10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2004
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                    to
	Commission File Number 333-110117

Ardent Health Services LLC

(Exact Name of Registrant as Specified in its Charter)

Delaware	62-1862223
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification Number)

One Burton Hills Blvd., Suite 250
Nashville, TN	37215
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (615) 296-3000

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x

     As of August 12, 2004, there were 69,981,650 of the registrant’s common units outstanding (all of which are privately owned and are not traded on any public market).

TABLE OF CONTENTS

		Page
		No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations for the Three Months and Six Months ended June 30, 2004 and 2003	3
Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	4
Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2004 and 2003	5
Notes to Condensed Consolidated Financial Statements	7
Pro Forma Condensed Consolidated Financial Statements	25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 4. Controls and Procedures	50
PART II OTHER INFORMATION
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	52
Item 6. Exhibits and Reports on Form 8-K	52
Signature	53
Exhibit Index	54
Ex-2.1 Asset Purchase Agreement, dated as of May 11, 2004
Ex-2.2 Asset Purchase Agreement, dated as of July 20, 2004
Ex-10.1 First Amendment to Credit Agreement
Ex-10.2 Second Amendment to Credit Agreement
Ex-10.3 Second Amended and Restated Intercompany Promissory Note
Ex-10.4 Employment Agreement
Ex-10.5 Amended and Restated Employment and Consulting Agreement
EX-31.1 SECTION 302 CEO CERTIFICATION
EX-31.2 SECTION 302 CFO CERTIFICATION
EX-32.1 SECTION 906 CEO CERTIFICATION
EX-32.2 SECTION 906 CFO CERTIFICATION

2

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Revenues:
Net patient service revenue	$	180,144		$	152,196		$	369,987		$	299,973
Premium revenue		157,596			145,575			312,802			288,328
Other revenue		19,473			20,103			40,093			38,957
Total net revenues		357,213			317,874			722,882			627,258
Expenses:
Salaries and benefits		142,055			126,657			288,321			250,201
Professional fees		35,890			32,407			66,013			62,068
Claims and capitation		75,096			67,640			146,317			135,132
Supplies		41,825			37,719			83,812			74,586
Provision for doubtful accounts		15,976			12,290			33,333			23,206
Interest, net		7,042			4,780			13,541			8,459
Change in fair value of interest rate swap agreements		2,624			—			1,389			—
Depreciation and amortization		11,713			7,314			22,529			14,641
Loss (gain) on divestitures		—			310			—			(618	)
Other		29,773			29,545			62,185			56,596
Total expenses		361,994			318,662			717,440			624,271
Income (loss) from continuing operations before income taxes		(4,781	)		(788	)		5,442			2,987
Income tax expense (benefit)		(1,780	)		(302	)		2,123			1,199
Income (loss) from continuing operations, net		(3,001	)		(486	)		3,319			1,788
Discontinued operations:
Loss from discontinued operations		(144	)		(724	)		(444	)		(835	)
Gain on divestitures of discontinued operations		3,622			250			3,622			949
Income (loss) from discontinued operations before income taxes		3,478			(474	)		3,178			114
Income tax expense (benefit)		1,441			(200	)		1,332			44
Income (loss) from discontinued operations, net		2,037			(274	)		1,846			70
Net income (loss)		(964	)		(760	)		5,165			1,858
Accrued preferred dividends		2,203			2,017			4,377			3,964
Net income available for (loss attributable to) common members	$	(3,167	)	$	(2,777	)	$	788		$	(2,106	)

See accompanying notes to unaudited condensed consolidated financial statements.

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ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)

	June 30,			December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	122,711		$	89,762
Accounts receivable, less allowance for doubtful accounts of $64,806 at June 30, 2004 and $42,438 at December 31, 2003		135,039			116,515
Premiums receivable		10,890			14,733
Inventories		16,973			16,759
Deferred income taxes		30,697			27,792
Prepaid expenses and other current assets		37,247			31,514
Assets held for sale		—			3,336
Income tax receivable		2,453			2,128
Total current assets		356,010			302,539
Property, plant and equipment, net		366,597			365,321
Goodwill		75,529			75,529
Other intangible assets		45,866			48,289
Deferred income taxes		5,654			5,682
Other assets		19,015			20,644
Total assets	$	868,671		$	818,004
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	2,170		$	2,082
Accounts payable		54,011			53,301
Medical claims payable		44,259			45,751
Accrued salaries and benefits		48,493			44,692
Accrued interest		9,473			10,133
Unearned premiums		3,194			15,399
Other accrued expenses and liabilities		22,445			25,771
Total current liabilities		184,045			197,129
Long-term debt, less current installments		258,439			259,361
Other long-term liabilities		6,541			6,573
Self-insured liabilities		32,018			21,920
Total liabilities		481,043			484,983
Redeemable preferred units and accrued dividends, $3.43 unit price, $3.43 per unit redemption value; authorized, issued, and outstanding: 28,141,807 units		116,308			111,931
Members’ equity:
Authorized: 80,532,766 units at June 30, 2004 and 69,961,407 units at December 31, 2003; issued and outstanding: 68,107,299 units at June 30, 2004 and 56,998,444 units at December 31, 2003		273,773			224,331
Accumulated deficit		(2,453	)		(3,241	)
Total members’ equity		271,320			221,090
Total liabilities and members’ equity	$	868,671		$	818,004

See accompanying notes to unaudited condensed consolidated financial statements.

4

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

	Six Months Ended
	June 30,
	2004			2003
Cash flows from operating activities:
Income from continuing operations, net	$	3,319		$	1,788
Adjustments to reconcile income from continuing operations, net, to net cash provided by (used in) operating activities, net of acquisitions and divestitures:
Provision for doubtful accounts		33,333			23,206
Change in fair value of interest rate swap agreements		1,389			—
Depreciation and amortization		22,529			14,641
Gain on divestitures		—			(618	)
Amortization of deferred financing costs		1,019			2,378
Deferred income taxes		(3,753	)		(6,110	)
Changes in operating assets and liabilities:
Accounts receivable		(52,121	)		(22,936	)
Other current assets		(1,669	)		777
Income tax receivable (payable)		(325	)		6,003
Accounts payable and accrued expenses		(13,004	)		(12,971	)
Self-insured liabilities		10,633			4,147
Medical claims payable		(1,492	)		5,241
Net cash provided by (used in) operating activities		(142	)		15,546
Net cash provided by (used in) discontinued operations		(1,253	)		211
Cash flows from investing activities:
Investments in acquisitions, less cash acquired		—			(194,117	)
Purchases of property, plant and equipment, net		(20,288	)		(27,431	)
Proceeds from divestitures		5,972			6,311
Other		505			2,584
Net cash used in investing activities		(13,811	)		(212,653	)
Cash flows from financing activities:
Change in revolving line of credit		—			(11,443	)
Proceeds from long-term debt		—			148,500
Payments on long-term debt		(1,047	)		(29,804	)
Debt financing costs paid		(784	)		(4,587	)
Proceeds from issuance of common and preferred units		49,986			11,487
Common unit issuance costs		—			(1,982	)
Net cash provided by financing activities		48,155			112,171
Net increase (decrease) in cash and cash equivalents		32,949			(84,725	)
Cash and cash equivalents, beginning of period		89,762			113,859
Cash and cash equivalents, end of period	$	122,711		$	29,134

See accompanying notes to unaudited condensed consolidated financial statements.

5

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

	Six Months Ended
	June 30,
	2004		2003
Supplemental cash flow information:
Interest payments	$	13,639	$	3,635
Income tax payments, net of refunds		6,658		734
Non-cash common units issued		—		4,639
Preferred unit dividends accrued		4,377		3,964

See accompanying notes to unaudited condensed consolidated financial statements.

6

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

June 30, 2004

1. Basis of Presentation and Organization

     Ardent Health Services LLC is a holding company whose affiliates own and operate hospitals and related health care entities. The term “affiliates” includes direct and indirect subsidiaries of Ardent Health Services LLC and partnerships and joint ventures in which such subsidiaries are partners. At June 30, 2004, these affiliates owned and operated seven acute care hospitals (including one inpatient rehabilitation hospital), 20 behavioral hospitals, and other related health care businesses. The fully integrated health care delivery system in Albuquerque, New Mexico (the “Lovelace Sandia Health System”) comprises five of the seven acute care hospitals and includes an approximately 164,000 member health plan (the “Lovelace Health Plan” or the “Health Plan”), approximately 335 employed physicians, 15 primary care clinics and a full service reference laboratory. The terms “Ardent” or the “Company,” as used in this Quarterly Report on Form 10-Q, refer to Ardent Health Services LLC and its affiliates unless stated otherwise or indicated by context.

     The unaudited condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.

     In the opinion of management, the unaudited condensed consolidated financial statements reflect all material adjustments (consisting of normal recurring items) necessary for a fair presentation of the financial position and the results of operations for the periods presented. The results of operations for the periods presented are not necessarily indicative of the expected results for the year ending December 31, 2004. The interim unaudited condensed consolidated financial statements should be read in connection with the audited consolidated financial statements as of and for the year ended December 31, 2003, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying unaudited condensed consolidated financial statements and notes. Actual results could differ from those estimates.

     Certain prior year amounts have been reclassified to conform to the current year presentation. Additionally, certain prior year amounts have been reclassified due to accounting for discontinued operations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets. Refer to Note 3 for further discussion.

     As none of the Company’s common units are publicly held, no earnings per share information is presented in the accompanying unaudited condensed consolidated financial statements. The majority of the Company’s expenses are “cost of revenue” items.

2. Recently Issued Accounting Standards

     In May 2003, the Financial Accounting Standards Board (the “FASB”) issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (“SFAS No. 150”). SFAS No. 150 requires issuers to classify as liabilities, or assets in some circumstances, three classes of freestanding financial instruments that embody obligations of the issuer. Generally, SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003 and was otherwise effective for interim periods beginning after June 15, 2003. For mandatorily redeemable financial instruments, as defined by SFAS No. 150, the statement is effective for fiscal periods beginning after December 15, 2003. Prior to being amended, the Company’s mandatorily redeemable preferred units would have been reflected as a liability effective January 1, 2004. However, in January 2004, the

7

holders of the Company’s common units and mandatorily redeemable preferred units voted to delete the mandatory redemption feature of the preferred units. Therefore, the application of SFAS No. 150 did not have a material effect on the Company’s financial position or results of operations.

     In December 2003, the FASB issued Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (“FIN46R”). FIN46R replaces Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, which was issued in January 2003. FIN46R addresses the consolidation by business enterprises of variable interest entities as defined within FIN46R. The Company must immediately apply the provisions of FIN46R to variable interests in variable interest entities created after December 31, 2003. The Company must apply the provisions of FIN46R to all other variable interests in variable interest entities by January 1, 2005. The application of FIN46R did not have and is not expected to have a material effect on the Company’s financial position or results of operations.

3. Acquisitions, Divestitures and Joint Venture

Acquisitions

     Acquisitions are accounted for using the purchase method of accounting as prescribed by SFAS No. 141, Business Combinations, and the results of operations are included in the accompanying unaudited condensed consolidated statements of operations from the respective dates of acquisition.

     Effective January 1, 2003, the Company acquired Lovelace Health Systems, Inc. (“Lovelace”) in Albuquerque, New Mexico from CIGNA Health Plan (“Cigna”). The aggregate purchase price of $209.4 million plus acquisition costs was paid in cash and was financed with debt issued in 2003 and equity issued in 2002. In conjunction with the acquisition, certain post-closing items have resulted in a dispute with Cigna related to a net worth settlement provision. The dispute, when resolved, could result in a change to the purchase price. The Company expects the dispute to be resolved during 2004.

     Effective October 8, 2003, the Company acquired the 146-bed Northwestern Institute of Psychiatry (renamed Brooke Glen), a private behavioral health services facility in Fort Washington, Pennsylvania, for $7.7 million, plus acquisition costs. The purchase price was paid in cash and funded from the proceeds of $225.0 million senior subordinated notes issued in August 2003.

     Subsequent to June 30, 2004, the Company completed certain previously announced acquisitions. Refer to Note 9 for further discussion.

Divestitures

     Effective April 1, 2004, the Company sold a behavioral hospital for consideration of approximately $6.1 million, which resulted in a pretax gain of $3.6 million recorded during the three months ended June 30, 2004. The hospital’s results of operations, including gain on divestiture, and net assets are included in income from discontinued operations and assets held for sale, respectively, for the periods presented in the accompanying unaudited condensed consolidated financial statements in accordance with SFAS No. 144.

     For the six months ended June 30, 2003, the Company recorded pretax gains of $949,000, which included pretax gains of $250,000 recorded during the three months ended June 30, 2003, from the sale of one behavioral hospital and recoveries of fully reserved items related to a behavioral hospital sold in 2002. The hospitals were identified as held for sale under SFAS No. 144, under which the results of operations and related gains on divestitures are included in income from discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

     For the six months ended June 30, 2003, the Company also recorded pretax gains of $618,000, which included a pretax loss of $310,000 recorded during the three months ended June 30, 2003, from the sales of two behavioral hospitals. The hospitals were previously identified as held for sale under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of (“SFAS No. 121”), under which the net gains are recorded in the accompanying unaudited condensed consolidated statements of operations as gains on divestitures and the historical results of operations and financial position are not reclassified as discontinued operations.

Joint Venture

     On June 9, 2004 the Company entered into a letter of intent with Ochsner Clinic Foundation to partner in the ownership of Summit Hospital in Baton Rouge, Louisiana. The Company has solely owned Summit Hospital since July 2001, and accordingly consolidates the accounts and results of operations of the hospital. Subject to closing conditions, the transaction is expected to be completed by the fall of 2004, at which time management expects to account for the Company’s noncontrolling interest in Summit Hospital as an equity-method investment.

8

Pro Forma Results of Operations

     The pro forma effect of the Company’s acquisitions and divestitures on the Company’s results of operations for the periods prior to the respective transaction dates was not significant for the periods presented. Refer to the unaudited Pro Forma Condensed Consolidated Financial Statements included elsewhere in this Form 10-Q for further discussion.

4. Long-Term Debt and Financing Arrangements

     Long-term debt includes the following (in thousands):

	June 30,			December 31,
	2004			2003
Senior subordinated notes (interest at 10.0%)	$	225,000		$	225,000
Subordinated debt (interest at 10.2%), net of unamortized discount of $3.8 million and $4.0 million at June 30, 2004 and December 31, 2003, respectively		32,209			31,996
Bank facilities (interest on revolving line of credit at LIBOR plus 3.75%)		—			—
Notes payable		2,316			3,157
Other		1,084			1,290
Total long-term debt		260,609			261,443
Less current installments		(2,170	)		(2,082	)
Long-term debt, less current installments	$	258,439		$	259,361

     Subsequent to June 30, 2004, the Company borrowed an additional $300.0 million of senior secured term debt in connection with the acquisition of Hillcrest HealthCare System and increased its senior secured revolving line of credit to $150.0 million. Refer to Note 9 for further discussion.

Interest Rate Swap Agreements

     In September 2003, the Company entered into four interest rate swap agreements with financial institutions to convert a notional amount of $80.0 million of the $225.0 million fixed-rate borrowings under the 10.0% senior subordinated notes into floating-rate borrowings. The swap agreements mature in $40.0 million increments on August 15, 2006 and August 15, 2008. The floating interest rate is based on six month LIBOR plus a margin and is determined for the six months ended in arrears on semi-annual settlement dates of February 15 and August 15.

     As the interest rate swap agreements do not qualify for hedge accounting under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, changes in the fair value of the Company’s interest rate hedging arrangements are recognized each period in earnings. The fair value of the swap obligations was a liability of $831,000 at June 30, 2004 and is included in other accrued expenses and liabilities in the accompanying unaudited condensed consolidated balance sheet. On August 5, 2004, the Company terminated its interest rate swap agreements, resulting in a payment of $267,000, which was the fair market value of the related liability.

5. Stock-Based Compensation

9

     The Company, from time to time, grants options for a fixed number of common units to employees. SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for employee unit-based compensation using the intrinsic value method as prescribed in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

     If the Company had determined compensation cost based on the fair value at the grant date for its unit options under SFAS No. 123, the Company’s net income (loss) would have been changed to the pro forma amounts indicated below (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income (loss), as reported	$	(964	)	$	(760	)	$	5,165		$	1,858
Less total unit-based employee compensation expense determined under fair-value based method for all awards, net of tax		(345	)		(313	)		(696	)		(541	)
Pro forma net income (loss)	$	(1,309	)	$	(1,073	)	$	4,469		$	1,317

     The effect of applying SFAS No. 123 for providing pro forma disclosure is not likely to be representative of the effect on reported net income for future years.

     The weighted average fair values of the Company’s options granted during the three months ended June 30, 2004 and 2003 were $1.63 and $1.36, respectively. The weighted average fair values of the Company’s options granted during the six months ended June 30, 2004 and 2003 were $1.57 and $1.37, respectively. The fair value of each option grant is estimated on the date of grant using a minimum value option pricing model. The weighted average assumptions used for grants are as follows:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Risk-free investment interest rate		4.6	%		3.6	%		4.3	%		3.7	%
Expected life in years		10			10			10			10
Expected dividend yield		—			—			—			—

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6. Segment Information

     The Company’s acute care hospitals and related health care businesses are similar in their activities and the economic environments in which they operate (i.e., urban and suburban markets). Accordingly, the Company’s reportable operating segments consist of (1) acute care hospitals and related health care businesses, (2) the Lovelace Health Plan and (3) behavioral hospitals. The “Other” segment column below consists of centralized services including information services, reimbursement, accounting, taxation, legal, internal audit and risk management as well as the Company’s wholly-owned insurance subsidiary.

     Total net revenue within the consolidated acute care services segment prior to January 1, 2004 excludes patient service revenue for services provided to the Lovelace Health Plan members. During 2003, the Health Plan did not qualify as a separate operating segment in accordance with the criteria set forth by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. However, beginning on January 1, 2004, the Company managed the Health Plan as a separate operating segment and the acute care services segment excluded the operations of the Health Plan and included patient service revenue related to services rendered at the Company’s acute care hospitals to its Health Plan members. The Company’s management believes this allows them to better manage the businesses within the Company and make better financial and operational decisions. As a result of this change in the Company’s management of these operations, the Health Plan business is a separate reportable segment in 2004. However, due to system limitations, it is impractical to restate the Company’s segment information for the three months and six months ended June 30, 2003 to correspond with this change in reportable segments. For purposes of comparability, the Company’s segment information for the three months and six months ended June 30, 2004 includes the consolidated acute care services segment consistent with the basis of segmentation in effect prior to January 1, 2004.

     Adjusted EBITDA represents income from continuing operations, net, before interest, change in fair value of interest rate swap agreements, depreciation and amortization and income tax expense. Adjusted EBITDA for the Company’s segment information is presented because the Company’s management uses it as a measure of segment performance and as a useful indicator with which to allocate resources among segments. Additionally, the Company’s management believes it is a useful measure of its liquidity. Adjusted EBITDA for the Company on a consolidated basis, subject to certain adjustments, is also used as a measure in certain of the covenants in the Company’s senior secured credit facility and the indenture governing its subsidiary’s 10.0% Senior Subordinated Notes due 2013. Adjusted EBITDA should not be considered in isolation from, and is not intended as an alternative measure of, net income or cash flow from operations, each as determined in accordance with accounting principles generally accepted in the United States. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies.

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     The following is a financial summary by business segment for the periods indicated (in thousands):

	For the Three Months Ended June 30, 2004
								Consolidated
	Acute		Lovelace					Acute		Behavioral
	Care		Health					Care		Care
	Services		Plan		Eliminations			Services		Services		Other			Eliminations			Total
Total net revenues	$	183,792	$	161,152	$	(60,741	)	$	284,203	$	74,042	$	—		$	(1,032	)	$	357,213
Adjusted EBITDA		7,756		7,485		—			15,241		11,984		(10,627	)		—			16,598
Segment assets		448,125		87,919		—			536,044		142,309		190,318			—			868,671
Goodwill		64,169		—		—			64,169		11,360		—			—			75,529
Other identifiable intangible assets		—		45,866		—			45,866		—		—			—			45,866
Capital expenditures		4,932		1,902		—			6,834		2,369		1,766			—			10,969
								For the Three Months Ended June 30, 2003
								Consolidated		Behavioral
								Acute Care		Care
								Services		Services		Other			Eliminations			Total
Total net revenues								$	249,666	$	68,809	$	—		$	(601	)	$	317,874
Adjusted EBITDA									8,332		13,008		(10,034	)		—			11,306
Segment assets									478,779		127,176		72,742			—			678,697
Goodwill									62,990		11,360		—			—			74,350
Other identifiable intangible assets									48,350		—		—			—			48,350
Capital expenditures									14,257		1,851		3,467			—			19,575
	For the Six Months Ended June 30, 2004
								Consolidated
	Acute		Lovelace					Acute		Behavioral
	Care		Health					Care		Care
	Services		Plan		Eliminations			Services		Services		Other			Eliminations			Total
Total net revenues	$	380,393	$	319,730	$	(122,860	)	$	577,263	$	147,969	$	—		$	(2,350	)	$	722,882
Adjusted EBITDA		25,669		14,370		—			40,039		23,566		(20,704	)		—			42,901
Capital expenditures		6,684		3,614		—			10,298		4,897		5,093			—			20,288
								For the Six Months Ended June 30, 2003
								Consolidated		Behavioral
								Acute Care		Care
								Services		Services		Other			Eliminations			Total
Total net revenues								$	493,328	$	135,484	$	—		$	(1,554	)	$	627,258
Adjusted EBITDA									17,613		26,147		(17,673	)		—			26,087
Capital expenditures									20,793		2,905		3,733			—			27,431

12

     The following is a reconciliation of Adjusted EBITDA to cash flows from operating activities (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2004			2003			2004			2003
Net cash provided by (used in) operating activities	$	24,153		$	6,173		$	(142	)	$	15,546
Changes in working capital items and other		(29,191	)		(6,385	)		1,615			(13,828	)
Income (loss) from discontinued operations, net		2,037			(274	)		1,846			70
Income (loss) from continuing operations, net		(3,001	)		(486	)		3,319			1,788
Interest, net		7,042			4,780			13,541			8,459
Change in fair value of interest rate swap agreements		2,624			—			1,389			—
Depreciation and amortization		11,713			7,314			22,529			14,641
Income tax expense (benefit)		(1,780	)		(302	)		2,123			1,199
Adjusted EBITDA	$	16,598		$	11,306		$	42,901		$	26,087

7. Members’ Equity

     The Company entered into a subscription agreement with Welsh, Carson, Anderson and Stowe IX, L.P. (“WCAS”) and FFC Partners II, L.P. (“Ferrer Freeman”) on December 11, 2002, pursuant to which WCAS and Ferrer Freeman have the right, under certain circumstances, in WCAS’s discretion, to purchase up to an aggregate of $165.0 million of the Company’s common units at a purchase price of $4.50 per common unit. The subscription agreement was amended in February 2003 to add BancAmerica Capital Investors I, L.P. (“BAC”) as a purchaser of up to an additional $10.0 million of common units at the same purchase price per common unit. Pursuant to the subscription agreement, as amended, WCAS, Ferrer Freeman and BAC had invested a total of $116.7 million at December 31, 2003, and had the right, under certain circumstances, at WCAS’s discretion, to invest up to an additional $58.3 million.

     In a series of transactions beginning on June 30, 2004, WCAS, Ferrer Freeman and BAC exercised the right to invest an additional $58.3 million, pursuant to the subscription agreement. On June 30, 2004, the Company issued 11,111,109 common member units to WCAS and related investors for $50.0 million, or $4.50 per common unit. Such transaction is reflected in the Company’s financial position at June 30, 2004. On July 2, 2004, the Company issued 1,851,851 common member units to Ferrer Freeman and BAC for $8.3 million, or $4.50 per common unit. Such transaction was recorded subsequent to June 30, 2004 and is not reflected in the Company’s financial position at June 30, 2004. The Company used the majority of the proceeds to fund, in part, the acquisition of Hillcrest HealthCare System. Refer to Note 9 for further discussion of the acquisition.

8. Commitments and Contingencies

Capital Expenditure Commitments

     In connection with the acquisitions in the Albuquerque market, the Company has committed to the previous owners to invest $80.0 million in capital expenditures in the Albuquerque market through 2008. The Company had invested $58.9 million through June 30, 2004. In connection with the acquisition of Hillcrest HealthCare System, the Company committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years.

Net Revenue

     The Medicare and Medicaid regulations and various managed care contracts under which the discounts from the Company’s standard charges must be calculated are complex and are subject to interpretation and adjustment. The Company estimates the allowance for contractual discounts on a payor-specific basis given its interpretation of the applicable regulations or contract terms. However, the services authorized and provided and resulting reimbursements are often subject to interpretation. These interpretations sometimes result in payments that differ

13

from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently necessitating continual review and assessment of the estimation process by management.

     The Company has recently received notice from a state Medicaid program that certain amounts paid by the program to one of the Company’s behavioral hospitals in prior years were paid in error and that the Company owes the amounts back to the program. The Company believes that it has fully complied with both the applicable laws and previous agreements established with the program during previous years and that final resolution of these disputed amounts will not have a material adverse effect on the Company’s business, results of operations or financial position.

     The final determination of amounts earned under Medicare and Medicaid programs often does not occur until fiscal years subsequent to submission of claims due to audits by the administering agency, rights of appeal and the application of numerous technical provisions. Differences between original estimates and subsequent revisions, including final settlements, are included in the results of operations of the period in which the revisions are made. Adjustments to estimated settlements resulted in increases to net patient service revenue of $1.7 million and $668,000 for the three months ended June 30, 2004 and 2003, respectively, and $2.1 million and $1.1 million for the six months ended June 30, 2004 and 2003, respectively.

Litigation and Regulatory Matters

     From time to time, claims and suits arise in the ordinary course of the Company’s business. In certain of these actions, plaintiffs request punitive or other damages against the Company that may not be covered by insurance. The Company does not believe that it is a party to any proceeding that, in management’s opinion, would have a material adverse effect on the Company’s business, financial condition or results of operations.

Acquisitions

     The Company has acquired and plans to continue to acquire businesses with prior operating histories. Acquired companies may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement, fraud and abuse and anti-kickback laws. The Company has from time to time identified certain past practices of acquired companies that do not conform to its standards. Although the Company institutes policies designed to conform such practices to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for the past activities of these acquired facilities that may later be asserted to be improper by private plaintiffs or government agencies. Although the Company generally seeks to obtain indemnification from prospective sellers covering such matters, there can be no assurance that any such matter will be covered by indemnification, or if covered, that such indemnification will be adequate to cover potential losses and fines.

9. Subsequent Events

Acquisitions

     Effective August 1, 2004, the Company completed its previously announced transaction with Molina Healthcare, Inc. to transfer approximately 30,000 commercial members of Cimarron Health Plan (“Cimarron”) to the Lovelace Health Plan, which is part of Lovelace Sandia Health System, Inc., for approximately $16.0 million, plus additional contingent consideration of up to $3.5 million subject to the satisfaction of certain conditions. The Company funded the transaction with available cash on hand.

     On August 12, 2004, the Company completed its previously announced acquisition of Hillcrest HealthCare System (“Hillcrest”) in Tulsa, Oklahoma. The Company acquired substantially all of the net operating assets of Hillcrest for $326.3 million, including preliminary working capital, subject to customary adjustments. The acquisition consisted primarily of two metropolitan Tulsa hospitals and related health care entities, as well as six regional hospitals acquired or intended to be acquired through long-term operating agreements. In connection with the Hillcrest acquisition, the Company committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years. The aggregate purchase price of the acquisition was paid in cash and financed, in part, with the $58.3 million of proceeds invested by WCAS, Ferrer Freeman, BAC and related investors pursuant to the aforementioned subscription agreement with the Company and cash on hand. The remaining purchase price was financed through an additional borrowing of senior secured term debt on August 12, 2004 in the principal amount of $300.0 million, as further discussed below.

     The Company is currently in the process of allocating the respective purchase prices of the Cimarron and Hillcrest acquisitions to the fair market value of assets acquired and liabilities assumed, subject to working capital adjustments, valuation of fixed assets, and identification and valuation of identifiable intangible assets.

14

     In connection with the Company’s recent acquisitions, the Company’s management began evaluating its information systems in the acute care segment, primarily related to patient accounting and clinical information systems, to determine the feasibility of moving to a single operating platform across its acute care hospitals. Management has evaluated the carrying amounts of the related information system assets for recoverability and does not believe any indicators of impairment exist. However, should events, changes in circumstances or other indicators of potential impairment exist in the future, the Company may be required to record impairment charges on long-lived assets, which could have a material adverse effect on its results of operations and financial condition.

        Long-term Debt

     On August 12, 2004, the Company amended its August 2003 Credit Agreement to, among other things, increase its $125.0 million revolving line of credit to a $150.0 million revolving line of credit and add $300.0 million of additional borrowing available under an add-on term loan (“Term Loan B”). The Company also retained the $200.0 million of incremental term loans available, under certain conditions, under the existing August 2003 Credit Agreement. Concurrent with the amendment, the Company received $300.0 million through borrowings of the amount available under Term Loan B. Interest on Term Loan B is payable quarterly at an interest rate of either LIBOR plus 2.25% or a base rate plus 1.25%. Principal payments of 0.25% of the original principal borrowed on Term Loan B are to be paid quarterly, with the remaining principal to be paid at maturity. Term Loan B matures August 12, 2011. The revolving line of credit bears interest initially at LIBOR plus 2.50%. The interest on the revolving line of credit is payable on the outstanding principal balance on the last day of the selected interest period. The principal amount of the revolving line of credit is to be paid in full on August 19, 2008. The Company has not incurred borrowings under the revolving line of credit or incremental term loans as of August 16, 2004; other than standby letters of credit totaling $10.4 million that reduce the amount available under the revolving line of credit.

     The Company continues to pay a commitment fee ranging from 0.50% to 0.75% of the average daily amount of availability under the revolving credit facility and other fees based on the applicable LIBOR margin on outstanding standby letters of credit. The August 2003 Credit Agreement, as amended, contains various financial covenants including requirements for the Company to maintain a minimum interest coverage ratio, a total leverage ratio, a senior leverage ratio, a minimum net worth of the health maintenance organization affiliates and a capital expenditures maximum. The August 2003 Credit Agreement, as amended, also restricts certain activities of the Company, including its ability to incur additional debt, declare dividends, repurchase stock, engage in mergers or acquisitions and sell assets. The August 2003 Credit Agreement, as amended, is guaranteed by the Company and its material and future affiliates, other than Lovelace Sandia Health System, Inc. and the Company’s captive insurance affiliate, and is secured by substantially all of the Company’s existing and future property and assets and capital stock of all of the Company’s affiliates.

     In connection with the merger of the Company’s New Mexico affiliates on October 1, 2003, Lovelace Sandia Health System, Inc. (the surviving entity) issued a $70.0 million intercompany note to Ardent Health Services, Inc. The Company was required to maintain a pledge of the intercompany note in favor of the lenders of the Company’s August 2003 Credit Agreement and the holders of the Company’s $225.0 million senior subordinated notes. On July 12, 2004, the August 2003 Credit Agreement was amended to, among other things, reduce the pledge required to be maintained by the Company to $43.0 million, upon which the intercompany note was also amended to reduce the principal amount of the note to $43.0 million.

        Divestitures

     Effective July 31, 2004, the Company sold its Lovelace Home Health operations for $200,000 in cash, subject to certain adjustments, which is expected to result in a minimal gain. The entity was identified as held for sale during the three months ended June 30, 2004. Accordingly, the entity’s results of operations are included in income (loss) from discontinued operations for all periods presented in the accompanying unaudited condensed consolidated statements of operations.

15

10. Financial Information for the Company and Its Subsidiaries

     The Company’s $225.0 million senior subordinated notes are fully and unconditionally guaranteed on a joint and several basis by all of the Company’s material subsidiaries except for entities comprising Lovelace Sandia Health System, Inc. and RIVID Insurance Company Ltd., the Company’s wholly-owned captive insurance subsidiary.

     The Company conducts substantially all of its business through its subsidiaries. Presented below are condensed consolidating balance sheets as of June 30, 2004 and December 31, 2003, condensed consolidating statements of operations for the three months and six months ended June 30, 2004 and June 30, 2003 and condensed consolidating statements of cash flows for the six months ended June 30, 2004 and June 30, 2003 for the Company and its subsidiaries. The information segregates the parent company (“Ardent Health Services LLC”), the issuer of the senior subordinated notes (“Ardent Health Services, Inc.”), the combined Subsidiary Guarantors, the combined Non-Guarantors (the entities comprising Lovelace Sandia Health System, Inc. and RIVID Insurance Company Ltd.), and eliminations. The issuer and each of the Subsidiary Guarantors and Non-Guarantors are 100% owned, directly or indirectly, by Ardent Health Services LLC.

16

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2004
(Dollars in thousands)

							Subsidiary			Non-						Condensed
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	92,907		$	87,237		$	—		$	180,144
Premium revenue		—			—			—			157,586			10			157,596
Other revenue		(964	)		7,096			17,342			11,004			(15,005	)		19,473
Total net revenues		(964	)		7,096			110,249			255,827			(14,995	)		357,213
Expenses:
Salaries and benefits		—			—			65,991			76,090			(26	)		142,055
Professional fees		—			—			11,832			30,501			(6,443	)		35,890
Claims and capitation		—			—			—			75,818			(722	)		75,096
Supplies		—			—			12,436			29,389			—			41,825
Provision for doubtful accounts		—			—			6,009			9,967			—			15,976
Interest, net		—			5,436			216			1,390			—			7,042
Change in fair value of interest rate swap agreements		—			2,624			—			—			—			2,624
Depreciation and amortization		—			—			5,441			6,272			—			11,713
Other		—			—			5,324			24,921			(472	)		29,773
Total expenses		—			8,060			107,249			254,348			(7,663	)		361,994
Income (loss) from continuing operations before income taxes		(964	)		(964	)		3,000			1,479			(7,332	)		(4,781	)
Income tax expense (benefit)		—			—			(1,780	)		—			—			(1,780	)
Income (loss) from continuing operations, net		(964	)		(964	)		4,780			1,479			(7,332	)		(3,001	)
Discontinued operations:
Income (loss) from discontinued operations		—			—			3,894			(416	)		—			3,478
Income tax expense (benefit)		—			—			1,572			(131	)		—			1,441
Income (loss) from discontinued operations, net		—			—			2,322			(285	)		—			2,037
Net income (loss)		(964	)		(964	)		7,102			1,194			(7,332	)		(964	)
Accrued preferred dividends		2,203			—			—			—			—			2,203
Net income available for (loss attributable to) common members	$	(3,167	)	$	(964	)	$	7,102		$	1,194		$	(7,332	)	$	(3,167	)

17

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004
(Dollars in thousands)

					Subsidiary		Non-						Condensed
	Parent		Issuer		Guarantors		Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—	$	—	$	185,053	$	184,934		$	—		$	369,987
Premium revenue		—		—		—		312,802			—			312,802
Other revenue		5,165		17,134		39,377		24,419			(46,002	)		40,093
Total net revenues		5,165		17,134		224,430		522,155			(46,002	)		722,882
Expenses:
Salaries and benefits		—		—		130,226		158,144			(49	)		288,321
Professional fees		—		—		22,893		56,540			(13,420	)		66,013
Claims and capitation		—		—		—		148,011			(1,694	)		146,317
Supplies		—		—		24,362		59,450			—			83,812
Provision for doubtful accounts		—		—		11,615		21,718			—			33,333
Interest, net		—		10,580		214		2,747			—			13,541
Change in fair value of interest rate swap agreements		—		1,389		—		—			—			1,389
Depreciation and amortization		—		—		10,093		12,436			—			22,529
Other		—		—		8,191		54,940			(946	)		62,185
Total expenses		—		11,969		207,594		513,986			(16,109	)		717,440
Income (loss) from continuing operations before income taxes		5,165		5,165		16,836		8,169			(29,893	)		5,442
Income tax expense		—		—		2,123		—			—			2,123
Income (loss) from continuing operations, net		5,165		5,165		14,713		8,169			(29,893	)		3,319
Discontinued operations:
Income (loss) from discontinued operations		—		—		4,088		(910	)		—			3,178
Income tax expense (benefit)		—		—		1,650		(318	)		—			1,332
Income (loss) from discontinued operations, net		—		—		2,438		(592	)		—			1,846
Net income (loss)		5,165		5,165		17,151		7,577			(29,893	)		5,165
Accrued preferred dividends		4,377		—		—		—			—			4,377
Net income available for common members	$	788	$	5,165	$	17,151	$	7,577		$	(29,893	)	$	788

18

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Three Months Ended June 30, 2003
(Dollars in thousands)

							Subsidiary			Non-						Condensed
	Parent			Issuer			Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—		$	83,897		$	68,299		$	—		$	152,196
Premium revenue		—			—			—			145,575			—			145,575
Other revenue		(760	)		3,725			5,432			9,566			2,140			20,103
Total net revenues		(760	)		3,725			89,329			223,440			2,140			317,874
Expenses:
Salaries and benefits		—			—			54,057			72,600			—			126,657
Professional fees		—			—			13,103			21,391			(2,087	)		32,407
Claims and capitation		—			—			—			67,640			—			67,640
Supplies		—			—			10,173			27,546			—			37,719
Provision for doubtful accounts		—			—			4,428			7,862			—			12,290
Interest, net		—			4,485			(152	)		447			—			4,780
Depreciation and amortization		—			—			2,396			4,918			—			7,314
Loss on divestitures		—			—			310			—			—			310
Other		—			—			1,791			27,806			(52	)		29,545
Total expenses		—			4,485			86,106			230,210			(2,139	)		318,662
Income (loss) from continuing operations before income taxes		(760	)		(760	)		3,223			(6,770	)		4,279			(788	)
Income tax expense (benefit)		—			—			(302	)		—			—			(302	)
Income (loss) from continuing operations, net		(760	)		(760	)		3,525			(6,770	)		4,279			(486	)
Discontinued operations:
Income from discontinued operations		—			—			291			(765	)		—			(474	)
Income tax expense (benefit)		—			—			91			(291	)		—			(200	)
Income (loss) from discontinued operations, net		—			—			200			(474	)		—			(274	)
Net income (loss)		(760	)		(760	)		3,725			(7,244	)		4,279			(760	)
Accrued preferred dividends		2,017			—			—			—			—			2,017
Net income available for (loss attributable to) common members	$	(2,777	)	$	(760	)	$	3,725		$	(7,244	)	$	4,279		$	(2,777	)

19

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003
(Dollars in thousands)

						Subsidiary			Non-						Condensed
	Parent			Issuer		Guarantors			Guarantors			Eliminations			Consolidated
Revenues:
Net patient service revenue	$	—		$	—	$	165,705		$	134,268		$	—		$	299,973
Premium revenue		—			—		—			288,328			—			288,328
Other revenue		1,858			9,513		16,489			18,400			(7,303	)		38,957
Total net revenues		1,858			9,513		182,194			440,996			(7,303	)		627,258
Expenses:
Salaries and benefits		—			—		106,481			143,720			—			250,201
Professional fees		—			—		24,772			41,612			(4,316	)		62,068
Claims and capitation		—			—		—			135,132			—			135,132
Supplies		—			—		20,012			54,574			—			74,586
Provision for doubtful accounts		—			—		8,829			14,377			—			23,206
Interest, net		—			7,655		968			(164	)		—			8,459
Depreciation and amortization		—			—		4,703			9,938			—			14,641
Loss (gain) on divestitures		—			—		(618	)		—			—			(618	)
Other		—			—		7,150			49,551			(105	)		56,596
Total expenses		—			7,655		172,297			448,740			(4,421	)		624,271
Income (loss) from continuing operations before income taxes		1,858			1,858		9,897			(7,744	)		(2,882	)		2,987
Income tax expense		—			—		1,199			—			—			1,199
Income (loss) from continuing operations, net		1,858			1,858		8,698			(7,744	)		(2,882	)		1,788
Discontinued operations:
Income (loss) from discontinued operations		—			—		1,316			(1,202	)		—			114
Income tax expense (benefit)		—			—		501			(457	)		—			44
Income (loss) from discontinued operations, net		—			—		815			(745	)		—			70
Net income (loss)		1,858			1,858		9,513			(8,489	)		(2,882	)		1,858
Accrued preferred dividends		3,964			—		—			—			—			3,964
Net income available for (loss attributable to) common members	$	(2,106	)	$	1,858	$	9,513		$	(8,489	)	$	(2,882	)	$	(2,106	)

20

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2004
(Dollars in thousands)

						Subsidiary			Non-					Condensed
	Parent			Issuer		Guarantors			Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—	$	94,918		$	27,793	$	—		$	122,711
Accounts receivable, net		—			—		63,491			71,548		—			135,039
Premiums receivable		—			—		—			10,890		—			10,890
Inventories		—			—		6,723			10,250		—			16,973
Deferred income taxes		—			—		26,122			4,575		—			30,697
Prepaid expenses and other current assets		—			—		17,185			20,062		—			37,247
Assets held for sale		—			—		—			—		—			—
Income tax receivable		—			—		2,453			—		—			2,453
Total current assets		—			—		210,892			145,118		—			356,010
Property, plant and equipment, net		—			—		156,479			210,118		—			366,597
Goodwill		—			—		13,073			62,456		—			75,529
Other intangible assets		—			—		—			45,866		—			45,866
Deferred income taxes		—			—		5,654			—		—			5,654
Other assets		387,628			655,040		271,783			3,660		(1,299,096	)		19,015
Total assets	$	387,628		$	655,040	$	657,881		$	467,218	$	(1,299,096	)	$	868,671
LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	—		$	—	$	2,013		$	157	$	—		$	2,170
Accounts payable		—			—		25,124			28,887		—			54,011
Medical claims payable		—			—		—			44,259		—			44,259
Accrued salaries and benefits		—			—		24,379			24,114		—			48,493
Accrued interest		—			9,455		18			—		—			9,473
Unearned premiums		—			—		(106	)		3,300		—			3,194
Other accrued expenses and liabilities		—			831		11,337			10,277		—			22,445
Total current liabilities		—			10,286		62,765			110,994		—			184,045
Long-term debt, less current installments		—			257,209		853			377		—			258,439
Other long-term liabilities		—			—		6,541			—		—			6,541
Self-insured liabilities		—			—		27,699			4,319		—			32,018
Note payable to Parent		—			—		(72,353	)		72,353		—			—
Due to (from) Parent		—			—		(9,088	)		9,088		—			—
Total liabilities		—			267,495		16,417			197,131		—			481,043
Redeemable preferred units and accrued dividends		116,308			—		—			—		—			116,308
Members’ and stockholder’s equity:
Capital stock		—			—		—			150		(150	)		—
Common units		273,773			—		—			—		—			273,773
Additional paid in capital		—			370,320		594,405			262,254		(1,226,979	)		—
Retained earnings (accumulated deficit)		(2,453	)		17,225		47,059			7,683		(71,967	)		(2,453	)
Total members’ and stockholder’s equity		271,320			387,545		641,464			270,087		(1,299,096	)		271,320
Total liabilities and members’ equity	$	387,628		$	655,040	$	657,881		$	467,218	$	(1,299,096	)	$	868,671

21

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2003
(Dollars in thousands)

							Subsidiary		Non-						Condensed
	Parent			Issuer			Guarantors		Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—		$	49,919	$	39,843		$	—		$	89,762
Accounts receivable, net		—			—			59,743		56,772			—			116,515
Premiums receivable		—			—			—		14,733			—			14,733
Inventories		—			—			6,523		10,236			—			16,759
Deferred income taxes		—			—			23,217		4,575			—			27,792
Prepaid expenses and other current assets		—			—			16,966		14,548			—			31,514
Assets held for sale		—			—			3,336		—			—			3,336
Income tax receivable		—			—			2,128		—			—			2,128
Total current assets		—			—			161,832		140,707			—			302,539
Property, plant and equipment, net		—			—			154,095		211,226			—			365,321
Goodwill		—			—			13,072		62,457			—			75,529
Other intangible assets		—			—			—		48,289			—			48,289
Deferred income taxes		—			—			5,682		—			—			5,682
Other assets		333,021			528,109			261,617		6,174			(1,108,277	)		20,644
Total assets	$	333,021		$	528,109		$	596,298	$	468,853		$	(1,108,277	)	$	818,004
LIABILITIES AND MEMBERS’ AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt	$	—		$	—		$	1,931	$	151		$	—		$	2,082
Accounts payable		—			—			26,175		27,126			—			53,301
Medical claims payable		—			—			—		45,751			—			45,751
Accrued salaries and benefits		—			—			23,429		21,263			—			44,692
Accrued interest		—			10,133			—		—			—			10,133
Unearned premiums		—			—			—		15,399			—			15,399
Other accrued expenses and liabilities		—			—			9,423		16,348			—			25,771
Total current liabilities		—			10,133			60,958		126,038			—			197,129
Long-term debt, less current installments		—			256,996			1,908		457			—			259,361
Other long-term liabilities		—			—			6,573		—			—			6,573
Self-insured liabilities		—			—			10,255		11,665			—			21,920
Note payable to Parent		—			(71,412	)		—		71,412			—			—
Due to (from) Parent		—			—			3,228		(3,228	)		—			—
Total liabilities		—			195,717			82,922		206,344			—			484,983
Redeemable preferred units and accrued dividends		111,931			—			—		—			—			111,931
Members’ and stockholders’ equity:
Capital stock		—			—			—		150			(150	)		—
Common units		224,331			—			—		—			—			224,331
Additional paid in capital		—			320,332			484,587		262,254			(1,067,173	)		—
Retained earnings (accumulated deficit)		(3,241	)		12,060			28,789		105			(40,954	)		(3,241	)
Total members’ and stockholders’ equity		221,090			332,392			513,376		262,509			(1,108,277	)		221,090
Total liabilities and members’ equity	$	333,021		$	528,109		$	596,298	$	468,853		$	(1,108,277	)	$	818,004

22

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2004
(Dollars in thousands)

							Subsidiary			Non-					Condensed
	Parent			Issuer			Guarantors			Guarantors			Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	—		$	(9,561	)	$	27,402		$	(17,983	)	$	—	$	(142	)
Net cash provided by (used in) discontinued operations		—			—			(1,253	)		—			—		(1,253	)
Cash flows from investing activities:
Purchases of property, plant and equipment, net		—			—			(11,712	)		(8,576	)		—		(20,288	)
Proceeds from divestitures		—			—			5,972			—			—		5,972
Other		—			—			(2,010	)		2,515			—		505
Net cash provided by (used in) investing activities		—			—			(7,750	)		(6,061	)		—		(13,811	)
Cash flows from financing activities:
Payments on long-term debt		—			—			(973	)		(74	)		—		(1,047	)
Debt financing costs paid		—			(784	)		—			—			—		(784	)
Intercompany advances, net		—			—			(11,126	)		11,126			—		—
Contributions from Parent		(49,986	)		10,345			39,641			—			—		—
Note payable to Issuer		—			—			(942	)		942			—		—
Proceeds from the issuance of common units		49,986			—			—			—			—		49,986
Net cash provided by (used in) financing activities		—			9,561			26,600			11,994			—		48,155
Net increase (decrease) in cash and cash equivalents		—			—			44,999			(12,050	)		—		32,949
Cash and cash equivalents, beginning of period		—			—			49,919			39,843			—		89,762
Cash and cash equivalents, end of period	$	—		$	—		$	94,918		$	27,793		$	—	$	122,711
Supplemental cash flow information:
Cash paid for interest	$	—		$	10,239		$	653		$	2,747		$	—	$	13,639
Cash paid for income taxes		—			—			6,658			—			—		6,658
Preferred unit dividends accrued		4,377			—			—			—			—		4,377

23

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2003
(Dollars in thousands)

							Subsidiary			Non-					Condensed
	Parent			Issuer			Guarantors			Guarantors			Eliminations		Consolidated
Net cash (used in) provided by operating activities	$	—		$	(5,277)		$	14,176		$	6,647		$	—	$	15,546
Net cash provided by discontinued operations		—			—			211			—			—		211
Cash flow from investing activities:
Investments in acquisitions, less cash acquired		—			—			—			(194,117	)		—		(194,117	)
Purchases of property, plant and equipment, net		—			—			(11,779	)		(15,652	)		—		(27,431	)
Transfer of assets		—			—			6,570			(6,570	)		—		—
Proceeds from divestitures		—			—			6,311			—			—		6,311
Other		—						2,414			170			—		2,584
Net cash provided by (used in) investing activities		—			—			3,516			(216,169	)		—		(212,653	)
Cash flows from financing activities:
Proceeds from (payments on) revolving line of credit, net		—			—			(11,443	)		—			—		(11,443	)
Proceeds from long-term debt		—			148,500			—			—			—		148,500
Payments on long-term debt		—			—			(29,772	)		(32	)		—		(29,804	)
Debt financing costs paid		—			(4,587	)		—			—			—		(4,587	)
Intercompany advances, net		—			—			(62,380	)		62,380			—		—
Contributions from (distributions to) Parent		(9,505	)		(138,636	)		(11,394	)		159,535			—		—
Proceeds from the issuance of common units		11,487			—			—			—			—		11,487
Preferred and common unit issuance costs		(1,982	)		—			—			—			—		(1,982	)
Net cash provided by (used in) financing activities		—			5,277			(114,989	)		221,883			—		112,171
Net increase (decrease) in cash and cash equivalents		—			—			(97,086	)		12,361			—		(84,725	)
Cash and cash equivalents, beginning of period		—			—			102,853			11,006			—		113,859
Cash and cash equivalents, end of period	$	—		$	—		$	5,767		$	23,367		$	—	$	29,134
Supplemental cash flow information:
Cash paid for interest	$	—		$	2,074		$	1,561		$	—		$	—	$	3,635
Cash paid for income taxes		—			—			734			—			—		734
Noncash common units issued		4,639			—			—			—			—		4,639
Preferred unit dividends accrued		3,964			—			—			—			—		3,964

24

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES

PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Introduction

Effective July 31, 2004, the Company sold its Lovelace Home Health operations and certain related assets in Albuquerque, New Mexico to Heritage Home Healthcare in an arms’ length transaction for $200,000 in cash. Effective April 1, 2004, the Company sold the operations and certain assets of Northern Indiana Hospital, a behavioral hospital in Plymouth, Indiana. The following balance sheet narrative as of June 30, 2004 gives effect to the Lovelace Home Health business disposition as if the transaction had been completed as of June 30, 2004. The following results of operations narrative for the six months ended June 30, 2004 and unaudited condensed consolidated statements of operations for the year ended December 31, 2003 give effect to the business dispositions by the Company as if the transactions had been completed on January 1, 2003.

The following narratives and unaudited pro forma condensed consolidated statements of operations presented herein do not intend to represent what the Company’s financial position or results of operations would have been had such transactions occurred at the beginning of the periods presented or to project the Company’s results of operations in any future period. The following pro forma information should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2003 and its unaudited condensed consolidated financial statements included elsewhere in this Form 10-Q.

Balance Sheet as of June 30, 2004

The unaudited condensed consolidated balance sheet as of June 30, 2004 included elsewhere in this Form 10-Q already gives effect to the disposition of Northern Indiana Hospital and includes $33,000 of net property, plant and equipment that was included in the sale of its Lovelace Home Health operations.

Pro Forma Results of Operations for the Six Months Ended June 30, 2004

The accompanying unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2004 reflects the results of operations of the Lovelace Home Health and Northern Indiana Hospital as discontinued operations. For the six months ended June 30, 2004, income (loss) from discontinued operations includes the following (dollars in thousands):

						Total
	Lovelace			Northern		Discontinued
	Home Health			Indiana		Operations
Total net revenues	$	1,937		$	2,742	$	4,679
Total expenses		2,846			2,277		5,123
Income (loss) from discontinued operations		(909	)		465		(444	)
Gain on divestitures of discontinued operations		—			3,622		3,622
Income (loss) from discontinued operations before income taxes		(909	)		4,087		3,178
Income tax expense (benefit)		(318	)		1,650		1,332
Income (loss) from discontinued operations, net	$	(591	)	$	2,437	$	1,846

25

ARDENT HEALTH SERVICES LLC AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

Year Ended December 31, 2003
(Unaudited)
(Dollars in thousands)

			Historical			Lovelace			Northern			Pro Forma			Pro Forma
			Ardent			Home Health			Indiana			Adjustments			Ardent
Revenues:
	Net patient service revenue		$	640,920		$	(4,648	)	$	(9,039	)	$	—		$	627,233
	Premium revenue			592,293			—			—			—			592,293
	Other revenue			86,461			(23	)		(159	)		—			86,279
		Total net revenues		1,319,674			(4,671	)		(9,198	)		—			1,305,805
Expenses:
	Salaries and benefits			531,893			(5,550	)		(5,120	)		—			521,223
	Professional fees			127,295			(381	)		(998	)		—			125,916
	Claims and capitation			272,872			—			—			—			272,872
	Supplies			149,063			(297	)		(571	)		—			148,195
	Provision for doubtful accounts			52,749			(254	)		(393	)		—			52,102
	Interest, net			22,155			(31	)		(386	)		281	(a)		22,019
	Change in fair value of interest rate swap agreements			(558	)		—			—			—			(558	)
	Depreciation and amortization			35,742			(81	)		(182	)		—			35,479
	Impairment of long-lived assets and restructuring costs			2,913			—			—			—			2,913
	Loss on divestitures			61			—			—			—			61
	Other			119,472			(1,278	)		(1,303	)		711	(b)		117,602
		Total expenses		1,313,657			(7,872	)		(8,953	)		992			1,297,824
	Income (loss) from continuing operations before income taxes			6,017			3,201			(245	)		(992	)		7,981
	Income tax expense (benefit)			2,312			1,216			(93	)		(372	)(c)		3,063
	Income (loss) from continuing operations, net		$	3,705		$	1,985		$	(152	)	$	(620	)	$	4,918

Notes to Pro Forma Condensed Consolidated Statement of Operations:

(a)	Adjustment to exclude interest expense allocated to the disposed businesses but not directly attributable to the disposition.
(b)	Adjustment to exclude management fees allocated to the disposed businesses that are eliminated upon consolidation.
(c)	Adjustment to give effect to the income tax effect of pro forma adjustments.

26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this report and the more detailed discussion contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2003.

Forward Looking Statements

     This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which are intended to be covered by the safe harbors created under that Act. These statements are based on our current estimates and expectations. Forward-looking statements may include words such as “may,” “will,” “plans,” “estimates,” “anticipates,” “believes,” “expects,” “intends” and similar expressions. These forward-looking statements are subject to various factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those projected or assumed. These factors, risks and uncertainties include, without limitation, possible changes in the Medicare and Medicaid programs that may limit reimbursement to health care providers and insurers; a possible reduction of profitability of our Health Plan caused by lower enrollment; our failure to maintain satisfactory relationships with providers or our ability to effectively price our health care premiums or manage medical costs; the geographic concentration of our operations, particularly in Albuquerque, New Mexico and Tulsa, Oklahoma; the availability, cost and terms of malpractice insurance coverage; claims and legal actions relating to professional liabilities or other matters exceeding the scope of our liability coverage; the highly competitive nature of the health care business, including the competition to recruit and retain physicians and other health care personnel and the ability to retain qualified management; the potential adverse impact of government investigations or “qui tam” lawsuits brought under the False Claims Act or other whistleblower statutes; our ability to integrate newly acquired facilities and improve their operations and realize the anticipated benefits of the acquisitions; our ability to acquire hospitals and other related health care entities that meet our target criteria; our ability to manage and integrate our information systems effectively; any reduction in payments to health care providers by government and commercial third-party payors, as well as cost-containment efforts of insurers and other payors; uncertainty associated with compliance with HIPAA and other privacy laws and regulations; the restrictions and covenants in our credit facility and debt instruments and the potential lack of adequate alternative financing; changes in, or violations of, federal, state or local regulation affecting the health care industry; the possible enactment of Federal or state health care reform; changes in general economic conditions and those factors, risks, and uncertainties described in our Annual Report on Form 10-K under the caption “Risk Factors” and from time to time in our filings with the Securities and Exchange Commission (the “SEC”). We can give no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by us or any other person that our objectives and plans will be achieved. We undertake no obligation to publicly release any revisions to any forward-looking statements contained in this report.

Executive Overview

2004 Operations Summary

     During the three months and six months ended June 30, 2004, we have continued to achieve positive results, including:

        • increased admissions and patient days over prior year periods in both our acute care and behavioral segments, including on a same facility basis;

        • increased net patient service revenue per adjusted admission and patient day over prior year periods in both the consolidated acute care and behavioral segments;

        • progress towards finalizing the previously announced Hillcrest and Cimarron acquisitions, which were completed subsequent to June 30, 2004;

27

                    • increased Health Plan revenue, successful retention of plan members and effective management of the cost of medical care; and

                    • certification by the Centers for Medicare and Medicaid Services (“CMS”) in May 2004 of our Brooke Glen behavioral hospital, which will allow for increased access to patient admissions in future periods.

     However, we continue to face certain challenges, including:

                    • continued deterioration in the collectability of self-pay accounts due to industry-wide trends, which continues to negatively impact our bad debt expense;

                    • integration of the recently completed Hillcrest and Cimarron acquisitions, including integration of disparate information systems;

                    • continued labor pricing and recruitment pressures brought on by the nationwide nursing shortage; and

                    • continued challenges in managing our general and professional liability and workers compensation risks in a cost-effective manner.

Revenues

     We generate revenue predominantly through three sources: the provision of patient care at our acute care and behavioral facilities; premiums charged to our Health Plan membership; and other health care services. We evaluate the growth of our revenue in many ways. In our acute care segment, we utilize admissions and adjusted admissions, which are volume measures, and revenue per adjusted admission, which is a pricing and acuity measure. However, it has been difficult to utilize revenue per adjusted admission due to the historical treatment of revenues associated with our Health Plan members who receive health care services at our acute care hospitals, which is discussed below under net patient service revenue. In our behavioral care segment, we utilize patient days, adjusted patient days and average length of stay, measures of volume and acuity, as well as revenue per patient day and adjusted patient day, measures of pricing and acuity.

     The following is an analysis of our revenue from each source (in thousands):

	Three Months Ended June 30,								Six Months Ended June 30,
	2004				2003				2004				2003
Net patient service revenue	$	180,144	50.4	%	$	152,196	47.9	%	$	369,987	51.2	%	$	299,973	47.8	%
Premium revenue		157,596	44.1			145,575	45.8			312,802	43.3			288,328	46.0
Other revenue		19,473	5.5			20,103	6.3			40,093	5.5			38,957	6.2
Total net revenues	$	357,213	100.0	%	$	317,874	100.0	%	$	722,882	100.0	%	$	627,258	100.0	%

28

Net Patient Service Revenue

     Our net patient service revenue is primarily derived from Medicare and Medicaid programs and managed care contracts. These revenues are net of contractual adjustments and policy discounts, which represent the difference between our hospitals’ established charges and the payment rates under the Medicare and Medicaid programs and managed care programs. The percentage of our net patient service revenue from Medicare and Medicaid programs and managed care programs (expressed in patient days) was as follows:

	Three Months Ended June 30,												Six Months Ended June 30,
	2004						2003						2004						2003
	Acute			Behavioral			Acute			Behavioral			Acute			Behavioral			Acute			Behavioral
Medicare		40.6	%		8.9	%		44.0	%		9.0	%		40.9	%		9.2	%		43.7	%		8.9	%
Medicaid		5.6			38.4			6.2			34.3			5.6			36.8			6.1			34.5
Managed care		43.9			28.3			38.1			29.6			44.4			29.2			39.1			30.1
Other payors		9.9			24.4			11.7			27.1			9.1			24.8			11.1			26.5
		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

     Other payors primarily include state and local governments, commercial payors, workers’ compensation and self pay patients.

     Net patient service revenue within our consolidated acute care services segment prior to January 1, 2004 excludes revenue for services provided to our Health Plan members. During 2003, the Health Plan did not qualify as a separate operating segment in accordance with the criteria set forth by SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. However, beginning on January 1, 2004, we managed the Health Plan as a separate operating segment and our acute care services segment excludes the operations of the Health Plan and includes net patient service revenue related to services rendered at our acute care hospitals to our Health Plan members. We believe this allows us to better manage the businesses within our company and make better financial and operational decisions. As a result of this change in how we managed these operations, our Health Plan business is a separate reportable segment in 2004. However, due to system limitations it is impractical to restate our segment information for prior periods to correspond with this change in our reportable segments.

     The final determination of amounts earned under Medicare and Medicaid programs often does not occur until fiscal years subsequent to submission of claims due to audits by the administering agency, rights of appeal and the application of numerous technical provisions. Differences between original estimates and subsequent revisions, including final settlements of cost reports, are included in the results of operations of the period in which the revisions are made. We did not assume any of the cost report settlements under these programs for our acquisitions for dates prior to our purchases. Adjustments to estimated settlements resulted in increases to net patient service revenue of $1.7 million and $668,000 for the three months ended June 30, 2004 and 2003, respectively, and $2.1 million and $1.1 million for the six months ended June 30, 2004 and 2003, respectively.

     We recently received notice from a state Medicaid program that certain amounts paid by the program to one of our behavioral hospitals in prior years were paid in error and that we owe the amounts back to the program. We believe that we have fully complied with both the applicable laws and previous agreements established with the program during previous years and that final resolution of these disputed amounts will not have a material adverse effect on our business, results of operations or financial position.

Recent Behavioral Hospital Trends

     The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (“BBRA of 1999”) required CMS to develop an inpatient psychiatric per diem effective for the federal fiscal year beginning October 1, 2002. On November 28, 2003, CMS proposed a rule to implement a prospective payment system (“PPS”) for psychiatric hospitals and units. This new system will replace the current inpatient psychiatric payment system. The proposed rule designates that PPS under the new system will be effective for cost reports beginning on or after April 1, 2004. CMS has not issued a final rule for the inpatient psychiatric PPS to accomplish the proposed effective date of April 1, 2004. According to CMS’ recent notice on Proposed Changes to the Hospital Inpatient Prospective Payment Systems and Fiscal Year 2005 Rates, CMS is still in the process of analyzing public comments and developing a final rule related to this new system. The effective date of this new system would occur five months following publication of the final rule. The plan is scheduled to be implemented through a three year transition, ultimately phasing into 100% PPS (year one: 75% cost/25% PPS; year two: 50% cost/50%

29

PPS; year three: 25% cost/75% PPS; year four: 100% PPS). We cannot predict the date the final rule will be published, the actual effective date of the final rule, or whether the final rule will mirror provisions of the proposed rule or its ultimate impact on our results of operations.

Charity Care and Contemplated Revisions to Policies

     In February 2004, CMS and the Office of Inspector General issued guidance that hospitals have the ability under Medicare regulations to provide relief to uninsured and under-insured patients who cannot afford their hospital bills and to Medicare beneficiaries who cannot afford their Medicare cost sharing amounts. Beginning in August 2004, we implemented a pilot charity care policy that provides discounts to uninsured and under-insured patients. The policy requires facility personnel to first determine if a patient has insurance or can qualify for state or locally funded programs. If not, facility personnel seek to qualify the patient for charity care. The policy considers income level, family size and the total annual family medical bills. Discounts are applied on a sliding scale depending on income and family size. We began the program at a pilot hospital and plan to evaluate its results and eventually implement the policy throughout all of our facilities. Implementation of this policy could result in decreased net patient service revenue with a commensurate offsetting decrease to the provision for doubtful accounts.

Premium Revenue

     Our premium revenue is derived from our Health Plan in New Mexico. We offer a portfolio of health plan products to private and public purchasers. Premium revenue is comprised of premiums we receive from our Health Plan members, for which we then are responsible for the costs of health care services provided to those members. Because our Health Plan is part of our integrated health care delivery network in New Mexico, we ultimately provide many of those health care services to our Health Plan members.

     Although premium revenue was 44.1% and 43.3% of total net revenues for the three months and six months ended June 30, 2004, respectively, expanding our presence in the managed care business is not one of our primary growth strategies. One of our key growth strategies is to expand through the selective acquisition of acute care and behavioral hospitals in targeted markets. Effective August 1, 2004, we completed the previously announced transaction with Molina Healthcare, Inc. to transfer approximately 30,000 commercial members of Cimarron Health Plan to our Health Plan in New Mexico. The transaction provided a strategic opportunity to expand our current Health Plan services in the Albuquerque market and increase the integrated delivery system’s access to these members; however, we do not generally plan to acquire additional health plans unless these plans are tangential parts of the hospitals or systems that we acquire. The Health Plan is an important part of our integrated delivery system in Albuquerque, and we expect to ultimately provide a higher proportion of health care services to the former Cimarron commercial members as a result of transferring them to our Health Plan. As we expand into new targeted markets over time, we anticipate that Health Plan revenues will become a smaller percentage of our total net revenues.

Other Revenue

     We also derive revenue from our commercial laboratory, retail pharmacies within our hospitals, provider network access and medical management services through our Health Plan, and educational services through our behavioral segment.

Accounts Receivable Collection Risks and Resulting Increased Provision for Bad Debts

     We are susceptible to the industry-wide trend of increased collection risk on uninsured self-pay patients as well as insured patients whose employers have required them to pay higher deductibles and co-payments. This increase in uninsured self-pay patients has caused deterioration in our accounts receivable, primarily related to the uninsured self-pay patients, which has resulted in increased write-offs and a larger provision for doubtful accounts as a percentage of total net revenues. The increase in self-pay accounts receivable results from a combination of factors including general economic weakness, higher levels of patient deductibles and co-insurance, continuing state budget struggles resulting in reductions of Medicaid enrollees and an increase in uninsured patients who may not qualify for charity care programs. We have implemented policies and procedures designed to accelerate upfront cash collections as well as to continue to focus on cash collection efforts after

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discharge. However, we believe that increased bad debts will remain a prevalent trend in the hospital industry during the foreseeable future.

     Our self-pay amounts due from patients were $39.4 million and our total allowance for doubtful accounts was $64.8 million at June 30, 2004. The valuation allowance related to the self-pay portion of our business is substantially greater than any other payor and is based upon our historical collection rates. Our total allowance for doubtful accounts exceeds self-pay amounts due from patients primarily due to our billing systems not currently tracking co-payments and deductibles due from patients for which collection of the primary payor accounts has not occurred. Therefore, our accounts receivable agings reflect certain co-payments and deductibles as due from third-party payors until those third-party payors have made payment, at which time the co-payments and deductibles due from patients are reclassified to self-pay.

     Our total allowance for doubtful accounts represented approximately 164.6% and 152.0% of self-pay amounts due from patients at June 30, 2004 and December 31, 2003, respectively. The increase in our allowance for doubtful accounts and related provision for doubtful accounts is primarily the result of increased allowances on self-pay accounts as a result of deterioration in the estimated collectability of such accounts. Our accounts receivable has increased due to a corresponding increase in net patient service revenue and an increase in days sales outstanding, which were 67 days and 59 days as of June 30, 2004 and December 31, 2003, respectively.

     The increase in days sales outstanding is primarily related to changes in how we manage the acute care activity within the Lovelace Sandia Health System. Beginning on January 1, 2004, we managed the Health Plan as a separate operating segment and our acute care services segment excludes the operations of the Health Plan and includes net patient service revenue related to services rendered at our acute care hospitals to our Health Plan members. We believe this allows us to better manage the businesses within our company and make better financial and operational decisions. As a result of this change in how we managed these operations, we began adjudicating claims for services provided to our Health Plan members. The adjudication of our Health Plan claims, coupled with increased adjusted admissions and patient days, significantly increased the volume of claims that our business office was required to process and resulted in a build up of accounts receivable during the six months ended June 30, 2004. We expect to decrease our days sales outstanding during the remainder of 2004 as we continue to increase our business office personnel to adjust to the increased volumes and enhance our collection processes.

Our Business Strategy

     Key elements of our business strategy include the following:

• Physician Recruiting and Retention. We strive to recruit both primary and specialty care physicians who can provide quality services that we believe are currently needed in the communities we serve. We similarly seek to recruit new physicians (primarily psychiatrists) to our behavioral hospitals to provide services to our patients. This reflects our strategy to expand capacity and more importantly our service lines at our facilities. Additionally, we strive to retain our physicians by maintaining strong relationships with them, by enhancing the scope and quality of services at our hospitals, and by constantly improving our hospitals’ work environment. We believe that as we continue to strengthen our position in each of our markets, we will further improve our ability to attract and retain quality physicians. An example of our retention efforts is the use of a program we refer to as Physician Leadership Councils, or PLCs. PLCs generally consist of leading physicians in our communities who provide their ideas and recommendations to the management of each facility on improving its operations. We use PLCs to develop and maintain strong relationships with members of the medical staffs at each of our acute care hospitals. Generally, PLCs meet with our hospital management teams on a regular basis to discuss operating and strategic issues, serve as a sounding board for the medical community at each hospital and enable our local management teams to communicate on a regular basis with the medical staff. PLCs also actively participate in the strategic planning process of each of our acute care hospitals.

• Acquisitions. An integral part of our business strategy is the continued selective acquisitions of acute care hospitals in urban and suburban markets and behavioral hospitals. To accomplish this, we selectively seek acquisition opportunities in markets with populations over 100,000 and growth rates above the national

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average, either through the acquisition of a network of hospitals and other health care facilities or a single well-positioned facility, where we generally can improve operating performance and profitability. For example, in August 2004, we completed the previously announced acquisition of Hillcrest HealthCare System in Tulsa, Oklahoma for $326.3 million, including preliminary working capital, subject to customary adjustments. We have generally acquired relatively underperforming acute care hospitals where we believe we can improve their operational performance, profitability and their financial systems and internal controls. After we acquire a hospital, we implement a number of measures designed to increase revenues, lower operating costs and improve their financial systems and internal controls. We also may make significant investments in the acquired hospital to expand services, strengthen the medical staff, improve our market position overall and integrate the acquired hospital’s systems into our systems.

• Capital Expenditures. Upon acquisition of a health care system or a single facility, we generally invest substantial capital in those new markets. For example, upon the acquisition of the facilities now comprising Lovelace Sandia Health System, we committed to invest $80.0 million of capital into those facilities in the Albuquerque market over a five-year period. Through June 30, 2004, we had invested approximately $58.9 million and we anticipate completing our commitment during 2004. As part of the Hillcrest acquisition, we have committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years. See “Liquidity and Capital Resources” below for additional discussion of our capital expenditures.

     Our ability to realize the benefits of these strategies will be affected by a number of important factors, including factors described under the captions, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Known Legislative, Industry and Economic Trends” contained in our Annual Report on Form 10-K for the year ended December 31, 2003.

Acquisitions, Divestitures and Joint Venture

2003 Acquisitions

     Effective January 1, 2003, we acquired Lovelace Health Systems, Inc. in Albuquerque, New Mexico, for $209.4 million, plus acquisition costs. Lovelace Health Systems, Inc. included Lovelace Medical Center, a 201 bed acute care hospital, and the Lovelace Health Plan, a health maintenance organization. We financed the acquisition of Lovelace Health Systems, Inc. through a combination of $112.5 million of bank debt, $36.0 million of subordinated debt and the balance from the proceeds of the sale of equity securities. Results of operations for the year ended December 31, 2003 include an entire year of operations for this system. Effective October 1, 2003, we completed the merger of Sandia Health System (previously acquired in 2002) and Lovelace Health Systems, Inc. The merged entity is named Lovelace Sandia Health System, Inc., and is part of Lovelace Sandia Health System, the second largest integrated health care delivery system in Albuquerque, New Mexico.

     Effective October 8, 2003, we acquired the 146-bed Northwestern Institute of Psychiatry (renamed Brooke Glen), a private behavioral health services facility located in Fort Washington, Pennsylvania, for $7.7 million, plus acquisition costs. The purchase price was paid in cash and funded from the proceeds of our $225.0 million senior subordinated notes issued in August 2003. Results of operations for the year ended December 31, 2003 include approximately three months of operations for this facility.

2004 Acquisitions

     Effective August 1, 2004, we completed the previously announced transaction with Molina Healthcare, Inc. to transfer approximately 30,000 commercial members of Cimarron Health Plan to the Lovelace Health Plan, which is part of Lovelace Sandia Health System, Inc., for approximately $16.0 million, plus additional contingent consideration of up to $3.5 million subject to the satisfaction of certain conditions. We funded the transaction with available cash on hand.

     On August 12, 2004, we completed the previously announced acquisition of Hillcrest HealthCare System in Tulsa, Oklahoma. We acquired substantially all of the net operating

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assets of Hillcrest for $326.3 million, including preliminary working capital, subject to customary adjustments. The acquisition consisted primarily of two metropolitan Tulsa hospitals and related health care entities, as well as six regional hospitals acquired or intended to be acquired through long-term operating agreements. In connection with the Hillcrest acquisition, we committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years.

     The aggregate purchase price of the Hillcrest acquisition was paid in cash and financed, in part, with the $58.3 million of proceeds invested by WCAS, Ferrer Freeman, BAC and related investors pursuant to the subscription agreement with us, as discussed in Note 7 to the accompanying unaudited condensed consolidated financial statements. The remaining purchase price was financed through an additional borrowing of senior secured term debt on August 12, 2004 in the principal amount of $300.0 million, as further discussed in “Capital Resources”.

     In connection with our recent acquisitions, management began evaluating its information systems in the acute care segment, primarily related to patient accounting and clinical information systems, to determine the feasibility of moving to a single operating platform across the acute care hospitals. We have evaluated the carrying amounts of the related information system assets for recoverability and do not believe any indicators of impairment exist. However, should events, changes in circumstances or other indicators of potential impairment exist in the future, we may be required to record impairment charges on long-lived assets, which could have a material adverse effect on our results of operations and financial condition.

2003 Divestitures

     For the six months ended June 30, 2003, we recorded pretax gains of $949,000, which included pretax gains of $250,000 recorded during the three months ended June 30, 2003, from the sale of one behavioral hospital and recoveries of fully reserved items related to a behavioral hospital sold in 2002. The hospitals were identified as held for sale under SFAS No. 144, under which the results of operations and related gains on divestitures are included in income from discontinued operations in the accompanying unaudited condensed consolidated statements of operations.

     For the six months ended June 30, 2003, we also recorded pretax gains of $618,000, which included a pretax loss of $310,000 recorded during the three months ended June 30, 2003, from the sales of two behavioral hospitals. The hospitals were previously identified as held for sale under SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, under which the net gains are recorded in the accompanying unaudited condensed consolidated statements of operations as gains on divestitures and the historical results of operations and financial position are not reclassified as discontinued operations.

2004 Divestitures

     Effective April 1, 2004, we sold a behavioral hospital for consideration of approximately $6.1 million, which resulted in a pretax gain of $3.6 million that was recorded during the three months ended June 30, 2004. The hospital’s results of operations, including gain on divestiture, and net assets are included in income from discontinued operations and assets held for sale, respectively, for the periods presented in the accompanying unaudited condensed consolidated financial statements in accordance with SFAS No. 144.

     Effective July 31, 2004, we sold our Lovelace Home Health operations and certain related assets for $200,000 in cash, subject to certain adjustments, which is expected to result in a minimal gain. The entity was identified as held for

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sale during the three months ended June 30, 2004. Accordingly, the entity’s results of operations are included in income from discontinued operations for all periods presented in the accompanying unaudited condensed consolidated statements of operations.

2004 Joint Venture

     On June 9, 2004 we entered into a letter of intent with Ochsner Clinic Foundation to partner in the ownership of Summit Hospital in Baton Rouge, Louisiana. We have solely owned Summit Hospital since July 2001, and accordingly consolidate the accounts and results of operations of the hospital. Subject to closing conditions, the transaction is expected to be completed by the fall 2004, at which time we expect to account for our noncontrolling interest in Summit as an equity-method investment. In addition to income recorded from our equity investment, we expect to receive management fees pursuant to our continued management of the hospital.

Critical Accounting Policies

     A summary of significant accounting policies is disclosed in Note 1 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2003. Our critical accounting policies are further described under the caption “Critical Accounting Policies” in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2003. There have been no significant changes in the nature of our critical accounting policies or the application of those policies since December 31, 2003.

Results of Operations

     The following table sets forth for the periods indicated selected results of operations data expressed in dollar terms and as a percentage of total net revenues (dollars in thousands).

	Three Months Ended												Six Months Ended
	June 30, 2004						June 30, 2003						June 30, 2004					June 30, 2003
CONSOLIDATED	Amount			%			Amount			%			Amount		%			Amount			%
Revenues:
Net patient service revenue	$	180,144			50.4	%	$	152,196			47.9	%	$	369,987		51.2	%	$	299,973			47.8	%
Premium revenue		157,596			44.1			145,575			45.8			312,802		43.3			288,328			46.0
Other revenue		19,473			5.5			20,103			6.3			40,093		5.5			38,957			6.2
Total net revenues		357,213			100.0	%		317,874			100.0	%		722,882		100.0	%		627,258			100.0	%
Expenses:
Salaries and benefits		142,055			39.8			126,657			39.8			288,321		39.9			250,201			39.9
Professional fees		35,890			10.0			32,407			10.2			66,013		9.1			62,068			9.9
Claims and capitation		75,096			21.0			67,640			21.3			146,317		20.2			135,132			21.5
Supplies		41,825			11.7			37,719			11.9			83,812		11.6			74,586			11.9
Provision for doubtful accounts		15,976			4.5			12,290			3.9			33,333		4.6			23,206			3.7
Interest, net		7,042			2.0			4,780			1.5			13,541		1.9			8,459			1.3
Change in fair value of interest rate swap agreements		2,624			0.7			—			—			1,389		0.2			—			—
Depreciation and amortization		11,713			3.3			7,314			2.3			22,529		3.1			14,641			2.4
Loss (gain) on divestitures		—			—			310			0.1			—		—			(618	)		(0.1	)
Other		29,773			8.3			29,545			9.3			62,185		8.6			56,596			9.0
Income (loss) from continuing operations before income taxes		(4,781	)		(1.3	)		(788	)		(0.3	)		5,442		0.8			2,987			0.5
Income tax expense (benefit)		(1,780	)		(0.5	)		(302	)		(0.1	)		2,123		0.3			1,199			0.2
Income (loss) from continuing operations, net		(3,001	)		(0.8	)		(486	)		(0.2	)		3,319		0.5			1,788			0.3
Discontinued operations:
Income (loss) from discontinued operations		3,478			0.9			(474	)		(0.1	)		3,178		0.4			114			—
Income tax expense (benefit)		1,441			0.4			(200	)		—			1,332		0.2			44			—
Income (loss) from discontinued operations, net		2,037			0.5			(274	)		(0.1	)		1,846		0.2			70			—
Net income (loss)		(964	)		(0.3	)		(760	)		(0.3	)		5,165		0.7			1,858			0.3
Accrued preferred dividends		2,203			0.6			2,017			0.6			4,377		0.6			3,964			0.6
Net income available for (loss attributable to) common members	$	(3,167	)		(0.9	%)	$	(2,777	)		(0.9	%)	$	788		0.1	%		$(2,106	)		(0.3	%)

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	Three Months Ended												Three Months Ended
	June 30, 2004												June 30, 2003
	Acute		Lovelace					Consolidated					Consolidated
CONSOLIDATED ACUTE CARE	Care		Health					Acute Care					Acute Care
SERVICES SEGMENT	Services		Plan		Eliminations			Services		%			Services		%
Revenues:
Net patient service revenue	$	164,702	$	—	$	(53,502	)	$	111,200		39.1	%	$	87,702		35.1	%
Premium revenue		—		157,586		—			157,586		55.4			145,575		58.3
Other revenue		19,090		3,566		(7,239	)		15,417		5.5			16,389		6.6
Total net revenues		183,792		161,152		(60,741	)		284,203		100.0			249,666		100.0
Expenses:
Salaries and benefits		86,430		4,867		(247	)		91,050		32.0			84,531		33.9
Professional fees		18,598		10,333		—			28,931		10.2			22,179		8.9
Claims and capitation		—		135,590		(60,494	)		75,096		26.4			67,640		27.1
Supplies		37,782		74		—			37,856		13.3			34,007		13.6
Provision for doubtful accounts		14,810		—		—			14,810		5.2			10,820		4.3
Other		18,416		2,803		—			21,219		7.5			22,157		8.9
Adjusted EBITDA	$	7,756	$	7,485	$	—		$	15,241		5.4	%	$	8,332		3.3	%

	Six Months Ended												Six Months Ended
	June 30, 2004												June 30, 2003
	Acute		Lovelace					Consolidated					Consolidated
CONSOLIDATED ACUTE CARE	Care		Health					Acute Care					Acute Care
SERVICES SEGMENT	Services		Plan		Eliminations			Services		%			Services		%
Revenues:
Net patient service revenue	$	339,382	$	—	$	(107,220	)	$	232,162		40.2	%	$	173,091		35.1	%
Premium revenue		—		312,802		—			312,802		54.2			288,328		58.4
Other revenue		41,011		6,928		(15,640	)		32,299		5.6			31,909		6.5
Total net revenues		380,393		319,730		(122,860	)		577,263		100.0			493,328		100.0
Expenses:
Salaries and benefits		178,828		9,853		(543	)		188,138		32.6			167,177		33.9
Professional fees		33,011		19,451		—			52,462		9.1			43,734		8.9
Claims and capitation		—		268,634		(122,317	)		146,317		25.3			135,132		27.4
Supplies		75,818		140		—			75,958		13.2			67,228		13.6
Provision for doubtful accounts		30,040		—		—			30,040		5.2			20,030		4.0
Other		37,027		7,282		—			44,309		7.7			42,414		8.6
Adjusted EBITDA	$	25,669	$	14,370	$	—		$	40,039		6.9	%	$	17,613		3.6	%

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	Three Months Ended										Six Months Ended
	June 30, 2004					June 30, 2003					June 30, 2004					June 30, 2003
BEHAVIORAL CARE SERVICES SEGMENT	Amount		%			Amount		%			Amount		%			Amount			%
Revenues:
Net patient service revenue	$	68,944		93.1	%	$	64,494		93.7	%	$	137,825		93.1	%	$	126,882			93.7	%
Other revenue		5,098		6.9			4,315		6.3			10,144		6.9			8,602			6.3
Total net revenues		74,042		100.0			68,809		100.0			147,969		100.0			135,484			100.0
Expenses:
Salaries and benefits		42,382		57.2			37,249		54.1			84,322		57.0			73,976			54.6
Professional fees		8,244		11.1			7,549		11.0			16,368		11.1			14,462			10.7
Supplies		3,866		5.2			3,617		5.3			7,686		5.2			7,192			5.3
Provision for doubtful accounts		1,166		1.6			1,470		2.1			3,293		2.2			3,176			2.3
Loss (gain) on divestitures		—		—			310		0.5			—		—			(618	)		(0.4	)
Other		6,400		8.7			5,606		8.1			12,734		8.6			11,149			8.2
Adjusted EBITDA	$	11,984		16.2	%	$	13,008		18.9	%	$	23,566		15.9	%	$	26,147			19.3	%

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Selected Operating Statistics

     The following table sets forth certain operating data for each of the periods presented:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2004			2003		2004			2003
Acute Care Operating Data:
Actual and Same Facilities for 2004 (1):
Number of hospitals (end of period)		7			7		7			7
Number of licensed beds (end of period)(2)		1,263			1,269		1,263			1,269
Total delivery system admissions(3) (4)		8,424			8,034		17,004			16,170
% Change		4.9	%				5.2	%
Total delivery system adjusted admissions (AA) (4)(5)		20,073			18,579		39,842			36,755
% Change		8.0	%				8.4	%
Average length of stay (days)(6)		5.0			5.4		5.3			5.5
Net patient service revenue/AA(7)	$	8,205			—	$	8,518			—
Behavioral Operating Data:
Actual (1):
Number of hospitals (end of period)		20			19		20			19
Number of licensed beds (end of period) (2)		1,999			1,853		1,999			1,853
Admissions (3)		9,197			8,290		18,694			16,620
% Change		10.9	%				12.5	%
Adjusted Admissions (5)		9,697			8,760		19,710			17,552
% Change		10.7	%				12.3	%
Patient days(8)		125,810			122,874		252,682			241,503
% Change		2.4	%				4.6	%
Adjusted patient days (APD) (5)		132,657			129,844		266,422			255,042
% Change		2.2	%				4.5	%
Net patient service revenue/APD	$	520		$	497	$	517		$	498
% Change		4.5	%				3.9	%
Average length of stay (days)(6)		13.7			14.8		13.5			14.5
Same Facilities for 2004 (1):
Number of hospitals (end of period)		19			19		19			19
Number of licensed beds (end of period) (2)		1,853			1,853		1,853			1,853
Admissions (3)		9,028			8,290		18,314			16,620
% Change		8.9	%				10.2	%
Adjusted Admissions (5)		9,529			8,760		19,332			17,552
% Change		8.8	%				10.1	%
Patient days(8)		123,878			122,874		248,095			241,503
% Change		0.8	%				2.7	%
Adjusted patient days (5)		130,734			129,844		261,887			255,042
% Change		0.7	%				2.7	%
Net patient service revenue/APD	$	520		$	497	$	517		$	498
% Change		4.8	%				4.1	%
Average length of stay (days)(6)		13.7			14.8		13.5			14.5
Health Plan Operating Data:
Health Plan members (end of period)		164,461			167,749		164,461			167,749

(1) The segment operating data excludes statistics for discontinued operations. Same facility statistics exclude the operations of facilities that were either acquired or divested subsequent to January 1, 2003.

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(2)	Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.
(3)	Represents the total number of patients admitted (for a period in excess of 23 hours) to our hospitals and is used by management and certain investors as a general measure of inpatient volume.
(4)	Total delivery system includes all operating data at our owned hospitals prior to elimination of services rendered to our Health Plan members.
(5)	Adjusted admissions and adjusted patient days are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Adjusted admissions/patient days are computed by multiplying admissions/patient days (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The adjusted admissions/patient days computation “equates” outpatient revenue to the volume measure (admissions/patient days) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.
(6)	Represents the average number of days admitted patients stay in our hospitals.
(7)	Net patient service revenue and related admissions and adjusted admissions operating data within the consolidated acute care services segment prior to January 1, 2004 excludes revenue and related operating data for services provided to the Lovelace Health Plan members. Due to system limitations, it is impracticable to restate net patient service revenues and related operating data for the three months and six months ended June 30, 2003 for purposes of comparability. Excluding Health Plan members, admissions and adjusted admissions were 6,185 and 13,155, respectively, for the three months ended June 30, 2004 and 12,596 and 26,305, respectively, for the six months ended June 30, 2004.
(8)	Represents the total number of days that patients stayed in our hospitals over the period.

Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003

     Total Net Revenues. The $39.3 million increase in total net revenues, a 12.4% increase over the three months ended June 30, 2003, was due to a combination of an increase of $34.5 million in total net revenues from our consolidated acute care services segment, and an increase of $5.2 million in total net revenues from our behavioral care services segment.

     The $34.5 million, or 13.8%, increase in our consolidated acute care total net revenues was primarily due to increases of $23.5 million in net patient service revenue and $12.0 million in premium revenues. Net patient service revenue increased due to an increase in patient volumes (including new services and the expansion of existing services) and pricing increases. Total delivery system adjusted admissions increased 8.0% during the three months ended June 30, 2004. Premium revenue increased primarily due to an increase in pricing as membership remained relatively flat.

     The $5.2 million, or 7.6%, increase in our behavioral care total net revenues was attributed to $941,000 in total net revenues from the acquisition of Brooke Glen effective October 8, 2003, as well as a $4.4 million increase in our same facility behavioral care total net revenues. Adjusted patient days contributed by Brooke Glen totaled 1,896 during the three months ended June 30, 2004. Since the acquisition in October 2003, we have experienced a delay in obtaining our Medicare certification at Brooke Glen. This delay has had a negative impact on our 2004 total net revenues and results of operations. In May 2004, we received CMS certification of Brooke Glen, which will allow for increased access to patient admissions and improved results of operations in future periods. The $4.4 million increase in same facility behavioral care total net revenues was predominantly related to increases in patient volumes, pricing, expansion of existing services and intensity of services. Adjusted admissions on a same facility basis increased 8.8%. Adjusted patient days on a same facility basis increased 0.7%.

     Salaries and Benefits. Salaries and benefits were 39.8% of total net revenues for each of the three months ended June 30, 2004 and 2003. Salaries and benefits in our consolidated acute care services segment were 32.0% of total net revenues for the three months ended June 30, 2004, compared to 33.9% of total net revenues for the three months ended June 30, 2003. The improvement in our consolidated acute care salaries and benefits as a percentage of total net revenues was primarily due to the growth in our markets and the related economies of scale. Lovelace was acquired on January 1, 2003. Due to the size of this acquisition, its integration and the related synergies and economies of scale were not immediately recognized, but occurred throughout 2003. Salaries and benefits in our behavioral care services segment were 57.2% of total net revenues for the three months ended June 30, 2004, compared to 54.1% of total net revenues for the three months ended June 30, 2003. On a same facility basis, salaries and benefits as a percentage of total net revenues were 55.3% and 54.2% for the three months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment. These increases, on a same facility basis, were primarily attributable to wage inflation brought on by nursing labor pressures due to

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the national shortage of nurses. The overall increase incremental to the aforementioned same facility increases was primarily related to the delay in obtaining our Medicare certification at Brooke Glen, which resulted in a significantly higher than average staffing ratio on low volumes.

     The remainder of our salaries and benefits relate to costs not allocated to our reportable operating segments, which include centralized services such as information services, reimbursement, accounting, taxation, legal, internal audit and risk management. Salaries and benefits not allocated were $8.6 million during the three months ended June 30, 2004, or 2.4% of total net revenues, compared to $4.9 million during the three months ended June 30, 2003, or 1.5% of total net revenues. The increase in unallocated salaries and benefits relates to the growth of our centralized services as we continued to enhance these areas in connection with beginning to implement the internal control requirements of the Sarbanes-Oxley Act and preparing for future growth. We anticipate our centralized services costs to continue to increase in total during 2004 as we continue to grow and integrate recent acquisitions. However, as a percentage of total net revenues, we expect these costs to decline during 2004.

     During the three months ended June 30, 2004 our consolidated acute care services segment was able to successfully manage the delivery of health care services with proper staffing and utilization. However, we have been negatively impacted by the industry-wide shortage of nurses, which has caused labor pricing pressures and some level of dependence on contracted labor. Should we be unable in the future to provide adequate nursing coverage at our facilities, our future operating results could be negatively impacted through increased salaries and wages and contract labor.

     Professional Fees. Professional fees include amounts paid to non-employed physicians, third-party contractors and legal, accounting and banking firms. Professional fees were 10.0% of total net revenues for the three months ended June 30, 2004, compared to 10.2% of total net revenues for the three months ended June 30, 2003. Professional fees in our consolidated acute care services segment were 10.2% of total net revenues for the three months ended June 30, 2004, compared to 8.9% of total net revenues for the three months ended June 30, 2003. Professional fees in our behavioral care services segment were 11.1% of total net revenues for the three months ended June 30, 2004, compared to 11.0% of total net revenues for the three months ended June 30, 2003. On a same facility basis, professional fees as a percentage of total net revenues were 10.9% and 10.8% for the three months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     The increase in our consolidated acute care professional fees as a percentage of total net revenues is due to the growth within our markets, to increased costs related to outsourcing certain claims administration functions at our health plan and to increased costs associated with information systems implementation. The increase in our same facility behavioral care professional fees as a percentage of total net revenues was due primarily to the increase in patient admissions. As a percentage of revenues, we expect our professional fees to decline slightly in future periods as a result of synergies and benefits from economies of scale expected to be achieved from our recent acquisitions.

     The remainder of our professional fees relate to costs not allocated to our reportable operating segments. Professional fees related to our centralized services, including information services, legal and accounting, were approximately $3.2 million and $3.5 million for the three months ended June 30, 2004 and 2003, respectively. Beginning in 2004, we allocated such costs to our reportable operating segments.

     In connection with becoming a public reporting entity in January, 2004, we began the process of evaluating our business processes and related internal controls in order to satisfy the internal control requirements of the Sarbanes-Oxley Act. The implementation of the requirements of the Sarbanes-Oxley Act has and will continue to require significant effort from our employees as well as our professional advisors. We expect our professional fees to continue to increase in the near term related to our Sarbanes-Oxley implementation.

     Claims and Capitation. Claims and capitation expense was 21.0% of total net revenues for the three months ended June 30, 2004, compared to 21.3% of total net revenues for the three months ended June 30, 2003. Before eliminations, our medical care ratio, the claims and capitation costs as a percentage of premium revenue, was 86.0% during the three months ended June 30, 2004. Prior to 2004, we did not record patient revenue within our acute care facilities or claims and capitation expense on the Lovelace Health Plan for health plan members who

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received services within our integrated Lovelace Sandia Health System network. Beginning January 1, 2004, we began to present the Lovelace Health Plan as a separate reportable segment.

     Supplies. Supply costs were 11.7% of total net revenues for the three months ended June 30, 2004, compared to 11.9% of total net revenues for the three months ended June 30, 2003. Supply costs in our consolidated acute care services segment were 13.3% of total net revenues for the three months ended June 30, 2004, compared to 13.6% of total net revenues during the three months ended June 30, 2003. Supply costs in our consolidated acute care services segment include the pharmaceutical costs of our retail pharmacies, which were 90.7% of retail pharmacy revenue. Supply costs in our behavioral care services segment were 5.2% of total net revenues for the three months ended June 30, 2004, compared to 5.3% of total net revenues for the three months ended June 30, 2003. On a same facility basis, supply costs as a percentage of total net revenues were also 5.2% and 5.3% for the three months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     Provision for Doubtful Accounts. The provision for doubtful accounts was 4.5% of total net revenues during the three months ended June 30, 2004, compared to 3.9% of total net revenues during the three months ended June 30, 2003. The provision for doubtful accounts in our consolidated acute care services segment was 5.2% of total net revenues during the three months ended June 30, 2004, compared to 4.3% of total net revenues during the three months ended June 30, 2003. The provision for doubtful accounts in our behavioral care services segment was 1.6% of total net revenues during the three months ended June 30, 2004, compared to 2.1% of total net revenues during the three months ended June 30, 2003. On a same facility basis, provision for doubtful accounts as a percentage of total net revenues was 2.0% and 2.2% during the three months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     As previously discussed, we have experienced an increase in self-pay amounts due from patients and a deterioration in the collectability of such amounts, which has resulted in an increase in our provision for doubtful accounts as a percentage of total net revenues.

     The increase in days sales outstanding is primarily related to changes in how we manage the acute care activity within the Lovelace Sandia Health System. Beginning on January 1, 2004, we managed the Health Plan as a separate operating segment and our acute care services segment excludes the operations of the Health Plan and includes net patient service revenue related to services rendered at our acute care hospitals to our Health Plan members. We believe this allows us to better manage the businesses within our company and make better financial and operational decisions. As a result of this change in how we managed these operations, we began adjudicating claims for services provided to our Health Plan members. The adjudication of our Health Plan claims, coupled with increased adjusted admissions and patient days, significantly increased the volume of claims that our business office was required to process and resulted in a build up of accounts receivable. We expect to decrease our days sales outstanding during the remainder of 2004 as we continue to increase our business office personnel to adjust to the increased volumes and enhance our collection processes.

     The decrease in the provision for doubtful accounts in our behavioral care services segment is primarily attributable to receiving our Medicare certification at Brooke Glen, which has allowed for improved collections on accounts that were previously estimated as uncollectable due to the delay in certification. On a same facility basis, the provision for doubtful accounts remained relatively consistent at 2.0% and 2.2% of total net revenues for the three months ended June 30, 2004 and 2003, respectively.

     Interest and Change in Fair Value of Interest Rate Swap Agreements. Interest expense and change in fair value of interest rate swap agreements increased to $9.7 million, in aggregate, for the three months ended June 30, 2004 compared to $4.8 million for the three months ended June 30, 2003. Our long-term debt balance was $260.6 million at June 30, 2004, compared to $176.3 million at June 30, 2003. Our weighted average interest rate on our outstanding debt increased due to our senior subordinated notes and subordinated debt (issued in August 2003) having interest rates at 10.0% and 10.2%, respectively.

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     In conjunction with our $225.0 million senior subordinated notes, we entered into four interest rate swap agreements which converted $80.0 million of the $225.0 million fixed-rate 10.0% borrowings to floating-rate borrowings. Our interest rate swap agreements did not qualify for hedge accounting under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; therefore, we have recognized the changes in fair value of the swaps in earnings. At June 30, 2004, the fair value of our interest rate swap agreements was a liability of $831,000. On August 5, 2004, we terminated our interest rate swap agreements, resulting in a payment of $267,000, which was the fair market value of the related liability.

     Depreciation and Amortization. Depreciation and amortization expense increased to $11.7 million for the three months ended June 30, 2004 from $7.3 million for the three months ended June 30, 2003. Depreciation and amortization in our Albuquerque market increased $1.5 million during the three months ended June 30, 2004. In addition, depreciation not allocated to our reportable operating segments increased $2.1 million during the three months ended June 30, 2004, which was predominantly related to the information systems build out to support our centralized services and public reporting structure. Our capital expenditures for the three months ended June 30, 2004 and 2003 totaled $11.0 million and $19.6 million, respectively. The capital expenditures during the 2003 fiscal year were $87.0 million. These capital expenditures contributed to the increase in depreciation as the respective assets became utilized and depreciable.

     Gain on Divestitures. Our gain on divestitures for the three months ended June 30, 2003 was related to the sale of a behavioral hospital in Oregon that was previously identified for sale under SFAS No. 121.

     Other Operating Expenses. Other operating expenses consist of insurance costs (primarily general and professional liability), non-income taxes (various states in which we operate have gross receipts taxes or premium taxes), utilities, rents and leases, repairs and maintenance and other operating expenses. Other operating expenses were 8.3% of total net revenues during the three months ended June 30, 2004, compared to 9.3% of total net revenues during the three months ended June 30, 2003. Other operating expenses in our consolidated acute care services segment were 7.5% of total net revenues during the three months ended June 30, 2004, compared to 8.9% of total net revenues during the three months ended June 30, 2003. Other operating expenses in our behavioral care services segment were 8.6% of total net revenues during the three months ended June 30, 2004, compared to 8.1% of total net revenues during the three months ended June 30, 2003. On a same facility basis, other operating expenses as a percentage of total net revenues were 8.2% and 8.1% during the three months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     The decrease in our consolidated acute care services segment other operating expenses as a percentage of total net revenues was due to the growth within our markets and related economies of scale. The behavioral care segment other operating expenses have remained relatively constant.

     The remainder of our other operating expenses relate to costs not allocated to our reportable operating segments. Other operating expenses not allocated were $2.2 million during the three months ended June 30, 2004 compared to $1.8 million during the three months ended June 30, 2003. These costs predominantly relate to our centralized services, specifically our lease costs for our corporate and information services facilities, which increased as we grew our infrastructure. We anticipate these costs to decline as a percentage of total net revenues during 2004 as we complete the build out of our public reporting structure.

     We expect to see continued increases in the cost of insurance, especially for general and professional liability, as the market has fewer competitors and remains depressed. We have offset the pace of increases through the establishment of a wholly-owned captive insurance subsidiary that now insures our professional and general liability risk for claims up to $2.0 million, subject to a $500,000 deductible per claim. In addition, we purchased excess insurance coverage with independent third-party carriers for claims totaling up to $75.0 million per occurrence and in the aggregate.

     Income Tax Expense. Our income tax effective rate from continuing operations was 37.2% for the three months ended June 30, 2004 compared to 38.3% for the three months ended June 30, 2003. The change primarily relates to our state income tax rates.

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     Net Income from Continuing Operations. Net loss from continuing operations increased to $3.0 million for the three months ended June 30, 2004 from $486,000 for the three months ended June 30, 2003, primarily as a result of proportionately higher increases in certain operating expenses compared to total net revenues, most notably the $4.9 million increase in interest expense and change in fair value of interest rate swap agreements and the $4.4 million increase in depreciation and amortization.

     Income (Loss) from Discontinued Operations. Income from discontinued operations was $3.5 million for the three months ended June 30, 2004 compared to a loss of $474,000 for the three months ended June 30, 2003. For the three months ended June 30, 2004 we recorded a gain on divestitures of $3.6 million associated with the divestiture of a behavioral hospital effective April 1, 2004.

     Accrued Preferred Dividends. Our accrued preferred dividends amount to 8.0% of the principal amount and accrued unpaid dividends outstanding on our redeemable preferred units. Effective January 2004, we amended the terms of the preferred units such that the mandatory redemption date of August 19, 2014 was deleted, thereby removing the mandatory redemption feature. Had we not amended the preferred units, effective January 1, 2004 we would have been required to account for the preferred units as a liability and record the dividends as interest expense.

Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003

     Total Net Revenues. The $95.6 million increase in total net revenues, a 15.2% increase over the six months ended June 30, 2003, was due to a combination of an increase of $83.9 million in total net revenues from our consolidated acute care services segment, and an increase of $12.5 million in total net revenues from our behavioral care services segment.

     The $83.9 million, or 17.0%, increase in our consolidated acute care total net revenues was primarily due to increases of $59.1 million in net patient revenue and $24.5 million in premium revenues. Net patient revenue increased due to an increase in patient volumes (including new services and the expansion of existing services) and pricing increases. Total delivery system adjusted admissions increased 8.4% during the six months ended June 30, 2004. Premium revenue increased primarily due to an increase in pricing as membership remained relatively flat.

     The $12.5 million, or 9.2%, increase in our behavioral care total net revenues was attributed to $2.2 million in total net revenues from the acquisition of Brooke Glen effective October 8, 2003, as well as a $10.2 million increase in our same facility behavioral care total net revenues. Adjusted patient days contributed by Brooke Glen totaled 4,587 during the six months ended June 30, 2004. Since the acquisition in October 2003, we experienced a delay in obtaining our Medicare certification at Brooke Glen. This delay has had a negative impact on our 2004 total net revenues and results of operations. In May 2004, we received CMS certification of Brooke Glen, which will allow for increased access to patient admissions and improved results of operations in future periods. The $10.2 million increase in same facility behavioral care total net revenues was predominantly related to increases in patient volumes, pricing, expansion of existing services and intensity of services. Adjusted admissions on a same facility basis increased 10.1%. Adjusted patient days on a same facility basis increased 2.7%.

     Salaries and Benefits. Salaries and benefits were 39.9% of total net revenues for each of the six months ended June 30, 2004 and 2003. Salaries and benefits in our consolidated acute care services segment were 32.6% of total net revenues for the six months ended June 30, 2004, compared to 33.9% of total net revenues for the six months ended June 30, 2003. The improvement in our consolidated acute care salaries and benefits as a percentage of total net revenues was primarily due to the growth in our markets and the related economies of scale. Lovelace was acquired on January 1, 2003. Due to the size of this acquisition, its integration and the related synergies and economies of scale were not immediately recognized, but occurred throughout 2003. Salaries and benefits in our behavioral care services segment were 57.0% of total net revenues for the six months ended June 30, 2004, compared to 54.6% of total net revenues for the six months ended June 30, 2003. On a same facility basis, salaries and benefits as a percentage of total net revenues were 55.3% and 54.7% for the six months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment. These increases on a same facility basis, were primarily attributable to wage inflation brought on by nursing labor pressures due to the national shortage of nurses. The overall increase incremental to the aforementioned same facility increases was primarily related to the delay in obtaining our Medicare certification at Brooke Glen, which resulted in a significantly higher than average staffing ratio on low volumes.

     The remainder of our salaries and benefits relate to costs not allocated to our reportable operating segments, which include centralized services such as information services, reimbursement, accounting, taxation, legal, internal audit and risk management.

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Salaries and benefits not allocated were $15.9 million during the six months ended June 30, 2004, or 2.2% of total net revenues, compared to $9.0 million during the six months ended June 30, 2003, or 1.4% of total net revenues. The increase in unallocated salaries and benefits relates to the growth of our centralized services as we continued to enhance these areas in connection with beginning to implement the internal control requirements of the Sarbanes-Oxley Act and preparing for future growth. We anticipate our centralized services costs to continue to increase in total during 2004 as we continue to grow and integrate recent acquisitions. However, as a percentage of total net revenues, we expect these costs to decline during 2004.

     During the six months ended June 30, 2004 our consolidated acute care services segment was able to successfully manage the delivery of health care services with proper staffing and utilization. However, we have been negatively impacted by the industry-wide shortage of nurses, which has caused labor pricing pressures and some level of dependence on contracted labor. Should we be unable in the future to provide adequate nursing coverage at our facilities, our future operating results could be negatively impacted through increased salaries and wages and contract labor.

     Professional Fees. Professional fees were 9.1% of total net revenues for the six months ended June 30, 2004, compared to 9.9% of total net revenues for the six months ended June 30, 2003. Professional fees in our consolidated acute care services segment were 9.1% of total net revenues for the six months ended June 30, 2004, compared to 8.9% of total net revenues for the six months ended June 30, 2003. Professional fees in our behavioral care services segment were 11.1% of total net revenues for the six months ended June 30, 2004, compared to 10.7% of total net revenues for the six months ended June 30, 2003. On a same facility basis, professional fees as a percentage of total net revenues were 10.8% and 10.5% for the six months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     The increase in our consolidated acute care professional fees as a percentage of total net revenues was due to the growth within our markets, to increased costs related to outsourcing certain claims administration functions at our health plan and to increased costs associated with information systems implementation. The increase in our same facility behavioral care professional fees as a percentage of total net revenues was due primarily to the increase in patient admissions. As a percentage of revenues, we expect our professional fees to decline slightly in future periods as a result of synergies and benefits from economies of scale expected to be achieved from our recent acquisitions.

     The remainder of our professional fees relate to costs not allocated to our reportable operating segments during 2003. Professional fees related to our centralized services, including information services, legal and accounting, were approximately $6.7 million and $5.9 million for the six months ended June 30, 2004 and 2003, respectively. Beginning in 2004, we allocated such costs to our reportable operating segments. In connection with becoming a public reporting entity in January, 2004, we began the process of evaluating our business processes and related internal controls in order to satisfy the internal control requirements of the Sarbanes-Oxley Act. The implementation of the requirements of Sarbanes-Oxley Act has and will continue to require significant effort from our employees as well as our professional advisors. We expect our professional fees to continue to increase in the near term related to our Sarbanes-Oxley implementation.

     Claims and Capitation. Claims and capitation expense was 20.2% of total net revenues for the six months ended June 30, 2004, compared to 21.5% of total net revenues for the six months ended June 30, 2003. Before eliminations, our medical care ratio, the claims and capitation costs as a percentage of premium revenue, was 85.9% during the six months ended June 30, 2004. Prior to 2004, we did not record patient revenue within the acute care hospitals or claims and capitation expense on the Lovelace Health Plan for health plan members who received services within our integrated Lovelace Sandia Health System network. Beginning January 1, 2004, we began to present the Lovelace Health Plan as a separate reportable segment.

     Supplies. Supply costs were 11.6% of total net revenues for the six months ended June 30, 2004, compared to 11.9% of total net revenues for the six months ended June 30, 2003. Supply costs in our consolidated acute care services segment were 13.2% of total net revenues for the six months ended June 30, 2004, compared to 13.6% of total net revenues during the six months ended June 30, 2003. Supply costs in our consolidated acute care services segment include the pharmaceutical costs of our retail pharmacies, which were 81.4% of retail pharmacy revenue. Supply costs in our behavioral care services segment were 5.2% of total net revenues for the

43

six months ended June 30, 2004, compared to 5.3% of total net revenues for the six months ended June 30, 2003. On a same facility basis, supply costs as a percentage of total net revenues were also 5.2% and 5.3% for the six months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     Provision for Doubtful Accounts. The provision for doubtful accounts was 4.6% of total net revenues during the six months ended June 30, 2004, compared to 3.7% of total net revenues during the six months ended June 30, 2003. The provision for doubtful accounts in our consolidated acute care services segment was 5.2% of total net revenues during the six months ended June 30, 2004, compared to 4.0% of total net revenues during the six months ended June 30, 2003. The provision for doubtful accounts in our behavioral care services segment was 2.2% of total net revenues during the six months ended June 30, 2004, compared to 2.3% of total net revenues during the six months ended June 30, 2003. On a same facility basis, provision for doubtful accounts as a percentage of total net revenues was 2.3% and 2.5% during the six months ended June 30, 2004 and 2003, respectively, in our behavioral care services segment.

     As previously discussed, we have experienced an increase in self-pay amounts due from patients and a deterioration in the collectability of such amounts, which has resulted in an increase in our provision for doubtful accounts as a percentage of total net revenues. Our accounts receivable has increased due to a corresponding increase in net patient service revenue and an increase in days sales outstanding, which were 67 and 59 as of June 30, 2004 and December 31, 2003, respectively.

     The increase in days sales outstanding is primarily related to changes in how we manage the acute care activity within the Lovelace Sandia Health System. Beginning on January 1, 2004, we managed the Health Plan as a separate operating segment and our acute care services segment excludes the operations of the Health Plan and includes net patient service revenue related to services rendered at our acute care hospitals to our Health Plan members. We believe this allows us to better manage the businesses within our company and make better financial and operational decisions. As a result of this change in how we managed these operations, we began adjudicating claims for services provided to our Health Plan members. The adjudication of our Health Plan claims, coupled with increased adjusted admissions and patient days, significantly increased the volume of claims that our business office was required to process and resulted in a build up of accounts receivable during the six months ended June 30, 2004. We expect to decrease our days sales outstanding during the remainder of 2004 as we continue to increase our business office personnel to adjust to the increased volumes and enhance our collection processes.

     Interest and Change in Fair Value of Interest Rate Swap Agreements. Interest expense and change in fair market value of interest rate swap agreements increased to $14.9 million, in aggregate, for the six months ended June 30, 2004 from $8.5 million for the six months ended June 30, 2003. Our long-term debt balance was $260.6 million at June 30, 2004, compared to $176.3 million at June 30, 2003. Our weighted average interest rate on our outstanding debt increased due to our senior subordinated notes and subordinated debt (issued in August 2003) having interest rates at 10.0% and 10.2%, respectively.

     In conjunction with our $225.0 million senior subordinated notes, we entered into four interest rate swap agreements which converted $80.0 million of the $225.0 million fixed-rate 10.0% borrowings to floating-rate borrowings. Our interest rate swap agreements did not qualify for hedge accounting under the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities; therefore, we have recognized the changes in fair value of the swaps in earnings. At June 30, 2004, the fair value of our interest rate swap agreements was a liability of $831,000. On August 5, 2004, we terminated our interest rate swap agreements, resulting in a payment of $267,000, which was the fair market value of the related liability.

     Depreciation and Amortization. Depreciation and amortization expense increased to $22.5 million for the six months ended June 30, 2004 from $14.6 million for the six months ended June 30, 2003. Depreciation and amortization in our Albuquerque market increased $2.4 million during the six months ended June 30, 2004. In addition, depreciation not allocated to our reportable operating segments increased $4.0 million during the six months ended June 30, 2004, which was predominantly related to the information systems build out to support our centralized services and public reporting structure. Our capital expenditures for the six months ended June 30, 2004 and 2003 totaled $20.3 million and $27.4 million, respectively. The capital expenditures during the 2003

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fiscal year were $87.0 million. These capital expenditures contributed to the increase in depreciation as the respective assets became utilized and depreciable.

     Gain on Divestitures. Our gain on divestitures for the six months ended June 30, 2003 was related to the sale of a behavioral hospital in Oregon that was previously identified for sale under SFAS No. 121.

     Other Operating Expenses. Other operating expenses consist of insurance costs (primarily general and professional liability), non-income taxes (various states in which we operate have gross receipts taxes or premium taxes), utilities, rents and leases, repairs and maintenance and other operating expenses. Other operating expenses were 8.6% of total net revenues during the six months ended June 30, 2004, compared to 9.0% of total net revenues during the six months ended June 30, 2003. Other operating expenses in our consolidated acute care services segment were 7.7% of total net revenues during the six months ended June 30, 2004, compared to 8.6% of total net revenues during the six months ended June 30, 2003. Other operating expenses in our behavioral care services segment were 8.6% of total net revenues during the six months ended June 30, 2004, compared to 8.2% of total net revenues during the six months ended June 30, 2003. On a same facility basis, other operating expenses as a percentage of total net revenues were 8.2% during each of the six months ended June 30, 2004 and 2003, in our behavioral care services segment.

     The decrease in our consolidated acute care services segment other operating expenses as a percentage of total net revenues was due to the growth within our markets and related economies of scale. The behavioral care segment other operating expenses have remained relatively constant.

     The remainder of our other operating expenses relate to costs not allocated to our reportable operating segments. Other operating expenses not allocated were $5.2 million during the six months ended June 30, 2004 compared to $3.0 million during the six months ended June 30, 2003. These costs predominantly relate to our centralized services, specifically our lease costs for our corporate and information services facilities, which increased as we grew our infrastructure. We anticipate these costs to decline as a percentage of total net revenues during 2004 as we complete the build out of our public reporting structure.

     We expect to see continued increases in the cost of insurance, especially for general and professional liability, as the market has fewer competitors and remains depressed. We have offset the pace of increases through the establishment of a wholly-owned captive insurance subsidiary that now insures our professional and general liability risk for claims up to $2.0 million, subject to a $500,000 deductible per claim. In addition, we purchased excess insurance coverage with independent third-party carriers for claims totaling up to $75.0 million per occurrence and in the aggregate.

     Income Tax Expense. Our income tax effective rate from continuing operations was 39.0% for the six months ended June 30, 2004 compared to 40.1% for the six months ended June 30, 2003. The change primarily relates to our state income tax rates.

     Net Income from Continuing Operations. Net income from continuing operations increased to $3.3 million for the six months ended June 30, 2004 from $1.8 million for the six months ended June 30, 2003, primarily as a result of the increase in total net revenues while effectively managing the utilization of our resources.

     Income from Discontinued Operations. Income from discontinued operations was $3.2 million and $114,000 for the six months ended June 30, 2004 and 2003, respectively. For the six months ended June 30, 2004, we recorded a gain on divestitures of $3.6 million associated with the divestiture of a behavioral hospital effective April 1, 2004. For the six months ended June 30, 2003, we recorded pretax gains of $949,000 from the sale of another behavioral hospital and recoveries of fully reserved items related to a behavioral hospital sold in 2002.

     Accrued Preferred Dividends. Our accrued preferred dividends amount to 8.0% of the principal amount and accrued unpaid dividends outstanding on our redeemable preferred units. Effective January 2004, we amended the terms of the preferred units such that the mandatory redemption date of August 19, 2014 was deleted, thereby removing the mandatory redemption feature. Had we not amended the preferred units, effective January 1, 2004 we would have been required to account for the preferred units as a liability and record the dividends as interest expense.

Liquidity and Capital Resources

Liquidity

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     We require capital principally for the acquisition of additional acute care and behavioral hospitals, the expansion of the services provided through our existing facilities, improvements to these facilities, including designing and implementing new information systems, and for debt service. Historically, we have financed our capital requirements, including our acquisitions, through a combination of cash flows from operations, borrowings under credit facilities and proceeds from the issuance of subordinated debt and equity securities.

Sources and Uses of Cash

     Our cash and cash equivalents were $122.7 million at June 30, 2004, compared to $89.8 million at December 31, 2003, an increase of $32.9 million primarily related to proceeds from the issuance of common units. A more detailed discussion on specific sources and uses of cash is set forth below.

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2004			2003			2004			2003
Statement of cash flows information:
Cash flows provided by (used in) operating activities	$	24,153		$	6,173		$	(142	)	$	15,546
Cash flows used in investing activities		(3,590	)		(18,520	)		(13,811	)		(212,653	)
Cash flows provided by (used in) financing activities		49,239			(8,032	)		48,155			112,171

     Cash flows used in operating activities were $142,000 for the six months ended June 30, 2004, compared to cash flows provided by operating activities of $15.5 million for the six months ended June 30, 2003. Our cash flows used in operating activities were negatively impacted primarily by a $52.1 million increase in accounts receivable. The increase in accounts receivable relates to the previously discussed increase in our days sales outstanding, which increased from 59 days at December 31, 2003 to 67 days at June 30, 2004. The increase in days sales outstanding equates to approximately $16.6 million. The remaining increase is due primarily to an increase in net patient service revenue, which resulted in a corresponding increase in accounts receivable.

     Cash flows used in investing activities decreased to $13.8 million for the six months ended June 30, 2004, compared to $212.7 million for the six months ended June 30, 2003. Our total cash spent for the six months ended June 30, 2004 related to capital expenditures was $20.3 million. During the six months ended June 30, 2003, we spent $194.1 million on acquisitions, primarily to acquire Lovelace Health System, Inc.

     Cash flows provided by financing activities were $48.2 million in 2004, compared to cash flows provided by financing activities of $112.2 million in 2003. We financed our Lovelace acquisition primarily from our credit facilities, which were paid in full from the proceeds of our senior subordinated notes and equity issued in 2002.

Restrictions on Cash Flows

     Lovelace Sandia Health System, Inc., our wholly-owned subsidiary, includes, in addition to hospitals and other health care facilities, the Lovelace Health Plan. Lovelace Sandia Health System, Inc. is therefore subject to certain restrictions on its ability to pay dividends or make other distributions to us by state insurance company laws and regulations. These laws and regulations require Lovelace Sandia Health System, Inc. to give notice to the New Mexico Department of Insurance prior to paying dividends or making distributions to us. Lovelace Sandia Health System, Inc. has paid dividends of $25.0 million to our affiliates since its acquisition. As of June 30, 2004, cash and cash equivalents at Lovelace Sandia Health System, Inc. were $21.9 million. In addition, Lovelace Sandia Health System, Inc. is subject to state-imposed net worth-based capital requirements that effectively limit the amount of funds it has available to distribute to us. As of June 30, 2004, Lovelace Sandia Health System, Inc. is required to maintain a net worth of approximately $34.8 million (based on the unaudited annual statement filing with the State of New Mexico), as well as a minimum requirement of $610,000 in cash or short-term government instruments. Actual net worth exceeded the requirement by $10.3 million and, subject to the requirements, may be available to us. On July 12, 2004, Lovelace Sandia Health System, Inc.’s intercompany note was reduced from $70.0 million to $43.0 million with a corresponding increase to net worth. Refer to “Capital Resources” for further discussion. This additional net worth will provide, in part, the additional capital required in connection with our acquisition of approximately 30,000 commercial members of Cimarron Health Plan. In addition, as part of Lovelace Health Plan’s participation in the Medicaid Salud! program for New Mexico, Lovelace Sandia Health System, Inc. is required to maintain a cash reserve of at least 3.0% of the annual capitated payments per member for each month of the first year of the

46

contract. As of June 30, 2004, Lovelace Sandia Health System, Inc. maintained a balance of $3.4 million to meet these two required reserve amounts.

     As a result of the consolidation and merger of our New Mexico operations in October 2003, all of our operations in New Mexico (other than the operations of AHS S.E.D. Medical Laboratories, Inc.) are owned by Lovelace Sandia Health System, Inc. and are subject to the restrictions and requirements described above.

Cash Requirements

     During the three months and six months ended June 30, 2004, there were no material changes in our contractual obligations presented in our 2003 Annual Report on Form 10-K. In connection with the Hillcrest acquisition in August 2004, we borrowed an additional $300.0 million of senior secured term debt under the August 2003 Credit Agreement, as amended, as further discussed in “Capital Resources”, and assumed or replaced certain operating and capital leases of Hillcrest. We also committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years.

Letters of Credit

     We are required to issue letters of credit for the benefit of our insurers related to our workers’ compensation and professional liability insurance coverage. As of June 30, 2004, we had issued $7.1 million of standby letters of credit which were secured by the collateral of our August 2003 Credit Agreement. In connection with the Hillcrest acquisition and related amendment to the August 2003 Credit Agreement, we issued an additional $3.3 million of standby letters of credit on August 12, 2004.

Capital Expenditures (including Capital Commitments)

     Capital expenditures, excluding amounts paid for acquisitions, were $11.0 million and $19.6 million for the three months ended June 30, 2004 and 2003, respectively, and $20.3 million and $27.4 million for the six months ended June 30, 2004 and 2003, respectively. Generally, the facilities and equipment at the hospitals we have acquired were in good condition; however, we have invested, and will continue to invest, significant funds into facility improvements and service enhancements undertaken by our hospitals. Excluding Hillcrest, we expect to make total capital expenditures in our existing facilities of approximately $60.0 million during 2004. We expect to fund these expenditures through cash provided by operating activities and borrowings under our bank facility.

     As previously discussed, we have committed to invest $80.0 million of capital expenditures in the Albuquerque market through 2008, of which $58.9 million has been invested through June 30, 2004. We expect that the remaining $21.1 million will be invested in the Albuquerque market during the remainder of 2004 as we continue to upgrade financial and clinical systems, expand service lines and refurbish and retool facilities.

     Effective August 1, 2004, we completed the previously announced transaction with Molina Healthcare, Inc. to transfer approximately 30,000 commercial members of Cimarron Health Plan to the Lovelace Health Plan, which is part of Lovelace Sandia Health System, Inc., for approximately $16.0 million, plus additional contingent consideration of up to $3.5 million subject to the satisfaction of certain conditions. We funded the transaction with available cash on hand.

     On August 12, 2004, we completed the previously announced acquisition of Hillcrest in Tulsa, Oklahoma. We acquired substantially all of the net operating assets of Hillcrest for $326.3 million, including preliminary working capital, subject to customary adjustments. The acquisition consisted primarily of two metropolitan Tulsa hospitals and related health care entities, as well as six regional hospitals acquired or intended to be acquired through long-term operating agreements. In connection with the Hillcrest acquisition, we committed to invest approximately $100.0 million in capital expenditures in the Tulsa market over the next five years.

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     The aggregate purchase price of the Hillcrest acquisition was paid in cash and financed, in part, with the $58.3 million of proceeds invested by WCAS, Ferrer Freeman and BAC pursuant to the subscription agreement with us and further discussed in Note 7 to the accompanying unaudited condensed consolidated financial statements. The remaining purchase price was financed through an additional borrowing of senior secured term debt borrowed on August 12, 2004 in the principal amount of $300.0 million, as further discussed in “Capital Resources”.

     Our August 2003 Credit Agreement described below contains provisions that limit annual capital expenditures. We increased this limit in conjunction with the August 2003 Credit Agreement, as amended, to provide for forecasted capital expenditures, including the $100.0 million capital expenditure commitment related to the recently completed Hillcrest acquisition. We believe our forecasted and committed capital expenditures will be sufficient to meet our quality and growth objectives while allowing us to expand our service lines and complete our implementation of clinical and information systems; however, there can be no assurance that we will be able to obtain the financing required to provide for forecasted capital expenditures.

Capital Resources

Long-term Debt and Capital

     On August 19, 2003, we received $225.0 million through the issuance of 10.0% senior subordinated notes due on August 15, 2013. We used the proceeds from the offering to repay all amounts outstanding under our then existing credit facilities of $155.2 million plus accrued interest. On March 1, 2004, we exchanged all of our outstanding 10.0% senior subordinated notes due August 15, 2013, for 10.0% senior subordinated notes due August 15, 2013, that have been registered under the Securities Act of 1933, as amended. Terms and conditions of the exchange offer were as set forth in the registration statement on Form S-1 filed with the Securities and Exchange Commission that became effective on January 28, 2004. Interest on the senior subordinated notes is payable semi-annually on February 15 and August 15. We may redeem the senior subordinated notes, in whole or in part, at any time before August 15, 2008, at the principal amount plus a premium and accrued and unpaid interest. We may redeem the senior subordinated notes after August 15, 2008, at redemption prices ranging from 105.0% to 100.0%, plus accrued and unpaid interest. Additionally, at any time prior to August 15, 2006, we may redeem up to 35.0% of the principal amount of the senior subordinated notes with the net cash proceeds of one or more sales of our capital stock at a redemption price of 110.0% plus accrued and unpaid interest to the redemption date; provided that at least 65.0% of the aggregate principal amount of the senior subordinated notes originally issued on August 19, 2003 remains outstanding after each such redemption and the redemption occurs within 90 days of the date of closing of the equity offering.

     Payment of the principal and interest of the senior subordinated notes is subordinate to amounts owed for our existing and future senior indebtedness. The senior subordinated notes are guaranteed, fully and unconditionally, jointly and severally, on an unsecured senior subordinated basis by all of our material subsidiaries (the “Subsidiary Guarantors”), other than Lovelace Sandia Health System, Inc. and our captive insurance subsidiary. We are subject to certain restrictive covenants under the Indenture governing the senior subordinated notes. We have designated certain of our immaterial affiliates as unrestricted subsidiaries under the indenture governing the senior subordinated notes. None of these unrestricted subsidiaries carry on any significant business or conduct any operations and, as a result, they are not material to our business, financial condition or results of operations.

     On August 19, 2003, concurrent with the issuance of the senior subordinated notes, we replaced our existing credit agreement with the August 2003 Credit Agreement with a syndicate of banks and other institutional lenders. The August 2003 Credit Agreement consisted of a $125.0 million revolving line of credit, subject to a borrowing base, including a swing-line loan of $10.0 million and an incremental term loan under which we were permitted to request term loans of up to $200.0 million. The August 2003 Credit Agreement contained various financial covenants including requirements to maintain a minimum interest coverage ratio, a total leverage ratio, a senior leverage ratio, a minimum net worth of the health maintenance organization subsidiaries, and a capital expenditures maximum. At June 30, 2004, we were in compliance with all such covenants. The August 2003 Credit Agreement also restricted certain of our activities including our ability to incur additional debt, declare dividends,

48

repurchase stock, engage in mergers and acquisitions and sell assets.

     On August 12, 2004, we amended our August 2003 Credit Agreement to, among other things, increase our $125.0 million revolving line of credit to a $150.0 million revolving line of credit and add $300 million of additional borrowing available under an add-on term loan (“Term Loan B”). We also retained the $200.0 million of incremental term loans available, under certain conditions, under the existing August 2003 Credit Agreement. Concurrent with the amendment, we received $300.0 million through borrowings of the amount available under Term Loan B. Interest on Term Loan B is payable quarterly at an interest rate of either LIBOR plus 2.25% or a base rate plus 1.25%. Principal payments of 0.25% of the original principal borrowed on Term Loan B are to be paid quarterly, with the remaining principal to be paid at maturity. Term Loan B matures August 12, 2011. The revolving line of credit bears interest initially at LIBOR plus 2.50%. The interest on the revolving line of credit is payable on the outstanding principal balance on the last day of the selected interest period. The principal amount of the revolving line of credit is to be paid in full on August 19, 2008. We have not incurred borrowings under the revolving line of credit or incremental term loans as of August 16, 2004; other than standby letters of credit totaling $10.4 million that reduce the amount available under the revolving line of credit.

     We continue to pay a commitment fee ranging from 0.50% to 0.75% of the average daily amount of availability under the revolving credit facility and other fees based on the applicable LIBOR margin on outstanding standby letters of credit. The August 2003 Credit Agreement, as amended, contains various financial covenants including requirements for us to maintain a minimum interest coverage ratio, a total leverage ratio, a senior leverage ratio, a minimum net worth of the health maintenance organization subsidiaries and a capital expenditures maximum. The August 2003 Credit Agreement, as amended, also restricts certain of our activities, including our ability to incur additional debt, declare dividends, repurchase stock, engage in mergers or acquisitions and sell assets. The August 2003 Credit Agreement, as amended, is guaranteed by us and our material and future subsidiaries, other than Lovelace Sandia Health System, Inc. and our captive insurance subsidiary, and is secured by substantially all of our existing and future property and assets and capital stock of all of our subsidiaries.

     In connection with the merger of our New Mexico subsidiaries on October 1, 2003, Lovelace Sandia Health System, Inc. (the surviving entity) issued a $70.0 million intercompany note to Ardent Health Services, Inc. Interest accrues at a rate equal to the greater of (i) our base rate plus 4.0% or (ii) 6.0%. Interest is payable on demand. Principal is payable on the later of November 19, 2008 or 30 days after the maturity date of our incremental term loan, if any. We were required to maintain a pledge of the intercompany note in favor of the lenders of our August 2003 Credit Agreement and the holders of the senior subordinated notes. Effective January 1, 2004, the intercompany note was transferred to a subsidiary of Ardent Health Services, Inc. On July 12, 2004, the August 2003 Credit Agreement was amended to, among other things, reduce the pledge required to be maintained by the Company to $43.0 million, upon which the intercompany note was also amended to reduce the principal amount of the note to $43.0 million.

Interest Rate Swap Agreements

     In September 2003, we entered into four interest rate swap agreements with large financial institutions which converted a notional amount of $80.0 million of the senior subordinated notes to floating-rate borrowings. The swap agreements mature in $40.0 million increments on August 15, 2006 and August 15, 2008. The floating interest rate is based on six month LIBOR plus a margin and is determined for the six months ended in arrears on semi-annual settlement dates of February 15 and August 15. The swap agreements do not qualify for hedge accounting, thus changes in the fair value of our interest rate hedging arrangements are recognized each period in earnings. All earnings adjustments resulting from changes in the fair values of the interest rate swaps are non-cash charges or credits and do not impact cash flows from operations or operating income. There may be periods with significant non-cash increases or decreases to our earnings relating to the change in the fair value of the interest rate swap agreements. The fair value of the swap obligations was a liability of $831,000 at June 30, 2004. On August 5, 2004, we terminated our

49

interest rate swap agreements, resulting in a payment of $267,000, which was the fair market value of the related liability.

Availability of Capital Resources

     We believe that the cash flows generated by our operations, together with amounts available under our August 2003 Credit Agreement, as amended, and cash on hand will be sufficient to meet our operating and capital needs for at least the next twelve months.

     At June 30, 2004, we had borrowing capacity of $117.9 million on our revolving line of credit and, in certain circumstances, $200.0 million on our term loans. In connection with our acquisition of Hillcrest on August 12, 2004, we amended our credit facility to, among other things, accommodate an additional $25.0 million borrowing capacity on our revolving line of credit and add $300.0 million of additional borrowing available under an add-on term loan. Concurrent with the amendment, we borrowed the $300.0 million available under our Term Loan B to fund, in part, the Hillcrest acquisition, after which we have borrowing capacity of $139.6 million on our revolving line of credit and, in certain circumstances, $200.0 million on our term loans. We intend to acquire additional hospitals and are actively seeking acquisitions that fit our corporate growth strategy. These acquisitions may, however, require financing in addition to the capital on hand and future cash flows from operations. We continually assess our capital needs and may seek additional financing, including debt or equity, as considered necessary to fund potential acquisitions or for other corporate purposes. We anticipate that our acquisition strategy will necessitate the funding of future acquisitions through use of our amended credit facility and use of other financing means that may not be available to us at those times. We expect to finance our future acquisitions in large part through additional borrowings; however, there can be no assurance that we will be able to obtain future financing or financing on terms favorable to us.

Recently Issued Accounting Standards

     A discussion of recently issued accounting pronouncements and their effect on our financial position and results of operations can be found in Note 2 to our unaudited condensed consolidated financial statements.

Seasonality

     We typically experience higher patient volumes in the first and fourth quarters of each year. We typically experience such seasonal volume peaks because more people generally become ill during the winter months, which in turn results in significant increases in the number of patients we treat during those months.

Inflation

     The health care industry is labor intensive. Wages, contract labor and other expenses increase during periods of inflation and when shortages in marketplaces occur. In addition, our supply costs and insurance costs are subject to inflation as the respective vendors pass along their increased costs to us in the form of higher prices. Our ability to pass on these increased costs is limited because of increasing regulatory and competitive pressures. Accordingly, inflationary pressures could have a material adverse effect on our results of operations.

Item 4. Controls and Procedures.

     We conducted an evaluation, under the supervision of our chief executive officer and chief financial officer, of the effectiveness as of June 30, 2004 of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and

50

procedures were effective as of June 30, 2004.

     There was no change in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

      As previously disclosed, we have identified certain matters with respect to period-end closing processes, including matters related to the lack of timely and accurate review and reconciliations of account balances. We also are in the initial phases of our efforts to comply with the internal control requirements of Section 404 of the Sarbanes-Oxley Act. Additionally, an integral part of our business strategy is the continued selective acquisitions of acute care and behavioral hospitals. Many of our acquisition targets may not have systems of internal control over financial reporting that would comply with the internal control requirements of Section 404 of the Sarbanes-Oxley Act. Based on the matters previously identified, our continued efforts to comply with the internal control requirements of Section 404 of the Sarbanes-Oxley Act and our acquisition strategy, we anticipate that we will identify additional weaknesses and deficiencies in our internal control over financial reporting. We have implemented and will continue to implement action plans to remedy any deficiencies or weaknesses identified.

51

PART II
OTHER INFORMATION

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

     During the three months ended June 30, 2004, certain holders of the Company’s common units exercised their right to purchase 11,111,109 common units at $4.50 per unit pursuant to a subscription agreement between the Company and such holders. These transactions were exempt from registration pursuant to, among other things, Section 4(2) and Regulation D under the Securities Act of 1933, as amended (the “Securities Act”). In addition, an employee of the Company exercised options to purchase 2,500 common units at $3.43 per unit. This transaction was exempt from registration pursuant to, among other things, Rule 701 under the Securities Act.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits: The following exhibits are filed with this report.

Exhibit No.	Description
2.1	Asset Purchase Agreement, dated as of May 11, 2004, between Hillcrest HealthCare System and Ardent Health Services, Inc.
2.2	Assets Purchase Agreement, dated as of July 20, 2004, between Heritage Home Healthcare and Lovelace Sandia Health System, Inc.
3.1	Certificate of Formation of Ardent Health Services LLC, as filed with the Delaware Secretary of State on June 1, 2001 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-110117)
3.2	Limited Liability Company Agreement of Ardent Health Services LLC, including Amendment No. 1 thereto (Incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, File No. 333-110117)
3.3	Amendment No. 2 to Limited Liability Company Agreement of Ardent Health Services LLC (Incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.1	First Amendment to Credit Agreement dated as of December 31, 2003 among Ardent Health Services, Inc., as Borrower, Ardent Health Services LLC and certain of its subsidiaries as Guarantors, Bank One, NA, as Administrative Agent, Swing Line Lender and L/C Issuer and the Lenders party thereto
10.2	Second Amendment to Credit Agreement dated as of July 12, 2004 among Ardent Health Services, Inc. as Borrower, Ardent Health Services LLC and certain of its subsidiaries as Guarantors, Bank One, NA, as Administrative Agent, Swing Line Lender and L/C Issuer and the other Lenders party thereto
10.3	Second Amended and Restated Intercompany Promissory Note dated July 12, 2004 issued by Lovelace Sandia Health System, Inc. in favor of Ardent Medical Services, Inc.
10.4	Employment Agreement, dated as of July 1, 2004, between AHS Management Company, Inc. and David T. Vandewater
10.5	Amended and Restated Employment and Consulting Agreement, dated as of June 7, 2004, between AHS Management Company, Inc. and Vernon S. Westrich
31.1	Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K During the Quarter Ended June 30, 2004

On April 7, 2004, the Company filed a Current Report on Form 8-K, pursuant to Item 4, regarding changes in the Company’s certifying accountant.

On May 4, 2004, the Company furnished a Current Report on Form 8-K, pursuant to Item 12, regarding the Company’s press release announcing its financial results for the first quarter ended March 31, 2004.

On May 12, 2004, the Company filed a Current Report on Form 8-K, pursuant to Item 5, relating to the Company’s execution of a definitive agreement to acquire Hillcrest HealthCare System in Tulsa, Oklahoma.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ARDENT HEALTH SERVICES LLC
By:	/s/ R. Dirk Allison
	R. Dirk Allison
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer, Chief Accounting Officer and Authorized Signatory)

Date: August 16, 2004

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Asset Purchase Agreement, dated as of May 11, 2004, between Hillcrest HealthCare System and Ardent Health Services, Inc.
2.2	Assets Purchase Agreement, dated as of July 20, 2004, between Heritage Home Healthcare and Lovelace Sandia Health System, Inc.
3.1	Certificate of Formation of Ardent Health Services LLC, as filed with the Delaware Secretary of State on June 1, 2001 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1, File No. 333-110117)
3.2	Limited Liability Company Agreement of Ardent Health Services LLC, including Amendment No. 1 thereto (Incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-1, File No. 333-110117)
3.3	Amendment No. 2 to Limited Liability Company Agreement of Ardent Health Services LLC (Incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.1	First Amendment to Credit Agreement dated as of December 31, 2003 among Ardent Health Services, Inc., as Borrower, Ardent Health Services LLC and certain of its subsidiaries as Guarantors, Bank One, NA, as Administrative Agent, Swing Line Lender and L/C Issuer and the Lenders party thereto
10.2	Second Amendment to Credit Agreement dated as of July 12, 2004 among Ardent Health Services, Inc. as Borrower, Ardent Health Services LLC and certain of its subsidiaries as Guarantors, Bank One, NA, as Administrative Agent, Swing Line Lender and L/C Issuer and the other Lenders party thereto
10.3	Second Amended and Restated Intercompany Promissory Note dated July 12, 2004 issued by Lovelace Sandia Health System, Inc. in favor of Ardent Medical Services, Inc.
10.4	Employment Agreement, dated as of July 1, 2004, between AHS Management Company, Inc. and David T. Vandewater
10.5	Amended and Restated Employment and Consulting Agreement, dated as of June 7, 2004, between AHS Management Company, Inc. and Vernon S. Westrich
31.1	Certification of CEO pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of CFO pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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EX-2.1

                                                                     EXHIBIT 2.1


                            ASSET PURCHASE AGREEMENT

                                 BY AND BETWEEN

                           HILLCREST HEALTHCARE SYSTEM

                                       AND

                          ARDENT HEALTH SERVICES, INC.

                                  MAY 11, 2004



                                TABLE OF CONTENTS



                                                                                        PAGE
                                                                                     
1.     PURCHASE OF ASSETS..........................................................      9

       1.1.   Assets...............................................................      9

       1.2.   Excluded Assets......................................................      11

       1.3.   Assumed Liabilities..................................................      13

       1.4.   Excluded Liabilities.................................................      14

       1.5.   Purchase Price.......................................................      16

       1.6.   Net Working Capital, Estimates and Audits............................      16

       1.7.   Prorations...........................................................      18

2.     CLOSING.....................................................................      18

       2.1.   Closing..............................................................      18

       2.2.   Actions of Seller at Closing.........................................      18

       2.3.   Actions of Buyer at Closing..........................................      20

3.     REPRESENTATIONS AND WARRANTIES OF SELLER....................................      21

       3.1.   Existence and Capacity...............................................      21

       3.2.   Powers; Consents; Absence of Conflicts With Other Agreements; Etc....      22

       3.3.   Binding Agreement....................................................      22

       3.4.   Financial Statements.................................................      22

       3.5.   Certain Post-Balance Sheet Results...................................      23

       3.6.   Licenses.............................................................      24

       3.7.   Certificates of Need.................................................      24

       3.8.   Medicare Participation/Accreditation.................................      25

       3.9.   Regulatory Compliance................................................      25

       3.10.  Equipment............................................................      26

       3.11.  Real Property........................................................      26

       3.12.  Title................................................................      27

       3.13.  Employee Benefit Plans...............................................      28

       3.14.  Litigation or Proceedings............................................      29

       3.15.  Environmental Laws...................................................      29

       3.16.  Hill-Burton and Other Liens..........................................      30

       3.17.  Taxes................................................................      30

       3.18.  Employee Relations...................................................      31


                                       i



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                        PAGE
                                                                                     
       3.19.  Agreements and Commitments...........................................      31

       3.20.  The Assumed Contracts................................................      32

       3.21.  Supplies.............................................................      32

       3.22.  Insurance............................................................      32

       3.23.  Third Party Payor Cost Reports.......................................      33

       3.24.  Medical Staff Matters................................................      33

       3.25.  Condition of Assets..................................................      34

       3.26.  Intellectual Property; Computer Software.............................      34

       3.27.  Accounts Receivable..................................................      34

       3.28.  Experimental Procedures..............................................      34

       3.29.  Compliance Program...................................................      34

       3.30.  Partial Subsidiaries.................................................      35

       3.31.  Full Disclosure......................................................      37

       3.32.  Seller's Knowledge...................................................      37

4.      REPRESENTATIONS AND WARRANTIES OF BUYER....................................      37

       4.1.   Existence and Capacity...............................................      37

       4.2.   Powers; Consents; Absence of Conflicts With Other Agreements, Etc....      37

       4.3.   Binding Agreement....................................................      38

       4.4.   Availability of Funds................................................      38

       4.5.   Legal Proceedings....................................................      38

       4.6.   Solvency.............................................................      38

       4.7.   Full Disclosure......................................................      39

       4.8.   Buyer's Knowledge....................................................      39

5.     COVENANTS OF SELLER PRIOR TO CLOSING........................................      39

       5.1.   Information..........................................................      39

       5.2.   Operations...........................................................      39

       5.3.   Negative Covenants...................................................      40

       5.4.   Governmental Approvals...............................................      41

       5.5.   FTC Notification.....................................................      41

       5.6.   Additional Financial Information.....................................      41


                                       ii



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                        PAGE
                                                                                     
       5.7.   No-Shop Clause.......................................................      42

       5.8.   Title Commitment.....................................................      42

       5.9.   Surveys..............................................................      43

       5.10.  Insurance Ratings....................................................      43

       5.11.  Tail Insurance.......................................................      44

       5.12.  Medical Staff Disclosure.............................................      44

       5.13.  Seller's Efforts to Close............................................      44

       5.14.  Waiver of Bulk Sales Law Compliance..................................      44

6.     COVENANTS OF BUYER PRIOR TO CLOSING.........................................      44

       6.1.   Governmental Approvals...............................................      44

       6.2.   FTC Notification.....................................................      45

       6.3.   Buyer's Efforts to Close.............................................      45

       6.4.   Waiver of Bulk Sales Law Compliance..................................      45

7.     CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER................................      45

       7.1.   Representations/Warranties...........................................      45

       7.2.   Pre-Closing Confirmations............................................      45

       7.3.   Title Policy.........................................................      46

       7.4.   Actions/Proceedings..................................................      46

       7.5.   Adverse Change.......................................................      46

       7.6.   Insolvency...........................................................      46

       7.7.   Opinion of Counsel to Seller.........................................      46

       7.8.   Required Consents....................................................      46

       7.9.   Vesting/Recordation..................................................      47

8.     CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER...............................      47

       8.1.   Representations/Warranties...........................................      47

       8.2.   Governmental Approvals...............................................      47

       8.3.   Actions/Proceedings..................................................      47

       8.4.   Insolvency...........................................................      47

       8.5.   Opinion of Counsel to Buyer..........................................      47

9.     SELLER'S COVENANT NOT TO COMPETE............................................      47


                                      iii



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                        PAGE
                                                                                     
10.    ADDITIONAL AGREEMENTS.......................................................      48

       10.1.  Allocation of Purchase Price.........................................      48

       10.2.  Termination Prior to Closing.........................................      49

       10.3.  Post Closing Access to Information...................................      49

       10.4.  Preservation and Access to Records After the Closing.................      50

       10.5.  CON Disclaimer.......................................................      50

       10.6.  Tax and Medicare Effect..............................................      50

       10.7.  Reproduction of Documents............................................      51

       10.8.  Cooperation on Tax Matters...........................................      51

       10.9.  Cost Reports.........................................................      51

       10.10. Misdirected Payments, Etc............................................      52

       10.11. Employee Matters.....................................................      52

       10.12. Governance and Management............................................      53

       10.13. Indigent Care Policies...............................................      54

       10.14. Continuation of Services.............................................      54

       10.15. Capital Expenditures.................................................      54

       10.16. Residency Programs...................................................      55

       10.17. Grandfathering of Medical Staffs.....................................      55

       10.18. Use of Controlled Substance Permits..................................      55

       10.19. Financial Statements.................................................      56

       10.20. Lockbox Accounts.....................................................      56

       10.21. Subsequent Sale......................................................      56

       10.22. Notification of Certain Matters......................................      56

       10.23. Use of Names.........................................................      57

       10.24. Buyer's Post-Closing Insurance Obligations...........................      57

       10.25. Repairs..............................................................      57

11.    INDEMNIFICATION.............................................................      58

       11.1.  Indemnification by Buyer.............................................      58

       11.2.  Limitations on Indemnification by Buyer..............................      58

       11.3.  Indemnification by Seller............................................      59


                                       iv



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                        PAGE
                                                                                     
       11.4.  Limitations on Indemnification by Seller.............................      59

       11.5.  Notice and Control of Litigation.....................................      60

       11.6.  Notice of Claim......................................................      61

       11.7.  No Punitive Damages..................................................      61

       11.8.  Exclusive Remedy.....................................................      61

12.    MISCELLANEOUS...............................................................      62

       12.1.  Schedules and Exhibits...............................................      62

       12.2.  Additional Assurances................................................      64

       12.3.  Consented Assignment.................................................      64

       12.4.  Consents, Approvals and Discretion...................................      64

       12.5.  Legal Fees and Costs.................................................      65

       12.6.  Governing Law; Venue.................................................      65

       12.7.  Benefit/Assignment...................................................      65

       12.8.  Brokerage Fees.......................................................      65

       12.9.  Cost of Transaction..................................................      65

       12.10. Confidentiality......................................................      66

       12.11. Public Announcements.................................................      66

       12.12. Waiver of Breach.....................................................      66

       12.13. Notice...............................................................      66

       12.14. Severability.........................................................      67

       12.15. Gender and Number....................................................      68

       12.16. Divisions and Headings...............................................      68

       12.17. Survival.............................................................      68

       12.18. Affiliates...........................................................      68

       12.19. Waiver of Jury Trial.................................................      68

       12.20. Accounting Date......................................................      69

       12.21. No Inferences........................................................      69

       12.22. No Third Party Beneficiaries.........................................      69

       12.23. Enforcement of Agreement.............................................      69

       12.24. Entire Agreement/Amendment...........................................      69


                                       v



                                TABLE OF CONTENTS
                                   (CONTINUED)



                                                                                        PAGE
                                                                                     
       12.25. Risk of Loss.........................................................      69

       12.26. Other Owners of Purchased Assets.....................................      70

       12.27. Foundation...........................................................      70

       12.28. Material.............................................................      70

       12.29. Sections.............................................................      71

       12.30. Fraudulent or Criminal Conduct.......................................      71


                                       vi



                            GLOSSARY OF DEFINED TERMS



DEFINED TERM                                                                                  SECTION
                                                                                       
Accessibility Laws.................................................................                3.11(d)
Accounting Firm....................................................................                 1.6(c)
Accounts Receivable................................................................                 1.1(e)
Affiliate..........................................................................                  12.18
Agreement..........................................................................                Caption
AOA................................................................................                    3.8
Applications.......................................................................                    3.7
Assignment and Assumption Agreement................................................                 2.1(c)
Assumed Contracts..................................................................                 1.1(h)
Assumed Liabilities................................................................                    1.3
Balance Sheet Date.................................................................                    3.4
Baseline Schedule..................................................................                12.1(a)
Board of Trustees..................................................................                  10.12
Buyer..............................................................................                Caption
Buyer Aggregate Amount.............................................................                   11.4
Buyer Entity(ies)..................................................................       Introduction (F)
Buyer Entity Organization(s).......................................................       Introduction (E)
Buyer Indemnified Parties..........................................................                   11.3
Buyer Losses.......................................................................                   11.3
CERCLA.............................................................................                   3.15
Certificate of Need................................................................                    3.7
Change Notice......................................................................                12.1(b)
Closing............................................................................                    2.1
Closing Date.......................................................................                    2.1
Closing Documents..................................................................                   3.31
COBRA..............................................................................                3.13(f)
Code...............................................................................                3.13(b)
Competing Business.................................................................                      9
Confidentiality Agreements.........................................................                  12.10
control ...........................................................................                  12.18
Designated Officers................................................................                   3.32
Designated Persons.................................................................                   3.32
Employee Lease Agreement...........................................................       Introduction (M)
Environmental Laws.................................................................                   3.15
ERISA..............................................................................                3.13(b)
ERISA Controlled Group.............................................................                3.13(b)
Excluded Assets....................................................................                    1.2
Excluded Contracts.................................................................                 1.2(c)
Excluded Liabilities...............................................................                    1.4
Execution Date.....................................................................                Caption
Exemption Certificate..............................................................                    3.7
Facilities.........................................................................       Introduction (C)
Final Exhibits.....................................................................                12.1(i)


                                      vii



                                                                                       
Financial Statements...............................................................                    3.4
Foundation.........................................................................                  12.27
FTC................................................................................                    5.5
Full Services Management Agreement.................................................       Introduction (M)
GAAP...............................................................................                 1.6(a)
Government Entity..................................................................                    3.9
HIPAA..............................................................................                    3.9
Hospitals..........................................................................                 3.5(b)
HSR Act............................................................................                    5.5
Indemnified Party..................................................................                   11.5
Indemnifying Party.................................................................                   11.5
Independent Counsel................................................................                12.1(i)
Independent Facility(ies)..........................................................       Introduction (D)
Independent Facility Agreement(s)..................................................       Introduction (J)
Independent Health Care Business(es)...............................................       Introduction (D)
Independent Hospital(s)............................................................       Introduction (D)
Independent Parties................................................................       Introduction (L)
Intellectual Property..............................................................                   3.26
Interim Statements.................................................................                    5.6
Introduction.......................................................................                    1.1
JCAHO..............................................................................                    3.8
Justice Department.................................................................                    5.5
Lease Agreement....................................................................       Introduction (K)
Lease Effective Date...............................................................       Introduction (M)
Lease/Sublease.....................................................................                 2.1(n)
Leased Real Property...............................................................                 1.1(a)
Letter Agreement...................................................................       Introduction (K)
Letter of Intent...................................................................       Introduction (K)
License Agreement..................................................................                 2.1(m)
Limited Services Management Services Agreement.....................................       Introduction (P)
Management Services Agreement......................................................                 2.1(o)
Material...........................................................................                  12.28
Material Leased Real Property......................................................                    5.8
Material Consents..................................................................                    7.8
Metro Facilities...................................................................       Introduction (C)
Metro Health Care Business(es).....................................................       Introduction (C)
Metro Hospital(s)..................................................................       Introduction (C)
Modified Schedule..................................................................                12.1(b)
Net Working Capital................................................................                 1.6(a)
Objection Notice...................................................................                12.1(c)
Owned Real Property................................................................                 1.1(a)
Partial Subsidiaries...............................................................                3.30(g)
Permitted Encumbrances.............................................................                   3.11
Physicians.........................................................................                  10.17
Plans..............................................................................                3.13(a)
Post-Closing Adjustment Date.......................................................                 1.6(b)



                                      viii



                                                                                       
PTO................................................................................                 1.3(c)
Purchase Price.....................................................................                    1.5
Purchased Assets...................................................................                    1.1
RCRA...............................................................................                   3.15
Real Property......................................................................                 1.1(a)
Restricted Area....................................................................                      9
Seller.............................................................................                Caption
Seller Aggregate Amount............................................................                11.2(a)
Seller Cost Reports................................................................                   10.9
Seller Entity Organization(s)......................................................       Introduction (A)
Seller Entity(ies).................................................................       Introduction (B)
Seller Indemnified Parties.........................................................                   11.1
Seller Losses......................................................................                   11.1
Seller Organizations...............................................................       Introduction (A)
solvency ..........................................................................                    4.6
State Health Agency................................................................                    3.6
Strategic Hospital(s)..............................................................       Introduction (C)
Strategic Facility Agreement(s)....................................................       Introduction (I)
Strategic Health Care Business(es).................................................       Introduction (C)
Strategic Parties..................................................................       Introduction (K)
Surveys............................................................................                    5.9
Tax Returns........................................................................                3.17(a)
Title Commitment...................................................................                    5.8
Title Company......................................................................                    5.8
Title Policy.......................................................................                    5.8
to the best knowledge of Seller, to Sellers knowledge, or known....................                   3.32
to the knowledge of Buyer, to Buyers knowledge, or known...........................                    4.2
Transition Services Agreement......................................................                 2.1(k)
WARN Act...........................................................................                 1.3(e)



                                       ix



                            ASSET PURCHASE AGREEMENT

         THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of May 11, 2004 (the "Execution Date"), by and between HILLCREST
HEALTHCARE SYSTEM, an Oklahoma not-for-profit corporation ("Seller"), and ARDENT
HEALTH SERVICES, INC., a Delaware corporation ("Buyer").

                                  INTRODUCTION

         A. Seller is the parent of a multi-organization system of
organizations, each of which Seller, completely or partially, directly or
indirectly, owns or controls (i.e., possesses the power to direct or cause the
direction of the management and policies of the entity whether through the
holding of membership interests, the ownership of voting securities, by contract
or otherwise), including, but not limited to, the organizations listed on Part A
of Exhibit A (individually, a "Seller Entity Organization" and collectively, the
"Seller Entity Organizations").

         B. Seller Entity Organizations include the organizations listed on Part
B of Exhibit A (individually, a "Seller Entity" and collectively, the "Seller
Entities") and on Part C of Exhibit A (individually, a "Seller Organization" and
collectively, the "Seller Organizations"), each of which is engaged directly or
indirectly in the business of delivering health care services to the public
and/or in activities directly or indirectly related thereto, including, without
limitation, the ownership and/or lease of assets and the employment and/or
engagement of personnel used in connection with the ownership and operation of
health care facilities and businesses.

         C. Seller Entities (a) are engaged directly or indirectly in the
business of delivering health care services and in businesses directly or
indirectly related thereto in metropolitan Tulsa, Oklahoma through (i) the
ownership and operation of the hospitals identified on Part A of Exhibit B
(individually, a "Metro Hospital" and collectively, the "Metro Hospitals") and
(ii) the ownership and operation of the health care businesses and activities
incident to the operation of the Metro Hospitals identified on Part B of Exhibit
B (individually, a "Metro Health Care Business" and collectively, the "Metro
Health Care Businesses") (the Metro Hospitals and the Metro Health Care
Businesses are referred to in this Agreement collectively as the "Metro
Facilities") and (b) are engaged directly or indirectly in the business of
delivering health care services and in businesses directly or indirectly related
thereto outside metropolitan Tulsa, Oklahoma in the Oklahoma communities of
Cushing, Bristow, Cleveland, Pawnee, Henryetta, Poteau and Wagoner through (i)
the operation of the hospitals identified on Part C of Exhibit B (individually,
a "Strategic Hospital" and collectively, the "Strategic Hospitals") and (ii) the
ownership and operation of the health care businesses and activities incident to
the operation of the Strategic Hospitals identified on Part D of Exhibit B
(individually, a "Strategic Health Care Business" and collectively, the
"Strategic Health Care Businesses") (the Strategic Hospitals and the Strategic
Health Care Businesses are referred to in this Agreement collectively as the
"Strategic Facilities" and the Metro Facilities and the Strategic Facilities are
referred to in this Agreement collectively as the "Facilities").

         D. Seller Organizations are engaged directly or indirectly in the
business of delivering health care services and in businesses directly or
indirectly related thereto outside metropolitan

                                       1



Tulsa, Oklahoma in the Oklahoma communities of Fairfax, Coalgate and Prague
through (i) the operation of the hospitals identified on Part E of Exhibit B
(individually, an "Independent Hospital" and collectively, the "Independent
Hospitals") and (ii) the ownership and operation of the health care businesses
and activities incident to the operation of the Independent Hospitals identified
on Part F of Exhibit B (individually, an "Independent Health Care Business" and
collectively, the "Independent Health Care Businesses") (the Independent
Hospitals and the Independent Health Care Businesses are referred to in this
Agreement collectively as the "Independent Facilities").

         E. Buyer is the parent of a multi-organization system of organizations,
each of which Buyer, completely or partially, directly or indirectly, owns or
controls (i.e., possesses the power to direct or cause the direction of the
management and policies of the entity whether through the holding of membership
interests, the ownership of voting securities, by contract or otherwise),
including, but not limited to, the organizations listed on Part A of Exhibit C
(individually, a "Buyer Entity Organization" and collectively, the "Buyer Entity
Organizations").

         F. Buyer Entity Organizations include the organizations listed on Part
B of Exhibit C (individually, a "Buyer Entity" and collectively, the "Buyer
Entities"), each of which will be engaged directly or indirectly in the business
of delivering health care services to the public and/or in activities directly
or indirectly related thereto following the consummation of the transactions
contemplated in this Agreement.

         G. On the Closing Date (as defined in Section 2.1), Seller desires to
sell to Buyer and Buyer desires to purchase from Seller substantially all of the
assets of Seller and Seller Entities which are directly or indirectly related
to, necessary for, or used in connection with, the operation of the Facilities
(other than the Excluded Assets (as defined in Section 1.2)), and Buyer has
agreed to cause Buyer Entities to assume the Assumed Liabilities (as defined in
Section 1.3) for the Purchase Price (as defined in Section 1.5) and upon the
terms and conditions set forth in this Agreement.

         H. Further, on the Closing Date, as more fully described herein, Seller
and Seller Entity Organizations desire to cease to engage directly or indirectly
in the business of delivering health care services and in businesses directly or
indirectly related thereto.

         I. However, Seller and Seller Entities operate the Strategic
Facilities through and pursuant to agreements styled either as "operating
agreements" or "lease agreements" (individually, a "Strategic Facility
Agreement" and collectively, the "Strategic Facility Agreements"), none of which
appears to permit Seller or Seller Entities to assign in its entirety the
applicable agreement to an independent third party without first obtaining the
consent of all or some the other parties to the agreement, and none of which
appears to permit a for-profit entity to assume the position of the applicable
Seller Entity as the operator of the Strategic Facilities.

         J. Further, Seller and Seller Organizations operate the Independent
Facilities through and pursuant to agreements also styled as "operating
agreements" or "lease agreements" (individually, an "Independent Facility
Agreement" and collectively, the "Independent Facility Agreements"), several of
which do not permit Seller or Seller Organizations to unilaterally terminate the
subject agreement without cause.

                                       2



         K. Therefore, between the Execution Date and the Closing Date, and for
no additional consideration other than the Purchase Price, Seller and Buyer
shall jointly use their respective commercially reasonable best efforts to
accomplish either of the following: (a) to cause the other parties to each
Strategic Facility Agreement (the "Strategic Parties") to reach, on or before
the Closing Date, an agreement, pursuant to which, on or before the Closing
Date, the Strategic Parties to each Strategic Facility Agreement will: (i) with
the consent of Seller and the applicable Seller Entity, terminate the Strategic
Facility Agreement between them and Seller and the applicable Seller Entity and
(ii) with the consent of the Buyer, enter into a new lease agreement in
substantially the form attached to Exhibit D between them and the applicable
Buyer Entity (the "Lease Agreement"), as modified as necessary to incorporate
the terms of the agreements between Buyer and Seller set forth herein, pursuant
to which the applicable Buyer Entity will replace the applicable Seller Entity
as the operator of the subject Strategic Facilities, under terms and conditions
substantially similar to the terms and conditions then in effect under the
terminated Strategic Facility Agreement, except to the extent otherwise agreed
to by Buyer and the Strategic Parties, and approved by Seller, and except to the
extent otherwise required by law, or (b) to cause the Strategic Parties to each
Strategic Facility Agreement to enter into, on or before the Closing Date, a
letter of intent between them and Buyer (a "Letter of Intent"), pursuant to
which the Strategic Parties to each Strategic Facility Agreement will agree to
take as promptly as is possible after the Closing Date, the following actions:
(a) with the consent of Seller and the applicable Seller Entity, terminate the
Strategic Facility Agreement between them and Seller and the applicable Seller
Entity and (b) enter into a Lease Agreement, as modified as necessary to
incorporate the terms of the agreements between Buyer and Seller set forth
herein, pursuant to which the applicable Buyer Entity will replace the
applicable Seller Entity as the operator of the subject Strategic Facilities,
under terms and conditions substantially similar to the terms and conditions
then in effect under the terminated Strategic Facility Agreement, except to the
extent otherwise agreed to by Buyer and the Strategic Parties, and approved by
Seller, and except to the extent otherwise required by law; with commercially
reasonable best efforts, as used in this Paragraph K, defined to include (i) the
agreement of Seller and Buyer to act cooperatively in a collaborative manner to
make all necessary and appropriate contacts with the Strategic Parties to each
Strategic Facility Agreement as may be required to cause them to enter into a
Lease Agreement or a Letter of Intent on or before the Closing Date and (ii) the
agreement of Seller and Buyer to assist the Strategic Parties to the Strategic
Facility Agreement relating to Cushing Regional Hospital to identify, develop
and implement strategies to convert the debt of Cushing Regional Hospital from
tax-exempt to taxable in order to enable the Strategic Parties to the Strategic
Facility Agreement relating to Cushing Regional Hospital to enter into a Lease
Agreement with a Buyer Entity on or before, or as soon as possible after, the
Closing Date.

         L. Further, between the Execution Date and the Closing Date, and for no
additional consideration other than the Purchase Price, Seller and the
applicable Seller Organization shall use their commercially reasonable best
efforts to reach an agreement with the other parties to each Independent
Facility Agreement (the "Independent Parties"), pursuant to which the
Independent Parties to each Independent Facility Agreement will agree to take as
promptly as possible before, on or after the Closing Date the following actions:
(a) with the consent of Seller and the applicable Seller Organization, terminate
the Independent Facility Agreement between them and Seller and the applicable
Seller Organization and (b) implement or pursue one or more alternative
strategies,

                                       3



including, but not limited to, converting their Independent Facilities to
independent, stand alone, facilities, selling their Independent Facilities to an
independent third party (including an independent third party introduced to them
by Seller), entering into a management agreement with an independent third party
(including an independent third party introduced to them by Seller) pursuant to
which the independent third party will manage the business and operations of
their Independent Facilities, or entering into an affiliation or other
collaborative arrangement with an independent third party (including an
independent third party introduced to them by Seller).

         M. On the Closing Date, subject to and in accordance with the terms of
this Agreement, and for no additional consideration other than the Purchase
Price, Seller and Buyer shall take, and shall cause to be taken with respect to
each group of Strategic Parties that enters into a Lease Agreement on or prior
to the Closing Date, the same actions Buyer and Seller shall take hereunder
respecting the Metro Facilities (the intent of the parties being to treat said
Strategic Facilities and Metro Facilities the same), including, without
limitation, the following actions: (a) as more fully described in Section 10.11,
Seller shall, and shall cause Seller Entities to, terminate all of their
employees assigned to the Strategic Facilities who are not parties to written
employment agreements with Seller or Seller Entities, and Buyer shall cause the
applicable Buyer Entities to offer to hire all active employees of Seller and
Seller Entities assigned to the Strategic Facilities who are not parties to
written employment agreements; (b) as more fully described in Section 1.1,
Seller shall sell, convey, transfer and deliver, and shall cause Seller Entities
to sell, convey, transfer and deliver, to the applicable Buyer Entities, and
Buyer shall cause the applicable Buyer Entities to purchase, acquire and accept,
all of the right, title and interest of Seller and Seller Entities in the assets
owned and/or leased by Seller and Seller Entities and used in connection with
the operation of the Strategic Facilities as may exist on the Closing Date,
other than the Excluded Assets; (c) as more fully described in Section 1.2,
Seller and Seller Entities shall retain all of the rights, title and interest of
Seller and Seller Entities in and to the Excluded Assets; (d) as more fully
described in Section 1.3, Seller and Seller Entities shall assign to Buyer and
the applicable Buyer Entity, and Buyer shall, and shall cause the applicable
Buyer Entity to, assume and pay, perform, honor and discharge the Assumed
Liabilities; and (e) as more fully described in Section 1.4, Seller and Seller
Entities shall retain, and Buyer shall and Buyer Entities shall not assume, and
shall not be obligated to pay, the Excluded Liabilities.

         Further, on the Closing Date, subject to and in accordance with the
terms of this Agreement, and for no additional consideration other than the
Purchase Price, Seller and Buyer shall implement, and shall cause to be
implemented, with respect to each group of Strategic Parties that enters into a
Letter of Intent on or prior to the Closing Date, a transitional strategy
designed to provide each such group of Strategic Parties the time required to
enter into a Lease Agreement (or, as provided below, to pursue an alternative
strategy), which transitional strategy shall consist of the following
components: (a) on the Closing Date, Seller and the applicable Seller Entity
shall remain and continue to be parties to the applicable Strategic Facility
Agreement then in effect, the term of which shall continue until Buyer or Buyer
Entity enters into a Lease Agreement with the applicable Strategic Parties,
unless sooner terminated in accordance with its terms or otherwise; (b) on the
Closing Date, Seller and/or the applicable Seller Entity and Buyer and/or the
applicable Buyer Entity shall enter into a "full services" management services
agreement in substantially the form attached to Exhibit E-1, as modified as
necessary to incorporate the terms of the agreements between Buyer and

                                       4



Seller set forth herein (the "Full Services Management Services Agreement"),
pursuant to which the parties thereto shall agree as follows: (i) the Full
Services Management Services Agreement shall have an initial term of twelve (12)
calendar months, commencing on the Closing Date, subject to extension by Seller
if Buyer renews and extends its exclusive right to negotiate as provided below,
(ii) Buyer or the applicable Buyer Entity shall provide to the applicable Seller
Entity the "full services" described in the Full Services Management Services
Agreement for a management fee calculated as follows: two percent (2%) of the
net revenues of the Strategic Hospitals subject to the Full Services Management
Services Agreement (calculated as of the fiscal year ended June 30, 2003) if the
Strategic Hospitals are Bristow Memorial Hospital, Cleveland Area Hospital,
Henryetta Medical Center, Wagoner Community Hospital and Pawnee Municipal
Hospital, Forty Thousand Dollars ($40,000) per calendar month if the Strategic
Hospital is Cushing Regional Hospital (if and for so long as the Cushing
Regional Hospital debt is tax-exempt) or two percent (2%) of the net revenues of
Cushing Regional Hospital (calculated as of the fiscal year ended June 30, 2003
(if and when the Cushing Regional Hospital debt is converted to taxable debt)),
and Thirty Thousand Dollars ($30,000) per calendar month if the Strategic
Hospital is Eastern Oklahoma Medical Center (if and for so long as the Eastern
Oklahoma Medical Center debt is tax-exempt) or two percent (2%) of the net
revenues of Eastern Oklahoma Medical Center (calculated as of the fiscal year
ended June 30, 2003 (if and when the Eastern Oklahoma Medical Center debt is
converted to taxable debt)) (iii) as between Buyer and Seller, Buyer shall have
the exclusive right to negotiate a Lease Agreement with the applicable Strategic
Parties during the first six (6) calendar months of the Full Services Management
Services Agreement, (iv) Buyer shall have the right to declare the Strategic
Facilities subject to a Full Services Management Services Agreement to be
Independent Facilities by giving Seller written notice of its declaration at any
time during the term of the Full Services Management Services Agreement, (v) as
between Buyer and Seller, Buyer shall have the right to renew and extend its
exclusive right to negotiate for an additional six (6) calendar months by giving
Seller written notice of its extension between the first and last day of the
sixth (6th) calendar month of the Full Services Management Services Agreement,
(vi) the term of the Full Services Management Services Agreement shall remain
twelve (12) calendar months if Buyer declares the Strategic Facilities subject
to the Full Services Management Services Agreement to be Independent Facilities,
(vii) the term of the Full Services Management Services Agreement shall be
extended for an additional six (6) calendar months from the date of any
subsequent declaration by Buyer that the Strategic Facilities shall be
Independent Facilities if Buyer renews and extends its exclusive right to
negotiate, (viii) during the last six (6) months of the Full Services Management
Services Agreement, if Buyer has declared that the Strategic Facilities shall be
Independent Facilities, Buyer shall no longer have an exclusive right to
negotiate and Seller shall have the right to pursue one or more alternative
strategies involving the Independent Facilities on behalf of itself and/or on
behalf of the applicable Strategic Parties, and (ix) except for each Full
Services Management Services Agreement with respect to which Buyer declares the
Strategic Facilities which are the subject of the same to be Independent
Facilities, beginning on the first day of the seventh (7th) calendar month of
each Full Services Management Services Agreement, Seller and/or the applicable
Seller Entity and Buyer and/or the applicable Buyer Entity shall enter into a
line of credit pursuant to which Buyer and/or the applicable Buyer Entity shall
agree to loan to the applicable Seller Entity on commercially reasonable terms
all funds needed by the applicable Seller Entity to fund capital and operating
shortfalls from the first day of the seventh (7th) calendar month until the
earlier of the date on which: (i) Buyer

                                       5



declares the Strategic Facility to be an Independent Facility, or (ii) the Full
Services Management Services Agreement expires or terminates, and Seller shall
not dividend or otherwise transfer monies from the Seller Entity (such monies
shall be retained by the Seller Entity and used to fund ongoing operations and
capital requirements); (c) on the Closing Date, Seller and/or the applicable
Seller Entity and Buyer and/or the applicable Buyer Entity shall enter into an
employee lease agreement in substantially the form attached to Exhibit F, as
modified as necessary to incorporate the terms of the agreements between Buyer
and Seller set forth herein (the "Employee Lease Agreement"), pursuant to which
the parties thereto shall agree as follows: (i) the term of the applicable
Employee Lease Agreement shall be coterminous with the term of the applicable
and corresponding Full Services Management Services Agreement, (ii) as more
fully described in Section 10.11, on the Closing Date, Seller shall, and shall
cause Seller Entities to, terminate all of their employees assigned to the
Strategic Facilities included within the applicable Strategic Facility Agreement
who are not parties to written employment agreements with Seller or Seller
Entities, and Buyer shall cause the applicable Buyer Entity to offer to hire all
active employees assigned to said Strategic Facilities who are not parties to
written employment agreements, (iii) Buyer or the applicable Buyer Entity shall
lease to the applicable Seller Entity all employees assigned to said Strategic
Facilities whom the applicable Buyer Entity employs for a fee equal to Buyer's
or Buyer Entity's actual costs of employment, without mark-up, and (iv) on the
date on which the Employee Lease Agreement expires or terminates, Buyer or the
applicable Buyer Entity shall permit Seller (or its designee) or the applicable
Seller Entity (or its designee) to offer to hire all employees employed by Buyer
or the applicable Buyer Entity and assigned to the applicable Strategic
Facilities unless on the date on which the Employee Lease Agreement expires or
terminates, Buyer or the applicable Buyer Entity enters into a Lease Agreement
with the applicable Strategic Parties; (d) on the Closing Date, Seller shall
assign, and shall cause Seller Entities to assign, and Buyer shall cause the
applicable Buyer Entity to assume, any contracts that Seller and Buyer mutually
agree shall create an operational or legal problem if not assigned to and
assumed by the applicable Buyer Entity during the term of the Full Services
Management Services Agreement; (e) on the date on which Buyer or the applicable
Buyer Entity and the applicable Strategic Parties enter into a Lease Agreement
(the "Lease Effective Date"), Seller and Buyer shall take, and shall cause to be
taken, with respect to the Strategic Facilities of the Strategic Parties that
enter into the Lease Agreement, the same actions Seller and Buyer shall take
hereunder respecting the Metro Facilities (the intent of the parties being to
treat the Lease Effective Date and the Closing Date the same), including,
without limitation, the following actions: (i) Buyer shall pay to Seller by wire
transfer of immediately available funds to the account specified by Seller to
Buyer in writing, an amount equal to the Net Working Capital (as defined in
Section 1.6(a)) of the applicable Seller Entity, calculated as of the first day
of the seventh (7th) calendar month of the Full Services Management Services
Agreement (i.e., the date on which Seller and/or the applicable Seller Entity
and Buyer and/or the applicable Buyer Entity enters into the line of credit
referred to above), minus the amount of any long-term debt and capitalized
leases in respect of the applicable Strategic Facilities that are assumed by the
applicable Buyer Entity (other than the loans made to the applicable Buyer
Entity pursuant to the line of credit referred to above, (ii) as more fully
described in Section 1.1, Seller shall sell, convey, transfer and deliver, and
shall cause Seller Entities to sell, convey, transfer and deliver, to the
applicable Buyer Entity, and Buyer shall cause the applicable Buyer Entity to
purchase, acquire, and accept, all of the rights, title and interest of Seller
and Seller Entities in the assets owned and/or leased by Seller and Seller
Entities and used in connection with

                                       6



the operation of the Strategic Facilities as may exist on the Lease Effective
Date, other than the Excluded Assets, (iii) as more fully described in Section
1.2, Seller and Seller Entities shall retain all of the rights, title and
interest of Seller and Seller Entities in and to the Excluded Assets as may
exist on the Lease Effective Date, (iv) as more fully described in Section 1.3,
Seller and Seller Entities shall assign to Buyer and the applicable Buyer
Entity, and Buyer shall, and shall cause the applicable Buyer Entity to, assume
all applicable Assumed Liabilities existing on the Lease Effective Date, except
that the Assumed Liabilities shall include all loans made by Buyer and/or the
applicable Buyer Entity to the applicable Seller Entity to fund capital and
operating shortfalls and all obligations of Seller and the applicable Seller
Entity to return assets to the Strategic Parties upon the termination of the
applicable Strategic Facility Agreement, and (v) as more fully described in
Section 1.4, Seller and Seller Entities shall retain, and Buyer and Buyer
Entities shall not assume, and shall not be obligated to pay, the Excluded
Liabilities existing on the Lease Effective Date; (f) on the Lease Effective
Date, Seller shall not be required to update the representations and warranties
that it makes in this Agreement to include the Lease Effective Date (i.e.,
Seller's representations and warranties shall remain as made as of the Closing
Date) other than the representations and warranties it makes herein relating to
the ownership of Purchased Assets; (g) between the Closing Date and the Lease
Effective Date, Seller shall, and shall cause Seller Entities to, observe and
comply with the positive and negative covenants contained in Section 5.2 and
Section 5.3 in respect to the Strategic Facilities and the Purchased Assets used
in connection with the operation of the same; (h) as more fully described in the
Full Services Management Services Agreements, each party to the same shall
defend, indemnify and hold harmless the other party to the same, the Affiliates
(as defined in Section 12.18) of the other party to the same, and its and their
respective directors, officers, principals, attorneys, employees, agents or
other representatives, from and against any and all losses, liabilities,
damages, costs (including, without limitation, court costs and costs of appeal)
and expenses (including, without limitation, reasonable attorneys' fees and fees
of expert consultants and witnesses) that the same may incur as a result of, or
with respect to, the fraudulent or negligent acts or omissions of the
indemnifying party; (i) Seller, at the written request of Buyer, shall appoint
one representative of Buyer to the board of directors of each Seller Entity that
is and remains a party to a Strategic Facility Agreement in force and effect
after the Closing Date for so long as the applicable Full Services Management
Services Agreement continues in force and effect; (j) during the period in which
Buyer or the applicable Buyer Entity retains the exclusive right to negotiate
under an applicable Full Services Management Services Agreement, Seller or
Seller Entity that is the party to the Strategic Facility Agreement shall
exercise in accordance with Buyer's written instructions any right of first
refusal or comparable right granted to Seller or applicable Seller Entity in the
Strategic Facility Agreement, subject to and consistent with its terms and
conditions; and (k) on the date on which a Full Services Management Services
Agreement terminates or expires, Buyer and the applicable Buyer Entity shall
forgive all loans made by them to the applicable Seller Entity to fund the
capital and operating shortfalls of the Strategic Facilities included within the
applicable Strategic Facility Agreement if Buyer and the applicable Buyer
Entities fail or are unable to enter into a Lease Agreement for the Strategic
Facilities.

         P. Further, on the Closing Date, for no additional consideration other
than the Purchase Price, Seller and the applicable Seller Organizations shall
terminate the Independent Facility Agreements between them and the applicable
Independent Parties who consent to termination. In

                                       7



addition, for those groups of Independent Parties who are not in a position to
terminate their Independent Facility Agreements on the Closing Date, and for
those groups of Strategic Parties who fail to either enter into Lease Agreements
or Letters of Intent on or prior to the Closing Date (each of which group is
deemed a group of Independent Parties for this Paragraph P), Seller and Buyer
shall implement a transitional strategy, designed to provide each such group of
Independent Parties the time required to terminate the Independent Facility
Agreement (or the Strategic Facility Agreement) and to implement or pursue one
or more alternative strategies, which transitional strategy shall consist of the
following components: (a) on the Closing Date, Seller and the applicable Seller
Organization shall remain and continue to be parties to the applicable
Independent Facility Agreement (or the applicable Strategic Facility Agreement)
then in effect, the term of which shall continue until the applicable
Independent Parties terminate the applicable Independent Facility Agreement (or
the applicable Strategic Facility Agreement), unless sooner terminated in
accordance with its terms; (b) on the Closing Date, Seller and/or the applicable
Seller Organization and Buyer and/or the applicable Buyer Entity shall enter
into a "limited services" management services agreement in substantially the
form attached to Exhibit E-2 (the "Limited Services Management Services
Agreement"), pursuant to which Buyer or the applicable Buyer Entity shall
provide to the applicable Seller Organization the "limited services" described
in the Limited Services Management Services Agreement for a management fee equal
to two percent (2%) of the net revenues of the Independent Hospital (calculated
as of the fiscal year ended June 30, 2003); (c) the Limited Services Management
Services Agreement shall have an initial term of twelve (12) calendar months,
commencing on the Closing Date; (d) Seller or the applicable Seller Organization
shall have the right to terminate the Limited Services Management Services
Agreement without cause upon thirty (30) days prior written notice to Buyer and
the applicable Buyer Entity, (e) on the Closing Date, Seller and Seller Entities
shall continue to employ all of the employees assigned to the Independent
Facilities included within the applicable Independent Facility Agreement (or the
applicable Strategic Facility Agreement); (f) from and after the Closing Date,
Seller and the applicable Seller Organization shall use their best efforts to
reach an agreement with the Independent Parties to each Independent Facility
Agreement (and Strategic Facility Agreement), pursuant to which, as soon as
possible after the Closing Date, the Independent Parties will agree to terminate
the Independent Facility Agreement (or Strategic Facility Agreement) between
them and Seller and the applicable Seller Organization and implement or pursue
one or more alternative strategies; and (g) as more fully described in the
Limited Services Management Services Agreements, each party to the same shall
defend, indemnify and hold harmless the other party to the same, and the
Affiliates of the other party to the same, and its and their respective
directors, officers, principals, attorneys, employees, agents or other
representatives, from and against any and all losses, liabilities, damages,
costs (including, without limitation, court costs and costs of appeal) and
expenses (including, without limitation, reasonable attorneys' fees and fees of
expert consultants and witnesses) that the same may incur as a result of, or
with respect to, the fraud, gross negligence or willful misconduct of the
indemnifying party.

                                   AGREEMENT:

         NOW, THEREFORE, for and in consideration of the provisions of the
foregoing Introduction, which form a part of this Agreement, and the agreements,
covenants,

                                       8



representations, and warranties hereafter set forth and other good and valuable
consideration, the receipt and adequacy of which are forever acknowledged and
confessed, the parties hereto agree as follows:

1. PURCHASE OF ASSETS.

         1.1. ASSETS. Subject to the terms and conditions of this Agreement,
except as otherwise provided in the Introduction to this Agreement (the
"Introduction"), as of the Closing (as defined in Section 2.1), Seller agrees to
sell, convey, transfer and deliver, and to cause Seller Entities to sell,
convey, transfer and deliver to, Buyer Entities, and Buyer agrees to cause Buyer
Entities to purchase, acquire and accept, all of the rights, title and interest
of Seller and Seller Entities in the assets owned and/or leased by Seller and
Seller Entities and used in connection with the operation of the Facilities as
may exist on the Closing Date, other than the Excluded Assets (collectively, the
"Purchased Assets"). The Purchased Assets shall include, without limitation, the
following:

            (a) Except for the Excluded Real Property (as defined in Section
1.2), all real property that is owned by Seller and Seller Entities and used in
connection with the operation of the Facilities, including, without limitation,
the real property described as "Owned Real Property" on Schedule 1.1(a)(i),
together with all improvements, any construction in progress, any other
buildings and fixtures thereon, and all rights, privileges and easements
appurtenant thereto (collectively, the "Owned Real Property") and all real
property that is leased by Seller and Seller Entities and used in connection
with the operation of the Facilities, including, without limitation, the real
property described as "Leased Real Property" on Schedule 1.1(a)(ii)
(collectively, the "Leased Real Property") (the Owned Real Property and the
Leased Real Property are collectively referred to in this Agreement as the "Real
Property");

            (b) all tangible personal property owned by Seller and Seller
Entities and used in connection with the operation of the Facilities, including,
without limitation, all major, minor or other equipment, vehicles, furniture and
furnishings;

            (c) all supplies and inventory owned by Seller and Seller Entities
and used in the business or operation of the Facilities;

            (d) all assignable and assumable deposits and prepaid expenses which
were made in connection with the operation of the Facilities which exist as of
the Closing Date;

            (e) all rights to receive funds swept from the lockbox accounts and
depository accounts described in Section 10.20, which are attributable to the
accounts receivable arising from the rendering of services to patients at the
Facilities by Seller and Seller Entities, billed and unbilled, recorded or
unrecorded, with collection agencies or otherwise, accrued and existing in
respect of services rendered prior to the Closing Date, including, without
limitation, patient receivables related to Medicare, Medicaid and other
third-party patient claims due from beneficiaries or governmental third-party
payors (excluding settlement accounts relating to Sections 1.2(d) and 1.4(e))
(collectively, the "Accounts Receivable");

            (f) all claims, causes of action, and judgments in favor of Seller
and Seller Entities relating to the physical condition or repair of the
Purchased Assets and, to the extent

                                       9



assignable or transferable by Seller and Seller Entities, all warranties
(express or implied) and rights and claims assertable by (but not against)
Seller and Seller Entities relating to the Purchased Assets;

            (g) to the extent assignable or transferable, all financial,
patient, medical staff and personnel records owned by Seller and Seller Entities
relating to the Facilities (including, without limitation, all Accounts
Receivable records, equipment records, medical administrative libraries, medical
records, patient billing records, documents, catalogs, books, records, files,
operating manuals and current personnel records);

            (h) all rights and interests of Seller and Seller Entities in the
contracts, commitments, leases and agreements (i) listed on Schedule 1.1(h),
and, (ii) if and to the extent not listed on Schedule 1.1(h), all contracts,
commitments, leases and agreements which individually involve future payments,
performance of services or delivery of goods or materials, to or by Seller or
Seller Entities of any amount or value less than Twenty Five Thousand Dollars
($25,000) annually (other than contracts, commitments, leases and agreements
that (x) are with physicians or other referral sources or (y) involve leases of
the Real Property, which shall not be Assumed Contracts) (collectively, the
"Assumed Contracts");

            (i) to the extent assignable or transferable, all licenses and
permits issued to and held by Seller and Seller Entities relating to the
ownership, development, construction and/or operation of the Facilities
(including, without limitation, any pending or approved governmental approvals);

            (j) all rights and interests of Seller and Seller Entities in all
names, trade names, trademarks and service marks (or variations thereof) owned
and used by Seller or one or more of Seller Entities in connection with the
operation of the Facilities (other than the trade names listed in Schedule
1.2(v) and the associated trademarks and service marks listed therein), all
goodwill associated therewith, and all applications and registrations associated
therewith;

            (k) all goodwill associated with the Purchased Assets, including the
Facilities;

            (l) all insurance proceeds arising in connection with property
damage to the Purchased Assets occurring prior to the Closing Date, to the
extent not expended on the repair or restoration of the Purchased
Assets;

            (m) all computers and data processing equipment owned by Seller and
Seller Entities and held and used primarily in the business or operation of the
Facilities, and, to the extent assignable and transferable, all software owned
by Seller or Seller Entities and held and used primarily in the business or
operation of the Facilities;

            (n) to the extent assignable or transferable, the stock,
partnership, membership and other ownership or investment interests and rights
of Seller or Seller Entities in the Partial Subsidiaries (as defined in Section
3.30) listed on Schedule 1.1(n) (the assets of which are not being transferred
pursuant to this Agreement) other than University Village Hillcrest Healthcare,
LLC); provided, however, that if Seller or Seller Entities cannot assign or
transfer the stock, partnership, membership or other ownership or investment
interests and rights to the Buyer Entities, then it shall

                                       10



remit to Buyer the proceeds Seller or Seller Entities receive from the sale or
disposition of the interest in the Partial Subsidiaries when and if it sells or
disposes of the same;

            (o) to the extent assumable and acceptable to the trusts and
foundations, beneficial interests in trusts and foundations which provide
funding for Seller's or Seller Entities' health care purposes, as set forth on
Schedule 1.1(o);

            (p) notes receivable from physicians employed by Buyer or a Buyer
Entity on or following the Closing Date;

            (q) all other assets, other than the Excluded Assets, of every kind,
character or description owned by Seller or Seller Entity Organizations and used
or held for use primarily in connection with the operation of the Purchased
Assets, including the Facilities, whether or not reflected on the Financial
Statements (as defined in Section 3.4); and

            (r) the interest of Seller and Seller Entities in all assets of the
foregoing types, arising or acquired in the ordinary course of the business of
Seller and Seller Entities in respect of the Facilities from the Execution Date
up to but not including the Closing Date.

      Seller and Seller Entities shall convey to Buyer and Buyer Entities (as
appropriate) good and marketable title to the Purchased Assets, free and clear
of all claims, assessments, security interests, liens and encumbrances, except
as otherwise provided herein and/or other than the Permitted Encumbrances (as
defined in Section 3.11) and the Assumed Liabilities.

      1.2. EXCLUDED ASSETS. Seller and Seller Entities shall retain all right,
title and interest in and to the assets described below (collectively, the
"Excluded Assets"):

            (a) cash, short-term investments and cash equivalents (other than
petty cash);

            (b) board-designated, restricted and trustee-held or escrowed funds
(such as funded depreciation, debt service reserves, working capital trust
assets, and assets and investments restricted as to use) and accrued earnings
thereon;

            (c) all contracts set forth on Schedule 1.2(c) (collectively, the
"Excluded Contracts");

            (d) all receivables from third party payors pursuant to
retrospective settlements for periods prior to the Closing Date (including,
without limitation, pursuant to Medicare, Medicaid and CHAMPUS/TRICARE cost
reports filed or to be filed by Seller or Seller Entities for periods prior to
the Closing Date, and with respect to terminating cost reports);

            (e) all records which by law Seller and Seller Entities are required
to maintain in their possession, and all records relating to the Excluded Assets
and the Excluded Liabilities (as defined in Section 1.4) other than the records
that Buyer Entities reasonably require in connection with the ongoing activities
of the Purchased Assets (including the Facilities) or the Assumed

                                       11



Liabilities, as specified in a written notice given by Buyer or Buyer Entities
to Seller or Seller Entities from time to time;

            (f) all deposits and prepaid expenses that were made in connection
with the Excluded Assets and Excluded Liabilities (including, without
limitation, prepaid legal expenses, insurance premiums and cash surrender values
of life insurance policies and all non-assignable or non-assumable prepaid
expenses that were made in connection with the Purchased Assets);

            (g) receivables from or obligations with Seller or Seller Entity
Organizations;

            (h) notes receivable and other non-patient receivables (other than
the notes receivable referred to in Section 1.1(p));

            (i) all insurance proceeds arising in connection with the Excluded
Assets and Excluded Liabilities;

            (j) all insurance proceeds relating to (i) the operation of the
Purchased Assets prior to the Closing Date (except for proceeds arising in
connection with property damage occurring prior to the Closing Date) and (ii)
the Excluded Assets and/or the Excluded Liabilities;

            (k) all claims, causes of action, and judgments in favor of Seller
or Seller Entities which (i) arise prior to the Closing Date, other than those
assigned to Buyer and Buyer Entities pursuant to Section 1.1(f) or (ii) relate
to the Excluded Assets and/or the Excluded Liabilities;

            (l) the real property described in Schedule 1.2(l), Seller's
leasehold interest in the twenty-seventh (27th) floor of the property located at
110 West 7th Street, Tulsa, Oklahoma, and the real property and improvements
located at 5300 East Skelly Drive, Tulsa, Oklahoma (collectively, the "Excluded
Real Property");

            (m) the Plans (as defined in Section 3.13), and all assets which
would revert to an employer under, or upon the termination of, any Plans,
including, without limitation, assets representing a surplus or over-funding of
any of the Plans;

            (n) all claims, rights, interest and proceeds with respect to
federal, state and local tax refunds (including, without limitation, property
tax refunds) of Seller and Seller Entity Organizations, and the right to pursue
appeals of the same;

            (o) all rights of Seller and Seller Entities under this Agreement
and the Closing Documents;

            (p) all assets of Hillcrest Medical Center Foundation, Inc.,
Children's Medical Center Foundation, Tulsa Regional Medical Center Foundation,
The H. A. Chapman Institute and the Partial Subsidiaries;

                                       12



            (q) all tangible personal property, furniture, fixtures and
furnishings located on the twenty-seventh (27th) floor of the property located
at 110 West 7th Street, Tulsa, Oklahoma (other than the records referred to in
Section 1.1(g)), as described on Schedule 1.2(q);

            (r) all self-insured retention trusts of Seller and Seller Entities
related to professional and general liability claims and causes of action;

            (s) all capital stock and membership interests of Seller and Seller
Entities in their respective subsidiaries and affiliates (other than with
respect to the Partial Subsidiaries to the extent they are assignable or
transferable, except for University Village Hillcrest Healthcare, LLC) and all
membership interests of Seller and Seller Entities in University Village
Hillcrest Healthcare, LLC;

            (t) all reserves attributable to the Plans, the Excluded Assets and
the Excluded Liabilities;

            (u) all assets of Seller and Seller Entities not used in connection
with and not necessary for the operation of the Facilities;

            (v) the trade names listed in Schedule 1.2(v) and the associated
trademarks and service marks listed therein;

            (w) all assets of Seller Entity Organizations other than Seller and
Seller Entities, to the extent the assets of Seller Entity Organizations are not
used in connection with the operation of the Facilities; and

            (x) all other assets listed on Schedule 1.2(x) to the extent not
otherwise covered in this Section.

      1.3. ASSUMED LIABILITIES. From and after the Closing, or such later date
as may be provided in the Introduction, Buyer shall cause Buyer Entities to
assume, pay, perform, honor and discharge the following liabilities (the
"Assumed Liabilities") of Seller and Seller Entities:

            (a) all liabilities and obligations under the Assumed Contracts
accruing, arising or to be performed on or after the Closing;

            (b) the guaranties, long term debt and capital and operating lease
obligations (including $1,500,000 in unused lease escrow amounts that will not
be included in the Net Working Capital calculation) set forth on Schedule
1.3(b);

            (c) all liabilities and obligations as of the Closing Date in
respect of accrued paid time off (including vacation leave pay and holiday leave
pay for which a liability has been accrued, and extended illness benefits in the
amount of One Million Two Hundred Thousand Dollars ($1,200,000) for which a
liability will be recorded as of the Closing Date (but which will be excluded
from the calculation of Net Working Capital)) (collectively, "PTO") and related
taxes of employees of Seller and Seller Entities who are hired by Buyer or Buyer
Entities as of the Closing

                                       13



Date, but only to the extent the PTO and related taxes are reflected in the
calculation of Net Working Capital (as defined in Section 1.6);

            (d) all obligations, expenses, accounts payable and other
liabilities included in the calculation of Net Working Capital;

            (e) all liabilities and obligations of Seller and Seller Entities
under the Worker Adjustment and Retraining Notification Act (the "WARN Act")
with respect to the operation of the Purchased Assets as a result of (i) the
consummation of the transactions contemplated by this Agreement (provided that
Seller and Seller Entities have complied with the WARN Act prior to the Closing
Date), (ii) the acts of Buyer and Buyer Entities on and after the Closing Date
or (iii) Buyer's breach of its covenant to hire set forth in Section 10.11;

            (f) all liabilities and obligations arising from the ownership,
development, construction, business, operation or use of the Purchased Assets,
including the Facilities (other than the Excluded Assets), following the
Closing;

            (g) all liabilities and obligations arising from the ownership of
the common stock, membership interests or partnership interests of the Partial
Subsidiaries or the operation of the Partial Subsidiaries following the Closing;

            (h) all other liabilities and obligations set forth on Schedule
1.3(h); and

            (i) all state and local sales taxes incurred in connection with the
sale and purchase of the Purchased Assets.

      Buyer shall not be liable for (i) any claims arising solely from Seller's
and Seller Entities' assignment and Buyer Entities' assumption of the Assumed
Liabilities; (ii) uncured defaults in the performance of the Assumed Liabilities
for periods prior to the Closing; (iii) unpaid amounts in respect of the Assumed
Liabilities that are due as of the Closing (unless reflected in Net Working
Capital); and/or (iv) rights or remedies claimed by third parties under any of
the Assumed Liabilities which broaden or vary the rights and remedies such third
parties would have had against Seller and Seller Entities if the sale and
purchase of the Purchased Assets were not to occur.

      1.4. EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Buyer and
Buyer Entities shall not assume and under no circumstances shall Buyer or Buyer
Entities be obligated to pay or assume, and none of the assets of Buyer and
Buyer Entities shall be or become liable for or subject to any liability,
indebtedness, commitment, or obligation of Seller and Seller Entity
Organizations, whether known or unknown, fixed or contingent, recorded or
unrecorded, currently existing or hereafter arising or otherwise (collectively,
the "Excluded Liabilities"). The Excluded Liabilities shall include, without
limitation, the following:

            (a) any debt, obligation, expense or liability that is not an
Assumed Liability;

            (b) claims or potential claims for medical malpractice or general
liability arising out of or directly related to acts, omissions, events or
occurrences prior to the Closing;

                                       14



            (c) those claims and obligations (if any) specified in Schedule 1.4
to the extent not otherwise covered in this Section;

            (d) any liabilities or obligations associated with or arising out of
any of the Excluded Assets;

            (e) liabilities and obligations of Seller and Seller Entity
Organizations in respect of periods prior to the Closing Date arising under the
terms of the Medicare, Medicaid, CHAMPUS/TRICARE, Blue Cross, or other third
party payor programs, and any liability arising pursuant to the Medicare,
Medicaid, CHAMPUS/TRICARE, Blue Cross, or any other third party payor programs
as a result of the consummation of any of the transactions contemplated under
this Agreement;

            (f) federal, state or local tax liabilities or obligations of Seller
and Seller Entity Organizations in respect of periods prior to the Closing or
resulting from the consummation of the transactions contemplated herein (other
than any state and local sales taxes incurred in connection with the sale of the
Purchased Assets) including, without limitation, any income tax, any franchise
tax, any tax recapture, and any documentary stamp tax due in connection with the
transfer and conveyance of the Owned Real Property, and any FICA, FUTA, workers'
compensation, and any and all other taxes or amounts due and payable as a result
of the exercise by any employee at the Facilities of such employee's right to
PTO benefits accrued while in the employ of Seller or Seller Entity
Organizations, except for taxes payable with respect to any employee benefits
constituting Assumed Liabilities under Section 1.3(c);

            (g) liability for any and all claims by or on behalf of employees of
Seller and Seller Entity Organizations arising out of or related to acts,
omissions, events or occurrences prior to the Closing including, without
limitation, liability for any pension, profit sharing, deferred compensation, or
any other employee health and welfare benefit plans, liability for any EEOC
claim, ADA claim, FMLA claim, wage and hour claim, unemployment compensation
claim, or workers' compensation claim, and any liabilities or obligations to
former employees of Seller and Seller Entity Organizations under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (provided,
however, that this clause (g) shall not apply to any and all employee benefits
constituting Assumed Liabilities under Section 1.3(c));

            (h) any obligation or liability accruing, arising out of, or
relating to any federal, state or local investigations of, or claims or actions
against, Seller or any Seller Entity Organization or any of their respective
employees, medical staff members, agents, vendors or representatives with
respect to acts or omissions prior to the Closing;

            (i) any civil or criminal obligation or liability accruing, arising
out of, or relating to any acts or omissions of Seller, Seller Entity
Organizations or their respective directors, officers, employees and agents
claimed to violate any constitutional provision, statute, ordinance or other
law, rule, regulation, interpretation or order of any governmental entity;

                                       15



            (j) liabilities or obligations arising as a result of any breach by
Seller or Seller Entity Organizations at any time of any contract or commitment
that is not assumed by Buyer or any Buyer Entity, or with respect to any
Excluded Contract;

            (k) liabilities or obligations arising out of any breach by Seller
or Seller Entity Organizations prior to the Closing of any Assumed Contract;

            (l) any obligation or liability asserted under the federal
Hill-Burton program or other restricted grant and loan programs with respect to
the ownership or operation of the Purchased Assets, including the Facilities
(other than the Excluded Assets);

            (m) any debt, obligation, expense, or liability of Seller or Seller
Entity Organizations arising out of or incurred solely as a result of any
transaction of Seller or Seller Entity Organizations occurring after the Closing
or for any violation by Seller or Seller Entity Organizations of any law,
regulation, or ordinance at any time (including, without limitation, those
pertaining to fraud, environmental, health care regulatory and ERISA matters);

            (n) all liabilities and obligations relating to any oral agreements,
oral contracts or oral understandings with any referral sources including, but
not limited to, physicians, unless reduced to writing and assumed as part of the
Assumed Contracts; and

            (o) any liability arising solely out of the act of assignment of any
of the Contracts by Seller or Seller Entities to Buyer Entities at the Closing.

      1.5. PURCHASE PRICE. The purchase price (the "Purchase Price") for the
Purchased Assets shall be Two Hundred Eighty One Million Two Hundred Thousand
Dollars ($281,200,000) plus the amount of Net Working Capital (as defined in
Section 1.6(a)), and minus the amount of any long-term debt and capitalized
leases in respect of the Facilities that are assumed by the Buyer Entities and
set forth on Schedule 1.3(b). The parties shall calculate the estimated Net
Working Capital (as determined in accordance with Schedule 1.6) as of the
Closing. The parties shall adjust the Net Working Capital after the Closing in
accordance with Section 1.6 to reflect the actual Net Working Capital (as
determined in accordance with Section 1.6(b)). In addition, the Buyer Entities
shall assume the Assumed Liabilities. The parties shall not adjust the Purchase
Price for any other reason, except as specifically provided for in Section
10.25. Net Working Capital shall not include the Net Working Capital of the
Strategic Facilities, unless a Lease Agreement is entered into on or before the
Closing Date. The Purchase Price shall be due and payable to Seller at Closing
by wire transfer of immediately available funds to the accounts specified by
Seller to Buyer in writing.

      1.6. NET WORKING CAPITAL, ESTIMATES AND AUDITS.

            (a) NET WORKING CAPITAL. As used herein, the term "Net Working
Capital" shall mean the aggregate current assets of Seller and Seller Entities
conveyed to the Buyer Entities pursuant to Section 1.1 (excluding those Excluded
Assets which would otherwise be included in current assets), minus the aggregate
current liabilities of Seller and Seller Entities assumed by the Buyer Entities
pursuant to Section 1.3 (excluding those Excluded Liabilities which would
otherwise be included in current liabilities), all as determined in accordance
with generally accepted accounting

                                       16



principles ("GAAP"). Schedule 1.6(a) contains a computation of Net Working
Capital as of January 31, 2004 and the principles, specifications and
methodologies the parties shall use to determine Net Working Capital.

            (b) ESTIMATES AND ADJUSTMENTS. At least ten (10) business days prior
to Closing, Seller shall deliver to Buyer a statement containing its estimate of
Net Working Capital as of the end of the most recently ended calendar month
prior to the Closing Date for which financial statements of Seller and Seller
Entity Organizations are available and containing reasonable detail and
supporting documents showing the derivation of such estimate. Subject to the
mutual agreement of Seller and Buyer, the estimated Net Working Capital together
with the principles, specifications and methodologies used to determine the
estimated Net Working Capital as specified in Schedule 1.6(a), shall be used for
purposes of calculating the Purchase Price as of the Closing. Within ninety (90)
days after the Closing, Buyer shall deliver to Seller its determination of the
Net Working Capital as of the Closing (following the same principles,
specifications and methodologies used to determine the estimated Net Working
Capital as set forth on Schedule 1.6(a)). Each party shall have full, complete
and equal access to the financial books and records pertaining to the Purchased
Assets, including the Facilities, to confirm or audit Net Working Capital
computations. Should Seller disagree with Buyer's determination of Net Working
Capital, Seller shall give Buyer written notice of its disagreement within sixty
(60) days after Buyer's delivery of its determination of Net Working Capital. If
Seller and Buyer fail to agree within thirty (30) days after Seller's delivery
of its notice of disagreement on the amount of Net Working Capital, they shall
resolve their disagreement in accordance with the procedures set forth in
Section 1.6(c) which shall be the sole and exclusive remedy for resolving
disputes relative to the determination of Net Working Capital. Upon the
resolution of their disagreement, the parties shall increase or decrease the
Purchase Price based on Net Working Capital as of the Closing, and within five
(5) business days after determination thereof (the "Post-Closing Adjustment
Date"), Buyer shall pay to Seller any increase in cash, and Seller shall pay to
Buyer any decrease in cash. If Buyer or Seller, as the case may be, fails to
make such payment to the other by the Post-Closing Adjustment Date, then the
party failing to receive such amount due to it shall be entitled to receive
interest on such unpaid amount at a per annum rate equal to the prime rate
reported by The Wall Street Journal under "Money Rates" on the Post-Closing
Adjustment Date, plus two percent (2%) (or the maximum rate allowed by law,
whichever is less) from the defaulting party, such interest accruing on each
calendar day after the Post-Closing Adjustment Date until payment of such amount
and all interest thereon is made.

            (c) DISPUTE OF ADJUSTMENTS. If Seller and Buyer are not able to
agree on the Net Working Capital within thirty (30) days after Seller's delivery
of notice of disagreement to Buyer, Seller and Buyer each shall have the right
to submit the disputed determination to Deloitte & Touche LLP or if Deloitte &
Touche LLP is not available for any reason or does not maintain its independent
status, such other independent certified public accounting firm as Seller and
Buyer may then mutually agree upon in writing (the "Accounting Firm") for
computation or verification in accordance with the provisions of this Agreement.
The Accounting Firm shall review the matters in dispute and, acting as experts
and not as arbitrators, shall promptly decide the proper amounts of the disputed
entries (which decision shall also include a final calculation of Net Working
Capital). The submission of the disputed matter to the Accounting Firm shall be
the exclusive remedy for resolving accounting disputes relative to the
determination of Net Working Capital. The Accounting Firm's

                                       17


determination shall be binding upon Seller (and Seller Entity Organizations) and
Buyer (and Buyer Entity Organizations). If all or a portion of the dispute at
issue involves a legal issue or an interpretation of this Agreement, such legal
or interpretative dispute shall first be subject to adjudication by a court or
similar tribunal, with any necessary review by the Accounting Firm under this
Section 1.6 occurring following the resolution of such legal dispute. Seller and
Buyer shall bear equally the Accounting Firm's fees and expenses.

            (d) PHYSICAL INVENTORY. If requested by Buyer at least twenty (20)
days prior to Closing, Seller shall cause a physical inventory to be taken of
all inventory and supplies on hand at the Facilities by either (i) employees or
representatives of Seller or Seller Entities or (ii) an independent third party
selected by Seller, the cost of which independent third party shall be borne by
Seller, as near in time as possible to the Closing Date and with the results
extended and adjusted through the Closing Date. Seller shall have sole
discretion as to whether employees or representatives of Seller or an
independent third party are used to conduct such physical inventory. Seller
shall permit representatives or employees of Buyer to observe such inventory
process. For purposes of determining the Net Working Capital, inventory shall be
valued as determined pursuant to this Section 1.6(d) if a physical inventory has
been requested by Buyer.

      1.7. PRORATIONS. Except as otherwise provided herein or as settled at
Closing, within ninety (90) days after the Closing Date, Seller and Buyer shall
prorate as of the Closing Date any amounts which are attributable to the periods
prior to, and on and following the Closing Date and which become due and payable
after the Closing Date with respect to (i) the Assumed Contracts, (ii) ad
valorem taxes, if any, on the Owned Real Property, (iii) property taxes on the
Purchased Assets and (iv) all utilities servicing any of the Purchased Assets,
including water, sewer, telephone, electricity and gas service. Any such amounts
which are not available within ninety (90) days after the Closing Date shall be
similarly prorated as soon as practicable thereafter.

2. CLOSING.

      2.1. CLOSING. Subject to the satisfaction or waiver by the appropriate
party of all of the conditions precedent to Closing specified in Sections 7 and
8, the consummation of the transactions contemplated by and described in this
Agreement (the "Closing") shall take place at the offices of Boone, Smith,
Davis, Hurst & Dickman at 10:00 a.m. local Tulsa time, on or before July 1,
2004, or on such other date or at such other location as the parties may
mutually designate in writing (the date of consummation is referred to herein as
the "Closing Date"). The Closing shall be deemed to have occurred and to be
effective as between the parties as of midnight on the Closing Date (midnight
being defined as the moment in time between June 30, 2004 and July 1, 2004).

      2.2. ACTIONS OF SELLER AT CLOSING. At the Closing or as otherwise provided
in the Introduction, and unless otherwise waived in writing by Buyer, Seller
shall deliver to Buyer the following:

            (a) Deeds containing special warranty of title in substantially the
form attached to Exhibit G, fully executed by Seller or the applicable Seller
Entity in recordable form, conveying to the applicable Buyer Entity good and
marketable fee simple title to the Owned Real Property

                                       18



described in Schedule 1.1(a)(i), and/or Assignments, fully executed by Seller or
the applicable Seller Entity in recordable form, assigning to the applicable
Buyer Entity leasehold title to any Leased Real Property described in Schedule
1.1(a)(ii) which is a leasehold estate, subject in each case only to the
Permitted Encumbrances;

            (b) A General Assignment, Conveyance and Bill of Sale in
substantially the form attached to Exhibit H, fully executed by Seller or the
applicable Seller Entity, conveying to the applicable Buyer Entity good and
marketable title to all tangible assets (other than the Real Property) which are
a part of the Purchased Assets and valid title to all intangible assets which
are a part of the Purchased Assets, in each case free and clear of all
liabilities, claims, liens, security interests and restrictions other than the
Assumed Liabilities and the Permitted Encumbrances;

            (c) An Assignment and Assumption Agreement in substantially the form
attached to Exhibit I (the "Assignment and Assumption Agreement"), fully
executed by Seller or the applicable Seller Entity, conveying to the applicable
Buyer Entity Seller's or such Seller Entity's interest in the Assumed Contracts,
to the extent assignable or transferable;

            (d) All instruments and documents required by the Title Company (as
defined in Section 5.8) to issue the Title Policy (as defined in Section 5.8) as
described in and provided by Section 7.3;

            (e) Copies of resolutions duly adopted by the Boards of Directors of
Seller and each Seller Entity, authorizing and approving their performance of
the transactions contemplated hereby and the execution and delivery of this
Agreement and the documents described herein, certified as true and of full
force as of the Closing, by the appropriate officers of Seller and each Seller
Entity;

            (f) Certificates of the President or a Vice President of Seller,
certifying that each covenant and agreement of Seller to be performed prior to
or as of the Closing pursuant to this Agreement has been performed in all
material respects and each representation and warranty of Seller is true and
correct in all material respects on the Closing Date, as if and as made on and
as of the Closing;

            (g) Certificates of incumbency for the respective officers of Seller
and each Seller Entity executing this Agreement and any other agreements or
instruments contemplated herein or making certifications for the Closing dated
as of the Closing Date;

            (h) Certificates of existence and good standing, or comparable
status, of Seller and each Seller Entity from the state in which it is
incorporated or formed, dated the most recent practical date prior to the
Closing;

            (i) The opinion(s) of counsel to Seller as provided by Section 7.7;

            (j) All Certificates of Title and other documents evidencing an
ownership interest conveyed as part of the Purchased Assets;

                                       19



            (k) The Transitional Services Agreement in substantially the form
attached to Exhibit J, fully executed by Seller and each applicable Seller
Entity Organization, setting forth the services Buyer or applicable Buyer
Organization shall sell to Seller and each applicable Seller Entity Organization
on and after the Closing Date (the "Transitional Services Agreement");

            (l) A Limited Power of Attorney for use of Pharmacy Licenses, DEA
and Other Registration Numbers, and DEA Order Forms in substantially the form
attached to Exhibit K, fully executed by Seller and each applicable Seller
Entity;

            (m) The Trademark License Agreement in substantially the form
attached to Exhibit L (the "License Agreement");

            (n) The Lease/Sublease in substantially the form attached to Exhibit
M, pursuant to which landlord shall lease/Buyer shall sublease to Seller the
twenty-seventh (27th) floor of the property located at 110 West 7th Street,
Tulsa, Oklahoma (the "Lease/Sublease"), fully executed by Seller;

            (o) The Management Services Agreements in substantially the forms
attached to Exhibit E (the "Management Services Agreements"), fully executed by
each applicable Seller Entity or each applicable Seller Organization;

            (p) The Employee Lease Agreements in substantially the form attached
to Exhibit F, fully executed by each applicable Seller Entity;

            (q) Copies of the written notice(s) referred to in Section 10.22(a),
if any; and

            (r) Such other instruments and documents as Buyer reasonably deems
necessary to effect the transactions contemplated hereby.

      2.3. ACTIONS OF BUYER AT CLOSING. At the Closing and unless otherwise
waived in writing by Seller, Buyer shall deliver to Seller the following:

            (a) An amount equal to the Purchase Price in immediately available
funds, plus any amount which Buyer is required to reimburse Seller pursuant to
this Agreement (if said amount is then known and agreed upon), less any amount
which Seller is required to reimburse Buyer pursuant to this Agreement (if said
amount is then known and agreed upon);

            (b) Except to the extent otherwise provided in the Introduction, the
Assignment and Assumption Agreement, fully executed by each Buyer Entity,
pursuant to which the Buyer Entity shall assume the future performance of the
Assumed Contracts and the other Assumed Liabilities as herein provided;

            (c) Copies of resolutions duly adopted by the Boards of Directors of
Buyer and each Buyer Entity, authorizing and approving their performance of the
transactions contemplated hereby and the execution and delivery of this
Agreement and the documents described herein,

                                       20



certified as true and in full force as of the Closing, by the appropriate
officers of Buyer and each Buyer Entity;

            (d) Certificates of the President or a Vice President of Buyer,
certifying that each covenant and agreement of Buyer to be performed prior to or
as of the Closing pursuant to this Agreement has been performed in all material
respects and each representation and warranty of Buyer is true and correct in
all material respects on the Closing Date, as if and as made on and as of the
Closing;

            (e) Certificates of incumbency for the respective officers of Buyer
and each Buyer Entity executing this Agreement and any other agreements or
instruments contemplated herein or making certifications for the Closing dated
as of the Closing Date;

            (f) Certificates of existence and good standing, or comparable
status, of Buyer and each Buyer Entity from the state in which it is
incorporated or formed, dated the most recent practical date prior to Closing;

            (g) The opinion of counsel to Buyer as provided by Section 8.5;

            (h) The Transitional Services Agreement, fully executed by Buyer and
each applicable Buyer Organization;

            (i) The License Agreement, fully executed by a Buyer Entity;

            (j) The Lease/Sublease, fully executed by a Buyer Entity;

            (k) The Management Services Agreements, fully executed by each
applicable Buyer Entity;

            (l) The Employee Lease Agreements, fully executed by each applicable
Buyer Entity;

            (m) Copies of the written notice(s) referred to in Section 10.22(b),
if any; and

            (n) Such other instruments and documents as Seller reasonably deems
necessary to effect the transactions contemplated hereby.

3. REPRESENTATIONS AND WARRANTIES OF SELLER. As of the Execution Date, and, when
read in light of any Schedules which have been attached to this Agreement or
updated in accordance with the provisions of Section 12.1, as of the Closing
Date, Seller represents and warrants to Buyer the following:

      3.1. EXISTENCE AND CAPACITY. Seller is a not-for-profit corporation, duly
organized and existing in good standing under the laws of the State of Oklahoma.
Each Seller Entity and Seller Organization, as more particularly described in
Schedule 3.1, is a corporation, either not-for-profit or for-profit, a
partnership, either limited or general, or a limited liability company, duly
organized or

                                       21



formed and existing in good standing under the laws of the state of its
incorporation or organization. Seller has the requisite power and authority to
enter into this Agreement and to perform its obligations hereunder. Seller and
each Seller Entity and Seller Organization has the requisite power and authority
to conduct its business as it is now being conducted.

      3.2. POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS; ETC.
The execution, delivery, and performance of this Agreement by Seller and all
other agreements referenced herein, or ancillary hereto, to which Seller is a
party, and the consummation by Seller and each Seller Entity and Seller
Organization of the transactions contemplated by this Agreement and the
documents described herein, as applicable:

            (a) are within its corporate powers, are not in contravention of law
or of the terms of its organizational documents, and as to Seller have been and
as to the Seller Entities and Seller Organizations shall have been prior to the
Closing duly authorized by all appropriate corporate action;

            (b) except as provided in Sections 5.4 and 5.5, or as otherwise set
forth on Schedule 3.2(b), do not require any approval or consent of, or filing
with, any governmental agency or authority bearing on the validity of this
Agreement which is required by law or the regulations of any such agency or
authority;

            (c) except as otherwise set forth on Schedule 3.2(c), will neither
conflict with, nor result in any breach or contravention of, or the creation of
any lien, charge, or encumbrance under, any material indenture, agreement,
lease, instrument or understanding to which it is a party or by which it is
bound;

            (d) will not violate any statute, law, rule, or regulation of any
governmental authority to which it or the Purchased Assets may be subject; and

            (e) will not violate any judgment, decree, writ or injunction of any
court or governmental authority to which it or the Purchased Assets may be
subject.

      3.3. BINDING AGREEMENT. This Agreement and all agreements to which Seller
or any of the Seller Entities or Seller Organizations will become a party
pursuant hereto are and will constitute the valid and legally binding
obligations of Seller and/or such Seller Entities or Seller Organizations and
are and will be enforceable against it or them in accordance with the respective
terms hereof or thereof.

      3.4. FINANCIAL STATEMENTS. Seller has delivered to Buyer copies of the
following financial statements of Seller and Seller Entity Organizations
(collectively, the "Financial Statements"), which Financial Statements are
maintained on an accrual basis, and copies of which are attached hereto as
Schedule 3.4:

            (a) Unaudited Balance Sheet dated as of January 31, 2004 (the
"Balance Sheet Date");

                                       22



            (b) Unaudited Income Statement for the seven (7) month period ended
on the Balance Sheet Date; and

            (c) Audited Balance Sheets, Income Statements, and Statements of
Cash Flows for the fiscal years ended June 30, 2003, 2002 and 2001.

      The Financial Statements have been prepared in accordance with GAAP,
applied on a consistent basis throughout the periods indicated, except as set
forth in Schedule 3.4. Such Balance Sheets present fairly in all material
respects the financial condition of Seller and Seller Entity Organizations as of
the dates indicated thereon, except as set forth on Schedule 3.4, and such
Income Statements present fairly in all material respects the results of
operations of Seller and Seller Entity Organizations for the periods indicated
thereon, except as set forth on Schedule 3.4.

      The Interim Statements (as defined in Section 5.6) of Seller and Seller
Entity Organizations which are provided by Seller to Buyer pursuant to Section
5.6 shall conform to GAAP consistently applied, except as set forth in Schedule
3.4. The interim balance sheets shall present fairly in all material respects
the financial condition of Seller and Seller Entity Organizations as of the
dates indicated thereon, except as set forth on Schedule 3.4, and the interim
income statements shall present fairly in all material respects the results of
operations of Seller and Seller Entity Organizations for the periods indicated
thereon, except as set forth on Schedule 3.4. The Unaudited Balance Sheet, the
Unaudited Income Statement, and the Interim Statements are subject (or will be
subject) to year end adjustments which will not be material and lack (or will
lack) footnotes and other presentation items.

      3.5. CERTAIN POST-BALANCE SHEET RESULTS. Except as set forth in Schedule
3.5, since the Balance Sheet Date there has not been any:

            (a) material damage, destruction, or loss (whether or not covered by
insurance) affecting any of the Purchased Assets, including the Facilities
(other than the Excluded Assets);

            (b) material adverse changes in the condition, financial or
otherwise, of the Purchased Assets, the business or prospects of, or in the
results of operations of, any of the Facilities;

            (c) threatened employee strike or work stoppage pertaining to the
Facilities;

            (d) sale, assignment, transfer, or disposition of any item of
property, plant or equipment included in the Purchased Assets, except in the
ordinary course of business or except with the prior written consent of Buyer;

            (e) any general increase in the compensation payable to employees or
categories of employees of Seller and Seller Entities, other than in the
ordinary course of business and consistent with past practices (e.g., market
rate increases for nurses but with prior written disclosure to Buyer) or except
with the prior written consent of Buyer, or any increase in, or institution of,
any bonus, insurance, pension, profit-sharing or other employee benefit plan,
remuneration or

                                       23



arrangements made to, for or with such employees, other than in the ordinary
course of business or except with the prior written consent of Buyer;

            (f) changes in the composition of the medical staffs of the Metro
Hospitals and the Strategic Hospitals (collectively, the "Hospitals"), other
than normal turnover occurring in the ordinary course of business;

            (g) changes in the rates charged by the Facilities for their
services, other than those made in the ordinary course of business;

            (h) changes in the accounting methods or practices employed by
Seller or any Seller Entity Organization or changes in depreciation or
amortization policies; or

            (i) material transaction pertaining to the Facilities by Seller or
any Seller Entity outside the ordinary course of business.

      3.6. LICENSES. Each Hospital listed on Schedule 3.6 is duly licensed as a
general acute care hospital pursuant to the applicable laws of the State of
Oklahoma. Except as set forth on Schedule 3.6, the pharmacies, laboratories, and
all other ancillary departments located at, or operated solely for the benefit
of, each Hospital which are required to be specially licensed are duly licensed
by the Oklahoma State Department of Health or other appropriate licensing agency
(the "State Health Agency"). Except as set forth on Schedule 3.6, Seller and
Seller Entities have all other material licenses, registrations, permits, and
approvals which are needed or required by law to operate the Facilities or any
ancillary services operated by them and related thereto. Seller has delivered to
Buyer an accurate list and summary description (Schedule 3.6) of all such
licenses, registrations, permits and approvals held by Seller and Seller
Entities relating to the ownership, development, or operation of the Purchased
Assets, including the Facilities (other than the Excluded Assets), all of which
are now and as of the Closing shall be in good standing.

      3.7. CERTIFICATES OF NEED. Except as set forth on Schedule 3.7, no
application for any Certificate of Need, Exemption Certificate (each as defined
below) or declaratory ruling has been made by Seller or any Seller Entity with
the State Health Agency which is currently pending or open before such agency,
and no such application (collectively, the "Applications") filed by Seller or
any Seller Entity within the past three (3) years has been ultimately denied by
any commission, board or agency or withdrawn by Seller or any Seller Entity.
Except as set forth on Schedule 3.7, neither Seller nor any Seller Entity has
prepared, filed, supported or presented opposition to any Application filed by
another hospital or health agency within the past three (3) years. Except as set
forth on Schedule 3.7, neither Seller nor any Seller Entity has any Applications
pending or any approved Applications which relate to projects not yet completed.
As used herein, "Certificate of Need" means a written statement issued by the
State Health Agency evidencing community need for a new, converted, expanded or
otherwise significantly modified skilled nursing facility or behavioral health
facility, and "Exemption Certificate" means a written statement from the State
Health Agency stating that a health care project is not subject to the
Certificate of Need requirements under applicable state law.

                                       24



      3.8. MEDICARE PARTICIPATION/ACCREDITATION. Each Hospital is qualified for
participation in the Medicare, Medicaid, and CHAMPUS/TRICARE programs, has a
current and valid provider contract with such programs, is in substantial
compliance in all material respects with the conditions of participation in such
programs, and has received all material approvals or qualifications necessary
for capital reimbursement for the Hospital. Except as set forth on Schedule 3.8,
each Hospital is duly accredited, with no material contingencies, by the Joint
Commission on Accreditation of Healthcare Organizations ("JCAHO") or the
American Osteopathic Association ("AOA") for the three (3) year period set forth
on Schedule 3.8. Seller has provided to Buyer a copy of the most recent
accreditation letter from the JCAHO or AOA pertaining to each accredited
Hospital. Except as set forth in a writing delivered by Seller to Buyer which
specifically makes reference to this Section 3.8 or as set forth on Schedule
3.8, to the best knowledge of Seller, Seller's and Seller Entities' billing
practices during the last three (3) years with respect to the Facilities to all
third party payors, including the Medicare, Medicaid, and CHAMPUS/TRICARE
programs. and private insurance companies, have been in compliance in all
material respects with all material laws, regulations and policies applicable to
such third party payors and the Medicare, Medicaid, and CHAMPUS/TRICARE
programs. To the best knowledge of Seller, and except as set forth in a writing
delivered by Seller to Buyer which specifically makes reference to this Section
3.8 or as set forth on Schedule 3.8, neither Seller nor Seller Entities have
billed or received during the last three (3) years any payment or reimbursement
in excess of amounts allowed by law. Neither Seller nor Seller Entities, nor any
of their officers, directors or managing employees, are excluded from
participation in the Medicare, Medicaid, or CHAMPUS/TRICARE programs, nor, to
the best knowledge of Seller, is any such exclusion threatened. Except as set
forth in a writing delivered by Seller to Buyer which specifically makes
reference to this Section 3.8 or as set forth on Schedule 3.8, neither Seller
nor Seller Entities have received within the last three (3) years written notice
from Medicare, Medicaid, or CHAMPUS/TRICARE programs, or any other third party
payor programs, of any pending or threatened investigations or surveys, and to
the best knowledge of Seller, no such investigations or surveys are pending,
threatened, or imminent.

      3.9. REGULATORY COMPLIANCE. Except as set forth in a writing delivered by
Seller to Buyer which specifically makes reference to this Section 3.9 or as set
forth on Schedule 3.9, to the best knowledge of Seller, the operations of the
Facilities are in compliance in all material respects with all material
statutes, rules, regulations, and requirements of the Government Entities having
jurisdiction over the Facilities and the operations of the Facilities or their
related ancillary services. As used herein, "Government Entity" means any
government or any agency, bureau, board, directorate, commission, court,
department, official, political subdivision, tribunal or other instrumentality
of any government, whether federal, state or local. Except as set forth in a
writing delivered by Seller to Buyer which specifically makes reference to this
Section 3.9 or as set forth on Schedule 3.9, to the best knowledge of Seller,
Seller and Seller Entities have timely filed within the past three (3) years all
material reports, data, and other information that they are required to file
with the Government Entities. Except as set forth in a writing delivered by
Seller to Buyer which specifically makes reference to this Section 3.9 or as set
forth on Schedule 3.9, to the best knowledge of Seller, neither Seller nor the
Seller Entities (nor any of their officers, directors, agents or employees) have
committed a violation of federal or state laws regulating health care fraud,
including, but not limited to, the federal Anti-Kickback Law, 42 U.S.C. Section
1320a-7b, the Stark I and II Laws, 42 U.S.C.

                                       25


Section 1395nn, as amended, and the False Claims Act, 31 U.S.C. Section 3729, et
seq. Except as set forth in a writing delivered by Seller to Buyer which
specifically makes reference to this Section 3.9 or as set forth on Schedule
3.9, to the best knowledge of Seller, Seller and Seller Entities are in
compliance in all material respects with the administrative simplification
provisions required under the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"), including the electronic data interchange regulations and
the health care privacy regulations, as of the applicable effective dates for
such requirements.

      3.10. EQUIPMENT. Seller has delivered to Buyer a depreciation schedule as
of the date of the most recent interim balance sheet (Schedule 3.10) which takes
into consideration substantially all the equipment used in connection with the
operation of the Purchased Assets, including the Facilities (other than the
Excluded Assets). Since the Balance Sheet Date, neither Seller nor Seller
Entities have sold or otherwise disposed of any item of equipment shown on
Schedule 3.10, except in the ordinary course of business or unless replaced by
comparable replacement equipment.

      3.11. REAL PROPERTY. Seller and Seller Entities own, or as of the Closing
Date will own, good and marketable fee simple and/or leasehold title, as the
case may be, to the Real Property. The Real Property will be conveyed to Buyer
Entities free and clear of any and all liens, encumbrances or other restrictions
except those more particularly described in Schedule 3.11 and approved by Buyer
in accordance with Section 12.1 (the "Permitted Encumbrances"). With respect to
the Real Property:

            (a) Except as set forth on Schedule 3.11(a), neither Seller nor any
Seller Entity has received during the past three (3) years written notice of a
material violation of any applicable ordinance or other law, order, regulation,
or requirement;

            (b) Except as set forth on Schedule 3.11(b), to the best knowledge
of Seller, (i) the Owned Real Property and its operations are in compliance in
all material respects with all applicable zoning ordinances, (ii) the
consummation of the transactions contemplated herein will not result in a
material violation of any applicable zoning ordinance or the termination of any
applicable zoning variance now existing, and (iii) the buildings and
improvements constituting the Owned Real Property comply in all material
respects with all building codes applicable to existing structures;

            (c) Except as set forth on Schedule 3.11(c), the Owned Real Property
is subject to no easements, restrictions, ordinances, or such other limitations
on title so as to make such property unusable for its current use or which
materially restrict or materially impair the use, marketability or insurability
of the Owned Real Property;

            (d) Except as set forth on Schedule 3.11(d), to the best knowledge
of Seller, all of the Owned Real Property is in compliance in all material
respects with the applicable provisions of the Rehabilitation Act of 1973, Title
III of the Americans with Disabilities Act, and the provisions of any comparable
state statute relative to accessibility (these laws are referred to,
collectively, as the "Accessibility Laws"). Seller has not received written
notice of any pending or threatened litigation, administrative action or
complaint (whether from state, federal or local government or from any other
person, group or entity) relating to compliance of any of the Owned Real
Property with the Accessibility Laws;

                                       26



            (e) There are no tenants or other persons or entities occupying any
space in the Real Property, other than pursuant to tenant leases listed in
Schedule 3.11(e)(i). Except as described in Schedule 3.11(e)(ii), no tenants
have paid rent in advance for more than one month (other than as a security
deposit) and no improvement credit or other tenant allowance of any nature is
owed to any tenant, nor is any landlord improvement work required;

            (f) All of the Owned Real Property is separately indexed with the
appropriate Oklahoma counties and is not combined with any land or real estate
which is not a part of the Owned Real Property for real estate tax assessment
purposes;

            (g) Except as set forth on Schedule 3.11(g), neither Seller nor
Seller Entities have received written notice of condemnation or of any lien,
assessment, or the like relating to any part of the Owned Real Property, of any
existing, proposed or contemplated plans to modify or realign any street or
highway or any existing, proposed or contemplated eminent domain proceeding by
any Governmental Entity that would result in the taking of all or any part of
the Owned Real Property or that would materially adversely affect the current
use of any part of the Owned Real Property;

            (h) Except as set forth on Schedule 3.11(h), all permanent
certificates of occupancy and all other licenses, permits, authorizations,
consents, certificates and approvals required by all governmental authorities
having jurisdiction have been issued for the Owned Real Property (and all
individual items constituting the Owned Real Property), have been paid for, are
in full force and effect, and will not be invalidated, violated or otherwise
materially adversely affected by the assignment thereof or by the transfer of
the Owned Real Property to Buyer Entities;

            (i) To the best knowledge of Seller, water, sanitary sewer, storm
sewer, drainage, electric, telephone, gas, cable television and other public
utility systems and lines serve the Owned Real Property with capacity and in a
manner adequate for the present use of the Owned Real Property and are directly
connected to the lines and/or other facilities of the respective public
authorities or utility companies providing such services or accepting such
discharge, either adjacent to the Owned Real Property or through easements or
rights of way appurtenant to and forming a part of the Owned Real Property. To
the best knowledge of Seller, such easements or rights-of-way have been fully
granted, and all charges therefore have been fully paid by Seller or Seller
Entities, and all charges for the aforesaid utility systems and the connection
of the Owned Real Property to such systems, including, without limitation,
connection fees, "tie-in" charges and other charges now or previously due and
payable, have been fully paid by Seller or Seller Entities; and, to the best
knowledge of Seller, the water and sanitary sewer service described above is
supplied by public authority; and

            (j) To the best knowledge of Seller, except as disclosed on Schedule
3.11(j) or as reflected in the Surveys (as defined in Section 5.9), the existing
improvements located upon the Owned Real Property do not encroach upon adjacent
premises or upon existing utility company easements and existing restrictions
are not violated by the improvements located on the Owned Real Property.

      3.12. TITLE. As of the Closing, except as disclosed in this Agreement,
Seller or Seller Entities shall own and hold good and marketable title to all of
the Purchased Assets, and at the

                                       27



Closing Seller Entities will assign and convey to Buyer Entities good and
marketable title to all of the Purchased Assets, or any part thereof, subject to
no mortgage, lien, pledge, security interest, conditional sales agreement, right
of first refusal, option, restriction, liability, encumbrance, or charge other
than the Permitted Encumbrances and the Assumed Liabilities.

      3.13. EMPLOYEE BENEFIT PLANS.

            (a) Schedule 3.13(a) sets forth all of Seller's and Seller Entities'
presently existing pension, profit sharing, deferred compensation, bonus, fringe
benefit, severance, layoff, life insurance, disability, vacation, holiday, or
other employee pension or health or welfare benefit plans or arrangements
(collectively, the "Plans").

            (b) The Purchased Assets are not, and Seller does not reasonably
expect them to become, subject to a lien imposed under the Internal Revenue Code
of 1986, as amended (the "Code"), or under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or any other law governing the
Plans, including liens arising by virtue of Seller considered to be aggregated
with another entity pursuant to Section 414 of the Code ("ERISA Controlled
Group").

            (c) Neither Seller nor any member of any ERISA Controlled Group of
which Seller is a part has sponsored, contributed to or had an "obligation to
contribute" (as defined in ERISA Section 4212) to a "multiemployer plan" (as
defined in ERISA Sections 4001(a)(3) or 3(37)(a)) on or after September 26, 1980
on behalf of any employees of the Facilities.

            (d) Neither Seller nor any member of any ERISA Controlled Group of
which Seller is a part has within the last three (3) years sponsored or
contributed to a "single employer plan" (as defined in ERISA Section
4001(a)(14)) to which at least two or more of the "contributing sponsors" (as
defined in ERISA Section 4001(a)(13)) are not part of the same ERISA Controlled
Group.

            (e) Except as set forth on Schedule 3.13(e), there are no material
actions, audits or claims pending or, to the best knowledge of Seller,
threatened against Seller with respect to Seller's maintenance of the Plans,
other than routine claims for benefits and other claims that are not material.

            (f) Seller and any ERISA Controlled Group of which Seller is a part
have complied in all material respects with all applicable material continuation
coverage requirements of Section 1001 of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and ERISA Sections 601 through 608 and
with the requirements of Section 5000 of the Code ("COBRA").

            (g) All of Seller's Plans that are intended to satisfy Section 401
of the Code from which assets may be involved in a "direct rollover" (as
described in Section 401(a)(31) of the Code) or other transfer to Buyer's
tax-qualified retirement plans have complied in all material respects with all
material requirements of Section 401(a) of the Code.

                                       28



      3.14. LITIGATION OR PROCEEDINGS. Seller has delivered to Buyer an accurate
list and summary description (Schedule 3.14) of all currently pending litigation
with respect to the Purchased Assets, including the Facilities (other than the
Excluded Assets). Except as set forth in a writing delivered by Seller to Buyer
which specifically makes reference to this Section 3.14 or as set forth on
Schedule 3.14, to the best knowledge of Seller, neither Seller nor Seller
Entities are in default under any order of any court or federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality wherever located. Except as set forth in a writing delivered
by Seller to Buyer which specifically makes reference to this Section 3.14 or as
set forth on Schedule 3.14, there are no claims, actions, suits, proceedings, or
investigations pending or, to the best knowledge of Seller, threatened against
or related to Seller or Seller Entities or the Purchased Assets (including the
Facilities), at law or in equity, or before or by any federal, state, municipal,
or other governmental department, commission, board, bureau, agency, or
instrumentality, wherever located.

      3.15. ENVIRONMENTAL LAWS. Except as set forth on Schedule 3.15, to the
best knowledge of Seller (i) the Owned Real Property is not subject to any
material environmental hazards, risks, or liabilities, (ii) neither Seller nor
any Seller Entity is in violation in any material respect of any material
federal, state or local statutes, regulations, laws or orders pertaining with
respect to the Real Property to the protection of human health and safety or the
environment (collectively, the "Environmental Laws"), including, without
limitation, the Comprehensive Environmental Response Compensation and Liability
Act, as amended ("CERCLA"), and the Resource Conservation and Recovery Act, as
amended ("RCRA") and (iii) neither Seller nor any Seller Entity has received any
written notice alleging or asserting either a material violation of any
Environmental Law or asserting a material obligation on the part of Seller or a
Seller Entity to investigate, assess, remove, or remediate any property,
including but not limited to the Real Property, under or pursuant to any
Environmental Law. No Hazardous Substances (which for purposes of this Section
3.15 shall mean and include polychlorinated biphenyls, asbestos, and any
substances, materials, constituents, wastes, or other elements which are
included under or regulated by any Environmental Law, including, without
limitation, CERCLA and RCRA) have been, and through the Closing Date will be,
disposed of on or released or discharged from or onto, or, to the best knowledge
of Seller, threatened to be released from or onto, the Real Property (including
groundwater) by Seller or Seller Entities, or to the best knowledge of Seller,
any third party, in material violation of any Environmental Law. Neither Seller
nor any Seller Entity, nor to the best knowledge of Seller, any prior owners,
operators or occupants of the Real Property, have allowed any Hazardous
Substances to be discharged, possessed, managed, processed, released, or
otherwise handled on the Real Property in a manner which is in violation of any
Environmental Law in any material respect, and Seller and Seller Entities have
complied in all material respects with all Environmental Laws applicable to any
part of the Real Property. Except as set forth on Schedule 3.15, to the best
knowledge of Seller, the improvements located on the Owned Real Property do not
contain friable asbestos. Without in any way limiting the generality of the
foregoing, to the best of knowledge of Seller: (i) all current or former
underground storage tanks located on the Owned Real Property and all information
in Seller's possession relating to the capacity, uses, dates of installation and
contents of such tanks located on the Owned Real Property are identified in
Schedule 3.15; (ii) there are no, nor have there ever been, any collection
dumps, pits, and disposal facilities or surface impoundments located on the
Owned Real Property for the containment of Hazardous Substances except as
identified in Schedule 3.15; and (iii) all existing

                                       29



underground storage tanks have been maintained in material compliance with all
Environmental Laws. Seller does not warrant and, except as specifically provided
in this Section 3.15, makes no representation concerning the environmental
condition of the Owned Real Property or the presence of Hazardous Substances on,
under or about the Owned Real Property or adjoining properties.

      3.16. HILL-BURTON AND OTHER LIENS. The transactions contemplated hereby
and the sale of the Purchased Assets, including the Facilities (other than the
Excluded Assets) to Buyer or Buyer Entities will not result in any obligation of
Buyer or Buyer Entities to repay any loans, grants or loan guarantees pursuant
to the Hill-Burton Act program, the Health Professions Educational Assistance
Act, the Nurse Training Act, the National Health Planning and Resources
Development Act, and the Community Mental Health Centers Act, each as amended,
or similar laws or acts relating to health care facilities, nor subject Buyer,
Buyer Entities or the Purchased Assets to any lien, restriction or obligation,
including any requirement to provide uncompensated care.

      3.17. TAXES.

            (a) Except as disclosed on Schedule 3.17(a), Seller and Seller
Entities have filed on a timely basis, or validly extended the time for filing,
all federal, state and local tax returns (including income, payroll, employment,
withholding, information, excise, sales, real and personal property, use and
occupancy, business and occupation, gross receipts, mercantile, real estate,
capital stock and franchise or other taxes) required to be filed by them within
the past three (3) years (collectively, the "Tax Returns"). All Tax Returns are
true and correct in all material respects and accurately reflect in all material
respects the tax liabilities of Seller and Seller Entities. All amounts shown
due on the Tax Returns have been or will be paid on a timely basis (including
any interest or penalties and amounts due state unemployment authorities) to the
appropriate tax authorities.

            (b) Seller and Seller Entities have withheld in all material
respects proper and accurate amounts from their employees' compensation in
compliance with all withholding and similar provisions of the Code, including
employee withholding and social security taxes, and any and all other applicable
laws. All such amounts have been duly and validly remitted to the proper taxing
authority.

            (c) No deficiencies for any of such taxes have been asserted within
the past three (3) years in writing to Seller or Seller Entities or, to the best
knowledge of Seller, threatened, and no audit on any such returns is currently
under way or, to the best knowledge of Seller, threatened. There are no
outstanding agreements by Seller or Seller Entities for the extension of time
for the assessment of any such taxes. Except as otherwise disclosed on Schedule
3.17(c), neither Seller nor Seller Entities have taken any action in respect of
any federal, state or local taxes (including, without limitation, any
withholdings required to be made in respect of employees) which may have a
material adverse impact upon the Purchased Assets, including the Facilities
(other than the Excluded Assets) as of or subsequent to Closing.

            (d) Neither Seller nor Seller Entities have received written notice
of tax liens on any of the Purchased Assets. To the best knowledge of Seller, no
basis exists for the imposition of any such liens other than liens for taxes not
yet delinquent.

                                       30



      3.18. EMPLOYEE RELATIONS. Except as set forth in a writing delivered by
Seller to Buyer which specifically makes reference to this Section 3.18 or as
set forth on Schedule 3.18, all persons who work at the Facilities are employees
of Seller or Seller Entities (other than physicians who are independent
contractors, volunteers, employees and independent contractors of independent
contractor physicians, and employees and independent contractors of vendors). To
the best knowledge of Seller, there is no threatened employee strike, work
stoppage or labor dispute with any labor organization pertaining to the
Facilities. To the best knowledge of Seller, except as set forth on Schedule
3.18, no labor organization claims to represent any persons employed by Seller
or Seller Entities at the Facilities. There is no collective bargaining
agreement covering any persons employed by Seller or Seller Entities at any of
the Facilities. Except as set forth on Schedule 3.18, there is no collective
bargaining obligation with respect to any bargaining unit of employees employed
by Seller or Seller Entities at any of the Facilities and no demand for
recognition has been made to Seller or Seller Entities by any labor organization
seeking to represent any persons employed at any of the Facilities. To the best
knowledge of Seller, there is no union organizing activity taking place among
unrepresented employees of Seller or Seller Entities at any of the Facilities.
There are no unfair labor practice charges pending against Seller or any Seller
Entity at the National Labor Relations Board. To the best knowledge of Seller,
neither Seller nor Seller Entities are engaged in any unfair labor practices. To
the best knowledge of Seller, Seller and Seller Entities are in compliance in
all material respects with all federal and state laws respecting employment and
employment practices, terms and conditions of employment, and wages and hours.
To the best knowledge of Seller, Seller and Seller Entities have complied in all
material respects with all requirements of the Immigration and Reform and
Control Act of 1986. Except as set forth on Schedule 3.18, there are no pending
or, to the best knowledge of Seller, threatened EEOC claims, OSHA complaints,
FLSA claims, unemployment compensation claims, workers' compensation claims,
Oklahoma Human Rights Commission complaints, or wrongful termination claims.

      3.19. AGREEMENTS AND COMMITMENTS. To the best knowledge of Seller,
Schedule 3.19 sets forth an accurate list of the following types of commitments,
contracts, leases, and agreements, written or oral, relating to the Purchased
Assets, including the Facilities (other than the Excluded Assets), or the
operation of any thereof, to which Seller or Seller Entities are a party or by
which Seller or Seller Entities, the Purchased Assets, the Facilities, or any
portion thereof is bound: (a) physician agreements, (b) agreements with health
maintenance organizations, preferred provider organizations, or other
alternative delivery systems, (c) joint venture or partnership agreements, (d)
employment contracts or any other contracts, agreements, or commitments to or
with individual employees or agents, (e) contracts or commitments materially
affecting ownership of, title to, use of or any interest in real estate
including any tenant leases, (f) equipment leases, (g) equipment maintenance
agreements, (h) agreements with municipalities, (i) collective bargaining
agreements or other contracts or commitments to or with any labor unions, labor
organizations, or other employee representatives or groups of employees, (j)
loan agreements, bonds, mortgages, liens, or other security agreements, (k)
patent licensing agreements or any other agreements, licenses, or commitments
with respect to patents, patent applications, trademarks, trade names, service
marks, technical assistance, copyrights, or other like terms affecting the
Purchased Assets, including the Facilities (other than the Excluded Assets), (l)
contracts or commitments providing for payments based in any manner on the
revenues or profits of the Purchased Assets, including the Facilities

                                       31



(other than the Excluded Assets), (m) agreements, licenses, or commitments
relating to data processing programs, software, or source codes utilized in
connection with the Purchased Assets, including the Facilities (other than the
Excluded Assets), and (n) contracts or commitments, whether in the ordinary
course of business or not, which involve future payments, performance of
services or delivery of goods or material, to or by Seller or any Seller Entity
of any amount or value in excess of Ten Thousand Dollars ($10,000) on an annual
basis.

      3.20. THE ASSUMED CONTRACTS. To the best knowledge of Seller, Schedule
1.1(h) sets forth an accurate list of the Assumed Contracts. Except as set forth
in Schedule 1.1(h) or in Schedule 3.20(a), Seller has made available to Buyer
true and correct copies of the Assumed Contracts. Seller represents and warrants
with respect to the Assumed Contracts that:

            (a) Except as expressly set forth on Schedule 3.20(a), the Assumed
Contracts constitute valid and legally binding obligations of Seller or Seller
Entities and are enforceable against Seller or Seller Entities in accordance
with their terms;

            (b) Each Assumed Contract constitutes the entire agreement by and
between the respective parties thereto with respect to the subject matter
thereof, except as the Assumed Contract may otherwise state;

            (c) Except as expressly set forth on Schedule 3.20 (c), all
obligations required to be performed by Seller or Seller Entities under the
terms of the Assumed Contracts have been performed in all material respects, no
act or omission by Seller or Seller Entities has occurred or failed to occur
which, with the giving of notice, the lapse of time or both would reasonably
constitute a material default under the Assumed Contracts, and each Assumed
Contract is now in full force and effect;

            (d) Except as expressly set forth on Schedule 3.20(d), none of the
Assumed Contracts requires consent to the assignment and assumption of such
Assumed Contracts by Buyer Entities, and Seller will use commercially reasonable
efforts to obtain any required consents prior to the Closing; and

            (e) Except as expressly set forth on Schedule 3.20(e), the
assignment of the Assumed Contracts to and assumption of such Assumed Contracts
by Buyer Entities will not result in any penalty or premium, or variation of the
rights, remedies, benefits or obligations of any party thereunder.

      3.21. SUPPLIES. Substantially all of the inventory and supplies
constituting any part of the Purchased Assets are of a quality and quantity
usable and salable in the ordinary course of business of the Facilities. Other
than obsolete items reflected in reserves in the Financial Statements, inventory
and supplies are carried at the lower of cost or market, on a first-in,
first-out basis and are properly accounted for in the Financial Statements. The
inventory levels are based on past practices of Seller or Seller Entities at the
Facilities.

      3.22. INSURANCE. Schedule 3.22 is an accurate schedule of the insurance
policies or self-insurance funds maintained by Seller and Seller Entities as of
the Execution Date covering the

                                       32



ownership and operation of the Purchased Assets, including the Facilities (other
than the Excluded Assets), indicating the types of insurance, policy numbers,
identity of insurers, amounts, and coverage. All of such policies are in full
force and effect with no premium arrearage. Seller and Seller Entities have
given in a timely manner to their insurers all notices required to be given
under their insurance policies within the past three (3) years, covering the
ownership and operation of the Purchased Assets, including the Facilities (other
than the Excluded Assets), with respect to all material claims and actions
covered by such insurance. No insurer has denied coverage of any such claims or
actions. Except as set forth on Schedule 3.22, during the last three (3) years,
Seller and Seller Entities have not (a) received any written notice from any
such insurance company canceling or materially amending any of such insurance
policies (other than upon the express request of Seller or one or more of the
Seller Entities to do so), and, to the best knowledge of Seller, no such
cancellation or amendment is threatened or (b) failed to give any required
written notice or present any claim which is still outstanding under any of such
policies with respect to the Purchased Assets, including the Facilities (other
than the Excluded Assets).

      3.23. THIRD PARTY PAYOR COST REPORTS. Seller and Seller Entities have duly
filed all required cost reports for their fiscal years ended June 30, 2001, June
30, 2002 and June 30, 2003. Such cost reports accurately reflect in all material
respects the information required to be included thereon and such cost reports
do not claim and neither the Facilities nor Seller or Seller Entities have
received reimbursement in any amount in excess of the amounts provided by law or
any applicable agreement, except where excess reimbursement was noted on such
cost report. Schedule 3.23 identifies such cost reports that have not been
audited and finally settled and a brief description of any and all notices of
program reimbursement, proposed or pending audit adjustments, disallowances,
appeals of disallowances, and any and all other unresolved claims or disputes in
respect of such cost reports. Seller and Seller Entities have established
adequate reserves to cover any known, historically identified or reasonably
expected obligations that Seller and Seller Entities may have in respect of any
such third party cost reports, and such reserves are reflected in the Financial
Statements.

      3.24. MEDICAL STAFF MATTERS. Seller has provided to Buyer true, correct,
and complete copies of the bylaws and rules and regulations of the medical staff
of each Hospital, as well as a list of all current members of the medical staff
of each Hospital. Except as set forth in a writing delivered by Seller to Buyer
which specifically makes reference to this Section 3.24 or as set forth on
Schedule 3.24, during the time in which Seller or Seller Entity has operated the
Hospital (but in no event prior to three (3) years from the Execution Date)
there have been no adverse actions (as such term is defined in the bylaws and
rules and regulations of the medical staff of the applicable Hospital) with
respect to any medical staff members of the Hospitals or any applicant thereto
for which a medical staff member or applicant has requested a judicial review
hearing which has not been scheduled or has been scheduled but has not been
completed, and there are no pending or, to the best knowledge of Seller,
threatened disputes which have been conveyed in writing to the Chief Executive
Officer, Chief Operating Officer or Chief Medical Officer of the applicable
Hospital with applicants or staff members, and Seller knows of no basis
therefor, and all appeal periods in respect of any medical staff member or
applicant against whom an adverse action has been taken have expired.

                                       33



      3.25. CONDITION OF ASSETS. The Purchased Assets and the Excluded Assets
constitute all assets which are held or used by Seller and Seller Entity
Organizations and necessary for the conduct of the business and operation of the
Facilities in the manner conducted as of the Execution Date. To the best
knowledge of Seller, except as set forth on Schedule 3.25, all buildings,
facilities and major equipment included in the Purchased Assets are free from
material defects and in good operating condition and repair, ordinary wear and
tear excepted, and are usable in the regular and ordinary course of business,
and to the best of Seller's knowledge, conform in all material respects to all
applicable laws, ordinances, codes, rules and regulations relating to its use
and operation by Seller and Seller Entities. As used herein, "major equipment"
means an individual item of equipment having a book value in excess of Ten
Thousand Dollars ($10,000).

      3.26. INTELLECTUAL PROPERTY; COMPUTER SOFTWARE. To the best knowledge of
Seller, Schedule 3.26 lists and briefly describes all trademarks, service marks,
trade names, patents, copyrights, inventions, processes and applications
therefor (whether registered or common law) currently owned by Seller and Seller
Entities and used in connection with the Purchased Assets (collectively, the
"Intellectual Property"). Except as set forth on Schedule 3.26, to the best
knowledge of Seller, neither Seller nor Seller Entities have received written
notice that any proceedings have been instituted or are pending which challenge
the validity of the ownership by Seller or Seller Entities of the Intellectual
Property. Neither Seller nor Seller Entities have licensed anyone to use the
Intellectual Property and Seller has no knowledge of the use or the infringement
of the Intellectual Property by any other person. To the best knowledge of
Seller, Seller and/or Seller Entities own (or possess enforceable licenses or
other rights to use) all Intellectual Property. Except as disclosed on Schedule
3.26, to the best knowledge of Seller, Seller and/or Seller Entities own (or
possess enforceable licenses or other rights to use) all computer software
programs and similar systems used in the conduct of their business.

      3.27. ACCOUNTS RECEIVABLE. The Accounts Receivable constituting a part of
the Purchased Assets represent and constitute bona fide indebtedness owing to
Seller and Seller Entities for services actually performed or for goods or
supplies actually provided in the amounts indicated on the Financial Statements
with no known set-offs, deductions, compromises, or reductions (other than
reasonable allowances for bad debt and contractual allowances in an amount
consistent with historical policies and procedures of Seller and Seller Entities
and which are taken into consideration in the preparation of the Financial
Statements). Seller has made available to Buyer an aging report of all such
Accounts Receivable and a schedule of all Accounts Receivable, whether recorded
or unrecorded, which have been assigned to collection agencies or are otherwise
held or assigned for collection. The aging report and the schedules are complete
and accurate in all material respects.

      3.28. EXPERIMENTAL PROCEDURES. Except as set forth in a writing delivered
by Seller to Buyer which specifically makes reference to this Section 3.28 or as
set forth on Schedule 3.28, Seller Entities have not within the last three (3)
years performed or permitted the performance of any experimental or research
procedures or studies involving patients of the Hospitals not authorized and
conducted in accordance with the procedures of the Institutional Review Board of
the Hospitals.

      3.29. COMPLIANCE PROGRAM. Seller has provided to Buyer a copy of its
current compliance program materials, including, without limitation, to the
extent they exist, all program descriptions,

                                       34



compliance officer and committee descriptions, ethics and risk area policy
materials, training and education materials, auditing and monitoring protocols,
reporting mechanisms, and disciplinary policies. Except as set forth in a
writing delivered by Seller to Buyer which specifically makes reference to this
Section 3.29 or as set forth on Schedule 3.29, Seller and Seller Entities (a)
are not a party to a Corporate Integrity Agreement with the Office of Inspector
General of the Department of Health and Human Services, (b) have no reporting
obligations pursuant to any Settlement Agreement entered into with any
governmental entity, (c) to the best knowledge of Seller, have not been the
subject of any government payer program investigation conducted by any federal
or state enforcement agency, (d) to the best knowledge of Seller, have not been
a defendant in any qui tam/False Claims Act litigation, (e) have not been served
with or received any search warrant, subpoena, civil investigative demand,
contact letter, or, to the best knowledge of Seller, any telephone or personal
contact by or from any federal or state enforcement agency (except in connection
with medical services provided to third-parties who may be defendants or the
subject of investigation into conduct unrelated to the operation of the health
care businesses conducted by Seller or Seller Entities), and (f) to the best
knowledge of Seller, have not received any complaints (either in writing or
through Seller's compliance "hotline") from employees, independent contractors,
vendors, physicians, or any other person that would indicate that Seller or
Seller Entities have violated any law or regulation. For purposes of this
Agreement, the term "compliance program" refers to provider programs of the type
described in the compliance guidance published by the Office of Inspector
General of the Department of Health and Human Services.

      3.30. PARTIAL SUBSIDIARIES.

            (a) Schedule 3.30(a) sets forth for each Partial Subsidiary (as
defined in Section 3.30(g)): (1) its name and jurisdiction of incorporation or
organization; (2) the number of authorized shares of each class of its capital
stock or other equity or non-equity interests; (3) the number of issued and
outstanding shares of each class of its capital stock or other equity or
non-equity interests, the names of the holders thereof, and the number of shares
or other equity or non-equity interests held by each such holder; (4) the number
of shares of its capital stock or other equity interests held in treasury; and
(5) its directors or governing board members and officers.

            (b) To the best knowledge of Seller, each Partial Subsidiary: (1) if
it is a for profit or nonprofit corporation, is duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation
and is duly qualified and in good standing as a foreign corporation in the
jurisdiction of its principal place of business if not incorporated therein; (2)
if it is a limited liability company, is duly organized, validly existing and,
if applicable, in good standing under the laws of the state of its organization
and is duly qualified and, if applicable, in good standing as a foreign limited
liability company in the jurisdiction of its principal place of business if not
organized therein; and (3) if it is a partnership, trust or other entity, is
duly formed, validly existing and, if applicable, in good standing in the
jurisdiction of its principal place of business if not formed therein. To the
best knowledge of Seller, each Partial Subsidiary has full corporate, limited
liability company, partnership, trust or other applicable power and authority
and all licenses and permits (including authorizations to do business in any
applicable state) necessary to carry on the businesses in which it is engaged
and in which it presently proposes to engage, and to own and use the properties
owned and used by it.

                                       35



            (c) Seller has delivered to Buyer accurate and complete copies, as
applicable, of the articles of incorporation, charter, bylaws, operating
agreement, partnership agreement, or shareholders or membership agreement, as
amended to date, of each Partial Subsidiary. Except as set forth on Schedule
3.30(c), to the best knowledge of Seller, all of the issued and outstanding
shares of capital stock or other equity or non-equity interests of each Partial
Subsidiary have been duly authorized and are validly issued, fully paid, and
nonassessable. To the best knowledge of Seller, none of the Partial Subsidiaries
is in default under or in violation of any provision of its articles of
incorporation, charter, bylaws, operating agreement, partnership agreement, or
shareholders or membership agreement.

            (d) To the best knowledge of Seller, the minute books (containing
the records of meetings of the stockholders, the board of directors, board of
governors, management committee, and any committees of the board of directors,
board of governors or management committee), the stock certificate books, and
the stock record books of each Partial Subsidiary are accurate and complete in
all material respects.

            (e) To the best knowledge of Seller, except as set forth on Schedule
3.30(e), there is no outstanding subscription, option, convertible or
exchangeable security, preemptive right, warrant, call or agreement (other than
this Agreement) relating to the stock or other equity or non-equity interests of
the Partial Subsidiaries or other obligation or commitment of any Partial
Subsidiary to issue shares of capital stock or other equity interests. Except as
set forth on Schedule 3.30(e), there are no voting trusts or other agreements,
arrangements or understandings applicable to the exercise of voting or any other
rights with respect to any shares of Partial Subsidiary stock or other equity or
non-equity interests. Seller has good and marketable title to all shares of the
stock or other equity or non-equity interests of the Partial Subsidiaries set
forth in Schedule 3.30(a) and except as disclosed on Schedule 3.30(e), has the
absolute right to sell, assign, transfer and deliver the same to Buyer, free and
clear of all claims, security interests, liens, pledges, charges, escrows,
options, proxies, rights of first refusal, preemptive rights, mortgages,
hypothecations, prior assignments, title retention agreements, indentures,
security agreements or any other limitation, encumbrance or restriction of any
kind.

            (f) The Partial Subsidiaries do not control directly or indirectly
or have any direct or indirect equity participation in any corporation, limited
liability company, partnership, trust or other business association.

            (g) For purposes of this Agreement, the term "Partial Subsidiaries"
means any and all corporations (other than publicly traded companies),
partnerships and limited liability companies in which Seller or Seller Entities
own or hold common stock, partnership interests or membership interests
amounting to less than 100% of the total outstanding common stock, partnership
interests or membership interests of such entity, and which common stock,
partnership interests or membership interests Seller or Seller Entities shall
use their commercially reasonable best efforts to assign to Buyer or Buyer
Entities as part of the Purchased Assets, subject to the terms and conditions of
the governing documents of the Partial Subsidiaries.

                                       36



      3.31. FULL DISCLOSURE. To the best knowledge of Seller, this Agreement and
Schedules (and all writings expressly referencing Section 3 and delivered
pursuant to Section 3) and all Closing Documents furnished and to be furnished
to Buyer and its representatives by Seller pursuant hereto do not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made and to be made not misleading. To the
best knowledge of Seller, all other information furnished or to be furnished to
Buyer and its representatives by Seller pursuant to or in connection with this
Agreement does not and will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made and to
be made not misleading. Copies of all documents referred to in any Schedule (and
all writings expressly referencing Section 3 and delivered pursuant to Section
3) have been delivered or made available to Buyer and constitute true, correct
and complete copies thereof and include all amendments, exhibits, schedules,
appendices, supplements or modifications thereto or waivers thereunder. The term
"Closing Documents" means those documents executed and delivered at the Closing
pursuant to Section 2.

      3.32. SELLER'S KNOWLEDGE. When used herein, the phrases "to the best
knowledge of Seller," "to Seller's knowledge" and "known" and similar references
to Seller's knowledge shall mean and refer to all matters with respect to which
(a) Seller has received written notice either from a Government Entity or from
another person and which is addressed to a Designated Person (as defined below)
or a Designated Officer (as defined below), (b) the following representatives of
Seller have actual knowledge: Donald A. Lorack, Jr., Steve Landgarten, M.D.,
Craig McKnight, Jerry Rothlein, Jr., Jon Mercer, Steve Dobbs, Jody Abbott, Kim
Monjesky, Dan Fieker, DO, Jim Kendrick, David Jamin, Randy DuBois and David
Yackell (collectively, the "Designated Persons"), or (c) the following
representatives of Seller have actual knowledge: the CEOs and CFOs of the
Facilities (collectively, the "Designated Officers"). The above referred to
phrases shall also mean and refer to the actual knowledge of Amy L. Osborn, Esq.
when used in connection with Section 10.22(a).

4. REPRESENTATIONS AND WARRANTIES OF BUYER. As of the Execution Date, and, when
read in light of any Schedules which have been attached to this Agreement or
updated in accordance with the provisions of Section 12.1, as of the Closing
Date, Buyer represents and warrants to Seller the following:

      4.1. EXISTENCE AND CAPACITY. Buyer is a corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware. Each
Buyer Entity is a limited liability company, duly organized and validly existing
in good standing under the laws of the State of Delaware. Buyer has the
requisite power and authority to enter into this Agreement and to perform its
obligations hereunder. Buyer and each Buyer Entity has the requisite power and
authority to conduct its business as it is now being conducted.

      4.2. POWERS; CONSENTS; ABSENCE OF CONFLICTS WITH OTHER AGREEMENTS, ETC.
The execution, delivery, and performance of this Agreement by Buyer and all
other agreements referenced herein, or ancillary hereto, to which Buyer is a
party, and the consummation by Buyer and Buyer Entities of the transactions
contemplated herein, as applicable:

                                       37



            (a) are within its corporate powers, are not in contravention of law
or of the terms of its organizational documents, and as to Buyer have been and
as to Buyer Entities shall have been prior to the Closing duly authorized by all
appropriate corporate action;

            (b) except as provided in Sections 6.1 and 6.2, do not require any
approval or consent of, or filing with, any governmental agency or authority
bearing on the validity of this Agreement which is required by law or the
regulations of any such agency or authority;

            (c) will neither conflict with, nor result in any breach or
contravention of, or the creation of any lien, charge or encumbrance under, any
material indenture, agreement, lease, instrument or understanding to which it is
a party or by which it is bound;

            (d) will not violate any statute, law, rule, or regulation of any
governmental authority to which it may be subject; and

            (e) will not violate any judgment, decree, writ, or injunction of
any court or governmental authority to which it may be subject.

      4.3. BINDING AGREEMENT. This Agreement and all agreements to which Buyer
or any of the Buyer Entities will become a party pursuant hereto are and will
constitute the valid and legally binding obligations of Buyer and/or the Buyer
Entities and are and will be enforceable against it in accordance with the
respective terms hereof and thereof.

      4.4. AVAILABILITY OF FUNDS. Buyer has the ability to obtain funds in cash
in amounts equal to the Purchase Price by means of credit facilities or
otherwise and will at the Closing have immediately available funds in cash,
which are sufficient to pay the Purchase Price and to consummate the
transactions contemplated by this Agreement.

      4.5. LEGAL PROCEEDINGS. Except as described on Schedule 4.5, there are no
claims, proceedings or investigations pending or, to the best knowledge of
Buyer, threatened relating to or affecting Buyer or any Buyer Entity before any
court or governmental body (whether judicial, executive or administrative) in
which an adverse determination would have a materially adverse affect on the
properties or business condition (financial or otherwise) of Buyer or any Buyer
Entities or the consummation of the transactions contemplated herein. Neither
Buyer nor any Buyer Entity is subject to any judgment, order, decree or other
governmental restriction specifically (as distinct from generically) applicable
to Buyer or any Buyer Entities which would have a materially adverse affect on
the properties or business condition (financial or otherwise) of Buyer or any
Buyer Entities or the consummation of the transactions contemplated herein.

      4.6. SOLVENCY. Buyer is not insolvent and will not be rendered insolvent
as a result of any of the transactions contemplated by this Agreement. For
purposes hereof, the term "solvency" means that: (a) the fair salable value of
Buyer's tangible assets is in excess of the total amount of its liabilities
(including for purposes of this definition all liabilities, whether or not
reflected on a balance sheet prepared in accordance with GAAP, and whether
direct or indirect, fixed or contingent, secured or unsecured, and disputed or
undisputed); (b) Buyer is able to pay its debts or obligations in

                                       38



the ordinary course as they mature; and (c) Buyer has capital sufficient to
carry on its businesses and all businesses in which it is about to engage.

      4.7. FULL DISCLOSURE. To the best knowledge of Buyer, this Agreement and
all Schedules (and all writings expressly referencing Section 4 and delivered
pursuant to Section 4) and all Closing Documents furnished and to be furnished
to Seller and its representatives by Buyer pursuant hereto do not and will not
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements made and to be made not misleading. To the
best knowledge of Buyer, all other information furnished or to be furnished to
Seller and its representatives by Buyer pursuant to or in connection with this
Agreement does not and will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the statements made and to
be made not misleading. Copies of all documents referred to in any Schedule (and
in all writings expressly referencing Section 4 and delivered pursuant to
Section 4) have been delivered or made available to Seller and constitute true,
correct and complete copies thereof and include all amendments, exhibits,
schedules, appendices, supplements or modifications thereto or waivers
thereunder.

      4.8. BUYER'S KNOWLEDGE. When used herein, the phrases "to the best
knowledge of Buyer," "to Buyer's knowledge" and "known" and similar references
to Buyer's knowledge shall mean and refer to all matters with respect to which
(a) Buyer has received written notice or (b) the following representatives of
Buyer have actual knowledge: David T. Vandewater, Jamie E. Hopping, R. Dirk
Allison, W. Page Barnes, George M. Garrett and Eb LeMaster. The above referred
to phrases shall also mean and refer to the actual knowledge of Steve Petrovich,
Esq. and Christy Sawyer, Esq. when used in connection with Section 10.22(b).

5. COVENANTS OF SELLER PRIOR TO CLOSING. Between the Execution Date and the
Closing:

      5.1. INFORMATION. Subject to the provisions of Section 12.10 and the
Confidentiality Agreement (as defined in Section 12.10), Seller shall afford to
the officers and authorized representatives and agents (which shall include
accountants, attorneys, bankers, and other consultants) of Buyer full and
complete access during normal business hours to and the right to inspect the
plants, properties, books, and records of the Facilities, and will furnish Buyer
with such additional financial and operating data and other information as to
the business and properties of Seller and Seller Entities pertaining to the
Facilities as Buyer may from time to time reasonably request without regard to
where such information may be located. Buyer's right of access and inspection
shall be exercised in such a manner as not to interfere unreasonably with the
operations of the Facilities. Buyer agrees that no inspections shall take place
and no employees or other personnel of the Facilities shall be contacted by
Buyer without Buyer first providing reasonable notice to Seller and coordinating
such inspection or contact with Seller.

      5.2. OPERATIONS. Seller shall, and shall cause the Seller Entities to,
with respect to the Purchased Assets:

                                       39



            (a) except as disclosed on Schedule 5.2(a), carry on its business
pertaining to the Facilities in substantially the same manner as presently
conducted and except in the ordinary course of business not make any material
change in personnel, operations, finance, accounting policies, or real or
personal property pertaining to the Facilities other than changes required to
consummate the transactions contemplated in this Agreement;

            (b) maintain the Facilities and all parts thereof in their condition
on the Execution Date, ordinary wear and tear excepted;

            (c) except as disclosed on Schedule 5.2(c), perform its obligations
in all material respects under all material agreements relating to or affecting
the Purchased Assets, including the Facilities (other than the Excluded Assets);

            (d) keep in full force and effect present insurance policies or
other comparable insurance pertaining to the Facilities; and

            (e) use its commercially reasonable best efforts to maintain and
preserve its business organizations intact, retain its present employees at the
Facilities and maintain its relationships with physicians, suppliers, customers,
and others having business relations with the Facilities.

      5.3. NEGATIVE COVENANTS. Seller shall not, and shall cause the other
Seller Entities not to, with respect to the business or operation of the
Facilities or otherwise regarding the Purchased Assets, without the prior
written consent of Buyer, which consent Buyer shall not unreasonably withhold,
delay or condition:

            (a) amend, or unless the other party is in default or breach,
terminate any of its material Assumed Contracts, or enter into any commitment or
incur or agree to incur any liability greater than Twenty Five Thousand Dollars
($25,000) annually, except as provided herein or in the ordinary course of
business or as contemplated by this Agreement;

            (b) increase compensation payable or to become payable or make any
bonus payment to or otherwise enter into one or more bonus agreements with any
employee at the Facilities, except in the ordinary course of business and/or in
accordance with an existing contract or existing personnel policies;

            (c) create, assume, or permit to exist any new debt, mortgage,
pledge, or other lien or encumbrance upon any of the Purchased Assets, whether
now owned or hereafter acquired, other than in the ordinary course of business;

            (d) acquire (whether by purchase or lease) or sell, assign, lease,
or otherwise transfer or dispose of any property, plant, or equipment except in
the normal course of business;

            (e) except with respect to previously budgeted expenditures,
purchase capital assets or incur costs in respect of construction-in-progress in
excess of One Hundred Thousand Dollars ($100,000) in the aggregate;

                                       40



            (f) take any action outside the ordinary course of business of the
Facilities or their related ancillary services, except for those contemplated by
this Agreement or the Closing Documents;

            (g) reduce inventory of the Facilities except in the ordinary course
of business; or

            (h) enter into any agreement which likely would have a material
adverse effect on the value of any of the Facilities or any of the Purchased
Assets.

      For purposes of this Section 5.3, Seller shall be deemed to have obtained
Buyer's prior written consent to undertake the actions otherwise prohibited by
this Section 5.3 if Seller gives Buyer written notice of a proposed action and
Seller does not receive from Buyer a written notice of objection to such action
within five (5) business days after Buyer receives Seller's written notice.
Notwithstanding any provision to the contrary contained in this Agreement,
neither Section 5.2 nor this Section 5.3 shall be construed to prohibit Seller
from engaging in any act which Seller reasonably believes is necessary to
preserve and protect the continued operation of the Facilities or to consummate
the transactions contemplated in this Agreement. Seller shall give Buyer prompt
written notice subsequent to taking any act described in the immediately
preceding sentence.

      5.4. GOVERNMENTAL APPROVALS. Seller shall (i) use its commercially
reasonable best efforts to obtain all governmental approvals (or exemptions
therefrom) obtainable by it and necessary or required to allow Seller to perform
its obligations under this Agreement; and (ii) at Buyer's request, and at
Buyer's sole cost and expense if material in terms of time or cost, assist and
cooperate with Buyer and its representatives and counsel in obtaining all
governmental consents, approvals, and licenses which Buyer deems necessary or
appropriate and in the preparation of any document or other material which may
be required by any governmental agency as a predicate to or as a result of the
transactions contemplated herein.

      5.5. FTC NOTIFICATION. Not later than ten (10) days after the Execution
Date, Seller shall, if and to the extent required by law, file all reports or
other documents required or requested by the Federal Trade Commission ("FTC") or
the United States Department of Justice ("Justice Department") under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), and all
regulations promulgated thereunder, concerning the transactions contemplated
hereby, and, between the Execution Date and the Closing, shall comply promptly
with any requests by the FTC or Justice Department for additional information
concerning such transactions, so that the waiting period specified in the HSR
Act will expire as soon as reasonably possible after the execution and delivery
of this Agreement. Seller shall furnish to Buyer such information in Seller's
possession or under its control concerning Seller as Buyer needs to perform its
obligations under Section 6.2.

      5.6. ADDITIONAL FINANCIAL INFORMATION. Not later than five (5) business
days after they are approved (but in no event later than twenty (20) days
following the end of each calendar month prior to Closing), Seller shall deliver
to Buyer true and complete copies of the unaudited balance sheets and the
related unaudited statements of income (collectively, the "Interim Statements")
of, or relating to, Seller and Seller Entity Organizations for each month then
ended, together with a year-to-date compilation, which presentation shall have
been prepared from and in accordance with

                                       41



the books and records of Seller and Seller Entity Organizations, on a consistent
basis with the Financial Statements, and shall fairly present in all material
respects the financial position and results of operations of Seller and Seller
Entity Organizations as of the date and for the period indicated, all in
accordance with GAAP consistently applied, except as set forth in Schedule 3.4.
To the extent permitted by law, Seller shall notify Buyer in writing and shall
keep Buyer informed of any unexpected emergency or other materially adverse
unanticipated change in the business of any of the Hospitals and of any
governmental complaints, investigations or adjudicatory proceedings (or
governmental communications indicating that the same may be contemplated) or of
any other such matter.

      5.7. NO-SHOP CLAUSE. Seller agrees that, from and after the date of the
execution and delivery of this Agreement by Seller and Buyer until the Closing
or the termination of this Agreement, whichever is earlier, Seller will not,
without the prior written consent of Buyer or except as otherwise permitted by
this Agreement: (i) offer for sale or lease all or any material portion of the
Purchased Assets or any ownership interest in any entity owning any material
portion of the Purchased Assets, (ii) solicit offers to buy all or any material
portion of the Purchased Assets or any ownership interest in any entity owning
any material portion of the Purchased Assets, (iii) initiate, encourage or
provide any documents or information to any third party in connection with,
discuss in any material respect or negotiate with any person regarding any
inquiries, proposals or offers relating to any disposition of all or any
material portion of the Purchased Assets or a merger or consolidation of any
entity owning any material portion of the Purchased Assets, or (iv) enter into
any agreement or negotiations with any party (other than Buyer or Strategic
Parties) with respect to the sale, assignment, or other disposition of all or
any material portion of the Purchased Assets or any ownership interest in any
entity owning any material portion of the Purchased Assets or with respect to a
merger or consolidation of any entity owning any material portion of the
Purchased Assets. Seller will promptly communicate to Buyer the substance of any
inquiry or proposal concerning any such transaction.

      5.8. TITLE COMMITMENT. Seller, at its expense, shall obtain a current
title commitment (the "Title Commitment") issued by Fidelity National Title
Insurance Company (using Guaranty Abstract Company as the local title insurance
agent) (the "Title Company"), together with legible copies of all exceptions to
title referenced therein. The Title Commitment shall set forth the state of
title to the Owned Real Property and any Material Leased Real Property (as
defined below) for which Buyer has determined to obtain leasehold policies,
together with all exceptions or conditions to such title, including, without
limitation, all easements, restrictions, rights-of-way, covenants, reservations,
and all other encumbrances affecting the Owned Real Property and such Material
Leased Real Property. Schedule 5.8 sets forth a list of the Material Leased Real
Properties. Buyer shall have the right to object to the status of title for a
period of twenty (20) days after the later of its receipt of (i) the Title
Commitment (including any amendments thereto based upon the Title Company's
review of the Surveys), (ii) copies of all Schedule B-II title exceptions, and
(iii) the Surveys. Buyer's objections must be in writing, and the writing must
identify each objection and the reason(s) for it in reasonable detail. All
matters reflected in the Title Commitment and the Surveys to which Buyer does
not object within the time permitted shall be deemed "Permitted Encumbrances."
The Title Commitment shall contain the express commitment of the Title Company
to issue an Owner's Title Policy (the "Title Policy") to Buyer in an amount
equal to the portion of the Purchase Price being

                                       42



allocated to the Real Property being insured thereby insuring good and
marketable fee simple title to the Owned Real Property and leasehold title to
any Material Leased Real Property for which Buyer has determined to obtain
leasehold policies with the standard printed exceptions endorsed or deleted in
accordance with Section 7.3. Buyer may take the lead role in obtaining the Title
Commitment, with the cooperation and assistance of Seller. For purposes of this
Agreement, the term "Material Leased Real Property" means any Leased Real
Property leased pursuant to a lease under which Seller or Seller Entities pay
annual rent in excess of $100,000 or have an option to purchase such Leased Real
Property without regard to annual rental.

      5.9. SURVEYS. Buyer, at its expense, may choose to obtain current as-built
surveys of the Owned Real Property (the "Surveys"). The Surveys shall meet the
requirements of an ALTA/ASCM survey and otherwise be in form and detail
reasonably satisfactory to Buyer. Unless otherwise determined by Buyer, the
Surveys shall (i) be currently dated; (ii) show the location on the Owned Real
Property of all improvements, fences, evidences of abandoned fences, lakes,
ponds, creeks, streams, rivers, easements, roads, and rights-of-way; (iii)
identify all easements and rights-of-way by reference to the recording
information applicable to the documents creating such easements or
rights-of-way; (iv) show any encroachments onto the Owned Real Property from any
adjacent property, any encroachments from the Owned Real Property onto adjacent
property, and any encroachments into any easement or restricted area within the
Owned Real Property; (v) locate all existing improvements (such as buildings,
power lines, fences, and the like); (vi) locate all dedicated public streets or
other roadways providing access to the Owned Real Property, including all curb
cuts and all alleys; (vii) locate all set-back lines and similar restrictions
covering the Owned Real Property or any part thereof and any violations of such
restrictions; and (viii) show thereon a legal description of the boundaries of
the Owned Real Property by metes and bounds or other appropriate legal
description. Each Survey shall contain the surveyor's certification to Buyer,
Seller, and the Title Company that (i) the Survey was made on the ground; (ii)
there are no visible or recorded easements, discrepancies, conflicts,
encroachments, or overlapping of improvements except as shown on the Survey;
(iii) the Survey correctly shows all visible or recorded easements or rights of
way across the Owned Real Property or any other easements or rights of way of
which the surveyor has been advised, including, without limitation, those
matters affecting title reflected in the Title Commitment; (iv) the Survey
correctly shows the location of all buildings, structures, and other
improvements situated on the Owned Real Property; (v) the Survey conforms to all
applicable minimum guidelines for surveys of comparable property as set forth in
applicable laws, regulations, or professional standards; (vi) all streets
abutting the Owned Real Property and all means of ingress to and egress from the
Owned Real Property have been completed, dedicated, and accepted for public
maintenance by the relevant municipal body; (vii) except as shown thereon, the
Owned Real Property is not located within the 100 year flood plain or other
flood hazard area; (viii) the Survey is a true, correct, and accurate
representation of the Owned Real Property; and (ix) such other matters as may be
required by the Title Company to allow it to issue the Title Policy. It is the
intent of the parties that Buyer take the lead role in obtaining the Surveys,
with the cooperation and assistance of Seller.

      5.10. INSURANCE RATINGS. Seller, at Buyer's sole cost and expense, will
take all action reasonably requested by Buyer to assist Buyer Entities to
succeed to the Workers' Compensation and Unemployment Insurance ratings, and
other ratings for insurance or other purposes, established by

                                       43



Seller and Seller Entities for the Facilities. Buyer shall not be obligated to
succeed to any such ratings, except as it may elect to do so.

      5.11. TAIL INSURANCE. Prior to the Closing (or, if later, the Lease
Effective Date with respect to applicable Strategic Facilities), Seller shall,
at its sole cost and expense, obtain "tail" insurance on all claims-made form
policies, including professional and general liabilities of the Facilities
relating to all periods prior to the Closing. The insurance shall have coverage
levels equal to the current policies insuring the Seller Entities.

      5.12. MEDICAL STAFF DISCLOSURE. Seller shall deliver to Buyer a written
disclosure containing a brief description of all adverse actions taken by Seller
or Seller Entities during the last three (3) years against medical staff members
or applicants which could result in claims or actions against Seller and Seller
Entities and which are not disclosed in the minutes of the meetings of the
Medical Executive Committee of the Medical Staff of each Hospital, which have
been provided to Buyer.

      5.13. SELLER'S EFFORTS TO CLOSE. Seller shall use its commercially
reasonable best efforts to satisfy in a timely manner all of the conditions
precedent set forth in Sections 7 and 8 to its or Buyer's obligations under this
Agreement to the extent that Seller's action or inaction can control or
influence the satisfaction of such conditions. Seller's obligations herein shall
not include an obligation to assume responsibility for costs and expenses for
which Buyer is obligated to pay.

      5.14. WAIVER OF BULK SALES LAW COMPLIANCE. Seller hereby waives compliance
by Buyer and Buyer Entities with the requirements, if any, of Article 6 of the
Uniform Commercial Code as in force in any state in which the Purchased Assets
are located and all other similar laws applicable to bulk sales and transfers.

6. COVENANTS OF BUYER PRIOR TO CLOSING. Between the Execution Date and the
Closing:

      6.1. GOVERNMENTAL APPROVALS. Buyer shall (i) use its commercially
reasonable best efforts to obtain all governmental approvals (or exemptions
therefrom) obtainable by it and necessary or required to allow Buyer to perform
its obligations under this Agreement; and (ii) at Seller's request, and at
Seller's sole cost and expense if material in terms of time or cost, assist and
cooperate with Seller and its representatives and counsel in obtaining all
governmental consents, approvals, and licenses which Seller deems necessary or
appropriate and in the preparation of any document or other material which may
be required by any governmental agency as a predicate to or as a result of the
transactions contemplated herein. Without limiting the generality of this
Section 6.1, Buyer shall (i) not later than five (5) days after the Execution
Date, file all applications for certificates of need required to consummate the
transactions contemplated in this Agreement not later than July 1, 2004 and (ii)
not later than ten (10) days after the Execution Date, file all applications,
notices and requests for licenses, permits and approvals required to consummate
the transactions completed in this Agreement and to operate the Facilities not
later than July 1, 2004. Buyer shall deliver to Seller copies of all said
applications at the time of their filing.

                                       44



      6.2. FTC NOTIFICATION. Not later than ten (10) days after the Execution
Date, Buyer shall, if and to the extent required by law, file all reports or
other documents required or requested by the FTC or the Justice Department under
the HSR Act, and all regulations promulgated thereunder, concerning the
transactions contemplated hereby, and, between the Execution Date and the
Closing, shall comply promptly with any requests by the FTC or Justice
Department for additional information concerning such transactions, so that the
waiting period specified in the HSR Act will expire as soon as reasonably
possible after the execution and delivery of this Agreement. Buyer agrees to
furnish to Seller such information in Buyer's possession or under its control
concerning Buyer as Seller needs to perform its obligations under Section 5.5.

      6.3. BUYER'S EFFORTS TO CLOSE. Buyer shall use its commercially reasonable
best efforts to satisfy in a timely manner all of the conditions precedent set
forth in Sections 7 and 8 to its or Seller's obligations under this Agreement to
the extent that Buyer's action or inaction can control or influence the
satisfaction of such conditions. Buyer's obligations herein shall not include an
obligation to assume responsibility for costs and expenses for which Seller is
obligated to pay.

      6.4. WAIVER OF BULK SALES LAW COMPLIANCE. Buyer hereby waives compliance
by Seller and Seller Entities with the requirements, if any, of Article 6 of the
Uniform Commercial Code as in force in any state in which the Purchased Assets
are located and all other similar laws applicable to bulk sales and transfers.

7. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. Notwithstanding anything herein
to the contrary, the obligations of Buyer to consummate the transactions
described herein are subject to the fulfillment, on or prior to the Closing
Date, of the following conditions precedent unless (but only to the extent)
waived in writing by Buyer at the Closing:

      7.1. REPRESENTATIONS/WARRANTIES. The representations and warranties of
Seller contained in this Agreement shall be true in all material respects when
made and, when read in light of any Schedules which have been attached to this
Agreement or updated in accordance with the provisions of Section 12.1, as of
the Closing Date as though such representations and warranties had been made on
and as of the Closing Date. Each and all of the terms, covenants, and conditions
of this Agreement to be complied with or performed by Seller on or before the
Closing Date pursuant to the terms hereof shall have been duly complied with and
performed in all material respects.

      7.2. PRE-CLOSING CONFIRMATIONS. Buyer shall have obtained documentation or
other evidence satisfactory to Buyer in its reasonable judgment that Buyer:

            (a) Has received or will receive approval from all Government
Entities whose approval is required to complete the transactions herein
contemplated, as specified on Schedule 7.2(a);

            (b) Has received or will receive written confirmation or reasonable
assurance from all applicable licensure agencies that upon the Closing all
material licenses required by law to operate the Facilities as currently
operated will, if required by law, be transferred to, or issued or reissued in
the name of, the Buyer Entities, as specified on Schedule 7.2(b); and

                                       45



            (c) Has obtained or will obtain reasonable assurances that Medicare
and Medicaid certification of the Facilities for their operation by Buyer
Entities will not be denied or withheld effective as of the Closing and that
Buyer Entities will not be barred or prohibited from participating in and
receiving reimbursement from such programs effective as of the Closing, provided
that Buyer acknowledges that Buyer Entities will not be able to receive
reimbursement until a tie-in notice is provided to the Facility's fiscal
intermediary by CMS.

      7.3. TITLE POLICY. Buyer shall have received a pro forma of the Title
Policy (or marked Title Commitment reasonably satisfactory to Buyer) from the
Title Company insuring to Buyer Entities good and marketable fee simple title to
the Owned Real Property and leasehold title to any Material Leased Real Property
for which Buyer has determined to obtain leasehold coverage, subject only to (i)
the Permitted Encumbrances, and (ii) taxes for the current and subsequent years
"not yet due and payable." The Title Policy shall be issued on an ALTA Form 1992
Owner's Title Policy in an amount equal to the portion of the Purchase Price
allocated to the Real Property insured thereby, shall have all standard and
general exceptions deleted so as to afford full "extended form coverage" and
shall contain such endorsements thereto as Buyer may reasonably require after
review of the Title Commitment and the Surveys.

      7.4. ACTIONS/PROCEEDINGS. No action or proceeding shall have been
instituted or threatened by a Government Entity to restrain or prohibit the
transactions herein contemplated, and no Government Entity shall have taken any
other action that materially jeopardizes the parties' ability to proceed with
the transactions hereunder.

      7.5. ADVERSE CHANGE. No material adverse change in the aggregate results
of operations, financial condition, business or prospects of the Facilities
shall have occurred since the Balance Sheet Date, and no material change, loss
or damage to the Purchased Assets, whether or not covered by insurance, shall
have occurred.

      7.6. INSOLVENCY. Seller and Seller Entities shall not (a) be in
receivership or dissolution, (b) have made any assignment for the benefit of
creditors, (c) have admitted in writing their inability to pay their debts as
they mature, (d) have been adjudicated a bankrupt, or (e) have filed a petition
in voluntary bankruptcy, a petition or answer seeking reorganization, or an
arrangement with creditors under the federal bankruptcy law or any other similar
law or statute of the United States or any state, nor shall any such petition
have been filed against Seller or Seller Entities.

      7.7. OPINION OF COUNSEL TO SELLER. Buyer shall have received an opinion
from counsel to Seller dated as of the Closing Date and addressed to Buyer, in
form and substance reasonably satisfactory to counsel for Buyer, covering the
matters set forth in Exhibit N.

      7.8. REQUIRED CONSENTS. Prior to the Closing Date, Seller shall send to
all third-party entities which are parties to the Assumed Contracts requiring
consent to assignment a request for such consent. Seller shall have obtained all
consents, waivers and estoppels of third parties that are material to the
consummation of the transactions contemplated in this Agreement (collectively,
the "Material Consents") as specified in Schedule 7.8. The Material Consents
shall be in form and substance reasonably satisfactory to Buyer.

                                       46



      7.9. VESTING/RECORDATION. Seller shall have furnished to Buyer, in form
and substance reasonably satisfactory to Buyer, assignments or other instruments
of transfer and consents and waivers by others, required to transfer to and
effectively vest in Buyer all right, title, and interest in and to the Purchased
Assets, in proper statutory form for recording if such recording is necessary or
appropriate.

8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER. Notwithstanding anything
herein to the contrary, the obligations of Seller to consummate the transactions
described herein are subject to the fulfillment, on or prior to the Closing
Date, of the following conditions precedent unless (but only to the extent)
waived in writing by Seller at the Closing:

      8.1. REPRESENTATIONS/WARRANTIES. The representations and warranties of
Buyer contained in this Agreement shall be true in all material respects when
made and, when read in light of any Schedules which have been attached to this
Agreement or updated in accordance with the provisions of Section 12.1, as of
the Closing Date as though such representations and warranties had been made on
and as of such Closing Date. Each and all of the terms, covenants, and
conditions of this Agreement to be complied with or performed by Buyer on or
before the Closing Date pursuant to the terms hereof shall have been duly
complied with and performed in all material respects.

      8.2. GOVERNMENTAL APPROVALS. Seller or Seller Entities shall not have
received any written notice that any material consent, authorization, order or
approval of (or filing or registration with) any Government Entity or other
party required in connection with the execution, delivery and performance of
this Agreement shall not be forthcoming.

      8.3. ACTIONS/PROCEEDINGS. No action or proceeding shall have been
instituted or threatened by a Government Entity to restrain or prohibit the
transactions herein contemplated, and no Government Entity shall have taken any
other action that materially jeopardizes the parties' ability to proceed with
the transactions hereunder.

      8.4. INSOLVENCY. Buyer and Buyer Entities shall not (a) be in receivership
or dissolution, (b) have made any assignment for the benefit of creditors, (c)
have admitted in writing their inability to pay their debts as they mature, (d)
have been adjudicated a bankrupt, or (e) have filed a petition in voluntary
bankruptcy, a petition or answer seeking reorganization, or an arrangement with
creditors under the federal bankruptcy law or any other similar law or statute
of the United States or any state, nor shall any such petition have been filed
against Buyer or Buyer Entities.

      8.5. OPINION OF COUNSEL TO BUYER. Seller shall have received an opinion
from counsel to Buyer dated as of the Closing Date and addressed to Seller, in
form and substance reasonably satisfactory to counsel for Seller, covering the
matters set forth in Exhibit O.

9. SELLER'S COVENANT NOT TO COMPETE. Seller hereby covenants that at all times
from the Closing Date until the fifth (5th) anniversary of the Closing Date,
Seller and its Affiliates shall not, directly or indirectly, except as a
consultant or contractor to or of Buyer (or any Affiliate of Buyer), or except
as provided in the Introduction, own, lease, manage, operate, control, or
participate in any manner with the ownership, lease, management, operation or
control of any business which offers

                                       47



health care services in competition with the Facilities, including, but not
limited to, any acute care hospital, specialty hospital, rehabilitation
facility, diagnostic imaging center, inpatient or outpatient psychiatric or
substance abuse facility, ambulatory or other type of surgery center, nursing
home, skilled nursing facility, home health or hospice agency, or physician
clinic or physician medical practice (any of such uses being referred to herein
as a "Competing Business"), within a ten-mile radius of the location of each
Hospital as of the Execution Date (the "Restricted Area"), without Buyer's prior
written consent (which Buyer may withhold in its sole and absolute discretion);
provided, however, that Seller and its Affiliates will not be precluded from
participating in activities which promote health care services for residents of
the communities historically served by Seller or its Affiliates, so long as
Seller or its Affiliate does not make direct monetary payment to a Competing
Business within the Restricted Area (other than to Strategic Health Care
Businesses if and for so long as the same are the subject and included within a
Strategic Facility Agreement and other than to Independent Health Care
Businesses if and for so long as the same are the subject and included within a
Independent Facility Agreement); provided further, however, that Seller and its
Affiliates will not be precluded from making direct monetary payments to a
Competing Business within the Restricted Area if the Hospital (the location of
which defines the Restricted Area) ceases to be owned or operated by Buyer or
its Affiliates; provided, further, however, that Seller and its Affiliates will
not be precluded from making direct monetary payments to a Competing Business
within the Restricted Area to support the Competing Business' provision of
health care to the medically underserved, to support the Competing Business'
conduct and undertaking of medical education, and/or to support the Competing
Business' sponsorship of medical research. In the event of a breach of this
Section 9, Seller recognizes that monetary damages shall be inadequate to
compensate Buyer and Buyer shall be entitled, without the posting of a bond or
similar security, to an injunction restraining such breach, with the costs
(including attorneys' fees) of securing such injunction to be borne by Seller.
Nothing contained herein shall be construed as prohibiting Buyer from pursuing
any other remedy available to it for such breach or threatened breach. Each
party hereto hereby acknowledges the necessity of protection against the
competition of Seller and its Affiliates and that the nature and scope of such
protection has been carefully considered by the parties. Seller further
acknowledges and agrees that the covenants and provisions of this Section 9 form
part of the consideration under this Agreement and are among the inducements for
Buyer entering into and consummating the transactions contemplated herein. The
period provided and the area covered are expressly represented and agreed to be
fair, reasonable and necessary. The consideration provided for herein is deemed
to be sufficient and adequate to compensate for agreeing to the restrictions
contained in this Section 9. If, however, any court determines that the
foregoing restrictions are not reasonable, such restrictions shall be modified,
rewritten or interpreted to include as much of their nature and scope as will
render them enforceable.

10. ADDITIONAL AGREEMENTS.

      10.1. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated
among Seller and Seller Entities and classes of Purchased Assets in accordance
with and as provided by Section 1060 of the Code. Within thirty (30) days prior
to the Closing, Buyer shall provide Seller with a preliminary allocation of the
Purchase Price for Seller's review and approval, which approval Seller shall not
unreasonably withhold or delay. Within ninety (90) days after the Closing, Buyer
shall provide Seller with a revised allocation of the Purchase Price for
Seller's review and approval, which

                                       48



approval Seller shall not unreasonably withhold or delay. The parties agree that
any tax returns or other tax information that they may file or cause to be filed
with any governmental agency shall be prepared and filed consistently with such
agreed upon allocation. In this regard, the parties agree that, to the extent
required, they will each properly prepare and timely file Form 8594 in
accordance with Section 1060 of the Code.

      10.2. TERMINATION PRIOR TO CLOSING.

            (a) Notwithstanding anything herein to the contrary, this Agreement
may be terminated at any time: (i) on or prior to the Closing Date by mutual
consent of Seller and Buyer; (ii) by Buyer if any of the conditions in Section 7
have not been satisfied as of the Closing Date or if satisfaction of any
condition in Section 7 is or becomes impossible and Buyer has not waived such
condition in writing on or before the Closing Date (provided that the failure to
satisfy the applicable condition or conditions has occurred by reason other than
(a) through the failure of Buyer to comply with its obligations under this
Agreement or (b) Seller's failure to provide its closing deliveries on the
Closing Date is a result of Buyer not being ready, willing and able to close the
transaction on the Closing Date); (iii) by Seller if any of the conditions in
Section 8 have not been satisfied as of the Closing Date or if satisfaction of
any such condition in Section 8 is or becomes impossible and Seller has not
waived such condition in writing on or before the Closing Date (provided that
the failure to satisfy the applicable condition or conditions has occurred by
reason other than (a) through the failure of Seller to comply with its
obligations under this Agreement or (b) Buyer's failure to provide its closing
deliveries on the Closing Date is a result of Seller not being ready, willing
and able to close the transaction on the Closing Date); (iv) by Buyer or Seller
if the Closing Date shall not have taken place by August 31, 2004 (which date
may be extended to September 30, 2004 by mutual agreement of Buyer and Seller if
they believe that the Closing is imminent); or (v) by either Seller or Buyer
pursuant to Section 12.1.

            (b) If this Agreement is terminated pursuant to Section 10.2(a), (a)
all further obligations of the parties under this Agreement shall terminate,
except that the obligations in Sections 12.6, 12.9, 12.10, and 12.11 shall
survive, (b) each party shall pay the costs and expenses incurred by it in
connection with this Agreement, except as provided in Section 12.9, and (c)
nothing shall prevent either party hereto from pursing any of its legal rights
or remedies that may be granted to any such party by law against the other party
to this Agreement.

      10.3. POST CLOSING ACCESS TO INFORMATION. Seller and Buyer acknowledge
that subsequent to Closing each party may need access to information or
documents in the control or possession of the other party for the purposes of
concluding the transactions herein contemplated, audits, compliance with
governmental regulations, the prosecution or defense of third party or other
claims and for other reasonable and legitimate business purposes. Accordingly,
Seller and Buyer agree that for a period of six (6) years after Closing, or
ninety (90) days after the expiration of the applicable statute of limitations
(if the information or documents relate to a patient not of majority age when
treated), whichever is longer, each will make available to the other's agents,
independent auditors and counsel within ten (10) days after receipt of the other
party's written request and at the expense of the requesting party such
documents and information as may be available relating to the Purchased Assets
for periods prior and subsequent to Closing to the extent necessary to
facilitate concluding the

                                       49



transactions herein contemplated, audits, compliance with governmental
regulations, the prosecution or defense of claims and other reasonable and
legitimate business purposes.

      10.4. PRESERVATION AND ACCESS TO RECORDS AFTER THE CLOSING. After the
Closing, Buyer shall, in the ordinary course of business and for no less than
the period required by law, keep and preserve in their original form all medical
and other records of the Facilities existing as of the Closing, and which
constitute a part of the Purchased Assets delivered to the Buyer Entities at the
Closing. For purposes of this Agreement, the term "records" includes all
documents, electronic data and other compilations of information in any form.
Buyer acknowledges that as a result of entering into this Agreement and
operating the Facilities it and Buyer Entities will gain access to patient and
other information which is subject to rules and regulations regarding
confidentiality. Buyer agrees to abide by, and to cause Buyer Entities to abide
by, any such rules and regulations relating to the confidential information it
or they acquire. Buyer further agrees to maintain, and to cause Buyer Entities
to maintain, the patient records delivered to Buyer Entities at the Closing at
the Facilities after Closing in accordance with applicable law (including, if
applicable, Section 1861(v)(i)(I) of the Social Security Act (42 U.S.C.
Section 1395(v)(l)(i)), the privacy requirements of HIPAA and applicable state
requirements with respect to medical privacy and requirements of relevant
insurance carriers, all in a manner consistent with the maintenance of patient
records generated at the Facilities after Closing to the extent such maintenance
rules are consistent with applicable laws. No later than ten (10) days after
Buyer's receipt of written notice from Seller or Seller Entity Organization and
appropriate consents and authorizations, Buyer will afford, during normal
business hours, to the representatives of Seller, including its counsel and
accountants, full and complete access to, and copies of, the records transferred
to Buyer and Buyer Entities at the Closing (including, without limitation,
access to patient records in respect of patients treated by Seller Entities at
the Facilities). No later than ten (10) days after Buyer's receipt of written
notice, Buyer shall also make available to Seller and Seller Entity
Organizations at their sole cost and expense, the officers and employees of
Buyer Entities at reasonable times and places after the Closing. In addition,
Seller and Seller Entities shall be entitled, at their sole risk, to remove from
the Facilities copies of any such patient records, but only for legitimate
business purposes, including a governmental investigation or pending litigation
involving a patient to whom such records refer, as certified in writing prior to
removal by counsel retained by Seller or Seller Entities in connection with such
business purpose and, if required by law, also upon Buyer's receipt of
appropriate consents and authorizations. Seller or Seller Entities shall
promptly following their use return to Buyer or Buyer Entity any patient records
they may remove from the Facilities. Any access to the Facilities, their records
or the Buyer Entities' personnel granted to Seller in this Agreement shall be
upon the condition that any such access not materially interfere with the
business operations of Buyer Entities.

      10.5. CON DISCLAIMER. This Agreement shall not be deemed to be an
acquisition or obligation of a capital expenditure or of funds within the
meaning of the certificate of need statute of any state, until the appropriate
governmental agencies shall have granted a certificate of need or the
appropriate approval or ruled that no certificate of need or other approval is
required.

      10.6. TAX AND MEDICARE EFFECT. None of the parties (nor such parties'
counsel or accountants) has made or is making any representations to the other
party (nor such party's counsel or accountants) concerning any of the tax or
Medicare effects of the transactions provided for in this

                                       50



Agreement as each party hereto represents that each has obtained, or may obtain,
independent tax and Medicare advice with respect thereto and upon which it, if
so obtained, has solely relied.

      10.7. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating
hereto, including, without limitation, (a) consents, waivers and modifications
which may hereafter be executed, (b) the documents delivered at the Closing, and
(c) financial statements, certificates and other information previously or
hereafter furnished to Seller or to Buyer, may, subject to the provisions of
Section 12.10, be reproduced by Seller and by Buyer by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process. Seller and Buyer agree and stipulate that any such reproduction shall
be admissible in evidence as the original itself in any judicial, arbitral or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by Seller or Buyer in the regular
course of business) and that any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence.

      10.8. COOPERATION ON TAX MATTERS.

            (a) Following the Closing, the parties shall cooperate fully with
each other and shall make available to each other, as reasonably requested and
at the expense of the requesting party, and to any taxing authority, as
reasonably requested and at the expense of the requesting party, all
information, records or documents relating to tax liabilities or potential tax
liabilities of Seller for all periods on or prior to the Closing and any
information which may be relevant to determining the amount payable under this
Agreement, and shall preserve all such information, records and documents (to
the extent a part of the Purchased Assets delivered to the Buyer Entities at
Closing) at least until the expiration of any applicable statute of limitations
or extensions thereof.

            (b) Buyer and Seller agree to follow the standard procedure for
preparing and filing specified employer tax returns and employee information
returns as established in Revenue Procedure 96-60, modifying and superceding
84-77. Seller agrees to make any and all necessary information in its possession
or under its control available to Buyer with respect to predecessor wages
considered as having been paid by the successor under Section 3121(a)(1) for
purposes of determining whether the successor employer has paid remuneration
with respect to the contribution and benefit base (as determined under section
230 of the Social Security Act).

            (c) Buyer and Seller agree to follow the standard procedure for
preparing and filing information returns as established by Revenue Procedure
99-50.

      10.9. COST REPORTS. Seller, at its sole cost and expense, shall prepare
and timely file or cause to be prepared and timely filed all terminating and
other cost reports required or permitted by law to be filed under the Medicare
and Medicaid or other third party payor programs and the State Health Agency for
periods ending on or prior to the Closing Date, or as a result of the
consummation of the transactions described herein (the "Seller Cost Reports").
Seller shall submit to Buyer for Buyer's review and approval (such approval not
to be unreasonably withheld or delayed), the terminating Seller Cost Report
relating to each Facility, at least ten (10) business days prior to the intended
filing date of such terminating Seller Cost Report. Buyer shall give to Seller
its comments

                                       51



to the Seller Cost Reports within five (5) business days after its receipt of
the same. Buyer shall forward, and shall cause Buyer Entities to forward, to
Seller any and all correspondence relating to the Seller Cost Reports within
five (5) business days after receipt by Buyer or Buyer Entities. Buyer shall
remit any receipts of funds relating to the Seller Cost Reports within ten (10)
business days after receipt by Buyer or Buyer Entities and shall forward to
Seller any demand for payments within three (3) business days after receipt by
Buyer. Seller shall retain all rights to the Seller Cost Reports including any
amounts receivable or payable in respect of such reports or reserves relating to
such reports. Such rights shall include the right to appeal any Medicare or
Medicaid determinations relating to the Seller Cost Reports. Seller shall retain
the originals of the Seller Cost Reports, correspondence, work papers and other
documents relating to the Seller Cost Reports. Seller will furnish copies of
such cost reports, correspondence, work papers and other documents relating to
the Seller Cost Reports to Buyer upon Buyer's written request and at Buyer's
cost.

      10.10. MISDIRECTED PAYMENTS, ETC. Seller and Buyer each covenants and
agrees to remit, with reasonable promptness (but no later than ten (10) business
days after its receipt), to the other any payments received, which payments are
on or in respect of accounts or notes receivable owned by (or are otherwise
payable to) the other. In addition, and without limitation, in the event of a
determination by any governmental or third-party payor that payments to Seller
Entities or the Facilities resulted in an overpayment or other determination
that funds previously paid by any program or plan to Seller Entities or the
Facilities must be repaid, Seller shall be responsible for repayment of said
monies (or defense of such actions) if such overpayment or other repayment
determination was for services rendered prior to the Closing Date and Buyer
shall be responsible for repayment of said monies (or defense of such actions)
if such overpayment or other repayment determination was for services rendered
on or after the Closing Date. In the event that, following the Closing, Buyer
suffers any offsets against reimbursement under any third-party payor or
reimbursement programs due to Buyer, relating directly to amounts owing under
any such programs by Seller or any Seller Entity Organization, Seller shall
promptly upon demand from Buyer pay to Buyer the amounts so billed or offset
after Seller determines to its reasonable satisfaction that the offsets suffered
by Buyer relate directly to amounts owed by Seller or Seller Entities under any
such programs; conversely, in the event that following the Closing, Seller
suffers any offsets against reimbursement under any third-party payor or
reimbursement programs due to Seller, relating directly to amounts owing under
any such programs by Buyer or Buyer Entities, Buyer shall promptly upon demand
from Seller pay to Seller the amounts so billed or offset after Seller
determines to its reasonable satisfaction that the offsets suffered by Seller
relate directly to amounts owed by Buyer or Buyer Entities under any such
programs.

      10.11. EMPLOYEE MATTERS. As of the Closing Date, Seller shall, and shall
cause the Seller Entities to, terminate all of their employees who are not
parties to written employment agreements with Seller or Seller Entities, and
Buyer shall cause the Buyer Entities to offer to hire all active employees of
Seller and Seller Entities who are not parties to written employment agreements
with Seller or Seller Entities (including those employees then on approved FMLA
leaves of absence, leaves for workers' compensation of up to 12 weeks, or leaves
of absence that do not extend beyond thirty (30) days) as of the Closing Date in
positions equivalent to and at compensation levels consistent with those
maintained or provided by Seller and Seller Entities immediately prior to the
Closing Date. Notwithstanding the foregoing, Buyer reserves the right to permit
a Buyer Entity not

                                       52



to hire any individual employee for cause (i.e., with a legitimate and legally
permissible reason with respect to such employee's job performance or conduct),
upon reasonable advance written notice to Seller and the employee (but no later
than five (5) business days prior to the Closing Date). Other than the
obligation stated herein to offer to hire all active employees on the terms and
conditions stated herein, and the obligation to comply with the requirements of
the WARN Act, nothing herein shall be deemed to affect or limit in any way
normal management prerogatives of Buyer with respect to employees or to create
or grant to any such employees third party beneficiary rights or claims of any
kind or nature. Notwithstanding anything to the contrary in this Agreement,
within the period of ninety (90) days before the Closing, Seller and Seller
Entities shall not, and within the ninety (90) days following the Closing, Buyer
and Buyer Entities shall not: (1) permanently or temporarily shut down a single
site of employment, or one or more facilities or operating units within a single
site of employment, if the shutdown results in an employment loss during any
thirty (30) day period at the single site of employment for fifty (50) or more
employees, excluding any part-time employees; or (2) have a mass layoff at a
single site of employment of at least thirty-three percent (33%) of the active
employees and at least fifty (50) employees, excluding part-time employees. The
terms "single site of employment," "operating unit," "employment loss" and "mass
layoff" shall be defined as in the WARN Act. With respect to terminations of or
a refusal to rehire employees following the Closing, Buyer Entities shall be
responsible for any notification required under the WARN Act. In respect of the
employees employed by Buyer Entities, Buyer Entities shall provide such
employees with employee benefits consistent with the benefits generally offered
to employees of Affiliates of Buyer in the same or comparable geographic area in
which the Facilities are located and, to the extent Seller and Seller Entities
have qualified retirement programs for such employees, Buyer and Buyer Entities
shall recognize the existing seniority of all such employees for benefits
purposes and shall provide credit under such plans for purposes of determining
eligibility and vesting and the rate of benefit accrual (but not actual benefit
accrual); provided, however, no such credit need be given in respect of any new
plan commenced or participated in by Buyer Entities in which no prior service
credit is given or recognized to or for other plan beneficiaries. In extending
such benefits, Buyer and Buyer Entities shall waive pre-existing conditions
limitations in their welfare benefit plans which might otherwise apply to such
employees except to the extent employees have not satisfied such limitations
under the current welfare benefit plans of Seller and Seller Entities.

      10.12. GOVERNANCE AND MANAGEMENT. For a period of at least five (5) years
following the Closing, Buyer Entities will appoint a Board of Trustees for each
Hospital (the "Board of Trustees") comprised of the Hospital's Chief Executive
Officer, Chief of the Medical Staff, physicians on the Hospital's medical staff
and local community members. A majority of the members of the Board of Trustees
shall consist of individuals who are not employees of Buyer or Buyer Entity
Organizations. The Board of Trustees shall meet on a regular basis and, as more
fully set forth in the Hospital's bylaws, shall have the following
responsibilities:

            (a) adopting a vision, mission and values statement;

            (b) participating in development and review of operating and capital
budgets and facility planning (Buyer reserving ultimate authority for budgets
and planning);

                                       53



            (c) participating in periodic (but no less frequently than annual)
evaluations of the Chief Executive Officer of the Hospital;

            (d) discontinuing, or substantially reducing in size or scope, an
essential service of the Hospital;

            (e) granting medical staff membership and privileges and, when
necessary, taking disciplinary action consistent with the Hospital and Medical
Staff Bylaws (with the advice of counsel);

            (f) assuring medical staff compliance with JCAHO or AOA requirements
(with the advice of counsel);

            (g) supporting physician recruitment efforts; and

            (h) fostering community relations and identifying service and
educational opportunities.

      10.13. INDIGENT CARE POLICIES. For a period of at least five (5) years
following the Closing, Buyer Entities shall adopt and maintain as the indigent
care policies of the Hospitals, Seller's or Seller Entities' current or proposed
indigent care policies for the Hospitals (or new policies that are intended to
provide a similar or greater benefit to the community). Seller's or Seller
Entities' current or proposed indigent care policies for the Hospitals are
attached as Exhibit P. Buyer Entities shall cause each Hospital to treat any
patient presented to the emergency room who has a medical emergency or who, in
the judgment of a staff physician, has an immediate emergency need. No such
patient will be turned away because of age, race, gender or inability to pay.
Buyer Entities shall cause the Hospitals to continue to participate in the
Medicare and Medicaid programs. This covenant shall be further subject to
changes in applicable law (e.g., if legislation is passed permitting hospitals
to render lower levels of indigent care, providing for universal health coverage
or imposing on hospitals a tax in lieu of the provision of indigent care).

        10.14. CONTINUATION OF SERVICES. For a period of at least five (5) years
following the Closing, Buyer Entities will continue to operate each Hospital as
a general acute care facility licensed by the State of Oklahoma, and use their
best efforts to maintain each Hospital's JCAHO or AOA accreditation. For a
period of at least five (5) years following the Closing, Buyer Entities shall
continue to operate all essential services offered at each Hospital by a Seller
Entity as of the Closing Date, subject to (i) the availability of qualified
physicians in the community, (ii) such changes as may be necessary or
appropriate based on community needs, and (iii) economic feasibility. No
essential service may be discontinued, or substantially reduced in size or
scope, without the prior written approval of the Board of Trustees of the
Hospital, except for any consolidation of essential services among the Metro
Hospitals.

      10.15. CAPITAL EXPENDITURES. During the first five (5) years following the
Closing, Buyer shall expend One Hundred Million Dollars ($100,000,000) for
capital expenditures for the Facilities, including, without limitation, funds
for new equipment, equipment replacement, facility renovations, new facilities,
medical office space, development of new services, quality improvement programs,

                                       54



physician recruitment and other capital improvements. In addition, Buyer will
make a good faith analysis of the need for certain projects identified by Seller
in its current capital plan, including the construction of a heart hospital and
an orthopaedic center, and the expansion of the women's center, and will issue
prior to the Closing at a time mutually agreed to by the parties, communications
in support of those projects for which it determines there is a need, subject to
such limitations as it deems prudent, including the availability of funds. If
Buyer or a Buyer Entity enters into a Lease Agreement for the lease of Cushing
Regional Hospital, Buyer shall expend, and shall state in its Lease Agreement
for Cushing Regional Hospital its agreement to expend, approximately Two Million
Four Hundred Thousand Dollars ($2,400,000) for a proposed major renovation and
expansion project for and on behalf of Cushing Regional Hospital and
approximately Seven Million Dollars ($7,000,000) for the proposed OU Family
Practice Medical Office Building. Buyer will not count the heart hospital
project, if undertaken, toward its $100,000,000 capital expenditures commitment.

      10.16. RESIDENCY PROGRAMS. For a period of at least five (5) years
following the Closing, Buyer shall cause Buyer Entities to continue the
residency programs of Seller Entities in their current or comparable form,
subject to the continuation of the current arrangements with the programs'
medical schools or other sponsors and no significant adverse change in
government reimbursement.

      10.17. GRANDFATHERING OF MEDICAL STAFFS. Immediately following the
Closing, there will be no change or modification to the current medical staff
membership of, or staff privileges for, physicians in good standing on the
medical staff of each Hospital; provided, however, that the consummation of the
transactions contemplated hereby will not limit the ability of the Board of
Trustees or medical executive committee of each Hospital to grant, withhold or
suspend medical staff appointments or clinical privileges in accordance with the
terms and provisions of the medical staff bylaws of the applicable Hospital.
More particularly, in order to ensure a smooth transition for the medical staff
of each Hospital, Buyer shall cause the Board of Trustees of each Hospital,
concurrently with the Closing to (i) appoint all of the physicians who are on
the medical staff of the Hospital immediately prior to the Closing (the
"Physicians") to the medical staff, in their then current categories; (ii) grant
all of the Physicians their then current clinical privileges; (iii) establish
the same medical staff sections and departments, where applicable; (iv) appoint
to the positions of Chiefs and Assistant Chiefs of Section and Department
Chairmen the Physicians who hold the positions immediately prior to the Closing;
(v) take no action to change any of the staff committees or their functions;
(vi) take no action to change any of the staff officers or committee members;
(vii) adopt the then current bylaws and incorporated documents, rules and
regulations of the medical staff of each Hospital; and (viii) adopt the then
currently proposed changes to the bylaws and incorporated documents, rules and
regulations of the medical staff, if then approved by the Hospital's medical
staff. Notwithstanding the foregoing, nothing herein shall prevent Buyer or
Buyer Entities from making changes or modifications to any of the foregoing
after a reasonable time subsequent to the Closing.

      10.18. USE OF CONTROLLED SUBSTANCE PERMITS. To the extent permitted by
applicable law, Buyer Entities shall have the right, for a period not to exceed
one hundred twenty (120) days following the Closing Date, to operate under the
licenses and registrations of Seller Entities relating to controlled substances
and the operations of pharmacies and laboratories, until Buyer Entities are

                                       55



able to obtain such licenses and registrations for themselves. In furtherance
thereof, Seller Entities shall execute and deliver to Buyer Entities at or prior
to the Closing limited powers of attorney substantially in the form of Exhibit
K. Under the limited powers of attorney, Buyer Entities shall have sole
responsibility and liability for the dispensing of controlled substances and for
the operation of the pharmacies and laboratories and shall agree to indemnify
and hold harmless Seller Entities against any and all losses, liabilities,
damages, costs and expenses that Seller Entities may incur as a result of the
actions that Buyer Entities, or their respective directors, officers,
principals, attorneys, employees agents or other representatives, may take or
fail to take under and pursuant to the limited powers of attorney. This covenant
to indemnify and hold harmless is independent of the agreement to indemnify and
hold harmless contained in Section 11.1 and is not subject to the limitations on
indemnification contained in Section 11.2.

      10.19. FINANCIAL STATEMENTS. Seller agrees, upon the request of Buyer, and
at Buyer's sole cost and expense, to cooperate and to use its good faith,
commercially reasonable efforts to assist Buyer in its efforts to obtain the
issuance to Buyer of audited financial statements of Seller Entities, with an
unqualified opinion of Seller's independent auditors, together with any other
financial statements or information that can reasonably be expected to be
required by Buyer to fully comply with Regulation S-X promulgated by the
Securities and Exchange Commission.

      10.20. LOCKBOX ACCOUNTS. Effective as of the Closing Date, Seller shall
transfer to, and otherwise vest in, Buyer the exclusive right to receive the
funds swept from Seller's lockbox accounts or other depository accounts for the
purpose of receiving the Accounts Receivable, and shall instruct the bank which
maintains such lockbox accounts or other depository accounts to transfer
automatically each business day all available funds held in the such lockbox
accounts or other depository accounts to an account designated by Buyer. If
Seller or any Seller Entity comes into possession of any payments with respect
to any Accounts Receivable, it shall deposit such payments into the lockbox
accounts or other depository accounts. The parties acknowledge and agree that,
following the Closing, Buyer or its designees shall have sole dominion and
control over the lockbox accounts or other depository accounts, including,
without limitation, the exclusive right to revoke any instructions given to the
bank that maintains the lockbox accounts or other depository accounts and the
exclusive right to cancel or change the automatic transfer instructions related
to the lockbox accounts or other depository accounts.

      10.21. SUBSEQUENT SALE. If Buyer decides to sell, merge, or otherwise
transfer or consolidate any of the Hospitals during a period when Buyer or Buyer
Entity is performing any operating covenants pursuant to Sections 10.12, 10.13,
10.14, 10.15 and 10.16, Buyer shall ensure that such subsequent owner of the
applicable Hospital agrees to fulfill Buyer's obligations under each of Sections
10.12, 10.13, 10.14, 10.15 and 10.16, as applicable.

      10.22. NOTIFICATION OF CERTAIN MATTERS.

            (a) On the Execution Date, Seller has no knowledge of any fact that
would cause Buyer to be in breach of any of Buyer's representations, warranties,
covenants, undertakings or other agreements contained in this Agreement. At any
time from the Execution Date to the Closing Date, Seller shall give prompt
written notice to Buyer of (i) the occurrence, or failure to occur, of any event

                                       56



that has caused any representation or warranty of Seller contained in this
Agreement to be untrue in any material respect and (ii) any failure of Seller to
comply with or satisfy, in any material respect, any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement. Such
notice shall provide a reasonably detailed description of the relevant
circumstances. In addition, at any time from the Execution Date to the Closing
Date, Seller shall give prompt written notice to Buyer if Seller becomes aware
of the breach by Buyer of any of Buyer's representations, warranties, covenants,
undertakings or other agreements contained in this Agreement, but Seller's
knowledge shall not affect any right of Seller to possible indemnification
hereunder.

            (b) On the Execution Date, Buyer has no knowledge of any fact that
would cause Seller to be in breach of any of Seller's representations,
warranties, covenants, undertakings or other agreements contained in this
Agreement. At any time from the Execution Date to the Closing Date, Buyer shall
give prompt written notice to Seller of (i) the occurrence or failure to occur,
of any event that has caused any representation or warranty of Buyer contained
in this Agreement to be untrue in any material respect and (ii) any failure of
Buyer to comply with or satisfy, in any material respect, any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Such notice shall provide a reasonably detailed description of the
relevant circumstances. In addition, at any time from the Execution Date to the
Closing Date, Buyer shall give prompt written notice to Seller if Buyer becomes
aware of the breach by Seller of any of Seller's representations, warranties,
covenants, undertakings or other agreements contained in this Agreement, but
Buyer's knowledge shall not affect any right of Buyer to possible
indemnification hereunder.

      10.23. USE OF NAMES. Buyer shall not, and shall cause the Buyer Entities
to not, use the name or reputation "Hillcrest HealthCare System", "Hillcrest" or
any variation thereof in any manner that would cause Seller or any Seller Entity
Organization to be in breach or violation of its obligations under and pursuant
to that certain Asset Purchase Agreement by and among Apria Healthcare Inc.,
Hillcrest Outpatient Medical Equipment and Supply Company and Hillcrest
HealthCare System, dated July 31, 2001, or that certain Non-Competition and
Confidentiality Agreement by and between Hillcrest HealthCare System and Apria
Healthcare, Inc., dated July 31, 2001.

      10.24. BUYER'S POST-CLOSING INSURANCE OBLIGATIONS. Buyer, at its sole cost
and expense, shall, and shall cause Buyer Entities to, obtain and keep in full
force and effect insurance coverage on the Facilities and the Purchased Assets.
Such insurance coverage shall be underwritten by reputable insurance companies,
shall insure against liabilities and losses customarily insured against by
hospitals and health systems that own assets similar to the Facilities and the
Purchased Assets, and shall have liability limits customary for hospitals and
health systems that own assets similar to the Facilities and the Purchased
Assets.

      10.25. REPAIRS. Between the Execution Date and the Closing Date, Seller
shall use its commercially reasonable best efforts to perform the work described
on Schedule 10.25, for which it has segregated and set aside Seven Hundred Forty
Thousand Dollars ($740,000) to perform. If Seller completes the work described
on Schedule 10.25, it shall keep the difference between Seven Hundred Forty
Thousand Dollars ($740,000) and the amount it expended to perform the work , if
any. If Seller fails to complete the work described on Schedule 10.25, it shall
pay to Buyer the

                                       57



difference between Seven Hundred Forty Thousand Dollars ($740,000) and the
amount it expended to perform the work, if any, through an adjustment to working
capital. To the extent Seller performs the work described on Schedule 10.25,
Seller shall have no liability to indemnify the Buyer Indemnified Parties (as
defined in Section 11.3) under Section 11.3 and no claim by the Buyer
Indemnified Parties shall be made to the extent that such claim relates to the
object of the work performed or to the work itself performed.

11. INDEMNIFICATION.

      11.1. INDEMNIFICATION BY BUYER. Subject to the limitations set forth in
Section 11.2, Buyer shall defend, indemnify and hold harmless Seller and its
Affiliates, and its and their respective directors, officers, principals,
attorneys, employees, agents or other representatives (collectively, the "Seller
Indemnified Parties"), from and against any and all losses, liabilities,
damages, costs (including, without limitation, court costs and costs of appeal)
and expenses (including, without limitation, reasonable attorneys' fees and fees
of expert consultants and witnesses) (collectively, the "Seller Losses") that
such Seller Indemnified Party incurs as a result of, or with respect to (i) any
misrepresentation or breach of warranty by Buyer under this Agreement, (ii) any
breach by Buyer or an Affiliate of, or any failure by Buyer or an Affiliate to
perform, any covenant or agreement of, or required to be performed by, Buyer or
an Affiliate under this Agreement, (iii) any of the Assumed Liabilities, or (iv)
any claim made by a third party with respect to the operation of the Facilities
or the Purchased Assets on or after the Closing Date. No provision in this
Agreement shall prevent Buyer from pursing any of its legal rights or remedies
that may be granted to Buyer by law against any person or legal entity other
than Seller and its Affiliates.

      11.2. LIMITATIONS ON INDEMNIFICATION BY BUYER.

            (a) Notwithstanding any provision to the contrary contained in this
Agreement, Buyer shall be under no liability to indemnify the Seller Indemnified
Parties under Section 11.1 and no claim under Section 11.1 shall: (i) be made to
the extent that such claim relates to a liability of the Seller Indemnified
Parties arising out of or relating to any act, omission, event or occurrence
connected with: (A) the use, ownership or operation of any of the Facilities
prior to the Closing Date, or (B) the use, operation or ownership of any of the
Purchased Assets prior to the Closing Date, other than as specifically included
in the Assumed Liabilities; (ii) be made to the extent such claim relates to an
obligation or liability for which Seller has agreed to indemnify Buyer pursuant
to Section 11.3; and (iii) with respect to matters encompassed by Section
11.1(i), accrue to the Seller Indemnified Parties unless and only to the extent
that (A) the liability of Buyer in respect of any single claim exceeds Ten
Thousand Dollars ($10,000) and (B) the total liability of Buyer in respect of
all claims in the aggregate exceeds Five Hundred Thousand Dollars ($500,000)
(the "Seller Aggregate Amount"), in which event the Seller Indemnified Parties
shall be entitled to seek indemnification under Section 11.1 (i) for all claims
only in an amount of Seller Losses which exceed the Seller Aggregate Amount.

            (b) Subject to the limitations set forth in Section 11.2(a), the
total liability of Buyer for indemnification under Section 11.1(i), in the
aggregate, shall be limited to an amount equal to Fifty Million Dollars
($50,000,000). Notwithstanding anything to the contrary, the limitations

                                       58



contained in this Section 11.2(b) shall not apply to any indemnification claims
arising under Section 11.1(i) as a result of the intentional misrepresentation
or fraud of Buyer.

            (c) If a Seller Indemnified Party is entitled to recover any sum
(whether by payment, discount, credit or otherwise) from any third party in
respect of any matter for which a claim of indemnity could be made against Buyer
hereunder, Seller shall use its commercially reasonable best efforts to recover
such sum from such third party and any sum recovered will reduce the amount of
the claim. If Buyer pays to a Seller Indemnified Party an amount in respect of a
claim, and the Seller Indemnified Party subsequently recovers from a thirty
party a sum which is referable to that claim, Seller shall cause the Seller
Indemnified Party to promptly repay to Buyer so much of the amount paid to it as
does not exceed the sum recovered from the third party less all reasonable
costs, charges and expenses incurred by Seller and the Seller Indemnified Party
in obtaining payment in respect of that claim and in recovering that sum from
the third party.

      11.3. INDEMNIFICATION BY SELLER. Subject to the limitations set forth in
Section 11.4, Seller shall defend, indemnify and hold harmless Buyer and its
Affiliates, and its and their respective directors, officers, principals,
attorneys, employees, agents or other representatives (collectively, the "Buyer
Indemnified Parties"), from and against any and all losses, liabilities,
damages, costs (including, without limitation, court costs and costs of appeal)
and expenses (including, without limitation, reasonable attorneys' fees and fees
of expert consultants and witnesses) (collectively, the "Buyer Losses") that
such Buyer Indemnified Party incurs as a result of, or with respect to (i) any
misrepresentation or breach of warranty by Seller under this Agreement, (ii) any
breach by Seller or an Affiliate of, or any failure by Seller or an Affiliate to
perform, any covenant or agreement of, or required to be performed by, Seller or
an Affiliate under this Agreement, (iii) any of the Excluded Liabilities, or
(iv) any claim made by a third party with respect to the operation of the
Facilities or the Purchased Assets prior to the Closing Date. No provision in
this Agreement shall prevent Seller from pursuing any of its legal rights or
remedies that may be granted to Seller by law against any person or legal entity
other than Buyer and its Affiliates.

      11.4. LIMITATIONS ON INDEMNIFICATION BY SELLER.

            (a) Notwithstanding any provision to the contrary contained in this
Agreement, Seller shall be under no liability to indemnify the Buyer Indemnified
Parties under Section 11.3 and no claim under Section 11.3 shall: (i) be made to
the extent that such claim relates to a liability of the Buyer Indemnified
Parties arising out of or relating to any act, omission, event or occurrence
connected with: (A) the use, ownership or operation of any of the Facilities on
and after the Closing Date, or (B) the use, ownership or operation of any of the
Purchased Assets on and after the Closing Date, other than as specifically
included in the Excluded Liabilities; (ii) be made to the extent that such claim
relates to an obligation or liability for which Buyer has agreed to indemnify
Seller pursuant to Section 11.1; and (iii) with respect to matters encompassed
by Section 11.3(i) (other than with respect to the breach of any representations
and warranties contained in Section 3.25), accrue to the Buyer Indemnified
Parties unless and only to the extent that (A) the liability of Seller in
respect of any single claim exceeds Ten Thousand Dollars ($10,000) and (B) the
total liability of Seller in respect of all claims in the aggregate exceeds Five
Hundred Thousand Dollars ($500,000) (the "Buyer Aggregate Amount"), in which
event the Buyer Indemnified Parties shall be entitled to seek

                                       59



indemnification under Section 11.3(i) for all claims only in an amount of Buyer
Losses which exceed the Buyer Aggregate Amount.

            (b) Subject to the limitations set forth in Section 11.4(a), the
total liability of Seller for indemnification under Section 11.3(i), in the
aggregate, shall be limited to (i) the proceeds from the transactions
contemplated herein received and held by Seller and/or any Seller Entity
Organization (and any earnings thereon) if and until Seller and/or any Seller
Entity Organization transfers the proceeds of the transactions contemplated
herein to the Foundation (as defined in Section 12.27) and (ii) the net value of
the Foundation, with "net value" defined as the assets of the Foundation, minus
the liabilities of the Foundation, once Seller and/or any Seller Entity
Organization transfers the proceeds of the transactions contemplated herein to
the Foundation, provided when Seller and/or any Seller Entity Organization
transfers the proceeds of the transactions contemplated herein to the
Foundation, it transfers all of said proceeds (and all earnings thereon) to the
Foundation. However, notwithstanding anything to the contrary in this preceding
sentence, the total liability of Seller for indemnification under Section
11.3(i), in the aggregate, with respect to a breach of any representations and
warranties contained in Section 3.25, shall be One Million Five Hundred Thousand
Dollars ($1,500,000). Notwithstanding anything to the contrary, the limitations
contained in this Section 11.4(b) shall not apply to any indemnification claims
arising under Section 11.3(i) as a result of the intentional misrepresentation
or fraud of Seller.

            (c) If a Buyer Indemnified Party is entitled to recover any sum
(whether by payment, discount, credit or otherwise) from any third party in
respect of any matter for which a claim of indemnity could be made against
Seller hereunder, Buyer shall use its commercially reasonable best efforts to
recover such sum from such third party and any sum recovered will reduce the
amount of the claim. If Seller pays to a Buyer Indemnified Party an amount in
respect of a claim, and the Buyer Indemnified Party subsequently recovers from a
third party a sum which is referable to that claim, Buyer shall cause the Buyer
Indemnified Party to promptly repay to Seller so much of the amount paid by it
as does not exceed the sum recovered from the third party less all reasonable
costs, charges and expenses incurred by Buyer and the Buyer Indemnified Party in
obtaining payment in respect of that claim and in recovering that sum from the
third party.

      11.5. NOTICE AND CONTROL OF LITIGATION. If any claim or liability is
asserted in writing by a third party against a party entitled to indemnification
under this Section 11 (the "Indemnified Party") which would give rise to a claim
under this Section 11, the Indemnified Party shall notify the person giving the
indemnity (the "Indemnifying Party") in writing of the same within fifteen (15)
days of receipt of such written assertion of a claim or liability. The
Indemnifying Party, at its own cost and expense, shall have the right to defend
a claim and control the defense, settlement, and prosecution of any litigation.
If the Indemnifying Party, within ten (10) days after notice of such claim,
fails to defend such claim, the Indemnified Party shall (upon further written
notice to the Indemnifying Party) have the right to undertake the defense,
compromise, or settlement of such claim on behalf of and for the account and at
the risk of the Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such claim at any time prior to settlement,
compromise, or final determination thereof. Anything in this Section 11.5
notwithstanding, (i) if there is a reasonable probability that a claim may
materially and adversely affect the Indemnified Party other than as a

                                       60



result of money damages or other money payments, the Indemnified Party shall
have the right, at its own cost and expense, to defend, compromise, and settle
such claim, and (ii) the Indemnifying Party shall not, without the written
consent of the Indemnified Party, settle or compromise any claim or consent to
the entry of any judgment which does not include as an unconditional term
thereof the giving by the claimant to the Indemnified Party of a release from
all liability in respect of such claim. All parties agree to cooperate fully as
necessary in the defense of such matters. Should the Indemnified Party fail to
notify the Indemnifying Party in the time required above, the indemnity with
respect to the subject matter of the required notice shall be limited to the
damages that would have resulted absent the Indemnified Party's failure to
notify the Indemnifying Party in the time required above after taking into
account such actions as could have been taken by the Indemnifying Party had it
received timely notice from the Indemnified Party.

      11.6. NOTICE OF CLAIM. If an Indemnified Party becomes aware of any breach
of the representations or warranties of the Indemnifying Party hereunder or any
other basis for indemnification under this Section 11 (except as otherwise
provided for under Section 12.3), the Indemnified Party shall notify the
Indemnifying Party in writing of the same within thirty (30) days after becoming
aware of such breach or claim, specifying in detail the circumstances and facts
which give rise to a claim under this Section 11. Should the Indemnified Party
fail to notify the Indemnifying Party within the time frame required above, the
indemnity with respect to the subject matter of the required notice shall be
limited to the damages that would have nonetheless resulted absent the
Indemnified Party's failure to notify the Indemnifying Party in the time
required above after taking into account such actions as could have been taken
by the Indemnifying Party had it received timely notice from the Indemnified
Party.

      11.7. NO PUNITIVE DAMAGES. Notwithstanding anything to the contrary
elsewhere in this Agreement, in the absence of fraud, neither Seller nor Buyer
(nor any of their respective Affiliates or representatives) shall, in any event,
be liable to the other (or any of its Affiliates or representatives) for any
exemplary or punitive damages relating to the breach or alleged breach or
nonperformance or alleged nonperformance of this Agreement, except to the extent
awarded by a court in a third-party claim.

      11.8. EXCLUSIVE REMEDY. The sole and exclusive remedy for any breach or
inaccuracy, or alleged breach or inaccuracy, of any representation or warranty
made by Seller or Buyer shall be the remedies provided by this Section 11,
except in the case of fraud or intentional misrepresentation on the part of
Seller or Buyer, as the case may be.

                                       61



12. MISCELLANEOUS.

      12.1. SCHEDULES AND EXHIBITS.

            (a) The parties acknowledge and agree that, although Buyer has
completed substantially all of its due diligence as of the Execution Date, Buyer
will complete some additional due diligence following the Execution Date.
Buyer's additional due diligence is not intended to unduly delay or hinder the
transactions contemplated by this Agreement, but instead, is intended to assist
Buyer in operationalizing the business of the Facilities following the Closing
Date and verifying the accuracy and completeness of information set forth in
draft Schedules presented by Seller. As of the Execution Date, the parties have
not fully prepared, reviewed and/or agreed to the Schedules contemplated by this
Agreement, with the exception of the Schedules the parties have mutually agreed
to attach to this Agreement as of the Execution Date (if any). Between the
Execution Date and ten (10) business days prior to the Closing Date, each party
shall promptly deliver to the other party each of its remaining Schedules when
it believes the Schedule to be substantially complete and accurate (each a
"Baseline Schedule").

            (b) Between the Execution Date and ten (10) business days prior to
the Closing Date, each party may from time to time modify, update or amend one
or more of its Schedules, by delivering to the other party a written notice of
change (the "Change Notice") in which it notifies the other party of each
Schedule it proposes to modify, update or amend and in which it includes a copy
of each Schedule as modified, updated or amended (the "Modified Schedule"), as
well as any supporting documents (e.g., contracts or other written notices).
Each Modified Schedule shall become a part of this Agreement and shall replace
the Schedule it is modifying, updating or amending, unless the other party
objects to the Modified Schedule in whole or in part within five (5) business
days after its receipt of the Change Notice, in which case the parties shall
follow the procedures set forth in this Section.

            (c) A party may object to (i) a Baseline Schedule in whole or in
part by delivering to the other party within ten (10) business days of the date
of receipt of the Baseline Schedule, a written notice of objection (the
"Objection Notice") which sets forth the grounds for its objection or (ii) a
Modified Schedule in whole or in part by delivering to the other party within
five (5) business days after its receipt of the applicable Change Notice, the
Objection Notice, in which it sets forth the grounds for its objection.

            (d) Buyer shall have grounds for rejecting a contract listed on
Schedule 1.1(h) if in its reasonable belief the contract meets one or more of
the following standards: the contract contains terms or conditions that violate
applicable law; the contract imposes material and adverse limitations on Buyer's
or Buyer Entity's ability to operate the Purchased Assets in the same general
manner as they were operated by Seller and Seller Entities; the contract
contains covenants not to compete or similar exclusivity provisions that
materially restrict the activities of Seller or Seller Entities at the
Facilities and would materially restrict Buyer's or Buyer Entities' activities
at the Facilities; the contract contains material terms that are commercially
unreasonable; or the contract is an employment agreement with a management-level
employee.

                                       62



            (e) Following receipt of an Objection Notice, the parties shall work
together in good faith to: (i) correct any inaccuracies in the Schedules which
are identified in the Objection Notice; (ii) attempt to resolve any legal issues
identified with contracts and, if successful, list the contract on the Assumed
Contracts Schedule, or if unsuccessful, list the contract on the Excluded
Contracts Schedule; and (iii) resolve any disagreements related to the content
of the Objection Notice.

            (f) Notwithstanding anything contained herein to the contrary, the
inclusion of new or different information on a Modified Schedule to which a
party has objected to in a timely-sent Objection Notice and which has not been
resolved pursuant to Section 12.1(e) shall not prejudice or otherwise affect a
party's right to seek relief for the other party's breach of a representation or
warranty or affect the objecting party's right to indemnification under Section
11.1(i) or Section 11.3(i) (based upon the Baseline Schedule, that is, without
taking into account any modification, update or amendment of the Baseline
Schedule). In the event that, after the parties have followed the procedures
specified in Section 12.1(e), the remaining disputed items, individually or in
the aggregate, would have a material adverse effect on the use by Buyer or Buyer
Entities of any material portion of the Facilities or the business or operations
of Buyer or Buyer Entities following the Closing Date, Buyer, acting reasonably
and in good faith, may terminate this Agreement upon written notice to Seller.
As used in this Section 12.1(f) only, "material adverse effect" shall mean
matters which, individually or in the aggregate, could reasonably be expected to
have an impact of Five Million Dollars ($5,000,000) or more.

            (g) Notwithstanding anything in this Section 12.1, Buyer's
objections to matters disclosed on Schedule 3.11 or the state of title to the
Real Property shall be governed by the procedures specified in Section 5.8. In
addition, following receipt of any Objection Notice containing objections to
exceptions or encumbrances identified in the Title Commitment as described in
Section 5.8, Seller shall use its commercially reasonable best efforts to, at
Seller's expense, (i) satisfy, release or cure any reasonable objections prior
to or concurrently with the Closing, or (b) if acceptable to Buyer, cause such
exceptions or encumbrances to be removed from the Title Commitment or insured
over by an appropriate title insurance endorsement, all in a manner reasonably
satisfactory to Buyer.

            (h) Any disclosure made in the Schedules with reference to any
Section or Schedule of this Agreement shall be deemed to be a disclosure with
respect to all other Sections or Schedules, as the case may be, of this
Agreement to which such disclosure may apply, so long as application to such
Section or Schedule is reasonably discernible from such disclosure.

            (i) Between the Execution Date and the Closing Date, the parties
shall work together in good faith to draft, negotiate, revise, review and
finalize the Exhibits contemplated by this Agreement in a manner that comports
with the expressed intentions, understandings and commitments set forth in this
Agreement. If the parties are unable to agree upon the content of any Exhibit by
at least ten (10) business days prior to the Closing Date, the parties jointly
shall select and retain independent national health care counsel to resolve the
matter (the "Independent Counsel"). Within five (5) business days following its
retention, Independent Counsel shall: (i) meet with the Chief Executive Officers
of Buyer and Seller (or their respective designees) to hear about the
disagreement and the parties' respective opinions and interests related thereto:
and (ii) draft a revised and equitable version of any disputed Exhibit, taking
into account the interests expressed by the

                                       63



parties (the "Final Exhibits"). The parties shall be bound by the decisions of
Independent Counsel and by the Final Exhibits. If the Final Exhibits contain
agreements revised by Independent Counsel, then within three (3) business days
following its receipt of the Final Exhibits, each party (if it is a party to the
agreement) shall execute and deliver to the other a copy of each such agreement
or each party (if its Affiliate is a party to the agreement) shall cause its
Affiliate to execute and deliver to the other a copy of each such agreement. The
parties shall share equally the costs of Independent Counsel.

      12.2. ADDITIONAL ASSURANCES. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of a party, the other party or parties shall execute such additional
instruments and take such additional actions as the requesting party may
reasonably request for purposes of effecting this Agreement. In addition and
from time to time after Closing, Seller shall execute and deliver such other
instruments of conveyance and transfer, and shall take such other actions as
Buyer may reasonably request, to more effectively convey and transfer full
right, title, and interest to, vest in, and place Buyer Entities in legal and
actual possession of, any and all of the Facilities and the Purchased Assets.
Seller shall also furnish Buyer with such information and documents in its
possession or under its control, or which Seller can execute or cause to be
executed, as will enable Buyer Entities to prosecute any and all petitions,
applications, claims, and demands relating to or constituting a part of the
Facilities or the Purchased Assets. Additionally, each party shall cooperate and
use its commercially reasonable best efforts to encourage its directors,
officers, and employees cooperate with the other party on and after Closing in
furnishing information, evidence, testimony, and other assistance in connection
with any action, proceeding, arrangement, or dispute of any nature with respect
to matters pertaining to all periods prior to and after the Closing in respect
of the items subject to this Agreement.

      12.3. CONSENTED ASSIGNMENT. Anything contained herein to the contrary
notwithstanding, this Agreement shall not constitute an agreement to assign any
claim, right, contract, license, lease, commitment, sales order, or purchase
order if an attempted assignment thereof without the consent of the other party
thereto would constitute a breach thereof or in any material way affect the
rights of Seller or any the Seller Entity thereunder, unless such consent is
obtained. Each of Seller and Buyer shall use its commercially reasonable best
efforts to obtain any third party consents to the transactions contemplated by
this Agreement. If the goods or services provided under an Assumed Contract are
available from another source on terms and conditions not materially less
favorable or if the failure to obtain such consent to the assignment of any
Assumed Contact which by its term requires consent or as to which assignment is
ineffectual absent consent would not materially adversely affect the operation
of any of the Facilities, then the failure to obtain such consent shall not
constitute a breach of or default under this Agreement. Seller and Buyer shall
cooperate in good faith in any reasonable arrangement designed to provide for
Buyer Entity the benefits under any such claim, right, contract, license, lease,
commitment, sales order, or purchase order, including, without limitation,
enforcement of any and all rights of Seller or any Seller Entity against the
other party or parties thereto arising out of the breach or cancellation by such
other party or otherwise.

      12.4. CONSENTS, APPROVALS AND DISCRETION. Except as herein expressly
provided to the contrary, whenever this Agreement requires any consent or
approval to be given by a party, or

                                       64



whenever a party must or may exercise discretion, the parties agree that such
consent or approval shall not be unreasonably withheld or delayed and such
discretion shall be reasonably exercised.

      12.5. LEGAL FEES AND COSTS. In the event a party elects to incur legal
expenses to enforce or interpret any provision of this Agreement by judicial
proceedings, the prevailing party will be entitled to recover such legal
expenses, including, without limitation, reasonable attorneys' fees, costs, and
necessary disbursements at all court levels, in addition to any other relief to
which such party shall be entitled.

      12.6. GOVERNING LAW; VENUE. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Oklahoma as
applied to contracts made and performed within the State of Oklahoma. All
parties agree that venue regarding any action arising hereunder and with respect
to the documents and agreements executed in connection with the transactions
contemplated hereby will be exclusively in the state and federal courts in the
State of Oklahoma, and all parties consent to the jurisdiction thereof.

      12.7. BENEFIT/ASSIGNMENT. Subject to provisions herein to the contrary,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective legal representatives, successors, and assigns. No
party may assign this Agreement without the prior written consent of the other
party, provided, however, that any party may, without the prior written consent
of the other party, assign its rights hereunder to one or more Affiliates (as
defined in Section 12.18), but in such event, the assignor shall be required to
remain obligated hereunder in the same manner as if such assignment had not been
effected. Notwithstanding the provisions of Section 12.22, Seller Entities and
Buyer Entities shall be third-party beneficiaries of this Agreement.

      12.8. BROKERAGE FEES. Each party agrees to be solely liable for and
obligated to satisfy and discharge all loss, cost, damage, or expense arising
out of claims for fees or commissions of brokers employed or alleged to have
been employed by such party.

      12.9. COST OF TRANSACTION. Whether or not the transactions contemplated
hereby shall be consummated, the parties agree as follows: (i) Seller shall pay
the fees, expenses, and disbursements of Seller and its agents, representatives,
accountants, and legal counsel incurred in connection with the subject matter
hereof and any amendments hereto; and (ii) Buyer shall pay the fees, expenses,
and disbursements of Buyer and its agents, representatives, accountants and
legal counsel incurred in connection with the subject matter hereof and any
amendments hereto. Seller shall pay the costs of the Title Policy and any state
and local documentary stamp tax due in connection with the transfer and
conveyance of the Owned Real Property. Buyer shall pay the costs of the Surveys,
all filing fees required to obtain approvals or waivers under the HSR Act and
all state and local sales taxes incurred in connection with the sale and
purchase of the Purchased Assets. In addition, Buyer shall pay all bank fees and
other fees and expenses charged by the applicable banks or other lending
institutions to convert the debt of Cushing Regional Hospital from tax-exempt to
taxable (estimated to be approximately Ninety Thousand Dollars ($90,000) to
Seventy Thousand Dollars ($70,000)) and all bank fees and other fees and
expenses charged by the applicable banks or other lending institutions to
convert the debt of Eastern Oklahoma Medical Center from tax-exempt to taxable
(estimated to be approximately Ninety Thousand Dollars ($90,000) to Seventy
Thousand Dollars ($70,000)).

                                       65



      12.10. CONFIDENTIALITY. It is understood by the parties hereto that the
information, documents, and instruments delivered to Buyer by Seller and its
agents and the information, documents, and instruments delivered to Seller by
Buyer and its agents are of a confidential and proprietary nature. Each of the
parties hereto agrees that both prior and subsequent to the Closing it will
strictly maintain the confidentiality of all such confidential information,
documents, or instruments delivered to it by the other party hereto or its
agents in connection with the negotiation of this Agreement or in compliance
with the terms, conditions, and covenants hereof and will only disclose such
information, documents, and instruments to its duly authorized officers,
members, directors, representatives, and agents (including consultants,
attorneys, and accountants of each party) (who have a need for such information,
documents and instruments and who are informed of their confidential nature) and
applicable governmental authorities in connection with any required notification
or application for approval or exemption therefrom as may be necessary to
effectuate the transactions contemplated by this Agreement. Each of the parties
hereto further agrees that if the transactions contemplated hereby are not
consummated, it will promptly return all such information documents and
instruments and all copies thereof in its possession to the other party to this
Agreement and will promptly destroy all materials generated by it or on its
behalf containing such information, documents or instruments. Each of the
parties hereto recognizes that any breach of this Section 12.10 would result in
irreparable harm to the other party to this Agreement and its Affiliates and
that therefore either Seller or Buyer shall be entitled to an injunction to
prohibit any such breach or anticipated breach, without the necessity of posting
a bond, cash, or otherwise, in addition to all of its other legal and equitable
remedies. Nothing in this Section 12.10, however, shall prohibit the use of such
confidential information, documents, or information for such governmental
filings or other notices in connection with outstanding notes, bonds or other
securities issued by or on behalf of Buyer or Seller as in the opinion of
Buyer's counsel or Seller's counsel are required by agreements existing on the
date hereof, law or governmental regulations or are otherwise required to be
disclosed pursuant to applicable federal or state law. Buyer and Seller
acknowledge that the obligation of confidentiality set forth in this Section
12.10 is in addition to the obligations under that certain Confidentiality
Agreement between Buyer and Seller dated _______________, 2004 (the
"Confidentiality Agreement").

      12.11. PUBLIC ANNOUNCEMENTS. Seller and Buyer mutually agree that neither
party hereto nor its Affiliates shall release, publish, or otherwise make
available to the public in any manner whatsoever any information or announcement
regarding the transactions herein contemplated without the prior written consent
of both Seller and Buyer, except for information and filings reasonably
necessary to be directed to governmental agencies to fully and lawfully effect
the transactions herein contemplated or required in connection with securities
and other laws in effect on the date hereof or to comply with any continuing
disclosure obligation of Seller or Buyer with respect to its outstanding debt.

      12.12. WAIVER OF BREACH. The waiver by any party of a breach or violation
of any provision of this Agreement shall not operate as, or be construed to
constitute, a waiver of any subsequent breach of the same or any other provision
hereof.

      12.13. NOTICE. Any notice, demand, or communication required, permitted,
or desired to be given hereunder shall be deemed effectively given when
personally delivered, when received by

                                       66



receipted overnight delivery, or five (5) days after being deposited in the
United States mail, with postage prepaid thereon, certified or registered mail,
return receipt requested, addressed as follows:

         Seller:        Hillcrest HealthCare System
                        110 West 7th Street
                        Suite 2710
                        Tulsa, Oklahoma 74119-1120
                        Attention: President and Chief Executive Officer

         With simultaneous copies to:     McDermott, Will & Emery
                                          227 West Monroe Street
                                          Suite 3100
                                          Chicago, Illinois  60606-5096
                                          Attention: Dean Kant

                                          Boone, Smith, Davis, Hurst & Dickman
                                          100 West 5th Street
                                          Tulsa, Oklahoma  74103
                                          Attention:  William Kellough

         Buyer:             Ardent Health Services, Inc.
                            One Burton Hills Boulevard, Suite 250
                            Nashville, Tennessee 37215
                            Attention: Chief Executive Officer

         With simultaneous copies to:      Ardent Health Services, Inc.
                                           One Burton Hills Boulevard, Suite 250
                                           Nashville, Tennessee 37215
                                           Attention: General Counsel

                                           Boult, Cummings, Conners & Berry, PLC
                                           414 Union Street, Suite 1600
                                           Nashville, Tennessee  37219
                                           Attention:  Stephen T. Braun

or to such other address, and to the attention of such other person or officer
as any party may designate, with copies thereof to the respective counsel
thereof as notified by such party.

      12.14. SEVERABILITY. In the event any provision of this Agreement is held
to be invalid, illegal or unenforceable for any reason and in any respect, such
invalidity, illegality, or unenforceability shall in no event affect, prejudice,
or disturb the validity of the remainder of this Agreement, which shall be and
remain in full force and effect, enforceable in accordance with its terms.

                                       67



      12.15. GENDER AND NUMBER. Whenever the context of this Agreement requires,
the gender of all words herein shall include the masculine, feminine, and
neuter, and the number of all words herein shall include the singular and
plural.

      12.16. DIVISIONS AND HEADINGS. The divisions of this Agreement into
sections and subsections and the use of captions and headings in connection
therewith are solely for convenience and shall have no legal effect in
construing the provisions of this Agreement.

      12.17. SURVIVAL. All of the representations, warranties, covenants, and
agreements made by the parties in this Agreement or pursuant hereto in any
certificate, instrument, or document shall survive the consummation of the
transactions described herein, and may be fully and completely relied upon by
Seller and Buyer, as the case may be, notwithstanding any investigation
heretofore or hereafter made by any of them or on behalf of any of them, and
shall not be deemed merged into any instruments or agreements delivered at the
Closing or thereafter. Notwithstanding anything in this Section 12.17 which may
be to the contrary, any claim, demand, or cause of action with respect to a
breach of any representation or warranty made in this Agreement (other than
representations or warranties contained in Sections 3.1, 3.2, 3.3, 3.12, 4.1,
4.2 and 4.3, which shall survive indefinitely, representations or warranties
contained in Sections 3.8, 3.9, 3.13, 3.15, 3.17 and 3.23, which shall survive
until the longer of five (5) years or ninety (90) days after the expiration of
the applicable statute of limitations relating to the underlying claim,
including extensions and waivers) must be made or brought, if at all, within two
(2) years after the Closing Date. Notwithstanding the foregoing, the major
equipment (as defined in Section 3.25) included within the Purchased Assets
shall be presumptively deemed to have met the standards set forth in Section
3.25 except for major equipment that Buyer notifies Seller, within thirty (30)
days following the Closing Date, does not meet such standards. For the avoidance
of doubt, this Section 12.17 shall not affect any rights to bring claims after
two (2) years based on (x) any covenant or agreement of the parties which
contemplates performance after the Closing, (y) the obligations of Buyer under
Section 11.1(ii), 11.1(iii) or 11.1(iv) or (z) the obligations of Seller under
Section 11.3(ii), 11.3(iii) or 11.3(iv).

      12.18. AFFILIATES. As used in this Agreement, the term "Affiliate" means,
as to the entity in question, any person or entity that directly or indirectly
controls, is controlled by or is under common control with, the entity in
question and the term "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of an
entity whether through ownership of voting securities, by contract or otherwise.

      12.19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE
RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY
AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE INCLUDING, BUT
NOT LIMITED TO, THE CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN,
COMMON LAW OR ANY APPLICABLE STATUTE OR REGULATIONS. EACH PARTY HERETO

                                       68



ACKNOWLEDGES THAT IT IS KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND
TRIAL BY JURY.

      12.20. ACCOUNTING DATE. The transactions contemplated hereby shall be
effective for accounting purposes only as of 12:01 a.m. on the Closing Date,
unless otherwise agreed in writing by Seller and Buyer. The parties will use
commercially reasonable efforts to cause the Closing to be effective as of a
month end.

      12.21. NO INFERENCES. Inasmuch as this Agreement is the result of
negotiations between sophisticated parties of equal bargaining power represented
by counsel, no inference in favor of, or against, either party shall be drawn
from the fact that any portion of this Agreement has been drafted by or on
behalf of such party.

      12.22. NO THIRD PARTY BENEFICIARIES. The terms and provisions of this
Agreement are intended solely for the benefit of Buyer and Seller and their
respective permitted successors or assigns, and it is not the intention of the
parties to confer, and this Agreement shall not confer, third-party beneficiary
rights upon any other person except as otherwise expressly provided herein.

      12.23. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of competent jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.

      12.24. ENTIRE AGREEMENT/AMENDMENT. Subject to Section 12.10, this
Agreement supersedes all previous contracts or understandings, including any
offers, letters of intent, proposals or letters of understanding, and
constitutes the entire agreement of whatsoever kind or nature existing between
or among the parties respecting the within subject matter, and no party shall be
entitled to benefits other than those specified herein. Subject to Section
12.10, as between or among the parties, no oral statements or prior written
material not specifically incorporated herein shall be of any force and effect.
Subject to Section 12.10, the parties specifically acknowledge that in entering
into and executing this Agreement, the parties rely solely upon the
representations and agreements contained in this Agreement and no others.
Subject to Section 12.10, all prior representations or agreements, whether
written or verbal, not expressly incorporated herein are superseded, and no
changes in or additions to this Agreement shall be recognized unless and until
made in writing and signed by all parties hereto. This Agreement may be executed
in two or more counterparts, each and all of which shall be deemed an original
and all of which together shall constitute but one and the same instrument.

      12.25. RISK OF LOSS. Notwithstanding any other provision hereof to the
contrary, except for the Introduction with respect to Strategic Facilities, the
risk of loss in respect of casualty to the Purchased Assets shall be borne by
Seller prior to the time of Closing and by Buyer thereafter.

                                       69



      12.26. OTHER OWNERS OF PURCHASED ASSETS. The parties acknowledge that
certain Purchased Assets may be owned by Affiliates of Seller (including Seller
Entity Organizations that are not Seller Entities) and not Seller or the Seller
Entities. Notwithstanding the foregoing, and for purposes of all
representations, warranties, covenants and agreements contained herein, Seller
agrees that (i) its obligations with respect to any Purchased Assets shall be
joint and several with any Affiliate which owns or controls such Purchased
Assets, (ii) the representations and warranties herein, to the extent
applicable, shall be deemed to have been made by, on behalf of and with respect
to, such Affiliates in their ownership capacity, and (iii) it has the legal
capacity to cause, and it shall cause, any Affiliate which owns or controls any
Purchased Assets to meet all of Seller's obligations under this Agreement with
respect to such Purchased Assets. Seller hereby waives any defense to a claim
made by Buyer under this Agreement based on the failure of any person who owns
or controls the Purchased Assets to be a party to this Agreement. In lieu of the
foregoing, however, Seller, at its sole option, may cause the Affiliate which
owns the Purchased Assets to convey the Purchased Assets to Seller or any Seller
Affiliate, which will then subsequently convey the Purchased Assets to Buyer or
a Buyer Entity pursuant to this Agreement.

      12.27. FOUNDATION. Seller anticipates that it may elect to transfer
certain of its assets, including all or a portion of the Purchase Price, to a
charitable foundation or similar tax exempt organization (herein, the
"Foundation"). The formation of the Foundation may be done at Closing or some
time thereafter. In the event that Seller transfers certain of its assets,
including all or a portion of the Purchase Price, to the Foundation, then Seller
shall cause the Foundation to execute and deliver a signature page or addendum
to this Agreement in form reasonably satisfactory to Buyer whereby the
Foundation agrees to be bound by this Agreement for the following purposes: (i)
to assume joint and several liability for the indemnification obligations of
Seller set forth in Section 11.3; and (ii) to agree to be bound by Section 9.
Prior to any such transfer of all or a portion of the Purchase Price, the
Foundation shall (i) deliver an opinion of counsel in form and substance
satisfactory to Buyer to the effect of the due organization of the Foundation,
and the valid, binding nature of execution of the agreements required by this
Section and their enforceability in accordance with their terms, and such other
matters as Buyer shall reasonably determine are needed, (ii) deliver certified
resolutions authorizing execution of the foregoing, and (iii) execute and
deliver such other instruments and agreements, and take such other action as
Buyer may reasonably request.

      12.28. MATERIAL. "Material", when used in this Agreement to qualify any
representation of fact or future obligation, means that the representation does
not contain any statement or omission of fact that a reasonable purchaser would
consider important in deciding whether to consummate a purchase. "Material",
when used to qualify any representation of fact relating to a financial item,
means a matter resulting in a difference in revenues or expenses of at least Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate on an annual basis.
"Material," when used to modify any contract means (a) that the contract would
be considered significant to any reasonable person having experience in the
subject matter of the contract; (b) that the contract would be considered
important by a reasonable purchaser in deciding whether to consummate a
purchase; (c) that the contract would result in a difference in revenues or
expenses of at least Twenty Five Thousand Dollars ($25,000) in the aggregate;
(d) that the contract would not be terminable without payment or penalty on
ninety (90) days or less notice; or (e) that the contract would require the
payment by Seller during the remaining term of such contract in excess of Twenty
Five Thousand Dollars ($25,000).

                                       70



      12.29. SECTIONS. All references to "Sections", "Schedules" and "Exhibits"
in this Agreement shall be deemed to be references to the Sections, Schedules
and Exhibits of this Agreement, unless the context clearly indicates otherwise.

      12.30. FRAUDULENT OR CRIMINAL CONDUCT. While the representations and
warranties in this Agreement contain certain limitations on the periods covered
thereby (e.g., during the last three (3) years), such limitations shall not
apply to the fraudulent (including healthcare fraud) or criminal conduct of a
party, and the periods related to such conduct shall be of unlimited duration or
until ninety (90) days after the expiration of the applicable statute of
limitations relating to the underlying claim, whichever is shorter,
notwithstanding any other limitations contained in this Agreement.

                                                          SIGNATURE PAGE FOLLOWS

                                       71



      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in multiple originals by their authorized officers, all as of the
Execution Date.

                                     HILLCREST HEALTHCARE SYSTEM

                                     By: /s/ Donald A. Lorack Jr., Pres and CEO
                                         ------------------------
                                     Title: Donald A. Lorack Jr., Pres and CEO
                                                    ("Seller")

                                     ARDENT HEALTH SERVICES, INC.

                                     By: /s/ David T. Vandewater, Pres. and CEO
                                         -----------------------
                                     Title: David T. Vandewater, Pres. and CEO
                                                      ("Buyer")

                                      -72-

EX-2.2

                                                                EXHIBIT 2.2



                            ASSETS PURCHASE AGREEMENT

         This Assets Purchase Agreement ("Agreement") is made as of the 20th day
of July 2004, by and between Heritage Home Healthcare, a New Mexico corporation
("Heritage"), as purchaser, and Lovelace Sandia Health System, Inc., a New
Mexico corporation ("Lovelace"), as Seller.

                                    RECITALS:

         A. Lovelace owns and operates a home healthcare business in the state
of New Mexico;

         B. Lovelace desires to sell to Heritage, and Heritage desires to
purchase from Lovelace, certain assets of Lovelace's home healthcare business
upon the terms and subject to the conditions of this Agreement.

         NOW, THEREFORE, in consideration of the premises, and the mutual
covenants contained herein, the parties agree as follows:

         1. PURCHASE AND SALE OF ASSETS.

         1.1 Purchased Accounts. Lovelace shall sell, assign and transfer to
Heritage, and Heritage shall purchase and accept from Lovelace, Lovelace's
right, title and interest in and to all assets used or useful in the operation
of Lovelace's home healthcare business, including, but not limited to the
following ("Assets"):

                  (a) Furniture and Equipment. The furniture, furnishings,
fixtures, equipment, computers, computer programs, software, and other personal
property identified in attached Schedule 1(a);

                  (b) Books and Records. Originals or copies (as appropriate)
of all of Lovelace's records relating to or otherwise used or useful in
connection with Lovelace's home healthcare business, including, but not limited
to, patient lists, files, charts and account records, business manuals,
procedures, and forms ("Records");

                  (c) Telephone Number. Lovelace's telephone number (505)
872-6500.

                  (d) Non-Competition Agreements. All Lovelace's rights to
enforce any agreement restricting the conduct of any individual currently or
formerly employed by Lovelace in its home healthcare business (whether as
employee or independent contractor).

                  (e) Goodwill. All goodwill associated with Lovelace's home
health business and its Assets.




         1.2 Excluded Assets. Notwithstanding anything herein to the contrary,
Lovelace shall not sell to Heritage and Heritage shall not acquire from
Lovelace, (a) Lovelace's cash, deposits, or similar accounts, (b) Lovelace's
accounts receivable and (c) any real property used in the home healthcare
business.

         2. Excluded Liabilities.

         Heritage is purchasing the Assets only, and Heritage is not and shall
not be deemed to assume any liabilities relating to the Assets or Lovelace.
Lovelace shall be and remain liable and responsible from and after the Closing
for all liabilities of any kind, character or description, whether known or
unknown, absolute or contingent, arising out of or in any manner relating or
pertaining to the existence, ownership, operation, or activity of Lovelace's
home healthcare business, or the Assets, at any time prior to the Closing.

         3. Purchase Price.

         3.1 Purchase Price. Subject to the terms and conditions hereof and as
consideration for the sale and purchase of the Assets as herein contemplated,
Heritage shall pay a total purchase price of $200,000 minus the Transition Fees
(as defined in Section 9.3 hereof), (the "Purchase Price"). The Purchase Price
shall be calculated as of Closing based upon the estimated Transition Fees (as
determined in accordance with Section 3.2). The Purchase Price shall be adjusted
after the Closing to reflect the actual Transition Fees. The Purchase Price
shall be due and payable at Closing in immediately available funds.

         3.2 Estimates and Audits. At least ten (10) business days prior to
Closing, Heritage shall deliver to Lovelace a reasonable estimate of Transition
Fees containing reasonable detail and supporting documents showing the basis for
such estimate. The estimated Transition Fees shall be used for purposes of
calculating the Purchase Price as of the Closing. Within forty-five (45) days
after the Closing, Heritage shall deliver to Lovelace its determination of the
Transition Fees. Should Lovelace disagree with Heritage's determination of
Transition Fees, it shall notify Heritage within thirty (30) days after
Heritage's delivery of its determination of Transition Fees. If Lovelace and
Heritage fail to agree within fifteen (15) days after Lovelace's delivery of
notice of disagreement on the amount of Transition Fees, such disagreement shall
be resolved in accordance with the procedure set forth in Section 3.3 which
shall be the sole and exclusive remedy for resolving accounting disputes
relative to the determination of Transition Fees. The Purchase Price shall be
increased or decreased based on actual Transition Fees, and, within five (5)
business days after determination thereof, any increase shall be paid in cash by
Heritage to Lovelace, and any decrease shall be paid in cash to Heritage by
Lovelace.

         3.3 Dispute of Adjustments. In the event that Lovelace and Heritage are
not able to agree on the actual Transition Fees within fifteen (15) days after
Lovelace's delivery of notice of disagreement, Lovelace and Heritage shall each
have the right to require that such disputed determination be submitted to KPMG,
LLP, or if KPMG, LLP





is not available for any reason or does not maintain its independent status,
such other independent certified public accounting firm as Lovelace and Heritage
may then mutually agree upon in writing (the "Accounting Firm") for computation
or verification in accordance with the provisions of this Agreement. The
Accounting Firm shall review the matters in dispute and, acting as arbitrators,
shall promptly decide the proper amounts of such disputed entries (which
decision shall also include a final calculation of Transition Fees). The
submission of the disputed matter to the Accounting Firm shall be the exclusive
remedy for resolving accounting disputes relative to the determination of
Transition Fees. The Accounting Firm's determination shall be binding upon
Lovelace and Heritage. The Accounting Firm's fees and expenses shall be borne
equally by Lovelace and Heritage.

         3.4 Allocation of Purchase Price. The Purchase Price shall be allocated
among the various classes of Assets in accordance with and as provided by
Section 1060 of the Internal Revenue Code of 1986, as amended (the "Code").
Within ninety (90) days of the Closing, Heritage shall provide Lovelace with a
preliminary allocation of the Purchase Price for Lovelace's review and approval.
If Heritage and Lovelace cannot agree, initially, on an allocation, then the
matter shall be submitted to such independent accounting firm as Lovelace and
Heritage may then mutually agree upon in writing for final resolution of all
allocation matters. The parties agree that any tax returns or other tax
information they may file or cause to be filed with any governmental agency
shall be prepared and filed consistently with such agreed upon allocation.

         4. LOVELACE'S COVENANTS, REPRESENTATIONS AND WARRANTIES. Lovelace
hereby covenants, represents and warrants to Heritage as follows:

         4.1 Organization and Due Authorization. Lovelace is a corporation duly
organized, validly existing and in good standing under the laws of the state of
New Mexico and has the requisite corporate power to carry on its business as it
is now being conducted. Lovelace has full corporate power and authority to enter
into and perform this Agreement and all other agreements and transactions
contemplated hereby. The execution, delivery and performance by Lovelace of this
Agreement has been duly authorized and approved by all requisite corporate
action on the part of Lovelace.

         4.2 No Violation. Neither Lovelace's execution and delivery, nor the
performance by Lovelace of, Lovelace's obligations contained in this Agreement,
(a) constitutes a breach or default or gives rise to a right of acceleration
under any mortgage, contract, or other agreement to which Lovelace is a party or
by which Lovelace is affected or bound, or (b) results in the creation or
imposition of any lien of any nature whatsoever upon any of the Assets or gives
to others any interest or rights therein.

         4.3 Legal Proceedings. There is no legal, administrative, arbitration
or other proceeding, pending or, to the knowledge of Lovelace, threatened
against Lovelace which, if resolved against Lovelace, would have a material
adverse effect on Lovelace, or a material adverse affect on any of the Assets,
and Lovelace has no knowledge of any




possible similar claim. No federal or state law prohibits the sale of the assets
by Lovelace to Heritage.

         4.4 Ownership of Assets. Lovelace owns, or at Closing will own, good
and marketable title to all of the Assets including, without limitation, the
Records, free of any liens, mortgages, privileges, security interests,
encumbrances or charges of any kind or character whatsoever.

         4.5 Employee Benefit Plans. There is no employee pension benefit plan
or employee welfare benefit plan or retirement plan of any kind or nature that
relates to or is binding on the Assets. Lovelace has no employment contract with
any of Lovelace's home healthcare employees that is not terminable at will.

         4.6 Successor in Business. Lovelace shall request and shall provide
Heritage with a certificate evidencing that no taxes are due from Lovelace to
the State of New Mexico under the successor in business provisions of NMSA
ss. 7-1-61, et seq. ("Tax Certificate").

         4.7 Taxes and Governmental Returns. All tax returns (including
specifically those relating to employment taxes), information returns and
governmental reports of every nature required by any governmental authority or
governmental requirement to be filed by Lovelace, or which include or should
include Lovelace, or the Assets, including, but not limited to, those relating
to taxes of any nature to which Lovelace is subject, have been filed for all
periods for which they are due. All taxes due and payable by Lovelace to any
governmental authority have been paid.

         4.8 Records. To the knowledge of Lovelace, the Records have been kept
or prepared properly and contain records of all matters required to be included
therein by any governmental requirement and by accepted professional standards.

         5. HERITAGE'S COVENANTS, REPRESENTATIONS AND WARRANTIES. Heritage
covenants, represents and warrants to Lovelace as follows:

         5.1 Organization and Due Authorization. Heritage is a corporation duly
organized, validly existing and in good standing under the laws of the state of
New Mexico and has the requisite corporate power to carry on its business as it
is now being conducted. Heritage is duly qualified to transact business and in
good standing in the State of New Mexico. Heritage has full corporate power and
authority to enter into and perform this Agreement and all other agreements and
transactions contemplated hereby. The execution, delivery and performance by
Heritage of this Agreement has been duly authorized and approved by all
requisite corporate action on the part of Heritage.

         5.2 No Violation. Neither the execution nor delivery by Heritage of
this Agreement nor the performance by Heritage of its obligations under this
Agreement will violate any applicable local, state or federal law or regulation
which would have a material adverse effect on the transactions contemplated
hereby.




         5.3 Legal Proceedings. Except as set forth in Schedule 5.3, there is no
legal, administrative, arbitration or other proceeding pending or to Heritage's
knowledge threatened against Heritage which, if resolved against Heritage, would
have a material adverse effect on Heritage and Heritage has no knowledge of any
possible similar claim.

         6. CONDITIONS TO LOVELACE'S OBLIGATIONS. Lovelace's obligations under
this Agreement shall be subject to the satisfaction, prior to or at closing, of
the following conditions:

         6.1 Representations and Warranties True. Heritage's representations and
warranties shall be true and accurate in all material respects as of the date
made and at and as of the Closing Date.

         6.2 Performance of Covenants; No Litigation. Heritage shall have
performed and complied in all material respects with each and every covenant and
condition required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. No order of any court or administrative agency
shall be in effect or threatened which restrains or prohibits the transactions
contemplated hereby.

         6.3 Waiver. Lovelace may, in its sole and absolute discretion, waive in
writing, any condition precedent to the Closing set forth in this section 6.

         7. CONDITIONS TO HERITAGE'S OBLIGATIONS. Heritage obligations under
this Agreement shall be subject to the satisfaction, at or before the Closing,
of the following conditions:

         7.1 Representations and Warranties True. Lovelace's representations and
warranties shall be true and accurate in all material respects as of the date
made and at and as of the Closing Date.

         7.2 Performance of Covenants; No Litigation. Lovelace shall have
performed and complied in all material respects with each and every covenant,
agreement and condition required to be performed or complied with by it prior to
or on the Closing Date. No order of any court or administrative agency shall be
in effect or threatened which restrains or prohibits the transactions
contemplated hereby.

         7.3 Tax Certificate; Approvals and Consents. Lovelace shall have
obtained and delivered to Heritage the Tax Certificate and all consents, waivers
and approvals, for the transfer of the Assets (other than patient Medicare
Admission Forms, which shall be processed during the Transition Period pursuant
to section 9.2 below).

         7.4 Waiver. Heritage may, in its sole and absolute discretion, waive,
in writing, any condition precedent to the Closing set forth in this section 7.




         8. CLOSING DATE.

         8.1 Time and Place of Closing. The closing of the purchase and sale of
the Assets shall be held at 8212 Louisiana Boulevard, N.E. Albuquerque, New
Mexico, or such other place as the parties may agree, on July 31, 2004 ("Closing
Date").

         8.2 Lovelace to Heritage. At Closing, Lovelace shall deliver to
Heritage, in form and substance reasonably acceptable to Heritage, the
following:

         (a) Bill of Sale. A bill of sale or assignment covering the Assets;

         (b) Tax Certificate. The Tax Certificate;

         (c) Records. The Records;

         (d) Gentiva's Consent. The consent to transfer authorizations for
visits required pursuant to section 9.2(b).

         (e) Other Instruments. Such other instruments and documents as are
required or contemplated by this Agreement.

         8.3 Heritage to Lovelace. At Closing, Heritage shall deliver to
Lovelace in any form and substance reasonably acceptable to Lovelace, the
following:

         (a) immediately available funds in the amount of the Purchase Price in
accordance with Section 3 hereof; and

         (b) such instruments and documents as are required or contemplated by
this Agreement.

          8.4 Termination. Notwithstanding anything contained in this Agreement
to the contrary, this Agreement may be terminated at any time prior to the
Closing as follows:

         (a) By mutual written consent of Lovelace and Heritage; or

         (b) By either Heritage or Lovelace if the conditions to such party's
obligations hereunder have not been fully satisfied (or waived) on or before the
Closing Date.

         If this Agreement is terminated pursuant to the provisions of this
section 8.4, no party shall have any liability of any nature whatsoever to the
other under this Agreement, including liability for damages, unless that party
is in default under its obligations under this Agreement, in which event the
party in default shall be liable to the other party for such default.




         9. TRANSITION.

         9.1 Commencement of Employment. Effective the day after the Closing
Date, those Lovelace home health care employees to be hired by Heritage shall
commence employment with Heritage. Lovelace shall be responsible for payment of
all wages, compensation and other employee benefits for such employees prior to
Closing. Heritage shall be responsible for payment of all wages, compensation
and other employee benefits for such employees after Closing. Notwithstanding
the foregoing, in no event shall this section 9.1 be construed as an offer or
guarantee of employment by Heritage to any Lovelace home healthcare employee.

         9.2 Transition. Beginning on the Closing Date and continuing until
August 30, 2004 ("Transition Period"), Lovelace and Heritage shall transition
Lovelace's home healthcare patients to Heritage in the manner provided in this
section 9.2. Lovelace shall cooperate with Heritage to transition patients from
Lovelace to Heritage.

         (a) Medicare Patients. For Medicare patients, as soon as reasonably
practicable after Closing, each Heritage caregiver responsible for a particular
home healthcare patient shall visit the patient for and on behalf of Lovelace
and complete an Oasis patient discharge form to discharge the patient from
Lovelace's home healthcare system. The day after discharge, the Heritage
caregiver shall again visit the patient to complete applicable Oasis admission
forms to admit the patient to Heritage's home healthcare service ("Medicare
Admission Date"). Heritage shall commence providing home healthcare services to
the patient as necessary or appropriate on and after the Medicare Admission
Date.

         (b) Other Patients. For all other home healthcare patients ("Other
Patients"), Lovelace and Heritage shall jointly determine the date on which
Heritage shall commence providing home healthcare services to a particular
patient ("Transition Date"). Lovelace shall obtain (and deliver to Heritage
prior to closing) from Gentiva Health Services ("Gentiva") its written consent
to transfer uncompleted authorizations for visits from Lovelace to Heritage.
Gentiva's consent shall specifically authorize Heritage to bill and collect fees
at Heritage's Gentiva contract rate. Heritage will begin providing home
healthcare service to such Other Patients on the Transition Date. If an Other
Patient is not transitioned to Heritage's home healthcare service, Lovelace
shall continue to provide home healthcare service to the patient, provided that
such patient is transitioned to another qualified home healthcare provider prior
to the expiration of the Transition Period. If Lovelace is unable to provide
home healthcare service to an Other Patient pending transition, Lovelace shall
subcontract with Heritage to provide such service to such Other Patients at the
fee set forth in section 9.3 below. If Heritage is unable to provide home
healthcare service to the Other Patient pending transition, Lovelace may
subcontract with another home healthcare provider.

         9.3 Subcontract for Patients/Fee.

         (a) Heritage Subcontract. Lovelace shall subcontract with Heritage to
provide home healthcare services to Lovelace's patients during the Transition
Period through the patient's Medicare Admission Date or Transition Date. For its
services, Lovelace shall




pay Heritage a fee in an amount equal to $80, plus applicable gross receipts
tax, for each visit by a caregiver to a home healthcare patient ("Heritage
Transition Fees"). Heritage's Transition Fees shall be paid through a reduction
of the Purchase Price in the manner provided in section 3. Lovelace shall be
solely responsible for billing and collecting fees for services to Lovelace home
healthcare patients up to (but not including) the patient's Medicare Admission
Date or Transition Date. Lovelace shall not bill or collect fees for home
healthcare services provided to a Lovelace patient after the patient's Medicare
Admission Date or Transition Date, or after the expiration of the Transition
Period.

         (b) Lovelace Subcontract. Heritage shall subcontract with Lovelace to
provide speech therapy home healthcare services to Heritage's patients during
the Transition Period. For its services, Heritage shall pay Lovelace a fee in an
amount equal to $80, plus applicable gross receipts tax, for each visit by a
caregiver to a home healthcare patient ("Lovelace Transition Fees"). Lovelace's
Transition Fees shall be paid through an increase in the Purchase Price in the
manner provided in section 3. Heritage shall be solely responsible for billing
and collecting fees for services to Heritage's home healthcare patients.

         9.4 Cancellation of Provider Numbers. Lovelace shall cancel its
Medicare and Medicaid home healthcare provider numbers after all patients have
been transitioned to Heritage.

         9.5 Nurse Liaison. Lovelace will provide Heritage's nurse liaisons with
substantially the same access to Lovelace healthcare facilities and personnel as
is currently provided to the Lovelace nurse liaison.

         10.  NONSOLICITATION/NONCOMPETITION

         10.1 Non Solicitation. For the period commencing on the Closing Date
and ending three (3) years thereafter, neither Lovelace (nor any affiliate of
Lovelace), shall, directly or indirectly, (i) induce or attempt to induce any
Heritage employee to leave Heritage, or (ii) hire any employee of Heritage until
six (6) months after termination of the employee's employment with Heritage.
Notwithstanding the foregoing, the prohibition against hiring an employee of
Heritage set forth in section 10.1(ii) shall not apply if Heritage consents to
the hiring of such employee; provided that Heritage may withhold its consent for
any reason whatsoever.

         10.2 Non Competition. For the period commencing on the Closing Date and
ending three (3) years thereafter, neither Lovelace (nor any affiliate of
Lovelace), without Heritage's prior written consent (which may be withheld with
or without reason), shall engage, directly or indirectly, whether alone or
together, with or on behalf of or through any other person, whether as a,
partner, member, investor, stockholder, or any type of principal whatsoever, or
as agent, advisor, lender, or otherwise, in any phase of the home healthcare
business in the State of New Mexico. Notwithstanding the foregoing, if Lovelace
or any affiliate purchases a health system or facility that includes an existing
home healthcare business (other than a health system or facility primarily
engaged in the





home healthcare business), Lovelace shall not be in breach of this covenant and
will not be subject to the liquidated damages set forth herein.

         If Lovelace breaches a covenant contained in this section 10.2,
Heritage shall be entitled to recover from Lovelace, on demand, as liquidated
damages and not as a penalty, an amount equal to 100% of the fees for home
health care services billed by Lovelace (or the affiliate) for the period during
which such services were provided in violation of this section 10.2. Lovelace
acknowledges and agrees that if Lovelace (or an affiliate) breaches this section
10.2, Heritage will suffer unique damages and that the liquidated damages
provided by this section represent a reasonable and fair measure of the actual
damages that Heritage is likely to suffer by reason of any such breach.

         10.3 Modification of Covenants. If any covenant of Lovelace contained
in this section 10 is held by any Court or other constituted legal authority to
be void or otherwise unenforceable as to duration, area or jurisdiction, this
section shall be considered amended and modified so as to reduce the duration or
eliminate the area or jurisdiction to the extent required for such covenant to
be upheld by any such court or legal authority.

         10.4 Affiliate. For purposes of this section 10, the term "affiliate"
means any corporation, limited liability company, partnership or other legal
entity that, directly or indirectly, controls, is controlled by or is under
common control with Lovelace.

         10.5 Right of First Refusal. If Lovelace or any affiliate acquires a
healthcare system or facility that includes a home healthcare business during
the non-competition time frame and area and decides to sell such home healthcare
business or receives or obtains an offer from a third-party (the "Offeror") to
acquire in any manner the home healthcare business, Lovelace or the applicable
affiliate shall promptly notify Heritage in writing of the offer received,
including the name of the Offeror, the proposed purchase price and the other
terms and conditions of the offer. Heritage shall have the right (the "Right of
First Refusal") for a period of sixty (60) days from the day it receives notice
of such offer to purchase such home healthcare business subject to the offer on
the same terms and conditions contained in the offer. Heritage may exercise such
Right of First Refusal by notifying Lovelace or the applicable affiliate prior
to the end of the sixty (60) day period of its intent to exercise such right. If
Heritage fails to exercise the Right of First Refusal or indicates in writing
that it will not exercise the Right of First Refusal within the period provided,
or if Heritage exercises the Right of First Refusal but fails to effect the
purchase within the prescribed period, Lovelace or the applicable affiliate may,
convey or dispose of the home healthcare business that was the subject of the
offer, but only at the price, terms and conditions, and to the Offeror. If the
terms and conditions are more favorable to the proposed purchaser or are in any
material manner different from, those offered to Heritage, Heritage shall again
have the right to purchase the home healthcare business which is subject to the
more favorable or different purchase terms in accordance with this Section 10.5.



         11. MISCELLANEOUS PROVISIONS.

         11.1 Indemnification. Lovelace shall indemnify and hold harmless
Heritage (and its directors, officers, employees, attorneys and other agents)
from and against any and all claims, demands, liabilities, damages, losses and
expenses (including reasonable attorney's fees and costs) arising from, related
to, or in connection with (a) any breach by Lovelace of any covenant, warranty
or representation contained in this Agreement, (b) the ownership or operation of
Lovelace's home healthcare business or any of the Assets prior to Closing, (c)
home health care service provided to a particular Lovelace patient prior to the
Medicare Admission Date, and (d) any failure to comply with the provisions of
the Worker Adjustment and Notification Act as a result of the sale of Lovelace's
home healthcare business. Heritage shall indemnify and hold harmless Lovelace
(and its directors, officers, employees, attorneys and other agents) from and
against any and all claims, demands, liabilities, damages, losses and expenses
(including reasonable attorney's fees and costs) arising from, related to, or in
connection with (a) and breach by Heritage of any covenant, warranty or
representation contained in this Agreement, or (b) the ownership or operation of
Heritage's home healthcare business or any of the Assets after Closing (except
with respect to home healthcare services provided prior to the patient's
Medicare Admission Date or Transition Date), and (c) home healthcare service
provided to a particular Lovelace patient after the Medicare Admission Date.
Neither Lovelace nor Heritage shall have any liability under this section unless
and until the aggregate amount of a party's losses exceeds $10,000, at which
time the applicable party will be responsible for losses in excess of such
amount. The maximum liability of Lovelace and Heritage under this Section shall
be an amount equal to the Purchase Price and neither Lovelace nor Heritage shall
have any liability in respect of liability in excess of the Purchase Price. The
indemnification obligations set forth in this section 11.1 shall survive
Closing.

         11.2 Survival of Representations and Warranties; Further Assurance. The
representations and warranties of Lovelace and Heritage shall survive Closing
for a period of two (2) years after the Closing Date and any claim by Heritage
against Lovelace or Lovelace against Heritage in respect of such representations
and warranties must be brought, if at all, during such two year period. Lovelace
agrees that after the Closing Date it will, from time to time, upon the
reasonable request of Heritage, execute, acknowledge and deliver in proper form
any instrument of conveyance or further assurance reasonably necessary or
desirable to transfer the Assets to Heritage in accordance with the terms of
this Agreement.

         11.3 EXCLUSIVE. OTHER THAN CLAIMS FOR FRAUD, ANY CLAIM ARISING UNDER
THIS AGREEMENT OR IN CONNECTION WITH OR AS A RESULT OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY LOSS OR INJURY ALLEGED TO BE SUFFERED BY
ANY PARTY AS A RESULT OF THE ACTIONS OR FAILURE TO ACT BY ANY OTHER PARTY SHALL
BE GOVERNED SOLELY AND EXCLUSIVELY BY THE PROVISIONS OF THIS ARTICLE 11. IF
SELLER AND BUYER CANNOT RESOLVE SUCH CLAIM BY MUTUAL AGREEMENT, SUCH CLAIM SHALL
BE DETERMINED BY ADJUDICATION BY A COURT OR SIMILAR TRIBUNAL SUBJECT TO THE
PROVISIONS OF THIS ARTICLE 11.




OTHER THAN CLAIMS FOR FRAUD, THE REMEDIES PROVIDED IN THIS ARTICLE 11 ARE THE
SOLE AND EXCLUSIVE REMEDIES AVAILABLE TO THE PARTIES TO THIS AGREEMENT.

         11.4 Non-Waiver. The failure by either party at any time to require
performance of any provision hereof shall not affect its right later to require
such performance. No waiver in any one or more instances shall (except as stated
therein) be deemed to be a further or continuing waiver of any such condition or
breach in other instances or a wavier of any condition or breach of any other
term, covenant, representation or warranty.

         11.5 Expenses. Except as otherwise provided in this Agreement, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expenses.

         11.6 Notices. All notices, requests, demands or other communications
required or permitted by this Agreement shall be in writing and effective when
received, and delivery shall be made personally or by certified mail, return
receipt requested, postage prepaid, or overnight courier or confirmed facsimile
transmission, addressed as follows:




         If to Heritage:                       If to Seller:
         --------------                        -------------
                                           
         Len Trainor, President                Lovelace Sandia Health System, Inc.
         Heritage Home Healthcare, Inc.        One Burton Hills Blvd., Suite 250
         8212 Louisiana Blvd., NE              Nashville, Tennessee  37215
         Albuquerque, New Mexico 87122         Attn:  General Counsel



or to such other addresses as may be specified pursuant to notice given by
either party in accordance with the provision of this Section 11.6.

         11.7 Counterparts; Headings. This Agreement may be executed
simultaneously in two or more counterparts, each of each shall be deemed an
original, but all of which together shall constitute one and the same
instrument. The headings of the sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof.

         11.8 Review of Agreement. Lovelace and Heritage represents and warrants
that they have read and understand the terms of this Agreement and neither party
is relying on the other party's , directors, officers, employees, shareholders,
attorneys, accountants or other agents, for any advice with respect to or in
connection with its rights and obligations under or in connection with this
Agreement or the sale of the Assets to Heritage pursuant to this Agreement.

         11.9 Attorneys Fees. If it becomes necessary for either party to
initiate or commence any action, suit or legal proceeding to enforce the terms
of this Agreement, the prevailing party shall be entitled to receive its or his
costs of such proceedings, including reasonable attorney's fees.




         11.10 Other. This Agreement may not be assigned in whole or in part by
either party without the prior written consent of the other party, which consent
shall not be unreasonably withheld. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of New Mexico. This Agreement contains the entire
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undertakings, other than those expressly set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to the subject matter addressed herein. This
Agreement may be amended, modified or supplemented only by mutual written
consent of the parties hereto.

         The parties hereto have caused this Agreement to be executed in
multiple original counterparts as of the date first above written.


Seller:                                       Purchaser:


Lovelace Sandia Health System, Inc.           Heritage Home Healthcare, Inc.



By: /s/ Stephen C. Petrovich                  By: /s/ Len Trainor
   --------------------------------------         ------------------------------
   Stephen C. Petrovich, General Counsel          Len Trainor, President and CEO
   Senior Vice President and Secretary

EX-10.1

                                                                    EXHIBIT 10.1


                       FIRST AMENDMENT TO CREDIT AGREEMENT


         THIS FIRST AMENDMENT TO CREDIT AGREEMENT dated as of December 31, 2003
(the "Agreement") is entered into among Ardent Health Services, Inc., a Delaware
corporation (the "Borrower"), each of the parties identified as "Guarantors" on
the signature pages hereto (the "Guarantors"), the Lenders party hereto and Bank
One, NA, as Administrative Agent (in such capacity, the "Administrative Agent").
All capitalized terms used herein and not otherwise defined herein shall have
the meanings given to such terms in the Credit Agreement (as defined below).

                                    RECITALS

         WHEREAS, the Borrower, the Guarantors, the Lenders and the
Administrative Agent entered into that certain Credit Agreement dated as of
August 19, 2003 (as amended and modified from time to time, the "Credit
Agreement");

         WHEREAS, the Borrower has requested and the Lenders have agreed to
amend certain terms of the Credit Agreement as set forth below;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

         1. Reaffirmation. The Loan Parties acknowledge and confirm (a) that the
Borrower's obligation to reimburse the L/C Issuer for any drawing on a Letter of
Credit is unconditional and not subject to any offsets, defenses or
counterclaims, (b) that to the best of their knowledge, the Administrative
Agent, the Collateral Agent and the Lenders have performed fully all of their
respective obligations under the Credit Agreement and the other Loan Documents
to date, and (c) by entering into this Agreement, the Lenders do not waive or
release any term or condition of the Credit Agreement or any of the other Loan
Documents or any of their rights or remedies under such Loan Documents or
applicable law or any of the obligations of any Loan Party thereunder.

         2. Amendments to the Credit Agreement. Effective on December 31, 2003,
the Credit Agreement is hereby amended as follows:

                  (a) The words "the Borrower" in the definition of
         "Intercompany Note" in Section 1.01 of the Credit Agreement are hereby
         deleted and replaced with the words "any Loan Party".

                  (b) The words "the Borrower" in the definition of
         "Intercompany Security Documents" in Section 1.01 of the Credit
         Agreement are hereby deleted and replaced with the words "any Loan
         Party".

                  (c) The definition of "Disposition" in Section 1.01 of the
         Credit Agreement is hereby amended by adding an additional subclause
         (ix) thereto in the appropriate numerical place to read as follows:
         "(ix) the disposition of disposable inventory in bulk to a third party
         which disposable inventory shall then be consigned from such third
         party to the Borrower or any Subsidiary for the benefit of or use by
         such Persons in the ordinary course of such Person's patient care
         operations,"

                  (d) The following new definitions are hereby added to Section
         1.01 of the Credit Agreement in the appropriate alphabetical order:




                           "Lovelace Intercompany Loan" has the meaning set
                  forth in Section 8.02(g)(i).

                           "Quoted Rate" means, with respect to any Quoted Rate
                  Swingline Loan, the fixed or floating percentage rate per
                  annum, if any, offered by the Swing Line Lender and accepted
                  by the Borrower in accordance with the provisions hereof;
                  provided that from the date that any Lender funds a
                  participation interest in such Quoted Rate Swingline Loan, the
                  Quoted Rate for such Quoted Rate Swingline Loan shall be a
                  rate equal to the Base Rate plus the Applicable Margin.

                           "Quoted Rate Swing Line Loan" means any Swing Line
                  Loan that bears interest at the Quoted Rate.

                  (e) The penultimate sentence in Section 2.04(a) of the Credit
         Agreement is hereby amended to read as follows:

                  Each Swing Line Loan shall be a Base Rate Loan or a Quoted
                  Rate Swing Line Loan, as the Borrower may elect.

                  (f) The second sentence in Section 2.04(b) of the Credit
         Agreement is hereby amended to read as follows:

                  Each such notice must be received by the Swing Line Lender and
                  the Administrative Agent not later than 1:00 p.m. on the
                  requested borrowing date, and shall specify (i) the amount to
                  be borrowed, which shall be a minimum of $100,000, (ii) the
                  requested borrowing date, which shall be a Business Day and
                  (iii) whether such Swing Line Loan shall be a Base Rate Loan
                  or Quoted Rate Swing Line Loan.

                  (g) Subclause (iii) in Section 2.08(a) of the Credit Agreement
         is hereby amended to read as follows:

                  (iii)(A) each Swing Line Loan that is a Base Rate Loan shall
                  bear interest on the outstanding principal amount thereof from
                  the applicable borrowing date at a rate per annum equal to the
                  Base Rate plus the Applicable Rate, and (B) each Swing Line
                  Loan that is a Quoted Rate Swing Line Loan shall bear interest
                  on the outstanding principal amount thereof from the
                  applicable borrowing date at a rate per annum equal to the
                  Quoted Rate applicable thereto.

                  (h) Section 7.01(a)(i) of the Credit Agreement is hereby
         amended to read as follows:

                           (i) as soon as available, but in any event within
                  ninety days after the end of each fiscal year of the Parent, a
                  consolidated balance sheet of the Parent and its Subsidiaries
                  as at the end of such fiscal year, and the related
                  consolidated statements of income or operations, shareholders'
                  equity and cash flows for such fiscal year, setting forth in
                  each case in comparative form the figures for the previous
                  fiscal year, all in reasonable detail and prepared in
                  accordance with GAAP and SEC requirements, audited and
                  accompanied by a report and opinion of an independent
                  certified public accountant of nationally recognized standing
                  reasonably acceptable to the Required Lenders, which report
                  and opinion shall be prepared in accordance with generally
                  accepted auditing standards and shall not be subject to any
                  "going concern" or like qualification or exception or any
                  qualification or exception as to the scope of such audit; and



                                       2


                  (i) Section 7.01(b)(i) of the Credit Agreement is hereby
         amended to read as follows:

                           (i) as soon as available, but in any event within
                  forty-five days after the end of each of the first three
                  fiscal quarters of each fiscal year of the Parent, a
                  consolidated balance sheet of the Parent and its Subsidiaries
                  as at the end of such fiscal quarter, and the related
                  consolidated statements of income or operations, shareholders'
                  equity and cash flows for such fiscal quarter, setting forth
                  in each case in comparative form the figures for the
                  corresponding fiscal quarter of the previous fiscal year and
                  the corresponding portion of the previous fiscal year, all in
                  reasonable detail and certified by a Responsible Officer of
                  the Parent as fairly presenting in all material respects the
                  financial condition, results of operations, shareholders'
                  equity and cash flows of the Parent and its Subsidiaries in
                  accordance with GAAP and SEC requirements, subject only to
                  normal year-end audit adjustments and the absence of
                  footnotes.

                  (j) Section 7.02(c) of the Credit Agreement is hereby amended
         to read as follows:

                           (c) within 30 days after the end of each calendar
                  month, a certificate as of the end of the immediately
                  preceding month, substantially in the form of Exhibit K and
                  certified by a Responsible Officer of the Borrower to be true
                  and correct as of the date thereof (a "Borrowing Base
                  Certificate");

                  (k) Section 7.02(d) of the Credit Agreement is hereby amended
         to read as follows:

                           (d) within 30 days after the end of each fiscal year
                  of the Parent, beginning with the fiscal year ending December
                  31, 2003, an annual business plan and budget of the Parent and
                  its Subsidiaries containing, among other things, pro forma
                  financial statements for each quarter of the next fiscal year
                  and projected Consolidated Capital Expenditures (in reasonable
                  detail) for such fiscal year.

                  (l) The penultimate sentence in the last paragraph of Section
         7.02 of the Credit Agreement is hereby amended to read as follows:

                  Notwithstanding anything contained herein, the Loan Parties
                  shall be required to deliver the Compliance Certificates
                  required by Section 7.02(b) either (a) directly to the
                  Administrative Agent and each of the Lenders in the form of
                  paper copies or (b) to the Administrative Agent and the
                  Lenders via the IntraLinks/IntraAgency website or another
                  relevant website, if any, to which each Lender and the
                  Administrative Agent have access (whether a commercial, third
                  party website or whether sponsored by the Administrative
                  Agent).

                  (m) Subclause (i) in Section 8.02(g) of the Credit Agreement
         is hereby amended to read as follows:

                           (i) $70,000,000 intercompany loan from any Loan Party
                  to Lovelace (the "Lovelace Intercompany Loan") (it being
                  understood and agreed that the consideration giving rise to
                  the Lovelace Intercompany Loan shall not be cash consideration
                  but rather the value contributed to Lovelace pursuant to the
                  Lovelace/Sandia Merger); provided that (A) Lovelace shall have
                  delivered an Intercompany Note in the amount of $70 million to
                  such Loan Party and pledged its assets to such Loan Party to
                  secure such Intercompany Note pursuant to the Intercompany
                  Security Documents and (B) such Loan Party shall have
                  delivered such Intercompany Note to the Collateral Agent,
                  executed Collateral Assignment





                                       3


                  Documents and delivered such other documentation to the
                  Collateral Agent in accordance with Section 7.14.

                  (n) The last sentence of Section 8.05 of the Credit Agreement
         is hereby amended to read as follows:

                  Notwithstanding the foregoing, the parties hereto agree that
                  AHS Summit Hospital, LLC may donate the Baton Rouge Property
                  to Health Care Services Foundation.

                  (o) Section 8.11(e) of the Credit Agreement is hereby amended
         to increase the amount of permitted Consolidated Capital Expenditures
         for the period from July 1, 2003 through December 31, 2003 from
         $35,000,000 to $47,000,000.

                  (p) Section 8.12(d) of the Credit Agreement is hereby amended
         to read as follows:

                           (d) Accept or permit to be made any principal payment
                  on (i) the Lovelace Intercompany Loan or (ii) any other
                  intercompany loan made to an HMO Subsidiary in accordance with
                  the terms of Section 7.12(a)(iii) and Section 8.02(g)(ii).

         3. Conditions Precedent. This Agreement shall be effective upon the
receipt by the Administrative Agent of counterparts of this Agreement, duly
executed by the Borrower, the Guarantors and the Required Lenders.

         4. Miscellaneous.

                  (a) The Credit Agreement, and the obligations of the Loan
         Parties thereunder and under the other Loan Documents, are hereby
         ratified and confirmed and shall remain in full force and effect
         according to their terms.

                  (b) Each Guarantor (a) acknowledges and consents to all of the
         terms and conditions of this Agreement, (b) affirms all of its
         obligations under the Loan Documents and (c) agrees that this Agreement
         and all documents executed in connection herewith do not operate to
         reduce or discharge its obligations under the Credit Agreement or the
         other Loan Documents.

                  (c) The Borrower and the Guarantors hereby represent and
         warrant as follows:

                           (i) Each Loan Party has taken all necessary action to
                  authorize the execution, delivery and performance of this
                  Agreement.

                           (ii) This Agreement has been duly executed and
                  delivered by the Loan Parties and constitutes each of the Loan
                  Parties' legal, valid and binding obligations, enforceable in
                  accordance with its terms, except as such enforceability may
                  be subject to (i) bankruptcy, insolvency, reorganization,
                  fraudulent conveyance or transfer, moratorium or similar laws
                  affecting creditors' rights generally and (ii) general
                  principles of equity (regardless of whether such
                  enforceability is considered in a proceeding at law or in
                  equity).

                           (iii) No consent, approval, authorization or order
                  of, or filing, registration or qualification with, any court
                  or governmental authority or third party is required in
                  connection with the execution, delivery or performance by any
                  Loan Party of this Agreement.



                                       4


                  (d) The Loan Parties represent and warrant to the Lenders that
         (i) the representations and warranties of the Loan Parties set forth in
         Article VI of the Credit Agreement and in each other Loan Document are
         true and correct as of the date hereof with the same effect as if made
         on and as of the date hereof, except to the extent such representations
         and warranties expressly relate solely to an earlier date and (ii) no
         event has occurred and is continuing which constitutes a Default or an
         Event of Default.

                  (e) This Agreement may be executed in any number of
         counterparts, each of which when so executed and delivered shall be an
         original, but all of which shall constitute one and the same
         instrument. Delivery of an executed counterpart of this Agreement by
         telecopy shall be effective as an original and shall constitute a
         representation that an executed original shall be delivered.

                  (f) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
         PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN
         ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.


                  [remainder of page intentionally left blank]











                                       5


         Each of the parties hereto has caused a counterpart of this Agreement
to be duly executed and delivered as of the date first above written.

BORROWER:                  ARDENT HEALTH SERVICES, INC.,
                           a Delaware corporation

                           By: /s/ R. Dirk Allison
                              -----------------------------------------
                           Name:  R. Dirk Allison
                           Title: Executive Vice President and Chief
                                  Financial Officer

GUARANTORS:                ARDENT HEALTH SERVICES LLC,
                           a Delaware limited liability company

                           By: /s/ R. Dirk Allison
                              -----------------------------------------
                           Name:  R. Dirk Allison
                           Title: Executive Vice President and Chief
                                  Financial Officer

                           AHS ALBUQUERQUE HOLDINGS, LLC,
                           a New Mexico limited liability company
                           AHS CUMBERLAND HOSPITAL, LLC,
                           a Virginia limited liability company
                           AHS KENTUCKY HOLDINGS, INC.,
                           a Delaware corporation
                           AHS KENTUCKY HOSPITALS, INC.,
                           a Delaware corporation
                           AHS LOUISIANA HOLDINGS, INC.,
                           a Delaware corporation
                           AHS LOUISIANA HOSPITALS, INC.,
                           a Delaware corporation
                           AHS MANAGEMENT COMPANY, INC.,
                           a Tennessee corporation
                           AHS NEW MEXICO HOLDINGS, INC.,
                           a New Mexico corporation
                           AHS SAMARITAN HOSPITAL, LLC,
                           a Kentucky limited liability company
                           AHS S.E.D. MEDICAL LABORATORIES, INC.,
                           a New Mexico corporation
                           AHS SUMMIT HOSPITAL, LLC,
                           a Delaware limited liability company
                           ARDENT MEDICAL SERVICES, INC.,
                           a Delaware corporation
                           BEHAVIORAL HEALTHCARE CORPORATION,
                           a Delaware corporation

                           By: /s/ R. Dirk Allison
                              -----------------------------------------
                           Name:  R. Dirk Allison
                           Title: Senior Vice President of each of the
                                  foregoing Guarantors







                           BHC MANAGEMENT SERVICES OF NEW MEXICO, LLC,
                           a Delaware limited liability company
                           BHC MANAGEMENT SERVICES OF STREAMWOOD, LLC,
                           a Delaware limited liability company
                           BHC MEADOWS PARTNER, INC.,
                           a Delaware corporation
                           BHC MONTEVISTA HOSPITAL, INC.,
                           a Nevada corporation
                           BHC OF INDIANA, GENERAL PARTNERSHIP,
                           a Tennessee general partnership
                           BHC ALHAMBRA HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC BELMONT PINES HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC CEDAR VISTA HOSPITAL, INC.,
                           a California corporation
                           BHC COLUMBUS HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC FAIRFAX HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC FOX RUN HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC FREMONT HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC GULF COAST MANAGEMENT GROUP, INC.,
                           a Tennessee corporation
                           BHC HEALTH SERVICES OF NEVADA, INC.,
                           a Nevada corporation
                           BHC HERITAGE OAKS HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC HOSPITAL HOLDINGS, INC.,
                           a Delaware corporation
                           BHC INTERMOUNTAIN HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC LEBANON HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC MANAGEMENT HOLDINGS, INC.,
                           a Delaware corporation
                           BHC MANAGEMENT SERVICES, LLC,
                           a Delaware limited liability company
                           BHC MANAGEMENT SERVICES OF INDIANA, LLC,
                           a Delaware limited liability company
                           BHC MANAGEMENT SERVICES OF KENTUCKY, LLC,
                           a Delaware limited liability company

                           By: /s/ R. Dirk Allison
                              -----------------------------------------
                           Name:  R. Dirk Allison
                           Title: Senior Vice President of each of the
                                  foregoing Guarantors








                           BHC OF NORTHERN INDIANA, INC.,
                           a Tennessee corporation
                           BHC PHYSICIAN SERVICES OF KENTUCKY, LLC,
                           a Delaware limited liability company
                           BHC PINNACLE POINTE HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC PROPERTIES, INC.,
                           a Tennessee corporation
                           BHC SIERRA VISTA HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC SPIRIT OF ST. LOUIS HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC STREAMWOOD HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC VALLE VISTA HOSPITAL, INC.,
                           a Tennessee corporation
                           BHC WINDSOR HOSPITAL, INC.,
                           an Ohio corporation
                           BLOOMINGTON MEADOWS, G.P.,
                           a Delaware general partnership
                           COLUMBUS HOSPITAL, LLC,
                           a Delaware limited liability company
                           INDIANA PSYCHIATRIC INSTITUTES, INC.,
                           a Delaware corporation
                           LEBANON HOSPITAL, LLC,
                           a Delaware limited liability company
                           MESILLA VALLEY GENERAL PARTNERSHIP,
                           a New Mexico general partnership
                           MESILLA VALLEY MENTAL HEALTH ASSOCIATES, INC.,
                           a New Mexico corporation
                           NORTHERN INDIANA HOSPITAL, LLC,
                           a Delaware limited liability company
                           VALLE VISTA, LLC,
                           a Delaware limited liability company
                           WILLOW SPRINGS, LLC,
                           a Delaware limited liability company
                           AHS RESEARCH AND REVIEW, LLC,
                           a New Mexico limited liability company
                           BHC NORTHWEST PSYCHIATRIC HOSPITAL, LLC,
                           a Delaware limited liability company

                           By: /s/ R. Dirk Allison
                              -----------------------------------------
                           Name:  R. Dirk Allison
                           Title: Senior Vice President of each of the
                                  foregoing Guarantors








ADMINISTRATIVE
AGENT:                           BANK ONE, NA,
                                 as Administrative Agent

                                 By: /s/ Timothy K. Boyle
                                    -----------------------------------------
                                 Name: Timothy K. Boyle
                                 Title: First Vice President

LENDERS:                         BANK ONE, NA,

                                 By: /s/ Timothy K. Boyle
                                    -----------------------------------------
                                 Name: Timothy K. Boyle
                                 Title: First Vice President

                                 BANK OF AMERICA, N.A.

                                 By: /s/ Peter D. Griffith
                                    -----------------------------------------
                                 Name: Peter D. Griffith
                                 Title: Managing Director


                                 MERRILL LYNCH CAPITAL, A DIVISION OF
                                 MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

                                 By: /s/ Luis A. Viera
                                    -----------------------------------------
                                 Name: Luis A. Viera
                                 Title: Vice President

                                 GENERAL ELECTRIC CAPITAL CORPORATION

                                 By:
                                    -----------------------------------------
                                 Name:
                                 Title:

                                 RESIDENTIAL FUNDING CORPORATION

                                 By: /s/ Kevin Howell
                                    -----------------------------------------
                                 Name: Kevin Howell
                                 Title: SVP


                                 FLEET NATIONAL BANK

                                 By: /s/ Thomas F. Farley, Jr.
                                    -----------------------------------------
                                 Name: Thomas F. Farley, Jr.
                                 Title: Managing Director

                                 FIFTH THIRD BANK

                                 By: /s/ Sandy Hamrick
                                    -----------------------------------------
                                 Name: Sandy Hamrick
                                 Title: Managing Director

EX-10.2

                                                                  EXHIBIT 10.2

                      SECOND AMENDMENT TO CREDIT AGREEMENT

      THIS SECOND AMENDMENT TO CREDIT AGREEMENT dated as of July 12, 2004 (the
"Amendment") is entered into among Ardent Health Services, Inc., a Delaware
corporation (the "Borrower"), each of the parties identified as "Guarantors" on
the signature pages hereto (the "Guarantors"), the Lenders party hereto and Bank
One, NA, as Administrative Agent, Swing Line Lender and L/C Issuer. All
capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in the Credit Agreement (as defined below).

                                    RECITALS

      WHEREAS, the Borrower, the Guarantors, the Lenders and the Administrative
Agent entered into that certain Credit Agreement dated as of August 19, 2003, as
amended by that certain First Amendment to Credit Agreement dated as of December
31, 2003 (as further amended and modified from time to time, the "Credit
Agreement");

      WHEREAS, the Borrower has advised the Lenders that Ardent Medical
Services, Inc. ("Ardent Medical") intends to reduce the amount of Lovelace
Intercompany Loan from $70 million to $43 million;

      WHEREAS, the Borrower has advised the Lenders that Ardent Medical intends
to make an additional intercompany loan (the "Lovelace Intercompany Loan #2") to
Lovelace and (i) to secure the Lovelace Intercompany Loan #2 with the assets of
Lovelace pursuant to the Intercompany Security Documents and (ii) to pledge
Ardent Medical's rights in the Lovelace Intercompany Loan #2 to the Collateral
Agent, in each case on or before the earlier of (a) the purchase by the Borrower
of substantially all of the assets of the Hillcrest HealthCare System in Tulsa,
Oklahoma and in certain other Oklahoma communities pursuant to and in accordance
with the terms of the that certain Asset Purchase Agreement dated as of May 11,
2004 between the Borrower and Hillcrest HealthCare System and such other
agreements, instruments and documents relating thereto (the "Hillcrest
Acquisition") and (b) September 13, 2004;

      WHEREAS, the Borrower has requested that the Lenders (i) amend the Credit
Agreement as set forth herein to permit the reduction of the Lovelace
Intercompany Loan from $70 million to $43 million, (ii) consent to Ardent
Medical waiting until the earlier of (a) the date of the closing of the
Hillcrest Acquisition and (b) September 13, 2004 to make certain modifications
to the Intercompany Security Documents securing the Lovelace Intercompany Loan
in order to reflect the reduction of the Lovelace Intercompany Loan from $70
million to $43 million, and (iii) consent to Ardent Medical waiting until the
earlier of (x) the date of the closing of the Hillcrest Acquisition and (y)
September 13, 2004 to cause the Lovelace Intercompany Loan #2 to be secured by
the assets of Lovelace and to make the related pledge of such assets to the
Collateral Agent, notwithstanding the terms of Sections 7.14 and 8.02(g) of the
Credit Agreement; and

      WHEREAS, the Lenders have agreed to amend the Credit Agreement and to
grant such consents on the terms and conditions set forth herein.

      NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

      1.    Amendments. The Credit Agreement is amended in the following
respects:



            (a)   The definition of "Lovelace" in Section 1.01 is hereby amended
      to read as follows:

                  "Lovelace" means Lovelace Sandia Health System, Inc., a New
            Mexico corporation.

            (b)   The following definitions are hereby added to Section 1.01 in
      the appropriate alphabetical order and shall read as follows:

                  "Second Amendment Effective Date" means July 12, 2004.

            (c)   The following sentence is hereby added at the end of Section
      7.12(a)(iii) to read as follows:

                  Notwithstanding the foregoing, it is understood and agreed
            that as of the Second Amendment Effective Date, the $43,000,000
            promissory note representing the Lovelace Intercompany Loan
            satisfies the requirements of this Section 7.12(a)(iii).

            (d)   Subclause (q) of Section 8.01 is hereby amended to read as
      follows:

                  (q)   Liens in favor of the Borrower or any Loan Party on the
            assets of each HMO Subsidiary or Non-Guarantor Subsidiary in
            accordance with the terms hereof to secure the applicable
            Intercompany Note of such HMO Subsidiary or Non-Guarantor
            Subsidiary;

            (e)   Section 8.02(g) is hereby amended by replacing both references
      to "$70,000,000" in clause (i) thereof with references to "$43,000,000."

            (f)   Subclause (e) of Section 8.04 is hereby amended to read as
      follows and a new subclause (f) is hereby added thereafter to read as
      follows:

                  (e)   the Sandia Parties may merge or consolidate with
            Lovelace pursuant to the Lovelace/Sandia Merger; provided that (i)
            Lovelace shall have delivered an Intercompany Note in the amount of
            $70 million to the Borrower (it being acknowledged that the amount
            of such note as of the Second Amendment Effective Date has been
            lowered to $43 million as set out in Section 7.12(a)(iii)) and
            pledged its assets to the Borrower to secure such Intercompany Note
            pursuant to the Intercompany Security Documents and (ii) the
            Borrower shall have delivered such Intercompany Note to the
            Collateral Agent, executed Collateral Assignment Documents and
            delivered such other documentation to the Collateral Agent in
            accordance with Section 7.14 and (f) nothing in this Section 8.04
            shall prohibit any Disposition otherwise permitted under Section
            8.05.

            (g)   Subclause (i) of Section 10.11(b) is hereby amended by adding
      the following language immediately after the words "$70 million" and
      before the word "to":

            (it being acknowledged that the amount of such note as of the Second
            Amendment Effective Date has been lowered to $43 million as set out
            in Section 7.12(a)(iii))



      2.    Consents. Subject to the satisfaction of the conditions precedent
set forth in Section 3 of this Amendment, the Administrative Agent and the
Lenders hereby (a) consent to the reduction of the Lovelace Intercompany Loan
from $70 million to $43 million, (b) consent to permitting Ardent Medical to
wait until the earlier of (i) the date of the closing of the Hillcrest
Acquisition and (ii) September 13, 2004 to make certain modifications to the
Intercompany Security Documents securing the Lovelace Intercompany Loan in order
to reflect the reduction of the Lovelace Intercompany Loan from $70 million to
$43 million, and (c) consent to permitting Ardent Medical to wait until the
earlier (i) the date of the closing of the Hillcrest Acquisition and (ii)
September 13, 2004 to cause the Lovelace Intercompany Loan #2 to be secured by
the assets of Lovelace and to make the related pledge of such assets to the
Collateral Agent, notwithstanding the terms of Sections 7.14 and 8.02(g) of the
Credit Agreement. This consent is limited solely to the consents specifically
identified in the preceding sentence, and nothing contained in this Amendment
shall be deemed to constitute a waiver of any other rights or remedies the
Administrative Agent or any Lender may have under the Credit Agreement, any
other Loan Documents, applicable law or any of the obligations of any Loan Party
thereunder.

      3.    Conditions Precedent. This Amendment shall be effective upon
satisfaction of the following conditions precedent:

            (a)   receipt by the Administrative Agent of this Amendment executed
      by the Borrower, the Guarantors, the Required Lenders and the
      Administrative Agent; and

            (b)   receipt by the Collateral Agent of a replacement promissory
      note evidencing the Lovelace Intercompany Loan in the amount of
      $43,000,000 in form and substance satisfactory to the Collateral Agent.

      4.    Miscellaneous.

            (a)   The Credit Agreement, and the obligations of the Loan Parties
      thereunder and under the other Loan Documents, are hereby ratified and
      confirmed and shall remain in full force and effect according to their
      terms.

            (b)   Each Guarantor (i) acknowledges and consents to all of the
      terms and conditions of this Amendment, (ii) affirms all of its
      obligations under the Loan Documents, (iii) agrees that this Amendment and
      all documents executed in connection herewith do not operate to reduce or
      discharge its obligations under the Credit Agreement or the other Loan
      Documents and (iv) hereby confirms and agrees that its Guaranty shall
      continue and remain in full force and effect after giving effect to this
      Amendment and that, notwithstanding any contrary terms in such Guaranty,
      such Guaranty now applies to the Credit Agreement as amended by this
      Amendment.

            (c)   The Borrower and the Guarantors hereby represent and warrant
      as follows:

                  (i)   Each Loan Party has taken all necessary action to
            authorize the execution, delivery and performance of this Amendment.

                  (ii)  This Amendment has been duly executed and delivered by
            the Loan Parties and constitutes each of the Loan Parties' legal,
            valid and binding obligations, enforceable in accordance with its
            terms, except as such enforceability may be subject to (A)
            bankruptcy, insolvency, reorganization, fraudulent conveyance or
            transfer, moratorium or similar laws affecting creditors' rights
            generally and (B) general



            principles of equity (regardless of whether such enforceability is
            considered in a proceeding at law or in equity).

                  (iii) No consent, approval, authorization or order of, or
            filing, registration or qualification with, any court or
            governmental authority or third party is required in connection with
            the execution, delivery or performance by any Loan Party of this
            Amendment, other than those that have already been obtained and are
            in full force and effect as of the date hereof.

            (d)   The Loan Parties represent and warrant to the Lenders that (i)
      the representations and warranties of the Loan Parties set forth in
      Article VI of the Credit Agreement and in each other Loan Document are
      true and correct in all material respects as of the date hereof with the
      same effect as if made on and as of the date hereof, except to the extent
      such representations and warranties expressly relate solely to an earlier
      date and (ii) no event has occurred and is continuing which constitutes a
      Default or an Event of Default.

            (e)   The Borrower agrees to pay all reasonable costs and expenses
      of the Administrative Agent in connection with the preparation, execution
      and delivery of this Amendment, including without limitation the
      reasonable fees and expenses of Moore & Van Allen, PLLC.

            (f)   This Amendment may be executed in any number of counterparts,
      each of which when so executed and delivered shall be an original, but all
      of which shall constitute one and the same instrument. Delivery of an
      executed counterpart of this Amendment by telecopy shall be effective as
      an original and shall constitute a representation that an executed
      original shall be delivered.

            (g)   THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
      HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE
      WITH THE LAWS OF THE STATE OF NEW YORK.

                            [Signature pages follow]



      Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.

BORROWER:       ARDENT HEALTH SERVICES, INC.,
                a Delaware corporation

                By: /s/ R. Dirk Allison
                    ------------------------------
                Name: R. Dirk Allison
                Title: Executive Vice President and Chief Financial Officer

GUARANTORS:     ARDENT HEALTH SERVICES LLC,
                a Delaware limited liability company

                By: /s/ R. Dirk Allison
                    ------------------------------
                Name:  R. Dirk Allison
                Title:  Executive Vice President and Chief Financial Officer

                AHS ALBUQUERQUE HOLDINGS, LLC,
                a New Mexico limited liability company
                AHS CUMBERLAND HOSPITAL, LLC,
                a Virginia limited liability company
                AHS KENTUCKY HOLDINGS, INC.,
                a Delaware corporation
                AHS KENTUCKY HOSPITALS, INC.,
                a Delaware corporation
                AHS LOUISIANA HOLDINGS, INC.,
                a Delaware corporation
                AHS LOUISIANA HOSPITALS, INC.,
                a Delaware corporation
                AHS MANAGEMENT COMPANY, INC.,
                a Tennessee corporation
                AHS NEW MEXICO HOLDINGS, INC.,
                a New Mexico corporation
                AHS SAMARITAN HOSPITAL, LLC,
                a Kentucky limited liability company
                AHS S.E.D. MEDICAL LABORATORIES, INC.,
                a New Mexico corporation
                AHS SUMMIT HOSPITAL, LLC,
                a Delaware limited liability company
                ARDENT MEDICAL SERVICES, INC.,
                a Delaware corporation
                BEHAVIORAL HEALTHCARE CORPORATION,
                a Delaware corporation

                By: ______________________________
                Name: R. Dirk Allison
                Title: Senior Vice President of each of the foregoing Guarantors



      Each of the parties hereto has caused a counterpart of this Amendment to
be duly executed and delivered as of the date first above written.

BORROWER:       ARDENT HEALTH SERVICES, INC.,
                a Delaware corporation

                By: _________________________________
                Name:
                Title:

GUARANTORS:     ARDENT HEALTH SERVICES LLC,
                a Delaware limited liability company

                By: _________________________________
                Name: R. Dirk Allison
                Title: Executive Vice President and Chief Financial Officer

                AHS ALBUQUERQUE HOLDINGS, LLC,
                a New Mexico limited liability company
                AHS CUMBERLAND HOSPITAL, LLC,
                a Virginia limited liability company
                AHS KENTUCKY HOLDINGS, INC.,
                a Delaware corporation
                AHS KENTUCKY HOSPITALS, INC.,
                a Delaware corporation
                AHS LOUISIANA HOLDINGS, INC.,
                a Delaware corporation
                AHS LOUISIANA HOSPITALS, INC.,
                a Delaware corporation
                AHS MANAGEMENT COMPANY, INC.,
                a Tennessee corporation
                AHS NEW MEXICO HOLDINGS, INC.,
                a New Mexico corporation
                AHS SAMARITAN HOSPITAL, LLC,
                a Kentucky limited liability company
                AHS S.E.D. MEDICAL LABORATORIES, INC.,
                a New Mexico corporation
                AHS SUMMIT HOSPITAL, LLC,
                a Delaware limited liability company
                ARDENT MEDICAL SERVICES, INC.,
                a Delaware corporation
                BEHAVIORAL HEALTHCARE CORPORATION,
                a Delaware corporation

                By: /s/ R. Dirk Allison
                    -----------------------------
                Name:  R. Dirk Allison
                Title: Senior Vice President of each of the foregoing Guarantors



                BHC MANAGEMENT SERVICES OF NEW MEXICO, LLC,
                a Delaware limited liability company
                BHC MANAGEMENT SERVICES OF STREAMWOOD, LLC,
                a Delaware limited liability company
                BHC MEADOWS PARTNER, INC.,
                a Delaware corporation
                BHC MONTEVISTA HOSPITAL, INC.,
                a Nevada corporation
                BHC OF INDIANA, GENERAL PARTNERSHIP,
                a Tennessee general partnership
                BHC ALHAMBRA HOSPITAL, INC.,
                a Tennessee corporation
                BHC BELMONT PINES HOSPITAL, INC.,
                a Tennessee corporation
                BHC CEDAR VISTA HOSPITAL, INC.,
                a California corporation
                BHC COLUMBUS HOSPITAL, INC.,
                a Tennessee corporation
                BHC FAIRFAX HOSPITAL, INC.,
                a Tennessee corporation
                BHC FOX RUN HOSPITAL, INC.,
                a Tennessee corporation
                BHC FREMONT HOSPITAL, INC.,
                a Tennessee corporation
                BHC GULF COAST MANAGEMENT GROUP, INC.,
                a Tennessee corporation
                BHC HEALTH SERVICES OF NEVADA, INC.,
                a Nevada corporation
                BHC HERITAGE OAKS HOSPITAL, INC.,
                a Tennessee corporation
                BHC HOSPITAL HOLDINGS, INC.,
                a Delaware corporation
                BHC INTERMOUNTAIN HOSPITAL, INC.,
                a Tennessee corporation
                BHC LEBANON HOSPITAL, INC.,
                a Tennessee corporation
                BHC MANAGEMENT HOLDINGS, INC.,
                a Delaware corporation
                BHC MANAGEMENT SERVICES, LLC,
                a Delaware limited liability company
                BHC MANAGEMENT SERVICES OF INDIANA, LLC,
                a Delaware limited liability company
                BHC MANAGEMENT SERVICES OF KENTUCKY, LLC,
                a Delaware limited liability company

                By: /s/ R. Dirk Allison
                    -----------------------------
                Name:  R. Dirk Allison
                Title: Senior Vice President of each of the foregoing Guarantors



                BHC OF NORTHERN INDIANA, INC.,
                a Tennessee corporation
                BHC PHYSICIAN SERVICES OF KENTUCKY, LLC,
                a Delaware limited liability company
                BHC PINNACLE POINTE HOSPITAL, INC.,
                a Tennessee corporation
                BHC PROPERTIES, INC.,
                a Tennessee corporation
                BHC SIERRA VISTA HOSPITAL, INC.,
                a Tennessee corporation
                BHC SPIRIT OF ST. LOUIS HOSPITAL, INC.,
                a Tennessee corporation
                BHC STREAMWOOD HOSPITAL, INC.,
                a Tennessee corporation
                BHC VALLE VISTA HOSPITAL, INC.,
                a Tennessee corporation
                BHC WINDSOR HOSPITAL, INC.,
                an Ohio corporation
                BLOOMINGTON MEADOWS, G.P.,
                a Delaware general partnership
                COLUMBUS HOSPITAL, LLC,
                a Delaware limited liability company
                INDIANA PSYCHIATRIC INSTITUTES, INC.,
                a Delaware corporation
                LEBANON HOSPITAL, LLC,
                a Delaware limited liability company
                MESILLA VALLEY GENERAL PARTNERSHIP,
                a New Mexico general partnership
                MESILLA VALLEY MENTAL HEALTH ASSOCIATES, INC.,
                a New Mexico corporation
                NORTHERN INDIANA HOSPITAL, LLC,
                a Delaware limited liability company
                VALLE VISTA, LLC,
                a Delaware limited liability company
                WILLOW SPRINGS, LLC,
                a Delaware limited liability company
                AHS RESEARCH AND REVIEW, LLC,
                a New Mexico limited liability company
                BHC NORTHWEST PSYCHIATRIC HOSPITAL, LLC,
                a Delaware limited liability company

                By: /s/ R. Dirk Allison
                    -----------------------------
                Name:  R. Dirk Allison
                Title: Senior Vice President of each of the foregoing Guarantors



ADMINISTRATIVE
AGENT:                       BANK ONE, NA,
                             as Administrative Agent

                             By: /s/ Timothy K. Boyle
                                 -----------------------------------------------
                             Name:  Timothy K. Boyle
                             Title: First Vice President

LENDERS:                     BANK ONE, NA,

                             By: /s/ Timothy K. Boyle
                                 -----------------------------------------------
                             Name:  Timothy K. Boyle
                             Title: First Vice President

                             BANK OF AMERICA, N.A.

                             By: /s/ James W. Ford
                                 -----------------------------------------------
                             Name:  James W. Ford
                             Title: Managing Director

                             UBS AG, CAYMAN ISLANDS BRANCH

                             By: /s/ Wilfred V. Salmi
                                 -----------------------------------------------
                             Name:  Wilfred V. Salmi
                             Title: Director
                                    Banking Products Services, US

                             By: /s/ Salloz Sikka
                                 -----------------------------------------------
                             Name:  Salloz Sikka
                             Title: Associate Director
                                    Banking Products Services, US

                             MERRILL LYNCH CAPITAL, A DIVISION OF
                             MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.

                             By: _______________________________________________
                             Name:
                             Title:

                             GENERAL ELECTRIC CAPITAL CORPORATION

                             By: /s/ R. Hanes Whiteley
                                 -----------------------------------------------
                             Name:  R. Hanes Whiteley
                             Title: Vice President

                             RESIDENTIAL FUNDING CORPORATION

                             By: _______________________________________________
                             Name:
                             Title:




                             FLEET NATIONAL BANK

                             By: /s/ James W. Ford
                                 -----------------------------------------------
                             Name:  James W. Ford
                             Title: Managing Director

                             FIFTH THIRD BANK

                             By: _______________________________________________
                             Name:
                             Title:

EX-10.3

\
                                                                   EXHIBIT 10.3

                                                               EXECUTION VERSION

            SECOND AMENDED AND RESTATED INTERCOMPANY PROMISSORY NOTE

$43,000,000                                                        July 12, 2004

      FOR VALUE RECEIVED, LOVELACE SANDIA HEALTH SYSTEM, INC. (formerly known as
Lovelace Health Systems, Inc. and as successor in interest to AHS Albuquerque
Regional Medical Center LLC), a New Mexico corporation (together its successors
and permitted assignees, the "Company"), promises to pay to the order of ARDENT
MEDICAL SERVICES, INC. (as successor in interest to Ardent Health Services,
Inc.), a Delaware corporation (the "Holder"), the Principal Sum (defined below),
together with interest thereon as set forth below.

      WHEREAS, the Company was indebted to the Holder (as successor to Ardent
Health Services, Inc.) under the terms of that certain Amended and Restated
Intercompany Promissory Note dated October 1, 2003 with a stated principal
amount equal to $70,000,000 the ("Existing Note"); and

      WHEREAS the Company and the Holder desire to amend and restate the
Existing Note to reflect a new stated principal amount equal to $43,000,000.

1.    Definitions. All capitalized terms used herein but not otherwise defined
herein shall have the meanings assigned to such terms in the Credit Agreement.
For purposes of this Second Amended and Restated Intercompany Promissory Note
(this "Note"), the following terms shall have the meanings specified below:

      (a)   "Credit Agreement" shall mean that Credit Agreement dated as of
August 19, 2003 by and among the Ardent Health Services, Inc., as borrower,
Holder and the other guarantors identified therein, the lenders identified
therein and Bank One, NA, as administrative agent (together with its successors
and assigns, the "Administrative Agent"), as the same may be amended, modified,
supplemented, extended, increased, refinanced, restated or replaced from time to
time.

      (b)   "Default Rate" shall mean an interest rate equal to the interest
rate required by Section 2(a) plus two percent per annum.

      (c)   "Intercompany Security Documents" means any security agreement,
pledge, mortgage, deed of trust, or other security document executed by the
Company in favor of the Holder, as amended or modified in accordance with the
terms of the Credit Agreement.

      (d)   "Maturity Date" shall have the meaning assigned to such term in
Section 3 hereof.

      (e)   "Obligations" shall have the meaning assigned to such term in the
Credit Agreement.

      (f)   "Principal Sum" means $43,000,000.



      (g)   "Responsible Officer" means the chief executive officer, president,
chief financial officer controller, or treasurer of the Company.

      (h)   "Secured Obligations" has the meaning set forth in the Intercreditor
and Subordination Agreement

2.    Interest. (a) Interest shall accrue on the Principal Sum from the date
hereof at the rate equal to the greater of (a) Base Rate plus four percent
(4.0%) per annum, and (b) six percent (6.0%) per annum (each calculated on the
basis of a 365 day year). Interest shall be due and payable on demand.

      (b)   Upon the occurrence and during the continuation of an Event of
Default, interest on the Principal Sum shall accrue at the Default Rate to the
fullest extent permitted by law.

3.    Maturity Date. The Principal Sum plus all accrued interest shall be due
and payable on the later of (a) November 19, 2008, and (b) 30 days after the
date all Obligations under the Credit Agreement (other than contingent indemnity
obligations that expressly survive termination of the Credit Agreement) are
satisfied in cash in full and all Commitments thereunder have been terminated,
unless accelerated sooner pursuant to Section 6 (the applicable date being
referred to herein as the "Maturity Date"). The Principal Sum shall not be
subject to any scheduled amortization installments.

4.    Prepayments. Subject to Section 6, the Company shall not make, and the
Holder shall not accept, any prepayment (voluntary or mandatory) prior to the
Maturity Date.

5.    Events of Default. The occurrence of any of the following events shall
constitute an Event of Default (each "Event of Default"):

      (a)   the Company shall fail to pay within five (5) days of when required
to be paid herein, any principal, interest or other amounts under this Note; or

      (b)   the Company shall fail to perform or observe any covenant or
agreement contained in this Note or in any Intercompany Security Document on its
part to be performed or observed and such failure continues for thirty days
after the earlier of a Responsible Officer of the Company becoming aware of such
default or notice thereof by the Collateral Agent; or

      (c)   the occurrence of an "Event of Default"' under, and as defined in,
the Credit Agreement, the effect of which is to cause the "Obligations" (as
defined in the Credit Agreement) to be accelerated, demanded due or to otherwise
become due and payable.

6.    Remedies. Upon the occurrence of an Event of Default, the Holder may take
any or all of the following actions:

            (a)   declare the Principal Sum and all accrued interest to be
      immediately due and payable, without presentment, demand, protest or other
      notice of any kind, all of which are hereby expressly waived by the
      Company; and

                                        2


            (b)   exercise all rights and remedies available to it under the
      Intercompany Security Documents or applicable law;

      provided, however, that upon the occurrence of an actual or deemed entry
      of an order for relief with respect to the Company under the Bankruptcy
      Code of the United States, the Principal Sum and all accrued interest
      shall automatically become due and payable, in each case without further
      act of the Holder.

7.    Assignment. The Holder will, immediately upon receipt of this Note, grant
a security interest in, and collateral assign, all of its rights and benefits
under this Note to the Collateral Agent as collateral security for the Secured
Obligations. The Holder may not assign this Note, in whole or in part, to any
other party without the consent of the Collateral Agent (and any purported
assignment or transfer without such consent shall be void). The Company may not
assign this Note, in whole or in part, to any party without the consent of the
Collateral Agent (and any purported assignment or transfer without such consent
shall be void).

8.    Amendments. This Note may not be amended, waived, modified or supplemented
without the prior written consent of the Company and the Collateral Agent.

9.    Third Party Beneficiary Rights. The holders of the Secured Obligations
have made loans and other extensions of credit to the Holder in reliance on the
provisions of this Note, including, without limitation, the provisions of
Sections 4, 5, 6 and 7. The holders of the Secured Obligations are third party
beneficiaries of this Note including, without limitation, the provisions of
Sections 4, 5, 6 and 7. Accordingly, the Collateral Agent shall be entitled to
enforce the provisions of this Note including, without limitation, the
provisions of Sections 4, 5, 6 and 7, against the Holder and/or the Company.

10.   Interest Rate Limitations. Notwithstanding anything to the contrary
contained herein, the interest paid or agreed to be paid under this Note shall
not exceed the maximum rate of non-usurious interest permitted by applicable law
(the "Maximum Rate"). If the Holder shall receive interest in an amount that
exceeds the Maximum Rate, the excess interest shall be refunded to the Company.

11.   Severability. In the event any one or more of the provisions contained in
this Note should be held invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein or therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions the economic effect of
which comes as close as possible to that of the invalid, illegal or
unenforceable provisions.

12.   Counterparts. This Note may be executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall constitute one and the same instrument.

13.   Governing Law. This Note shall be construed in accordance with and
governed by the laws of the State of New Mexico (other than the conflicts of law
principles thereof). Except as prohibited by law, each party hereto hereby
waives any right it may have to a trial by jury in

                                        3


respect of any litigation directly or indirectly arising out of, under or in
connection with this Note.

14.   Applicable Law Limitations. The Principal Sum may be reduced at any time
prior to the Maturity Date by the minimum amount necessary to maintain the
Company's compliance with minimum net worth or other applicable solvency
requirements set forth in Chapter 59A NMSA 1978 or the regulations promulgated
thereunder. The Company will provide Holder with written notice of such
reduction within five (5) Business Days after it occurs, and shall include an
explanation regarding the reasons for the reduction and its anticipated
duration.

15.   No Novation. The principal amount of this Note includes the indebtedness
heretofore evidenced by the Existing Note. This Note (i) merely re-evidences the
indebtedness heretofore evidenced by the Existing Note, (ii) is given in
substitution for, and not as payment of, the Existing Note and (iii) is in no
way intended to constitute a novation of the Company's indebtedness which was
evidenced by the Existing Note.

                            [Signature Page Follows]

                                        4


      IN WITNESS WHEREOF, the Company has caused this Note to be duly executed
as of the day and year first above written.

                             LOVELACE SANDIA HEALTH SYSTEM, INC.,
                             as the Company

                             By: /s/ R. Dirk Allison
                                 -------------------------------
                             Name: R. Dirk Allison
                             Title: Senior Vice President

ACKNOWLEDGED AND AGREED:

ARDENT MEDICAL SERVICES, INC.,
as the Holder

By: /s/ R. Dirk Allison
    ----------------------------------
Name:  R. Dirk Allison
Title: Senior Vice President

BANK ONE, NA,
as Collateral Agent

By: /s/ Timothy K. Boyle
    ----------------------------------
Name:  Timothy K. Boyle
Title: First Vice President

            Second Amended and Restated Intercompany Promissory Note

EX-10.4

                                                                 EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT

      This EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as of
July 1, 2004 by and between AHS Management Company, Inc., a Delaware corporation
(the "Company"), and David T. Vandewater, an individual ("Employee").

                                   WITNESSETH:

      WHEREAS, the Company desires to enter into this Agreement with Employee
and to provide him with the benefits set forth herein in recognition of the
valuable services he has rendered and will continue to render to the Company,
and for the purposes evidenced herein;

      WHEREAS, Employee is ready and willing to continue to render the services
provided for, and on the terms and conditions set forth herein, and he is
willing to refrain from activities competitive with the business of the Company
during the term of and after this Agreement on the terms and conditions set
forth herein;

      WHEREAS, in serving as an employee of the Company, Employee will
participate in the use and development of confidential proprietary information
about the Company, its customers and suppliers, and the methods used by the
Company and its employees in competition with other companies, as to which the
Company desires to protect fully its rights;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:

      1.    Employment. The Company hereby employs Employee and Employee accepts
such employment with the Company, subject to the terms and conditions set forth
herein. Employee shall be employed as President and Chief Executive Officer and
shall perform all duties and services incident to such position, and such other
similar duties and services as may be prescribed by the Bylaws of the Company or
established by the Chairman of the Board of Directors (the "Board") of the
Company, or its parent corporation from time to time. During his employment
hereunder, Employee shall devote his best efforts and attention, on a full-time
basis, to the performance of the duties required of him as an employee of the
Company.

      2.    Principal Office. Employee's principal office and normal place of
work shall be at the Company's principal executive offices in Nashville,
Tennessee ("Principal Office").

      3.    Compensation.

            (a)   As compensation for services rendered by Employee hereunder,
      Employee shall receive:

                  (1)   Salary. An annual salary of $450,000, or such higher
            salary as shall be approved by the Board from time to time, which
            shall be payable in arrears in equal monthly installments
            ("Salary").



                  (2)   Bonus. The Company shall pay Employee an annual cash
            bonus in an amount to be determined by the Board based on whether
            certain reasonable objectives established by the Board prior to the
            beginning of each fiscal year as set forth in the Company's
            Incentive Compensation Plan (the "Plan") have been met. Such bonus
            and objectives may be stated in a written incentive compensation
            program which the Company intends to qualify as "performance based
            compensation" described in Internal Revenue Code section 162(m). The
            bonus payable during the first year, beginning January 1, 2004,
            shall be 100% of Employee's Salary if the Plan objectives have been
            met, and 125% of Salary if the Plan is met and exceeded by 10% or
            more. Thereafter, Employee shall be a full participant in the Plan
            as adopted each year by the Board.

                  (3)   Fringe Benefits. Employee shall be entitled during the
            Term of this Agreement (as defined below) to such other benefits of
            employment with Employer as are now or may hereafter be in effect
            for Employer's senior executives with duties comparable to Employee
            including, without limitation, all incentive and deferred
            compensation, pension, life and other insurance, disability (insured
            and uninsured), medical and dental and other benefit plans or
            programs, paid time off and stock option grants as approved by the
            Board. Without limiting the foregoing, the Company shall (i) provide
            Employee with not fewer than thirty (30) hours of usage of the
            Company's airplane for personal use (as compared to business travel)
            at a cost of $1,800.00 per flight hour (which is the cost of such
            usage to the Company), (ii) continue to provide Employee with two
            executive disability income coverage policies with all premiums paid
            by the Company, (iii) continue to provide Employee with a $5,000,000
            life insurance policy on Employee's life for the remaining term of
            such policy with all premiums to be paid by the Company, and with
            such policy to be owned by Employee or Employee's designee, and (iv)
            advance to Employee all premiums due with respect to a $10,000,000
            second-to-die life insurance policy insuring the joint lives of
            Employee and Employee's spouse, with such policy to be owned by
            Employee or Employee's designee. In addition to advancing the
            premiums on the second-to-die insurance policy, Employee shall be
            entitled to receive an additional payment in an amount such that
            after payment by Employee of all taxes, including income taxes, and
            taking into account any withholding obligation on the part of the
            Company, Employee retains an amount equal to the premiums due on
            such life insurance policy. The Company's obligation to make
            advances to Employee for the premiums due on the second-to-die
            insurance policy shall continue notwithstanding Employee's death.

                  (4)   Expenses. During the Term of this Agreement, Employer
            shall reimburse Employee promptly for all reasonable travel,
            entertainment, parking, business meeting and similar expenditures in
            pursuance and furtherance of Employer's business upon receipt of
            reasonable supporting documentation as required by Employer's
            policies applicable to its officers and other key employees
            generally.

                                        2


                  (5)   Withholdings. All amounts payable to Employee hereunder
            shall be subject to such deductions or withholdings as are required
            by law or the policies of the Company or as may be authorized or
            directed by Employee.

            (b)   Benefits Review. Prior to the end of each fiscal year of the
      Company, the Board shall review Employee's salary and benefits payable
      hereunder. Any increases in salary or changes in fringe benefits
      determined by the Board at such annual review shall become effective the
      following month unless otherwise determined by the Company. Employee
      understands and acknowledges that the opportunity of an annual salary and
      benefit review by the Board shall not be construed in any manner as an
      express or implied agreement by the Company to raise or increase his
      salary or benefits.

            (c)   Indemnification. This Agreement hereby incorporates and makes
      a part of this agreement the Indemnification Agreement dated February
      2002, by and between Employee and Ardent Health Services LLC. The
      provisions and rights guaranteed under that Agreement shall survive any
      termination of this Agreement.

      4.    Confidential Information and Trade Secrets.

            (a)   Trade Secrets. Employee recognizes that Employee's position
      with the Company requires considerable responsibility and trust, and, in
      reliance on Employee's loyalty, the Company may entrust Employee with
      highly sensitive confidential, restricted and proprietary information
      involving Trade Secrets and Confidential Information. For purposes of this
      Agreement, a "Trade Secret" is any scientific or technical information,
      design, process, procedure, formula or improvement that is valuable and
      not generally known to competitors of the Company. "Confidential
      Information" is any data or information, other than Trade Secrets, that is
      important, competitively sensitive, and not generally known by the public,
      including, but not limited to, the Company's business plan, acquisition
      targets, training manuals, product development plans, pricing procedures,
      market strategies, internal performance statistics, financial data,
      confidential personnel information concerning employees of the Company,
      supplier data, operational or administrative plans, policy manuals, and
      terms and conditions of contracts and agreements. The terms "Trade Secret"
      and "Confidential Information" shall not apply to information which is (1)
      made available to the general public without restriction by the Company,
      (2) obtained from a third party by Employee in the ordinary course of
      Employee's employment by the Company, or (3) required to be disclosed by
      Employee pursuant to subpoena or other lawful process, provided that
      Employee notifies the Company in a timely manner to allow the Company to
      appear to protect its interests.

            (b)   Non-disclosure. Except as required to perform Employee's
      duties hereunder, Employee will not use or disclose any Trade Secrets or
      Confidential Information of the Company during employment, or at any time
      after termination of employment and prior to such time as they cease to be
      Trade Secrets or Confidential Information through no act of Employee in
      violation of this Agreement.

            (c)   Material Surrender. Upon termination of Employee's employment
      with the Company, Employee will surrender to the Company all files,
      correspondence,

                                        3


      memoranda, notes, records, manuals or other documents or data pertaining
      to the Company's business or Employee's employment (including all copies
      thereof) however prepared and whether maintained in paper or electronic
      format. Employee will also leave with the Company all materials involving
      any Trade Secrets or Confidential Information of the Company. All such
      information and materials, whether or not made or developed by Employee,
      shall be the sole and exclusive property of the Company, and Employee
      hereby assigns to the Company all of Employee's right, title and interest
      in and to any and all of such information and materials.

      5.    Covenants. Employee shall be subject to the following covenants and
obligations:

            (a)   Non-competition covenant. While employed by the Company,
      Employee shall not compete or plan or prepare to compete with the Company
      regarding the ownership, investment in, management of or operation of free
      standing hospitals that provide either medical-surgical and/or behavioral
      healthcare services ("Hospital"). Employee shall not compete with the
      Company for a period of eighteen (18) months following the termination of
      his employment, within thirty (30) miles of any location where (1) the
      Company owned, operated or managed any Hospital either on the date his
      employment terminates or at any time within the immediately preceding
      fiscal year or (2) the Board had approved the potential or final
      acquisition of any Hospital prior to his termination and Employee had
      knowledge of said approval.

            (b)   Non-solicitation covenant. Following the termination of
      Employee's employment with the Company, for a period equal to the term of
      the non-competition covenant under Section 5(a), Employee shall not
      directly or indirectly solicit the services of or otherwise induce or
      attempt to induce any Company Employee to sever his/her employment
      relationship with the Company. For purposes of this section "Company
      Employee" shall mean (1) any employee who performs or performed (on the
      Termination Date or within the previous six (6) months of such date) any
      of his/her services at the Company's Principal Office and (2) any member
      of the senior management staff of any line of hospital based healthcare
      business owned, operated or managed by the Company. Prior to the
      initiation of any conduct prohibited under this Section, Employee may
      request that the Company waive application of this Section to said
      conduct. Granting of such request, however, shall be at the Company's sole
      discretion.

            (c)   Scope and Duration; Severability. The Company and Employee
      understand and agree that the scope and duration of the covenants
      contained in this Section 5 are reasonable both in time and geographical
      area and are fairly necessary to protect the business of the Company.
      Except as otherwise stated herein, such covenants shall survive the
      termination of Employee's employment. It is further agreed that such
      covenants shall be regarded as divisible and shall be operative as to time
      and geographical area to the extent that they may be made so and, if any
      part of such covenants are declared invalid or unenforceable, the validity
      and enforceability of the remainder shall not be affected.

            (d)   Assignment. Employee agrees that the covenants contained in
      this Section 5 shall inure to the benefit of any successor or assign of
      the Company, with the

                                        4


      same force and effect as if such covenant had been made by Employee with
      such successor or assign.

            (e)   Exclusion. Notwithstanding the provisions of this Section 5,
      Employee's non-competition obligations shall not preclude Employee from
      owning less than one percent (1%) of the voting power or common interest
      in any publicly traded corporation conducting business activities in the
      healthcare industry in competition with the Company or any affiliate.

            (f)   Company. For purposes of this Section 5, "Company" shall mean
      Ardent Health Services LLC, Ardent Health Services, Inc., AHS Management
      Company, Inc. and Ardent Medical Services, Inc.

      6.    Program Participation. Employee represents that he is, and will for
the term of this Agreement be eligible to participate in Medicare, Medicaid,
CHAMPUS, TriCare, and other federal health programs, and Employee shall not have
been sanctioned by the Health and Human Services Office of the Inspector
General, Cumulative Sanctions Report, or excluded by the General Services
Administration, as set forth on the List of Excluded Providers [see
www.dhhs.gov/progorg/oig and www.arnet.gov/epis].

      7.    Specific Enforcement. Employee specifically acknowledges and agrees
that the restrictions set forth in Sections 4 and 5 hereof are reasonable and
necessary to protect the legitimate interests of the Company and that the
Company would not have entered into this Agreement in the absence of such
restrictions. Employee further acknowledges and agrees that any violation of the
provisions of Sections 4 and 5 hereof will result in irreparable injury to the
Company, that the remedy at law for any violation or threatened violation of
such Sections will be inadequate and that in the event of any such breach, the
Company, in addition to any other remedies or damages available to it at law or
in equity, shall be entitled to temporary injunctive relief before trial from
any court of competent jurisdiction as a matter of course and to permanent
injunctive relief without the necessity of proving actual damages. The Company
shall also have available all remedies provided under state and federal
statutes, rules and regulations as well as any and all other remedies as may
otherwise be contractually or equitably available. In addition to any other
remedy herein granted or available to Company, either at law or in equity,
Employee shall forfeit and forever release any claim or right Employee may have
to any benefits remaining under this Agreement from the date Employee breached
Section 5 of this Agreement. Any monetary damages sought by the Company under
this Section shall not include the benefits forfeited under this Section.

      8.    Term. This Agreement shall continue for four (4) years from the date
first written above ("Initial Term"), unless sooner terminated in the manner set
forth herein; provided, however, that following the Initial Term, this Agreement
shall automatically renew at the end of the Initial Term for additional terms of
one (1) year (collectively the "Term") unless either party gives notice of
termination to the other not later than thirty (30) days prior to any annual
anniversary of this Agreement (a "Notice of Non-Renewal"). The date upon which
this Agreement and Employee's employment hereunder shall terminate, whether
pursuant to the terms of this Section or pursuant to any other provision of this
Agreement shall hereafter be referred to as the "Termination Date."

                                        5


      9.    Non-Renewal Termination. In the event this Agreement terminates
pursuant to a Notice of Non-Renewal, the Company shall have no further
obligation to Employee and Employee shall have no further rights or obligations
hereunder except that if the Company is the non-renewing party, the Company
shall be obligated to pay Employee, as severance compensation, the salary and
benefits set forth in Sections 14(b) and (c) of this Agreement. Employee's
obligations under Section 4 hereof shall survive the termination of this
Agreement pursuant to a Notice of Non-Renewal by either party. Notwithstanding
anything to the contrary herein, Employee's obligations under Section 5 hereof
shall only apply for twelve (12) months if the Company is the non-renewing
party, but shall continue in full force and effect if Employee is the
non-renewing party.

      10.   Termination Upon Death of Employee. Except as set forth in Section
3(a)(3)(iii) hereof, in the event Employee dies during the Term of this
Agreement, this Agreement shall immediately terminate and neither Employee nor
the Company shall have any further obligations hereunder.

      11.   Termination by Employee For Cause. Employee may terminate this
Agreement thirty (30) days after delivery to the Board of Managers of Ardent
Health Services LLC of written notice of his intent to terminate this Agreement,
which notice alleges the occurrence of: (a) a material diminution in Employee's
office, duties or responsibilities, (b) a material change in the personnel at
Welsh, Carson, Anderson & Stowe, IX, L.P. with whom the Company has its primary
working relationship, or (c) a material breach by the Company of this Agreement.
Notwithstanding the foregoing, however, Employee shall not have the ability to
terminate this Agreement if the facts alleged in such written notice have been
cured prior to the expiration of such thirty (30) day notice period. In the
event Employee's employment hereunder is terminated in accordance with this
Section, the Company shall have no further obligation to Employee and Employee
shall have no further rights or obligations hereunder, except as set forth in
Section 4 above, and except for the Company's obligation to pay Employee, as
severance compensation, the salary and benefits set forth in Sections 14(b) and
(c) of this Agreement. Notwithstanding anything to the contrary herein, in the
event of a termination pursuant to this Section, Employee shall have no
obligations under Section 5 hereof from and after the Termination Date.

      12.   Termination by the Company for Cause. The Company shall have the
right at any time to terminate Employee's employment immediately for cause. The
term "Cause" shall mean (a) Employee's willful refusal to perform, or gross
negligence in performing, the reasonable duties of Employee's office delegated
under Section 1 of this Agreement, (b) Employee's conviction of or guilty plea
to any crime punishable as a felony, or involving fraud or embezzlement, (c)
Employee's change in status under Section 6 of this Agreement, (d) any act by
Employee involving moral turpitude that materially affects the performance of
his duties hereunder, or (e) Employee's use of chemical substances in a manner
that materially affects the performance of his duties hereunder. Employee's
obligations under Sections 4 and 5 hereof shall survive in full force and effect
the termination of the Agreement pursuant to this Section 11. In the event
Employee's employment hereunder is terminated in accordance with this Section,
the Company shall have no further obligation to make any payments to Employee
hereunder except for unpaid salary or unreimbursed expenses that have accrued
but have not been paid as of the Termination Date.

                                        6


      13.   Termination Without Cause.

            (a)   In the event that Employee is terminated by the Company
      without cause during the Term hereof (which shall not include a
      termination pursuant to Sections 10, 11, 12, 14 or 15), the Company shall:
      (1) pay Employee all bonuses and unreimbursed expenses owed to Employee
      that have accrued but have not been paid as of the Termination Date; and
      (2) pay to Employee, as severance compensation, the salary and benefits
      set forth in Sections 14(b) and (c) of this Agreement. Employee's
      obligations under Section 4 hereof shall survive the termination of this
      Agreement pursuant to this Section. Notwithstanding anything to the
      contrary herein, in the event of a termination pursuant to this Section,
      Section 5 shall apply in full force and effect for only twelve (12) months
      from the Termination Date.

            (b)   In the event that Employee terminates his employment with the
      Company without cause during the term hereof (which shall not include a
      termination pursuant to Sections 10, 11, 12, 14 or 15), the Company shall
      only be obligated to pay Employee any salary and unreimbursed expenses
      owed to Employee that have accrued but have not been paid as of the
      Termination Date. Employee's obligations under Sections 4 and 5 hereof
      shall survive in full force and effect the termination of the Agreement
      pursuant to this Section 12(b).

      14.   Termination Upon a Change in Control. Employee shall have the
unilateral right, to be exercised or not in his sole discretion, to terminate
this Agreement under this Section 14 within three hundred sixty (360) days after
a Change in Control (as such term is hereinafter defined). Notwithstanding any
statement contained in this Agreement to the contrary (other than in Section
12), in the event of Employee's termination of this Agreement for any reason
within three hundred sixty (360) days following a Change in Control, Employee
shall be entitled to the compensation and benefits described in Section 14(b)
and (c). Employee's obligations under Sections 4 and 5 hereof shall survive in
full force and effect the termination of the Agreement pursuant to this Section
14.

            (a)   For purposes of this Agreement, a Change in Control means the
      occurrence of any of the following events, provided that references to the
      Company in this Section 14(a) shall be treated as a reference solely to
      Ardent Health Services, Inc. and/or Ardent Health Services LLC, and shall
      not be treated as a reference to solely the behavioral hospital operations
      of the Company:

                  (1)   An acquisition (other than directly from the Company) of
            any voting securities of the Company (the "Voting Securities") by
            any "Person" (as that term is used for purposes of Section 13(d) or
            14(d) of the Securities Exchange Act of 1934, as amended (the
            "Exchange Act")), immediately after which such Person has
            "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated
            under the Exchange Act) of more than fifty percent (50%) of the
            combined voting power of the Company's then outstanding voting
            Securities; provided, however, in determining whether a Change in
            Control has occurred, Voting Securities which are acquired in a
            Non-Control Acquisition shall not constitute an acquisition which
            would cause a Change in Control. A "Non-

                                        7


            Control Acquisition" shall mean an acquisition by (i) an employee
            benefit plan (or a trust forming a part thereof) maintained by (A)
            the Company, or (B) any corporation or other Person of which a
            majority of its voting power or its voting equity securities or
            equity interest is owned, directly or indirectly, by the Company
            (for purposes of this definition, a "Subsidiary"), (ii) the Company
            or its Subsidiaries, or (iii) any person in connection with a
            Non-Control Transaction (as hereinafter defined);

                  (2)   The individuals who, as of the date of this Agreement,
            are members of the Board (the "Incumbent Board"), cease for any
            reason to constitute at least a majority of the members of the
            Board; provided, however, that if the election, or nomination for
            election by the Company's equity holders, of any new director was
            approved by a vote of at least a majority of the Incumbent Board,
            such new director shall, for purposes of this Agreement, be
            considered as a member of the Incumbent Board; provided, further,
            however, that no individual shall be considered a member of the
            Incumbent Board if such individual initially assumed office as a
            result of either an actual or threatened "Election Contest" (as
            described in Rule l4a-l 1 promulgated under the Exchange Act) or
            other actual or threatened solicitation of proxies or consents by or
            on behalf of a Person other than the Board (a "Proxy Contest")
            including by reason of any agreement intended to avoid or settle any
            Election Contest or Proxy Contest; or

                  (3)   Approval by the holders of the Voting Securities of the
            Company of:

                        (i)   A merger, consolidation or reorganization
                  involving the Company, unless such merger, consolidation or
                  reorganization is a Non-Control Transaction. A "Non-Control
                  Transaction" shall mean a merger, consolidation or
                  reorganization of the Company where:

                           A)       the holders of the Voting Securities of the
                        Company, immediately before such merger, consolidation
                        or reorganization, own directly or indirectly
                        immediately following such merger, consolidation or
                        reorganization, more than fifty percent (50%) of the
                        combined voting power of the outstanding voting
                        securities of the entity resulting from such merger or
                        consolidation or reorganization (the "Surviving Entity")
                        in substantially the same proportion as their own
                        ownership of the Voting Securities immediately before
                        such merger, consolidation or reorganization; and

                           B)       the individuals who were members of the
                        Incumbent Board immediately prior to the execution of
                        the agreement providing for such merger, consolidation
                        or reorganization constitute at least a majority of the
                        members of the board of directors of the Surviving
                        Entity, or a corporation or

                                        8


                        entity beneficially directly or indirectly owning a
                        majority of the Voting Securities of the Surviving
                        Entity;

                        (ii)  A complete liquidation or dissolution of the
                  Company; or

                        (iii) An agreement for the sale or other disposition of
                  all or substantially all of the assets of the Company to any
                  Person (other than a transfer to (x) a Subsidiary or (y) any
                  Principal or Related Party of a Principal).

                  (4)   Any transaction by which any organization other than
            Welsh, Carson, Anderson & Stowe, IX, L.P. and any Related Party
            shall cease to own more than fifty percent (50%) of the Voting
            Securities.

      For purposes of this Section 14, the following defined terms have the
following meanings:

      "Principals" means (i) Welsh, Carson, Anderson & Stowe, IX, L.P., (ii) FFC
Partners II, L.P., (iii) BancAmerica Capital Investors I, L.P., (iv) any
investment fund under common control or management with any person in the
foregoing clauses (i), (ii) or (iii), and (v) any general partner or other
entity directly controlling or managing any person in the foregoing clauses (i)
through (iv).

      "Related Party" means:

            (1)   any controlling stockholder, partner, member, 80% (or more)
      owned Subsidiary, or immediate family member (in the case of an
      individual) of any Principal; or

            (2)   any trust, corporation, partnership or other entity, the
      beneficiaries, stockholders, partners, owners or persons beneficially
      holding an 80% or more controlling interest of which consist of any one or
      more Principals and/or such other persons referred to in the immediately
      preceding clause (1).

            Notwithstanding the foregoing, a Change in Control shall not be
      deemed to occur solely because any Person (the "Subject Person") acquired
      Beneficial Ownership of more than the permitted amount of the then
      outstanding Voting Securities as a result of the acquisition of Voting
      Securities by the Company which, by reducing the number of Voting
      Securities then outstanding, increases the proportional number of shares
      Beneficially Owned by the Subject Person, provided that if a Change in
      Control would occur (but for the operation of this sentence) as a result
      of the acquisition of Voting Securities by the Company, and after such
      share acquisition by the Company, the Subject Person becomes the
      Beneficial Owner of any additional voting Securities which increases the
      percentage of the then outstanding Voting Securities Beneficially Owned by
      the Subject Person, then a Change in Control shall occur.

            (b)   Severance Amount. Employee shall receive as severance benefits
      under this Section 14 three (3) times the highest salary and bonus level
      in effect for Employee

                                        9


      at any time during the Term of this Agreement. Employee shall also receive
      a cash amount equivalent of three (3) years of fringe benefits as
      described in Section 3(a)(3) in effect as of the Termination Date.
      Employee shall also be entitled to receive reasonable attorney's fees and
      costs incurred in making a successful claim for compensation and benefits
      hereunder, including all costs of arbitration, mediation, or litigation,
      if necessary.

            (c)   Schedule of Payments. The Company will make cash payments due
      under this Section 14 in the manner described below following Employee's
      termination of employment. All other amounts and allowances will be
      provided or promptly paid upon submission of receipts or other evidence of
      expenses eligible for reimbursement.

                  (1)   All cash and benefits will be paid over forty-eight (48)
            months, beginning on the first day of the month following the
            Termination Date.

                  (2)   In the event of the death of Employee prior to the
            payment of all cash due hereunder, all remaining payments may, at
            the Company's sole discretion either continue to be paid in
            accordance with Section 14(c) or be made in a single sum to
            Employee's surviving spouse. If Employee is not married at the time
            of death, such cash payments may be made to Employee's estate.

      15.   Disability of Employee.

            (a)   In the event Employee becomes disabled during the Term of this
      Agreement, the Company will continue to pay Employee according to the
      compensation provisions of this Agreement during the period of his
      disability, until such time as Employee's long term disability insurance
      benefits become available. However, in the event Employee is disabled for
      more than six (6) continuous months, the Company may terminate Employee's
      employment. In this case, the compensation provided for under this
      Agreement will cease, except for earned but unpaid Salary and Plan awards
      and other benefits and unreimbursed expenses that would be payable on a
      pro-rated basis for the fiscal year in which the disability occurred.

            (b)   During the period Employee is disabled but is receiving
      payments of regular compensation described in this Agreement and as long
      as he is physically and mentally able to do so, Employee will furnish
      information and assistance to the Company and from time to time will make
      himself reasonably available to the Company to undertake assignments
      consistent with his prior position with the Company and his physical and
      mental health. If the Company fails to make a payment or provide a benefit
      required as part of this Agreement, Employee's obligation to furnish
      information and assistance will end immediately.

            The term "Disability" shall mean the inability of Employee to
      perform the duties of his employment due to physical or emotional
      incapacity or illness (including, without limitation, alcohol or chemical
      dependency), where such inability has continued or is expected to continue
      for more than one hundred eighty (180) days in any one (1) year period. In
      the event of a dispute, the determination of Disability shall be made as
      follows: the Company and Employee (or his executor or personal
      representative, as the case may

                                       10


      be) shall each appoint a physician competent in the field of medicine to
      which such incapacity or illness relates, and two physicians so selected
      shall select a third physician who shall be similarly competent. The
      decision of a majority of such physicians as to the Disability of Employee
      shall be binding on the parties hereto.

      16.   Assignment.

            (a)   The rights and benefits of Employee under this Agreement,
      other than accrued and unpaid amounts due under Section 3(a) hereof, are
      personal to him and shall not be assignable. Discharge of Employee's
      undertakings in Section 4(c) hereof shall be an obligation of Employee's
      executors, administrators, or other legal representatives or heirs.

            (b)   This Agreement may not be assigned by the Company except to an
      affiliate of the Company, provided, however, that if the Company shall
      merge or effect a share exchange with or into, or sell or otherwise
      transfer substantially all its assets to, another corporation, the Company
      may assign its rights hereunder to that corporation.

      17. Notices. Any notice or other communications under this Agreement shall
be in writing, signed by the party making same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:

      If to Employee:                     David T. Vandewater
                                          425 Jackson Boulevard
                                          Nashville, Tennessee  37205

      If to the Company:                  AHS Management Company, Inc.
                                          Attention: General Counsel
                                          One Burton Hills Boulevard, Suite 250
                                          Nashville, Tennessee 37215

or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.

      18.   Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Tennessee, without giving effect to the
choice of law provisions of such State.

      19.   Arbitration and Waiver of Jury Trial. Any dispute among the parties
hereto shall be settled by arbitration in Nashville, Tennessee, in accordance
with the then applicable rules of the Model Employment Arbitration Procedures of
American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The arbitrator shall award all
costs, legal expenses and fees to the successful party. The Company and Employee
each hereby waive any right to trial by jury of any dispute arising under this
Agreement.

      20.   Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any one
or more of the provisions

                                       11


contained in this Agreement shall be invalid, illegal or unenforceable in any
respect for any reason, the validity, legality and enforceability for any such
provisions in every other respect and of the remaining provisions of this
Agreement shall not be in any way impaired.

      21.   Modification. No waiver or modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and no evidence
of any waiver or modification shall be offered or received in evidence of any
proceeding, arbitration or litigation between the parties hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid and the parties
further agree that the provisions of this section may not be waived except as
herein set forth.

      22.   Entire Agreement. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter contained herein. There
are no restrictions, promises, covenants or undertakings, other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.

      23.   Employer Policies, Regulations and Guidelines for Employee. Employer
may issue policies, rules, regulations, guidelines, procedures or other
informational material, whether in the form of handbooks, memoranda, or
otherwise, relating to its employees. These materials are general guidelines for
Employee's information and shall not be construed to alter, modify or amend this
Agreement for any purpose whatsoever.

      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.

                                           AHS MANAGEMENT COMPANY, INC.

                                           By: /s/ Stephen C. Petrovich
                                               ---------------------------------
                                           Title: Senior Vice President
                                                  General Counsel and Secretary

                                           EMPLOYEE

                                           /s/ David T. Vandewater
                                           -------------------------------------
                                           David T. Vandewater

                                       12

EX-10.5

                                                                  EXHIBIT 10.5

            AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT

      This AMENDED AND RESTATED EMPLOYMENT AND CONSULTING AGREEMENT (the
"Agreement") is made and entered into as of June 7, 2004, by and between AHS
Management Company, Inc., a Delaware corporation ("the Company"), and Vernon S.
Westrich, an individual ("Employee").

                                  WITNESSETH:

      WHEREAS, the Company and Employee previously entered into that certain
Employment Agreement, dated September 13, 2001, which they now desire to amend
and restate pursuant to the terms of this Agreement;

      WHEREAS, the Company desires to enter into this Agreement with Employee
and to provide him with the benefits set forth herein in recognition of the
valuable services he will render to the Company, and for the purposes evidenced
herein;

      WHEREAS, Employee is ready and willing to render the services provided
for, and on the terms and conditions set forth herein, and he is willing to
refrain from activities competitive with the business of the Company pursuant to
the terms and conditions set forth herein;

      WHEREAS, in serving as an employee of the Company, Employee will
participate in the use and development of confidential proprietary information
about the Company, its customers and suppliers, and the methods used by the
Company and its employees in competition with other companies, as to which the
Company desires to protect fully its rights;

      NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein set forth, the parties hereto agree as follows:

      1.    Employment. The Company hereby contracts with Employee and Employee
accepts such contract with the Company, subject to the terms and conditions set
forth herein.

            (a)   First Employment Period. For the period commencing January 1,
2004 and ending July 31, 2004 ("First Period"), Employee shall be employed as
President, Behavioral Group, shall perform all duties and services incident to
such position, and such other duties and services as may be prescribed by the
Bylaws of the Company or established by the Chairman of the Board of Directors
or Chief Executive Officer of the Company, or its parent company from time to
time. During the First Period, Employee shall devote his best efforts and
attention, on a full-time basis, to the performance of the duties required of
him as an employee of the Company.

            (b)   Second Employment Period. For the period commencing August 1,
2004 and ending December 31, 2004 ("Second Period"), Employee shall be employed
as President, Behavioral Group, or another position as prescribed by the Company
commensurate with the duties and obligations set forth in this paragraph. During
the Second Period, Employee's primary duties shall be to provide consultation,
mentoring, business development and training services to the person selected by
the Company to be Employee's replacement with the Company and other duties as
assigned. During the Second Period, Employee shall devote his best efforts and
attention, for three (3) days per week, to the performance of such duties,
including traveling as reasonably requested by Company.

            (c)   Third Period. For the period commencing January 1, 2005 and
ending December 31, 2009 ("Third Period"), Employee will provide consulting
services to the Company. During the Third



Period, Employee will be available to the Company, for up to five (5) days per
month, to perform consulting services related to the Company and the operations
of the Behavioral Group. These services may require travel as reasonably
requested by Company. During such period, Employee shall be engaged as an
independent contractor and not as an employee of the Company.

      2.    Principal Office.

            (a)   During the First Period, Employee's principal office and
normal place of work shall be at the Company's principal executive offices in
Nashville, Tennessee ("Principal Office").

            (b)   During the Second Period and Third Period, Employee's
principal office and normal place of work shall be in Terre Haute, Indiana
("Indiana Office").

      3.    Compensation.

            (a)   As compensation for services rendered by Employee hereunder,
Employee shall receive:

                  (1)   Salary. During the First Period, a monthly salary of
$27,796; during the Second Period, a monthly salary of $16,667; during the Third
Period, a monthly payment of $5,000, regardless of the number of days actually
worked ("Consulting Fee") which amounts shall be payable in arrears in equal
monthly installments according the Company's normal payroll cycle.

                  (2)   Bonus. During the First Period and Second Period, and
regardless of his status as a consultant in the Third Period, employee will be
eligible to participate in the Company's Incentive Compensation Plan for 2004.
Employee will not be eligible to participate in the Company's Incentive
Compensation Plan after the Second Period.

                  (3)   Fringe Benefits. Employee shall be entitled during the
First Period and Second Period to such other benefits of employment with the
Company as are now or may hereafter be in effect for senior executives of the
Company with duties comparable to Employee including, without limitation, all
bonus, incentive and deferred compensation, pension, life and other insurance,
disability (insured and uninsured), medical and dental and other benefit plans
or programs, paid time off and stock option grants as approved by the Board of
Directors. During the Third Period, Employee will not be eligible to participate
in any of the Company's benefit plans.

                  (4)   Expenses. During the First and Second Period, the
Company shall reimburse Employee for all reasonable travel, entertainment,
parking, business meeting and similar expenditures incurred in pursuance and
furtherance of the Company's business upon receipt of reasonable supporting
documentation as required by the Company's policies applicable to its officers
and other key employees generally. The Company will also reimburse Employee for
all reasonable expenses associated with the establishment and operation of the
Indiana Office, including a dedicated phone line, a computer and printer and
remote access to the Company's information systems. Such expenses during the
Second Period and Third Period shall not exceed $1000/month, except by prior
written consent of the Company.

                  (5)   Withholdings. All amounts payable to Employee hereunder
shall be subject to such deductions or withholdings as are required by law or
the policies of the Company or as may be authorized or directed by Employee.
Employee acknowledges that after the Second Period, as an independent
contractor, he shall be solely responsible for the payment of any applicable
taxes.

                                        2


            (b)   Indemnification. This Agreement hereby incorporates and makes
a part of this agreement the Indemnification Agreement dated January 31, 2002 by
and between Employee and Ardent Health Services LLC. The provisions and rights
guaranteed under that Agreement shall survive any termination or expiration of
this Agreement.

      4.    Confidential Information and Trade Secrets.

            (a)   Trade Secrets. Employee recognizes that Employee's position
with the Company requires considerable responsibility and trust, and, in
reliance on Employee's loyalty, the Company may entrust Employee with highly
sensitive confidential, restricted and proprietary information involving Trade
Secrets and Confidential Information. For purposes of this Agreement, a "Trade
Secret" is any scientific or technical information, design, process, procedure,
formula or improvement that is valuable and not generally known to competitors
of the Company. "Confidential Information" is any data or information, other
than Trade Secrets, that is important, competitively sensitive, and not
generally known by the public, including, but not limited to, the Company's
business plan, acquisition targets, training manuals, product development plans,
pricing procedures, market strategies, internal performance statistics,
financial data, confidential personnel information concerning employees of the
Company, supplier data, operational or administrative plans, policy manuals, and
terms and conditions of contracts and agreements. The terms "Trade Secret" and
"Confidential Information" shall not apply to information which is (i) made
available to the general public without restriction by the Company, (ii)
obtained from a third party by Employee in the ordinary course of Employee's
employment by the Company, or (iii) required to be disclosed by Employee
pursuant to subpoena or other lawful process, provided that Employee notifies
the Company in a timely manner to allow the Company to appear to protect its
interests.

            (b)   Non-disclosure. Except as required to perform Employee's
duties hereunder, Employee will not use or disclose any Trade Secrets or
Confidential Information of the Company during employment, or at any time after
termination of employment and prior to such time as they cease to be Trade
Secrets or Confidential Information through no act of Employee in violation of
this Agreement.

            (c)   Material Surrender. Upon termination or expiration of this
Agreement, Employee will surrender to the Company all files, correspondence,
memoranda, notes, records, manuals or other documents or data pertaining to the
Company's business or Employee's employment (including all copies thereof)
however prepared and whether maintained in paper or electronic format. Employee
will also leave with the Company all materials involving any Trade Secrets or
Confidential Information of the Company. All such information and materials,
whether or not made or developed by Employee, shall be the sole and exclusive
property of the Company, and Employee hereby assigns to the Company all of
Employee's right, title and interest in and to any and all of such information
and materials.

      5.    Covenants. Employee shall be subject to the following covenants and
obligations:

            (a)   Non-competition covenant. During the Term, Employee shall not
become an employee of, consultant to, or investor in any entity that owns,
operates or manages, or compete or plan or prepare to compete with the Company
regarding the ownership of, investment in, management of or operation of, free
standing hospitals, residential treatment centers or behavioral health units in
medical/surgical hospitals or facilities that provide behavioral healthcare
services ("Hospital") where such Hospital or corporate affiliate of such
Hospital is within thirty (30) miles of any Company facility or the Company's
corporate office

            (b)   Non-solicitation covenant. During the Term, Employee shall not
hire, directly or indirectly solicit the services of or otherwise induce or
attempt to induce any Company Employee to sever

                                        3


his/her employment relationship with the Company. For purposes of this section
"Company Employee" shall mean (i) any employee who performs or performed any of
his/her services at the Company's Principal Office and (ii) any member of the
senior management staff of any line of behavioral healthcare business owned,
operated or managed by the Company during the Term.

            (c)   Waiver. Prior to the initiation of any conduct prohibited
under this Section 5, Employee may request that Company waive application of
this Section to said conduct. Granting of such request, however, shall be at
Company's sole discretion.

            (d)   Scope and Duration; Severability. The Company and Employee
understand and agree that the scope and duration of the covenants contained in
this Section 5 are reasonable both in time and geographical area and are
necessary to protect the business of the Company. Except as otherwise stated
herein, such covenants shall survive the termination of Employee's employment.
It is further agreed that such covenants shall be regarded as divisible and
shall be operative as to time and geographical area to the extent that they may
be made and, if any part of such covenants is declared invalid or unenforceable,
the validity and enforceability of the remainder shall not be affected.

            (e)   Assignment. Employee agrees that the covenants contained in
this Section 5 shall inure to the benefit of any successor or assign of the
Company; provided, however, that the force and effect, including without
limitation the line of business limitation and geographic scope, of such
covenants shall be determined as of the date immediately proceeding any such
succession or assignment, and in no event shall the force and effect of such
covenants be expanded to include any line of business or geographic location of
any such successor or assignee.

            (f)   Company. For purposes of sections 4 and 5, "Company" shall
mean Ardent Health Services LLC, Ardent Health Services, Inc., AHS Management
Company, Inc., and/or Behavioral Healthcare Corporation and any affiliate or
subsidiary of Behavioral Healthcare Corporation.

            (g)   Exclusion. Notwithstanding the provisions of this Section 5,
Employee's non-competition obligations shall not preclude Employee from owning
one percent (1%) or less of the voting power or common interest in any publicly
traded corporation conducting business activities in the healthcare industry in
competition with the Company or any affiliate.

      6.    Program Participation. Employee represents that he is, and will for
the term of this Agreement be eligible to participate in Medicare, Medicaid,
CHAMPUS, Tri-Care, and other federal health programs, and Employee shall not
have been sanctioned by the Health and Human services Office of the Inspector
General, Cumulative Sanctions Report, or excluded by the General Services
Administration, as set forth on the List of Excluded Providers [see
http://oig.hhs.gov/fraud/exclusions.html and http://epls.arnet.gov/ ].

      7.    Specific Enforcement. Employee specifically acknowledges and agrees
that the restrictions set forth in Sections 4 and 5 hereof are reasonable and
necessary to protect the legitimate interests of the Company and that the
Company would not have entered into this Agreement in the absence of such
restrictions. Employee further acknowledges and agrees that any violation of the
provisions of Section 4 and 5 hereof will result in irreparable injury to the
Company, that the remedy at law for any violation or threatened violation of
such Sections will be inadequate and that in the event of any such breach, the
Company, in addition to any other remedies or damages available to it at law or
in equity, shall be entitled to temporary injunctive relief before trial from
any court of competent jurisdiction as a matter of course and to permanent
injunctive relief without the necessity of proving actual damages. The Company
shall also have available all remedies provided under state and federal
statutes, rules and regulations as well as any and all other remedies as may
otherwise be contractually or equitably available.

                                        4


In addition to any other remedy herein granted or available to the Company,
either at law or in equity, Employee shall forfeit and forever release any claim
or right Employee may have to any benefits, paid or unpaid, under this Agreement
from the date Employee breached section 5 of this Agreement.

      8.    Term. This Agreement shall continue from January 1, 2004 until
December 31, 2009, ("Term") unless sooner terminated in the manner set forth
herein. The date upon which this Agreement shall terminate, whether pursuant to
the terms of this Section or pursuant to any other provision of this Agreement
shall hereafter be referred to as the "Termination Date." Following the
Termination Date, the Company shall have no further obligation to Employee and
Employee shall have no further rights or obligations hereunder, except as set
forth herein.

      9.    Termination Upon Death of the Employee. In the event Employee dies
during the First or Second Period, this Agreement shall immediately terminate
and neither the Employee nor the Company shall have any further obligations
hereunder, except that the Company shall pay Employee's estate the Severance
Amount (to the extent not already paid) and any earned but unpaid salary,
expenses and/or benefits owed at the time of death. If Employee dies during the
Third Period after the Additional Severance payments have begun, the Company
shall pay to Employee's estate, the Additional Severance (to the extent not
already paid) as well as any consulting fees earned but unpaid as of the
Termination Date.

      10.   Termination by Employee For Cause. During the First or Second
Period, Employee may terminate this Agreement thirty (30) days after delivery to
Ardent Health Services LLC's Board of Managers of written notice of his intent
to terminate the Agreement, which notice alleges the occurrence of: (a) a
material diminution in the Employee's office, duties or responsibilities beyond
that contemplated by this Agreement, or (b) a material breach by the Company of
this Agreement. Notwithstanding the foregoing, however, the Employee shall not
have the ability to terminate this Agreement if the facts alleged in such
written notice have been cured prior to the expiration of such thirty (30) day
notice period. At the Termination Date, the Company shall have no further
obligation to Employee and Employee shall have no further rights or obligations
hereunder, except as set forth in Section 4 and 5 above, and except for the
Company's obligations to pay Employee unpaid salary, bonus or unreimbursed
expenses that have accrued but have not been paid as of the Termination Date.

      11.   Termination by the Company for Cause. The Company shall have the
right at any time to terminate this Agreement immediately for cause. The term
"Cause" shall mean (i) Employee's gross negligence or willful refusal to perform
the reasonable duties set forth in Section 1 of this Agreement, (ii) Employee's
conviction of or plea of nolo contender to any crime punishable as a felony or
involving moral turpitude or fraud, (iii) fraud, embezzlement or other material
dishonesty with respect to the Company or any of its affiliates, (iv) abuse of
controlled substances or alcohol by Employee or acts of moral turpitude that
materially and adversely affect the Company or any of its affiliates or the
ability of Employee to perform his obligations under this Agreement, (v)
Employee making disparaging remarks about either the Company or the Company's
management or (vi) Employee's change in status under Section 6 of this
Agreement. Employee's obligations under Sections 4, 5 and 7 hereof shall survive
in full force and effect the termination of the Agreement pursuant to this
Section 11. In the event Employee's employment hereunder is terminated in
accordance with this Section, the Company shall have no further obligation to
make any payments to Employee hereunder except for unpaid salary or unreimbursed
expenses that have accrued but have not been paid as of the Termination Date.

      12.   Termination Without Cause.

            (a)   In the event that Employee is terminated by the Company
without cause during the First or Second Period hereof (which shall not include
a termination pursuant to Sections 9, 10, 11, 13

                                        5


or 14), the Company shall: (a) pay Employee any bonus earned under the Company's
Incentive Compensation Plan and any unreimbursed expenses owed to Employee that
have accrued but have not been paid as of the Termination Date; and (b) pay to
Employee, both the Severance Amount and the Additional Severance Amount. This
Agreement cannot be terminated without cause during the Third Period.

            (b)   In the event that Employee terminates this Agreement without
cause during the Term hereof (which shall not include a termination pursuant to
Sections 9, 10, 11, 13 or 14), the Company shall only be obligated to pay
Employee the Severance Amount, if not already paid and any salary and
unreimbursed expenses owed to Employee that have accrued but have not been paid
as of the Termination Date.

            (c)   Employee's obligations under Sections 4, 5 and 7 hereof shall
survive in full force and effect the termination of this Agreement pursuant to
Section 12(b) for the remainder of the Term.

      13.   Termination Upon a Change in Control. Employee shall have the
unilateral right, to be exercised or not in his sole discretion, to terminate
this Agreement under this Section 13 within one hundred eighty (180) days after
a Change in Control (as such term is hereinafter defined) if such Change in
Control were to occur at any time within the Term. Notwithstanding any statement
contained in this Agreement to the contrary (other than in section 11), in the
event this Agreement is terminated for any reason within one hundred eighty
(180) days following a Change in Control, Employee shall be paid the Severance
Amount, if not already paid or payments begun under section 15 below as of the
date of the Change in Control and the Additional Severance if not already paid
or payments begun under section 15 below as of the date of the Change in Control
as well as all remaining Consulting Fees not yet paid as of any termination
under this Section 13. Sections 4 and 5 hereof shall survive any such Employee
termination under this Section to the extent permitted under section 5(e)
herein.

      For purposes of this Agreement, a Change in Control means the occurrence
of any of the following events, provided that references to the Company in this
Section 13 shall be treated as a reference solely to Behavioral Healthcare
Corporation, AHS Management Company, Inc., Ardent Health Services, Inc., and/or
Ardent Health Services LLC,

      (1)   An acquisition (other than (i) directly from the Company or (ii) by
any Principal or a Related Party of a Principal) of any voting securities of the
Company (the "Voting Securities") by any "Person" (as that term is used for
purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of more than fifty percent (50%) of the combined voting power of
the Company's then outstanding Voting Securities; provided, however, in
determining whether a Change in Control has occurred, Voting Securities which
are acquired in a Non-Control Acquisition shall not constitute an acquisition
which would cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a part thereof)
maintained by (A) the Company, or (B) any corporation or other Person of which a
majority of its voting power or its voting equity securities or equity interest
is owned, directly or indirectly, by the Company (for purposes of this
definition, a "Subsidiary"), (2) the Company or its Subsidiaries, or (3) any
person in connection with a Non-Control Transaction (as hereinafter defined);

      (2)   The individuals who, as of the date of this Agreement, are members
of the Ardent Health Services LLC's ("Ardent") Board of Managers (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the members
of Ardent's Board of Managers; provided, however, that if the election, or
nomination for election by Ardent's equity holders, of any new Manager was
approved by

                                        6


a vote of at least a majority of the Incumbent Board, such new Manager shall,
for purposes of this Agreement, be considered as a member of the Incumbent
Board; provided, further, however, that no individual shall be considered a
member of the Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than
Ardent's Board of Managers (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest; or

      (3)   Approval by the holders of the Voting Securities of the Company of:

            (i)   A merger, consolidation or reorganization involving the
      Company, unless such merger, consolidation or reorganization is a
      Non-Control Transaction. A "Non-Control Transaction" shall mean a merger,
      consolidation or reorganization of the Company where:

                  a)    the holders of the Voting Securities of the Company,
            immediately before such merger, consolidation or reorganization, own
            directly or indirectly immediately following such merger,
            consolidation or reorganization, more than fifty percent (50%) of
            the combined voting power of the outstanding voting securities of
            the entity resulting from such merger or consolidation or
            reorganization (the "Surviving Entity") in substantially the same
            proportion as their own ownership of the Voting Securities
            immediately before such merger, consolidation or reorganization; and

                  b)    the individuals who were members of the Incumbent Board
            immediately prior to the execution of the agreement providing for
            such merger, consolidation or reorganization constitute at least a
            majority of the members of the board of directors of the Surviving
            Entity, or a corporation or entity beneficially directly or
            indirectly owning a majority of the Voting Securities of the
            Surviving Entity;

            (ii)  A complete liquidation or dissolution of the Company; or

            (iii) An agreement for the sale or other disposition of all or
      substantially all of the assets of the Company to any Person (other than a
      transfer to (i) a Subsidiary or (ii) any Principal or Related Party of a
      Principal).

For purposes of this Section 13, the following defined terms have the following
meanings:

      "Principals" means (i) Welsh, Carson, Anderson & Stowe, IX, L.P., (ii) FFC
Partners II, L.P., (iii) BancAmerica Capital Investors I, L.P., (iv) any
investment fund under common control or management with any person in the
foregoing clauses (i), (ii) or (iii), and (v) any general partner or other
entity directly controlling or managing any person in the foregoing clauses (i)
through (iv).

      "Related Party" means:

            (1)   any controlling stockholder, partner, member, 80% (or more)
      owned Subsidiary, or immediate family member (in the case of an
      individual) of any Principal; or

            (2)   any trust, corporation, partnership or other entity, the
      beneficiaries, stockholders, partners, owners or persons beneficially
      holding an 80% or more controlling interest of which consist of any one or
      more Principals and/or such other persons referred to in the immediately
      preceding clause (1).

                                        7


Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired Beneficial Ownership
of more than the permitted amount of the then outstanding Voting Securities as a
result of the acquisition of Voting Securities by the Company which, by reducing
the number of Voting Securities then outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company, the Subject Person becomes the Beneficial
Owner of any additional voting Securities which increases the percentage of the
then outstanding Voting Securities Beneficially Owned by the Subject Person,
then a Change in Control shall occur.

      14.   Disability of Employee.

            (a)   In the event Employee becomes disabled during the First Period
or Second Period, the Company will continue to pay the Employee according to the
compensation provisions of this Agreement during the period of his disability,
until such time as Employee's long term disability insurance benefits become
available. However, in the event the Employee is disabled for more than six
continuous months, the Company may terminate this Agreement. In this case, the
compensation provided for under this Agreement will cease, except for earned but
unpaid salary, any Incentive Compensation Awards that would be payable and the
Severance Amount remaining to be paid as of the date of any such disability.

            (b)   During the period the Employee is receiving payments of either
regular compensation or disability insurance described in this Agreement and as
long as he is physically and mentally able to do so, the Employee will furnish
information and assistance to the Company and from time to time will make
himself available to the Company to undertake assignments consistent with his
prior position with the Company and his physical and mental health. If the
Company fails to make a payment or provide a benefit required as part of the
Agreement, the Employee's obligation to fulfill information and assistance will
end.

      The term "disability" shall mean the inability of Employee to perform the
duties of his employment due to physical or emotional incapacity or illness
(including, without limitation, alcohol or chemical dependency), where such
inability has continued or is expected to continue for more than 180 days in any
one (1) year period. In the event of a dispute, the determination of disability
shall be made as follows: the Company and the Employee (or his executor or
personal representative, as the case may be) shall each appoint a physician
competent in the field of medicine to which such incapacity or illness relates,
and two physicians so selected shall select a third physician who shall be
similarly competent. The decision of a majority of such physicians as to the
disability of Employee shall be binding on the parties hereto.

            (c)   In the event Employee becomes disabled during the Third
Period, all obligations and rights under this Agreement shall cease, except for
the payment of any sums owed Employee but not paid as of the date of the
determination that Employee is disabled.

      15.   Severance Payments.

            (a)   Employee is eligible to receive, subject to the conditions set
forth herein, (1) $917,800 ("Severance Amount") to be paid over 24 months to
begin at the end of the First Period and (2) $300,000 ("Additional Severance")
to be paid over 24 months beginning on January 1, 2007. Employee shall also be
entitled to receive reasonable attorney's fees and costs incurred in making a
successful claim for compensation and benefits hereunder, including all costs of
arbitration, mediation, or litigation.

                                        8


            (b)   Schedule of Payments.

                  (1)   Both the Severance Amount and the Additional Severance
shall be paid over twenty-four (24) months or, in Company's sole discretion,
either may be paid in a single lump sum upon giving thirty (30) days written
notice to Employee.

                  (2)   In the event of the death of Employee prior to the
payment of any amounts due hereunder, all remaining payments owed at the time of
death may, at the Company's sole discretion, be made in a single lump sum to the
surviving spouse of Employee. If Employee is not married at the time of death,
such cash payments may be made to Employee's estate.

      16.   Cooperation. During the Term, Employee shall provide his full
cooperation to and support of the Company and its affiliates in the defense or
prosecution of one or more existing or future court actions, governmental
investigations, arbitrations, mediations or other legal, equitable or business
matters or proceedings which involve the Company, its affiliates or any of their
respective employees, officers or directors. If Employee shall be required to
travel in excess of fifty (50) miles from his principal place of residence
pursuant to this section, the Company shall reimburse him for his reasonable
travel, meal and lodging expenses.

      17.   Assignment.

            (a)   Employee may not assign this Agreement to anyone without the
Company's prior written consent.

            (b)   This Agreement may not be assigned by the Company except to an
affiliate of the Company, provided, however, that if a Change in Control occurs,
the Company may assign its rights and obligations hereunder to that corporation
subject only to Section 5(e) hereof.

      18.   Notices. Any notice or other communications under this Agreement
shall be in writing, signed by the party making same, and shall be delivered
personally or sent by certified or registered mail, postage prepaid, addressed
as follows:

      If to Employee:                    Vernon S. Westrich
                                         9357 S. Sullivan Place
                                         Terre Haute, Indiana 47802

      If to the Company:                 AHS Management Company, Inc.
                                         Attention: General Counsel
                                         One Burton Hills Blvd, Suite 250
                                         Nashville, Tennessee  37215

or to such other address as may hereafter be designated by either party hereto.
All such notices shall be deemed given on the date personally delivered or
mailed.

      19.   Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Tennessee, without giving effect to the
choice of law provisions of such State.

                                        9


      20.   Arbitration. Any dispute among the parties hereto shall be settled
by arbitration in Nashville, Tennessee, in accordance with the then applicable
rules of the American Arbitration Association and judgment upon the award
rendered may be entered in any court having jurisdiction thereof. The arbitrator
shall award all costs, legal expenses and fees to the successful party.

      21.   Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid, but if any one
or more of the provisions contained in this Agreement shall be invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability for any such provisions in every other respect and of the
remaining provisions of this Agreement shall not be in any way impaired.

      22.   Modification. No waiver of modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in
writing and duly executed by the party to be charged therewith and no evidence
of any waiver or modification shall be offered or received in evidence of any
proceeding, arbitration or litigation between the parties hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid and the parties
further agree that the provisions of this section may not be waived except as
herein set forth.

      23.   Entire Agreement. This Agreement contains the entire agreement of
the parties hereto with respect to the subject matter contained herein. There
are no restrictions, promises, covenants or undertakings, other than those
expressly set forth herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter and
specifically replaces that certain Employment Agreement by and between Vernon S.
Westrich and Behavioral Healthcare Corporation. This Agreement may not be
changed except by a writing executed by the parties.

      24.   Company Policies, Regulations and Guidelines for Employee. The
Company may issue policies, rules, regulations, guidelines, procedures or other
information material, whether in the form of handbooks, memoranda, or otherwise,
relating to its employees ("Policies"). If any provision of this contract
conflicts with those Policies, then this contract governs.

      IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.

                            AHS MANAGEMENT COMPANY, INC.

                            By: /s/ Jamie E. Hopping
                                ------------------------------------

                            Title: Executive Vice President and
                                   ---------------------------------
                                   Chief Operating Officer
                                   ---------------------------------

                            EMPLOYEE
                              /s/ Vernon S. Westrich
                            ----------------------------------------
                            Vernon S. Westrich

                                       10

EX-31.1

                                                                    EXHIBIT 31.1

                                  CERTIFICATION

I, David T. Vandewater, certify that:

    1.  I have reviewed this Quarterly Report on Form 10-Q of Ardent Health
        Services LLC;

    2.  Based on my knowledge, this report does not contain any untrue statement
        of a material fact or omit to state a material fact necessary to make
        the statements made, in light of the circumstances under which such
        statements were made, not misleading with respect to the period covered
        by this report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this report, fairly present in all material
        respects the financial condition, results of operations and cash flows
        of the registrant as of, and for, the periods presented in this report;

    4.  The registrant's other certifying officer and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
        registrant and have:

        a)  Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

        b)  [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and
            34-47986]

        c)  Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

        d)  Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation of internal control over financial reporting,
        to the registrant's auditors and the audit committee of the registrant's
        board of directors (or persons performing the equivalent functions):

        a)  All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

        b)  Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date: August 16, 2004

                                           By:  /s/ David T. Vandewater
                                                -----------------------------
                                                David T. Vandewater
                                                President and Chief Executive
                                                Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                  CERTIFICATION

I, R. Dirk Allison, certify that:

    1.  I have reviewed this Quarterly Report on Form 10-Q of Ardent Health
        Services LLC;

    2.  Based on my knowledge, this report does not contain any untrue statement
        of a material fact or omit to state a material fact necessary to make
        the statements made, in light of the circumstances under which such
        statements were made, not misleading with respect to the period covered
        by this report;

    3.  Based on my knowledge, the financial statements, and other financial
        information included in this report, fairly present in all material
        respects the financial condition, results of operations and cash flows
        of the registrant as of, and for, the periods presented in this report;

    4.  The registrant's other certifying officer and I are responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
        registrant and have:

        a)  Designed such disclosure controls and procedures, or caused such
            disclosure controls and procedures to be designed under our
            supervision, to ensure that material information relating to the
            registrant, including its consolidated subsidiaries, is made known
            to us by others within those entities, particularly during the
            period in which this report is being prepared;

        b)  [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and
            34-47986]

        c)  Evaluated the effectiveness of the registrant's disclosure controls
            and procedures and presented in this report our conclusions about
            the effectiveness of the disclosure controls and procedures, as of
            the end of the period covered by this report based on such
            evaluation; and

        d)  Disclosed in this report any change in the registrant's internal
            control over financial reporting that occurred during the
            registrant's most recent fiscal quarter (the registrant's fourth
            fiscal quarter in the case of an annual report) that has materially
            affected, or is reasonably likely to materially affect, the
            registrant's internal control over financial reporting; and

    5.  The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation of internal control over financial reporting,
        to the registrant's auditors and the audit committee of the registrant's
        board of directors (or persons performing the equivalent functions):

        a)  All significant deficiencies and material weaknesses in the design
            or operation of internal control over financial reporting which are
            reasonably likely to adversely affect the registrant's ability to
            record, process, summarize and report financial information; and

        b)  Any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal control over financial reporting.

Date:  August 16, 2004

                                            By:  /s/ R. Dirk Allison
                                                 -----------------------
                                                 R. Dirk Allison
                                                 Chief Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                  AS ENACTED BY
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the Quarterly Report on Form 10-Q of Ardent Health
Services LLC (the "Company") for the period ended June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
David T. Vandewater, Chief Executive Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, that:

    (1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

    (2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                                      /s/ David T. Vandewater
                                                      -----------------------
                                                      David T. Vandewater
                                                      Chief Executive Officer
                                                      August 16, 2004

EX-32.2

                                                                    EXHIBIT 32.2

                CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                                  AS ENACTED BY
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the Quarterly Report on Form 10-Q of Ardent Health
Services LLC (the "Company") for the period ended June 30, 2004 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, R.
Dirk Allison, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, that:

    (1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

    (2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

                                                      /s/ R. Dirk Allison
                                                      -----------------------
                                                      R. Dirk Allison
                                                      Chief Financial Officer
                                                      August 16, 2004