AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1994

REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

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: / /
------------------------

CALCULATION OF REGISTRATION FEE

PROPOSED MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE
SECURITIES TO BE AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
REGISTERED BE REGISTERED PER UNIT PRICE (1) REGISTRATION FEE

11 1/4% Series A Senior
Subordinated Notes due
2004.................... $375,000,000 Not Applicable $375,000,000 $117,187.50
<FN>
(1) Estimated solely for the purpose of calculating the registration fee. The
proposed maximum offering price is based upon, pursuant to Rule 457(f)(2),
the book value of the Registrant's 11 1/4% Senior Subordinated Notes due
2004 as of May 16, 1994.

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

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.

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

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

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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)

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

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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
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
Charter Medical of North Phoenix, Inc. Arizona 58-1643154 6015 W. Peoria Avenue
Glendale, AZ 85311
(602) 878-7878

vii

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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
Charter Real Behavioral Health System, Texas 58-1485897 8550 Huebner Road
Inc. San Antonio, TX 78240
(512) 699-8585

viii

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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
Charter Wichita Behavioral Kansas 58-1634296 8901 East Orme
Health System, Inc. Wichita, KS 67207
(316) 686-5000

ADDITIONAL REGISTRANTS(1) (CONTINUED)

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
Peachford Professional Network, Inc. Georgia 58-2100700 577 Mulberry Street
Macon, GA 31298
(912) 742-1161

ADDITIONAL REGISTRANTS(1) (CONTINUED)

Rivoli, Inc. Georgia 58-1686160 577 Mulberry Street
Macon, GA 31298
(912) 742-1161
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
Tampa Bay Behavioral Health Alliance, 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
<FN>
- ------------------------------
(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.

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 MAY 18, 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 have no
arrangement with any person to participate 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 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 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.

SEE "INVESTMENT CONSIDERATIONS" 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. 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.
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. Only approximately 15% of those who reportedly
suffer from mental or substance abuse disorders receive professional treatment.
Management 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. Also, in recent years,
reimbursement rate increases have failed to offset increases in the cost of
providing care. In response to these industry trends, the Company (i) developed
a wider array of outpatient services, such as partial hospitalization, intensive
outpatient and 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 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 30 new
markets in the United States and Europe. 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 an asset sale agreement (the "Asset Sale
Agreement") with National Medical Enterprises, Inc. ("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
purchase price for the Target Hospitals will be approximately $151.9 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, the Target Hospitals had approximately
40,000 patient admissions, net revenue of approximately $407.5 million and
Target Hospital EBITDA (as defined) of approximately $55.1 million. See
"Investment Considerations -- The Acquisition" and "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.

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 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 Transaction......... 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").
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 have no arrangement
with any person to participate 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 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 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.
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 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 re-
quired 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 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
"Certain 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 guaranteed on an unsecured senior
subordinated basis by 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
guarantees of the New Notes by the Guarantors will be
subordinated in right of payment to all Senior Indebt-
edness of the Guarantors and senior or PARI PASSU in
right of payment to all existing and future subordinated
indebtedness of the Guarantors. 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 March 31, 1994, giving pro forma effect to the
Financing Transactions, the aggregate outstanding
principal amount of Senior Indebtedness of the Company
and the Guarantors would have been approximately $232.4
million. The Indenture will prohibit the Company from
incurring, assuming or guaranteeing any Indebtedness
that is subordinated to any Senior Indebtedness and se-
nior 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."
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 "Investment Considerations" 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.

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 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 expenses.................................. 640,847 966,652 323,367 305,589 453,042
Bad debt expense.................................... 67,300 82,937 34,870 32,288 40,981
EBITDA(1)........................................... 189,760 234,538 101,313 83,550 105,811
Depreciation and amortization (2)................... 69,060 77,313 35,302 29,179 33,309
Interest, net....................................... 74,156 56,474 37,307 16,785 28,652
Net income (loss)................................... (52,227) (6,012 ) (26,915) (2,743) 1,016
OTHER FINANCIAL DATA:
Ratio of EBITDA to interest, net.................... 2.56x 4.15 x 2.72x 4.98x 3.69 x
EBITDA as % of net revenue.......................... 21.1% 18.3 % 22.0% 19.8% 17.6 %
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.......................................................... 429,720 582,215
Total assets........................................................................... 768,056 1,011,258
Long-term debt and capital lease obligations........................................... 321,192 604,137
Stockholders' equity................................................................... 82,109 68,420
Ratio of long-term debt and capital lease obligations to EBITDA(7)..................... 1.9x 2.9x
<FN>
- ------------------------------
(1) Earnings before interest, income taxes, stock option expense, ESOP
expense, depreciation and amortization. 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.
(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.

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.

INVESTMENT CONSIDERATIONS

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 March 31, 1994, giving pro forma effect to
the Financing Transactions, the ratio of the Company's total long-term debt and
capital lease obligations to EBITDA (as defined) would have been approximately
2.9 to 1. The pro forma ratio of EBITDA (as defined) to net interest for the
quarter ended March 31, 1994, would have been approximately 3.69 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."

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.

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 March 31, 1994, giving pro forma
effect to the Financing Transactions, the aggregate outstanding principal amount
of Senior Indebtedness of the Company and the Guarantors would have been
approximately $232.4 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."

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."

HOLDING COMPANY STRUCTURE. The Company is a holding company which derives
substantially all of its operating income from its subsidiaries. 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. 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."

PREVIOUS BANKRUPTCY REORGANIZATION. The Reorganization, which became
effective on July 21, 1992 (July 31, 1992 for accounting purposes),
significantly reduced the Company's outstanding indebtedness and reorganized its
equity capital structure. 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 indebtedness was incurred by
the Company in connection with a management buyout of the Company in 1988 and a
hospital-construction program. Pursuant to the Reorganization, the Company
reduced its total indebtedness by approximately $700 million and eliminated
redeemable preferred stock having an aggregate liquidation preference of
approximately $233 million. These debtholders and preferred stockholders
received approximately 97% of the Company's common stock outstanding on July 21,
1992. After the Reorganization, through March 31, 1994, the Company further
reduced its indebtedness by approximately $692.7 million, to approximately
$362.2 million at March 31, 1994. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of 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.

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.

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.

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.

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; RESTRICTIONS ON TRANSFER OF THE NOTES. 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 will exist, although the Old
Notes are eligible for trading in the PORTAL Market among "qualified
institutional buyers." 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. 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
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.

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. The Acquisition poses risks for the holders of the Notes
resulting from the following factors:

(i) Although the Company has entered into a definitive Asset Sale Agreement,
there can be no assurance that the Acquisition will be consummated with respect
to any or all of the Target Hospitals. Consummation of the Acquisition is
subject to the satisfaction of various conditions, some of which cannot be
waived. If the Acquisition is not consummated or is consummated with respect to
less than all of the Target Hospitals, the Company could have substantial excess
net proceeds from the sale of the Notes. Pursuant to the New Credit Agreement
and the Indenture, the Company's ability to invest such excess net proceeds is
restricted. Accordingly, the Company may be unable to earn a return on the
investment of such excess net proceeds equal to or greater than the borrowing
cost thereof. To the extent permitted by the New Credit Agreement and the
Indenture, the Company intends to utilize such excess cash to finance additional
strategic alliances with, and additional acquisitions of, group psychiatric
practices, mental health clinics and other behavioral healthcare providers.
There can be no assurance that the Company will be able to utilize such excess
funds in this manner or to do so promptly. The Company is not now pursuing
another significant acquisition or alliance.

(ii) The following is the text of Note 9 to the audited combined financial
statements of the Target Hospitals for their fiscal years ended May 31, 1992 and
1993, set forth elsewhere in this Offering Memorandum: "At May 31, 1993, NME and
certain of its subsidiaries, including those that own the [Target 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. In April, 1994, NME reached an
agreement-in-principle with the Civil Division and Criminal Division of the
Department of Justice, and the Department of Health and Human Services which
upon execution will bring to a close all open investigations of NME (and its
subsidiaries and affiliates) by the federal government and its agencies. 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 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."

The Company believes that, as a purchaser of assets, it will have no
successor civil or criminal liability for the practices of NME. Furthermore, the
Company is indemnified pursuant to the Asset Sale Agreement for liabilities
relating to the matters described above. 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. The alleged wrongful activities are against the Company's corporate
policy. The Company will advise all former NME employees that it hires of the
Company's policy and will promptly discharge any employee who violates the
policy.

THE ACQUISITION

DESCRIPTION OF THE TARGET HOSPITALS. On March 29, 1994, the Company entered
into the Asset Sale Agreement with respect to the purchase 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, MARCH 31,
---------------------- ----------------------
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
Target Hospital EBITDA........................................... 110,581 55,059 40,146 36,514

See "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.

TERMS OF THE ACQUISITION AND RELATED DOCUMENTS. Under the terms of the
Asset Sale Agreement, the aggregate purchase price of the Target Hospitals is
approximately $151.9 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. In connection with obtaining
regulatory approvals, the Company has received a request for additional
information from the Federal Trade Commission and is in the process of complying
with such request. The Asset Sale Agreement includes 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
Agreement requires that if NME exercises its right to terminate the Acquisition
because of fiduciary duties to its shareholders, NME shall pay to the Company a
termination fee of $15 million.

The Asset Sale Agreement contemplates up to three closings of purchases of
the Target Hospitals. The purchase of each Target Hospital is subject to certain
conditions set forth in the Asset Sale Agreement, 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
Target Hospital, (iii) the absence of pending or threatened legal or
governmental actions seeking to restrain the sale of the Target Hospital, (iv)
the performance of covenants and agreements and the accuracy of representations
and warranties set forth in the Asset Sale Agreement, 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 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 "Investment Considerations -- The Acquisition,"
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.

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). The remaining net proceeds from the sale of the
Old Notes together with approximately $84.3 million of borrowings pursuant to
the New Credit Agreement, will be used to finance the Acquisition (approximately
$202.6 million). In the event that the Acquisition is 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. See "Investment Considerations -- The Acquisition."

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. 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................. $ 145.8
Senior Subordinated Notes............ 375.0
Less: Discount to Initial
Purchasers........................ (9.4)
---------
Total Sources........................ $ 511.4
---------
---------
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.......................... 202.6
Transaction Expenses................. 8.7
---------
Total Uses........................... $ 511.4
---------
---------

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.

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.............................................. -- 141,695 141,695
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) --
------------ --------------- ------------
404,824 202,583 607,407
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.............. 321,192 282,945 604,137
------------ --------------- ------------
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 $ 231,516 $ 675,827
------------ --------------- ------------
------------ --------------- ------------
<FN>
- ------------------------
(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.

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.

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 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)
<FN>
- ------------------------------
(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
1989 1990 1991 1992 1993 31, 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

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 0 165,289
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............................................ 538,950 443,712 336,641 452,371
--------- --------- --------- ---------
Loss before income tax benefit.......................................... (1,732) (36,187) (27,368) (187,211)
Income tax benefit...................................................... (439) (13,121) (10,126) (69,268)
--------- --------- --------- ---------
Net Loss................................................................ $ (1,293) $ (23,066) $ (17,242) $(117,943)
--------- --------- --------- ---------
--------- --------- --------- ---------
Target Hospital EBITDA (4).............................................. $ 110,581 $ 55,059 $ 40,146 $ 36,514
--------- --------- --------- ---------
--------- --------- --------- ---------
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

AS OF AS OF
MAY 31, FEBRUARY 28,
1993 1994
--------- -------------

BALANCE SHEET DATA:
Current assets.................................................................. $ 65,885 $ 205,119
Current liabilities............................................................. 44,713 39,756
Property and equipment -- net................................................... 286,462 --
Total assets.................................................................... 379,640 206,672
<FN>
- ------------------------------
(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.

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 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 "Investment
Considerations -- 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.

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
9,685(c)
Cash collateral account............................................. 8,207 0 (8,207)(c) 0
Accounts receivable, net............................................ 129,117 65,707 2,817(a) 197,641
Supplies............................................................ 4,933 2,328 7,261
Assets held for sale................................................ 0 131,943 (131,943)(b) 0
Other current assets................................................ 13,748 3,122 (670)(a) 16,200
---------- -------- ------------
Total current assets.............................................. 196,540 205,119 271,322
Property and equipment
Land................................................................ 93,850 0 93,850
Buildings and improvements.......................................... 307,768 0 307,768
Equipment........................................................... 69,017 0 69,017
Purchase price subject to allocation................................ 0 0 152,495(b) 152,495
---------- -------- ------------
470,635 0 623,130
Accumulated depreciation............................................ (43,109) 0 (43,109)
---------- -------- ------------
427,526 0 580,021
Construction in progress............................................ 2,194 0 2,194
---------- -------- ------------
429,720 0 582,215
Other long-term assets................................................ 100,195 1,553 (1,553)(a) 116,120
15,925(c)
Reorganization value in excess of amounts allocable to identifiable
assets, net.......................................................... 41,601 0 41,601
---------- -------- ----------- ------------
$ 768,056 $ 206,672 $ 36,530 $ 1,011,258
---------- -------- ----------- ------------
---------- -------- ----------- ------------
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)(c)
Other accrued liabilities........................................... 62,392 0 62,392
Current income taxes payable........................................ 4,802 0 7,900(c) 12,702
Current maturities of long-term debt and capital lease
obligations........................................................ 41,010 680 (175)(a) 3,270
(38,245)(c)
---------- -------- ------------
Total current liabilities......................................... 215,072 39,756 206,018
Long-term debt and capital lease obligations.......................... 321,192 5,169 (1,635)(a) 604,137
279,411(c)
Deferred income tax liabilities....................................... 36,439 0 (17,000)(c) 19,439
Reserve for unpaid claims............................................. 98,268 0 98,268
Deferred credits and other long-term liabilities...................... 14,976 81,661 (81,661)(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) 36,132 (36,132)(a) (75,855)
(13,689)(c)
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 80,086 68,420
Commitments and contingencies
---------- -------- ----------- ------------
$ 768,056 $ 206,672 $ 36,530 $ 1,011,258
---------- -------- ----------- ------------
---------- -------- ----------- ------------
<FN>
- ------------------------------
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)

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 expenses................................ 640,847 310,439 $ 4,400(d) 966,652
10,008(e)
958(e)
Bad debt expense.................................. 67,300 15,637 82,937
Intercompany fees and allocations................. 0 62,743 (10,008)(e) 0
(52,735)(f)
Depreciation and amortization..................... 26,382 21,903 (13,650)(g) 34,635
Amortization of reorganization value in excess of
amounts allocable to identifiable assets......... 42,678 0 42,678
Interest, net..................................... 74,156 12,590 (18,194)(h) 56,474
(12,078)(i)
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)(e) 0
Provision for loss on sale of assets.............. 0 4,262 (4,262)(j) 0
---------- -------------- ------------
935,653 428,532 1,267,666
---------- -------------- ------------
Income (Loss) from continuing operations before
income taxes..................................... (37,746) (42,312) 16,461
Provision (Benefit) for income taxes.............. 1,874 (15,570) 36,169(k) 22,473
---------- -------------- ------------ ------------
Loss from continuing operations................... $ (39,620) $ (26,742) $ 60,350 $ (6,012)
---------- -------------- ------------ ------------
---------- -------------- ------------ ------------
Average number of common shares
outstanding...................................... 24,875 24,875
---------- ------------
---------- ------------
Loss from continuing operations per common
share............................................ $ (1.59) $ (.24)
---------- ------------
---------- ------------
<FN>
- ------------------------
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)

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 expenses................................ 305,589 143,470 $ 2,200(d) 453,042
1,602(e)
181(e)
Bad debt expense.................................. 32,288 8,693 40,981
Intercompany fees and allocations................. 0 27,574 (1,602)(e) 0
(25,972)(f)
Depreciation and amortization..................... 13,579 3,945 185(g) 17,709
Amortization of reorganization value in excess of
amounts allocable to identifiable assets......... 15,600 0 15,600
Interest, net..................................... 16,785 5,952 11,640(h) 28,652
(5,725)(i)
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)(e) 0
Provision for loss on sale of assets.............. 0 165,289 (165,289)(j) 0
---------- -------------- ------------
415,291 355,104 587,434
---------- -------------- ------------
Income (Loss) before income taxes................. 6,136 (176,697) 12,400
Provision (Benefit) for income taxes.............. 8,879 (65,063) 67,568(k) 11,384
---------- -------------- ------------ ------------
Net income (loss) from continuing operations...... $ (2,743) $ (111,634) $ 115,393 $ 1,016
---------- -------------- ------------ ------------
---------- -------------- ------------ ------------
Average number of common shares outstanding (l)... 25,936
----------
----------
Loss per common share (l)......................... $ (.11)
----------
----------
Earnings per common share and common equivalent
share (l)........................................ $ .04
------------
------------
Earnings per common share assuming full dilution
(l).............................................. $ .04
------------
------------
<FN>
- ------------------------
See Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited)

NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(a) To eliminate assets, liabilities and equity of the Target Hospitals which
will not be purchased or assumed by the Company.

(b) To record the property and equipment of the Target Hospitals at the purchase
price. No allocation has been made between the components of property and
equipment.

(c) To record (i) the repayment of the Old Credit Agreement, (ii) the redemption
of the 7 1/2% Senior Subordinated Debentures and the related loss on early
extinguishment of debt, (iii) the initial borrowings under the New Credit
Agreement, (iv) the issuance of the Notes, and (v) the estimated related
expenses.

(d) To record estimated incremental overhead related to the Target Hospitals.

(e) 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
------- ------
------- ------

(f) To eliminate intercompany management fees and corporate overhead allocated
to the Target Hospitals by their parent corporations.
(g) To adjust depreciation and amortization expenses, based on the purchase
price of property and equipment, an estimated composite life of 18.5 years,
and the elimination of amortization of intangibles which will not be
purchased by the Company.
(h) 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. The
pro forma consolidated interest expense is based upon the historical rates
for indebtedness that will not be refinanced and an assumed blended rate of
approximately 10.3% on the borrowings under the New Credit Agreement and the
Notes.
(i) 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.
(j) 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.
(k) To adjust the income tax provision resulting from the earnings of the Target
Hospitals, based on the 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.
(l) 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 (1,392,832). 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 1,406,212.

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. 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 operating expenses in excess of revenues of $1.4 million, of which
$1.0 million was attributable to one facility.

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 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.

The Company generally has been able to increase the rates it charges
non-Medicare/Medicaid and certain non-managed care patients to cover increased
costs due to inflation. However, in recent years, Medicare and Medicaid payments
to hospitals have not kept pace with inflation. To the extent that inflation
continues, the Company will not be able to pass on the increased costs
associated with its Medicare/Medicaid patients unless federal and state
governments make corresponding increases in the reimbursement rates under these
programs, and the Company may not be able to pass on increased costs associated
with managed care patients due to private payor contractual limitations.

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. 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 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).

RESULTS OF OPERATIONS

The comparability of the Company's net revenue, operating 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 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)
<FN>
- ------------------------
(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 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,
$8,048,000 related to the four hospitals closed during fiscal 1993 and the
removal of one hospital from the Noncore group which was previously held for
sale. The remaining decline related to the "same store" core hospitals. 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 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 costs
other than bad debt 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 costs other than bad debt 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 and 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 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 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)
<FN>
- ------------------------------
(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.

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 costs other than bad debt 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.

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 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 costs other than bad debt 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.

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.

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.

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.

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. 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.
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. The
Company will acquire 36 psychiatric hospitals, eight chemical-dependency
treatment facilities, two residential treatment centers and one physician
outpatient practice from NME in connection with the Acquisition. A
chemical-dependency treatment facility is a hospital that is licensed to treat
only substance abuse patients. 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.

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. Only a relatively small percentage,
15%, of the adults who 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.

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
<FN>
- ------------------------
(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.

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
expense controls.

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:

PERCENTAGE OF HOSPITAL GROSS REVENUE

SIX MONTHS
YEAR ENDED SEPTEMBER ENDED
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 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 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.

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 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
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
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

DATE OF
NUMBER OF ACQUISITION
STATE/ LICENSED OR OPENING
NAME COUNTRY CITY BEDS BY THE COMPANY
- --------------------------------------------- --------------- --------------- --------- --------------

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
<FN>
- ------------------------------
(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.

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 Texarkana 60 -- -- 60
Arizona Tucson 40 -- 20 60
California Cathedral City 80 -- -- 80
California Lakewood 21 48 21 90
California La Mesa 88 11 -- 99
California Long Beach 80 -- -- 80
California San Jose 80 -- -- 80
California Visalia 64 -- -- 64
California Yorba Linda 80 -- -- 80
Colorado Louisville (1) 72 -- -- 72
Florida 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
Illinois Naperville (2) 92 -- -- 92
Indiana Evansville 60 -- -- 60
Indiana Indianapolis 84 -- -- 84
Indiana Jeffersonville 100 -- -- 100
Indiana Michigan City 89 -- -- 89
Louisiana Lafayette 70 -- -- 70
Maryland Bel Air -- 51 -- 51

Maryland East New Market (3) -- 42 -- 42
Maryland Gambrills -- 60 -- 60
Maryland Rockville (1) 97 -- -- 97
Maryland Rockville (1) -- -- 60 60
Maryland Woolford (3) -- 40 -- 40
Minnesota Waverly -- 40 -- 40
North Carolina Asheville 110 20 9 139
New Hampshire Nashua 80 20 -- 100
New Jersey Lakehurst -- 24 -- 24
New Jersey Summit 122 22 -- 144
Pennsylvania Williamsburg (3) -- 95 -- 95
South Carolina Johns Island (3) 8 41 -- 49
Tennessee Memphis 134 -- -- 134
Texas Webster 106 -- 44 150
Virginia Chesapeake -- 60 -- 60
Virginia Leesburg (4) 77 -- -- 77
Virginia Norfolk 65 -- -- 65
Virginia Richmond 84 -- -- 84
Virginia Virginia Beach (3) 61 -- -- 61
Wisconsin Brown Deer 80 -- -- 80
<FN>
- ------------------------------
(1) Land lease.
(2) Joint venture.
(3) Land and building leased.
(4) Building leased.

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)
<FN>
- ------------------------------
(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.

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 one 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 prior to the Reorganization. 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. 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.

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
Director, Chairman and Chief Executive Officer of the Company (since 1993); President and
Executive Officer Chief Operating 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
Director healthcare 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
Director, Executive Vice 1994) of the Company; Senior Vice President -- Finance
President and Chief (1990-1993); Vice President (1987-1990); Treasurer
Financial Officer (1986-1991); Director since January, 1991.
William E. Hale 48 Senior Vice President -- Operations (since 1994) of the
Senior Vice President -- Company; Chief Operating Officer of Behavioral Health
Operations Resources (1987-1993).
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 -- President -- Human Resources (1990); Senior Executive Director
Administrative Services -- Compensation and Benefits (1989-1990); Executive Director
-- Compensation and Benefits (1987-1989).

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
<FN>
- ------------------------------
* 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 --
<FN>
- ------------------------------
(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.

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 of $14.56 per share. 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.

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%
<FN>
- ------------------------
(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 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 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 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 have no arrangement with any person to participate 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 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
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 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.

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 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 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, 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, 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 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
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.

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 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 "Investment Considerations -- Holding
Company Structure." 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 aggregate consolidated net assets, earnings and equity of the
Guarantors are substantially equivalent to the net assets, earnings and equity
of the Company on a consolidated basis.

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

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 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 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 March 31, 1994, giving pro forma effect to the Financing Transactions,
the aggregate outstanding principal amount of Senior Indebtedness of the Company
and the Guarantors would have been approximately $232.4 million. See
"Capitalization."

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 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 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 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, 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 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 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 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
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 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 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.

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 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.

"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 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 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 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).

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 May 2, 1994,
approximately $134.6 million in loans and letters of credit were outstanding
under the Revolving Credit Commitment. The Company also expects to borrow
additional amounts under the Revolving Credit Commitment in connection with the
Acquisition. No more than $200 million of the Revolving Credit Commitment will
be available prior to the consummation of the initial closing of the
Acquisition.

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 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%.

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.

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

The New Company Credit Agreement and the New Subsidiary Credit Agreement
contain affirmative covenants usual for facilities of this type and contain
negative covenants restricting the Company and its restricted subsidiaries from,
among other things, (i) incurring certain additional indebtedness and contingent
liabilities, (ii) making certain asset sales, (iii) making certain advances,
investments and loans, (iv) making certain acquisitions, (v) creating certain
liens, (vi) entering into certain mergers, consolidations, joint ventures,
partnerships, leases and sale-and-leaseback transactions, (vii) paying certain
dividends and effecting certain other transactions involving the capital stock
of the Company and its restricted subsidiaries, (viii) entering into certain
transactions with affiliates, (ix) making capital expenditures, (x) incurring
restrictions affecting dividends and other payments from subsidiaries, (xi)
issuing subsidiary stock, and (xii) 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."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES
OF THE EXCHANGE OFFER

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 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,
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.

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

PAGE
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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-25
Condensed consolidated statements of operations for the quarters and six months ended March 31, 1993
and 1994.............................................................................................. F-26
Condensed consolidated statements of changes in stockholders' equity (deficit) for the quarter and six
months ended March 31, 1994........................................................................... F-27
Condensed consolidated statements of cash flows for the six months ended March 31, 1993 and 1994....... F-28
Notes to condensed consolidated financial statements................................................... F-29
THE TARGET HOSPITALS
Audited Combined Financial Statements as of and for the two years ended May 31, 1993
Report of independent public accountants............................................................... F-33
Combined balance sheet as of May 31, 1993.............................................................. F-34
Combined statements of operations for the years ended May 31, 1992 and 1993............................ F-35
Combined statements of cash flows for the years ended May 31, 1992 and 1993............................ F-36
Combined statements of owners' equity for the years ended May 31, 1992 and 1993........................ F-37
Notes to combined financial statements................................................................. F-38
Unaudited Combined Condensed Financial Statements
Unaudited combined condensed balance sheet as of February 28, 1994..................................... F-43
Unaudited combined condensed statements of operations for the nine months ended February 28, 1993 and
1994.................................................................................................. F-44
Unaudited combined condensed statements of cash flows for the nine months ended February 28, 1993 and
1994.................................................................................................. F-45
Note to unaudited combined condensed financial statements.............................................. F-46

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 May 13, 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)
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 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)
------------- -------------
------------- -------------
<FN>
- --------------------------
(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 bad debt expenses................... 249,956 226,123 46,612 284,372
Amortization of reorganization value in excess of
amounts allocable to identifiable assets......... -- -- 5,333 32,000
Other expenses (1)................................ 18,544 25,927 4,939 45,878
------------- ----------- ------------- -------------
Net income (loss)................................. $ 37,150 $ 23,545 $ 747 $ (15,415)
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
<FN>
- ------------------------
(1) Included in these amounts are income taxes and interest expense related to
debt specifically identifiable as debt of the general hospitals. Such
interest expense is not material.

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):

TWO MONTHS
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
SEPTEMBER 30, ENDED JULY SEPTEMBER 30, SEPTEMBER 30,
1991 31, 1992 1992 1993
------------- ----------- ------------- -------------

Net revenue............................................ $ 14,400 $ 16,671 $ 4,148 $ 25,596
Operating, 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.

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

F-7

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1993

1. STRUCTURE OF THE COMPANY (CONTINUED)
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.

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.

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."
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 EBDIT (which
is net revenue less operating 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
and (ii) estimated cash in excess of normal operating requirements. 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.

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-8

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1993

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 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. 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.

F-9

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1993

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.

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.

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. 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, closing costs and estimated net
operating losses to the estimated disposal date of certain facilities and
additional fees for certain financial advisors and legal costs for the
Restructuring. The additional fees were the result of the additional time
required to complete the Restructuring.

Since September 1990, in addition to the general hospital sale discussed in
Note 1, the Company has sold nine facilities for an aggregate sales price of
$61.6 million. The Company also sold a substantially completed psychiatric
hospital in October 1992. The Company has leased two facilities, with options to
purchase by the lessees.

F-10

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1993

4. PROVISION FOR RESTRUCTURING OF OPERATIONS (CONTINUED)
The Company is also attempting to sell or lease five other hospitals, the
related medical office buildings and a number of parcels of unimproved real
estate. The consolidated balance sheet as of September 30, 1993, includes the
following amounts related to assets held for disposition (in thousands):

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.

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.

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-11

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-12

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-13

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.

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-14

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-15

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.

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-16

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):

TWO MONTHS
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
SEPTEMBER 30, ENDED JULY SEPTEMBER 30, SEPTEMBER 30,
1991 31, 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-17

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 17,049
Other...................................................... 39,765 66,968
------------- -------------
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...................................................... (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 of
$74.8 million and $59.4 million at September 30, 1992 and 1993, respectively.

F-18

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.

During 1990 a lawsuit was filed against the Company, the Company's
independent accountants and five members of the Company's Board of Directors
from September 1, 1988, until April 2, 1990 (the "Bondholder Litigation"). The
complaint alleged that certain financial statements and other disclosures filed
with the Securities and Exchange Commission contained materially misleading
financial information. During fiscal 1992, the parties to the lawsuit reached a
settlement. However, Resolution Trust Corporation ("RTC"), for itself and in its
capacity as conservator or receivor for 12 financial institutions, requested
exclusion from the Bondholder Litigation. Based on a review of relevant law and
the facts known to the Company, the Company believes that it has substantial
defenses to a potential claim by RTC and that such a claim would not have a
material adverse effect on the Company's financial position or results of
operations.

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

F-19

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 1993

12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTINUED)
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-20

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
Loss from continuing operations................................ (41,116) (28,555) (21,477)
Income from discontinued operations............................ 5,262 6,984 9,000
Net loss....................................................... (35,854) (21,571) (12,477)
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)

F-21

14. SEGMENT INFORMATION ON GUARANTOR SUBSIDIARIES

Separate financial statements of the Guarantors are not presented in the
accompanying financial statements because the Guarantors are jointly, severally
and unconditionally liable under the guarantee, and the Company believes the
condensed consolidating financial information presented below is more meaningful
information in understanding the financial position of the Guarantor
Subsidiaries. There are no restrictions on the ability of the Guarantor
Subsidiaries to make distributions to Charter Medical Corporation (Parent
Company). The table below shows supplemental selected financial information for
the Guarantors, which is presented for the purpose of additional segment
analysis and should be reviewed in conjunction with the consolidated financial
statements. This table reflects the Guarantors under the 11 1/4% Senior
Subordinated Notes and the New Credit Agreement consummated in May 1994 (See
Note 15).

CHARTER
MEDICAL CONSOLIDATED
CORPORATION ELIMINATION
GUARANTOR NONGUARANTOR (PARENT ENTRIES CONSOLIDATED
(IN THOUSANDS) SUBSIDIARIES SUBSIDIARIES CORPORATION) (4) TOTAL
--------- ------------ -------- --------- ---------

Net Income (Loss)
Year Ended September 30, 1991......... $ (76,087) $ 4,356 $ (58,311) $ -- $ (130,042)
Ten Months Ended July 31, 1992........ (239,212) 6,565 980,614 -- 747,967
Two Months Ended September 30, 1992... (10,778) 2,765 817 -- (7,196)
Year Ended September 30, 1993......... (8,896) 9,402 (52,733) -- (52,227)
EBDITA (1)
Year Ended September 30, 1991......... 233,515 5,817 (23,042) (56,471) 159,819
Ten Months Ended July 31, 1992........ 237,087 8,511 (31,422) (50,324) 163,852
Two Months Ended September 30, 1992... 40,214 3,692 (12,220) (11,248) 20,438
Year Ended September 30, 1993......... 395,475 11,475 (99,970) (117,220) 189,760
Net Revenue
Year Ended September 30, 1991......... 1,244,221 35,144 (56,860) (354,241) 868,264
Ten Months Ended July 31, 1992........ 1,093,725 31,660 (32,104) (315,426) 777,855
Two Months Ended September 30, 1992... 206,745 6,429 (3,437) (66,887) 142,850
Year Ended September 30, 1993......... 1,373,895 42,507 (71,861) (446,634) 897,907
Current Assets
September 30, 1992.................... 334,409 10,197 46,447 (100,311) 290,742
September 30, 1993.................... 190,174 4,590 63,780 (26,629) 231,915
Noncurrent Assets
September 30, 1992.................... 1,064,481 65,299 925,888 (1,047,212) 1,008,456
September 30, 1993.................... 869,371 73,431 735,161 (1,071,692) 606,271
Current Liabilities
September 30, 1992.................... 180,843 3,666 152,969 (41,334) 296,144
September 30, 1993.................... 150,346 1,361 134,743 (13,852) 272,598
Noncurrent Liabilities (2)
September 30, 1992.................... 246,673 41,545 703,433 979 992,630
September 30, 1993.................... 137,566 47,857 335,647 (12,780) 508,290
Intercompany Transactions Asset
(Liability) (3)
September 30, 1992.................... 83,172 899 (84,063) (8) --
September 30, 1993.................... 250,707 1,269 (251,942) (34) --
Net Assets
September 30, 1992.................... 1,054,546 31,184 31,870 (1,107,176) 10,424
September 30, 1993.................... 1,022,340 30,072 76,609 (1,071,723) 57,298
<FN>
- ------------------------------
(1) Net revenue less operating and bad debt expenses.
(2) Of the debt related to the New Credit Agreement, only $63,315,000 and
$184,523,000 has been recorded on the individual subsidiaries' books at
September 30, 1993 and 1992, respectively.
(3) This column represents receivables and payables between subsidiaries in the
consolidated group, resulting from transactions between the various
entities, and is included in Net Assets.
(4) Relates primarily to Guarantor Subsidiaries whose operations were sold or
closed.

F-22

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 $151.9 million in cash plus
an additional cash amount, estimated to be approximately $50 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 six month period ended November 30, 1993, the Target Hospitals
had, respectively, approximately 40,000 and 19,000 patient admissions, net
revenue of approximately $407.5 million and $177.5 million and Target Hospital
EBITDA (defined as net revenue less operating expenses and bad debt expenses) of
approximately $55.1 million and $23.9 million.

Subject to obtaining licensure and other regulatory approvals, the Company
anticipates that it will purchase the Target Hospitals in multiple closings.

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 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%.

F-23

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.

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-24

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
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-25

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 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-26

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-27

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-28

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-29

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 -- 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.

NOTE F -- 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 $151.9 million in cash plus
an additional cash amount, estimated to be approximately $50 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 six month period ended November 30, 1993, the Target Hospitals
had, respectively, approximately 40,000 and 19,000 patient admissions, net
revenue of approximately $407.5 million and $177.5 million and Target Hospital
EBITDA (defined as net revenue less operating expenses and bad debt expenses) of
approximately $55.1 million and $23.9 million.

Subject to obtaining licensure and other regulatory approvals, the Company
anticipates that it will purchase the Target Hospitals in multiple closings.

NOTE G -- 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

F-30

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)

NOTE G -- SUBSEQUENT EVENTS (CONTINUED)
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

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
will be used on June 9, 1994 to 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.

F-31

CHARTER MEDICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1994
(UNAUDITED)

NOTE G -- SUBSEQUENT EVENTS (CONTINUED)
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

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.

Except as discussed in the following paragraph, 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 in April, 1994, NME reached an agreement-in-principle
with certain Federal government agencies which, upon execution, will finalize
all open investigations of NME by the federal government and its agencies. While
NME agreed to pay substantial amounts as part of these settlements and
agreements, none of these amounts have been reflected in the accompanying
combined financial statements as they have not been allocated to specific
facilities.

In our opinion, except 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 the
preceding paragraph that are applicable to the Selected Psychiatric Hospitals,
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 April 14, 1994 and
Note 10, which is as of May 13, 1994.

F-33

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-34

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-35

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
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..................................... 85,992 (336)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment.............................................. (31,077) (30,421)
Intangible assets....................................................................... (18) (4,399)
---------- ----------
Net cash used in investing activities................................................... (31,095) (34,820)
---------- ----------
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-36

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-37

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 an 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-38

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. 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 of cash flow and accrued interest (10% in 1992 and 1993) and noncash
entries for certain overhead and expense transfers.

Total interest expense recognized relating to balances with NME and
NME-owned entities was $10,680,000 and $11,058,000 for the years ended May 31,
1992 and 1993, respectively.

F-39

SELECTED PSYCHIATRIC HOSPITALS OF
NATIONAL MEDICAL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1992 AND 1993

4. RELATED PARTY TRANSACTIONS (CONTINUED)
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.

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

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.

F-40

SELECTED PSYCHIATRIC HOSPITALS OF
NATIONAL MEDICAL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1992 AND 1993

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
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.

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.

F-41

SELECTED PSYCHIATRIC HOSPITALS OF
NATIONAL MEDICAL ENTERPRISES, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1992 AND 1993

8. PROFESSIONAL AND GENERAL LIABILITY INSURANCE (CONTINUED)
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.
In April, 1994, NME reached an agreement-in-principle with the Civil Division
and Criminal Division of the Department of Justice, and the Department of Health
and Human Services which upon execution will bring to a close all open
investigations of NME (and its subsidiaries and affiliates) by the federal
government and its agencies. 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.

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 $165,000 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 under the Hart-Scott-Rodino Act and other regulatory approvals.

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 $152 million. 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.

On May 13, 1994, NME and Charter announced that they have received a request
from the Federal Trade Commission for additional information. As a result of
this request, Charter and NME expect a delay in the initial phase of the
transaction closing beyond the previously scheduled date of May 31, 1994.

F-42

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............................................................ 131,943
Prepaid expenses and other assets............................................... 3,122
---------
Total current assets.......................................................... 205,119
Other long-term assets............................................................ 1,553
---------
$ 206,672
---------
---------
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...................................................... 75,505
Owners' equity.................................................................... 80,086
---------
$ 206,672
---------
---------

See accompanying note to unaudited combined condensed financial statements.

F-43

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......................................... 4,262 165,289
Minority interests in earnings of certain selected hospitals............................. 921 320
Interest, net of capitalized portion..................................................... 8,578 9,076
---------- -----------
Total costs and expenses............................................................... 340,903 452,371
---------- -----------
Loss before income tax benefit........................................................... (31,630) (187,211)
Income tax benefit....................................................................... (11,703) (69,268)
---------- -----------
Net loss................................................................................. $ (19,927) $ (117,943)
---------- -----------
---------- -----------

See accompanying note to unaudited combined condensed financial statements.

F-44

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) $ (117,943)
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..................................... 4,262 165,289
Non-cash income tax benefit.......................................................... (11,703) (69,268)
Changes in operating assets and liabilities:
Accounts receivable................................................................ (7,893) (21,127)
Inventories of supplies............................................................ (182) (63)
Other current assets............................................................... 4,288 (119)
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.................................... 612 (20,728)
---------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment............................................. (24,340) (1,875)
Intangible assets...................................................................... (2,720) (1,094)
---------- -----------
Net cash used in investing activities.................................................. (27,060) (2,969)
---------- -----------
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-45

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.

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.

F-46

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

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 OFFERING. 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.................................... 9
Investment Considerations...................... 9
The Acquisition................................ 14
Use of Proceeds................................ 15
Capitalization................................. 16
Selected Historical Consolidated Financial and
Statistical Information...................... 17
Target Hospital Selected Financial
Information.................................. 19
Unaudited Pro Forma Financial Information...... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 25
Business....................................... 32
Management..................................... 46
Executive Compensation......................... 47
Security Ownership of Certain Beneficial Owners
and Management............................... 48
Certain Relationships and Related
Transactions................................. 49
The Exchange Offer............................. 50
Plan of Distribution........................... 59
Description of the Notes....................... 60
Summary of New Credit Agreement................ 81
Certain Federal Income Tax Consequences of the
Exchange Offer............................... 83
Legal Matters.................................. 84
Experts........................................ 84
Available Information.......................... 84
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 2.1 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.
Exhibits 2(a), 2(b) and 2(c) 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.

II-2

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.

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.
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.
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
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)

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 Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, in the City of Macon,
State of Georgia on May 18, 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
Registration Statement has been signed below by the following persons in the
capacities indicated on May 18, 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
Charlotte A. Sanford ....................... Treasurer

* In the case of Charter Medical of England Limited as Director

II-6

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
Joseph M. Cobern ........................... Director

II-7

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
Charlotte A. Sanford ....................... Treasurer

II-8

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
Joseph M. Cobern ........................... Director

II-9

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
Charlotte A. Sanford ....................... Treasurer

II-10

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
Margie M. Smith ............................ Director

II-11

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

II-13

David A. Richardson ........................ President
Charlotte A. Sanford ....................... Treasurer
CHARTER BEHAVIORAL HEALTH SYSTEM OF DALLAS, 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 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

II-14

CHARTER BEHAVIORAL HEALTH SYSTEM OF JACKSONVILLE, 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 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

II-15

Joseph M. Cobern ........................... Director
John C. McCauley ........................... Director and Vice President
David A. Richardson ........................ President
Charlotte A. Sanford ....................... Treasurer
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

II-16

Lawrence W. Drinkard ....................... President
Charlotte A. Sanford ....................... Treasurer
CHARTER BEHAVIORAL HEALTH SYSTEM OF NEVADA, 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 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

II-17

CHARTER BEHAVIORAL HEALTH SYSTEM OF NORTHWEST INDIANA, 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 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

II-18

Joseph M. Cobern ........................... Director
John C. McCauley ........................... Director and Vice President
Elbert T. McQueen .......................... President
Charlotte A. Sanford ....................... Treasurer
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

II-19

William E. Hale ............................ President
Charlotte A. Sanford ....................... Treasurer
CHARTER BEHAVIORAL HEALTH SYSTEM OF TOLEDO, 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 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

II-20

CHARTER BEHAVIORAL HEALTH SYSTEM OF WASHINGTON, D.C., 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 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 NORTH PHOENIX, 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 ORANGE COUNTY, INC.
Glenn A. McRae ............................. Director

II-34

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
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

II-35

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
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

II-36

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
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

II-37

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
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

II-38

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
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

II-39

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
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

II-40

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
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

II-41

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
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

II-42

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
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

II-43

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
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

II-44

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
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

II-45

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
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

II-46

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
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

II-47

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
TAMPA BAY BEHAVIORAL HEALTH ALLIANCE, 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
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
---------- --------- ------------ ------------- ----------
---------- --------- ------------ ------------- ----------
<FN>
- ------------------------------
(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.

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
---------- --------- ------ ------------- ----------
---------- --------- ------ ------------- ----------
<FN>
- ------------------------
(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
---------- ---------- ----------- ------------- ----------
---------- ---------- ----------- ------------- ----------
<FN>
- ------------------------
(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 -- --
------------- ------ ---------- -------------
------------- ------ ---------- -------------
<FN>
- ------------------------
(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 2.1 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............................................................
Exhibits 2(a), 2(b) and 2(c) 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................................................
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...............................................................
4(v) Exchange and Registration Rights Agreement, dated April 22, 1994 between the Company and
Bear, Stearns & Co. Inc. and BT Securities Corporation......................................
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...................................................
12 Statement regarding computation of ratios...................................................
21 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..........................................................................
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)...................................................................................