7(b)), and (iv) zoning, set back, building and other similar restrictions including, without limitation, restrictions and requirements affecting the Owned Real Property and the Leased Real Property imposed by deeds, leases, development agreements, declarations, and redevelopment authorities, which are not being violated in any manner that would cause a Material Adverse Effect on any Facility as currently used and operated. The condition of the Owned and Leased Real Property is such that it will not materially adversely affect the operations of the Transferred Assets on or from such Owned and Leased Real Property. All of the improvements on land included in the Transferred Assets are in good condition and repair, subject to those matters disclosed in SECTION 3.16 or SCHEDULE 3.16, ordinary wear and tear and ordinary and routine maintenance, and in view of the purpose for which such improvements are being used, free of any material structural or engineering defects. Section 3.9 ASSUMED CONTRACTS. Except for such matters that, when viewed in the aggregate, do not have a Material Adverse-Effect on a Facility, (a) there is no liability to any person by reason of the default by Seller or a Subsidiary under any Assumed Contract, (b) neither Seller nor any Subsidiary has received written or other notice that any person intends to cancel or terminate any Assumed Contract, (c) all of the Assumed Contracts are in full force and effect and without any material default by any party or to the knowledge of Seller and the Subsidiaries, any event which, with the passage of time or the giving of notice or both would be such a material default, (d) subject to the provisions of SECTIONS 3.5 and 3.6, the consummation of the transactions contemplated by this Agreement will not constitute and, to the best of Seller's current actual knowledge, no event has occurred which, with or without the passage of time or the giving of notice or both, would constitute a material breach or - 55 - default by Seller or a Subsidiary of such Assumed Contract, or would cause the acceleration of any obligation of Seller or any Subsidiary or the creation of any lien (except for Permitted Encumbrances) upon any Transferred Asset, and (e) neither Seller nor any Subsidiary has waived any right under any Assumed Contract; PROVIDED that Seller makes no separate representation or warranty under this SECTION 3.9 respecting compliance with the provisions of any Assumed Contract related to title to or condition of property, licenses, environmental conditions, hazardous substances or environmental laws, taxes, or compliance with laws generally, it being the intent of the parties that warranties respecting such matters shall be made exclusively under the provisions of SECTIONS 3.8, 3.10, 3.16, and 3.25. Seller has previously delivered to Buyer true and complete copies of all written Assumed Contracts except where the failure to so deliver a copy thereof will not have a Material Adverse Effect on a Facility. Section 3.10 LICENSES. Except as set forth on SCHEDULE 3.10, (a) the Subsidiaries possess all Licenses necessary for their operation of the Facilities at the locations and in the manner presently operated (other than such Licenses the absence of which would not have a Material Adverse Effect on a Facility), (b) if required, such Facilities are accredited by applicable accrediting agencies as necessary for their operations in the manner presently operated, and (c) such Facilities are certified for participation in the Medicare program and have current and valid provider contracts with such program. SCHEDULE 3.10 lists each License held by a Subsidiary and related to the ownership or operation of a Facility and a true and correct copy of each has previously been delivered to Buyer by Seller (other than such Licenses the absence of which would not have a Material Adverse Effect on a Facility). All such Licenses are in, full force and effect. Section 3.11 U.S. PERSON: RESIDENT OF GEORGIA. Neither Seller nor any Subsidiary is a "foreign person" for purposes of Section 1445 of the Internal Revenue Code of 1986, as amended (the "CODE"), or any other Laws requiring withholding of amounts paid to foreign persons. For purposes of the withholding tax imposed by Section 48-7-128 of the Official Code of Georgia Annotated, each Subsidiary that Transferred Assets constituting Owned Real Property located in Georgia and related tangible personal property is a corporation the principal place of business of which is located in the State of Georgia. The Seller shall, or shall cause the relevant Subsidiaries to, provide an appropriate affidavit of - 56 - each such Subsidiary's residence. Seller acknowledges that jurisdictions other than Georgia may impose withholding obligations similar to those imposed by Georgia and that it is Seller's obligation to provide evidence of exemptions from such withholding taxes. Section 3.12 EMPLOYEE RELATIONS. With respect to the Retained Employees, except as set forth on SCHEDULE 3.12: (a) Neither Seller, nor any Subsidiary nor any Facility is a party to any agreement with any union, trade association or other similar employee organization, no written demand has been made for recognition by a labor organization, and to Seller's knowledge it has received no notice of any union organizing activities by or with respect to any such employees; (b) There are no controversies (including, without limitation, any unfair labor practice complaints, labor strikes, arbitrations, disputes, work slowdowns or work stoppages) pending, or to the best of Seller's current actual knowledge, threatened, which could have a Material Adverse Effect on any Facility; and (c) Each Subsidiary has been and is in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, and wages and hours (including, but not limited to, the Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and Health Act, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990 and the Family and Medical Leave Act). Section 3.13 EMPLOYEE PLANS. (a) With respect to each Multiemployer Plan, there has occurred no "complete withdrawal" or "partial withdrawal" as each is defined in Sections 4203 and 4205, respectively, of ERISA, and all payments required to be made to such Multiemployer Plans by a Subsidiary under any collective bargaining agreement have been made. (b) Neither Buyer nor any Buyer Subsidiary shall have any obligation or liability to Seller, any Subsidiary or any present or former employee of any of them for or with respect to any benefit plan, - 57 - employee benefit plan or employee health or welfare program or other Employee Benefit Arrangements (as defined in SECTION 3.26(c)), except for specifically listed Assumed Liabilities and other express obligations of Buyer and the Buyer Subsidiaries under this Agreement. Section 3.14 LITIGATION. Except for (a) matters associated with or within the scope of the significant legal proceedings and investigations of an unusual nature referred to in Seller's filings with the Securities and Exchange Commission (the "UNUSUAL PROCEEDINGS"), (b) ordinary routine claims and litigation incidental to the businesses represented by the Facilities (including, but not limited to, actions for negligence, professional malpractice, workers' compensation claims, so-called "slip-and-fall" claims and the like), (c) governmental inspections and reviews customarily made of businesses such as those operated from the Facilities, and (d) as set forth on SCHEDULE 3.14, there are no actions, suits, claims or proceedings pending, or to the knowledge of Seller or any Subsidiary, threatened against or affecting the Transferred Assets or relating to the operations of the Facilities, at law or in equity, or before or by any federal, state, municipal or other governmental department, commission, agency or instrumentality. The claims and litigation referred to in CLAUSE (b) above are covered by insurance currently maintained by Seller except where the failure to be so covered (i) would not have a Material Adverse Effect on any Facility or (ii) is of a nature that is not ordinarily subject to insurance coverage (E.G. demands for punitive damages). Neither Seller nor any Subsidiary is in default under any judgment, order or decree of any governmental agency or authority applicable to the conduct of the business conducted at the Facilities. Except as disclosed on SCHEDULE 3.14, there is no condemnation proceeding pending or, to the knowledge of Seller or any Subsidiary, threatened against any of the Owned or Leased Real Property. SCHEDULE 3.14 includes an accurate and complete list of each malpractice claim or lawsuit pending or to Seller's or any Subsidiary's knowledge, threatened against any Facility or Subsidiary. Section 3.15 INVENTORY. All Inventory included in the Transferred Assets and included in the Net Book Values will consist of a quality and quantity usable and salable in the ordinary course of business, except for items of obsolete materials and of below-standard quality at any given Facility, all of which in the aggregate are immaterial to the financial condition or results of operations of the businesses operated from such Facility taken as a whole, or have been, or prior to the relevant Scheduled Closing will be, written down to realizable market value. - 58 - Section 3.16 HAZARDOUS SUBSTANCES. To Seller's and the Subsidiaries' knowledge, except as disclosed by the Environmental Survey (as defined in SECTION 6.2(b)) or otherwise on SCHEDULE 3.16: (a) There has not been a Release of Hazardous Material on or otherwise affecting the Owned Real Properties or the Leased Real Properties, (other than Releases involving de minimis quantities of Hazardous Materials) that would: (i) constitute a violation of any Environmental Law by Seller or the Subsidiaries, or by any third party if the effect of such violation by such third party imposes a remediation obligation on the part of Seller or any Subsidiary; (ii) trigger any release-reporting obligations of Seller or the Subsidiaries under any Environmental Law; or (iii) trigger any clean-up or remediation obligations or Seller or the Subsidiaries under any Environmental Law; (b) Seller and the Subsidiaries have complied with and currently are in compliance in all material respects with all Environmental Laws that govern the Owned Real Properties, the Leased Real Properties, and the businesses operated from any such properties; (c) Seller and the Subsidiaries have obtained all material Licenses required under the Environmental Laws for operation of their businesses related to the Owned Real Properties and the Leased Real Properties, have complied with and currently are in compliance in all material respects with all such Licenses, and have not received any notice that: (i) any such existing License will be revoked; or (ii) any pending application for any new such License will be denied; (d) Seller and the Subsidiaries have not received any currently outstanding notice of any proceedings, action, or other claim or liability arising under any Environmental Laws (including, without limitation, notice of potentially responsible party status under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601 et seq. or any state counterpart) from any person or governmental agency regarding the Owned Real Properties, the Leased Real Properties, or the businesses operated from such properties; (e) Neither Seller nor any Subsidiary has received any currently outstanding notice, which notice is specifically directed to an Owned or Leased Real Property (rather than to all property owners or operators in a given geographic area), that any of the Owned Real - 59 - Properties or any of the Leased Real Properties is the subject of a material deed restriction, material title-transfer restriction, other material land-use restriction, or material lien arising in each case under any Environmental Law; (f) Neither the Owned Real Properties, the Leased Real Properties, nor any of the businesses conducted on any such properties is the subject of any outstanding order, decree, or agreement with or involving any governmental agency, court, or other party respecting any material aspect of the operation of such properties and businesses that relates to or arises under any Environmental Law (other than orders, decrees or agreements affecting or directed to the healthcare industry generally, or in the case of Leased Real Properties, lease agreements requiring compliance with applicable Environmental Law); (g) No portion of the Owned Real Properties or Leased Real Properties contains or has ever contained any underground storage tank, surface impoundment or similar device used for the management of wastewater, or other waste management unit dedicated to the disposal, treatment, or long-term (greater than 90 days) storage of waste materials; and (h) Neither Seller, any Subsidiary nor any other person has improperly disturbed or encroached upon any floodplain areas, waters, or wetlands associated with any of the Owned Real Properties or Leased Real Properties in violation of any Environmental Law. Section 3.17 FINANCIAL INFORMATION. (a) Attached hereto as SCHEDULE 3.17(a) is an unaudited statement of combined earnings from the operations of the Transferred Assets and Assumed Liabilities of the First Facilities and Subsequent Facilities (as they were comprised on the as of date of such Schedule) before interest, income taxes, depreciation and amortization ("EBITDA") for the fiscal year ended May 31, 1993 and for the fiscal period ended November 30, 1993 (collectively, the "EBITDA Statements"). The EBITDA Statements present fairly the combined EBITDA of such operations, taken as a whole, as of the dates and for the periods shown, and were derived from and are in accordance with the internal books and records of the Subsidiaries as well as the "Subsidiaries" defined in the First Facilities Agreement (the "COMBINED SUBSIDIARIES") and the regularly - 60 - prepared unaudited internal financial statements of the First Facilities and the Subsequent Facilities, which are prepared in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of Seller. (b) Attached hereto as SCHEDULE 3.17(b) is an internally prepared unaudited combined statement of certain assets and liabilities of the First Facilities and the Subsequent Facilities as of November 30, 1993 (the "BALANCE SHEET"; collectively, the Balance Sheet and the EBITDA Statements are the "FINANCIAL SCHEDULE"). The Balance Sheet has been prepared from, and is in accordance with, the internal books and records of the Combined Subsidiaries and presents fairly the financial condition of the First Facilities and the Subsequent Facilities with respect to the Transferred Assets and Assumed Liabilities that are the subject of this Agreement and the First Facilities Agreement, taken as a whole, as of the date shown. The Balance Sheet was prepared in accordance with Seller's practices for the preparation of internal financial statements, consistently applied, and is in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of Seller. (c) Notwithstanding the foregoing, (i) the Financial Schedule does not (A) reflect all intercompany eliminations, adjustments and accruals that are reflected in financial statements of Seller, (B) reflect any reserves for the Unusual Proceedings, (C) reflect any anticipation of the divestiture of the Transferred Assets that are the subject of this Agreement and the First Facilities Agreement and any adjustments to the carrying values of such assets occasioned thereby, (D) contain footnotes or other explanatory material associated with financial statements prepared in accordance with generally accepted accounting principles, or (E) contain normal year-end adjustments with respect to interim periods, (ii) the EBITDA Statements do not reflect allocations of indirect costs and non-hospital overhead or the corresponding cost reimbursement impact of claiming such costs in a Cost Report relating to First Facilities or Subsequent Facilities, and (iii) certain earnings, assets and liabilities have been excluded from the EBITDA Statements or the Balance Sheets, as applicable, as noted in the footnotes or explanatory material associated with the Financial Statements. In addition, the Financial Schedule is to be read in conjunction with, and is subject to, all notes and other explanatory material set forth therein. - 61 - (d) The Balance Sheet reflects the amount of Receivables, as well as "Receivables" as defined in the First Facilities Agreement (together, the "Combined Receivables"), which for this purpose may include Eligible Receivables (including "Eligible Receivables" as defined in the First Facilities Agreement) as of the date thereof, net of allowances customarily recorded by the Combined Subsidiaries for uncollectible and doubtful accounts, and contractual allowances pursuant to agreements with Payors, all in conformity with Seller's practices for the preparation of internal financial statements and in accordance with the generally accepted accounting principles utilized in the preparation of the published financial statements of the Seller. To the knowledge of Seller and each such Subsidiary, all such Combined Receivables included in the Balance Sheet represent amounts validly owed to the applicable Combined Subsidiary by reason of the provision of goods, services and other consideration by such Combined Subsidiary, and, to the knowledge of Seller and each such Combined Subsidiary, are not valued in excess of the amounts expected to be collected with respect thereto. Each such Combined Subsidiary maintains its accounting records in sufficient detail to substantiate the Combined Receivables reflected on the Balance Sheet. Since the date of Seller's most recent audited financial statements, neither Seller nor any such Combined Subsidiary has changed any principle or practice with respect to the recordation of accounts receivable or the calculation of reserves therefor, or any material collection, discount or write-off policy or procedure. Section 3.18 CHANGES SINCE BALANCE SHEET. Since the date of the Balance Sheet and up to and including the date of this Agreement, other than as contemplated or permitted by this Agreement, the Subsidiaries have conducted the businesses represented by the Transferred Assets only in the ordinary and normal course, except for (i) matters associated with the Unusual Proceedings, (ii) as shown on SCHEDULE 3.18, (iii) the institution or completion of compliance programs, or (iv) events in anticipation of the divestiture of the Transferred Assets, and there has not been: (a) Any entry into or termination by Seller or a Subsidiary of any material commitment, contract agreement or transaction (including, without limitation, any borrowing or lending transaction or capital expenditure) related to the Transferred Assets except for transactions in the or course of business and renegotiation of credit agreements to which Seller and certain of its subsidiaries are parties which renegotiations - 62 - will not have a Material Adverse Effect on the Transferred Assets or on any Facility; (b) Any casualty, physical damage, destruction or physical loss respecting, or change in the physical condition of, any Facility or Equipment that has had a Material Adverse Effect on a Facility; (c) Any transfer of or rights granted under any contract which would have been an Assumed Contract on the date of the Balance Sheet except for transactions in the ordinary course of business; (d) Other than in the ordinary course of business, (i) any sale or other disposition of any fixed asset included in the Balance Sheet having a net book value in excess of $100,000, or (ii) any material mortgage, pledge or imposition of any lien or other encumbrances on any such asset, or (iii) sales or dispositions of, or the imposition of material encumbrances on, fixed assets included in such Balance Sheet having a net book value that exceeds $1,000,000 in the aggregate, or (iv) any sale or other disposition of Inventories included in the Balance Sheet; (e) Any material amendment (other than general amendments which the carrier makes for a category of policy) or termination of any material insurance policy or failure to renew any material insurance policy covering the Transferred Assets; (f) Any default or breach by Seller or a Subsidiary under any contract that would have been an Assumed Contract on the date of the Balance Sheet which, when viewed individually or in the aggregate of all such breaches or defaults, has had a Material Adverse Effect on any Facility; (g) Any material adverse change in the trend of the business, financial condition or results of operations of any Facility as compared to the trend of the business, financial condition or results of operations, as applicable, of such Facility for the two year period ended November 30, 1993; or (h) Any increase made in the compensation levels of any chief executive officer or chief financial officer of any Facility, or any general increase made in the compensation levels of the other Retained Employees, except in the ordinary course of business. - 63 - Section 3.19 TRANSFERRED BUSINESS NAMES. Seller or one of the Subsidiaries owns or has the right to use the Transferred Business Names, free of any liens. SCHEDULE 2.1 (h) sets forth for each Transferred Business Name, if any, that is the subject of a trademark registration the date of registration, the registration number and the expiration date. To the knowledge of Seller and the Subsidiaries, no aspect of registered trademarks included in the Transferred Business Names, if any, has been adjudged invalid or unenforceable or has been cancelled or revoked. Except as set forth on SCHEDULE 3.19, to the knowledge of Seller and the Subsidiaries, the use by the Subsidiaries of the Transferred Business Names in connection with the Facilities does not conflict with or violate valid rights of third parties, including any patents, trademarks, trade names or copyrights of others, in any way which would have a Material Adverse Effect on the Transferred Assets or a Facility; neither Seller nor any Subsidiary has received any notice of a conflict with the asserted rights of others in connection therewith which, if determined adversely, would have a Material Adverse Effect on any Facility. Neither Seller nor any of the Subsidiaries is obligated to pay any amount, whether as a royalty, license fee or other payment, to any person in order to use any of the Transferred Business Names. Section 3.20 COMPLIANCE WITH LAWS AND ACCREDITATION. To Seller's and each Subsidiary's knowledge, Seller and each Subsidiary has compiled in all material respects with all laws, regulations and orders, and as materially required for participation in the Medicare, CHAMPUS and Medicaid reimbursement programs and is in material compliance with the indigent care conditions, if any, contained in or related to certificates of need obtained by it except (a) as set forth in SCHEDULE 3.20, (b) as described in SECTIONS 3.10, 3.12, 3.16 and 3.21 and the SCHEDULES, if any related thereto, and (c) for matters related to the Unusual Proceedings. With respect to each Facility, Seller has previously delivered to Buyer true and complete copies of the most recent Joint Commission on Accreditation Health Care Organizations ("JCAHO") accreditation survey report and deficiency list, if any, the most recent Statement of Deficiencies and Plan Correction on Form HCFA-2567; the most recent state licensing report and list of deficiencies, if any; the most recent fire marshall's survey and deficiency list, if any; and the corresponding plans of correction or other responses except, in each case, such surveys, reports or deficiency lists which do not reflect any deficiency which would have a Material Adverse Effect on any Facility. Seller or the relevant Subsidiary has taken or is in the process of taking all reasonable steps to correct all material deficien- - 64 - cies noted therein and a description of any material uncorrected deficiency is listed in SCHEDULE 3.20. There are no provisions in, or other agreements to which Seller or a Subsidiary is a party relating to any Licenses, which would preclude or limit Buyer from operating the Transferred Assets substantially as they are now operated and using the beds of any Facility substantially as they are currently classified. Section 3.21 COST REPORTS, THIRD PARTY RECEIVABLES AND CONDITIONS OF PARTICIPATION. The Cost Reports of the Facilities for Medicare, Medicaid (if required) and Blue Cross (if required) reimbursement have been audited through the periods set forth in SCHEDULE 3.21, and Blue Cross and Medicare Cost Reports of the Facilities were filed when due. Except for matters related to the Unusual Proceedings, and as set forth in SCHEDULE 3.21: to the knowledge of Seller, (a) neither Seller nor any Subsidiary has received notice of any material dispute between a Facility and Blue Cross, governmental authorities or the Medicare fiscal intermediary regarding such Cost Reports for periods subsequent to the period specified in SCHEDULE 3.21 other than with respect to adjustments thereto made in the ordinary course of business which do not involve individual amounts in excess of ten thousand dollars ($10,000) per Cost Report; (b) there are no pending or threatened material claims by any of such programs against any Facility; (c) each Facility currently meets, without material exception, the conditions for participation in the Medicare program; and (d) no Facility has been subject to loss of waiver of liability for utilization review denials with respect to any such program during the past two years. Section 3.22 MEDICAL STAFF. Seller has previously delivered to Buyer, with respect to each Facility, a true and correct copy of the blank forms generally used with respect to medical staff privilege and membership application or delineation of privilege; all current medical staff bylaws, rules and regulations and amendments thereto respecting Facilities; and all written contracts with physicians, physician groups, or other members of the medical staffs of the Facilities. With regard to the active medical staffs of the Facilities, there are no material pending or threatened disciplinary or corrective actions or appeals therefrom involving physician applicants or active medical staff members except as set forth in SCHEDULE 3.22. SCHEDULE 3.22 also sets forth a materially complete and accurate list and description of (a) the name of each member of the medical staff of each Facility as of the date shown on such Schedule, (b) the approximate age of each active medical staff member as of such date, - 65 - (c) the specialty, if any, of each medical staff member, (d) readily available reports regarding the number of patient admissions of each medical staff member for the period shown on such SCHEDULE 3.22, and (e) readily available reports regarding the aggregate patient days of patients admitted by each medical staff member for the period shown on such SCHEDULE 3.22. Section 3.23 HILL-BURTON CARE. Except as set forth in SCHEDULE 3.23, no Subsidiary or Facility has an outstanding loan, grant or loan guarantee pursuant to the Hill-Burton Act (42 U.S.C. Section 291a, et seq.) and the transactions contemplated hereby will not result in any obligation on the part of the Buyer or a Buyer Subsidiary to repay any such loans, grants or loan guarantees or provide uncompensated care in consideration thereof. Section 3.24 ASSETS USED IN THE OPERATION OF THE FACILITIES. There are no assets or properties that are used in and necessary for the conduct of the operations of the Facilities that are owned by Seller and the Subsidiaries, and which individually or in the aggregate, are necessary for the operation of the Facilities that are not included in the Transferred Assets except for such Assumed Contracts which Buyer has elected or will elect to reject pursuant to SECTION 2.18. Except as set forth in SCHEDULE 3.24 and subject to SECTION 2.18, the Transferred Assets include all assets and properties that are properly recordable on the Balance Sheet, other than assets and properties disposed of by the Seller or a Subsidiary in the ordinary course of business since the date of the Balance Sheet and without violation of this Agreement. Section 3.25 TAXES. All tax returns of every kind (including, without limitation, returns of all income taxes, franchise taxes, real and personal property taxes, intangibles taxes, patient revenue or other healthcare taxes, withholding taxes, employee compensation taxes and all other taxes of any kind applicable to Seller or any Subsidiary) that are due to have been filed in accordance with applicable laws have been duly filed, and all taxes shown to be due and payable on such returns have been paid in full. Section 3.26 LISTS OF OTHER DATA. SCHEDULE 2.1(f) contains a list, materially complete and correct as of the dates shown thereon, of the Other Assigned Contracts, and SCHEDULES 3.26(a) through (h) contain lists - 66 - or other information, materially complete and correct as of the dates shown thereon, of the following: (a) The most recent regularly generated depreciation schedules related to tangible personal property constituting Equipment, together with copies of such schedules; (b) A brief description of all insurance in force covering (i) fixed assets that would constitute Transferred Assets, or (ii) the operations of any Facility as of such date; (c) All compensation, bonus, incentive, deferred payments, retirement, pension, severance, profit-sharing, stock purchase and stock option plans, group life, automobile, medical, dental, disability, welfare or other employee benefit plans or insurance policies, and other similar arrangements (collectively, "EMPLOYEE BENEFIT ARRANGEMENTS") generally applicable to the Retained Employees or a substantial part thereof or generally applicable to the chief executive or chief financial officers, or a substantial part thereof, of the Facilities as of such date; (d) The aggregate accrued Paid Time Off for all employees at each Facility, as of the date shown; (e) Any contract relating to clean-up, abatement or other actions in connection with the remediation of any existing environmental liabilities or relating to the performance of any environmental audit or study with respect to the Facilities other than with respect to the Environmental Survey and entered into in the three years preceding the date hereof; (f) Any indenture, mortgage, loan, credit or other written contract under which any of the Subsidiaries, directly or indirectly, is indebted for money borrowed or is the issuer of any note, bond, indenture or other evidence of indebtedness for money borrowed or guarantor of similar financial obligations of others, whether or not reflected on the Balance Sheet; (g) Any contract with any bank, finance company or similar organization pursuant to which such organization acquires receivables from the Subsidiaries; and - 67 - (h) Any contract granting any person a lien, security interest or mortgage on any Transferred Asset (other than Permitted Encumbrances), including, without limitation, any factoring agreement or agreement for the assignment of accounts receivable or inventory. Section 3.27 CERTAIN TRANSACTIONS. Except as set forth in SCHEDULE 3.27, and except for remuneration as employees, since November 30, 1992 (i) no Facility has been a party to any transaction or series of similar transactions in which the amount involved exceeds $60,000 and in which the chief executive officer, chief financial officer or medical director of such Facility has a direct or indirect material interest, and (ii) no chief executive officer, chief financial officer or medical director of any Facility has been indebted to Seller or any Subsidiary in an amount in excess of $60,000. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to Seller, as of the date hereof, as follows, except as set forth in Schedules numbered in relation to the Sections set forth below: Section 4.1 ORGANIZATION AND CORPORATE POWER. Buyer is a corporation duly incorporated and validly existing under the laws of, and is authorized to exercise its corporate powers, rights and privileges and is in good standing in, the State of Delaware and has full corporate power to carry on its business as presently conducted and to own or lease and operate its properties and assets now owned or leased and operated by it and to perform the transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. Section 4.2 BUYER SUBSIDIARIES. (a) As of each Scheduled Closing, each Buyer Subsidiary will be a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation. Each Buyer Subsidiary will have, at the First Closing and at each Scheduled Closing thereafter, all requisite power and authority (corporate and otherwise) to carry on its business as then conducted and to own or lease and operate its properties and assets then owned or leased and operated by it and to perform the - 68 - transactions on its part contemplated by this Agreement and all other agreements contemplated hereby. (b) The board of directors of each Buyer Subsidiary and, if required, its shareholders, will have, by the date of the First Closing, duty and effectively authorized (i) the purchase of the Transferred Assets to be purchased by such Buyer Subsidiary; and (ii) the execution, delivery and performance of the Related Agreements and all other agreements contemplated hereby and thereby to which such Buyer Subsidiary is a party. No other corporate act or proceeding on the part of any Buyer Subsidiary, its board of directors or its shareholders will be necessary to authorize any Related Agreement or other agreement contemplated hereby and thereby or the transactions contemplated hereby and thereby. (c) The Related Agreements and all other agreements contemplated hereby and thereby to which any Buyer Subsidiary is a party will, as of each Scheduled Closing, have been duly executed and delivered by each such Buyer Subsidiary, and each such agreement, when executed and delivered will constitute, a valid and binding obligation of such Buyer Subsidiary, enforceable against such Buyer Subsidiary in accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The execution, delivery and performance of this Agreement and the Related Agreements and the consummation of the transactions contemplated hereby and thereby have been duly and effectively authorized by the board of directors of Buyer; no other corporate act or proceeding on the part of Buyer, its board of directors or shareholders is necessary to authorize this Agreement, any such Related Agreement or the transactions contemplated hereby and thereby. This Agreement has been, and each of the Related Agreements contemplated hereby will, as of each Scheduled Closing, have been, duly executed and delivered by Buyer and by each applicable Buyer Subsidiary, and this Agreement constitutes, and each such Related Agreement when executed and delivered will constitute, a valid and binding obligation of Buyer and each Buyer Subsidiary party thereto, enforceable against Buyer and each Buyer Subsidiary party thereto, in - 69 - accordance with its terms, except as it may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws now or hereafter in effect relating to creditors' rights generally and that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding may be brought. Section 4.4 ABSENCE OF BREACH. Subject to the provisions of SECTIONS 4.5 and 4.6 below regarding private party and governmental consents, and except for compliance with the requirements of the HSR Act and any regulatory or licensing Laws applicable to the businesses and assets represented by the Transferred Assets, the execution, delivery and performance by Buyer of this Agreement and the Related Agreements, and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions to be performed by them and contemplated by this Agreement and the Related Agreements entered into by the Buyer Subsidiaries, do not, (a) conflict with or result in a breach of any of the provisions of Charter Documents of Buyer or of any of the Buyer Subsidiaries, (b) contravene any Law or cause the suspension or revocation of any License presently in effect, which affects or binds Buyer or any of the Buyer Subsidiaries or any of their material properties, or (c) conflict with or result in a breach of or default under any indenture or loan or credit agreement or any other agreement or instrument to which Buyer or any of the Buyer Subsidiaries is a party or by which it or they or any of their properties may be affected or bound. Section 4.5 PRIVATE PARTY CONSENTS. Except as set forth on SCHEDULE 4.5, the execution, delivery and performance by Buyer of this Agreement and the Related Agreements and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions contemplated by this Agreement and the Related Agreements to be performed by the Buyer Subsidiaries, do not require the authorization, consent or approval of any non-governmental third party. Section 4.6 GOVERNMENTAL CONSENTS. The execution, delivery and performance by Buyer of this Agreement and the Related Agreements, and the execution and delivery by any Buyer Subsidiary of the Related Agreements to which it is a party, and the performance by the Buyer Subsidiaries of the transactions contemplated by this Agreement and the Related - 70 - Agreements to be executed, delivered or performed by the Buyer Subsidiaries, do not require the authorization, consent, approval, certification, license or order of, or any filing with, any court or governmental agency, except for compliance with the HSR Act and except for such governmental authorizations, consents, approvals, certifications, licenses and orders that customarily accompany the transfer of health care facilities such as the Facilities. Section 4.7 BROKERS. Except as set forth on SCHEDULE 4.7, no broker, finder, or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with this Agreement or the transactions contemplated hereby based upon any agreements or arrangements or commitments, written or oral, made by or on behalf of Buyer or any of its Affiliates. Buyer shall be solely responsible for the payment of any such fee or commission to any person or entity listed on SCHEDULE 4.7 as an exception to the foregoing. Section 4.8 QUALIFIED FOR LICENSES. Buyer or a Buyer Subsidiary is qualified to obtain any Licenses and program participations necessary for the operation by Buyer or a Buyer Subsidiary of the Transferred Assets as of the relevant Scheduled Closing in the same manner as the Transferred Assets are presently operated by Seller and the Subsidiaries. Section 4.9 FINANCIAL ABILITY TO PERFORM. Buyer has liquid capital or committed sources therefor sufficient to permit it to perform timely its obligations hereunder, including, but not limited to, the payment of the Tentative Purchase Price to Seller at the Scheduled Closings and the other payments to Seller required hereunder. Promptly after its receipt of letters of commitment or other documents related to the financing of its obligations hereunder, Buyer will provide copies of the same to Seller. Section 4.10 NO KNOWLEDGE OF SELLER'S BREACH. Neither Buyer nor, to the knowledge of Buyer, any of its Affiliates has knowledge of any breach of any representation or warranty by Seller or of any other condition or circumstance that would excuse Buyer from its timely performance of its obligations hereunder. Buyer shall notify Seller as promptly as practicable if any such information comes to its attention before any relevant Closing Date. Section 4.11 NO ASSURANCE. Buyer acknowledges and agrees that the rates or bases used in calculating payments or reimbursements to it or - 71 - a Buyer Subsidiary by any Payor (including but not limited to Medicare) may differ from the rates and bases used in calculating such payments or reimbursements to Seller and the Subsidiaries. In entering into the transactions contemplated by this Agreement and the Related Agreements, Buyer is relying solely on the express representations, warranties and covenants of Seller and the Subsidiaries contained in this Agreement and the Related Agreements and upon no other representations or statements of Seller, the Subsidiaries or any of their representatives, and acknowledges and agrees that nothing in this Agreement or the Related Agreements shall be deemed to create any implied duty, disclosure obligation or responsibility on the part of Seller or the Subsidiaries. Buyer further acknowledges that during the course of the due diligence investigation, material information related to the matters that are the subject of the Unusual Proceedings may not have been discovered by or disclosed to it. Seller represents and warrants that, at those scheduled confidential meetings held among counsel for Buyer and Seller on the dates referenced in SCHEDULE 4.11, which meetings were held for the purpose of conducting Buyer's due diligence regarding the Unusual Proceedings, statements of fact concerning the Unusual Proceedings made by Seller's counsel present at such meetings were not materially inaccurate. ARTICLE 5 COVENANTS OF EACH PARTY Section 5.1 EFFORTS TO CONSUMMATE TRANSACTIONS. Subject to the terms and conditions herein provided including, without limitation, ARTICLES 8 and 9 hereof, each of the parties hereto agrees to use its reasonable commercial efforts to take, or to cause to be taken, all reasonable actions and to do, or to cause to be done, all reasonable things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the Transactions contemplated hereby, including the satisfaction of all conditions thereto set forth herein. Such actions shall include, without limitation, exerting their reasonable efforts to obtain the consents, authorizations and approvals of all private parties and governmental authorities whose consent is reasonably necessary to effectuate the Transactions contemplated hereby, and effecting all other necessary registrations and filings, including but not limited to filings under Laws relating to the transfer or obtaining of necessary Licenses, under the HSR Act and all other necessary filings with governmental authorities. Inasmuch as the Transactions in respect of the First Facilities may be consummated without regard to consummation - 72 - of the transactions contemplated by the Subsequent Facilities Agreement, the parties hereby agree that, in order potentially to expedite the timing of the First Closing, the parties will make separate filings under the HSR Act with respect to the First Facilities and the Second Facilities. The foregoing notwithstanding, it shall be the responsibility of Buyer to use its reasonable commercial efforts and to act diligently and at its expense to obtain any authorizations, approvals and consents in connection with acquiring Licenses and program participations that will permit it to operate the Facilities after the Scheduled Closings, PROVIDED that Buyer will seek to obtain Licenses and program participations subject to the existing conditions under which the Subsidiaries operate the Facilities and will not seek to change the same until the Transferred Assets and Assumed Liabilities respecting the Facilities in question have been transferred to and assumed by Buyer. Seller and its Subsidiaries shall cooperate with Buyer's efforts to obtain the requisite regulatory consents, provided neither Seller nor any of its Subsidiaries shall be obligated to incur any liabilities or assume any obligations in connection therewith. Other than Buyer's and Seller's obligations under SECTION 5.5, neither party shall have any liability to the other if, after using its reasonable commercial efforts (and, in the case of Buyer's efforts to obtain requisite Licenses, acting diligently), it is unable to obtain any consents, authorizations or approvals necessary for such party to consummate the Transactions. As used herein, the terms "REASONABLE COMMERCIAL EFFORTS" or "REASONABLE EFFORTS" do not include the provision of any consideration to any third party or the suffering of any economic detriment to a party's ongoing operations for the procurement of any such consent, authorization or approval except for the costs of gathering and supplying data or other information or making any filings, fees and expenses of counsel and consultants and for customary fees and charges of governmental authorities and accreditation organizations. Section 5.2 COOPERATION: REGULATORY FILINGS. Prior to and after the Final Closing, upon prior reasonable written request, each party agrees to cooperate with the other in every reasonable commercial way to consummate the Transactions. Notwithstanding the foregoing, all analyses, appearances, presentations, memoranda briefs, arguments, opinions and proposals made or submitted by or on behalf of either party hereto in connection with proceedings under or relating to the HSR Act or any other federal or state antitrust or fair trade law, or made or submitted by or on behalf of Buyer in connection with proceedings to obtain the Licenses and program participations referred to in SECTION 5.1 hereof, shall be subject - 73 - to the joint approval or disapproval and the joint control of Buyer and Seller, acting with the advice of their respective counsel, it being the intent of the foregoing that the parties hereto will consult and cooperate with one another, and consider in good faith the views of one another, in connection with any such analysis, presentation, memorandum, brief, argument, appearance, opinion or proposal; PROVIDED that nothing herein shall prevent either party hereto or any of their Affiliates or their authorized representatives from (a) making or submitting any such analysis, appearance, presentation, memorandum, brief, argument, opinion or proposal in response to a subpoena or other legal process or as otherwise required by Law, or (b) submitting factual information to the United States Department of Justice, the Federal Trade Commission, any other governmental agency or any court or administrative law judge in response to a request therefor or as otherwise required by Law. Section 5.3 FURTHER ASSISTANCE. From time to time, at the reasonable request of either party, whether on or after a Scheduled Closing, without further consideration, either party, at its expense and within a reasonable amount of time after request hereunder is made, shall execute and deliver such further instruments of assignment, transfer and assumption and take such other action as may be reasonably required to more effectively assign and transfer the Transferred Assets to, and vest the Assumed Liabilities in, Buyer, deliver or make the payment of the Purchase Price to Seller or any amounts due from one party to the other pursuant to the terms of this Agreement or confirm Seller's ownership of the Excluded Assets and obligations with respect to the Excluded Liabilities. Section 5.4 COOPERATION RESPECTING PROCEEDINGS. After the Scheduled Closings, upon prior reasonable written request, each party shall cooperate with the other, at the requesting party's expense (but including only out-of-pocket expenses to third parties and not the costs incurred by any party for the wages or other benefits paid to its officers, directors or employees), in furnishing information, testimony and other assistance in connection with any inquiries, actions, tax or Cost Report audits, proceedings, arrangements or disputes involving either of the parties hereto (other than in connection with disputes between the parties hereto) and based upon contacts, arrangements or acts of Seller or any of the Subsidiaries which were in effect or occurred on or prior to any Scheduled Closing and which relate to the Transferred Assets, including, without limitation, - 74 - arranging discussions with (and the calling as witness of) officers, directors, employees, agents, and representatives of Buyer. Section 5.5 EXPENSES. Whether or not the Transactions contemplated hereby are consummated, except as otherwise provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. Notwithstanding the foregoing: (a) Costs associated with preliminary title reports and title policies shall be borne by Seller up to the costs that would have been incurred had the title policies been standard coverage policies of title insurance, and the remaining costs, if any, including costs for Extended Coverage and any surveys in connection therewith, shall be borne by Buyer; (b) All costs of the Environmental Survey referred to in SECTION 6.2(b) shall be borne one-half by Buyer and one-half by Seller, other than any cost incurred in connection with any "Phase II" investigation conducted by Buyer's environmental consultant (which shall be borne by Buyer); (c) All escrow charges, appraisal fees, and charges of any neutral independent public accountant or mediator, and related costs, shall be borne one-half by Buyer and one-half by Seller (it being agreed that each party shall bear the costs of its own independent public accountant or designated mediator); (d) All recording costs and charges respecting real property will be borne one-half by Seller and one-half by Buyer; (e) All transfer taxes respecting real property will be borne one-half by Buyer and one-half by Seller; (f) All fees and expenses relating to the filings under the HSR Act shall be borne by the party including such fees and expenses; (g) All fees and charges of governmental authorities and accreditation agencies in connection with the transfer, issuance or authorization of any License, accreditation or program participation shall be borne by Buyer; - 75 - (h) All fees or costs associated with the issuance of any bond or the establishment of any escrow required by SECTION 2.10(a) shall be borne by Buyer; (i) All fees, charges or costs (other than internal costs of Seller or any Subsidiary), including auditing fees and expenses, incurred as a result of Buyer's compliance with the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, and the rules and regulations thereunder, shall be borne by Buyer; (j) Out-of-pocket costs incurred by Seller and the Subsidiaries in connection with providing transitional assistance to Buyer shall be borne by Buyer, whether such assistance is provided before or after a Scheduled Closing, including costs associated with attendance at meetings requested by Buyer; (k) All liabilities or obligations of Seller or a Subsidiary for Taxes in the nature of sales taxes incurred as a result of the sale of the Transferred Assets hereunder to Buyer shall be borne one-half by Seller and one-half by Buyer; and (l) All fees, charges and costs of economists and other experts, if any, jointly retained by Buyer and Seller in connection with submissions made to any government agency and advice in connection therewith respecting approval of the Transactions, including proceedings under the HSR Act, will be borne one-half by Buyer and one-half by Seller. All such charges and expenses shall be promptly settled between the parties at the relevant Scheduled Closing or upon termination or expiration of further proceedings under this Agreement, or with respect to such charges and expenses not determined as of such time, as soon thereafter as is reasonably practicable. Section 5.6 ANNOUNCEMENTS; CONFIDENTIALITY. Prior to the Final Closing Date, no press or other public announcement, or public statement or comment in response to any inquiry, relating to the transactions contemplated by this Agreement shall be issued or made by Buyer or Seller or any Subsidiary without the joint approval of Buyer and Seller; PROVIDED that a press release or other public announcement, regulatory filing, statement or comment made without such joint approval shall not - 76 - be in violation of this Section if it is made in order to comply with applicable securities Laws or stock exchange policies and in the reasonable judgment of the party making such release or announcement, based upon advice of counsel, prior review and joint approval, despite reasonable efforts to obtain the same, would prevent dissemination of such release or announcement in a timely enough fashion to comply with such Laws or policies, PROVIDED that in all instances prompt notice from one party to the other shall be given with respect to any such release, announcement, statement or comment. Subject to the foregoing, the parties hereto recognize and agree that all information, instruments, documents and details concerning the businesses of Buyer, Seller and the Subsidiaries are strictly confidential, and Seller and Buyer expressly covenant and agree with each other that, prior to and after the Scheduled Closings, they will not, nor will they allow any of their respective officers, directors, employees, representatives or agents (including professional advisors) to disclose or publicly comment upon any matters relating to the business of the other or relating to this Agreement, including, without limitation, the terms, timing or progress of the transactions contemplated hereby, or its negotiation, terms, provisions or conditions, including Purchase Price, except for disclosure to their respective professional advisors and lenders or prospective financing sources (each of whom shall agree not to disclose the same) which is reasonably necessary to effectuate the Transactions contemplated hereby and in a manner consistent with the provisions of this Agreement. Each party shall keep all information (i) obtained from the other either before or after the date of this Agreement, or (ii) related to Buyer's proposed purchase of the Transferred Assets, Seller's proposed sale of the Transferred Assets, the contents of this Agreement or the negotiation of this Agreement confidential, and neither party shall reveal such information to, nor produce copies of any written information for, any person outside its management group or its professional advisors (including lenders and prospective financing sources) without the prior written consent of the other party, unless such party is compelled to disclose such information by judicial or administrative process or by any other requirements of Law or disclosure is reasonably necessary to obtain a License or a consent listed on the Schedule of Required Consents. If the Transactions contemplated by this Agreement should fail to close for any reason, each party shall return to the other as soon as practicable all originals and copies of written information provided to such party by or on behalf of the other party and none of such information shall be used by either party, or their employees, agents or representatives in the business operations of any person. Notwithstanding the foregoing, (i) each party's - 77 - obligations under this Section shall not apply to any information or document which is or becomes available to the public other than as a result of a disclosure by the other party in violation of this Agreement or other obligation of confidentiality under which such information may be held or becomes available to the party on a non-confidential basis from a source other than the other party or its officers, directors, employees, representatives or agents and (ii) without the prior written consent of Seller, or except as may be required by Law (as determined by the written opinion of independent counsel in form and substance satisfactory to Seller) the schedules to this Agreement shall not be disclosed to or filed with any person (including any governmental entity or regulatory board) if such filing or disclosure could result in such schedules becoming available to the public. The parties' obligations under this Section shall survive the termination of this Agreement. Nothing in this Section shall, or is intended to, impair or modify any of the rights or obligations of Buyer or its Affiliates under that certain letter agreement dated as of September 15, 1993, all of which remain in effect until termination of such letter agreement in accordance with its terms. Section 5.7 PRESERVATION OF AND ACCESS TO CERTAIN RECORDS. (a) As set forth in SECTION 2.2(e), all or any portion of the medical, clinical and other records directly or indirectly associated with the admission, care and treatment of patients on or prior to the relevant Closing Date on which the relevant Facility is transferred (collectively, for all Facilities, the "PATIENT RECORDS") and all financial and other records of, or located at, a Facility for the period ending on or prior to the relevant Closing Date, whether or not maintained at or by a Facility (the Patient Records and such other records for all Facilities are collectively referred to as the "HOSPITAL RECORDS") shall be Excluded Assets. Notwithstanding the foregoing, the parties will cooperate in providing copies and access to such records as set forth below. (b) Notwithstanding that the Hospital Records are Excluded Assets, to the extent required by applicable Law or at Seller's election, Seller may choose not to remove the Hospital Records from a transferred Facility or otherwise acquire possession of them after a Scheduled Closing. Unless and until removed by Seller, the Buyer shall, in accordance with applicable Laws, maintain the Hospital Records at the Facilities (or at such other mutually approved locations) at Buyer's cost, and as agent of and bailee for Seller, until the expiration of seven (7) - 78 - years from the relevant Scheduled Closing (and, if at the expiration thereof any tax or Payor audit or judicial proceeding is in progress or the applicable statute of limitations has been extended, for such longer period as such audit or proceeding is in progress or such statutory period is extended)(the "DOCUMENT RETENTION PERIOD"). After a Scheduled Closing and subject to applicable Laws, Buyer shall grant Seller full access to the Hospital Records (including any Patient Records) as needed for any lawful purpose (including Seller's inspection and copying of same), and Seller shall have the same rights of access to inspect and copy (at Seller's cost) any or all of the Hospital Records that Seller had prior to the Scheduled Closing. Buyer shall instruct the appropriate employees of the Facilities to cooperate in providing access to such records to Seller and its authorized representatives as contemplated herein. Access to such records shall be, wherever reasonably possible, during normal business hours, with reasonable prior written notice to Buyer of the time when such access shall be needed. Seller's employees, representatives and agents shall conduct themselves in such a manner so that Buyer's normal business activities shall not be unduly or unnecessarily disrupted. After the expiration of the aforementioned Document Retention Period, Buyer shall not, without ninety-one (91) days' prior written notification to Seller, destroy any Hospital Records in its possession. Within ninety (90) days after its receipt of such notice of intent to destroy, Seller shall have the right, at its own expense, to require Buyer to deliver any such records to Seller in accordance with Seller's reasonable instructions. Buyer shall adopt a record retention policy with respect to the Hospital Records which requires that all Hospital Records be maintained for the Document Retention Period and destroyed only after compliance with the notice provisions of this SUBSECTION (b) (including the passage of time), and shall take all reasonable steps necessary to inform its employees of such policy. (c) Buyer acknowledges and agrees that Seller shall have the right to remove, and may remove, from time to time on or prior to the relevant Closing Date and during the Document Retention Period any or all of the Hospital Records. In the event of Seller's removal of any Hospital Records from a Facility, it shall, at Seller's cost and subject to applicable Laws, provide Buyer with copies (or originals, if required by applicable law or accreditation standards) of the following Hospital Records if Buyer elects to retain such copies: (1) the Patient Records for patients who are patients of the Facilities at the relevant Scheduled Closing or who are the subject of Receivables transferred to Buyer hereunder, (ii) the personnel records of the Hired Employees, and (iii) any - 79 - records Buyer would be required to have to comply with accreditation standards. If the Hospital Records are removed by Seller, then it shall maintain such Hospital Records at its expense during such period of time and at such location as is deemed appropriate by Seller in its sole and absolute discretion. For so long as the Hospital Records are maintained by Seller, Seller shall make Hospital Records (other than those protected by or subject to the attorney-client privilege) available to Buyer, subject to applicable Laws, as needed by Buyer for any lawful purpose and if reasonably necessary to permit Buyer to operate the Facilities or other Transferred Assets. Seller shall instruct its appropriate employees to cooperate in providing access to such records to Buyer and its authorized representatives as contemplated herein. Buyer's access to such Hospital Records shall be during normal business hours, with reasonable prior written notice to Seller of the time when such access shall be needed. Buyer may make copies of or extracts from any such Hospital Records to which Buyer has access hereunder at Buyer's sole cost and expense. Notwithstanding the foregoing, Buyer's access to, or right to copies of, any Patient Records shall be subject to any applicable Law, accreditation standard or rule of confidentiality or privilege. (d) After Closing, Buyer or the applicable Buyer Subsidiary shall have the right to assign to an entity which purchases from Buyer or a Buyer Subsidiary a Facility or substantially all the assets of a Facility, all of the rights of Buyer under this SECTION 5.7, provided that such entity expressly assumes all obligations of Buyer under this SECTION 5.7 with respect to the purchased Facility. ARTICLE 6 ADDITIONAL COVENANTS OF SELLER Seller hereby additionally covenants, promises and agrees as follows: Section 6.1 CONDUCT PENDING CLOSING. Prior to consummation of the Transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Buyer shall otherwise consent in writing, which consent shall not be unreasonably withheld or delayed, and except for actions taken pursuant to Assumed Contracts, or which arise from or are related to the anticipated transfer of the Transferred Assets, the conduct or resolution of the Unusual Proceedings or effectuation of ongoing compliance programs, or as otherwise contemplated by - 80 - this Agreement or disclosed in SCHEDULE 6.1 or another Schedule to this Agreement, Seller shall, and shall cause the Subsidiaries to: (a) Conduct the business represented by, and otherwise deal with, the Transferred Assets only in the usual and ordinary course, materially consistent with practices followed prior to the execution of this Agreement; (b) Use reasonable efforts to keep intact the Transferred Assets and the business they represent and to preserve relationships beneficial to such business that doctors, patients, Payors, suppliers, employees and others have with the Facilities; (c) Except as required by their terms, not amend, terminate, renew, fail to renew or renegotiate any material contract, except in the ordinary course of business and consistent with practices of the recent past, or default (or take or omit to take any action that, with or without the giving of notice or passage of time, would constitute a default) in any of its obligations under any such contracts, that would be an Assumed Contract as of the date hereof; (d) Not (i) sell lease, transfer or dispose of, or make any contract for the sale, lease, transfer or disposition of, any assets or properties which would be included in the Transferred Assets in an amount in excess of $1,000,000 in the aggregate (other than sales in the ordinary course of business); (ii) incur, assume, guaranty, or otherwise become liable in respect of any indebtedness for money borrowed which would result in Buyer assuming such liability hereunder after the Closing; (iii) purchase or make any contract for the purchase of a material amount of assets or properties which would be included in the Transferred Assets (other than purchases in the ordinary course of business and other than capital expenditures within the aggregate thresholds set forth in clause (v) below); (iv) accelerate or delay the purchase of Inventory, or the payment of amounts due to or from the Subsidiaries in a manner inconsistent with past practice; (v) make any new commitments which would require an expenditure of more than $50,000 in the aggregate other than in the ordinary course of business; (vi) encumber or voluntarily subject to any lien any Transferred Asset (except for Permitted Encumbrances); or (vii) assign or transfer accounts receivable to collection agencies in a manner inconsistent with past practice. - 81 - (e) Maintain in force and effect the insurance policies identified in SECTION 3.26(b); (f) Not enter into any contract or amendment of a contract that, had such contract or amendment been entered into prior to the date hereof, would have been included on SCHEDULE 2.1(f), unless Buyer has failed to disapprove of such contract or amendment in a written notice to Seller given within two (2) business days of Seller's written notice to Buyer of such contract or amendment accompanied by a copy thereof, PROVIDED that Buyer's disapproval of such contract or amendment shall not be unreasonable, and PROVIDED further that any contract entered into in violation of this SECTION 6.1(f) shall be subject to the provisions of SECTION 2.18; (g) Not grant any general or uniform increase in the rates of pay or benefits to Retained Employees (or a class thereof) or any increase in salary or benefits of any chief executive or financial officer of any Facility, except for compensation previously agreed to prior to the date hereof; or (h) Subject to SECTION 6.3, not take any action which would cause any of Seller's representations and warranties set forth in ARTICLE 3 to be false as of the relevant Scheduled Closing; PROVIDED that nothing in this Section shall (i) obligate Seller or any Subsidiary to make expenditures other than in the ordinary course of business and consistent with practices of the recent past or to otherwise suffer any economic detriment, (ii) preclude Seller from paying, prepaying or otherwise satisfying any liability which, if outstanding as of a Closing Date, would be an Assumed Liability or an Excluded Liability, (iii) preclude Seller from incurring any liabilities or obligations to any third party in connection with obtaining such party's consent to any transaction contemplated by this Agreement or the Related Agreements PROVIDED such liabilities and obligations under this CLAUSE (iii) shall be Excluded Liabilities pursuant to SECTION 2.4(h) hereof if not approved in advance by Buyer (which approval shall not be unreasonably withheld), or (iv) preclude Seller from instituting or completing any program designed to promote compliance or comply with Laws or other good business practices respecting the Facilities. - 82 - Section 6.2 ACCESS AND INFORMATION; ENVIRONMENTAL SURVEY; REMEDIATION OR ADJUSTMENT. (a) Subject to the restrictions set forth in SECTION 5.6 respecting confidentiality and provided that Buyer has complied with each and every provision thereof, Seller shall, and shall cause the Subsidiaries to, afford Buyer, and the counsel, accountants and other representatives of Buyer, reasonable access, throughout the period from the date hereof to the relevant Closing Date, to the Transferred Assets and the employees, personnel and medical staff associated therewith and all the properties, books, contracts, commitments, Cost Reports and records respecting the Transferred Assets (regardless of where such information, may be located) which Seller has or to which it has access. Such access shall be afforded to Buyer after no less than 24 hours prior written notice, during normal business hours and only in such manner so as not to disturb patient care or to interfere with the normal operations of the Facilities; PROVIDED, however, that, notwithstanding the foregoing and subject to the provisions concerning nondisclosure set forth in SECTION 5.6, without first obtaining the written consent of Mr. Donald Thayer which consent shall not be unreasonably withheld, neither Buyer nor its counsel, accountants and other representatives shall tour or visit the Facilities or contact any of the employees, personnel or medical staff thereof; and PROVIDED further that until the first to occur of the Termination Date or the Final Closing, under no circumstances shall Buyer directly or indirectly solicit the employment of any employees of Seller or its Subsidiaries, except as Hired Employees pursuant to the terms hereof or except as may be permitted with the prior written consent of a responsible officer of Seller. Seller's covenants under this Section are made with the understanding that Buyer shall use all such information in compliance with all Laws. The foregoing notwithstanding, Buyer acknowledges and agrees that Buyer's access to the books and records of the Transferred Assets shall not include access to, and Seller shall not have any obligation to deliver to Buyer, any information concerning any alleged dispute or any pending litigation, investigation or proceeding involving Seller or its Affiliates that is protected by or subject to the attorney-client privilege, or the disclosure of which is restricted by an agreement entered into in connection with such dispute, litigation, investigation or proceeding or an order entered by any court, or (in the case of the Unusual Proceedings) certain non-public information; moreover, Buyer shall not have access to patient or employee records or any other records the disclosure of which would be prohibited by any Law, accreditation standards, or rule or agreement (express or implied) of - 83 - confidentiality, except that Buyer may be granted access to such records to the extent they are appropriately redacted and in conformity with such other reasonable procedures as may be required to conform to any such requirements of Law, accreditation standards or rule or agreement of confidentiality. (b) Seller has provided to Buyer copies of an environmental survey conducted with respect to each of the Facilities (the "ENVIRONMENTAL SURVEY"). The Environmental Survey was conducted by an environmental consulting firm or firms (the "CONSULTANT") in accordance with applicable professional standards in effect at the time the Environmental Survey was conducted and such reasonable procedures as were determined by Seller. In the event of a disagreement between Buyer and Seller concerning the procedures employed by the Consultant, Buyer may at Buyer's expense employ a separate environmental consultant to conduct such procedures requested by Buyer (subject to Seller's prior approval of such procedures, which shall not unreasonably be withheld), and the findings of the Buyer's Environmental consultant shall be included as an addendum to the Environmental Survey. The results of any such Environmental Survey shall be delivered to and owned by Seller, and all proceedings in connection with the Environmental Survey and the results thereof shall be subject to the confidentiality provisions of SECTION 5.6. Buyer acknowledges and agrees that the Environmental Survey is and shall be only an initial "Phase I" environmental site assessment. If subsequently determined by Seller, the Consultant and the Buyer, to be necessary or prudent to conduct sampling, laboratory analyses, or additional investigation work at any of the Facilities, Seller shall direct the Consultant to undertake a further "Phase II" investigation involving additional investigation and appropriate sampling and laboratory analyses respecting such Facilities the results of which are to be included in the Environmental Survey. In any "Phase II" investigation, Seller shall give Buyer no less than 24 hours' notice before the Consultant enters onto any Facility, and the "Phase II" Environmental Survey shall be conducted so as not to interfere with the normal operation of the Facilities. Buyer shall be permitted to have one of its employees or agents present during all inspections of, and sample gatherings (including borings) from the soil or any floor tile, insulation or other internal component of, a Facility and shall be entitled to split samples upon Buyer's request. In the event that Buyer considers it necessary to conduct any "Phase II" investigation work that Seller refuses to order, Buyer may at Buyer's expense employ a separate environmental consultant to conduct such "Phase II" investigation - 84 - work at least thirty (30) days before the First Closing. Buyer shall give Seller no less than 24 hours' notice before Buyer's environmental consultant enters onto any Facility, and any such "Phase II" work performed by Buyer's environmental consultant shall be conducted so as not to interfere with the normal operations of the Facilities. Seller shall be permitted to have one of its employees or agents present during all inspections of and sample gatherings (including borings) from the soil or any floor tile, insulation, or other internal component of a Facility performed by Buyer's environmental consultant and shall be entitled to split samples upon Seller's request. Buyer shall be liable for any repairs or other costs required to correct damage to the Facilities resulting from such "Phase II" investigation. The findings of any Phase II investigation prepared by Buyer's environmental consultant shall be included as an addendum to the Environmental Survey. Notwithstanding the foregoing, Seller may elect not to permit Buyer to conduct a "Phase II" investigation through its own environmental consultant, in which case Buyer can exclude the affected Facility, and the Transferred Assets and Assumed Liabilities respecting such Facility from the Transactions, in which case the parties shall negotiate in good faith an equitable adjustment to the Purchase Price, or if they cannot agree upon the same, such adjustment shall be determined in accordance with SECTION 2.14. (c) With respect to any matters disclosed by such Environmental Survey or listed on SCHEDULE 3.16 that would constitute a breach of Seller's warranties in SECTION 3.16, but for the qualifications to such warranties based on Seller's knowledge or disclosures in the Environmental Survey or on such SCHEDULE 3.16, Seller will at its election, either (i) clean up or otherwise remediate such matters in a reasonable manner prior to the Closing Date related to such Facility, at its expense; or (ii) agree in writing prior to the Closing Date to reimburse Buyer for the costs specified in such written agreement of such reasonable clean-up or remediation incurred by Buyer after the Closing Date related to such Facility, and to promptly reimburse Buyer after Buyer incurs such expenses subsequent to the Closing Date related to such Facility; or (iii) elect to exclude the affected Facility, and Transferred Assets and Assumed Liabilities respecting such Facility, from the Transactions, in which case the parties shall negotiate in good faith an equitable adjustment to the Purchase Price, or if they cannot agree upon the same, such adjustment shall be determined in accordance with SECTION 2.14; PROVIDED, however, that in no case will Seller be required to remove or otherwise remediate (or bear the costs of same) any Hazardous Materials used as construction - 85 - materials in structures or improvements constituting the Facilities, or in equipment contained therein, unless the current condition of such Hazardous Materials has resulted in either: (i) noncompliance with any Environmental Law or License issued pursuant to an Environmental Law; or (ii) an unreasonable hazard to human health, human safety or the environment. Section 6.3 UPDATING. Seller shall notify Buyer of any changes or additions to any of Seller's Schedules to this Agreement with respect to a particular Facility or the Transferred Assets or Assumed Liabilities related thereto by the delivery of updates thereof, if any, as of a reasonably current date prior to the relevant Scheduled Closing not later than three (3) business days prior to the Scheduled Closing with respect to such Subject Transferred Assets PROVIDED, however, that the Financial Schedule shall not be updated to cover any period or periods subsequent to the respective dates thereof. No such updates made pursuant to this Section shall be deemed to cure any breach of any representation or warranty made in this Agreement, unless Buyer specifically agrees thereto in writing, nor shall any such notification be considered to constitute or give rise to a waiver by Buyer of any condition set forth in this Agreement. Section 6.4 NO SOLICITATION. Seller will not, and shall cause the Subsidiaries not to, and will use its best efforts to cause its and their officers, employees, agents and representatives (including any investment banker) not to, directly or indirectly, solicit, encourage or initiate any discussions with, or, subject to fiduciary duties to shareholders, negotiate or otherwise deal with, or provide any information to, any corporation, partnership, person or other entity or group, other than Buyer and its officers, employees and agents, concerning any sale of or similar transactions involving the Transferred Assets or the stock of the Subsidiaries. None of the foregoing shall prohibit providing information to others in a manner in keeping with the ordinary conduct of Seller's or the Subsidiaries' businesses. Seller shall notify Buyer promptly of any inquiry, proposal or offer received by Seller concerning the sale of or similar transactions involving the Transferred Assets or the stock of the Subsidiaries. Subject to the foregoing, in the exercise of its aforementioned fiduciary duties to shareholders, Seller may terminate this Agreement on written notice to Buyer, which termination shall have the effect set forth in SECTION 10.2, PROVIDED that upon consummation prior to the first anniversary of this Agreement of any transaction or transactions with one or more third parties covering substantially all of the Transferred - 86 - Assets, Seller shall be obligated to pay Buyer the sum of Fifteen Million Dollars ($15,000,000), and PROVIDED further that the payment of such sum shall be deemed to constitute liquidated damages in lieu of any and all other liability of Seller and the Subsidiaries to Buyer and the Buyer Subsidiaries in connection with or related to or arising from this Agreement or the transactions contemplated hereby, or in connection with or related to or arising from the termination hereof. Section 6.5 NAME CHANGES. To the extent that the corporate names of any of the Subsidiaries incorporate or are substantially similar to the Transferred Business Names, Seller agrees to cause the Subsidiaries promptly after the relevant Scheduled Closing to take all action necessary to change such names so as not to incorporate or be substantially similar to the Transferred Business Names. Section 6.6 FILING OF COST REPORTS. Seller shall cause to be prepared and timely filed all Cost Reports and all other filings which are required to be filed with Medicare and any other cost-based Payors with respect to the operations of the Facilities for any and all periods ending on or prior to a relevant Closing Date. Seller and the Subsidiaries shall retain all rights to any amounts receivable from Medicare or other Payors with respect to such reports or filings or with respect to such periods and, as between Buyer, on the one hand, and Seller and Subsidiaries, on the other, shall remain obligated for all amounts due Medicare or such other Payors with respect to such reports or filings or with respect to such periods, and the parties hereby acknowledge and agree that Buyer is not being assigned or otherwise receiving and is not hereby assuming any of the same. Seller's rights shall include, without limitation, the right to dispute or to appeal any determinations relating to such reports. Section 6.7 PURCHASE OF SUPPLIES. Buyer may request Seller or its Affiliates to permit Facilities transferred at such Scheduled Closing to participate in specified national purchasing contacts of Seller or its Affiliates for a fee to be agreed upon. If Buyer wishes to enter into such an agreement with Seller, it shall notify Seller no later than five (5) days prior to such Scheduled Closing, and at the Scheduled Closing the parties shall execute a Purchasing Contract substantially in the form of EXHIBIT D hereto. SCHEDULE 6.7 lists all of the national purchasing contracts of Seller and its Affiliates in effect as of the date thereof which do not preclude participation by persons which are not Affiliates of Seller. - 87 - Section 6.8 COVENANT NOT TO COMPETE. (a) COVENANT. Subject to the further provisions of this SECTION 6.8. during the "Covenant Period" (as defined in SECTION 6.8(d)), none of the Subsidiaries, Seller or any other subsidiaries of Seller in which Seller owns a majority of the voting interests (collectively, "COVERED PARTIES") shall, directly or indirectly (whether through a majority-owned subsidiary or otherwise), in any Specified Capacity (as defined in this SECTION 6.8), engage in the business of delivering mental health or alcohol or substance abuse services through the operation of a hospital or otherwise, including without limitation through the delivery of inpatient, partial hospitalization, residential or outpatient services (as limited by the provisions of SECTION 6.8(b), a "COMPETING BUSINESS"). For purposes hereof, the term "SPECIFIED CAPACITY" shall mean, subject to SECTION 6.8(b), each of the following capacities: (i) As an operator, manager or sole owner of the Competing Business, whether directly or indirectly; (ii) As a constituent partner, joint venturer or equity shareholder of an entity engaged in the Competing Business if the voting equity interest held is greater than 10% of all voting equity interests in such entity; (iii) As a lender of money to, or a guarantor of indebtedness for money borrowed by, any other entity engaged in a Competing Business in a principal amount in excess of $1,000,000, except for (A) loans or guarantees made in the ordinary course of business and not as an investment in such entity; (B) loans or guarantees made or entered into in connection with the sale of a Competing Business by a Covered Party; or (C) loans represented by publicly traded instruments. (b) EXCEPTIONS. The provisions of this SECTION 6.8 shall not apply to and shall not prohibit the following: (i) PSYCHIATRIC FACILITIES AND CONTRACTS NOT ACQUIRED BY BUYER. The conduct of a Competing Business from any facility (including renovations and expansions thereof) at which a Covered Party, in any Specified Capacity, primarily engages in a Competing Business as of the Final Closing, or pursuant to any contract - 88 - (including modifications, extensions and renewals thereof) under which a Covered Party, in any Specified Capacity, engages in a Competing Business as of the Final Closing, if (A) such facility, contract or Specified Capacity is NOT acquired or assumed by Buyer or a Buyer Subsidiary pursuant to this Agreement, or (B) such facility, contract or Specified Capacity, is, after the Final Closing, reacquired by a Covered Party from Buyer or a Buyer Subsidiary pursuant to this Agreement; (ii) FACILITIES OUTSIDE GEOGRAPHIC AREA. The conduct of a Competing Business from any location that is not within twenty-five (25) miles of a Facility (not including satellite locations) that (A) was acquired by Buyer or a Buyer Subsidiary pursuant to this Agreement, and (B) at the time in question, is still owned, operated or managed by Buyer or by a person or entity which, directly or indirectly, controls, is controlled by or is under common control with Buyer (Facilities meeting the requirements of both clauses (A) and (B) being herein referred to as "COVERED FACILITIES") (iii) ACUTE HOSPITALS. The conduct of a Competing Business from or through any hospital, commonly referred to as an acute care hospital, that is licensed to provide general medical and surgical services, including related facilities that operate on the same campus as, or under the auspices of, such acute care hospital (such hospitals and related facilities being herein referred to as "ACUTE HOSPITALS"), including the provision of management services to an Acute Hospital, PROVIDED THAT the conduct of any Competing Business from or through a Specified Acute Hospital or an Acquired Acute Hospital (as each such term is defined in SECTION 6.8(c)) shall be subject to the further provisions of SECTION 6.8(c). (iv) DIVESTITURE OF ACQUIRED PSYCHIATRIC FACILITIES. Other than an Acquired Acute Hospital, the conduct of a Competing Business in a Specified Capacity first acquired by any Covered Party after the date hereof as part of the acquisition of interests in healthcare assets other than the Competing Business, PROVIDED THAT no Covered Party engages in such Competing Business after the expiration of twelve (12) months from such acquisition and no such Competing Business is expanded during such twelve (12) month period, except for expansions for which regulatory approval exists, - 89 - or for which capital expenditures have been undertaken or are in process, or which are required by existing contracts (together, PERMITTED EXPANSIONS"); or (v) ACQUIRING ENTITIES. The conduct of a Competing Business for, on behalf of, or by (A) any entity that is not a Covered Party that acquires majority ownership or substantially all the assets of a Covered Party after the date hereof, (B) any entity that is not a Covered Party that acquires a Competing Business from a Covered Party after the date hereof, (C) any surviving entity (other than a Covered Party) of a consolidation, merger, reorganization or spinoff (each, a "REORGANIZATION") involving a Covered Party as a result of which shareholders directly or indirectly owning a majority of such Covered Party immediately before such Reorganization do not own a majority of such surviving entity immediately after such Reorganization, or (D) any majority-owned subsidiary of any such acquiring or surviving entity that is not a Covered Party. (c) ACUTE HOSPITAL AFFILIATIONS. With respect to an Acute Hospital listed on SCHEDULE 6.8(c) (a "SPECIFIED ACUTE HOSPITAL"), and except as set forth below, the exception provided by SECTION 6.8(b)(iii) above shall apply but only to the extent such Specified Acute Hospital conducts a Competing Business (including Permitted Expansions, the "EXEMPTED COMPETING BUSINESS") on the Scheduled Closing Date with respect to the Facility shown on SCHEDULE 6.8(c) as the Specified Acute Hospital's "Affiliation Facility." On and after such Scheduled Closing Date, a Specified Acute Hospital shall not expand its services or its Competing Business beyond the Exempted Competing Business except in accordance with, and subject to, CLAUSES (i) through (iii) below. With respect to any Acute Hospital acquired by a Covered Party after the date of this Agreement and which is within twenty (20) miles of a Covered Facility (an "ACQUIRED ACUTE HOSPITAL"), the exception provided by SECTION 6.8(b)(iii) shall apply but only to the extent of such Acquired Acute Hospital's Exempted Competing Business on the date the acquisition of such Acquired Acute Hospital is consummated (the "ACQUISITION DATE"). On and after such Acquisition Date, an Acquired Acute Hospital shall not expand its services or its Competing Business beyond the Exempted Competing Business except in accordance with, and subject to, CLAUSES (i) through (iii) below. - 90 - (i) Seller or its relevant Affiliate must first provide Buyer notice that it proposes to expand its services or Competing Business beyond the Exempted Competing Business, and shall briefly describe the nature and scope of the expanded Competing Business in which it proposes to engage. Within thirty (30) days following its receipt of such notice, Buyer shall cause (A) the Affiliation Facility with respect to a Specified Acute Hospital (as noted in SCHEDULE 6.8(c)) to offer the Specified Acute Hospital the opportunity to enter into an affiliation agreement with its Affiliation Facility, or (B) the closest Covered Facility with respect to an Acquired Acute Hospital to offer the Acquired Acute Hospital the opportunity to enter into an affiliation agreement. All affiliation agreements must be on customary industry terms, pursuant to which the relevant Covered Facility will agree to provide all services comprising the expanded Competing Business to Payors and patients of, and to subscribers or other participants in services or programs provided by, the Acute Hospital at the Covered Facility's usual and customary prices, terms and conditions which the parties shall negotiate expeditiously and in good faith. The term of the affiliation agreement shall be for the Covenant Period for such Specified or Acquired Acute Hospital and shall give the Specified Acute Hospital or Acquired Acute Hospital, as the case may be, the right to extend the agreement for two successive one-year periods. (ii) The Covered Facility must have the capacity to provide the desired services in a quantity and manner comparable to the quantity and manner in which such services are proposed to be provided by the Specified or Acquired Acute Hospital. (iii) The entry into such affiliation agreement by the Specified Acute Hospital or Acquired Acute Hospital and the performance thereof by the Specified Acute Hospital or Acquired Acute Hospital (including, without limitation, the failure to provide such Competing Business by the Specified Acute Hospital or Acquired Acute Hospital) will not violate or conflict with, or cause a default under, the terms of any License, accreditation standard or Payor contract to which the Specified Acute Hospital or Acquired Acute Hospital is then subject. If the terms and conditions set forth in CLAUSE (i) through (iii) (other than the first sentence of CLAUSE (i)) are not met as to the expanded Competing - 91 - Business of a Specified or Acquired Acute Hospital, the exception provided by SECTION 6.8(b)(iii) above shall apply to such expanded Competing Business of such Specified or Acquired Acute Hospital. (d) COVENANT PERIOD. The term of the covenant (the "COVENANT PERIOD") set forth in SECTION 6.8(a) shall expire on the third anniversary of the Final Closing, except (i) as to a Specified Acute Hospital, the covenant shall expire on the earlier of the third anniversary of the Final Closing or the date on which such Specified Acute Hospital's Affiliation Facility is no longer a Covered Facility, and (ii) as to an Acquired Acute Hospital, the covenant shall expire on the earlier of the third anniversary of the Final Closing or the second anniversary of the Acquisition Date for such Acquired Acute Hospital. (e) SEVERABILITY. To the extent that this covenant or any provision of this SECTION 6.8 shall be deemed illegal or unenforceable by a court or other tribunal of competent jurisdiction with respect to (i) any geographic area, (ii) any part of the time period covered by this covenant, (iii) any activity or Specified Capacity covered by this covenant, or (iv) any other aspect of this covenant, such determination shall not affect this covenant with respect to any other geographic area, time period, activity or other aspect covered by this covenant. (f) INJUNCTIVE RELIEF. Each of the parties to this Agreement acknowledges that (i) the covenant and restrictions contained in this SECTION 6.8 are necessary, fundamental and required for the protection of the business of Buyer and its operation (through the Buyer Subsidiaries) of the Facilities; (ii) this covenant relates to matters which are of a special character and which give this covenant a special value, and (iii) a breach of the covenant contained in this SECTION 6.8 will result in irreparable harm and damages to Buyer and Buyer Subsidiaries which cannot be adequately compensated for by a monetary award. Accordingly, it is expressly agreed that in addition to all other remedies available in law or in equity, Buyer and Buyer Subsidiaries shall be entitled to the remedy of a temporary restraining order, preliminary injunction or such other form of injunctive or equitable relief as may be issued by any court of competent jurisdiction to restrain or enjoin a Covered Party from breaching this covenant or any provision of this SECTION 6.8 or otherwise to specifically enforce the provisions of this covenant. - 92 - (g) VALUE. The parties agree that the value of the covenant contained in this SECTION 6.8 is the value assigned to it in SECTION 2.5 and that each will account for and report the value of such covenant in accordance with such valuation and all of the terms and provisions of SECTION 2.7. Section 6.9 AUDITED STATEMENTS. Prior to and after any relevant Scheduled Closing, Seller shall make the books and records (other than those protected by or subject to the attorney-client privilege) and unaudited financial statements of the Subsidiaries which are related to the Facilities and are for periods prior to such Scheduled Closing available to Buyer and Buyer's and Seller's independent accountants at reasonable times and in a manner so as to not unduly interfere with Seller's operations, and otherwise cooperate with Buyer in order to permit an audit of the Subsidiaries financial statements for periods prior to such Scheduled Closing. Seller shall reasonably cooperate in assisting Buyer in obtaining and preparing all necessary information for the timely filing of any documents required to be filed by Buyer under the Securities Exchange Act of 1934 related to the transactions contemplated hereby. Without limiting the effect of Section 5.5 of this Agreement, the audit and the out-of-pocket costs of Seller's cooperation in obtaining and preparing any information (including, without limitation, all services of Seller's independent accountants rendered in connection therewith) will be paid for by Buyer. SECTION 6.10 POST-CLOSING INSURANCE. Seller for five years after the Final Closing, shall maintain its existing comprehensive general liability and hospital professional liability insurance coverages with respect to the Facilities for all periods prior to the Closing in substantially their present form as described on SCHEDULE 3.26(b) (the "INSURANCE PROGRAM"), provided that (a) Seller shall have the right to reduce (but not increase beyond $2,000,000 per occurrence) the existing deductible under the Insurance Program and (b) shall have the right to cancel or terminate, or have cancelled or terminated, the coverages under the Insurance Program so long as Seller acquires (from (i) its present insurance company or (ii) another reasonably acceptable insurance company under a reasonably acceptable policy) an extended discovery period of not less than five years after any such cancellation or termination for periods prior to the Final Closing. Such Insurance Program if maintained, shall be maintained at Seller's expense, and if such Insurance Program is maintained Seller shall cause Buyer and each Buyer Subsidiary to be named as an additional - 93 - insured with respect to the applicable FacilitY and Seller shall provide Buyer with copies thereof and copies of renewals prior to the expiration of the prior policy or policies. Seller shall use commercially reasonable efforts to avoid invalidating the insurance policies referred to in this SECTION 6.10. Section 6.11 USE OF CONTROLLED SUBSTANCE LICENSES. To the extent permitted by Law, Buyer shall have the right, for a period not to exceed sixty (60) days following a relevant Scheduled Closing, to operate under the Licenses of the Subsidiaries relating to controlled substances and the operation of pharmacies, until Buyer is able to obtain such Licenses for itself. Seller shall cause the pertinent Subsidiaries to execute and deliver to Buyer any powers of attorney and other instruments which Buyer or the appropriate governmental agency may reasonably require in connection with Buyer's use of such Licenses. Buyer acknowledges that it shall apply for all such Licenses as soon as reasonably possible before or after the relevant Scheduled Closing and diligently pursue such applications in accordance with SECTION 5.1. Section 6.12 NON-DISTURBANCE AGREEMENTS. Seller hereby agrees to exercise its reasonable commercial efforts, prior to the relevant Scheduled Closing, to obtain from each existing mortgagee of each Facility identified below a non-disturbance agreement providing in substance that in the event the lessor or sublessor of such Facility defaults in its obligations to the mortgagee respecting indebtedness existing at the relevant Scheduled Closing and as a result thereof the mortgagee forecloses upon, exercises a power of sale or otherwise succeeds to the ownership of such property, then and in such event, such foreclosure or other change in ownership shall not terminate or affect the validity of the Real Property Lease respecting such Facility assigned to Buyer hereunder, PROVIDED THAT Buyer hereby agrees that, in connection with Seller's obtaining any such non-disturbance agreement, Buyer will execute such reasonable agreements in favor of such mortgagee confirming the attornment of Buyer to such mortgagee or its assigns, and subordinating the Real Property Lease to the interest of such mortgagee, under such circumstances. In the event that Seller shall be unable to obtain any such non-disturbance agreement and the lessor's or sublessor's default under indebtedness existing at the relevant Scheduled Closing results in the termination of any such Real Property Lease prior to the expiration of the current term and any renewal terms available in that Real Property Lease as of the relevant Scheduled Closing, then Seller shall indemnify Buyer, - 94 - in accordance with the provisions of SECTION 11.3(a)(ii), for Losses arising therefrom but not in excess of the portion of the Purchase Price allocated to such Facility in the Allocation Schedule, PROVIDED THAT Buyer shall provide Seller with notice of any such default or claimed default by the lessor or sublessor reasonably promptly following Buyer's receipt of any notice or knowledge respecting same. The Facility and Real Property Lease to which this Section shall apply is the Real Property Lease respecting the hospital numbered as Facility No. 50. ARTICLE 7 ADDITIONAL COVENANTS OF BUYER Section 7.1 WAIVER OF BULK SALES LAW COMPLIANCE. Subject to the indemnification provisions of SECTION 11.3(a)(iii) hereof, Buyer hereby waives compliance by Seller and the Subsidiaries with the requirements, if any, of Article 6 of the Uniform Commercial Code as in force in any state in which Transferred Assets are located and all other similar laws applicable to bulk sales and transfers. Section 7.2 RESALE CERTIFICATE. Buyer agrees to furnish to Seller and the Subsidiaries any resale certificate or certificates or other similar documents reasonably requested by Seller to comply with pertinent sales and use tax laws. Section 7.3 COST REPORTS AND AUDIT CONTESTS. After each Scheduled Closing and for the period of time necessary to conclude any pending or potential audit or contest of any Cost Reports with respect to the Facilities transferred at such Scheduled Closing that include periods ending on or before the relevant Closing Date, Buyer shall (a) properly keep and preserve all financial books and records delivered to Buyer by Seller and the Subsidiaries (if any) and utilized in preparing such Cost Reports, including, without limitation, accounts payable invoices, Medicare logs and billing information in accordance with SECTION 5.7; and (b) within five (5) days of Buyer's receipt of the same, forward to Seller all information received from Payors relating to periods prior to and as of the relevant Closing Date including, without limitation, Cost Report Settlements, notices of program reimbursements, demand letters for payment and proposed audit adjustments. Upon reasonable written notice by Seller, Seller (or its agents) shall be entitled, at Seller's expense, during regular business hours, to have access to, inspect and make copies of all - 95 - such books and records. Upon the reasonable request of Seller, Buyer shall assist Seller and the Subsidiaries in obtaining information deemed by Seller to be necessary or desirable in connection with any audit or contest of such reports. To the extent required to meet its obligations under this Section, Buyer shall provide the reasonable support of its employees at no cost to Seller. Section 7.4 TAX MATTERS. After each Scheduled Closing, Buyer shall be responsible for causing its employees, at no cost to Seller, to assist Seller and the Subsidiaries, in the same manner and to the extent that personnel of the Facilities currently provide such assistance, in the preparation and filing of all returns relating to taxes imposed upon the businesses operated through the Transferred Assets that relate to periods ending on or prior to the relevant Scheduled Closing but are due after the relevant Closing Date and that are not related to Taxes included in the Assumed Liabilities, including without limitation, income tax and information returns. It is further acknowledged by Buyer that Taxes (including, without limitation, the Florida indigent care tax) imposed upon the right or privilege to do business from the Facilities after the Closing shall be Buyer's responsibility even if measured by gross receipts, net operating revenues or patient days for a period ending on, before or including a Closing Date and that Taxes included in Accrued Operating Expenses shall be only those properly accruable, in accordance with generally accepted accounting principles, for the right or privilege of doing business through the relevant Closing Date. Buyer further agrees to exercise its reasonable commercial efforts to have the income tax year of any venture or partnership referred to in SECTION 2.1(c) terminated as of the relevant Scheduled Closing with respect to the pertinent Subsidiary or Subsidiaries transferring its interests therein. Section 7.5 LETTERS OF CREDIT. Subject to the terms and conditions hereof, at the relevant Scheduled Closing, Buyer shall cause letters of credit and indemnity or performance bonds to be provided to substitute for those letters of credit and bonds listed in SCHEDULE 7.5, so that at and as of such Scheduled Closing Seller and its Affiliates shall have no further obligation to provide such designated letters of credit or bonds. Section 7.6 CONDUCT PENDING CLOSING. Prior to consummation of the Transactions contemplated hereby or the termination or expiration of this Agreement pursuant to its terms, unless Seller shall otherwise consent in writing, Buyer shall not, and shall not permit any Buyer Subsidiary to, - 96 - take any action which would cause any of Buyer's representations and warranties set forth in ARTICLE 4 to be false as of the relevant Scheduled Closing. Section 7.7 SECURITIES OFFERINGS. Buyer hereby agrees to indemnify and hold harmless Seller and each of its Affiliates, in accordance with the provisions of SECTION 11.4(a)(ii), against any and all Losses, as incurred, arising out of the offer or sale by Buyer of securities, except to the extent that such Loss arises from any untrue statement or alleged untrue statement of a material fact contained in any such securities offering materials or prospectus used by Buyer or its representatives, or from the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, which untrue or alleged untrue statement or omission or alleged omission is made in reliance upon and in conformity with written information furnished to Buyer by Seller under a cover letter from Seller's counsel stating that such information is expressly for use in such offering materials or prospectus. ARTICLE 8 BUYER'S CONDITIONS TO CLOSING The obligations of Buyer to consummate the Transactions with respect to a Facility and the Transferred Assets and Assumed Liabilities related thereto shall be subject to the requirements of SECTION 2.13 and to the fulfillment at or prior to the relevant Scheduled Closing of the following conditions, unless Buyer waives in writing such fulfillment: SECTION 8.1 PERFORMANCE OF AGREEMENT. Seller shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or prior to the Scheduled Closing. SECTION 8.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller set forth in ARTICLE 3 of this Agreement shall be true in all respects as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Scheduled Closing) and as of the Scheduled Closing (as updated by the revising of Schedules contemplated by SECTION 6.3) as if made as of such time, except where - 97 - such inaccuracy or inaccuracies would not individually or in the aggregate result in a Material Adverse Effect on the Facility in question. Section 8.3 OFFICERS' CERTIFICATE. Buyer shall have received from Seller an officers' certificate, executed on Seller's behalf by its chief executive officer, president, chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the knowledge of such individual, the conditions in SECTIONS 8.1 and 8.2 above have been met. Section 8.4 CONSENTS. The waiting period under the HSR Act shall have expired or been terminated, and, subject to the provisions of SECTION 2.12, all approvals, consents, authorizations and waivers from governmental and accreditation agencies the absence of which would render Buyer unable to operate the facility in the manner operated prior to such Scheduled Closing, and all approvals, consents, authorizations and waivers from other third parties to the extent shown on the Schedule of Required Consents (collectively "CONSENTS") required for Buyer to consummate the Transactions with respect to such Facility, shall have been obtained, except that a Consent from a third party to the sale and assignment of a Transferred Asset, such as a Medicare or Medicaid provider agreement, or the assumption of an Assumed Liability with respect thereto, shall not constitute a condition to Buyer's consummation of the Transactions with respect to a facility if such sale, assignment or assumption may lawfully be made subject to a customary condition subsequent that the Consent be obtained from the third party based upon determinations of such third party, including without limitation needs surveys or evaluations of Buyer, to be completed after the Scheduled Closing. As to each of the Real Property Leases listed on the Schedule of Required Consents, Buyer shall have received an estoppel certificate, identifying the lease and stating that such lease is in full force and effect, that the lessee under such lease is current in all of its obligations under such lease and that the lessor is not aware of any default by lessee under such lease. Section 8.5 ABSENCE OF INJUNCTIONS. There shall be no: (a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or governmental agency which directs that the Transactions related to such Facility contemplated hereby shall not be consummated as herein provided or compels or would compel Buyer to dispose of or discontinue, or materially restrict the operations of, - 98 - such Facility or any significant portion of the Transferred Assets with respect thereto as a result of the consummation of the Transactions contemplated hereby; (b) Suit, action or other proceeding by any governmental agency pending before any court, governmental agency or non-governmental, self- regulatory organization, or threatened (pursuant to a written notification), wherein such complainant seeks the restraint or prohibition of the consummation of the Transactions related to such Facility or asserts the illegality of the Transactions related to such Facility; or (c) Action taken, or law enacted, promulgated or deemed applicable to the Transactions related to such Facility, by any governmental agency which would render consummation of such Transactions illegal or which would threaten the imposition of any penalty or material economic detriment upon Buyer if such Transactions were consummated; PROVIDED THAT: (i) The parties will use their reasonable efforts to litigate against, or to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, law or penalty; (ii) In the event that (A) the "First Closing" has occurred under the First Facilities Agreement, (B) there is such a pending or threatened suit, action, proceeding, injunction, restraining order or other order, made, sought, issued, initiated or obtained by a governmental agency in respect of Transactions contemplated to occur at the Final Closing under this Agreement, and (C) on or prior to the original Termination Date for such Final Closing, the parties and such agency have entered into a written agreement which would resolve such controversy but such agreement is subject to final agency approval that has not been obtained on or prior to the fifth business day before the original Termination Date for the Final Closing, then and in such events the original Termination Date for the Final Closing shall be extended to the fifth business day following such final agency approval if the date of such approval is within five (5) business days of the end of a month or the original Termination Date for the Final Closing shall be extended to the end of the month in which such approval is obtained if the date of such approval is not within five (5) business days of the end of a month, but in no event shall the original Termination Date for the Final Closing be - 99 - extended for more than three (3) calendar months from the original Termination Date; and (iii) Clauses (a) through (c) above notwithstanding, the effect of any such event, action or suit shall be to exclude the affected Facility from the Scheduled Closing and, if such Facility is not transferred in subsequent Closing, to adjust the Purchase Price pursuant to the Allocation Schedule. Section 8.6 OPINION OF COUNSEL. Buyer shall have received, on and as of the Closing Date, an opinion of Mr. Scott Brown, general counsel to Seller, substantially as to the matters set forth in SECTIONS 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 and 3.14 subject to customary conditions and limitations. Section 8.7 TITLE TO REAL PROPERTY. Title to Transferred Assets related to the Facility comprised of interests in real property shall have been evidenced by the willingness of Chicago Title Insurance Company (or an Affiliate thereof) (the "TITLE INSURER") to issue at regular rates ALTA (or the local equivalents thereof) owner's or lessee's, as the case may be, extended coverage policies of title insurance (1990 Form B) (the "TITLE POLICIES"), with the survey exception removed, in amounts equal to the respective portions of the Purchase Price allocated to such interests, showing title to such interests in such real property vested in Buyer subject to transfer of such interest to Buyer. Each such Title Policy shall be free of exceptions relating to (i), except for Title Policies respecting Facilities located in Texas, any claim which arises out of the transaction vesting in Buyer the estate or interest insured by the Title Policy, by reason of the operation of federal bankruptcy, state insolvency or similar creditor's rights laws, and (ii) rights of the United States of America, and the state in which the real property covered by the Title Policy is located, of either of them, to recover any federal funds advanced as provided in the Hill-Burton Act, 42 U.S.C. Sections 291 et. seq. Such Title Policies shall additionally be free of all other exceptions, including other standard exceptions, other than the following: (a) A lien or liens to secure payment of real estate taxes, not delinquent; (b) Exceptions, other than those listed on SCHEDULE 8.7(b), disclosed by current standard ALTA Preliminary Title Reports, delivered - 100 - to and approved (except as shown on SCHEDULE 8.7(b)) by Buyer prior to the date hereof (as indicated by Buyer's signature of approval appended thereto) together with copies of all documents underlying the exceptions contained therein; and (c) Other possible minor matters that in the aggregate are not substantial in amount and do not materially detract from or interfere with the present or intended use of such real property, including such minor matters as may be disclosed by surveys taken after the date hereof. The willingness of the Title Insurer to issue the Title Policies shall be evidenced either by the issuance thereof at the relevant Scheduled Closing or the written commitments or binders, dated as of the relevant Scheduled Closing, of the Title Insurer to issue such Title Policies within a reasonable time after the relevant Closing Date, subject to actual transfer of the real property in question. If the Title Insurer is unwilling to issue any such Title Policy, it shall be required to provide Buyer and Seller, in writing, notice setting forth the reason(s) for such unwillingness on or before the relevant Closing Date. Seller shall have the right to seek to cure any defect which is the reason for such unwillingness, and, if such notice by the Title Insurer is given less than ten (10) business days prior to the then Scheduled Closing, then the relevant Closing Date (and, to the extent necessary, the Termination Date) shall be extended for a period of up to ten (10) business days to provide to Seller such opportunity to cure. In the event that, despite Seller's efforts to cure, the Title Insurer remains unwilling to issue any such Title Policy on the Final Closing Date (as may be extended as provided herein), then, at the election of Buyer, and without affecting the other conditions of the parties to consummation of the Transactions, such real property interests not covered by such a Title Policy shall not be included in the Transferred Assets and shall be deemed to be Excluded Assets, and liabilities associated therewith that would otherwise be Assumed Liabilities shall be deemed to be Excluded Liabilities; and Buyer and Seller shall negotiate in good faith prior to the Final Closing Date an adjustment in the Purchase Price based on the Allocation Schedule. If the parties cannot agree upon such adjustment, then the disagreement shall be resolved in accordance with SECTION 2.14. Notwithstanding the foregoing, Buyer may accept such title to any such interests as the pertinent Subsidiary may be able to convey, and such title insurance with respect to the same as the Title Insurer is willing to issue, in which case such interests shall be conveyed as part of the Transferred Assets without reduction of the Purchase Price or any credit or allowance - 101 - against the same and without any other liability on the part of Seller or the Subsidiaries. Section 8.8 RECEIPT OF OTHER DOCUMENTS. Buyer shall have received the following: (a) Certified copies of the resolutions of Seller's and each relevant Subsidiary's board of directors respecting this Agreement, the Related Agreements and the Transactions, together with certified copies of any shareholder resolutions which are necessary to approve the execution and delivery of this Agreement and any Agreements and/or the performance of the obligations of Seller and the Subsidiaries hereunder and thereunder; (b) Certified copies of Seller's and each relevant Subsidiary's Charter Documents, together with a certificate of the corporate secretary of each that none of such documents have been amended; (c) One or more certificates as to the incumbency of each officer of Seller or of any Subsidiary who has signed the Agreement, any Related Agreement or any certificate, document or instrument delivered pursuant to the Agreement or any Related Agreement; (d) Good standing certificates for Seller and each of the relevant Subsidiaries from the Secretaries of State of their respective states of incorporation, dated as of a date not earlier than fifteen (15) business days prior to the relevant Closing Date; (e) Copies of all third party and governmental consents, permits and authorizations that Seller or any Subsidiary has received in connection with the Agreement, the Related Agreements and the Transactions to occur at the relevant Scheduled Closing; and (f) Certificates of non-foreign status in the form required by Section 1445 of the Code duly executed by Seller and the relevant Subsidiaries. Section 8.9 LICENSES AND PERMITS. The Buyer shall have obtained any and all authorizations, approvals and consents in connection with acquiring Licenses that will permit it to operate the Facility after the - 102 - relevant Scheduled Closing substantially as operated by the relevant Subsidiary immediately prior to the relevant Scheduled Closing. Section 8.10 CASUALTY; CONDEMNATION. (a) CASUALTY. If any part of the Transferred Assets related to the Facility are damaged, lost or destroyed (whether by fire, theft, vandalism or other casualty) in whole or in part prior to the relevant Scheduled Closing, and the fair market value of such damage or destruction is less than thirty percent (30%) of the allocated portion of the Purchase Price for such Facility set forth in the Allocation Schedule, Seller shall, at its option, either (i) reduce the Purchase Price by the fair market value of the assets destroyed, such value to be determined as of the date immediately prior to such destruction or, as the case may be, by the estimated cost to restore damaged assets, (ii) provided that the proceeds are obtainable without delay and are sufficient to fully restore the damaged assets, upon the relevant Scheduled Closing transfer the proceeds or the rights to the proceeds of applicable insurance to Buyer, and Buyer may restore the improvements, or (iii) repair or restore such damages or destroyed improvements. If any part of the Transferred Assets related to the Facility are damaged, lost or destroyed (whether by fire, theft, vandalism or other cause or casualty) in whole or in part prior to the relevant Scheduled Closing and the fair market value of such damages is greater than thirty percent (30%) of such allocated portion of the Purchase Price, Buyer may elect either to (i) require Seller upon the relevant Scheduled Closing to transfer the proceeds (or the right to the proceeds) of applicable insurance to Buyer and Buyer may restore the improvements, or (ii) terminate this Agreement with respect to the damaged assets or Facility only, with a reduction in the Purchase Price determined as follows. The reduction in Purchase Price shall be mutually determined by Buyer and Seller on the basis of the Allocation Schedule, or if the Buyer and Seller fail to agree, then such reduction shall be determined in accordance with SECTION 2.14. (b) CONDEMNATION. From the date hereof until the relevant Scheduled Closing, in the event that any portion of the Transferred Assets related to the Facility becomes subject to or is threatened with any condemnation or eminent domain proceedings (except for an immaterial portion), then Buyer, at its sole option, may elect to terminate this Agreement with respect only to that part which is condemned or - 103 - threatened to be condemned with a reduction in the Purchase Price determined as provided in SECTION 8.10(a). Section 8.11 REASONABLE ASSURANCES. There shall not have been any actions taken by the United States government to indicate that it is reasonably likely that either the Unusual Proceedings or any proceeding, investigation, claim or lawsuit relating thereto, in each case relating to periods prior to the relevant Scheduled Closing, (a) shall be applied to or be expanded to include an assertion against Buyer or the applicable Buyer to Subsidiaries with respect to their operation of the Facility after the relevant Scheduled Closing, or (b) would be the basis of any investigation or proceeding to exclude Buyer or the applicable Buyer Subsidiaries from participation in any government healthcare program with respect to the operations of the Facility after the relevant Scheduled Closing, or (c) would result in the Transferred Assets being subjected to forfeiture under 18 U.S.C. Section 1961-1966 or otherwise. Section 8.12 CERTAIN EVENTS. During the thirty (30) days preceding the date of the relevant Scheduled Closing, there shall not have occurred or be continuing (a) any suspension of trading on the New York Stock Exchange or material governmental restrictions (not in force on the date hereof) on trading in securities generally, or (b) any banking moratorium declared by Federal, California or New York authorities, or (c) any material disruption of or any material adverse change in the financial, banking or capital markets, or (d) any outbreak or material escalation of hostilities affecting the United States of America or other calamity, panic or crisis, the effect of which on the financial markets of the United States in each case described in clauses (a), (b), (c) or (d) above, is that lending institutions have generally ceased providing funding for transactions of the size contemplated hereby, PROVIDED that the occurrence of such event shall operate only to delay the Scheduled Closing (and extend the Termination Date, if necessary) until the tenth day following the date upon which lending institutions generally have resumed providing funding for transactions of the size contemplated hereby and that such delay may not extend the original Termination Date for more than sixty (60) days, after which time there shall be deemed to be a failure of this condition. ARTICLE 9 SELLER'S CONDITIONS TO CLOSING - 104 - The obligations of Seller to consummate the Transactions with respect to a Facility and the Transferred Assets and Assumed Liabilities related thereto shall be subject to the fulfillment at or prior to the relevant Scheduled Closing of the following conditions, unless Seller waives in writing such fulfillment: Section 9.1 PERFORMANCE OF AGREEMENT. Buyer shall have performed in all material respects its agreements and obligations contained in this Agreement required to be performed on or prior to the Scheduled Closing. Section 9.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Buyer set forth in ARTICLE 4 of this Agreement shall be true in all material respects as of the date of this Agreement (unless the inaccuracy or inaccuracies which would otherwise result in a failure of this condition have been cured by the Scheduled Closing) and as of the Scheduled Closing as if made as of such time. Section 9.3 OFFICERS' CERTIFICATE. Seller shall have received from Buyer an officers' certificate, executed on Buyer's behalf by its chief executive officer, president, chief financial officer or treasurer (in his or her capacity as such) dated the Closing Date and stating that to the actual knowledge of such individual, the conditions in SECTIONS 9.1 and 9.2 above have been met. Section 9.4 CONSENTS. The waiting period under the HSR Act shall have expired or been terminated, and, subject to the provisions of SECTION 2.12, all Consents required for Seller to consummate the Transactions with respect to such Facility shall have been obtained, except that a Consent from a third party to the sale and assignment of a Transferred Asset, such as a Medicare or Medicaid provider agreement, or the assumption of an Assumed Liability with respect thereto, shall not constitute a condition to Seller's consummation of the Transactions with respect to such Facility if such sale, assignment or assumption may lawfully be made subject to a customary condition subsequent that the Consent be obtained from the third party based upon determinations of such third party, including without limitation needs surveys or evaluations of Buyer, to be completed after the Scheduled Closing, whether or not such third party indicates prior to the Scheduled Closing that any such Consent is likely or not likely to be given. - 105 - Section 9.5 ABSENCE OF INJUNCTIONS. There shall be no: (a) Injunction, restraining order or order of any nature issued by any court of competent jurisdiction or governmental agency which directs that the Transactions related to such Facility contemplated hereby shall not be consummated as herein provided; (b) Suit, action or other proceeding by any governmental agency pending before any court, governmental agency or non-governmental, self-regulatory organization, or threatened (pursuant to a written notification), wherein such complainant seeks the restraint or prohibition of the consummation of the Transactions related to such Facility or asserts the illegality of the Transactions related to such Facility; or (c) Action taken, or law enacted, promulgated or deemed applicable to the Transactions related to such Facility, by any governmental agency which would render consummation of such Transactions illegal or which would threaten the imposition of any penalty or material economic detriment upon Seller or the Subsidiaries if such Transactions were consummated; PROVIDED THAT: (i) The parties will use their reasonable efforts to litigate against, or to obtain the lifting of, any such injunction, restraining or other order, restraint, prohibition, action, suit, law or penalty; (ii) In the event that (A) the "First Closing" has occurred under the First Facilities Agreement, (B) there is such a pending or threatened suit, action, proceeding, injunction, restraining order or other order, made, sought, issued, initiated or obtained by a governmental agency in respect of Transactions contemplated to occur at the Final Closing under this Agreement, and (C) on or prior to the original Termination Date for such Final Closing, the parties and such agency have entered into a written agreement which would resolve such controversy but such agreement is subject to final agency approval that has not been obtained on or prior to the fifth business day before the original Termination Date for the Final Closing, then and in such events the original Termination Date for the Final Closing shall be extended to the fifth business day following such final agency approval if the date of such approval is within five (5) business days of the end of a month or the - 106 - original Termination Date for the Final Closing shall be extended to the end of the month in which such approval is obtained if the date of such approval is not within five (5) business days of the end of a month, but in no event shall the original Termination Date for the Final Closing be extended for more than three (3) calendar months from the original Termination Date; and (iii) Clauses (a) through (c) above notwithstanding, the effect of any such event, action or suit shall be to exclude the affected Facility from the Scheduled Closing and, if such Facility is not transferred in a subsequent Closing, to adjust the Purchase Price pursuant to the Allocation Schedule. Section 9.6 OPINION OF COUNSEL. Seller shall have received, on and as of the Closing Date, an opinion of King & Spalding, counsel to Buyer, substantially as to the matters set forth in SECTIONS 4.1, 4.2, 4.3, 4.4, and 4.5, subject to customary conditions and limitations. Section 9.7 RECEIPT OF OTHER DOCUMENTS. Seller shall have received the following: (a) Certified copies of the resolutions of Buyer's and each relevant Buyer Subsidiary's board of directors respecting this Agreement, the Related Agreements and the Transactions; (b) Certified copies of Buyer's and each relevant Buyer Subsidiary's Charter Documents, together with a certificate of Buyer's and each Buyer Subsidiary's corporate secretary that none of such documents have been amended; (c) One or more certificates as to the incumbency of each officer of Buyer who has signed the Agreement, any Related Agreement, or any certificate, document or instrument delivered pursuant to the Agreement or any Related Agreement; (d) Good standing certificates for Buyer and for each relevant Buyer Subsidiary from the Secretaries of State of their respective states of incorporation, dated as of a date not earlier than fifteen (15) business days prior to the relevant Closing Date; - 107 - (e) Copies of all third party and governmental consents, permits and authorizations that Buyer has received in connection with the Agreement, the Related Agreements and the Transactions; and (f) A certificate of Buyer executed on its behalf by the Chief Executive Officer and the Chief Financial Officer of Buyer stating that to the best of their knowledge and belief, specifying in reasonable detail their basis for same, after giving effect to the Transactions, neither Buyer nor any relevant Buyer Subsidiary is insolvent or will be rendered insolvent by obligations incurred in connection therewith, or will be left with unreasonably small capital with which to engage in their businesses, or will have incurred obligations beyond their respective abilities to perform the same as and when due. ARTICLE 10 TERMINATION Section 1O.1 TERMINATION. Any Transactions contemplated hereby that have not been consummated may be terminated: (a) At any time, by mutual written consent of Seller and Buyer; or (b) By either Buyer or Seller upon written notice to the other party, if (i) the relevant Scheduled Closing shall not have occurred by its Termination Date; or (ii)(A) in the case of termination by Seller, the conditions set forth in SECTION 2.13 and ARTICLE 9 for the relevant Scheduled Closing cannot reasonably be met by its Termination Date or Seller has terminated this Agreement pursuant to SECTION 6.4, and (B) in the case of termination by Buyer, the conditions set forth in SECTION 2.13 and ARTICLE 8 for the relevant Scheduled Closing cannot reasonably be met by its Termination Date, unless in either of the cases described in CLAUSES (A) or (B), the failure of the condition is the result of the material breach of this Agreement by the party seeking to terminate. The Termination Date for the First Closing shall be September 1, 1994, unless on or prior to such date there has been a "First Closing" under the First Facilities Agreement, in which case, the Termination Date for all Closings under this Agreement shall be September 30, 1994. Each such date, or such later date as may be specifically provided for in this Agreement (including any date arising under the operation of SECTIONS 8.5(c)(ii) and 9.5(c)(ii) - 108 - hereof) or agreed upon by the parties, is herein referred to as the "TERMINATION DATE." Each party's right of termination hereunder is in addition to any other rights it may have hereunder or otherwise. Section 10.2 EFFECT OF TERMINATION. If there has been a termination pursuant to SECTION 10.1 prior to the First Closing, then this Agreement shall be deemed terminated, and all further obligations of the parties hereunder shall terminate, except that the obligations set forth in SECTIONS 5.5 and 5.6 and in ARTICLES 11 and 12 shall survive. In the event of termination of this Agreement as provided above, there shall be no liability on the part of a party to another under and by reason of this Agreement or the transactions contemplated hereby except as set forth in ARTICLE 11 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by the provisions of this Agreement. In the event of a termination after the First Closing, then all further obligations of the parties respecting Transactions that have not been consummated shall terminate, except that the obligations set forth in SECTIONS 5.5 and 5.6 and in ARTICLES 11 and 12 shall survive, and there shall be no liability on the part of a party to another in respect of such unconsummated Transactions except as set forth in ARTICLE 11 and except for intentionally fraudulent acts by a party, the remedies for which shall not be limited by this Agreement. The foregoing provisions shall not, however, limit or restrict the availability of specific performance or other injunctive or equitable relief to the extent that specific performance or such other relief would otherwise be available to a party hereunder. ARTICLE 11 SURVIVAL AND REMEDIES; INDEMNIFICATION Section 11.1 SURVIVAL. Except as may be otherwise expressly set forth in this Agreement, the representations, warranties, covenants and agreements of Buyer and Seller set forth in this Agreement, or in any writing required to be delivered in connection with this Agreement, shall survive the Scheduled Closings and the consummations of the Transactions. Section 11.2 EXCLUSIVE REMEDY. Absent intentional fraud or unless otherwise specifically provided herein, the sole exclusive remedy for damages of a party hereto for any breach of the representations, warran- - 109 - ties, covenants and agreements of the other party contained in this Agreement and the Related Agreements shall be the remedies contained in this ARTICLE 11. Notwithstanding the foregoing, with respect to any matters associated with any of the Owned Real Properties or Leased Real Properties involving environmental contamination or noncompliance with any applicable Environmental Law, if the First Closing occurs, nothing in this ARTICLE 11 shall limit or restrict a party's rights or remedies against, or obligations to, another party or any third party arising under any Environmental Law, if such matter (a) was in existence on or prior to the relevant Scheduled Closing, (b) was not identified in the Environmental Survey or SCHEDULE 3.16 (or an update thereto pursuant to SECTION 6.3), (c) was unknown to Seller or any Subsidiary as of the relevant Scheduled Closing, and (d) would not constitute a breach of Seller's warranties in SECTION 3.16. Section 11.3 INDEMNITY BY SELLER. (a) Seller shall indemnify Buyer and the Buyer Subsidiaries and hold them harmless from and against any and all claims, demands, suits, loss, liability, damage and expense, including reasonable attorneys' fees and costs of investigation, litigation, settlement and judgment (collectively "LOSSES"), which they may sustain or suffer or to which they may become subject as a result of: (i) The inaccuracy of any representation or the breach of any warranty made by Seller herein or by Seller or a Subsidiary in a Related Agreement, PROVIDED, that any such inaccuracy or breach shall be determined without regard to any qualification of such representation or warranty relating to materiality or any Material Adverse Effect; (ii) The nonperformance or breach of any covenant or agreement made or undertaken by Seller in this Agreement or by Seller or a Subsidiary in a Related Agreement; and (iii) If a Scheduled Closing occurs, the failure of Seller or any Subsidiary to pay, discharge or perform as and when due, any of the Excluded Liabilities (including, without limitation, the Excluded Liabilities enumerated in SECTIONS 2.4(c), (d), (e) and (g), and any Losses as a result of or in connection with the failure - 110 - of Seller and the Subsidiaries to comply with any Bulk Sales Laws referred to in SECTION 7.1). (b) The indemnification obligations of Seller provided above shall, in addition to the qualifications and conditions set forth in SECTIONS 11.5 and 11.6, be subject to the following qualifications: (i) Buyer and the Buyer Subsidiaries shall not be entitled to indemnity under SUBSECTION (a)(i) above (except for claims arising under SECTIONS 3.1, 3.2, 3.3 and 3.7) unless: (A) Written notice to Seller of such claim specifying the basis thereof is made, or an action at law or in equity with respect to such claim is served, before the second anniversary of the earlier to occur of the relevant Closing Date or the date on which this Agreement is terminated, as the case may be; (B) If a Scheduled Closing occurs, the Losses sustained or suffered by Buyer and the Buyer Subsidiaries or to which they may be subject as a result of circumstances described in such SUBSECTION (a)(i) and in SECTION 11.3(a)(i) of the First Facilities Agreement exceed, in the aggregate, the sum of Three Million Dollars ($3,000,000) (the "TRIGGER AMOUNT"), in which case Buyer and the Buyer Subsidiaries shall be entitled only to recover the amount by which such aggregate Losses exceed Two Million Dollars ($2,000,000) (the "DEDUCTIBLE AMOUNT"), PROVIDED, however, that individual claims of Two Thousand Dollars ($2,000) or less shall not be aggregated for purposes of calculating either the Trigger Amount, the Deductible Amount or the excess of Losses over the Deductible Amount; (C) If a Scheduled Closing occurs, in no event shall Seller be liable to Buyer and the Buyer Subsidiaries under SUBSECTION (a)(i) for Losses in the nature of consequential damages, lost profits, damage to reputation or the like, but such damages shall be limited to out-of-pocket Losses and diminution in value; and - 111 - (D) If a Scheduled Closing occurs, in no event shall Seller be liable to Buyer and the Buyer Subsidiaries under SUBSECTION (a)(i) of this Agreement and under SECTION 11(a)(i) of the First Facilities Agreement for amounts which, in the aggregate, exceed the sum of (x) that portion of the Purchase Price paid pursuant to SECTION 2.5(a) of this Agreement and pursuant to SECTION 2.5(a) of the First Facilities Agreement for assets actually acquired and (y) the amount paid pursuant to the penultimate sentence of SECTION 2.5 of this Agreement and pursuant to the penultimate sentence of SECTION 2.5(a) of the First Facilities Agreement; PROVIDED that in the event Buyer and the Buyer Subsidiaries make claims in the aggregate for Losses with respect to a Facility that exceed seventy-five percent (75%) of the portion of the Purchase Price allocated to such Facility in the Allocation Schedule, then substantially concurrently with the making of such claim or claims, Buyer shall cause such Facility to be offered in writing for resale to Seller at a cash price equal to such allocated portion of the Purchase Price less amounts, if any, previously paid by Seller to Buyer with respect to Buyer's claims for Losses with respect to such Facility and on an "as is, where is" basis, in which case: (1) Seller shall have thirty (30) days to accept such offer in writing; (2) If Seller accepts such offer, it shall have one hundred fifty (150) days to close such transaction; (3) At the closing of such transaction, Buyer shall cause all of the right, title and interest of its Affiliates in such Facility and related assets to be conveyed to Seller (or a designee of Seller) in the same condition of title as the Facility and related assets were originally sold, assigned, transferred and conveyed by Seller and the Subsidiaries hereunder, and Seller (or such designee) shall assume disclosed operating liabilities of the Facility of the same types as the Assumed Liabilities PROVIDED that if the dollar amount of such liabilities exceeds the dollar amount of the Assumed Liabilities respecting such Facility - 112 - originally assumed by Buyer hereunder, then there shall be a dollar-for-dollar reduction in the purchase price payable by Seller (or its designee) to the extent of such excess; and (4) Simultaneous with such closing, Buyer and the Buyer Subsidiaries shall release Seller from further liability under SUBSECTION (a)(i) for Losses with respect to such Facility. (ii) If a Scheduled Closing occurs, Buyer and the Buyer Subsidiaries shall not be entitled to indemnity under SUBSECTIONS (a)(ii)-(iii) above except for out-of-pocket Losses actually suffered or sustained by them or to which they may become subject as a result of circumstances described in such SUBSECTIONS (a)(ii)-(iii), and such indemnity shall not include Losses in the nature of consequential damages, lost profits, diminution in value, damage to reputation or the like; except that the provisions of this clause (b)(ii) shall not apply to breaches of SECTIONS 5.6 and 6.8, PROVIDED that the liability of Seller and the Subsidiaries for breaches of such Sections shall be subject to the provisions of SUBSECTION (b)(i)(D) above and that the liability of Seller and the Subsidiaries for breaches of such Sections shall be aggregated with the liability of Seller under SUBSECTION (a)(i) for purposes of SUBSECTION (b)(i)(D). (iii) Seller shall have no liability for Losses arising from the breach of any warranty related to Net Book Values, including without limitation the warranties contained in SECTIONS 3.17 and 3.18, and no such Losses shall be applied against the Trigger Amount or the Deductible Amount or the excess of Losses over the Deductible Amount, it being agreed that the liability of the Seller with respect to Net Book Values, if any, shall be resolved in accordance with the provisions of SECTIONS 2.6(a), (b) and (c). Section 11.4 INDEMNITY BY BUYER. (a) Buyer shall indemnify Seller and the Subsidiaries and hold Seller and the Subsidiaries harmless from and against any and all Losses which they may sustain or suffer or to which they may become subject as a result of: - 113 - (i) The inaccuracy of any representation or the breach of any warranty made by Buyer herein or by Buyer or a Buyer Subsidiary in a Related Agreement, PROVIDED that any such inaccuracy or breach shall be determined without regard to any qualification of such representation or warranty relating to materiality or any Material Adverse Effect; (ii) The nonperformance or breach of any covenant or agreement made or undertaken by Buyer in this Agreement or by Buyer or a Buyer Subsidiary in a Related Agreement; (iii) If a Scheduled Closing occurs, the failure of Buyer to pay, discharge or perform as and when due, any of the Assumed Liabilities; and (iv) If a Scheduled Closing occurs, the ongoing operations of Buyer and the Transferred Assets after the relevant Closing Date, including but not limited to the continuation or performance by Buyer after the relevant Closing Date of any agreement or practice of the Seller or the Subsidiaries. (b) The indemnification obligations of Buyer provided above shall, in addition to the qualifications and conditions set forth in SECTIONS 11.5 and 11.6, be subject to the following qualifications: (i) Seller and the Subsidiaries shall not be entitled to indemnity under SUBSECTION (a)(i) above (except for claims under SECTIONS 4.1, 4.2, 4.3 and 4.7) unless: (A) Written notice to Buyer of such claim specifying the basis thereof is made, or an action at law or in equity with respect to such claim is served, before the second anniversary of the earlier to occur of the relevant Closing Date or the date on which this Agreement is terminated, as the case may be; (B) If a Scheduled Closing occurs, the Losses sustained or suffered by Seller and the Subsidiaries or to which they may be subject as a result of circumstances described in such SUBSECTION (a)(i) and in SECTION 11.4(a)(i) of the First Facilities Agreement exceed, in the aggregate, - 114 - the Trigger Amount, in which case Seller and the Subsidiaries shall be entitled only to recover the amount by which such Losses exceed, in the aggregate, the Deductible Amount, PROVIDED, however, that individual claims of Two Thousand Dollars ($2,000) or less shall not be aggregated for purposes of calculating either the Trigger Amount, the Deductible Amount or the excess of Losses over the Deductible Amount; and (C) If a Scheduled Closing occurs, in no event shall Buyer be liable to Seller and the Subsidiaries under SUBSECTION (a)(i) for Losses in the nature of consequential damages, lost profits, damage to reputation or the like, but such damages shall be limited to out-of-pocket Losses and diminution in value. (ii) If a Scheduled Closing occurs, Seller and the Subsidiaries shall not be entitled to indemnity under SUBSECTIONS (a)(ii)-(iv) above except for out-of-pocket Losses actually suffered or sustained by them or to which they may become subject as a result of circumstances described in such SUBSECTIONS (a)(ii)-(iv), and such indemnity shall not include Losses in the nature of consequential damages, lost profits, diminution in value, damage to reputation or the like, except that the provisions of this clause (b)(ii) shall not apply to breaches of SECTIONS 5.6 or 5.7. Section 11.5 FURTHER QUALIFICATIONS RESPECTING INDEMNIFICATION. The right of a party (an "INDEMNITEE") to indemnity hereunder shall be subject to the following additional qualifications: (a) The Indemnitee shall promptly upon its discovery of facts or circumstances giving rise to a claim for indemnification, including receipt by it of notice of any demand, assertion, claim, action or proceeding, judicial, governmental or otherwise, by any third party (such third party actions being collectively referred to herein as "THIRD PARTY CLAIMS"), give notice thereof to the indemnifying party (the "INDEMNITOR"), such notice in any event to be given within sixty (60) days from the date the Indemnitee obtains actual knowledge of the basis or alleged basis for the right of indemnity or such shorter period as may be necessary to avoid material prejudice to the Indemnitor; and - 115 - (b) In computing Losses, such amounts shall be computed net of any related recoveries to which the Indemnitee is entitled under insurance policies or other related payments received or receivable from third parties and net of any tax benefits actually received by the Indemnitee or for which it is eligible, taking into account the income tax treatment of the receipt of indemnification. Section 11.6 PROCEDURES RESPECTING THIRD PARTY CLAIMS. In providing notice to the Indemnitor of any Third Party Claim (the "CLAIM NOTICE"), the Indemnitee shall provide the Indemnitor with a copy of such Third Party Claim or other documents received and shall otherwise make available to the Indemnitor all relevant information material to the defense of such claim and within the Indemnitee's possession. The Indemnitor shall have the right, by notice given to the Indemnitee within fifteen (15) days after the date of the Claim Notice, to assume and control the defense of the Third Party Claim that is the subject of such Claim Notice, including the employment of counsel selected by the indemnitor after consultation with the Indemnitee, and the Indemnitor shall pay all expenses of, and the Indemnitee shall cooperate fully with the Indemnitor in connection with, the conduct of such defense. The Indemnitee shall have the right to employ separate counsel in any such proceeding and to participate in (but not control) the defense of such Third Party Claim, but the fees and expenses of such counsel shall be borne by the Indemnitee unless the Indemnitor shall agree otherwise; PROVIDED, HOWEVER, if the named parties to any such proceeding (including any impleaded parties) include both the Indemnitee and the Indemnitor, the Indemnitor requires that the same counsel represent both the Indemnitee and the Indemnitor, and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then the Indemnitee shall have the right to retain its own counsel at the cost and expense of the Indemnitor. If the Indemnitor shall have failed to assume the defense of any Third Claim in accordance with the provisions of this Section, then the Indemnitee shall have the absolute right to control the defense of such Third Party Claim, and, if and when it is finally determined that the Indemnitee is entitled to indemnification from the Indemnitor hereunder, the fees and expenses of Indemnitee's counsel shall be borne by the Indemnitor, PROVIDED that the Indemnitor shall be entitled, at its expense, to participate in (but not control) such defense. The Indemnitor shall have the right to settle or compromise any such Third Party Claim for which it is providing indemnity so long as such settlement does not impose any obligations on the Indemnitee (except with respect - 116 - to providing releases of the third party). The Indemnitor shall not be liable for any settlement effected by the Indemnitee without the Indemnitor's consent except where the Indemnitee has assumed the defense because Indemnitor has failed or refused to do so. The Indemnitor may assume and control, or bear the costs, of any such defense subject to its reservation of a right to contest the Indemnitee's right to indemnification hereunder, PROVIDED that it gives the Indemnitee notice of such reservation within fifteen (15) days of the date of the Claim Notice. ARTICLE 12 GENERAL PROVISIONS Section 12.1 NOTICES. All notices, requests, demands, waivers, consents and other communications hereunder shall be in writing, shall be delivered either in person, by telegraphic, facsimile or other electronic means, by overnight air courier or by mail, and shall be deemed to have been duly given and to have become effective (a) upon receipt if delivered in person or by telegraphic, facsimile or other electronic means, (b) one business day after having been delivered to an air courier for overnight delivery or (c) three business days after having been deposited in the mails as certified or registered mail, return receipt requested, all fees prepaid, directed to the parties or their permitted assignees at the following addresses (or at such other address as shall be given in writing by a party hereto): If to Seller, addressed to: National Medical Enterprises 2700 Colorado Avenue Santa Monica, CA 90404 Attn: Treasurer Facsimile: (310) 998-6507 with a copy to counsel for Seller: National Medical Enterprises 2700 Colorado Avenue Santa Monica, CA 90404 Attn: General Counsel Facsimile: (310) 998-6956 - 117 - and Munger, Tolles & Olson 355 South Grand Avenue 35th Floor Los Angeles, CA 90071 Attn: Robert L. Adler Facsimile: (213) 687-3702 If to Buyer, addressed to: Charter Medical Corporation 577 Mulberry St. Macon, GA 31298 Attn: Executive Vice President - Finance Facsimile: (912) 751-2832 with a copy to counsel for Buyer: King & Spalding 191 Peachtree Street Atlanta, GA 30303-1763 Attn: Robert W. Miller Facsimile: (404) 572-5144 Section 12.2 ATTORNEYS' FEES. In any litigation or other proceeding relating to this Agreement, including litigation with respect to any Related Agreement (but excluding any proceedings under SECTION 2.6(b), 2.6(c) or 2.14) the prevailing party shall be entitled to recover its costs and reasonable attorneys' fees. Section 12.3 SUCCESSORS AND ASSIGNS. The rights under this Agreement shall not be assignable or transferable nor the duties delegable by either party without the prior written consent of the other; and nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity, other than the parties hereto and their permitted successors-in-interest and permitted assignees, any rights or remedies under or by reason of this Agreement unless so stated to the contrary. Notwithstanding the foregoing, (a) Buyer may grant to its lenders a security interest in its rights under this Agreement, and (b) subject to the terms and provisions of SECTION 5.7. Buyer may assign its rights under - 118 - SECTION 5.7 to the entities and in the circumstances described in SECTION 5.7(d). Section 12.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Section 12.5 CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. Section 12.6 ENTIRETY OF AGREEMENT; AMENDMENTS. This Agreement (including the Schedules and Exhibits hereto), the other documents and instruments specifically provided for in this Agreement, and the First Facilities Agreement contain the entire understanding between the parties concerning the subject matter of this Agreement and such other documents and instruments and, except as expressly provided for herein, supersede all prior understandings and agreements, whether oral or written, between them with respect to the subject matter hereof and thereof. There are no representations, warranties, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of this Agreement and such other documents and instruments which are not fully expressed herein or therein. This Agreement may be amended or modified only by an agreement in writing signed by each of the parties hereto. All Exhibits and Schedules attached to or delivered in connection with this Agreement are integral parts of this Agreement as if fully set forth herein. Without limiting the generality of the foregoing, this Agreement and the First Facilities Agreement, shall upon their execution, replace and substitute for that certain Asset Sale Agreement between the parties dated as of March 29, 1994 related to both the First Facilities and the Subsequent Facilities which shall be of no further force and effect, it being agreed that the effectiveness of this Agreement and of the First Facilities Agreement shall relate back from their actual date of execution to and including March 29, 1994. The representations and warranties of the parties made herein shall likewise be deemed to have been made as of March 29, 1994. Section 12.7 CONSTRUCTION. This Agreement and any documents or instruments delivered pursuant hereto shall be construed without regard to the identity of the person who drafted the various provisions of the same. Each and every provision of this Agreement and such other documents - 119 - and instruments shall be construed as though the parties participated equally in the drafting of the same. Consequently, the parties acknowledge and agree that any rule of construction that a document is to be construed against the drafting party shall not be applicable either to this Agreement or such other documents and instruments. Section 12.8 WAIVER. The failure of a party to insist, in any one or more instances, on performance of any of the terms, covenants and conditions of this Agreement shall not be construed as a waiver or relinquishment of any rights granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of the parties with respect thereto shall continue in full force and effect. No waiver of any provision or condition of this Agreement by a party shall be valid unless in writing signed by such party or operational by the terms of this Agreement. A waiver by one party of the performance of any covenant, condition, representation or warranty of the other party shall not invalidate this Agreement, nor shall such waiver be construed as a waiver of any other covenant, condition, representation or warranty. A waiver by any party of the time for performing any act shall not constitute a waiver of the time for performing any other act or the time for performing an identical act required to be performed at a later time. Section 12.9 GOVERNING LAW. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of California, without regard to the principles of conflicts of law thereof, PROVIDED that the validity, interpretation and effect of any instruments by which real property is conveyed at a Scheduled Closing shall be governed by the laws of the state in which such real property is located. Any action arising under this Agreement shall be adjudicated (a) in Los Angeles, California, if brought by Buyer or its Affiliates against Seller, any Subsidiary or their respective Affiliates, and (b) in [Atlanta], Georgia, if brought by Seller or its Affiliates against Buyer, any Buyer Subsidiary or their respective Affiliates, provided that any cross-claim or counterclaim shall also be adjudicated in the court in which the underlying action has been brought in accordance with this SECTION 12.9. Section 12.10 SEVERABILITY. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be valid, binding and enforceable under applicable law, but if any provision of this Agreement is held to be invalid, void (or voidable) or unenforceable under applicable law, such provision shall be ineffective only to the extent held - 120 - to be invalid, void (or voidable) or unenforceable, without affecting the remainder of such provision or the remaining provisions of this Agreement. Section 12.11 CONSENTS NOT UNREASONABLY WITHHELD. Wherever the consent or approval of any party is required under this Agreement, such consent or approval shall not be unreasonably withheld, unless such consent or approval is to be given by such party at the sole or absolute discretion of such party or is otherwise similarly qualified. Section 12.12 TIME IS OF THE ESSENCE. Time is hereby expressly made of the essence with respect to each and every term and provision of this Agreement. The parties acknowledge that each will be relying upon the timely performance by the other of its obligations hereunder as a material inducement to each party's execution of this Agreement. - 121 - IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. Buyer: CHARTER MEDICAL CORPORATION By /s/LAWRENCE W. DRINKARD ------------------------------------------ Name LAWRENCE W. DRINKARD ----------------------------------- Title E.V.P./CFO ---------------------------------- Seller: NATIONAL MEDICAL ENTERPRISES, INC. By /s/RAYMOND L. MATHIASEN ------------------------------------------ Name RAYMOND L. MATHIASEN ----------------------------------- Title Sr. V.P.-CFO ---------------------------------- - 122 - EX-4.W 4 EXHIBIT 4(W) AMENDMENT NO. 1 TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT AMENDMENT NO. 1 dated as of June 9, 1994 (this "Amendment") to the SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 2, 1994 (the "Credit Agreement"), each among CHARTER MEDICAL CORPORATION, a Delaware corporation (the "Company"), the banking and other financial institutions from time to time party thereto (the "Lenders"), BANKERS TRUST COMPANY, as agent for the Lenders, and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Co-Agent. Capitalized terms used herein and not defined herein shall have the respective meanings set forth for such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Company no longer desires that the initial closing of the NME Acquisition involve at least seven of the Facilities listed on Schedule 2.13A to the NME Purchase Agreement or Facilities having at least the aggregate results of operations described in Section 2.13(a) (ii) of the NME Purchase Agreement; and WHEREAS, as a result thereof and for other certain reasons, the Company and NME desire to replace and substitute the NME Purchase Agreement with an Asset Sale Agreement (First Facilities) in the form of Exhibit A hereto (the "NME First Facilities Purchase Agreement") and an Asset Sale Agreement (Subsequent Facilities) in the form of Exhibit B hereto (the "NME Subsequent Facilities Purchase Agreement" and, together with the NME First Facilities Purchase Agreement, the "New NME Purchase Agreements"); NOW THEREFORE, the parties hereto hereby agree as follows: Section 1. CONSENT TO NEW NME PURCHASE AGREEMENTS. The undersigned Lenders hereby consent to the execution and delivery by the Company of the New NME Purchase Agreements and the replacement and substitution of the New NME Purchase Agreements for the NME Purchase Agreement (other than the schedules thereto which shall survive as schedules to the New NME Purchase Agreements). Section 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby amended as follows: (a) Section 3.3 (f) of the Credit Agreement is amended in its entirety to read as follows: "(f) The Restricted Commitment Amount shall automatically reduce to zero at such time as the Company and the Domestic Guarantors have acquired Facilities pursuant to the NME Purchase Agreement having aggregate results of operations of at least $27,000,000. For purposes of this Section 3.3(f), a Facility acquired pursuant to the NME Purchase Agreement shall be deemed to have the results of operations set forth as such Facility's "Unaudited & Projected FY 1994 EBITDA" on Schedule 2.13B to the NME Purchase Agreement, as such Schedule was in effect on March 29, 1994." (b) Section 4.2(h) of the Credit Agreement is amended by (i) replacing the word "the" in the third line of such Section with the word "either", (ii) inserting the word "either" after the word "under" in the fourth line of such Section, and (iii) replacing the word "thereof" in the fifth line of such Section with the words "of either NME Purchase Agreement". (c) Section 7.1(i) of the Credit Agreement is amended by replacing the word "the" in clause (A) thereof with the word "either". (d) Section 7.1(j) of the Credit Agreement is amended by (i) replacing the words "the NME Purchase Agreement has not" in clause (C) thereof with the words "neither NME Purchase Agreement has", and (ii) replacing the second "the" in clause (E) thereof with the word "either". (e) Section 8.2(a) of the Credit Agreement is amended by (i) replacing the amount "225,000,000" in clause (ii) thereof with the amount "$220,000,000", (ii) replacing the words "the NME Purchase Agreement" in the third line thereof with the words "the applicable NME Purchase Agreement", and (iii) replacing the words "the NME Purchase Agreement" in each of clauses (i) and (iv) thereof with the words "either NME Purchase Agreement". 2 (f) Section 8.11(d) of the Credit Agreement is amended by (i) replacing the word "the" in each of the first and fifth lines thereof with the word "either", and (ii) inserting the parenthetical "(other than as a result of the exercise by the Company of any of its rights under clauses (A) and (B) of the proviso to Section 2.13(a) of the NME First Facilities Purchase Agreement)" before the word "or" in the second line thereof and after the word "Company" in the fourth line thereof. (g) Section 10 of the Credit Agreement is amended as follows: (i) The definition therein of the term "Acquired NME Facilities EBITDA" is amended by replacing the words "to the" in the fourth line thereof with the words "to a". (ii) The definition therein of the term "Initial NME Acquisition Closing" is amended in its entirety to read as follows:: "'INITIAL NME ACQUISITION CLOSING' means the consummation in accordance with the NME First Facilities Purchase Agreement of the purchase by the Company and the Domestic Guarantors from NME and its Subsidiaries of Facilities having at least the aggregate amount of results of operations described in Section 2.13(a) (ii) of the NME First Facilities Purchase Agreement (without giving effect to any amendment or other modification to such agreement, but after giving effect to any reductions to such amount pursuant to the proviso to such Section 2.13(a))." (ii) The definition therein of the term "NME Purchase Agreement" is deleted, and the following is inserted after the definition therein of the term "NME Acquisition": "'NME FIRST FACILITIES PURCHASE AGREEMENT' means the Asset Sale Agreement (First Facilities) dated as of March 29, 1994 between NME, as seller, and the Company, as purchaser (including, without limitation, the schedules and exhibits thereto), as the same may be amended, 3 supplemented or otherwise modified from time to time in accordance with Section 8.11. 'NME SUBSEQUENT FACILITIES PURCHASE AGREEMENT' means the Asset Sale Agreement (Subsequent Facilities) dated as of March 29, 1994 between NME, as seller, and the Company, as purchaser (including, without limitation, the schedules and exhibits thereto), as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 8.11. 'NME PURCHASE AGREEMENT' means the NME First Facilities Purchase Agreement and the NME Subsequent Facilities Purchase Agreement." Section 3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Agent and the Lenders that: (a) the execution and delivery by the Company of this Amendment and the performance by the Company of the Credit Agreement as amended hereby are within the Company's corporate powers, have been duly authorized by all necessary corporate or other action and will not (i) contravene the certificate or articles of incorporation or the bylaws of the Company, (ii) contravene any law, regulation, order, writ, judgment, decree, determination or award currently in effect binding on or affecting the Company or any of its assets, except where such contravention would not have a Material Adverse Effect, or (iii) will not conflict with or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (except pursuant to the Security Documents) upon any of the property or assets of the Company pursuant to the terms of, any indenture, mortgage, deed of trust, agreement or other instrument to which the Company is a party or by which the Company or any of its properties or assets is bound or subject to, except to the extent such conflict, breach, default or creation or imposition would not have a Material Adverse Effect; (b) this Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding 4 obligations of the Company, enforceable against the Company in accordance with their respective terms, except to the extent such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law); and (c) the schedules to the NME Purchase Agreement have not been amended or otherwise modified since March 29, 1994, and all such schedules (other than Schedule 2.13A which is being terminated) are the sole schedules to the New NME Purchase Agreements. Section 4. EFFECTIVENESS. This Amendment shall become effective when the Agent shall have received duly executed counterparts of this Amendment from the Company, the Subsidiaries of the Company that are parties to the Subsidiary Guaranty and as many of the Lenders as shall be necessary to comprise the "Required Lenders". Section 5. STATUS OF CREDIT DOCUMENTS. This Amendment is limited solely for the purposes and to the extent expressly set forth herein, and except as expressly modified hereby, the terms, provisions and conditions of the Credit Documents and the Liens granted thereunder shall continue in full force and effect and are hereby ratified and confirmed in all respects. Section 6. COUNTERPARTS. This Amendment may be executed and delivered in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Agent. Section 7. GOVERNING LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF). 5 IN WITNESS WHEREOF, the parties hereto have caused their respective duly authorized officers to execute and deliver this Amendment No. 1 to the Second Amended and Restated Credit Agreement as of the date first above written. CHARTER MEDICAL CORPORATION By: /s/ James R. Bedenbaugh -------------------------- Name: James R. Bedenbaugh Title: Treasurer BANKERS TRUST COMPANY, as Agent and a Lender By: /s/ Robert C. Megan -------------------------- Name: Robert C. Megan Title: Vice President FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Co-Agent and a Lender By: /s/John W. Ransom -------------------------- Name: John W. Ransom Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ R.A. Williamson -------------------------- Name: R.A. Williamson Title: Vice President Area Merchant Finance DRESDNER BANK AG, New York Branch and Cayman Branch By: /s/ A.M. Pistilli -------------------------- Name: A.M. Pistilli Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By: /s/ Brian G. Reynolds -------------------------- Name: Brian G. Reynolds Title: Senior Vice President THE MITSUBISHI BANK, LIMITED, New York Branch By: /s/ Hiroaki Fuchida -------------------------- Name: Hiroaki Fuchido Title: Vice President and Manager Consented and agreed to by each of the entities listed on Schedule I hereto: By: /s/ Charlotte A. Sanford ------------------------------ Name: Charlottte A. Sanford Title: Treasurer of each of the entities listed on Schedule I hereto or as Director of Charter Medical of England Limited 7 SCHEDULE I TO AMENDMENT NO.1 TO SECOND AMENDED & RESTATED CREDIT AGREEMENT DOMESTIC SUBSIDIARIES: ---------------------- 1. Ambulatory Resources, Inc. 2. Atlanta MOB, Inc. 3. Beltway Community Hospital, Inc. 4. CCM, Inc. 5. Charter Alvarado Behavioral Health System, Inc. 6. Charter Appalachian Hall Behavioral Health System, Inc. 7. Charter Arbor Indy Behavioral Health System, Inc. 8. Charter Augusta Behavioral Health System, Inc. 9. Charter Bay Harbor Behavioral Health System, Inc. 10. Charter Beacon Behavioral Health System, Inc. 11. Charter Behavioral Health System at Fair Oaks, Inc. 12. Charter Behavioral Health System at Hidden Brook, Inc. 13. Charter Behavioral Health System at Los Altos, Inc. 14. Charter Behavioral Health System at Potomac Ridge, Inc. 15. Charter Behavioral Health System at Warwick Manor, Inc. 16. Charter Behavioral Health System of Athens, Inc. 17. Charter Behavioral Health System of Austin, Inc. 18. Charter Behavioral Health System of Baywood, Inc. 19. Charter Behavioral Health System of Bradenton, Inc. 20. Charter Behavioral Health System of Canoga Park, Inc. 21. Charter Behavioral Health System of Central Georgia, Inc. 22. Charter Behavioral Health System of Charleston, Inc. 23. Charter Behavioral Health System of Charlottesville, Inc. 24. Charter Behavioral Health System of Chicago, Inc. 25. Charter Behavioral Health System of Chula Vista, Inc. 26. Charter Behavioral Health System of Columbia, Inc. 27. Charter Behavioral Health System of Corpus Christi, Inc. 28. Charter Behavioral Health System of Dallas, Inc. 29. Charter Behavioral Health System of Evansville, Inc. 30. Charter Behavioral Health System of Fort Worth, Inc. 31. Charter Behavioral Health System of Jackson, Inc. 32. Charter Behavioral Health System of Jacksonville, Inc. 33. Charter Behavioral Health System of Jefferson, Inc. 34. Charter Behavioral Health System of Kansas City, Inc. 35. Charter Behavioral Health System of Lafayette, Inc. 36. Charter Behavioral Health System of Lake Charles, Inc. 37. Charter Behavioral Health System of Lakewood, Inc. 38. Charter Behavioral Health System of Michigan City, Inc. 39. Charter Behavioral Health System of Mobile, Inc. 40. Charter Behavioral Health System of Nashua, Inc. Page 1 41. Charter Behavioral Health System of Nevada, Inc. 42. Charter Behavioral Health System of New Mexico, Inc. 43. Charter Behavioral Health System of Northern California, Inc. 44. Charter Behavioral Health System of Northwest Arkansas, Inc. 45. Charter Behavioral Health System of Northwest Indiana, Inc. 46. Charter Behavioral Health System of Paducah, Inc. 47. Charter Behavioral Health System of Rockford, Inc. 48. Charter Behavioral Health System of San Jose, Inc. 49. Charter Behavioral Health System of Savannah, Inc. 50. Charter Behavioral Health System of Southern California, Inc. 51. Charter Behavioral Health System of Tampa Bay, Inc. 52. Charter Behavioral Health System of Texarkana, Inc. 53. Charter Behavioral Health System of the Inland Empire, Inc. 54. Charter Behavioral Health System of Toledo, Inc. 55. Charter Behavioral Health System of Tucson, Inc. 56. Charter Behavioral Health System of Virginia Beach, Inc. 57. Charter Behavioral Health System of Visalia, Inc. 58. Charter Behavioral Health System of Washington D.C., Inc. 59. Charter Behavioral Health System of Waverly, Inc. 60. Charter Behavioral Health System of Winston-Salem, Inc. 61. Charter Behavioral Health System of Yorba Linda, Inc. 62. Charter Behavioral Health Systems of Atlanta, Inc. 63. Charter Brawner Behavioral Health System, Inc. 64. Charter Canyon Behavioral Health System, Inc. 65. Charter Canyon Springs Behavioral Health System, Inc. 66. Charter Centennial Peaks Behavioral Health System, Inc. 67. Charter Colonial Institute, Inc. 68. Charter Community Hospital, Inc. 69. Charter Community Hospital of Des Moines, Inc. 70. Charter Contract Services, Inc. 71. Charter Cove Forge Behavioral Health System, Inc. 72. Charter Crescent Pines Behavioral Health System, Inc. 73. Charter Fairbridge Behavioral Health System, Inc. 74. Charter Fairmount Behavioral Health System, Inc. 75. Charter Fenwick Hall Behavioral Health System, Inc. 76. Charter Financial Offices, Inc. 77. Charter Forest Behavioral Health System, Inc. 78. Charter Grapevine Behavioral Health System, Inc. 79. Charter Greensboro Behavioral Health System, Inc. 80. Charter Health Management of Texas, Inc. 81. Charter Hospital of Columbus, Inc. 82. Charter Hospital of Denver, Inc. 83. Charter Hospital of Ft. Collins, Inc. Page 2 84. Charter Hospital of Laredo, Inc. 85. Charter Hospital of Miami, Inc. 86. Charter Hospital of Mobile, Inc. 87. Charter Hospital of Northern New Jersey, Inc. 88. Charter Hospital of Santa Teresa, Inc. 89. Charter Hospital of St. Louis, Inc. 90. Charter Hospital of Torrance, Inc. 91. Charter Indianapolis Behavioral Health System, Inc. 92. Charter Lafayette Behavioral Health System, Inc. 93. Charter Lakehurst Behavioral Health System, Inc. 94. Charter Lakeside Behavioral Health System, Inc. 95. Charter Laurel Heights Behavioral Health System, Inc. 96. Charter Laurel Oaks Behavioral Health System, Inc. 97. Charter Linden Oaks Behavioral Health System, Inc. 98. Charter Little Rock Behavioral Health System, Inc. 99. Charter Louisville Behavioral Health System, Inc. 100. Charter Meadows Behavioral Health System, Inc. 101. Charter Medfield Behavioral Health System, Inc. 102. Charter Medical Executive Corporation 103. Charter Medical Information Services, Inc. 104. Charter Medical International, S.A., Inc. 105. Charter Medical Management Company 106. Charter Medical of East Valley, Inc. 107. Charter Medical of North Phoenix, Inc. 108. Charter Medical of Orange County, Inc. 109. Charter Medical - California, Inc. 110. Charter Medical - Clayton County, Inc. 111. Charter Medical - Cleveland, Inc. 112. Charter Medical - Dallas, Inc. 113. Charter Medical - Long Beach, Inc. 114. Charter Medical - New York, Inc. 115. Charter Medical Mental Health Options, Inc. 116. Charter Medical Mid-South Behavioral Health System, Inc. 117. Charter Milwaukee Behavioral Health System, Inc. 118. Charter Mission Viejo Behavioral Health System, Inc. 119. Charter MOB of Charlottesville, Inc. 120. Charter North Behavioral Health System, Inc. 121. Charter North Counseling Center, Inc. 122. Charter Northbrooke Behavioral Health System, Inc. 123. Charter Northridge Behavioral Health System, Inc. 124. Charter Northside Hospital, Inc. 125. Charter Oak Behavioral Health System, Inc. 126. Charter of Alabama, Inc. Page 3 127. Charter Palms Behavioral Health System, Inc. 128. Charter Peachford Behavioral Health System, Inc. 129. Charter Pines Behavioral Health System, Inc. 130. Charter Plains Behavioral Health System, Inc. 131. Charter Psychiatric Hospitals, Inc. 132. Charter Real Behavioral Health System, Inc. 133. Charter Regional Medical Center, Inc. 134. Charter Richmond Behavioral Health System, Inc. 135. Charter Ridge Behavioral Health System, Inc. 136. Charter Rivers Behavioral Health System, Inc. 137. Charter San Diego Behavioral Health System, Inc. 138. Charter Serenity Lodge Behavioral Health System, Inc. 139. Charter Sioux Falls Behavioral Health System, Inc. 140. Charter South Bend Behavioral Health System, Inc. 141. Charter Springs Behavioral Health System, Inc. 142. Charter Springwood Behavioral Health System, Inc. 143. Charter Surburban Hospital of Mesquite, Inc. 144. Charter Terre Haute Behavioral Health System, Inc. 145. Charter Thousand Oaks Behavioral Health System, Inc. 146. Charter Tidewater Behavioral Health System, Inc. 147. Charter Treatment Center of Michigan, Inc. 148. Charter Westbrook Behavioral Health System, Inc. 149. Charter White Oak Behavioral Health System, Inc. 150. Charter Wichita Behavioral Health System, Inc. 151. Charter Woods Behavioral Health System, Inc. 152. Charter Woods Hospital, Inc. 153. Charter-Provo School, Inc. 154. Charterton/LaGrange, Inc. 155. Charter-By-The-Sea Behavioral Health System, Inc. 156. CMCI, Inc. 157. CMFC, Inc. 158. CMSF, Inc. 159. CPS Associates, Inc. 160. C.A.C.O. Services, Inc. 161. Desert Springs Hospital, Inc. 162. Employee Assistance Services, Inc. 163. Florida Health Facilities, Inc. 164. Gulf Coast EAP Services, Inc. 165. Gwinnett Immediate Care Center, Inc. 166. HCS, Inc. 167. Holcomb Bridge Immediate Care Center, Inc. 168. Hospital Investors, Inc. 169. Mandarin Meadows, Inc. Page 4 170. Metropolitan Hospital, Inc. 171. Middle Georgia Hospital, Inc. 172. Pacific-Charter Medical, Inc. 173. Peachford Professional Network, Inc. 174. Rivoli, Inc. 175. Shallowford Community Hospital, Inc. 176. Sistemas De Terapia Respiratoria S.A., Inc. 177. Stuart Circle Hospital Corporation 178. Tampa Bay Behavioral Health Alliance, Inc. 179. Western Behavioral Systems, Inc. 180. Schizophrenia Treatment and Rehabilitation, Inc. FOREIGN SUBSIDIARIES: - --------------------- 1. Charter Medical (Cayman Islands) Ltd. 2. Charter Medical International, Inc. 3. Charter Medical of England Limited 4. Charter Medical of Puerto Rico, Inc. Page 5 EX-11 5 EXHIBIT 11 EXHIBIT 11 CHARTER MEDICAL CORPORATION AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Earnings (Loss) per common share were calculated using the weighted average of common stock shares outstanding. Common stock equivalents would have been antidilutive, and were therefore not included in the calculation. Earnings per common share and common equivalent share and Earnings per common share assuming full dilution were calculated using the weighted average of common shares outstanding and common stock equivalents (stock options and warrants) assumed outstanding during the year.
FOR THE TWO MONTHS ACTUAL ENDED FOR THE YEAR ENDED FOR THE SIX MONTHS SEPTEMBER 30, 1992 SEPTEMBER 30, 1993 ENDED MARCH 31, ------------------ ---------------------- ---------------------- ACTUAL ACTUAL PRO FORMA 1993 1994 ------------------ --------- --------- --------- --------- (IN THOUSANDS) Loss from continuing operations before extraordinary item............................... $ (8,126) $ (39,620) $ (5,206) $ (20,907) $ (2,743) Income (Loss) from discontinued operations and gain on disposal of discontinued operations...... 930 (4,046) 0 (6,008) 0 ------- --------- --------- --------- --------- Loss before extraordinary item.................... (7,196) (43,666) (5,206) (26,915) (2,743) Extraordinary loss on early extinguishment of debt.......................................... 0 (8,561) 0 0 0 ------- --------- --------- --------- --------- Net loss.......................................... $ (7,196) $ (52,227) $ (5,206) $ (26,915) $ (2,743) ------- --------- --------- --------- --------- ------- --------- --------- --------- --------- Weighted average number of common shares outstanding............................... 24,828 24,875 24,875 24,842 25,936 ------- --------- --------- --------- --------- ------- --------- --------- --------- --------- Earnings (Loss) per common share: Loss from continuing operations before extraordinary items............................ $ (0.33) $ (1.59) $ (0.21) $ (0.84) $ (0.11) --------- --------- Income (Loss) from discontinued operations and gain on disposal of discontinued operations...... 0.04 (0.16) (0.24) 0.00 ------- --------- --------- --------- Loss before extraordinary item.................... (0.29) (1.75) (1.08) (0.11) Extraordinary loss on early extinguishment of debt.......................................... 0.00 (0.35) 0.00 0.00 ------- --------- --------- --------- Net loss.......................................... $ (0.29) $ (2.10) $ (1.08) $ (0.11) ------- --------- --------- --------- ------- --------- --------- ---------
PRO FORMA FOR THE SIX MONTHS ENDED MARCH 31, 1994 -------------- Income from continuing operations................................................................. $ 1,402 ------- ------- Weighted average number of common shares outstanding.............................................. 25,936 Incremental shares -- Stock options and warrants.................................................. 1,399 ------- Total for Earnings per common share and common equivalent share................................... 27,335 Incremental shares -- Stock options and warrants.................................................. 15 ------- Total for Earnings per common share assuming full dilution........................................ 27,350 ------- ------- Earnings per common share and common equivalent share............................................. $ 0.05 ------- ------- Earnings per common share assuming full dilution.................................................. $ 0.05 ------- -------
EX-21.A 6 EXHIBIT 21(A)
State of Corporation Name Jurisdiction Doing-Business-As Name - ------------------------------------------------------------------------------------------------------------------------------------ Ambulatory Resource, Inc. Georgia Atlanta MOB, Inc. Georgia Beltway Community Hospital, Inc. Texas C.A.C.O. Service, Inc. Ohio CCM, Inc. Nevada Charter of Alabama, Inc. Alabama Charter Alvarado Behavioral Health System, Inc. California Charter Appalachian Hall Behavioral Health System, Inc. North Carolina Charter Arbor Indy Behavioral Health System, Inc. Indiana Charter Behavioral Health System of Indiana at Arbor Charter Behavioral Health System of Indiana Charter Augusta Behavioral Health System, Inc. Georgia Charter Hospital of Augusta Charter Bay Harbor Behavioral Health System, Inc. Florida Charter Behavioral Health System at Bay Harbor Charter Beacon Behavioral Health System, Inc. Indiana Charter Beacon Hospital Charter Behavioral Health System of Indiana Charter Behavioral Health System of Athens, Inc. Georgia Charter Winds Hospital Charter Behavioral Health Systems of Atlanta, Inc. Georgia Charter Behavioral Health System of Atlanta at Midtown Charter Behavioral Health System of Austin, Inc. Texas Charter Hospital of Austin Charter Behavioral Health System of Baywood, Inc. Texas Charter Behavioral Health System of Clear Lake Charter Behavioral Health System of Bradenton, Inc. Florida Charter Behavioral Health System at Manatee Palms Charter Behavioral Health System of Canoga Park, Inc. California Charter Behavioral Health System of Central Georgia, Inc. Georgia Charter Lake Hospital Charter Behavioral Health System of Charleston, Inc. South Carolina Charter Hospital of Charleston Charter Behavioral Health System of Charlottesville, Inc. Virginia Charter Hospital of Charlottesville Charter Behavioral Health System of Chicago, Inc. Illinois Charter Barclay Hospital Charter Behavioral Health System of Chula Vista, Inc. California Charter Behavioral Health System of Columbia, Inc. Missouri Charter Hospital of Columbia Charter Behavioral Health System of Corpus Christi, Inc. Texas Charter Hospital of Corpus Christi Charter Behavioral Health System of Dallas, Inc. Texas Charter Hospital of Dallas Charter Behavioral Health System of Evansville, Inc. Indiana Charter Behavioral Health System of Indiana/Evansville Charter Behavioral Health System of Indiana Charter Behavioral Health System at Fair Oaks, Inc. New Jersey Charter Behavioral Health System of Summitt Charter Behavioral Health System of Fort Worth, Inc. Texas Charter Hospital of Fort Worth Charter Behavioral Health System at Hidden Brook, Inc. Maryland Charter Behavioral Health System of the Inland Empire, Inc. California Charter Hospital of Corona Charter Behavioral Health System of Southern California Charter Behavioral Health System of Southern California/Corona Charter Behavioral Health System of Jackson, Inc. Mississippi Charter Hospital of Jackson Charter Behavioral Health System of Jacksonville, Inc. Florida Charter Hospital of Jacksonville Charter Behavioral Health System of Jefferson, Inc. Indiana Charter Behavioral Health System of Indiana at Jefferson Charter Behavioral Health System of Indiana Charter Behavioral Health System of Kansas City, Inc. Kansas Charter Hospital of Overland Park Charter Behavioral Health System of Lafayette, Inc. Louisiana Charter Behavioral Health System at Acadian Oaks State of Corporation Name Jurisdiction Doing-Business-As Name - ------------------------------------------------------------------------------------------------------------------------------------ Charter Behavioral Health System of Lake Charles, Inc. Louisiana Charter Hospital of Lake Charles Charter Behavioral Health System of Lakewood, Inc. California Charter Behavioral Health System at Los Altos, Inc. California Charter Behavioral Health System of Michigan City, Inc. Indiana Charter Behavioral Health System of Indiana/Michigan City Charter Behavioral Health System of Indiana Charter Behavioral Health System of Mobile, Inc. Alabama Charter Hospital of Mobile Charter Behavioral Health System of Nashua, Inc. New Hampshire Charter Behavioral Health System of New England at Brookside Charter Behavioral Health System of Nevada, Inc. Nevada Charter Hospital of Las Vegas Charter Behavioral Health System of New Mexico, Inc. New Mexico Charter Hospital of Albuquerque Charter Behavioral Health System of Northern California, Inc. California Charter Hospital of Sacramento Charter Behavioral Health System of Northwest Arkansas, Inc. Arkansas Charter Vista Hospital Charter Behavioral Health System of Northwest Indiana, Inc. Indiana Charter Hospital of Northwest Indiana Charter Behavioral Health System of Indiana Charter Behavioral Health System of Paducah, Inc. Kentucky Charter Hospital of Paducah Charter Behavioral Health System at Potomac Ridge, Inc. Maryland Charter Behavioral Health System of Rockford, Inc. Illinois Charter Behavioral Health System of San Jose, Inc. California Charter Behavioral Health System of Savannah, Inc. Georgia Charter Hospital of Savannah Charter Behavioral Health System of Southern California, Inc. California Charter Behavioral Health System of Tampa Bay, Inc. Florida Charter Hospital of Tampa Bay Charter Behavioral Health System of Texarkana, Inc. Arkansas Charter Behavioral Health System of Toledo, Inc. Ohio Charter Hospital of Toledo Charter Behavioral Health System of Tucson, Inc. Arizona Charter Behavioral Health System of Arizona/Tucson Charter Behavioral Health System of Virginia Beach, Inc. Virginia Charter Behavioral Health System of Visalla, Inc. California Charter Behavioral Health System at Warwick Manor, Inc. Maryland Charter Behavioral Health System of Washington, D.C., Inc. District of Columbia Charter Behavioral Health System of Waverly, Inc. Minnesota Charter Behavioral Health System of Winston -- Salem, Inc. North Carolina Charter Hospital of Winston -- Salem Charter Behavioral Health System of Yorba Linda, Inc. California Charter Brawner Behavioral Health System, Inc. Georgia Charter Behavioral Health System of Atlanta at Brawner Charter Behavioral Health System of Atlanta Charter-By-The-Sea Behavioral Health System, Inc. Georgia Charter-By-The-Sea Charter Health Center Charter Canyon Behavioral Health System, Inc. Utah Charter Canyon Hospital Charter Canyon Springs Behavioral Health System, Inc. California Charter Centennial Peaks Behavioral Health System, Inc. Colorado Charter Behavioral Health System at Centennial Peaks Charter Colonial Institute, Inc. Virginia Charter Community Hospital, Inc. California Charter Community Hospital of Des Moines, Inc. Iowa Charter Contract Services, Inc. Georgia Charter Cove Forge Behavioral Health System, Inc. Pennsylvania Charter Behavioral Health System at Cove Forge Charter Crescent Pines Behavioral Health System, Inc. Georgia Charter Behavioral Health System of Atlanta at Crescent Pines Charter Behavioral Health System of Atlanta State of Corporation Name Jurisdiction Doing-Business-As Name - ------------------------------------------------------------------------------------------------------------------------------------ Charter Fairbridge Behavioral Health System, Inc. Maryland Charter Behavioral Health System at Fairbridge Charter Fairmount Behavioral Health System, Inc. Pennsylvania The Fairmount Institute Charter Fairmont Institute Charter Hospital of Kingwood Charter Behavioral Health System of Kingwood Charter Fenwick Hall Behavioral Health System, Inc. South Carolina Charter Financial Offices, Inc. Georgia Charter Forest Behavioral Health System, Inc. Louisiana Charter Forest Hospital Charter Grapevine Behavioral Health System, Inc. Texas Charter Hospital of Grapevine Charter Greensboro Behavioral Health System, Inc. North Carolina Charter Hospital of Greensboro Charter Behavioral Health System of Greensboro Charter Health Management of Texas, Inc. Texas Charter Hospital of Columbus, Inc. Ohio Charter Hospital of Denver, Inc. Colorado Charter Hospital of Ft. Collins, Inc. Colorado Charter Hospital of Laredo, Inc. Texas Charter Hospital of Miami, Inc. Florida Charter Behavioral Health System of South Florida Charter Hospital of Mobile, Inc. Alabama Charter Academy of Mobile Charter Hospital of Northern New Jersey, Inc. New Jersey Charter Hospital of Santa Teresa, Inc. New Mexico Charter Hospital of St. Louis, Inc. Missouri Charter Hospital Orlando South Charter Behavioral Health System of Orlando Charter Behavioral Health System Orlando South Charter Hospital of Greenville Charter Greenville Behavioral Health System Charter Hospital of Torrance, Inc. California Charter Indianapolis Behavioral Health System, Inc. Indiana Charter Hospital of Indianapolis Charter Behavioral Health System of Indiana Charter Lafayette Behavioral Health System, Inc. Indiana Charter Hospital Lafayette Charter Behavorial Health System of Indiana Charter Lakehurst Behavioral Health System, Inc. New Jersey Charter Behavioral Health System of Lakehurst Charter Lakeside Behavioral Health System, Inc. Tennessee Charter Lakeside Hospital Charter Hospital of Sugarland Charter Behavioral Health System of Sugarland Charter Laurel Heights Behavioral Health System, Inc. Georgia Charter Behavioral Health System of Atlanta at Laurel Heights Charter Behavioral Health System of Atlanta Charter Laurel Oaks Behavioral Health System, Inc. Florida Charter Behavioral Health System at Laurel Oaks Charter Linden Oaks Behavioral Health System, Inc. Illinois Charter Behavioral Health System at Linden Oaks Charter Little Rock Behavioral Health System, Inc. Arkansas Charter Hospital of Little Rock Charter Behavioral Health System of Little Rock Charter Louisville Behavioral Health System, Inc. Kentucky Charter Hospital of Louisville Charter Meadows Behavioral Health System, Inc. Maryland Charter Behavioral Health System at Meadows
State of Corporation Name Jurisdiction Doing-Business-As Name - ---------------------------------------------------------------------------------------------------------------------------------- Charter Medfield Behavioral Health System, Inc. Florida Charter Behavioral Health System at Medfield Charter Medical - California, Inc. Georgia Charter Medical (Cayman Islands)Ltd. Cayman Islands,B.W.I. Charter Medical - Clayton County, Inc. Georgia Charter Medical - Cleveland, Inc. Texas Charter Medical - Dallas, Inc. Texas Charter Medical of East Valley, Inc. Arizona Charter Hospital of the East Valley Charter Behavioral Health System of Arizona Charter Behavioral Health System of Arizona/East Valley Charter Medical of England Limited United Kingdom Charter Clinic Chelsea Charter Nightingale Charter Medical Executive Corporation Georgia Charter Medical of Florida, Inc. Florida Charter Medical Information Services, Inc. Georgia Charter Medical International, Inc. Cayman Islands, B.W.I. Charter Medical International, S.A., Inc. Nevada Charter Medical - Long Beach, Inc. California Charter Hospital of Long Beach Charter Behavioral Health System of Southern California Charter Behavioral Health System of Southern California/Long Beach Charter Medical Management Company Georgia Charter Medical - New York, Inc. New York Charter Medical of North Phoenix, Inc. Arizona Charter Hospital of Glendale Charter Behavioral Health System of Arizona Charter Behavioral Health System of Arizona/Glendale Charter Medical of Orange County, Inc. Florida Charter Medical of Puerto Rico, Inc. Puerto Rico Charter Mental Health Options, Inc. Florida Charter Mid-South Behavioral Health System, Inc. Tennessee Charter Behavioral Health System at Mid-South Charter Milwaukee Behavioral Health System, Inc. Wisconsin Charter Hospital of Milwaukee Charter Behavioral Health System of Milwaukee/West Allis Charter Mission Viejo Behavioral Health System, Inc. California Charter Hospital of Mission Viejo Charter Behavioral Health System of Southern California/Mission Viejo Charter MOB of Charlottesville, Inc. Virginia Charter North Behavioral Health System, Inc. Alaska Charter North Hospital Charter North Counseling Center, Inc. Alaska State of Corporation Name Jurisdiction Doing-Business-As Name - ---------------------------------------------------------------------------------------------------------------------------------- Charter Northbrooke Behavioral Health System, Inc. Wisconsin Charter Northridge Behavioral Health System, Inc. North Carolina Charter Northridge Hospital Charter Northside Hospital, Inc. Georgia Charter Oak Behavioral Health System, Inc. California Charter Oak Hospital Charter Behavioral Health System of Southern California/Oak Charter Palms Behavioral Health System, Inc. Texas Charter Palms Hospital Charter Peachford Behavioral Health System, Inc. Georgia Charter Peachford Hospital Charter Behavioral Health System of Atlanta Charter Behavioral Health System of Atlanta at Peachford Charter Pines Behavioral Health System, Inc. North Carolina Charter Pines Hospital Charter Plains Behavioral Health System, Inc. Texas Charter Plains Hospital Charter Provo - School, Inc. Utah Provo Canyon School Charter Provo Canyon School Charter Psychiatric Hospitals, Inc. Delaware Charter Real Behavioral Health System, Inc. Texas Charter Real Hospital Charter Regional Medical Center, Inc. Texas Charter Richmond Behavioral Health System, Inc. Virginia Charter Behavioral Health System of Richmond Charter Ridge Behavioral Health System, Inc. Kentucky Charter Ridge Hospital Charter Rivers Behavioral Health System, Inc. South Carolina Charter Rivers Hospital Charter San Diego Behavioral Health System, Inc. California Charter Hospital of San Diego Charter Behavioral Health System of San Diego Charter Serenity Lodge Behavioral Health System, Inc. Virginia Charter Sioux Falls Behavioral Health System, Inc. South Dakota Charter Hospital of Sioux Falls Charter South Bend Behavioral Health System, Inc. Indiana Charter Hospital of South Bend Charter Behavioral Health System of Indiana Charter Springs Behavioral Health System, Inc. Florida Charter Springs Hospital Charter Springwood Behavioral Health System, Inc. Virginia Charter Behavioral Health System at Springwood Charter Suburban Hospital of Mesquite, Inc. Texas Charter Terre Haute Behavioral Health System, Inc. Indiana Charter Hospital of Terre Haute Charter Behavioral Health System of Indiana Charter Thousand Oaks Behavioral Health System, Inc. California Charter Hospital of Thousand Oaks Charter Behavioral Health System of Southern California/Thousand Oaks Charter Tidewater Behavioral Health System, Inc. Virginia Charterton/LaGrange, Inc. Kentucky Charter Treatment Center of Michigan, Inc. Michigan Charter Westbrook Behavioral Health System, Inc. Virginia Charter Westbrook Hospital Charter White Oak Behavioral Health System, Inc. Maryland Charter Behavioral Health System at White Oak Charter Wichita Behavioral Health System, Inc. Kansas Charter Hospital of Wichita Charter Woods Behavioral Health System, Inc. Alabama Charter Woods Hospital State of Corporation Name Jurisdiction Doing-Business-As Name - ---------------------------------------------------------------------------------------------------------------------------------- Charter Woods Hospital, Inc. Alabama CMCI, Inc. Nevada CMFC, Inc. Nevada CMSF, Inc. Florida Charter Glade Hospital Charter Glade Behavioral Health System CPS Associates, Inc. Virginia Desert Springs Hospital, Inc. Nevada Employee Assistance Services, Inc. Georgia Florida Health Facilities, Inc. Florida Charter Hospital of Pasco Charter Behavioral Health System of Tampa Bay/Pasco Golden Isle Assurance Company Ltd. Bermuda GPA NovaPsy Clinic, Inc. Virginia Group Practice Affiliates, Inc. Delaware Gulf Coast EAP Services, Inc. Alabama Gwinnette Immediate Care Center, Inc. Georgia HCS, Inc. Georgia Holcomb Bridge Immediate Care Center, Inc. Georgia Hospital Investors, Inc. Georgia Mandarin Meadows, Inc. Florida Metropolitan Hospital, Inc. Georgia Middle Georgia Hospital, Inc. Georgia NEPA - Massachusetts, Inc. Massachusetts NEPA - New Hampshire New Hampshire Pacific - Charter Medical, Inc. California Peachford Professional Network, Inc. Georgia Plymouth Insurance Company, Ltd. Bermuda Rivoli, Inc. Georgia Schizophrenia Treatment and Rehabilitation, Inc. Georgia STAR Shallowford Community Hospital, Inc. Georgia Sistemas De Terapia Respiratoria S.A., Inc. Georgia Societe Anonyme De La Metaire Switzerland La Metairie Clinic Strategic Advantage, Inc. Minnesota Stuart Circle Hospital Corporation Virginia Tampa Bay Behavioral Health Alliance, Inc. Florida Western Behavioral Systems, Inc. California GPA Management of Virginia, Inc. Virginia
EX-23.A 7 EXHIBIT 23(A) EXHIBIT 23(A) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated November 15, 1993 (except with respect to the matters discussed in Notes 14 and 15, as to which the date is June 30, 1994) for Charter Medical Corporation (and to all references to our firm) included in or made a part of this registration statement (File No. 33-53701). /s/_Arthur Andersen & Co. -------------------------------------- Atlanta, Georgia June 30, 1994 EX-23.B 8 EXHIBIT 23(B) EXHIBIT 23B ACCOUNTANTS' CONSENT The Boards of Directors Charter Medical Corporation and National Medical Enterprises, Inc. Our report, dated July 19, 1993 except as to Note 9, which is as of April 14, 1994, and Note 10, which is as of May 13, 1994, was qualified for the effects on the combined financial statements of such adjustments, if any, as might be necessary had the Company been able to determine the amount of the settlements and agreements described in Note 9 to the combined financial statements that are applicable to the Selected Psychiatric Hospitals. We consent to the use of our qualified reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick -------------------------------------- Los Angeles, California May 17, 1994 EX-24.A 9 EXHIBIT 24(A) POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 27th day of June, 1994. /s/ Kimberly H. Littrell _______________________________________ Kimberly H. Littrell EXHIBIT A POWER OF ATTORNEY KIMBERLY H. LITTRELL Schizophrenia Treatment and Rehabilitation, Inc....President & CEO POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Jon C. O'Shaughnessy _______________________________________ Jon C. O'Shaughnessy EXHIBIT A POWER OF ATTORNEY JON C. O'SHAUGHNESSY CMSF, Inc...................................................President CPS Associates, Inc.........................................President Charter Behavioral Health System of Charlottesville, Inc...................................President Charter Behavioral Health System of Winston-Salem, Inc.....................................President Charter Fairmount Behavioral Health System, Inc.............President Charter Greensboro Behavioral Health System, Inc............President Charter Hospital of Miami, Inc..............................President Charter Lakeside Behavioral Health System, Inc..............President Charter MOB of Charlottesville, Inc.........................President Charter Northridge Behavioral Health System, Inc............President Charter Peachford Behavioral Health System, Inc.............President Charter Pines Behavioral Health System, Inc.................President Charter Springs Behavioral Health System, Inc...............President Charter Westbrook Behavioral Health System, Inc.............President Florida Health Facilities, Inc..............................President Peachford Professional Network, Inc.........................President Charter Medical of Florida, Inc.............................President POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Charlotte A. Sanford _______________________________________ Charlotte A. Sanford EXHIBIT A POWER OF ATTORNEY CHARLOTTE A. SANFORD Ambulatory Resources, Inc. . . . . . . . . . . . . . . . . . . . . Treasurer Atlanta MOB, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Beltway Community Hospital, Inc. . . . . . . . . . . . . . . . . . Treasurer CCM, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Alvarado Behavioral Health System, Inc.. . . . . . . . . . Treasurer Charter Appalachian Hall Behavioral Health System, Inc.. . . . . . Treasurer Charter Arbor Indy Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Augusta Behavioral Health System, Inc. . . . . . . . . . . Treasurer Charter Bay Harbor Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Beacon Behavioral Health System, Inc.. . . . . . . . . . . Treasurer Charter Behavioral Health System at Fair Oaks, Inc.. . . . . . . . Treasurer Charter Behavioral Health System at Hidden Brook, Inc. . . . . . . Treasurer Charter Behavioral Health System at Los Altos, Inc.. . . . . . . . Treasurer Charter Behavioral Health System at Potomac Ridge, Inc.. . . . . . Treasurer Charter Behavioral Health System at Warwick Manor, Inc.. . . . . . Treasurer Charter Behavioral Health System of Athens, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Austin, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Baywood, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Bradenton, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of Canoga Park, Inc.. . . . . . . Treasurer Charter Behavioral Health System of Central Georgia, Inc.. . . . . Treasurer Charter Behavioral Health System of Charleston, Inc. . . . . . . . Treasurer Charter Behavioral Health System of Charlottesville, Inc.. . . . . Treasurer Charter Behavioral Health System of Chicago, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Chula Vista, Inc.. . . . . . . Treasurer Charter Behavioral Health System of Columbia, Inc. . . . . . . . . Treasurer Charter Behavioral Health System of Corpus Christi, Inc. . . . . . Treasurer Charter Behavioral Health System of Dallas, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Evansville, Inc. . . . . . . . Treasurer Charter Behavioral Health System of Ft. Worth, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of Jackson, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Jacksonville, Inc. . . . . . . Treasurer Charter Behavioral Health System of Jefferson, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of Kansas City, Inc.. . . . . . . Treasurer Charter Behavioral Health System of Lafayette, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of Lake Charles, Inc. . . . . . . Treasurer Charter Behavioral Health System of Lakewood, Inc. . . . . . . . . Treasurer Charter Behavioral Health System of Michigan City, Inc.. . . . . . Treasurer Charter Behavioral Health System of Mobile, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Nashua, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Nevada, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of New Mexico, Inc. . . . . . . . Treasurer Charter Behavioral Health System of Northern California, Inc.. . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Northwest Arkansas, Inc.. . . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Northwest Indiana, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Paducah, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Rockford, Inc. . . . . . . . . Treasurer Charter Behavioral Health System of San Jose, Inc. . . . . . . . . Treasurer Charter Behavioral Health System of Southern California, Inc.. . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Tampa Bay, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of Texarkana, Inc.. . . . . . . . Treasurer Charter Behavioral Health System of the Inland Empire, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Toledo, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Tucson, Inc. . . . . . . . . . Treasurer Charter Behavioral Health System of Virginia Beach, Inc. . . . . . Treasurer Charter Behavioral Health System of Visalia, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Washington, D.C., Inc. . . . . Treasurer Charter Behavioral Health System of Waverly, Inc.. . . . . . . . . Treasurer Charter Behavioral Health System of Winston-Salem, Inc.. . . . . . Treasurer Charter Behavioral Health System of Yorba Linda, Inc.. . . . . . . Treasurer Charter Behavioral Health System of Atlanta, Inc.. . . . . . . . . Treasurer Charter Brawner Behavioral Health System, Inc. . . . . . . . . . . Treasurer Charter Canyon Behavioral Health System, Inc.. . . . . . . . . . . Treasurer Charter Canyon Springs Behavioral Health System, Inc.. . . . . . . Treasurer Charter Centennial Peaks Behavioral Health System, Inc.. . . . . . Treasurer Charter Colonial Institute, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Community Hospital, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Community Hospital of Des Moines, Inc. . . . . . . . . . . Treasurer Charter Contract Services, Inc.. . . . . . . . . . . . . . . . . . Treasurer Charter Cove Forge Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Crescent Pines Behavioral Health System, Inc.. . . . . . . Treasurer Charter Fairbridge Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Fairmount Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Fenwick Hall Behavioral Health System, Inc.. . . . . . . . Treasurer Charter Financial Offices, Inc.. . . . . . . . . . . . . . . . . . Treasurer Charter Forest Behavioral Health System, Inc.. . . . . . . . . . . Treasurer Charter Grapevine Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Greensboro Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Health Management of Texas, Inc. . . . . . . . . . . . . . Treasurer Charter Hospital of Columbus, Inc. . . . . . . . . . . . . . . . . Treasurer Charter Hospital of Denver, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Hospital of Ft. Collins, Inc.. . . . . . . . . . . . . . . Treasurer Charter Hospital of Laredo, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Hospital of Miami, Inc.. . . . . . . . . . . . . . . . . . Treasurer Charter Hospital of Mobile, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Hospital of Northern New Jersey, Inc.. . . . . . . . . . . Treasurer Charter Hospital of Santa Teresa, Inc. . . . . . . . . . . . . . . Treasurer Charter Behavioral Health System of Savannah, Inc. . . . . . . . . Treasurer Charter Hospital of St. Louis, Inc.. . . . . . . . . . . . . . . . Treasurer Charter Hospital of Torrance, Inc. . . . . . . . . . . . . . . . . Treasurer Charter Indianapolis Behavior Health System, Inc.. . . . . . . . . Treasurer Charter Lafayette Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Lakehurst Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Lakeside Behavioral Health System, Inc.. . . . . . . . . . Treasurer Charter Laurel Heights Behavioral Health System, Inc.. . . . . . . Treasurer Page 2 Charter Laurel Oaks Behavioral Health System, Inc. . . . . . . . . Treasurer Charter Linden Oaks Behavioral Health System, Inc. . . . . . . . . Treasurer Charter Little Rock Behavioral Health System, Inc. . . . . . . . . Treasurer Charter Louisville Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Meadows Behavioral Health System, Inc. . . . . . . . . . . Treasurer Charter Medfield Behavioral Health System, Inc.. . . . . . . . . . Treasurer Charter Medical Executive Corporation. . . . . . . . . . . . . . . Treasurer Charter Medical Information Services, Inc. . . . . . . . . . . . . Treasurer Charter Medical International, S.A., Inc.. . . . . . . . . . . . . Treasurer Charter Medical Management Company . . . . . . . . . . . . . . . . Treasurer Charter Medical of East Valley, Inc. . . . . . . . . . . . . . . . Treasurer Charter Medical of North Phoenix, Inc. . . . . . . . . . . . . . . Treasurer Charter Medical of Orange County, Inc. . . . . . . . . . . . . . . Treasurer Charter Medical - California, Inc. . . . . . . . . . . . . . . . . Treasurer Charter Medical - Clayton County, Inc. . . . . . . . . . . . . . . Treasurer Charter Medical - Cleveland, Inc.. . . . . . . . . . . . . . . . . Treasurer Charter Medical - Dallas, Inc. . . . . . . . . . . . . . . . . . . Treasurer Charter Medical - Long Beach, Inc. . . . . . . . . . . . . . . . . Treasurer Charter Medical - New York, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Mental Health Options, Inc.. . . . . . . . . . . . . . . . Treasurer Charter Mid-South Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Milwaukee Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Mission Viejo Behavioral Health System, Inc. . . . . . . . Treasurer Charter MOB of Charlottesville, Inc. . . . . . . . . . . . . . . . Treasurer Charter North Behavioral Health System, Inc. . . . . . . . . . . . Treasurer Charter North Counseling Center, Inc.. . . . . . . . . . . . . . . Treasurer Charter Northbrooke Behavioral Health System, Inc. . . . . . . . . Treasurer Charter Northridge Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Northside Hospital, Inc. . . . . . . . . . . . . . . . . . Treasurer Charter Oak Behavioral Health System, Inc. . . . . . . . . . . . . Treasurer Charter of Alabama, Inc. . . . . . . . . . . . . . . . . . . . . . Treasurer Charter Palms Behavioral Health System, Inc. . . . . . . . . . . . Treasurer Charter Peachford Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Pines Behavioral Health System, Inc. . . . . . . . . . . . Treasurer Charter Plains Behavioral Health System, Inc.. . . . . . . . . . . Treasurer Charter Psychiatric Hospitals, Inc.. . . . . . . . . . . . . . . . Treasurer Charter Real Behavioral Health System, Inc.. . . . . . . . . . . . Treasurer Charter Regional Medical Center, Inc.. . . . . . . . . . . . . . . Treasurer Charter Richmond Behavioral Health System, Inc.. . . . . . . . . . Treasurer Charter Ridge Behavioral Health System, Inc. . . . . . . . . . . . Treasurer Charter Rivers Behavioral Health System, Inc.. . . . . . . . . . . Treasurer Charter San Diego Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Serenity Lodge Behavioral Health System, Inc.. . . . . . . Treasurer Charter Sioux Falls Behavioral Health System, Inc. . . . . . . . . Treasurer Charter South Bend Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Springs Behavioral Health System, Inc. . . . . . . . . . . Treasurer Charter Springwood Behavioral Health System, Inc.. . . . . . . . . Treasurer Charter Surburban Hospital of Mesquite, Inc. . . . . . . . . . . . Treasurer Charter Terre Haute Behavioral Health System, Inc. . . . . . . . . Treasurer Charter Thousand Oaks Behavioral Health System, Inc. . . . . . . . Treasurer Charter Tidewater Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Treatment Center of Michigan, Inc. . . . . . . . . . . . . Treasurer Charter Westbrook Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Western Behavioral Health System, Inc. . . . . . . . . . . Treasurer Page 3 Charter White Oak Behavioral Health System, Inc. . . . . . . . . . Treasurer Charter Wichita Behavioral Health System, Inc. . . . . . . . . . . Treasurer Charter Woods Behavioral Health System, Inc. . . . . . . . . . . . Treasurer Charter Woods Hospital, Inc. . . . . . . . . . . . . . . . . . . . Treasurer Charter - Provo School, Inc. . . . . . . . . . . . . . . . . . . . Treasurer Charterton/LaGrange, Inc.. . . . . . . . . . . . . . . . . . . . . Treasurer Charter-By-The-Sea Behavioral Health System, Inc.. . . . . . . . . Treasurer CMCI, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer CMFC, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer CMSF, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer CPS Associates, Inc. . . . . . . . . . . . . . . . . . . . . . . . Treasurer C.A.C.O. Services, Inc.. . . . . . . . . . . . . . . . . . . . . . Treasurer Desert Springs Hospital, Inc.. . . . . . . . . . . . . . . . . . . Treasurer Employee Assistance Services, Inc. . . . . . . . . . . . . . . . . Treasurer Florida Health Facilities, Inc.. . . . . . . . . . . . . . . . . . Treasurer Gulf Coast EAP Services, Inc.. . . . . . . . . . . . . . . . . . . Treasurer Gwinnett Immediate Care Center, Inc. . . . . . . . . . . . . . . . Treasurer HCS, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Holcomb Bridge Immediate Care Center, Inc. . . . . . . . . . . . . Treasurer Hospital Investors, Inc. . . . . . . . . . . . . . . . . . . . . . Treasurer Mandarin Meadows, Inc. . . . . . . . . . . . . . . . . . . . . . . Treasurer Metropolitan Hospital, Inc.. . . . . . . . . . . . . . . . . . . . Treasurer Middle Georgia Hospital, Inc.. . . . . . . . . . . . . . . . . . . Treasurer Pacific - Charter Medical, Inc.. . . . . . . . . . . . . . . . . . Treasurer Peachford Professional Network, Inc. . . . . . . . . . . . . . . . Treasurer Rivoli, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . Treasurer Shallowford Community Hospital, Inc. . . . . . . . . . . . . . . . Treasurer Sistemas De Terapia Respiratoria S.A., Inc.. . . . . . . . . . . . Treasurer Stuart Circle Hospital Corporation . . . . . . . . . . . . . . . . Treasurer Western Behavioral System, Inc.. . . . . . . . . . . . . . . . . . Treasurer Carter Medical (Cayman Islands) Ltd. . . . . . . . . . . . . . . . Treasurer Charter Medical International, Inc.. . . . . . . . . . . . . . . . Treasurer Charter Medical of England Limited . . . . . . . . . . . . . . . . Treasurer Charter Medical of Puerto Rico, Inc. . . . . . . . . . . . . . . . Treasurer Schizophrenia Treatment and Rehabilitation, Inc. . . . . . . . . . Treasurer Charter Medical of Florida, Inc. . . . . . . . . . . . . . . . . . Treasurer Page 4 POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ James M. Filush _______________________________________ James M. Filush EXHIBIT A POWER OF ATTORNEY JAMES M. FILUSH Charter Alvarado Behavioral Health System, Inc.. . . . . . . . . . . Director Charter Appalachian Hall Behavioral Health System, Inc.. . . . . . . Director Charter Arbor Indy Behavioral Health System, Inc.. . . . . . . . . . Director Charter Bay Harbor Behavioral Health System, Inc.. . . . . . . . . . Director Charter Behavioral Health System of Atlanta, Inc.. . . . . . . . . . Director Charter Behavioral Health System of Baywood, Inc.. . . . . . . . . . Director Charter Behavioral Health System of Bradenton, Inc.. . . . . . . . . Director Charter Behavioral Health System of Canoga Park, Inc.. . . . . . . . Director Charter Behavioral Health System of Chula Vista, Inc.. . . . . . . . Director Charter Behavioral Health System of Evansville, Inc. . . . . . . . . Director Charter Behavioral Health System at Fair Oaks, Inc.. . . . . . . . . Director Charter Behavioral Health System at Hidden Brook, Inc. . . . . . . . Director Charter Behavioral Health System of Jefferson, Inc.. . . . . . . . . Director Charter Behavioral Health System of Lafayette, Inc.. . . . . . . . . Director Charter Behavioral Health System of Lakewood, Inc. . . . . . . . . . Director Charter Behavioral Health System at Los Altos, Inc.. . . . . . . . . Director Charter Behavioral Health System of Michigan City, Inc.. . . . . . . Director Charter Behavioral Health System of Nashua, Inc. . . . . . . . . . . Director Charter Behavioral Health System at Potomac Ridge, Inc.. . . . . . . Director Charter Behavioral Health System of Rockford, Inc. . . . . . . . . . Director Charter Behavioral Health System of San Jose, Inc. . . . . . . . . . Director Charter Behavioral Health System of Texarkana, Inc.. . . . . . . . . Director Charter Behavioral Health System of Tucson, Inc. . . . . . . . . . . Director Charter Behavioral Health System of Virginia Beach, Inc. . . . . . . Director Charter Behavioral Health System of Visalia, Inc.. . . . . . . . . . Director Charter Behavioral Health System at Warwick Manor, Inc.. . . . . . . Director Charter Behavioral Health System of Washington, D.C., Inc. . . . . . Director Charter Behavioral Health System of Waverly, Inc.. . . . . . . . . . Director Charter Behavioral Health System of Yorba Linda, Inc.. . . . . . . . Director Charter Brawner Behavioral Health System, Inc. . . . . . . . . . . . Director Charter Canyon Springs Behavioral Health System, Inc.. . . . . . . . Director Charter Centennial Peaks Behavioral Health System, Inc.. . . . . . . Director Charter Cove Forge Behavioral Health System, Inc.. . . . . . . . . . Director Charter Crescent Pines Behavioral Health System, Inc.. . . . . . . . Director Charter Fairbridge Behavioral Health System, Inc.. . . . . . . . . . Director Charter Fenwick Hall Behavioral Health System, Inc.. . . . . . . . . Director Charter Lakehurst Behavioral Health System, Inc. . . . . . . . . . . Director Charter Laurel Heights Behavioral Health System, Inc.. . . . . . . . Director Charter Laurel Oaks Behavioral Health System, Inc. . . . . . . . . . Director Charter Linden Oaks Behavioral Health System, Inc. . . . . . . . . . Director Charter Meadows Behavioral Health System, Inc. . . . . . . . . . . . Director Charter Medfield Behavioral Health System, Inc.. . . . . . . . . . . Director Charter Mid-South Behavioral Health System, Inc. . . . . . . . . . . Director Charter Northbrooke Behavioral Health System, Inc. . . . . . . . . . Director Charter Richmond Behavioral Health System, Inc.. . . . . . . . . . . Director Charter Serenity Lodge Behavioral Health System, Inc.. . . . . . . . Director Charter Springwood Behavioral Health System, Inc.. . . . . . . . . . Director Charter Tidewater Behavioral Health System, Inc. . . . . . . . . . . Director Charter White Oak Behavioral Health System, Inc. . . . . . . . . . . Director Charter Medical of England Limited . . . . . . . . . . . . . . . . . Director Schizophrenia Treatment and Rehabilitation, Inc. . . . . . . . . . . Director Page 2 POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Margie M. Smith _______________________________________ Margie M. Smith EXHIBIT A POWER OF ATTORNEY MARGIE M. SMITH Charter Alvarado Behavioral Health System, Inc.. . . . . . . . . . Director Charter Appalachian Hall Behavioral Health System, Inc.. . . . . . Director Charter Arbor Indy Behavioral Health System, Inc.. . . . . . . . . Director Charter Bay Harbor Behavioral Health System, Inc.. . . . . . . . . Director Charter Behavioral Health System of Atlanta, Inc.. . . . . . . . . Director Charter Behavioral Health System of Baywood, Inc.. . . . . . . . . Director Charter Behavioral Health System of Bradenton, Inc.. . . . . . . . Director Charter Behavioral Health System of Canoga Park, Inc.. . . . . . . Director Charter Behavioral Health System of Chula Vista, Inc.. . . . . . . Director Charter Behavioral Health System of Evansville, Inc. . . . . . . . Director Charter Behavioral Health System at Fair Oaks, Inc.. . . . . . . . Director Charter Behavioral Health System at Hidden Brook, Inc. . . . . . . Director Charter Behavioral Health System of Jefferson, Inc.. . . . . . . . Director Charter Behavioral Health System of Lafayette, Inc.. . . . . . . . Director Charter Behavioral Health System of Lakewood, Inc. . . . . . . . . Director Charter Behavioral Health System at Los Altos, Inc.. . . . . . . . Director Charter Behavioral Health System of Michigan City, Inc.. . . . . . Director Charter Behavioral Health System of Nashua, Inc. . . . . . . . . . Director Charter Behavioral Health System at Potomac Ridge, Inc.. . . . . . Director Charter Behavioral Health System of Rockford, Inc. . . . . . . . . Director Charter Behavioral Health System of San Jose, Inc. . . . . . . . . Director Charter Behavioral Health System of Texarkana, Inc.. . . . . . . . Director Charter Behavioral Health System of Tucson, Inc. . . . . . . . . . Director Charter Behavioral Health System of Virginia Beach, Inc. . . . . . Director Charter Behavioral Health System of Visalia, Inc.. . . . . . . . . Director Charter Behavioral Health System at Warwick Manor, Inc.. . . . . . Director Charter Behavioral Health System of Washington, D.C., Inc. . . . . Director Charter Behavioral Health System of Waverly, Inc.. . . . . . . . . Director Charter Behavioral Health System of Yorba Linda, Inc.. . . . . . . Director Charter Brawner Behavioral Health System, Inc. . . . . . . . . . . Director Charter Canyon Springs Behavioral Health System, Inc.. . . . . . . Director Charter Centennial Peaks Behavioral Health System, Inc.. . . . . . Director Charter Cove Forge Behavioral Health System, Inc.. . . . . . . . . Director Charter Crescent Pines Behavioral Health System, Inc.. . . . . . . Director Charter Fairbridge Behavioral Health System, Inc.. . . . . . . . . Director Charter Fenwick Hall Behavioral Health System, Inc.. . . . . . . . Director Charter Lakehurst Behavioral Health System, Inc. . . . . . . . . . Director Charter Laurel Heights Behavioral Health System, Inc.. . . . . . . Director Charter Laurel Oaks Behavioral Health System, Inc. . . . . . . . . Director Charter Linden Oaks Behavioral Health System, Inc. . . . . . . . . Director Charter Meadows Behavioral Health System, Inc. . . . . . . . . . . Director Charter Medfield Behavioral Health System, Inc.. . . . . . . . . . Director Charter Mid-South Behavioral Health System, Inc. . . . . . . . . . Director Charter Northbrooke Behavioral Health System, Inc. . . . . . . . . Director Charter Richmond Behavioral Health System, Inc.. . . . . . . . . . Director Charter Serenity Lodge Behavioral Health System, Inc.. . . . . . . Director Charter Springwood Behavioral Health System, Inc.. . . . . . . . . Director Charter Tidewater Behavioral Health System, Inc. . . . . . . . . . Director Charter White Oak Behavioral Health System, Inc. . . . . . . . . . Director Schizophrenia Treatment and Rehabilitation, Inc. . . . . . . . . . Director Page 2 POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Lawrence W. Drinkard _______________________________________ Lawrence W. Drinkard EXHIBIT A POWER OF ATTORNEY LAWRENCE W. DRINKARD Charter Alvarado Behavioral Health System, Inc..........President Charter Appalachian Behavioral Health System, Inc.......President Charter Arbor Indy Behavioral Health System, Inc........President Charter Bay Harbor Behavioral Health System, Inc........President Charter Behavioral Health System at Fair Oaks, Inc......President Charter Behavioral Health System at Hidden Brook, Inc...President Charter Behavioral Health System at Los Altos, Inc......President Charter Behavioral Health System at Potomac Ridge, Inc..President Charter Behavioral Health System at Warwick Manor, Inc..President Charter Behavioral Health System of Baywood, Inc........President Charter Behavioral Health System of Bradenton, Inc......President Charter Behavioral Health System of Canoga Park, Inc....President Charter Behavioral Health System of Chula Vista, Inc....President Charter Behavioral Health System of Evansville, Inc.....President Charter Behavioral Health System of Jefferson, Inc......President Charter Behavioral Health System of Lafayette, Inc......President Charter Behavioral Health System of Lakewood, Inc.......President Charter Behavioral Health System of Michigan City, Inc..President Charter Behavioral Health System of Nashua, Inc.........President Charter Behavioral Health System of Rockford, Inc.......President Charter Behavioral Health System of San Jose, Inc.......President Charter Behavioral Health System of Texarkana, Inc......President Charter Behavioral Health System of Tucson, Inc.........President Charter Behavioral Health System of Virginia Beach, Inc.President Charter Behavioral Health System of Visalia, Inc........President Charter Behavioral Health System of Washington, D.C.,Inc........................................President Charter Behavioral Health System of Waverly, Inc........President Charter Behavioral Health System of Yorba Linda, Inc....President Charter Behavioral Health Systems of Atlanta, Inc.......President Charter Brawner Behavioral Health System, Inc...........President Charter Canyon Springs Behavioral Health System, Inc....President Charter Centennial Peaks Behavioral Health System, Inc..President Charter Cove Forge Behavioral Health System, Inc........President Charter Crescent Pines Behavioral Health System, Inc....President Charter Fairbridge Behavioral Health System, Inc........President Charter Fenwick Hall Behavioral Health System, Inc......President Charter Hospital of St. Louis, Inc......................President Charter Lakehurst Behavioral Health System, Inc.........President Charter Laurel Heights Behavioral Health System, Inc....President Charter Laurel Oaks Behavioral Health System, Inc.......President Charter Linden Oaks Behavioral Health System, Inc.......President Charter Meadows Behavioral Health System, Inc...........President Charter Medfield Behavioral Health System, Inc..........President Charter Mid-South Behavioral Health System, Inc.........President Charter Northbrooke Behavioral Health System, Inc.......President Charter Richmond Behavioral Health System, Inc..........President Charter Serenity Lodge Behavioral Health System, Inc....President Charter Springwood Behavioral Health System, Inc........President Charter Tidewater Behavioral Health System, Inc.........President Charter White Oak Behavioral Health System, Inc.........President POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Joseph M. Cobern _______________________________________ Joseph M. Cobern EXHIBIT A POWER OF ATTORNEY JOSEPH M. COBERN Ambulatory Resources, Inc..............................Director Atlanta MOB, Inc.......................................Director Beltway Community Hospital, Inc........................Director Charter of Alabama, Inc................................Director C.A.C.O. Services, Inc.................................Director CCM, Inc...............................................Director Charter Augusta Behavioral Health System, Inc..........Director Charter Beacon Behavioral Health System, Inc...........Director Charter Behavioral Health System of Athens, Inc........Director Charter Behavioral Health System of Austin, Inc........Director Charter Behavioral Health System of Central Georgia, Inc.....................................Director Charter Behavioral Health System of Charleston, Inc..................................Director Charter Behavioral Health System of Charlottesville, Inc.............................Director Charter Behavioral Health System of Chicago, Inc.......Director Charter Behavioral Health System of Columbia, Inc....................................Director Charter Behavioral Health System of Corpus Christi, Inc..............................Director Charter Behavioral Health System of Dallas, Inc........Director Charter Behavioral Health System of Ft. Worth, Inc...................................Director Charter Behavioral Health System of Jackson, Inc.......Director Charter Behavioral Health System of Jacksonville, Inc................................Director Charter Behavioral Health System of Kansas City, Inc.................................Director Charter Behavioral Health System of Lake Charles, Inc................................Director Charter Behavioral Health System of Mobile, Inc........Director Charter Behavioral Health System of Nevada, Inc........Director Charter Behavioral Health System of New Mexico, Inc..................................Director Charter Behavioral Health System of Northern California, Inc.........................Director Charter Behavioral Health System of Northwest Arkansas, Inc..........................Director Charter Behavioral Health System of Northwest Indiana, Inc.....................................Director Charter Behavioral Health System of Paducah, Inc.......Director Charter Behavioral Health System of Savannah, Inc....................................Director Charter Behavioral Health System of Southern California, Inc..................................Director Charter Behavioral Health System of Tampa Bay, Inc.........................................Director Charter Behavioral Health System of Toledo, Inc........Director Charter Behavioral Health System of the Inland Empire, Inc...............................Director Charter Behavioral Health System of Winston-Salem, Inc...............................Director Charter-By-The-Sea Behavioral Health System, Inc.......Director Charter Canyon Behavioral Health System, Inc...........Director Charter Colonial Institute, Inc........................Director Charter Community Hospital, Inc........................Director Charter Community Hospital of Des Moines, Inc..........Director Charter Contract Services, Inc.........................Director Charter Fairmount Behavioral Health System, Inc........Director Charter Financial Offices, Inc.........................Director Charter Forest Behavioral Health System, Inc...........Director Charter Grapevine Behavioral Health System, Inc........Director Charter Greensboro Behavioral Health System, Inc.......Director Charter Health Management of Texas, Inc................Director Charter Hospital of Columbus, Inc......................Director Charter Hospital of Denver, Inc........................Director Charter Hospital of Ft. Collins, Inc...................Director Charter Hospital of Laredo, Inc........................Director Charter Hospital of Miami, Inc.........................Director Charter Hospital of Mobile, Inc........................Director Charter Hospital of Northern New Jersey, Inc...........Director Charter Hospital of Santa Teresa, Inc..................Director Charter Hospital of St. Louis, Inc.....................Director Charter Hospital of Torrance, Inc......................Director Charter Indianapolis Behavior Health System, Inc.......Director Charter Lafayette Behavioral Health System, Inc........Director Charter Lakeside Behavioral Health System, Inc.........Director Charter Little Rock Behavioral Health System, Inc...............................Director Charter Louisville Behavioral Health System, Inc.......Director Charter Medical - California, Inc......................Director Charter Medical - Clayton County, Inc..................Director Charter Medical - Cleveland, Inc.......................Director Charter Medical - Dallas, Inc..........................Director Charter Medical Executive Corporation..................Director Charter Medical Information Services, Inc..............Director Charter Medical International, S.A., Inc...............Director Charter Medical - Long Beach, Inc......................Director Charter Medical Management Company.....................Director Charter Medical - New York, Inc........................Director Charter Medical of East Valley, Inc....................Director Charter Medical of North Phoenix, Inc..................Director Charter Medical of Orange County, Inc..................Director Charter Mental Health Options, Inc.....................Director Charter Milwaukee Behavioral Health System, Inc........Director Charter Mission Viejo Behavioral Health System, Inc......................................Director Charter MOB of Charlottesville, Inc....................Director Charter North Behavioral Health System, Inc............Director Charter North Counseling Center, Inc...................Director Charter Northridge Behavioral Health System, Inc.......Director Page 2 Charter Northside Hospital, Inc........................Director Charter Oak Behavioral Health System, Inc..............Director Charter Palms Behavioral Health System, Inc............Director Charter Peachford Behavioral Health System, Inc........Director Charter Pines Behavioral Health System, Inc............Director Charter Plains Behavioral Health System, Inc...........Director Charter - Provo School, Inc............................Director Charter Psychiatric Hospitals, Inc.....................Director Charter Real Behavioral Health System, Inc.............Director Charter Regional Medical Center, Inc...................Director Charter Ridge Behavioral Health System, Inc............Director Charter Rivers Behavioral Health System, Inc...........Director Charter San Diego Behavioral Health System, Inc........Director Charter Sioux Falls Behavioral Health System, Inc......................................Director Charter South Bend Behavioral Health System, Inc.......Director Charter Springs Behavioral Health System, Inc..........Director Charter Surburban Hospital of Mesquite, Inc............Director Charter Terre Haute Behavioral Health System, Inc......................................Director Charter Thousand Oaks Behavioral Health System, Inc......................................Director Charterton/LaGrange, Inc...............................Director Charter Treatment Center of Michigan, Inc..............Director Charter Westbrook Behavioral Health System, Inc........Director Charter Wichita Behavioral Health System, Inc..........Director Charter Woods Behavioral Health System, Inc............Director Charter Woods Hospital, Inc. ..........................Director CMCI, Inc..............................................Director CMFC, Inc..............................................Director CMSF, Inc..............................................Director CPS Associates, Inc....................................Director Desert Springs Hospital, Inc...........................Director Employee Assistance Services, Inc......................Director Florida Health Facilities, Inc.........................Director Gulf Coast EAP Services, Inc...........................Director Gwinnett Immediate Care Center, Inc....................Director HCS, Inc...............................................Director Holcomb Bridge Immediate Care Center, Inc..............Director Hospital Investors, Inc................................Director Mandarin Meadows, Inc..................................Director Metropolitan Hospital, Inc.............................Director Middle Georgia Hospital, Inc...........................Director Pacific - Charter Medical, Inc.........................Director Peachford Professional Network, Inc....................Director Rivoli, Inc............................................Director Shallowford Community Hospital, Inc....................Director Sistemas De Terapia Respiratoria S.A., Inc.............Director Stuart Circle Hospital Corporation.....................Director Charter Medical of Florida, Inc........................Director Western Behavioral System, Inc.........................Director Charter Medical of Puerto Rico, Inc....................Director Schizophrenia Treatment and Rehabilitation.............Director Page 3 POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ Glenn A. McRae _______________________________________ Glenn A. McRae EXHIBIT A POWER OF ATTORNEY GLENN A. MCRAE Ambulatory Resources, Inc............................Director Atlanta MOB, Inc.....................................Director Beltway Community Hospital, Inc......................Director Charter of Alabama, Inc..............................Director C.A.C.O. Services, Inc...............................Director CCM, Inc.............................................Director Charter Augusta Behavioral Health System, Inc........Director Charter Beacon Behavioral Health System, Inc.........Director Charter Behavioral Health System of Athens, Inc......Director Charter Behavioral Health System of Austin, Inc......Director Charter Behavioral Health System of Central Georgia, Inc...................................Director Charter Behavioral Health System of Charleston, Inc................................Director Charter Behavioral Health System of Charlottesville, Inc...........................Director Charter Behavioral Health System of Chicago, Inc.....Director Charter Behavioral Health System of Columbia, Inc..................................Director Charter Behavioral Health System of Corpus Christi, Inc............................Director Charter Behavioral Health System of Dallas, Inc......Director Charter Behavioral Health System of Ft. Worth, Inc.................................Director Charter Behavioral Health System of Jackson, Inc.....Director Charter Behavioral Health System of Jacksonville, Inc..............................Director Charter Behavioral Health System of Kansas City, Inc...............................Director Charter Behavioral Health System of Lake Charles, Inc..............................Director Charter Behavioral Health System of Mobile, Inc......Director Charter Behavioral Health System of Nevada, Inc......Director Charter Behavioral Health System of New Mexico, Inc................................Director Charter Behavioral Health System of Northern California, Inc.......................Director Charter Behavioral Health System of Northwest Arkansas, Inc........................Director Charter Behavioral Health System of Northwest Indiana, Inc...................................Director Charter Behavioral Health System of Paducah, Inc.....Director Charter Behavioral Health System of Savannah, Inc..................................Director Charter Behavioral Health System of Southern California, Inc................................Director Charter Behavioral Health System of Tampa Bay, Inc.......................................Director Charter Behavioral Health System of Toledo, Inc......Director Charter Behavioral Health System of the Inland Empire, Inc.............................Director Charter Behavioral Health System of Winston-Salem, Inc.............................Director Charter-By-The-Sea Behavioral Health System, Inc.....Director Charter Canyon Behavioral Health System, Inc.........Director Charter Colonial Institute, Inc......................Director Charter Community Hospital, Inc......................Director Charter Community Hospital of Des Moines, Inc........Director Charter Contract Services, Inc.......................Director Charter Fairmount Behavioral Health System, Inc......Director Charter Financial Offices, Inc.......................Director Charter Forest Behavioral Health System, Inc.........Director Charter Grapevine Behavioral Health System, Inc......Director Charter Greensboro Behavioral Health System, Inc.....Director Charter Health Management of Texas, Inc..............Director Charter Hospital of Columbus, Inc....................Director Charter Hospital of Denver, Inc......................Director Charter Hospital of Ft. Collins, Inc.................Director Charter Hospital of Laredo, Inc......................Director Charter Hospital of Miami, Inc.......................Director Charter Hospital of Mobile, Inc......................Director Charter Hospital of Northern New Jersey, Inc.........Director Charter Hospital of Santa Teresa, Inc................Director Charter Hospital of St. Louis, Inc...................Director Charter Hospital of Torrance, Inc....................Director Charter Indianapolis Behavior Health System, Inc.....Director Charter Lafayette Behavioral Health System, Inc......Director Charter Lakeside Behavioral Health System, Inc.......Director Charter Little Rock Behavioral Health System, Inc.............................Director Charter Louisville Behavioral Health System, Inc.....Director Charter Medical - California, Inc....................Director Charter Medical - Clayton County, Inc................Director Charter Medical - Cleveland, Inc.....................Director Charter Medical - Dallas, Inc........................Director Charter Medical Executive Corporation................Director Charter Medical Information Services, Inc............Director Charter Medical International, S.A., Inc.............Director Charter Medical - Long Beach, Inc....................Director Charter Medical Management Company...................Director Charter Medical - New York, Inc......................Director Charter Medical of East Valley, Inc..................Director Charter Medical of North Phoenix, Inc................Director Charter Medical of Orange County, Inc................Director Charter Mental Health Options, Inc...................Director Charter Milwaukee Behavioral Health System, Inc......Director Charter Mission Viejo Behavioral Health System, Inc....................................Director Charter MOB of Charlottesville, Inc..................Director Charter North Behavioral Health System, Inc..........Director Charter North Counseling Center, Inc.................Director Charter Northridge Behavioral Health System, Inc.....Director Page 2 Charter Northside Hospital, Inc......................Director Charter Oak Behavioral Health System, Inc............Director Charter Palms Behavioral Health System, Inc..........Director Charter Peachford Behavioral Health System, Inc......Director Charter Pines Behavioral Health System, Inc..........Director Charter Plains Behavioral Health System, Inc.........Director Charter - Provo School, Inc..........................Director Charter Psychiatric Hospitals, Inc...................Director Charter Real Behavioral Health System, Inc...........Director Charter Regional Medical Center, Inc.................Director Charter Ridge Behavioral Health System, Inc..........Director Charter Rivers Behavioral Health System, Inc.........Director Charter San Diego Behavioral Health System, Inc......Director Charter Sioux Falls Behavioral Health System, Inc....................................Director Charter South Bend Behavioral Health System, Inc.....Director Charter Springs Behavioral Health System, Inc........Director Charter Surburban Hospital of Mesquite, Inc..........Director Charter Terre Haute Behavioral Health System, Inc....................................Director Charter Thousand Oaks Behavioral Health System, Inc....................................Director Charterton/LaGrange, Inc.............................Director Charter Treatment Center of Michigan, Inc............Director Charter Westbrook Behavioral Health System, Inc......Director Charter Wichita Behavioral Health System, Inc........Director Charter Woods Behavioral Health System, Inc..........Director Charter Woods Hospital, Inc. ........................Director CMCI, Inc............................................Director CMFC, Inc............................................Director CMSF, Inc............................................Director CPS Associates, Inc..................................Director Desert Springs Hospital, Inc.........................Director Employee Assistance Services, Inc....................Director Florida Health Facilities, Inc.......................Director Gulf Coast EAP Services, Inc.........................Director Gwinnett Immediate Care Center, Inc..................Director HCS, Inc.............................................Director Holcomb Bridge Immediate Care Center, Inc............Director Hospital Investors, Inc..............................Director Mandarin Meadows, Inc................................Director Metropolitan Hospital, Inc...........................Director Middle Georgia Hospital, Inc.........................Director Pacific - Charter Medical, Inc.......................Director Peachford Professional Network, Inc..................Director Rivoli, Inc..........................................Director Shallowford Community Hospital, Inc..................Director Sistemas De Terapia Respiratoria S.A., Inc...........Director Stuart Circle Hospital Corporation...................Director Charter Medical of Florida, Inc......................Director Western Behavioral System, Inc.......................Director Charter Medical of Puerto Rico, Inc..................Director Page 3 POWER OF ATTORNEY The undersigned director or officer or both, as the case may be, of each of the corporations listed on Exhibit A hereto (singularly, the "Company" and together, the "Companies"), serving in the capacities listed opposite the name of each Company on Exhibit A hereto, hereby constitutes and appoints Charlotte A. Sanford, Lawrence W. Drinkard, and John R. Day his true and lawful attorneys and agents, each with full power to act without the others and each of said attorneys having full power of substitution and resubstitution, to do any and all acts and things and to execute in his name, place or stead in his capacity as an officer or director or both of each of the Companies, any and all instruments which they may deem necessary or advisable to enable each Company to comply with the Securities Act of 1933, as amended, and the Trust Indenture Act of 1939, as amended (collectively, the "Acts") and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing under the Acts of all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses, as may be necessary or desirable in connection with the registration of $375,000,000 aggregate principal amount of 11 1/4% Senior Subordinated Notes due 2004 of Charter Medical Corporation, and the guarantees thereof by the Companies, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as an officer or director or both of each of the Companies to all such registration statements, amendments, post-effective amendments or supplements thereto, and any new or revised prospectuses; and the undersigned hereby ratifies and approves the acts of said attorneys and each of them. IN WITNESS WHEREOF, the undersigned director or officer or both, as the case may be, of each of the Companies listed on Exhibit A hereof, has executed this instrument on this 30th day of June, 1994. /s/ John C. McCauley _______________________________________ John C. McCauley EXHIBIT A POWER OF ATTORNEY JOHN C. McCAULEY Ambulatory Resources, Inc. . . . . . . . Director and Vice President Atlanta MOB, Inc.. . . . . . . . . . . . Director and Vice President Beltway Community Hospital, Inc. . . . . Director and Vice President Charter of Alabama, Inc. . . . . . . . . Director and Vice President C.A.C.O. Services, Inc.. . . . . . . . . Director and Vice President CCM, Inc.. . . . . . . . . . . . . . . . Director and Vice President Charter Augusta Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Beacon Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Athens, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Austin, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Central Georgia, Inc. . . . . . . . . Director and Vice President Charter Behavioral Health System of Charleston, Inc.. . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Charlottesville, Inc. . . . . . . . . Director and Vice President Charter Behavioral Health System of Chicago, Inc. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Columbia, Inc.. . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Corpus Christi, Inc.. . . . . . . . . Director and Vice President Charter Behavioral Health System of Dallas, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Ft. Worth, Inc. . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Jackson, Inc. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Jacksonville, Inc.. . . . . . . . . . Director and Vice President Charter Behavioral Health System of Kansas City, Inc. . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Lake Charles, Inc.. . . . . . . . . . Director and Vice President Charter Behavioral Health System of Mobile, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Nevada, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of New Mexico, Inc.. . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Northern California, Inc. . . . . . . Director and Vice President Charter Behavioral Health System of Northwest Arkansas, Inc.. . . . . . . Director and Vice President Charter Behavioral Health System of Northwest Indiana, Inc. . . . . . . . Director and Vice President Charter Behavioral Health System of Paducah, Inc. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Savannah, Inc.. . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Southern California, Inc. . . . . . . Director and Vice President Charter Behavioral Health System of Tampa Bay, Inc. . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of Toledo, Inc.. . . . . . . . . . . . . Director and Vice President Charter Behavioral Health System of the Inland Empire, Inc. . . . . . . . Director and Vice President Charter Behavioral Health System of Winston-Salem, Inc. . . . . . . . . . Director and Vice President Charter-By-The-Sea Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Canyon Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Colonial Institute, Inc. . . . . Director and Vice President Charter Community Hospital, Inc. . . . . Director and Vice President Charter Community Hospital of Des Moines, Inc. . . . . . . . . . . . . Director and Vice President Charter Contract Services, Inc.. . . . . Director and Vice President Charter Fairmount Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Financial Offices, Inc.. . . . . Director and Vice President Charter Forest Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Grapevine Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Greensboro Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Health Management of Texas, Inc.. . . . . . . . . . . . . . . Director and Vice President Charter Hospital of Columbus, Inc. . . . Director and Vice President Charter Hospital of Denver, Inc. . . . . Director and Vice President Charter Hospital of Ft. Collins, Inc.. . Director and Vice President Charter Hospital of Laredo, Inc. . . . . Director and Vice President Charter Hospital of Miami, Inc.. . . . . Director and Vice President Charter Hospital of Mobile, Inc. . . . . Director and Vice President Charter Hospital of Northern New Jersey, Inc. . . . . . . . . . . . . Director and Vice President Charter Hospital of Santa Teresa, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Hospital of St. Louis, Inc.. . . Director and Vice President Charter Hospital of Torrance, Inc. . . . Director and Vice President Charter Indianapolis Behavior Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Lafayette Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Lakeside Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Page 2 Charter Little Rock Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Louisville Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Medical - California, Inc. . . . Director and Vice President Charter Medical - Clayton County, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Medical - Cleveland, Inc.. . . . Director and Vice President Charter Medical - Dallas, Inc. . . . . . Director and Vice President Charter Medical Executive Corporation. . Director and Vice President Charter Medical Information Services, Inc. . . . . . . . . . . . . . Director and Vice President Charter Medical International, S.A., Inc. . . . . . . . . . . . . . . . Director and Vice President Charter Medical - Long Beach, Inc. . . . Director and Vice President Charter Medical Management Company . . . Director and Vice President Charter Medical - New York, Inc. . . . . Director and Vice President Charter Medical of North Phoenix, Inc.. . . . . . . . . . . . . . Director and Vice President Charter Medical of Orange County, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Mental Health Options, Inc.. . . Director and Vice President Charter Milwaukee Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Mission Viejo Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter MOB of Charlottesville, Inc. . . Director and Vice President Charter North Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter North Counseling Center, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Northridge Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Northside Hospital, Inc. . . . . Director and Vice President Charter Oak Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Palms Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Peachford Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Pines Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Plains Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter - Provo School, Inc. . . . . . . Director and Vice President Charter Psychiatric Hospitals, Inc.. . . Director and Vice President Charter Real Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Regional Medical Center, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Ridge Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Rivers Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Page 3 Charter San Diego Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Sioux Falls Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter South Bend Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Springs Behavioral Health System, Inc. . . . . . . . . . . . . . . Director and Vice President Charter Surburban Hospital of Mesquite, Inc. . . . . . . . . . . . . . Director and Vice President Charter Terre Haute Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Thousand Oaks Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charterton/LaGrange, Inc. Charter Treatment Center of Michigan, Inc. . . . . . . . . . . . . . Director and Vice President Charter Westbrook Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Wichita Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Woods Behavioral Health System, Inc.. . . . . . . . . . . Director and Vice President Charter Woods Hospital, Inc. . . . . . . Director and Vice President CMCI, Inc. . . . . . . . . . . . . . . . Director and Vice President CMFC, Inc. . . . . . . . . . . . . . . . Director and Vice President CMSF, Inc. . . . . . . . . . . . . . . . Director and Vice President CPS Associates, Inc. . . . . . . . . . . Director and Vice President Desert Springs Hospital, Inc.. . . . . . Director and Vice President Employee Assistance Services, Inc. . . . Director and Vice President Florida Health Facilities, Inc.. . . . . Director and Vice President Gulf Coast EAP Services, Inc.. . . . . . Director and Vice President Gwinnett Immediate Care Center, Inc. . . Director and Vice President HCS, Inc.. . . . . . . . . . . . . . . . Director and Vice President Holcomb Bridge Immediate Care Center, Inc. . . . . . . . . . . . . . . Director and Vice President Hospital Investors, Inc. . . . . . . . . Director and Vice President Mandarin Meadows, Inc. . . . . . . . . . Director and Vice President Metropolitan Hospital, Inc.. . . . . . . Director and Vice President Middle Georgia Hospital, Inc.. . . . . . Director and Vice President Pacific - Charter Medical, Inc.. . . . . Director and Vice President Peachford Professional Network, Inc. . . Director and Vice President Rivoli, Inc. . . . . . . . . . . . . . . Director and Vice President Shallowford Community Hospital, Inc. . . Director and Vice President Sistemas De Terapia Respiratoria S.A., Inc. . . . . . . . . . . . . . . . Director and Vice President Stuart Circle Hospital CorporationDirector and Vice President Charter Medical of Florida, Inc. . . . . Director and Vice President Western Behavioral System, Inc.. . . . . Director and Vice President Charter Medical (Cayman Islands) Ltd.. . Director and Vice President Charter Medical of Puerto Rico, Inc. . . Director and Vice President Charter Medical International, Inc.. . . Director and Vice President Page 4 -----END PRIVACY-ENHANCED MESSAGE-----