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	•	The exchange offer expires at 5:00 p.m., New York City time, on, July 26, 2005, unless extended. We do not currently intend to extend the expiration date of the exchange offer.
	•	The exchange offer is not subject to any condition other than that the exchange offer not violate applicable law or any applicable interpretation of the Staff of the Securities and Exchange Commission.
	•	We will exchange the exchange notes for all outstanding notes that are validly tendered and not validly withdrawn prior to the expiration of the exchange offer.
	•	You may withdraw tendered outstanding notes at any time prior to the expiration of the exchange offer.
	•	We do not intend to apply for listing of the exchange notes on any securities exchange or automated quotation system.
	•	We will not receive any proceeds from the exchange offer. We will pay all expenses incurred by us in connection with the exchange offer and the issuance of the exchange notes.

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		Page
Prospectus Summary			1
Risk Factors			13
Industry and Market Data			25
Forward Looking Statements			25
The Exchange Offer			27
The Transactions			34
Use of Proceeds			36
Capitalization			36
Selected Historical Consolidated Financial Data			37
Unaudited Pro Forma Condensed Consolidated Financial Information			39
Management’s Discussion and Analysis of Financial Condition and Results of Operations			43
Our Business			67
Management			88
Security Ownership of Certain Beneficial Owners and Management			97
Certain Relationships and Related Transactions			100
Description of Certain Other Indebtedness			103
Description of the Exchange Notes			106
Material U.S. Federal Income Tax Considerations			155
Plan of Distribution			159
Legal Matters			159
Experts			159
Available Information			159
Index to Consolidated Financial Statements			F-1

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	Compliance with recent changes in federal regulations applicable to long-term acute care hospitals operated as “hospitals within hospitals” or as “satellites” will result in increased capital expenditures and may have an adverse effect on our future net operating revenues and profitability.

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	If our long-term acute care hospitals fail to maintain their certifications as long-term acute care hospitals or if our facilities operated as HIHs fail to qualify as hospitals separate from their host hospitals, our net operating revenues and profitability may decline.

	Implementation of modifications to the admissions policies for our inpatient rehabilitation facilities as required in order to achieve compliance with Medicare regulations may result in a loss of patient volume at these hospitals and, as a result, may reduce our future net operating revenues and profitability.

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	Implementation of annual caps that limit the amounts that can be paid for outpatient therapy services rendered to any Medicare beneficiary may reduce our future net operating revenues and profitability.

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	If there are changes in the rates or methods of government reimbursements for our services, our net operating revenues and profitability could decline.

	We conduct business in a heavily regulated industry, and changes in regulations or violations of regulations may result in increased costs or sanctions that reduce our net operating revenues and profitability.

	•	facility and professional licensure, including certificates of need;
	•	conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse, and physician self-referral;
	•	addition of facilities and services and enrollment of newly developed facilities in the Medicare program; and
	•	payment for services.

	Integrating SemperCare into our company structure may strain our resources and prove to be difficult.

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	Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

	•	the difficulty and expense of integrating acquired personnel into our business;
	•	diversion of management’s time from existing operations;
	•	potential loss of key employees or customers of acquired companies; and
	•	assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including liabilities for failure to comply with healthcare regulations.

	Future cost containment initiatives undertaken by private third-party payors may limit our future net operating revenues and profitability.

	If we fail to maintain established relationships with the physicians in our markets, our net operating revenues may decrease.

	Shortages in qualified nurses or therapists could increase our operating costs significantly.

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	Competition may limit our ability to acquire hospitals and clinics and adversely affect our growth.

	If we fail to compete effectively with other hospitals, clinics and healthcare providers, our net operating revenues and profitability may decline.

	Our business operations could be significantly disrupted if we lose key members of our management team.

	Significant legal actions as well as the cost and possible lack of available insurance could subject us to substantial uninsured liabilities.

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	Our substantial indebtedness may limit the amount of cash flow that is available to invest in the ongoing needs of our business, which could prevent us from generating the future cash flow needed to fulfill our obligations under the notes.

	•	requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity, acquisitions and other general corporate purposes;
	•	increases our vulnerability to adverse general economic or industry conditions;
	•	limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;
	•	makes us more vulnerable to increases in interest rates, as borrowings under our new senior secured credit facility are at variable rates;
	•	limits our ability to obtain additional financing in the future for working capital or other purposes, such as raising the funds necessary to repurchase all notes tendered to us upon the occurrence of specified changes of control in our ownership; or
	•	places us at a competitive disadvantage compared to our competitors that have less indebtedness.

	Despite our substantial level of indebtedness, we and our subsidiaries may be able to incur additional indebtedness. This could further exacerbate the risks described above.

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	To service our indebtedness and meet our other ongoing liquidity needs, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control, including possible changes in government reimbursement rates or methods. If we cannot generate the required cash, we may not be able to make the required payments under the notes.

	Your right to receive payments on the notes is junior to our senior indebtedness and the senior indebtedness of the subsidiary guarantors. Further, the notes and the subsidiary guarantees are effectively subordinated to all liabilities of our non-guarantor subsidiaries.

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	The notes are not secured by our assets nor those of our subsidiaries and the lenders under our new senior secured credit facility are entitled to remedies available to a secured lender, which gives them priority over the note holders to collect amounts due to them.

	Restrictions imposed by our new senior secured credit facility and the indenture governing the notes limit our ability to engage in or enter into business, operating and financing arrangements, which could prevent us from taking advantage of potentially profitable business opportunities.

	•	incur or guarantee additional debt and issue or sell preferred stock;
	•	pay dividends on, redeem or repurchase our capital stock;
	•	make certain acquisitions or investments;
	•	incur or permit to exist certain liens;
	•	enter into transactions with affiliates;
	•	merge, consolidate or amalgamate with another company;
	•	transfer or otherwise dispose of assets;
	•	redeem subordinated debt;
	•	incur capital expenditures;
	•	incur contingent obligations;
	•	incur obligations that restrict the ability of our subsidiaries to make dividends or other payments to us; and
	•	create or designate unrestricted subsidiaries.

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	We may not have the funds to purchase the notes upon a change of control as required by the indenture governing the notes.

	Federal and state statutes could allow courts, under specific circumstances, to void the subsidiary guarantees, subordinate claims in respect of the notes and require note holders to return payments received from subsidiary guarantors.

	•	intended to hinder, delay or defraud any present or future creditor or received less than reasonably equivalent value or fair consideration for the incurrence of such indebtedness; and
	•	the subsidiary guarantor was insolvent or rendered insolvent by reason of such incurrence;
	•	the subsidiary guarantor was engaged in a business or transaction for which the subsidiary guarantor’s remaining assets constituted unreasonably small capital; or
	•	the subsidiary guarantor intended to incur, or believed that it would incur, debts beyond the subsidiary guarantor’s ability to pay such debts as they mature.

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	•	the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets;
	•	the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
	•	it could not pay its debts as they become due.

	There may be no active trading market for the exchange notes.

	The market price for the notes may be volatile.

	We depend on distributions from our operating subsidiaries to pay the interest on the notes. Contractual or legal restrictions applicable to our subsidiaries could limit distributions from them.

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	The interests of our principal stockholder may conflict with your interests as a holder of the notes.

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	•	compliance with the Medicare “hospital within a hospital” regulation changes will require increased capital expenditures and may have an adverse effect on our future net operating revenues and profitability;
	•	the failure of our long-term acute care hospitals to maintain their status as such may cause our net operating revenues and profitability to decline;
	•	the failure of our facilities operated as “hospitals within hospitals” to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;
	•	implementation of modifications to the admissions policies for our inpatient rehabilitation facilities, as required to achieve compliance with Medicare guidelines, may result in a loss of patient volume at these hospitals and, as a result, may reduce our future net operating revenues and profitability;
	•	implementation of annual caps that limit the amounts that can be paid for outpatient therapy services rendered to any Medicare beneficiary may reduce our future net operating revenues and profitability;
	•	additional changes in government reimbursement for our services may have an adverse effect on our future net operating revenues and profitability;
	•	changes in applicable regulations or a government investigation or assertion that we have violated applicable regulations may result in increased costs or sanctions that reduce our net operating revenues and profitability;
	•	integration of recently acquired operations and future acquisitions may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;
	•	private third-party payors for our services may undertake future cost containment initiatives that limit our future net operating revenues and profitability;
	•	the failure to maintain established relationships with the physicians in our markets could reduce our net operating revenues and profitability;
	•	shortages in qualified nurses or therapists could increase our operating costs significantly;

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	•	competition may limit our ability to grow and result in a decrease in our net operating revenues and profitability;
	•	the loss of key members of our management team could significantly disrupt our operations; and
	•	the effect of claims asserted against us or lack of adequate available insurance could subject us to substantial uninsured liabilities.

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	•	the exchange notes acquired pursuant to the exchange offer are being obtained in the ordinary course of business of the holder;
	•	the holder does not have an arrangement or understanding with any person to participate in the distribution of the exchange notes;
	•	the holder is not an “affiliate,” as defined under Rule 405 under the Securities Act, of Select; and
	•	if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for outstanding notes that were acquired as a result of market-making or other trading activities, then the holder will deliver a prospectus in connection with any resale of such exchange notes.

	•	is an “affiliate,” within the meaning of Rule 405 under the Securities Act, of Select;
	•	is a broker-dealer who purchased outstanding notes directly from us for resale under Rule 144A or Regulation S or any other available exemption under the Securities Act;
	•	acquired the exchange notes other than in the ordinary course of the holder’s business;
	•	has an arrangement with any person to engage in the distribution of the exchange notes; or
	•	is prohibited by any law or policy of the SEC from participating in the exchange offer.

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	•	to delay accepting any outstanding notes, to extend the exchange offer or, if any of the conditions set forth under “— Conditions to the Exchange Offer” shall not have been satisfied, to terminate the exchange offer, by giving oral or written notice of that delay, extension or termination to the exchange agent, or
	•	to amend the terms of the exchange offer in any manner.

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	•	certificates for the outstanding notes must be received by the exchange agent along with the letter of transmittal prior to the expiration date, or
	•	a timely confirmation of a book-entry transfer, or a book-entry confirmation, of the outstanding notes, if that procedure is available, into the exchange agent’s account at The Depository Trust Company, which we refer to as the book-entry transfer facility, following the procedure for book-entry transfer described below, must be received by the exchange agent prior to the expiration date, or you must comply with the guaranteed delivery procedures described below.

	•	by a registered holder who has not completed the box entitled “Special Issuance Instruction” or “Special Delivery Instructions” on the letter of transmittal, or
	•	for the account of an eligible guarantor institution.

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	•	the tender is made through an eligible guarantor institution;
	•	prior to 5:00 p.m., New York City time, on the expiration date, the exchange agent receives from that eligible guarantor institution a properly completed and duly executed letter of transmittal or a facsimile of a duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us, by telegram, fax transmission, mail or hand delivery, setting forth the name and address of the holder of outstanding notes and the amount of the outstanding notes tendered and stating that the tender is being made by guaranteed delivery, the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, will be deposited by the eligible guarantor institution with the exchange agent; and
	•	the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation, as the case may be, are received by the exchange agent within five business days after the date of execution of the notice of guaranteed delivery.

	•	specify the name of the person having deposited the outstanding notes to be withdrawn, whom we refer to as the depositor;
	•	identify the outstanding notes to be withdrawn, including the certificate number or numbers and principal amount of such outstanding notes;

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	•	be signed by the holder in the same manner as the original signature on the letter of transmittal by which such outstanding notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee register the transfer of such outstanding notes into the name of the person withdrawing the tender; and
	•	specify the name in which any such outstanding notes are to be registered, if different from that of the depositor.

	•	as set forth in the legend printed on the outstanding notes as a consequence of the issuance of the outstanding notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and
	•	otherwise set forth in the prospectus distributed in connection with the private offering of the outstanding notes.

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By Mail, Hand Delivery or Facsimile:		U.S. Bank Trust National Association
		Specialized Finance Group
		60 Livingston Avenue
		St. Paul, MN 55107
		Facsimile: (651) 495-8158

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	•	$1,827.7 million to pay our then existing stockholders (other than rollover stockholders) and option holders all amounts due under the merger agreement;
	•	$152.0 million of rollover equity from our continuing investors;
	•	$344.2 million to repay existing indebtedness; and
	•	$119.2 million to pay related fees and expenses, including premiums, consent fees and interest payable in connection with the tender offers and consent solicitations for our existing senior subordinated notes.

	•	a cash equity investment in Holdings of $570.0 million by an investor group led by our sponsors (the net proceeds of which were contributed by Holdings to us) and a rollover equity investment in Holdings of $152.0 million by our continuing investors;
	•	Holdings’ issuance and sale of senior subordinated notes, preferred stock and common stock to WCAS Capital Partners IV, L.P., an investment fund affiliated with Welsh Carson, Rocco A. Ortenzio, Robert A. Ortenzio and certain other investors who are members of or affiliated with the Ortenzio family, for an aggregate purchase price of $150.0 million (the net proceeds of which were contributed by Holdings to us);
	•	borrowings by us of $580.0 million in term loans and $200.0 million in revolving loans under our new senior secured credit facility;
	•	existing cash on hand of $131.1 million; and
	•	the issuance of $660.0 million in aggregate principal amount of the outstanding notes.

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			As of March 31,
			2005
			(Dollars in millions)
Cash and cash equivalents			$	19.3
Debt:
	New revolving credit facility(1)			200.0
	New term loan facility(1)			580.0
	91/2% senior subordinated notes due 2009			5.8
	Outstanding notes			660.0
	Other debt and capital leases			4.3
Total debt				1,450.1
Total stockholders’ equity				449.6
Total capitalization			$	1,899.7

(1)	Total revolving loan availability under our new senior secured credit facility is $300.0 million. Upon consummation of the Transactions, we borrowed $200.0 million in revolving loans to provide a portion of the funds required to consummate the Transactions. In addition, approximately $16.4 million of letters of credit were outstanding under our new senior secured credit facility.

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		Predecessor																													Successor
																						Three				Period from					Period from
																						Months				January 1,					February 25
		Year Ended December 31,																				Ended				through					through
																						March 31,				February 24,					March 31,
		2000				2001				2002				2003				2004				2004				2005					2005
														(Dollars in thousands)
Consolidated Statement of Operations Data:
Net operating revenues		$	805,897			$	958,956			$	1,126,559			$	1,392,366			$	1,660,791			$	418,469			$	287,787				$	195,112
Operating expenses(1)			714,227				846,938				999,280				1,207,913				1,389,281				348,997				239,573					154,573
Stock compensation associated with the merger(2)			—				—				—				—				—				—				142,213					4,326
Depreciation and amortization			30,401				32,290				25,836				34,654				39,977				10,197				6,177					4,248
Income (loss) from operations			61,269				79,728				101,443				149,799				231,533				59,275				(100,176	)				31,965
Loss on early retirement of debt(3)			(6,247	)			(14,223	)			—				—				—				—				(42,736	)				—
Merger related charges(4)			—				—				—				—				—				—				(12,025	)				—
Equity in earnings from joint ventures			—				—				—				824				—				—				—					—
Interest expense, net			(35,187	)			(29,209	)			(26,614	)			(25,404	)			(31,051	)			(9,053	)			(4,211	)				(9,559	)
Income (loss) from continuing operations before minority interests and income taxes			19,835				36,296				74,829				125,219				200,482				50,222				(159,148	)				22,406
Minority interests(5)			4,144				3,491				2,022				2,402				3,448				1,006				469					462
Income (loss) from continuing operations before income taxes			15,691				32,805				72,807				122,817				197,034				49,216				(159,617	)				21,944
Income tax provision (benefit)			9,979				3,124				28,576				48,597				79,602				19,793				(59,366	)				8,871
Income (loss) from continuing operations			5,712				29,681				44,231				74,220				117,432				29,423				(100,251	)				13,073
Income from discontinued operations, net of tax			—				—				—				251				752				147				—					—
Net income (loss)			5,712				29,681				44,231				74,471				118,184				29,570				(100,251	)				13,073
Less: Preferred dividends			8,780				2,513				—				—				—				—				—					—
Net income (loss) available to common stockholders		$	(3,068	)		$	27,168			$	44,231			$	74,471			$	118,184			$	29,570			$	(100,251	)			$	13,073
Other Financial Data:
Capital expenditures		$	22,430			$	24,011			$	43,183			$	35,852			$	32,626			$	7,762			$	2,586				$	1,112
Ratio of earnings to fixed charges(6)			n/a				1.6	x			2.3	x			3.1	x			3.9	x			3.8	x			n/a					2.7	x
Cash Flow Data:
Net cash provided by (used in) operating activities		$	22,513			$	95,770			$	120,812			$	246,248			$	174,276			$	76,529			$	19,056				$	(191,971	)
Net cash provided by (used in) investing activities			14,197				(61,947	)			(54,048	)			(261,452	)			(21,928	)			(11,177	)			(110,865	)				(3,327	)
Net cash provided by (used in) financing activities			(37,616	)			(26,164	)			(21,423	)			124,318				(70,990	)			(20,042	)			202					58,816
Consolidated Balance Sheet Data (at end of period):
Cash and cash equivalents		$	3,151			$	10,703			$	56,062			$	165,507			$	247,476			$	210,784								$	19,343
Working capital			105,567				126,749				130,621				188,380				313,715				210,878									157,965
Total assets			586,800				650,845				739,059				1,078,998				1,113,721				1,116,986									2,169,424
Total debt			302,788				288,423				260,217				367,503				354,590				364,744									1,450,097
Preferred stock			129,573				—				—				—				—				—									—
Total stockholders’ equity			48,498				234,284				286,418				419,175				515,943				440,760									449,584

(1)	Operating expenses include cost of services, general and administrative expenses and bad debt expenses.

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(2)	Consists of stock compensation expense related to the repurchase of outstanding stock options in the Predecessor period of January 1, 2005 through February 24, 2005 and compensation expenses related to restricted stock and a warrant that were issued in the Successor period of February 25, 2005 through March 31, 2005.
(3)	Reflects the write-off of deferred financing costs that resulted from the refinancing of our senior credit facilities in September 2000. Also reflects the write-off of deferred financing costs and discounts resulting from the repayment of indebtedness with the proceeds from our initial public offering in April 2001 and our 91/2% senior subordinated notes offering in June 2001. In connection with the merger on February 24, 2005, we tendered for all of our 91/2% senior subordinated notes due 2009 and all of our 71/2% senior subordinated notes due 2013. The loss in the Successor period of February 25, 2005 through March 31, 2005 consists of the tender premium cost of $34.8 million and the write-off of the remaining unamortized deferred financing costs of $7.9 million.
(4)	As a result of the merger, we incurred costs in the Predecessor period of January 1, 2005 through February 24, 2005 directly related to the merger. This included the cost of the investment advisor hired by the Special Committee of our Board of Directors to evaluate the merger, legal and accounting fees, costs associated with the Hart-Scott-Rodino filing relating to the merger, cost associated with purchasing a six year extended reporting period under our directors and officers liability insurance policy and other associated expenses.
(5)	Reflects interests held by other parties in subsidiaries, limited liability companies and limited partnerships owned and controlled by us.
(6)	For purposes of computing the ratio of earnings to fixed charges, earnings consist of income (loss) from continuing operations before income taxes, fixed charges, minority interest in income of subsidiaries and income (loss) from unconsolidated joint ventures. Fixed charges include preferred dividend requirements of subsidiaries, deemed dividends on preferred stock conversion, interest expense and the portion of operating rents that is deemed representative of an interest factor. In 2000, and the period from January 1, 2005 through February 24, 2005, the ratio coverage was less than 1:1. We would have had to generate additional earnings of approximately $4.3 million in 2000, and $159.1 million in the period from January 1, 2005 through February 24, 2005 to achieve a coverage ratio of 1:1.

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			Historical				Adjustments				Pro Forma
			(In thousands)
Net operating revenues			$	1,660,791			$	—			$	1,660,791
Costs and expenses:
	Cost of services			1,294,903				—				1,294,903
	General and administrative			45,856				—				45,856
	Bad debt expense			48,522				—				48,522
	Depreciation and amortization			39,977				6,414	(1)			46,391
Total costs and expenses				1,429,258				6,414				1,435,672
Income from operations				231,533				(6,414	)			225,119
Other income and expense:
	Interest expense, net			(31,051	)			(64,946	)(2)			(95,997	)
Income from continuing operations before minority interests and income taxes				200,482				(71,360	)			129,122
Minority interest in consolidated subsidiary companies				3,448				—				3,448
Income from continuing operations before income taxes				197,034				(71,360	)			125,674
Income tax expense				79,602				(28,830	)(3)			50,772
Income from continuing operations			$	117,432			$	(42,530	)		$	74,902

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			Predecessor				Successor
											Combined
			For the Period				For the Period				Three
			January 1				February 25				Months
			through				through				Ended
			February 24,				March 31,				March 31,
			2005				2005				2005				Adjustments				Pro Forma
			(In thousands)
Net operating revenues			$	287,787			$	195,112			$	482,899			$	—			$	482,899
Costs and expenses:
	Cost of services			225,428				145,608				371,036				—				371,036
	Stock compensation associated with merger			142,213				4,326				146,539				—				146,539
	General and administrative			7,484				4,356				11,840				—				11,840
	Bad debt expense			6,661				4,609				11,270				—				11,270
	Depreciation and amortization			6,177				4,248				10,425				1,069	(1)			11,494
Total costs and expenses				387,963				163,147				551,110				1,069				552,179
Income (loss) from operations				(100,176	)			31,965				(68,211	)			(1,069	)			(69,280	)
Other income and expense:
	Loss on early retirement of debt			(42,736	)			—				(42,736	)			—				(42,736	)
	Merger related charges			(12,025	)			—				(12,025	)			—				(12,025	)
	Interest expense, net			(4,211	)			(9,559	)			(13,770	)			(10,280	)(2)			(24,050	)
Income (loss) before minority interests and income taxes				(159,148	)			22,406				(136,742	)			(11,349	)			(148,091	)
Minority interest in consolidated subsidiary companies				469				462				931				—				931
Income (loss) before income taxes				(159,617	)			21,944				(137,673	)			(11,349	)			(149,022	)
Income tax expense (benefit)				(59,366	)			8,871				(50,495	)			(4,163	)(3)			(54,658	)
Net income (loss)			$	(100,251	)		$	13,073			$	(87,178	)			(7,186	)		$	(94,364	)

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		Outstanding
		Principal				Interest Rate
		(In thousands)
New revolving credit facility		$	200,000				5.4145	%
New term loans			580,000				4.6300	%
Senior subordinated notes			660,000				7.6250	%

						Three Months
		Year Ended				Ended
		December 31,				March 31,
		2004				2005(a)
Eliminate interest expense on 91/2% senior subordinated notes		$	(16,079	)		$	(2,457	)
Eliminate interest expense on 71/2% senior subordinated notes			(13,125	)			(2,005	)
Eliminate amortization of deferred financing fees from the tendered 91/2% and 71/2% senior subordinated notes and existing credit facility			(2,169	)			(361	)
Eliminate commitment fees related to former credit facility			(1,054	)			(147	)
Interest on new revolving credit facility			10,829				1,654
Commitment fee on unused portion of credit facility			424				70
Interest on new term loan facility			26,854				4,103
Interest on senior subordinated notes			50,325				7,689
Amortization of deferred financing fees from senior subordinated notes and new credit facility			7,302				1,217
Reduction of interest income related to use of existing cash to fund transaction(b)			1,639				517
Transaction pro forma interest adjustment		$	64,946			$	10,280

(a)	Transaction pro forma interest adjustment for the three months ended March 31, 2005 represents elimination of historical amounts from January 1, 2005 through February 24, 2005 and inclusion of pro forma amounts for that same period.

(b)		The reduction in interest income is related to the use of $131.1 million of Select’s existing cash to fund the transaction. The interest rates used were 1.250% and 2.369% for the year ended December 31, 2004 and the three months ended March 31, 2005, respectively, and represent the average interest rate earned by us during the period presented.

Time Period		Tax Rate
Year Ended December 31, 2004			40.4	%
Three Months Ended March 31, 2005			36.7	%

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	First Quarter Ended March 31, 2005

	SemperCare Acquisition

	Year Ended December 31, 2004

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	Sources of Revenue

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	Contractual Adjustments

	Allowance for Doubtful Accounts

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		Balance as of December 31,
		2004								2003
						Over								Over
		0-90 Days				90 Days				0-90 Days				90 Days
Medicare and Medicaid		$	88,174			$	20,182			$	87,089			$	28,490
Commercial insurance, and other			127,691				75,426				114,392				111,717
Total net accounts receivable		$	215,865			$	95,608			$	201,481			$	140,207

		As of December 31,
		2004				2003
0 to 90 days			69.3%				59.0%
91 to 180 days			11.2%				11.6%
180 to 365 days			9.9%				10.0%
Over 365 days			9.6%				19.4%
Total			100.0%				100.0%

		As of December 31,
		2004				2003
Insured receivables			98.3%				97.9%
Self-pay receivables (including deductible and copayments)			1.7%				2.1%
Total			100.0%				100.0%

	Insurance

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			Fiscal Year Ended												Three Months Ended
			December 31,												March 31,
			2002				2003				2004				2004				2005
Specialty hospital data(1):
Number of hospitals — start of period				64				72				83				83				86
	Number of hospital start-ups			8				8				4				—				—
	Number of hospitals acquired			—				4				—				—				17
	Number of hospitals closed			—				(1	)			(1	)			—				—
Number of hospitals — end of period				72				83				86				83				103
Available licensed beds				2,594				3,204				3,403				3,256				3,907
Admissions				21,065				27,620				33,523				8,738				10,336
Patient days				619,322				722,231				816,898				212,727				250,839
Average length of stay (days)				30				26				24				25				25
Net revenue per patient day(2)			$	1,009			$	1,173			$	1,306			$	1,243			$	1,330
Occupancy rate				71	%			70	%			67	%			72	%			71	%
Percent patient days — Medicare				76	%			76	%			74	%			75	%			77	%
Outpatient rehabilitation data:
Number of clinics owned — start of period				664				679				758				758				705
	Number of clinics acquired			14				125				5				2				7
	Number of clinic start-ups			49				30				20				4				9
	Number of clinics closed/sold			(48	)			(76	)			(78	)			(23	)			(6	)
Number of clinics owned — end of period				679				758				705				741				715
Number of clinics managed — end of period				58				32				36				36				38
Total number of clinics (all) — end of period				737				790				741				777				753
Number of visits (U.S.)				3,841,841				4,027,768				3,810,284				1,004,106				915,822
Net revenue per visit (U.S.)(3)			$	86			$	87			$	90			$	91			$	91

(1)	Specialty hospitals consist of long-term acute care hospitals and inpatient rehabilitation facilities.
(2)	Net revenue per patient day is calculated by dividing specialty hospital patient service revenues by the total number of patient days.

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(3)	Net revenue per visit (U.S.) is calculated by dividing outpatient rehabilitation clinic revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic revenue does not include our Canadian subsidiary and contract services revenue.

											Three Months Ended
											March 31, 2005
			Predecessor				Successor				Combined
			(Dollars in thousands)
Net operating revenues			$	287,787			$	195,112			$	482,899
Costs and expenses:
	Cost of services			225,428				145,608				371,036
	Stock compensation associated with merger			142,213				4,326				146,539
	General and administrative			7,484				4,356				11,840
	Bad debt expense			6,661				4,609				11,270
	Depreciation and amortization			6,177				4,248				10,425
Total costs and expenses				387,963				163,147				551,110
Income (loss) from operations				(100,176	)			31,965				(68,211	)
Other income and expense:
	Loss on early retirement of debt			42,736				—				42,736
	Merger related charges			12,025				—				12,025
	Interest income			(523	)			(77	)			(600	)
	Interest expense			4,734				9,636				14,370
Income (loss) before minority interests and income taxes				(159,148	)			22,406				(136,742	)
Minority interest in consolidated subsidiary companies				469				462				931
Income (loss) before income taxes				(159,617	)			21,944				(137,673	)
Income tax expense (benefit)				(59,366	)			8,871				(50,495	)
Net income (loss)			$	(100,251	)		$	13,073			$	(87,178	)

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		Fiscal Year Ended												Three Months Ended
		December 31,												March 31,
		2002				2003				2004				2004				2005(1)
Net operating revenues			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%
Cost of services(2)			81.9				79.8				78.0				77.8				76.9
Stock compensation associated with merger			—				—				—				—				30.3
General and administrative			3.5				3.2				2.8				2.8				2.4
Bad debt expense			3.3				3.7				2.9				2.8				2.3
Depreciation and amortization			2.3				2.5				2.4				2.4				2.2
Income (loss) from operations			9.0				10.8				13.9				14.2				(14.1	)
Loss on early retirement of debt			—				—				—				—				8.9
Equity in earnings from joint ventures			—				(0.1	)			—				—				—
Merger related charges			—				—				—				—				2.4
Interest expense, net			2.4				1.8				1.8				2.2				2.9
Income (loss) from continuing operations before minority interests and income taxes			6.6				9.1				12.1				12.0				(28.3	)
Minority interests			0.2				0.2				0.2				0.3				0.2
Income (loss) from continuing operations before income taxes			6.4				8.9				11.9				11.7				(28.5	)
Income tax (benefit)			2.5				3.6				4.8				4.7				(10.5	)
Income (loss) from continuing operations			3.9				5.3				7.1				7.0				(18.0	)
Income from discontinued operations, net of tax			—				N/M				N/M				N/M				—
Net income (loss)			3.9	%			5.3	%			7.1	%			7.0	%			(18.0	)%

			Fiscal Year Ended																				Three Months Ended
			December 31,																				March 31,
															% Change				% Change
			2002				2003				2004				2002-2003				2003-2004				2004				2005(1)				% Change
			(Dollars in thousands)																				(Dollars in thousands)
Net operating revenues:
	Specialty hospitals		$	625,238			$	849,261			$	1,089,538				35.8	%			28.3	%		$	269,379			$	341,511				26.8	%
	Outpatient rehabilitation			485,101				529,262				558,097				9.1				5.4				145,664				138,232				(5.1	)
	Other			16,220				13,843				13,156				(14.7	)			(5.0	)			3,426				3,156				(7.9	)
	Total company		$	1,126,559			$	1,392,366			$	1,660,791				23.6	%			19.3	%		$	418,469			$	482,899				15.4	%
Income (loss) from operations:
	Specialty hospitals		$	57,975			$	129,861			$	216,803				124.0	%			66.9	%		$	53,070			$	72,762				37.1	%
	Outpatient rehabilitation			70,342				60,778				66,805				(13.6	)			9.9				19,339				19,174				(0.9	)
	Other			(26,874	)			(40,840	)			(52,075	)			(52.0	)			(27.5	)			(13,134	)			(160,147	)			N/M
	Total company		$	101,443			$	149,799			$	231,533				47.7	%			54.6	%		$	59,275			$	(68,211	)			N/M
Adjusted EBITDA(3):
	Specialty hospitals		$	70,891			$	145,649			$	236,181				105.5	%			62.2	%		$	57,907			$	79,055				36.5	%
	Outpatient rehabilitation			81,136				74,988				81,616				(7.6	)			8.8				22,908				21,823				(4.7	)
	Other			(24,748	)			(36,184	)			(46,287	)			(46.2	)			(27.9	)			(11,343	)			(12,125	)			(6.9	)

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			Fiscal Year Ended																				Three Months Ended
			December 31,																				March 31,
															% Change				% Change
			2002				2003				2004				2002-2003				2003-2004				2004				2005(1)				% Change
			(Dollars in thousands)																				(Dollars in thousands)
Adjusted EBITDA margins(3):
	Specialty hospitals			11.3	%			17.2	%			21.7	%			52.2	%			26.2	%			21.5	%			23.1	%			7.4	%
	Outpatient rehabilitation			16.7				14.2				14.6				(15.0	)			2.8				15.7				15.8				0.6
	Other			N/M				N/M				N/M				N/M				N/M				N/M				N/M				N/M
Total assets:
	Specialty hospitals		$	332,737			$	512,956			$	520,572											$	479,559			$	1,552,031
	Outpatient rehabilitation			326,763				365,534				318,180												390,823				530,855
	Other			79,559				200,508				274,969												246,604				86,538
	Total company		$	739,059			$	1,078,998			$	1,113,721											$	1,116,986			$	2,169,424
Purchases of property and equipment, net:
	Specialty hospitals		$	28,791			$	22,559			$	23,320											$	3,878			$	1,943
	Outpatient rehabilitation			12,637				8,514				5,885												1,746				682
	Other			1,755				4,779				3,421												2,138				1,073
	Total company		$	43,183			$	35,852			$	32,626											$	7,762			$	3,698

				Fiscal Year Ended
				December 31,
				2002				2003
				(Dollars in thousands)
Net operating revenue
	Specialty hospitals net operating revenue			$	625,238			$	849,261
	Less: Specialty hospitals opened and acquired after 1/1/02				6,480				120,925
		Closed specialty hospital			4,636				1,537
	Specialty hospitals same store net operating revenue			$	614,122			$	726,799
Adjusted EBITDA(3)
	Specialty hospitals Adjusted EBITDA(3)			$	70,891			$	145,649
	Less: Specialty hospitals opened and acquired after 1/1/02				(5,829	)			21,416
		Closed specialty hospital			143				206
	Specialty hospitals same store Adjusted EBITDA(3)			$	76,577			$	124,027
	All specialty hospitals Adjusted EBITDA margin(3)				11.3	%			17.2	%
	Specialty hospitals same store Adjusted EBITDA margin(3)				12.5	%			17.1	%

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				Fiscal Year Ended
				December 31,
				2003				2004
				(Dollars in thousands)
Net operating revenue
	Specialty hospitals net operating revenue			$	849,261			$	1,089,538
	Less: Specialty hospitals opened and acquired after 1/1/03				56,320				216,356
		Closed specialty hospital			9,695				5,693
	Specialty hospitals same store net operating revenue			$	783,246			$	867,489
Adjusted EBITDA(3)
	Specialty hospitals Adjusted EBITDA(3)			$	145,649			$	236,181
	Less: Specialty hospitals opened and acquired after 1/1/03				2,868				48,896
		Closed specialty hospital			28				(2,083	)
	Specialty hospitals same store Adjusted EBITDA(3)			$	142,753			$	189,368
	All specialty hospitals Adjusted EBITDA margin(3)				17.2	%			21.7	%
	Specialty hospitals same store Adjusted EBITDA margin(3)				18.2	%			21.8	%

			Three Months Ended
			March 31,
			2004				2005(1)
			(Dollars in thousands)
Net operating revenue
	Specialty hospitals net operating revenue		$	269,379			$	341,511
	Less: Specialty hospitals opened, acquired or closed after 1/1/04			1,985				48,674
	Specialty hospitals same store net operating revenue		$	267,394			$	292,837
Adjusted EBITDA(3)
	Specialty hospitals Adjusted EBITDA(3)		$	57,907			$	79,055
	Less: Specialty hospitals opened, acquired or closed after 1/1/04			(663	)			7,314
	Specialty hospitals same store Adjusted EBITDA(3)		$	58,570			$	71,741
	All specialty hospitals Adjusted EBITDA margin(3)			21.5	%			23.1	%
	Specialty hospitals same store Adjusted EBITDA margin(3)			21.9	%			24.5	%

(1)	The financial data for the period after the merger, February 25, 2005 through March 31, 2005 (Successor period), has been added to the financial data for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined three months ended March 31, 2005.
(2)	Cost of services include salaries, wages and benefits, operating supplies, lease and rent expense and other operating costs.
(3)	We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, income from discontinued operations, loss on early retirement of debt, equity in income from joint ventures, merger related charges, stock compensation associated with merger, and minority interest. We believe that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our operating units. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations,

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investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. See footnote 13 to our audited consolidated financial statements for the year ended December 31, 2004 and footnote 10 to our interim consolidated financial statements for the period ended March 31, 2005 for a reconciliation of net income to Adjusted EBITDA as utilized by us in reporting our segment performance in accordance with SFAS No. 131.

	Net Operating Revenues

	Operating Expenses

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	Adjusted EBITDA

	Income (Loss) from Operations

	Loss on early retirement of debt

	Merger related charges

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	Interest Expense

	Minority Interests

	Income Taxes

	Income from discontinued operation, net of tax

	Net Operating Revenues

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	Operating Expenses

	Adjusted EBITDA

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	Income from Operations

	Interest Expense

	Minority Interests

	Income Taxes

	Net Operating Revenues

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	Operating Expenses

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	Adjusted EBITDA

	Income from Operations

	Interest Expense

	Minority Interests

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	Income Taxes

	Three Months Ended March 31, 2005 and 2004

	Years Ended December 31, 2004, 2003, and 2002

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	Capital Resources

	•	a $300.0 million revolving loan facility with a maturity of six years, including both a letter of credit sub-facility and a swingline loan sub-facility, and
	•	a $580.0 million term loan facility with a maturity of seven years.

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	Commitments and Contingencies

			Payments Due by Year
Contractual Obligations			Total				2005				2006-2008				2009-2010				After 2010
							(Dollars in thousands)
91/2% Senior Subordinated Notes			$	175,000			$	—			$	—			$	175,000			$	—
71/2% Senior Subordinated Notes				175,000				—				—				—				175,000
Seller Notes				3,406				2,782				624				—				—
Capital Lease Obligations				252				119				133				—				—
Other Debt Obligations				932				656				276				—				—
	Total Debt			354,590				3,557				1,033				175,000				175,000
Letters of Credit Outstanding				15,125				15,125				—				—				—
Purchase Obligations				7,470				3,131				4,013				326				—
Patient Care Obligation(1)				3,234				246				739				494				1,755
Naming, Promotional and Sponsorship Agreement				35,219				1,498				4,494				3,100				26,127
Operating Leases				225,886				73,039				123,239				16,070				13,538
Related Party Operating Leases				18,018				1,731				5,401				3,369				7,517
Total Contractual Cash Obligations			$	659,542			$	98,327			$	138,919			$	198,359			$	223,937

(1)	For a description of this obligation, see Note 16 to our consolidated audited financial statements for the year ended December 31, 2004.

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			Payments Due by Year
Contractual Obligations			Total				2005				2006-2008				2009-2010				After 2010
							(Dollars in thousands)
75/8% Senior Subordinated Notes			$	660,000			$	—			$	—			$	—			$	660,000
Term loans				580,000				4,350				17,400				11,600				546,650
Borrowing on revolver				200,000				—				—				—				200,000
91/2% Senior Subordinated Notes				5,750				—				—				5,750				—
Seller Notes				3,406				2,782				624				—				—
Capital Lease Obligations				252				119				133				—				—
Other Debt Obligations				932				656				276				—				—
	Total Debt			1,450,340				7,907				18,433				17,350				1,406,650
Letters of Credit Outstanding				15,125				15,025				100				—				—
Purchase Obligations				7,470				3,131				4,013				326				—
Patient Care Obligation(1)				3,234				246				739				494				1,755
Naming, Promotional and Sponsorship Agreement				35,219				1,498				4,494				3,100				26,127
Operating Leases				225,886				73,039				123,239				16,070				13,538
Related Party Operating Leases				18,018				1,731				5,401				3,369				7,517
Total Contractual Cash Obligations			$	1,755,292			$	102,577			$	156,419			$	40,709			$	1,455,587

(1)	For a description of this obligation, see Note 16 to our consolidated audited financial statements for the year ended December 31, 2004.

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			Distribution
Medical Condition			of Patients
Neuromuscular disorder				34	%
Respiratory disorder				30
Cardiac disorder				12
Wound care				8
Other				16
	Total			100	%

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	Recent HIH Regulatory Changes

		Threshold of Medicare Discharges
Cost Reporting Period Beginning on or After:		Admitted from Host Hospital
October 1, 2004			Fiscal 2004 Percentage (as defined below)
October 1, 2005			Lesser of Fiscal 2004 Percentage or 75%
October 1, 2006			Lesser of Fiscal 2004 Percentage or 50%
October 1, 2007			25%

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		Percentage of Our HIHs Meeting Such Criteria
Percentage of Medicare Admissions from Host Hospital		for the Year Ended December 31, 2004
25% or less			9	%
50% or less			31	%
75% or less			78	%

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	•	net operating revenues and income from operations have grown from $456.0 million and $20.3 million, respectively, for the fiscal year ended December 31, 1999 to $1,660.8 million and $231.5 million, respectively, for the fiscal year ended December 31, 2004; and
	•	accounts receivable days outstanding have decreased from 119 as of December 31, 1999 to 58 as of March 31, 2005;

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	•	optimizing staffing based on our occupancy and the clinical needs of our patients;
	•	centralizing administrative functions such as accounting, payroll, legal, reimbursement, compliance, human resources and billing and collection;
	•	standardizing management information systems to aid in financial reporting as well as billing and collecting; and
	•	participating in group purchasing arrangements to receive discounted prices for pharmaceuticals and medical supplies.

Licensed Beds

(as of March 31,

Hospital Name

City

State

Opening Date

2005)

SSH-Birmingham

Birmingham

AL

February 2001

38

SSH-Jefferson Parish

New Orleans

LA

February 2001

41

SSH-Pontiac

Pontiac

MI

June 2001

30

SSH-Camp Hill

Camp Hill

PA

June 2001

31

SSH-Wyandotte

Wyandotte

MI

September  2001

35

SSH-Charleston

Charleston

WV

December 2001

32

SSH-Northwest Detroit

Detroit

MI

December 2001

36

SSH-Scottsdale

Scottsdale

AZ

December 2001

29

SSH-Bloomington

Bloomington

IN

December 2001

30

SSH-Phoenix-Downtown

Phoenix

AZ

December 2001

33

SSH-Central Pennsylvania

York

PA

June 2002

23

SSH-Saginaw

Saginaw

MI

June 2002

32

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Licensed Beds

(as of March 31,

Hospital Name

City

State

Opening Date

2005)

SSH-South Dallas

DeSoto

TX

July 2002

100

SSH-Jackson

Jackson

MS

July 2002

40

SSH-Milwaukee (St. Luke’s Campus)

Milwaukee

WI

October 2002

29

SSH-Lexington

Lexington

KY

October 2002

41

SSH-Denver (South Campus)

Denver

CO

November 2002

28

SSH-Miami

Miami

FL

December 2002

40

SSH-Augusta (Central Campus)

Augusta

GA

May 2003

35

SSH-Conroe

Conroe

TX

June 2003

46

SSH-Durham

Durham

NC

June 2003

30

SSH-Knoxville (U.T. Campus)

Knoxville

TN

June 2003

25

SSH-Zanesville

Zanesville

OH

July 2003

35

SSH-Omaha (North Campus)

Omaha

NE

August 2003

36

SSH-Northeast Ohio (Canton Campus)

Canton

OH

November 2003

30

SSH-Wichita (Central Campus)

Wichita

KS

December 2003

30

SSH-Honolulu(1)

Honolulu

HI

June 2004

30

SSH-Danville

Danville

PA

June 2004

30

SSH-Columbus/ Grant (Mt. Carmel Campus)

Columbus

OH

June 2004

24

SSH-Western Missouri(1)

Kansas City

MO

July 2004

34

Total

1,053

(1)	As of March 31, 2005, certification as a long-term acute care hospital was pending, subject to successful completion of a start-up period and/or surveys by the applicable licensure or certifying agencies. See “— Government Regulations — Licensure — Certification.”

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			Fiscal Year Ended												Three Months
			December 31,												Ended March 31,
Net Operating Revenues by Payor Source			2002				2003				2004				2004				2005(1)
Medicare				40.3	%			46.0	%			48.0	%			47.5	%			54.7	%
Commercial insurance(2)				49.1				43.2				40.8				42.4				35.3
Private and other(3)				9.5				9.2				9.1				8.1				8.1
Medicaid				1.1				1.6				2.1				2.0				1.9
	Total			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%

(1)	The net operating revenues for the period after the merger, February 25, 2005 through March 31, 2005 (Successor period), has been added to the net operating revenues for the period from January 1, 2005 through February 24, 2005 (Predecessor period), to arrive at the combined three months ended March 31, 2005.
(2)	Includes commercial healthcare insurance carriers, health maintenance organizations, preferred provider organizations, workers’ compensation and managed care programs.
(3)	Includes self payors, Canadian revenues, contract management services and non-patient related payments. Self pay revenues represent less than 1% of total net operating revenues.

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	Non-Government Sources

	Government Sources

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	General

	Licensure

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	Overview of U.S. and State Government Reimbursements

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	•	schools;
	•	physician-directed clinics;
	•	worksites;
	•	assisted living centers;
	•	hospitals; and
	•	skilled nursing facilities.

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	Canadian Reimbursement

	Other Healthcare Regulations

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	•	electronic transactions and code sets;
	•	unique identifiers for providers, employers, health plans and individuals;
	•	security and electronic signatures;
	•	privacy; and
	•	enforcement.

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	Our Compliance Program

	Operating Our Compliance Program

	Compliance Committee

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	Compliance Issue Reporting

	Compliance Monitoring and Auditing/ Comprehensive Training and Education

	Policies and Procedures Reflecting Compliance Focus Areas

	Internal Audit

	Purported Class Action Lawsuits

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	Other Legal Proceedings

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Name		Age				Position(s)
Rocco A. Ortenzio			72			Director and Executive Chairman
Robert A. Ortenzio			48			Director and Chief Executive Officer
Russell L. Carson			61			Director
Bryan C. Cressey			55			Director
Thomas A. Scully			47			Director
Sean M. Traynor			36			Director
Patricia A. Rice			58			President and Chief Operating Officer
David W. Cross			58			Senior Vice President and Chief Development Officer
S. Frank Fritsch			53			Senior Vice President, Human Resources
Martin F. Jackson			51			Senior Vice President and Chief Financial Officer
James J. Talalai			43			Senior Vice President and Chief Information Officer
Michael E. Tarvin			45			Senior Vice President, General Counsel and Secretary
Scott A. Romberger			45			Vice President, Controller and Chief Accounting Officer

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																			Long-Term
																			Compensation
																			Awards
							Annual Compensation
																			Securities
															Other Annual				Underlying				All Other
Name and Principal Position			Year				Salary				Bonus				Compensation(1)				Options				Compensation
Rocco A. Ortenzio				2004			$	824,000			$	1,711,385			$	—				1,550,000			$	—
	Executive Chairman			2003				824,000				1,648,000				—				3,550,000				—
				2002				800,000				640,000				—				3,120,000				—
Robert A. Ortenzio(2)				2004				824,000				1,711,385				—				1,250,000				5,948
	Chief Executive Officer			2003				824,000				1,648,000				—				2,060,000				4,531
				2002				800,000				640,000				—				2,270,000				5,500
Patricia A. Rice(2)				2004				592,250				768,786				—				215,000				5,948
	President and Chief			2003				592,250				740,000				—				440,000				4,531
	Operating Officer			2002				575,000				345,000				—				600,000				5,500
Martin F. Jackson(3)				2004				371,315				481,476				—				30,000				5,948
	Senior Vice President			2003				360,500				451,300				—				340,000				4,531
	and Chief Financial			2002				350,000				175,000				—				400,000				25,500
	Officer
S. Frank Fritsch(2)				2004				275,834				286,134				—				59,000				5,948
	Senior Vice President,			2003				267,800				268,000				—				123,500				4,531
	Human Resources			2002				242,000				117,000				—				185,200				5,500

(1)	The value of certain perquisites and other personal benefits is not included because it did not exceed for any officer in the table above the lesser of either $50,000 or 10% of the total annual salary and bonus reported for such officer.
(2)	All other compensation represents employer matching contributions to the 401(k) plan.
(3)	All other compensation for Martin F. Jackson includes employer matching contributions to the 401(k) plan in the amounts of $5,948, $4,531 and $5,500 in fiscal 2004, fiscal 2003 and fiscal 2002, respectively. All other compensation also includes the forgiveness of principal in the amounts of $20,000 in fiscal 2002 in connection with a loan we made to Mr. Jackson in 1999 for the purpose of purchasing shares of our common stock.

		Number of				Percent of Total
		Securities				Options
		Underlying				Granted to
		Options				Employees in				Exercise Price								Grant Date Present
Name		Granted(2)				2004				per Share				Expiration Date				Value(3)
Rocco A. Ortenzio			950,000				24.9	%		$	15.50				2/09/2014			$	5,315,060
			600,000				15.7				14.00				8/09/2014				3,181,740
Robert A. Ortenzio			750,000				19.7				15.50				2/09/2014				5,269,600
			500,000				13.1				14.00				8/09/2014				3,287,899
Patricia A. Rice			65,000				1.7				15.50				2/09/2014				491,157
			150,000				3.9				13.86				5/10/2014				1,105,236
Martin F. Jackson			30,000				0.8				14.00				8/09/2014				211,677
S. Frank Fritsch			50,000				1.3				15.50				2/09/2014				377,813
			9,000				0.2				13.86				5/10/2014				66,314

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(1)	All options listed herein were accelerated and canceled in connection with the Transactions in exchange for the right to receive $18.00 in cash less the exercise price of the option. Upon consummation of the Transactions certain of our Named Executive Officers and certain other executive officers received options to purchase Holdings’ common stock pursuant to our parent’s new equity incentive plan. See “— New Restricted Stock and Option Plan” and “Security Ownership of Certain Beneficial Owners and Management.”
(2)	All options were granted under our Second Amended and Restated 1997 Stock Option Plan. We granted options at an exercise price equal to or greater than the fair market value of our common stock on the date of grant, as determined by our Board of Directors. The plan was terminated upon consummation of the Transactions.
(3)	Based on the Black-Scholes option pricing model adapted for use in valuing executive stock options. The actual value, if any, an executive may realize will depend upon the excess of the stock price over the exercise price on the day the option is exercised, so there is no assurance that the value realized by an executive will be at or near the value estimated by the Black-Scholes model.

										Number of Securities								Value of Unexercised
										Underlying Unexercised								In-the-Money
										Options Held at 2004								Options at 2004
		Number of								Year End								Year End(2)
		Options				Amount
Name		Exercised				Realized				Exercisable				Unexercisable				Exercisable				Unexercisable
Rocco A. Ortenzio			1,342,000			$	13,708,340				7,778,000				—			$	39,348,060			$	—
Robert A. Ortenzio			800,000				8,369,850				2,400,003				3,779,997				20,239,820				18,669,880
Patricia A. Rice			237,120				2,645,424				88,003				1,080,599				266,260				7,359,738
Martin F. Jackson			—				—				259,424				651,954				2,500,318				4,748,633
S. Frank Fritsch			97,056				1,092,868				24,701				344,025				74,464				2,559,933

(1)	All shares of common stock issued upon exercise of the options listed herein were converted in the Transactions into the right to receive $18.00 in cash or were contributed to Holdings in exchange for equity securities of Holdings. See “The Transactions.” Upon consummation of the Transactions certain of the named executive officers and certain other officers received options to purchase common stock pursuant to our parent’s new stock option plan. See “— New Restricted Stock and Option Plan” and “Security Ownership of Certain Beneficial Owners and Management.”
(2)	Based on our stock’s closing price on the New York Stock Exchange on December 31, 2004, less the exercise price, multiplied by the number of shares underlying the option. Such amounts may not be realized. Actual values which may be realized, if any, upon any exercise of such options will be based on the market price of the common stock at the time of any such exercise and thus are dependent upon future performance of the stock.

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										Participating				Percent of
						Percent of				Preferred Shares				Outstanding
		Common Shares				Outstanding				Beneficially				Participating
Name of Beneficial Owner(1)		Beneficially Owned				Common Shares				Owned				Preferred Shares
Welsh, Carson, Anderson & Stowe(2)			114,938,181				58.7	%			16,877,179.59				77.1	%
Thoma Cressey Equity Partners(3)			17,962,732				9.2	%			2,671,038.22				12.2	%
Rocco A. Ortenzio(4)			17,838,968				9.1	%			978,853.33				4.5	%
Robert A. Ortenzio(5)			16,401,873				8.4	%			913,858.31				4.2	%
Russell L. Carson(6)			2,910,387				1.5	%			432,771.36				2.0	%
Bryan C. Cressey(7)			17,962,732				9.2	%			2,671,038.22				12.2	%
Thomas A. Scully(8)			130,256				*				4,460.97				*
Sean M. Traynor(9)			5,000				*				743.49				*
Patricia A. Rice(10)			4,283,361				2.2	%			53,531.60				*
S. Frank Fritsch(11)			1,448,482				*				46,864.77				*
Martin F. Jackson(12)			3,632,781				1.9	%			54,066.93				*
All directors and named executive officers as a group(13)			83,818,143				33.0	%			4,009,907.10				23.6	%

	*	Less than one percent

	(1)	Unless otherwise indicated, the address of each of the beneficial owners identified is 4716 Old Gettysburg Road, P.O. Box 2034, Mechanicsburg, Pennsylvania 17055.
	(2)	Represents (A) 80,857,283 common shares and 12,023,373.01 participating preferred shares held by WCAS IX over which WCAS IX has sole voting and investment power, (B) 15,000 common shares and 2,230.48 participating preferred shares held by WCAS Management Corporation, over which WCAS Management Corporation has sole voting and investment power, (C) 3,623,302 common shares and 538,780.97 participating preferred shares held by WCAS Capital Partners IV, L.P., over which WCAS Capital Partners IV, L.P. has sole voting and investment power, (D) an aggregate 8,246,203 common shares and 1,226,213.10 participating preferred shares held by individuals who are general partners of WCAS IX Associates LLC, the sole general partner of WCAS IX and/or otherwise employed by an affiliate of Welsh, Carson, Anderson & Stowe, and (E) an aggregate 22,196,394 common shares and 3,086,582.03 participating preferred shares held by other co-investors, over which WCAS IX has sole voting power. WCAS IX Associates LLC, the sole general partner of WCAS IX and the individuals who serve as general partners of WCAS IX Associates LLC, including Russell L. Carson, and Sean M. Traynor, may be deemed to beneficially own the shares beneficially owned by WCAS IX. Such persons disclaim beneficial ownership of such shares. The principal executive offices of Welsh, Carson, Anderson & Stowe are located at 320 Park Avenue, Suite 2500, New York, New York 10022.
	(3)	Represents (A) 7,480,145 common shares and 1,112,289.19 participating preferred shares held by Thoma Cressey Fund VI, L.P. over which Thoma Cressey Fund VI, L.P. has shared voting and investment power, (B) 74,801 common shares and 11,122.80 participating preferred shares held by Thoma Cressey Friends Fund VI, L.P., over which Thoma Cressey Friends Fund VI, L.P. has shared

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		voting and investment power, (C) 9,846,200 common shares and 1,464,118.96 participating preferred shares held by Thoma Cressey Fund VII, L.P., over which Thoma Cressey Fund VII, L.P. has shared voting and investment power, (D) 153,800 common shares and 22,869.89 participating preferred shares held by Thoma Cressey Friends Fund VII, L.P., over which Thoma Cressey Friends Fund VII, L.P. has shared voting and investment power and (E) 407,786 common shares and 60,637.38 participating preferred shares held by Mr. Cressey. Mr. Cressey is a principal of Thoma Cressey Equity Partners Inc. The principal address of Thoma Cressey Equity Partners Inc. is 9200 Sears Tower, 233 South Wacker Drive, Chicago, IL 60606.
	(4)	Includes 385,697 common shares held by the Ortenzio Family Foundation of which Mr. Ortenzio is a trustee. Does not include 5,000,000 common shares held by The Robert A. Ortenzio Descendants Trust of which Mr. Ortenzio is a trustee. Does not include 2,615,000 common shares held by The 2005 Rice Family Trust of which Mr. Ortenzio is a trustee.
	(5)	Includes 10,256,176 common shares which are subject to restrictions on transfer set forth in a restricted stock award agreement entered into at the time of the consummation of the Transactions. Does not include 5,000,000 common shares held by The Robert A. Ortenzio Descendants Trust of which Mr. Ortenzio is a trustee. Does not include 2,615,000 common shares held by The 2005 Rice Family Trust of which Mr. Ortenzio is a trustee. Does not include 4,000,000 common shares held by The Rocco A. Ortenzio Descendants Trust of which Mr. Ortenzio is a trustee.
	(6)	Does not include 80,857,283 common shares and 12,023,373.01 participating preferred shares owned by WCAS IX, 15,000 common shares and 2,230.48 participating preferred shares owned by WCAS Management Corporation or 3,623,302 common shares and 538,780.97 participating preferred shares owned by WCAS Capital Partners IV, L.P. Mr. Carson, as a general partner of WCAS IX and WCAS Capital Partners IV, L.P. and as an officer of WCAS Management Corporation, may be deemed to beneficially own the shares beneficially owned by WCAS IX, WCAS Management Corporation and WCAS Capital Partners IV, L.P. Mr. Carson disclaims beneficial ownership of such shares.
	(7)	Includes (A) 7,480,145 common shares and 1,112,289.19 participating preferred shares held by Thoma Cressey Fund VI, L.P., (B) 74,801 common shares and 11,122.80 participating preferred shares held by Thoma Cressey Friends Fund VI, L.P., (C) 9,846,200 common shares and 1,464,118.96 participating preferred shares held by Thoma Cressey Fund VII, L.P., and (D) 153,800 common shares and 22,869.89 participating preferred shares held by Thoma Cressey Friends Fund VII, L.P. Mr. Cressey is a principal of Thoma Cressey Equity Partners Inc. Mr. Cressey may be deemed to beneficially own the shares beneficially owned by Thoma Cressey Fund VI, L.P., Thoma Cressey Friends Fund VI, L.P., Thoma Cressey Fund VII, L.P. and Thoma Cressey Friends Fund VII, L.P. Mr. Cressey disclaims beneficial ownership of such shares. The principal address of Mr. Cressey is 9200 Sears Tower, 233 South Wacker Drive, Chicago, IL 60606.
	(8)	Includes 100,256 common shares which are subject to restrictions on transfer set forth in a restricted stock award agreement entered into at the time of the consummation of the Transactions.
	(9)	Does not include 80,857,283 common shares and 12,023,373.01 participating preferred shares owned by WCAS IX, 15,000 common shares and 2,230.48 participating preferred shares owned by WCAS Management Corporation or 3,623,302 common shares and 538,780.97 participating preferred shares owned by WCAS Capital Partners IV, L.P. Mr. Traynor, as a general partner of WCAS IX and WCAS Capital Partners IV, L.P. and as an officer of WCAS Management Corporation, may be deemed to beneficially own the shares beneficially owned by WCAS IX, WCAS Management Corporation and WCAS Capital Partners IV, L.P. Mr. Traynor disclaims beneficial ownership of such shares.

(10)	Includes 3,923,361 common shares which are subject to restrictions on transfer set forth in a restricted stock award agreement entered into at the time of the consummation of the Transactions and 360,000 common shares and 53,531.60 participating preferred shares owned by The Patricia Ann Rice Living Trust for which Ms. Rice acts as a trustee.

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(11)	Includes 1,133,316 common shares which are subject to restrictions on transfer set forth in a restricted stock award agreement entered into at the time of the consummation of the Transactions.
(12)	Includes 3,269,181 common shares which are subject to restrictions on transfer set forth in a restricted stock award agreement entered into at the time of the consummation of the Transactions. Includes 14,400 common shares owned by Mr. Jackson’s children who live in his household and over which Mr. Jackson acts as custodian.
(13)	Does not include 80,857,283 common shares and 12,023,373.01 participating preferred shares owned by WCAS IX, 15,000 common shares and 2,230.48 participating preferred shares owned by WCAS Management Corporation or 3,623,302 common shares and 538,780.97 participating preferred shares owned by WCAS Capital Partners IV, L.P. Includes an aggregate 18,722,290 common shares which are subject to restrictions on transfer set forth in restricted stock award agreements entered into at the time of the consummation of the Transactions.

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	Stock Subscription and Exchange Agreement

	Stockholders Agreement and Equity Registration Rights Agreement

	Securities Purchase Agreement and Debt Registration Rights Agreement

	Transaction Fee

	Restricted Stock Award Agreement

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	Lease of Office Space

	Equity Incentive Plan

	Long-Term Cash Incentive Plan

	Employee Stock Purchase Plan

	Consulting Agreement with Director

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	General

	•	a $300.0 million revolving credit facility with a maturity of six years, including both a letter of credit sub-facility and a swingline loan sub-facility, and
	•	a $580.0 million term loan facility with a maturity of seven years.

	Interest and Fees

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	Prepayments

	•	50% (as may be reduced based on our ratio of total indebtedness to consolidated EBITDA) of our annual excess cash flow (as defined in the credit agreement governing our new senior secured credit facility);
	•	100% of the net cash proceeds from asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions;
	•	50% (as may be reduced based on our ratio of total indebtedness to consolidated EBITDA) of the net cash proceeds from specified issuances of equity securities; and
	•	100% of the net cash proceeds from certain incurrences of debt.

	Amortization of Principal

	Collateral and Guarantors

	Restrictive Covenants and Other Matters

	•	incur, assume or permit to exist additional indebtedness or guarantees;
	•	incur liens and engage in sale and leaseback transactions;
	•	make capital expenditures;
	•	make loans and investments;
	•	declare dividends, make payments or redeem or repurchase capital stock;
	•	engage in mergers, acquisitions and other business combinations;
	•	prepay, redeem or purchase certain indebtedness including the notes;
	•	amend or otherwise alter terms of our indebtedness including the notes;
	•	enter into agreements limiting subsidiary distributions;
	•	sell assets;

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	•	transact with affiliates; and
	•	alter the business that we conduct.

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	The Notes

	•	are general unsecured obligations of the Issuer;
	•	are subordinated in right of payment to all existing and future Senior Debt of the Issuer, including Indebtedness under the Credit Agreement;
	•	are pari passu in right of payment to any senior subordinated Indebtedness of the Issuer;
	•	are senior in right of payment to any future subordinated Indebtedness of the Issuer; and
	•	are unconditionally guaranteed by each of the Guarantors on a senior subordinated basis.

	The Subsidiary Guarantees of the Notes

	•	is a general unsecured obligation of that Guarantor;
	•	is subordinated in right of payment to all existing and future Senior Debt of that Guarantor, including guarantees of Indebtedness under the Credit Agreement;
	•	is pari passu in right of payment with any senior subordinated Indebtedness of that Guarantor; and
	•	is senior in right of payment to any future subordinated Indebtedness of that Guarantor.

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	(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and
	(2) either:

	(a) the Person (if other than the Issuer or a Guarantor) acquiring the property in any such sale or disposition or the Person (if other than the Issuer or a Guarantor) formed by or surviving any such consolidation or merger assumes all the obligations of that Guarantor under the indenture, its Subsidiary Guarantee and the exchange and registration rights agreement pursuant to a supplemental indenture satisfactory to the trustee; or
	(b) such transaction does not violate the “Asset Sale” provisions of the indenture and the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of the indenture.

	(1) in connection with any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after

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	giving effect to such transaction) the Issuer or a Restricted Subsidiary of the Issuer (other than a Non-Guarantor Subsidiary), if the sale or other disposition does not violate the “Asset Sale” provisions of the indenture;
	(2) in connection with any sale or other disposition of all of the Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Issuer or a Restricted Subsidiary of the Issuer (other than a Non-Guarantor Subsidiary), if the sale or other disposition does not violate the “Asset Sale” provisions of the indenture;
	(3) if the Issuer designates any Restricted Subsidiary that is a Guarantor to be an Unrestricted Subsidiary or a Non-Guarantor Subsidiary in accordance with the applicable provisions of the indenture;
	(4) if that Guarantor is released from its guarantee under the Credit Agreement; or
	(5) upon legal defeasance, covenant defeasance or satisfaction and discharge of the indenture as provided below under the captions “— Legal Defeasance and Covenant Defeasance” and “— Satisfaction and Discharge.”

	(1) in a liquidation or dissolution of the Issuer;
	(2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Issuer or its property;
	(3) in an assignment for the benefit of the Issuer’s creditors; or
	(4) in any marshaling of the Issuer’s assets and liabilities.

	(1) a payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period; or
	(2) any other default occurs and is continuing on any Designated Senior Debt that permits holders of that Designated Senior Debt to accelerate its maturity and the trustee receives a notice of such default (a “Payment Blockage Notice”) from a representative of the holders of any Designated Senior Debt.

	(a) in the case of a payment default, upon the date on which such default is cured or waived; and
	(b) in the case of a nonpayment default, upon the earlier of the date on which such nonpayment default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is

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	received, unless the maturity of any Designated Senior Debt has been accelerated or a payment default exists on any Designated Senior Debt.

	(1) 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice; and
	(2) all scheduled payments of principal, interest and premium and Additional Interest, if any, on the notes that have come due have been paid in full in cash.

	(1) the payment is prohibited by these subordination provisions; and
	(2) the trustee or the holder has actual knowledge that the payment is prohibited, the trustee or the holder, as the case may be, will hold the payment in trust for the benefit of the holders of Senior Debt. Upon the proper written request of the holders of Senior Debt, the trustee or the holder, as the case may be, will deliver the amounts in trust to the holders of Senior Debt or their proper representative.

	(1) at least 65% of the aggregate principal amount of notes originally issued under the indenture (excluding notes held by the Issuer and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and
	(2) the redemption occurs within 90 days of the date of the closing of such Equity Offering or equity contribution.

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Year		Percentage
2010			103.813	%
2011			102.542	%
2012			101.271	%
2013 and thereafter			100.000	%

	Change of Control

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	(1) accept for payment all notes or portions of notes properly tendered pursuant to the Change of Control Offer;
	(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered; and
	(3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers’ certificate stating the aggregate principal amount of notes or portions of notes being purchased by the Issuer.

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	Asset Sales

	(1) the Issuer (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
	(2) at least 75% of the consideration received in the Asset Sale by the Issuer or such Restricted Subsidiary is in the form of cash. For purposes of this paragraph (2), each of the following will be deemed to be cash:

	(a) Cash Equivalents;
	(b) any liabilities, as shown on the Issuer’s most recent consolidated balance sheet, of the Issuer or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Issuer or such Restricted Subsidiary from further liability;
	(c) any securities, notes or other obligations received by the Issuer or any such Restricted Subsidiary from such transferee that are converted by the Issuer or such Restricted Subsidiary into cash within 180 days of receipt, to the extent of the cash received in that conversion;
	(d) any Designated Noncash Consideration the Fair Market Value of which, when taken together with all other Designated Noncash Consideration received pursuant to this clause (d) (and not subsequently converted into Cash Equivalents that are treated as Net Proceeds of an Asset Sale), does not exceed $30.0 million since the Issue Date, with the Fair Market Value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value; and
	(e) any stock or assets of the kind referred to in clauses (2) or (4) of the second succeeding paragraph.

	(1) to repay Senior Debt and, if the Senior Debt repaid is revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto;
	(2) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Issuer;
	(3) to make a capital expenditure with respect to a Permitted Business; or
	(4) to acquire Additional Assets;

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	Restricted Payments

	(A) declare or pay any dividend or make any other payment or distribution on account of the Issuer’s or any of its Restricted Subsidiaries’ Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Issuer or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Issuer’s or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Issuer); provided that the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of a Restricted Subsidiary of the Issuer shall not constitute a Restricted Payment;
	(B) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Issuer) any Equity Interests of the Issuer, Holdings or any other direct or indirect parent of the Issuer;
	(C) make any payment on or with respect to, or purchase, repurchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Issuer or any Guarantor that is contractually subordinated to the notes or to any Subsidiary Guarantee (excluding any intercompany Indebtedness between or among the Issuer and any of its Restricted Subsidiaries), except (i) a payment of interest or principal at the Stated Maturity thereof or (ii) the purchase, repurchase, redemption, defeasance or other acquisition or retirement of any such subordinated Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or payment at final maturity, in each case within one year of the date of such purchase, repurchase, redemption, defeasance or other acquisition or retirement; or
	(D) make any Restricted Investment;

	(1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;
	(2) the Issuer would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”; and
	(3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Issuer and its Restricted Subsidiaries since the Issue Date (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (8), (9), (11), (12), (13), (14), (15), (16), (17), (18) and (19) of the next succeeding paragraph), is less than the sum, without duplication, of:

	(a) 50% of the Consolidated Net Income of the Issuer for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the Issue Date to the end of the Issuer’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus
	(b) 100% of the aggregate Qualified Proceeds received by the Issuer since the Issue Date as a contribution to its equity capital (other than Disqualified Stock) or from the issue or sale of Equity Interests of the Issuer (other than Disqualified Stock and Excluded Contributions) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Issuer that have been converted into or exchanged for such Equity Interests (other

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	than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Issuer); plus
	(c) an amount equal to the net reduction in Investments by the Issuer and its Restricted Subsidiaries resulting from (A) the sale or other disposition (other than to the Issuer or a Restricted Subsidiary) of any Restricted Investment that was made after the Issue Date and (B) repurchases, redemptions and repayments of such Restricted Investments and the receipt of any dividends or distributions from such Restricted Investments; plus
	(d) to the extent that any Unrestricted Subsidiary of the Issuer designated as such after the Issue Date is redesignated as a Restricted Subsidiary after the Issue Date, an amount equal to the lesser of (A) the Fair Market Value of the Issuer’s interest in such Subsidiary immediately prior to such redesignation and (B) the aggregate amount of the Issuer’s Investments in such Subsidiary that was previously treated as a Restricted Payment; plus
	(e) in the event the Issuer and/or any Restricted Subsidiary of the Issuer makes any Investment in a Person that, as a result of or in connection with such Investment, becomes a Restricted Subsidiary of the Issuer, an amount equal to the existing Investment of the Issuer and/or any of its Restricted Subsidiaries in such Person that was previously treated as a Restricted Payment.

	(1) the payment of any dividend or other distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of the indenture;
	(2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary of the Issuer) of, Equity Interests of the Issuer (other than Disqualified Stock) or from the substantially concurrent contribution of equity capital to the Issuer (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3) (b) of the preceding paragraph;
	(3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Issuer or any Guarantor that is contractually subordinated to the notes or to any Subsidiary Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness, or from the substantially concurrent sale (other than to a Restricted Subsidiary of the Issuer) of, Equity Interests of the Issuer (other than Disqualified Stock) or from the substantially concurrent contribution of equity capital to the Issuer (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3) (b) of the preceding paragraph;
	(4) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Issuer or any Restricted Subsidiary of the Issuer which Disqualified Stock was issued after the Issue Date in accordance with the provisions of the covenant described below under the caption “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”;
	(5) the repurchase, redemption or other acquisition or retirement for value of Disqualified Stock of the Issuer or any Restricted Subsidiary of the Issuer made by exchange for, or out of the proceeds of the substantially concurrent sale of Replacement Preferred Stock that is permitted to be incurred pursuant to the covenant described below under “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”;
	(6) the payment of any dividend (or any similar distribution) by a Restricted Subsidiary of the Issuer to the holders of its Equity Interests on a pro rata basis;

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(7) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Issuer or any Restricted Subsidiary of the Issuer held by any current or former officer, director, employee or consultant of the Issuer or any of its Restricted Subsidiaries, and any dividend payment or other distribution by the Issuer or a Restricted Subsidiary to Holdings or any other direct or indirect parent holding company of the Issuer utilized for the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Holdings or such other direct or indirect parent holding company held by any current or former officer, director, employee or consultant of the Issuer or any of its Restricted Subsidiaries or Holdings or such other parent holding company, in each case, pursuant to any equity subscription agreement, stock option agreement, shareholders’ agreement or similar agreement or benefit plan of any kind; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any fiscal year (it being understood, however, that unused amounts permitted to be paid pursuant to this proviso are available to be carried over to subsequent fiscal years); provided further that such amount in any fiscal year may be increased by an amount not to exceed:

	(a) the cash proceeds from the sale of Equity Interests of the Issuer and, to the extent contributed to the Issuer as equity capital (other than Disqualified Stock), Equity Interests of Holdings or any other direct or indirect parent company of the Issuer, in each case to members of management, directors or consultants of the Issuer, any of its Subsidiaries, Holdings or any other direct or indirect parent company of the Issuer that occurs after the Issue Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (3) (b) of the preceding paragraph, and excluding Excluded Contributions, plus
	(b) the cash proceeds of key man life insurance policies received by the Issuer and its Restricted Subsidiaries after the Issue Date, less
	(c) the amount of any Restricted Payments previously made pursuant to clauses (a) and (b) of this clause (7);

	(8) the repurchase of Equity Interests deemed to occur upon the exercise of options, rights or warrants to the extent such Equity Interests represent a portion of the exercise price of those options, rights or warrants;
	(9) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Issuer or any Guarantor that is contractually subordinated to the notes or to any Subsidiary Guarantee with any Excess Proceeds that remain after consummation of an Asset Sale Offer;
	(10) so long as no Default has occurred and is continuing or would be caused thereby, after the occurrence of a Change of Control and within 60 days after the completion of the offer to repurchase the notes pursuant to the covenant described above under “— Repurchase at the Option of Holders — Change of Control” (including the purchase of the notes tendered), any purchase or redemption of Indebtedness that is contractually subordinated to the notes or to any Subsidiary Guarantee required pursuant to the terms thereof as a result of such Change of Control at a purchase or redemption price not to exceed 101% of the outstanding principal amount thereof, plus any accrued and unpaid interest; provided, however, the Issuer would be able to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under the Caption “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” below after giving pro forma effect to such Restricted Payment;
	(11) cash payments in lieu of fractional shares issuable as dividends on preferred stock or upon the conversion of any convertible debt securities of the Issuer or any of its Restricted Subsidiaries;
	(12) Permitted Payments to Parent;

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	(13) so long as no default has occurred and is continuing or would be caused thereby, the payment:

	(a) by the Issuer or any Restricted Subsidiary to Holdings or any other direct or indirect parent of the Issuer, which payment is used by the Person receiving such payment, following the first initial public offering of common Equity Interests by such Person, to pay dividends of up to 6% per annum of the net proceeds received by such Person in such public offering (or any subsequent public offering of common Equity Interests of such Person) that are contributed to the Issuer as equity capital (other than Disqualified Stock), or
	(b) by the Issuer, following the first initial public offering of common Equity Interests by the Issuer, to pay dividends of up to 6% per annum of the net proceeds received by or contributed to the Issuer in such public offering (or any subsequent public offering of common Equity Interests by the Issuer); (excluding, in the case of both clause (a) and clause (b), public offerings of common Equity Interests registered on Form S-8 and any other public sale to the extent the proceeds thereof are Excluded Contributions);

	(14) Investments that are made with Excluded Contributions;
	(15) distributions or payments of Receivables Fees;
	(16) payment of fees and reimbursement of other expenses to the Permitted Holders and/or their Affiliates in connection with the Transactions as described above under the caption “Certain Relationships and Related Transactions”;
	(17) all other payments made or to be made in connection with the Transactions as described in this prospectus and all payments made to former stockholders of the Issuer who have validly exercised appraisal rights in connection with the Transactions;
	(18) so long as no Default has occurred and is continuing or would be caused thereby, other Restricted Payments in an aggregate amount not to exceed $50.0 million since the Issue Date; and
	(19) so long as no Default has occurred and is continuing or would be caused thereby, payments to Holdings or any other direct or indirect parent company of the Issuer in amounts and at times as would be sufficient to permit Holdings (or such other direct or indirect parent company of the Issuer) to pay (a) regularly scheduled or accrued interest on the Holdings Notes (including interest previously paid “in-kind” or added to the principal amount thereof) as in effect on the Issue Date and (b) (i) regularly scheduled or accrued interest (including interest previously paid “in kind” or added to the principal amount thereof) on the Holdings Notes, as amended, modified, restated, renewed or extended from time to time but only to the extent that (x) the principal amount of the Holdings Notes, as so amended, modified, restated, renewed or extended does not exceed $150.0 million (plus the amount of interest thereon previously paid “in kind” or added to the principal amount thereof) and (y) the interest rate of the Holdings Notes, as so amended, modified, restated, renewed or extended does not exceed the interest rate of the Holdings Notes on the Issue Date, or (ii) regularly scheduled or accrued interest (including interest previously paid “in kind” or added to the principal amount thereof) on any other Indebtedness of, or regularly scheduled or accrued dividends (including dividends previously paid “in kind” or added to the liquidation preference thereof) on any preferred stock of, Holdings or any other direct or indirect parent company of the Issuer, in each case, which is issued in exchange for, or the net proceeds of which are used to repay, repurchase, redeem, defease or otherwise refinance the Holdings Notes as amended, modified, restated, renewed or extended (or any such Indebtedness or preferred stock previously issued), but only to the extent that (x) the principal amount (or accreted value, if applicable) of such Indebtedness or the initial liquidation preference of such preferred stock, does not exceed the principal amount (or accreted value, if applicable) or liquidation preference of, the Holdings Notes, as amended, modified, restated, renewed or extended (within the limitations set forth in clause (i) above), or such Indebtedness or preferred stock being amended or refinanced and (y) the interest rate or dividend rate on such Indebtedness or preferred stock does not exceed the interest rate or dividend rate, as applicable, on the Holdings Notes, as amended, modified, restated, renewed or extended (within the limitations set forth in clause (i) above), or such Indebtedness or preferred stock being amended or refinanced, and

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	subject to the preceding clauses (x) and (y), any amendment, modification, restatement, renewal or extension of such Indebtedness or preferred stock;

	Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock

	(1) the incurrence by the Issuer and/or any Guarantor (and the Guarantee thereof by the Guarantors and the Non-Guarantor Subsidiaries) of Indebtedness under the Credit Agreement and other Credit Facilities entered into after the date of the Credit Agreement in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Issuer and its Restricted Subsidiaries thereunder) not to exceed $1,000.0 million, less the aggregate amount of all Net Proceeds of Asset Sales applied by the Issuer or any of its Restricted Subsidiaries since the Issue Date to repay any term Indebtedness under a Credit Facility or to repay any revolving credit Indebtedness under a Credit Facility and effect a corresponding commitment reduction thereunder pursuant to the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales”;
	(2) the incurrence by the Issuer and its Restricted Subsidiaries of the Existing Indebtedness after giving effect to the Transactions;
	(3) the incurrence by the Issuer and the Guarantors of Indebtedness represented by the notes to be issued on the Issue Date, replacement notes in respect thereof, if any, and the related Subsidiary Guarantees and the Exchange Notes and related Subsidiary Guarantees to be issued pursuant to the exchange and registration rights agreement;
	(4) the incurrence or issuance by the Issuer or any of its Restricted Subsidiaries of Indebtedness (including Capital Lease Obligations), Disqualified Stock or preferred stock, in each case, incurred or issued for the purpose of financing all or any part of the purchase price or cost of design, construction,

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	lease, installation or improvement of property, plant or equipment used or useful in a Permitted Business, in an aggregate principal amount, including all Permitted Refinancing Indebtedness and Replacement Preferred Stock incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not to exceed $40.0 million at any time outstanding;
	(5) the incurrence by the Issuer or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness or Replacement Preferred Stock in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) or any Disqualified Stock or preferred stock that was permitted by the indenture to be incurred under the first paragraph of this covenant or clauses (2), (3), (4), (5), (13), (15), (17) or (18) of this paragraph;
	(6) the incurrence by the Issuer or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Issuer and any of its Restricted Subsidiaries; provided, however, that:

	(a) if the Issuer or any Guarantor is the obligor on such Indebtedness and the payee is not the Issuer or a Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes, in the case of the Issuer or the Subsidiary Guarantee, in the case of a Guarantor, except to the extent such subordination would violate any applicable law, rule or regulation; and
	(b) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary of the Issuer and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either the Issuer or a Restricted Subsidiary of the Issuer, will be deemed, in each case, to constitute a new incurrence of such Indebtedness by the Issuer or such Restricted Subsidiary, as the case may be, which new incurrence is not permitted by this clause (6);

	(7) the issuance by any of the Issuer’s Restricted Subsidiaries to the Issuer or to any of its Restricted Subsidiaries of shares of preferred stock; provided, however, that:

	(a) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Issuer or a Restricted Subsidiary of the Issuer, and
	(b) any sale or other transfer of any such preferred stock to a Person that is not either the Issuer or a Restricted Subsidiary of the Issuer,

	(8) the incurrence by the Issuer or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business;
	(9) the guarantee:

	(a) by the Issuer or any of the Guarantors of Indebtedness of the Issuer or a Restricted Subsidiary of the Issuer that was permitted to be incurred by another provision of this covenant; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the notes, then the guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; and
	(b) by any Non-Guarantor Subsidiary of Indebtedness of a Non-Guarantor Subsidiary;

(10) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness in respect of workers’ compensation claims, self-insurance obligations, bankers’ acceptances, letters of credit, performance bonds, surety bonds, appeal bonds or other similar bonds in the ordinary course of business; provided, however, that upon the drawing of letters of credit for reimbursement obligations, including with respect to workers’ compensation claims, or the incurrence of other Indebtedness with respect to

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	reimbursement type obligations regarding workers’ compensation claims, such obligations are reimbursed within 30 days following such drawing or incurrence;
	(11) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business, so long as such Indebtedness is extinguished within five business days;
	(12) the incurrence of Indebtedness arising from agreements of the Issuer or a Restricted Subsidiary providing for indemnification, adjustment of purchase price, holdback, contingency payment obligations or similar obligations, in each case, incurred or assumed in connection with the disposition or acquisition of any business, assets or Capital Stock of the Issuer or any Restricted Subsidiary;
	(13) the incurrence of Indebtedness or the issuance of any Disqualified Stock or preferred stock by (i) any Non-Guarantor Subsidiary of the Issuer, in an amount not to exceed $15.0 million at any time outstanding; provided that after giving effect to such incurrence or issuance, the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of this covenant and (ii) any Foreign Subsidiary, in an amount not to exceed $10.0 million at any time outstanding;
	(14) the incurrence of Indebtedness resulting from endorsements of negotiable instruments for collection in the ordinary course of business;
	(15) Indebtedness, Disqualified Stock or preferred stock of Persons that are acquired by the Issuer or any Restricted Subsidiary (including by way of merger or consolidation) in accordance with the terms of the indenture; provided that such Indebtedness, Disqualified Stock or preferred stock is not incurred in contemplation of such acquisition or merger; and provided, further, that after giving effect to such acquisition or merger, either

	(a) the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio; or
	(b) the Issuer’s Fixed Charge Coverage Ratio after giving pro forma effect to such acquisition or merger would be greater than the Issuer’s actual Fixed Charge Coverage Ratio immediately prior to such acquisition or merger;

	(16) Indebtedness of the Issuer or a Restricted Subsidiary in respect of netting services, overdraft protection and otherwise in connection with deposit accounts; provided that such Indebtedness remains outstanding for ten business days or less;
	(17) the incurrence by a Receivables Subsidiary of Indebtedness in a Qualified Receivables Transaction;
	(18) the incurrence or issuance by the Issuer or any of its Restricted Subsidiaries of additional Indebtedness, Disqualified Stock or preferred stock in an aggregate principal amount (or accreted value or liquidation preference, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness and all Replacement Preferred Stock incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness, Disqualified Stock and preferred stock incurred or issued pursuant to this clause (18), not to exceed $100.0 million; and
	(19) the incurrence by the Issuer or any of its Restricted Subsidiaries of Indebtedness in the form of loans from a Captive Insurance Subsidiary.

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	(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount;
	(2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and
	(3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of:

	(a) the Fair Market Value of such assets at the date of determination; and
	(b) the amount of the Indebtedness of the other Person.

	No Layering of Debt

	Liens

	Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries

	(1) pay dividends or make any other distributions on its Capital Stock to the Issuer or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Issuer or any of its Restricted Subsidiaries;
	(2) make loans or advances to the Issuer or any of its Restricted Subsidiaries; or
	(3) sell, lease or transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries.

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	(1) agreements governing Existing Indebtedness and the Credit Agreement as in effect on the Issue Date;
	(2) the indenture, the notes and the Subsidiary Guarantees;
	(3) applicable law, rule, regulation or order;
	(4) any instrument or agreement governing Indebtedness or Capital Stock of a Restricted Subsidiary acquired by the Issuer or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or any of its Subsidiaries, or the property or assets of the Person or any of its Subsidiaries, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred;
	(5) customary non-assignment provisions in contracts, leases, subleases, licenses and sublicenses entered into in the ordinary course of business;
	(6) customary restrictions in leases (including capital leases), security agreements or mortgages or other purchase money obligations for property acquired in the ordinary course of business that impose restrictions on the property purchased or leased of the nature described in clause (3) of the preceding paragraph;
	(7) any agreement for the sale or other disposition of all or substantially all the Capital Stock or the assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition;
	(8) any instrument or agreement governing Permitted Refinancing Indebtedness; provided that the restrictions contained therein are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;
	(9) Liens permitted to be incurred under the provisions of the covenant described above under the caption “— Liens” that limit the right of the debtor to dispose of the assets subject to such Liens;
	(10) provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements, which limitation is applicable only to the assets that are the subject of such agreements;
	(11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;
	(12) customary provisions imposed on the transfer of copyrighted or patented materials;
	(13) customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Issuer or any Restricted Subsidiary;
	(14) Indebtedness or other contractual requirements of a Receivables Subsidiary in connection with a Qualified Receivables Transaction; provided that such restrictions apply only to such Receivables Subsidiary;
	(15) contracts entered into in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Issuer or any Restricted Subsidiary of the Issuer in any manner material to the Issuer or any Restricted Subsidiary of the Issuer;
	(16) restrictions on the transfer of property or assets required by any regulatory authority having jurisdiction over the Issuer or any Restricted Subsidiary of the Issuer or any of their businesses;

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	(17) any instrument or agreement governing Indebtedness or preferred stock (i) of any Foreign Subsidiary, (ii) of the Issuer or any Restricted Subsidiary that is incurred or issued subsequent to the Issue Date and not in violation of the covenant described under “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”; provided that (x) in the case of preferred stock and Indebtedness (other than Senior Debt), such encumbrances and restrictions are not materially more restrictive in the aggregate than the restrictions contained in the Indenture and (y) in the case of Senior Debt, are not materially more restrictive in the aggregate than the restrictions contained in the Credit Agreement and (iii) of any Restricted Subsidiary; provided that in the case of this clause (iii), (x) the total amount of Indebtedness outstanding under any agreement entered into in reliance on this clause (iii) does not, at the time any such agreement is entered into, exceed 1% of Total Assets and (y) after giving effect to the incurrence of such Indebtedness or preferred stock, the Issuer would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the “Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” covenant;
	(18) any encumbrance or restriction imposed on any Subsidiary of the Issuer that is of the type referred to in clause (3) of the definition of “Subsidiary” by (and for the benefit of) the Issuer or a Restricted Subsidiary; and
	(19) any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the Indebtedness, preferred stock, Liens, agreements, contracts, licenses, leases, subleases, instruments or obligations referred to in clauses (1), (2), (4) through (15), (17) and (18) above; provided, however, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are in the good faith judgment of the Issuer’s Board of Directors, whose determination shall be conclusive, not materially more restrictive, taken as a whole, than those restrictions contained in the Indebtedness, preferred stock, Liens, agreements, contracts, licenses, leases, subleases, instruments or obligations referred to in clauses (1), (2), (4) through (15), (17) and (18) above, as applicable prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.

	Merger, Consolidation or Sale of Assets

	(1) either: (a) the Issuer is the surviving entity; or (b) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or to which such sale, assignment, transfer, conveyance or other disposition has been made is an entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia;
	(2) the Person formed by or surviving any such consolidation or merger (if other than the Issuer) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Issuer under the notes, the indenture and the exchange and registration rights agreement pursuant to agreements reasonably satisfactory to the trustee; provided, however, that at all times, a corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia must be a co-issuer or the issuer of the notes if such surviving Person is not a corporation;
	(3) immediately after such transaction, no Default or Event of Default exists; and
	(4) the Issuer or the Person formed by or surviving any such consolidation or merger (if other than the Issuer), or to which such sale, assignment, transfer, conveyance or other disposition has been made

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	would, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period:

	(a) be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described above under the caption “— Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”; or
	(b) have a Fixed Charge Coverage Ratio that is greater than the actual Fixed Charge Coverage Ratio of the Issuer immediately prior to such transaction.

	(1) a merger of the Issuer with an Affiliate solely for the purpose of reincorporating the Issuer in another jurisdiction;
	(2) any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Issuer and its Restricted Subsidiaries; and
	(3) transfers of accounts receivable and related assets of the type specified in the definition of Qualified Receivables Transaction (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction.

	Transactions with Affiliates

	(1) the Affiliate Transaction is on terms that, taken as a whole, are not materially less favorable to the Issuer or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Issuer or such Restricted Subsidiary with an unrelated Person; and
	(2) the Issuer delivers to the trustee:

	(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $20.0 million, an officers’ certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the members of the Board of Directors of the Issuer, together with a certified copy of the resolutions of the Board of Directors of the Issuer approving such Affiliate Transaction or Affiliate Transactions; and
	(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $30.0 million, an opinion as to the fairness to the Issuer or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing.

	(1) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by the Issuer or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;
	(2) transactions between or among the Issuer and/or its Restricted Subsidiaries;

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	(3) transactions with a Person (other than an Unrestricted Subsidiary of the Issuer) that is an Affiliate of the Issuer solely because the Issuer owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;
	(4) payment of reasonable directors’ fees;
	(5) any issuance of Equity Interests (other than Disqualified Stock) of the Issuer to Affiliates of the Issuer;
	(6) Permitted Investments or Restricted Payments that do not violate the provisions of the indenture described above under the caption “— Restricted Payments”;
	(7) payment of fees and the reimbursement of other expenses to the Permitted Holders and/or their Affiliates in connection with the Transactions as described above under the caption “Certain Relationships and Related Transactions”;
	(8) payments by the Issuer or any of its Restricted Subsidiaries to Welsh Carson, Anderson & Stowe IX, L.P., Thoma Cressey Equity Partners and/or any of their Affiliates for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures, which payments are approved by the majority of the disinterested members of the Board of Directors of the Issuer in good faith in an aggregate amount for all such fees not to exceed 2.00% of the aggregate transaction value in respect of which such services are rendered;
	(9) loans (or cancellation of loans) or advances to employees in the ordinary course of business;
	(10) transactions with customers, suppliers, contractors, joint venture partners or purchasers or sellers of goods or services, in each case which are in the ordinary course of business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of the indenture, and which are fair to the Issuer or its Restricted Subsidiaries, as applicable, in the reasonable determination of the Board of Directors, chief executive officer or chief financial officer of the Issuer or its Restricted Subsidiaries, as applicable, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
	(11) the existence of, or the performance by the Issuer or any Restricted Subsidiary of their obligations, if any, or obligations of Holdings under the terms of, any subscription, registration rights or stockholders agreement, partnership agreement or limited liability company agreement to which Holdings, the Issuer or any Restricted Subsidiary is a party as of the Issue Date and which is disclosed above under the caption “Certain Relationships and Related Transactions” and any similar agreements which the Issuer, any Restricted Subsidiary, Holdings or any other direct or indirect parent company of the Issuer may enter into thereafter; provided, however, that the entering into by the Issuer or any Restricted Subsidiary or the performance by the Issuer or any Restricted Subsidiary of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Issue Date will only be permitted by this clause to the extent that the terms of any such amendment or new agreement, taken as a whole, are not materially disadvantageous to the holders of the notes, as determined in good faith by the Board of Directors, chief executive officer or chief financial officer of the Issuer;
	(12) the Transactions, including all payments made or to be made in connection with the Transactions as described in this prospectus;
	(13) any Qualified Receivables Transaction;
	(14) Permitted Payments to Parent;
	(15) any management, consulting, monitoring, financial advisory, financing, underwriting or placement services or any other investment banking, banking or similar services involving the Issuer and any of its Restricted Subsidiaries (including without limitation any payments in cash, Equity Interests or other consideration made by the Issuer or any of its Restricted Subsidiaries in connection therewith) on the one

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	hand and the Permitted Holders on the other hand, which services (and payments and other transactions in connection therewith) are approved as fair to the Issuer or such Restricted Subsidiary by a majority of the members of the Board of Directors of the Issuer in good faith;
	(16) the issuance of Equity Interests (other than Disqualified Stock) in the Issuer or any Restricted Subsidiary for compensation purposes;
	(17) any lease entered into between the Issuer or any Restricted Subsidiary, as lessee and any Affiliate of the Issuer, as lessor, which is approved by a majority of the disinterested members of the Board of Directors of the Issuer in good faith;
	(18) intellectual property licenses in the ordinary course of business;
	(19) Existing Indebtedness and any other obligations pursuant to an agreement existing on the Issue Date and described in the prospectus, including any amendment thereto (so long as such amendment is not disadvantageous to the holders of the notes in any material respect);
	(20) payments by the Issuer or any of its Restricted Subsidiaries of reasonable insurance premiums to, and any borrowings or dividends received from, any Captive Insurance Subsidiary; and
	(21) transactions in which the Issuer or any Restricted Subsidiary delivers to the trustee a letter from an accounting, appraisal or investment banking firm of national standing stating that such transaction is fair to the Issuer or such Restricted Subsidiary from a financial point of view and which are approved by a majority of the disinterested members of the Board of Directors of the Issuer in good faith.

	Business Activities

	Additional Subsidiary Guarantees

	Designation of Restricted and Unrestricted Subsidiaries

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	Payments for Consent

	Reports

	(1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K, if the Issuer were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” that describes the Issuer’s consolidated financial condition and results of operation and, with respect to the annual information only, a report thereon by the Issuer’s independent registered public accountants, and
	(2) all current reports that would be required to be filed with the SEC on Form 8-K if the Issuer were required to file such reports.

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	(1) default for 30 days in the payment when due of interest on, or Additional Interest, if any, with respect to, the notes, whether or not prohibited by the subordination provisions of the indenture;
	(2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the notes, whether or not prohibited by the subordination provisions of the indenture;
	(3) failure by the Issuer or any of its Restricted Subsidiaries to comply with the provisions described above under the caption “— Certain Covenants — Merger, Consolidation or Sale of Assets”;
	(4) failure by the Issuer or any of its Restricted Subsidiaries for 60 days after notice to the Issuer by the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding voting as a single class to comply with any of the other agreements in the indenture;
	(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Significant Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its Significant Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the Issue Date, if that default;

	(a) is caused by a failure to pay principal at the final Stated Maturity of such Indebtedness (a “Payment Default”); or
	(b) results in the acceleration of such Indebtedness prior to its express maturity;

	and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $25.0 million or more;

	(6) with respect to any judgment or decree for the payment of money (net of any amount covered by insurance issued by a reputable and creditworthy insurer that has not contested coverage or reserved rights with respect to an underlying claim) in excess of $25.0 million or its foreign currency equivalent against the Issuer or any Significant Subsidiary, the failure by the Issuer or such Significant Subsidiary, as applicable, to pay such judgment or decree, which judgment or decree has remained outstanding for a period of 60 days after such judgment or decree became final and nonappealable without being paid, discharged, waived or stayed;
	(7) except as permitted by the indenture, any Subsidiary Guarantee of any Significant Subsidiary is declared to be unenforceable or invalid by any final and nonappealable judgment or decree or ceases for any reason to be in full force and effect, or any Guarantor that is a Significant Subsidiary or any Person acting on behalf of any Guarantor that is a Significant Subsidiary denies or disaffirms its obligations in writing under its Subsidiary Guarantee and such Default continues for 10 days after receipt of the notice specified in the indenture; and
	(8) certain events of bankruptcy or insolvency described in the indenture with respect to the Issuer or any Subsidiary that is a Significant Subsidiary.

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	(1) such holder has previously given the trustee notice that an Event of Default is continuing;
	(2) holders of at least 25% in aggregate principal amount of the then outstanding notes have requested the trustee to pursue the remedy;
	(3) such holders have offered the trustee reasonable security or indemnity against any loss, liability or expense;
	(4) the trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and
	(5) holders of a majority in aggregate principal amount of the then outstanding notes have not given the trustee a direction inconsistent with such request within such 60-day period.

	(1) the rights of holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Additional Interest, if any, on, such notes when such payments are due from the trust referred to below;
	(2) the Issuer’s obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;

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	(3) the rights, powers, trusts, duties and immunities of the trustee, and the Issuer’s and the Guarantors’ obligations in connection therewith; and
	(4) the Legal Defeasance provisions of the indenture.

	(1) the Issuer must irrevocably deposit with the trustee, in trust, for the benefit of the holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Additional Interest, if any, on, the outstanding notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Issuer must specify whether the notes are being defeased to such stated date for payment or to a particular redemption date;
	(2) in the case of Legal Defeasance, the Issuer must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the Issue Date, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;
	(3) in the case of Covenant Defeasance, the Issuer must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;
	(4) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement (including, without limitation, the Credit Agreement) or instrument (other than the indenture) to which the Issuer or any of its Subsidiaries is a party or by which the Issuer or any of its Subsidiaries is bound;
	(5) the Issuer must deliver to the trustee an officers’ certificate stating that the deposit was not made by the Issuer with the intent of preferring the holders of notes over the other creditors of the Issuer with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer or others; and
	(6) the Issuer must deliver to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

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	(1) reduce the principal amount of notes whose holders must consent to an amendment, supplement or waiver;
	(2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the optional redemption of the notes as described under the caption “— Optional Redemption” (other than provisions relating to the notice period for consummating an optional redemption of the notes);
	(3) reduce the rate of or change the time for payment of interest, including default interest, on any note;
	(4) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Additional Interest, if any, on, the notes (except a rescission of acceleration of the notes by the holders of at least a majority in aggregate principal amount of the then outstanding notes and a waiver of the payment default that resulted from such acceleration);
	(5) make any note payable in money other than that stated in the notes;
	(6) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of holders of notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on, the notes; or
	(7) make any change in the preceding amendment and waiver provisions.

	(1) to cure any ambiguity, defect or inconsistency;
	(2) to provide for uncertificated notes in addition to or in place of certificated notes;
	(3) to provide for the assumption of the Issuer’s or a Guarantor’s obligations to holders of notes and Subsidiary Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuer’s or such Guarantor’s assets, as applicable;
	(4) to make any change that would provide any additional rights or benefits to the holders of notes or that does not adversely affect the legal rights under the indenture of any such holder;
	(5) to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act;
	(6) to conform the text of the indenture, the Subsidiary Guarantees or the notes to any provision of this Description of the Notes to the extent that such provision in this Description of the Notes was intended to be a verbatim recitation of a provision of the indenture, the Subsidiary Guarantees or the notes;

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	(7) to provide for the issuance of additional notes in accordance with the limitations set forth in the indenture as of the Issue Date;
	(8) to allow any Guarantor to execute a supplemental indenture and/or a Subsidiary Guarantee with respect to the notes; or
	(9) to issue the Notes.

	(1) either:

	(a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to the Issuer, have been delivered to the trustee for cancellation; or
	(b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Issuer or any Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Additional Interest, if any, and accrued interest to the date of maturity or redemption;

	(2) no Default or Event of Default has occurred and is continuing on the date of the deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Issuer or any Guarantor is a party or by which the Issuer or any Guarantor is bound;
	(3) the Issuer or any Guarantor has paid or caused to be paid all sums payable by it under the indenture; and
	(4) the Issuer has delivered irrevocable instructions to the trustee under the indenture to apply the deposited money toward the payment of the notes at maturity or on the redemption date, as the case may be.

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	(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and
	(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

(1) the sale, lease (other than operating leases), conveyance or other disposition of any assets or rights outside of the ordinary course of business; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Issuer and its Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under the caption “— Repurchase at the Option of Holders — Change of Control” and/or the provisions described above under the caption “— Certain Covenants — Merger, Consolidation or Sale of Assets” and not by the provisions of the Asset Sale covenant; and

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	(2) the issuance of Equity Interests in any of the Issuer’s Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries (other than directors’ qualifying Equity Interests or Equity Interests required by applicable law to be held by a Person other than the Issuer or a Restricted Subsidiary).

	(1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $5.0 million;
	(2) a transfer of assets between or among the Issuer and its Restricted Subsidiaries;
	(3) an issuance of Equity Interests by a Restricted Subsidiary of the Issuer to the Issuer or to a Restricted Subsidiary of the Issuer;
	(4) the sale or lease of products, services or accounts receivable (including at a discount) in the ordinary course of business and any sale or other disposition of damaged, worn out, negligible, surplus or obsolete assets in the ordinary course of business;
	(5) the sale or other disposition of Cash Equivalents;
	(6) a Restricted Payment that does not violate the covenant described above under the caption “— Certain Covenants — Restricted Payments” or a Permitted Investment;
	(7) a sale and leaseback transaction with respect to any assets within 180 days of the acquisition of such assets;
	(8) any exchange of like-kind property of the type described in Section 1031 of the Code for use in a Permitted Business;
	(9) the sale or disposition of any assets or property received as a result of a foreclosure by the Issuer or any of its Restricted Subsidiaries on any secured Investment or any other transfer of title with respect to any secured Investment in default;
	(10) the licensing of intellectual property in the ordinary course of business or in accordance with industry practice;
	(11) the sale, lease, conveyance, disposition or other transfer of (a) the Capital Stock of, or any Investment in, any Unrestricted Subsidiary or (b) Permitted Investments made pursuant to clause (15) of the definition thereof;
	(12) surrender or waiver of contract rights or the settlement, release or surrender of contract, tort or other claims of any kind;
	(13) leases or subleases to third persons in the ordinary course of business that do not interfere in any material respect with the business of the Issuer or any of its Restricted Subsidiaries;
	(14) sales of accounts receivable and related assets of the type specified in the definition of Qualified Receivables Transaction to a Receivables Subsidiary for the Fair Market Value thereof, less amounts required to be established as reserves and customary discounts pursuant to contractual agreements with entities that are not Affiliates of the Issuer entered into as part of a Qualified Receivables Transaction; and
	(15) transfers of accounts receivable and related assets of the type specified in the definition of Qualified Receivables Transaction (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Transaction.

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	(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
	(2) with respect to a partnership, the Board of Directors of the general partner of the partnership;
	(3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and
	(4) with respect to any other Person, the board or committee of such Person serving a similar function.

	(1) in the case of a corporation, corporate stock;
	(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
	(3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and
	(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

	(1) United States dollars or, in the case of any Restricted Subsidiary which is not a Domestic Subsidiary, any other currencies held from time to time in the ordinary course of business;
	(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than 12 months from the date of acquisition;
	(3) direct obligations issued by any state of the United States of America or any political subdivision of any such state, or any public instrumentality thereof, in each case having maturities of not more than 12 months from the date of acquisition;
	(4) certificates of deposit and eurodollar time deposits with maturities of 12 months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding 12 months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank that has capital and surplus of not less than $500.0 million;
	(5) repurchase obligations with a term of not more than one year for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;

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	(6) commercial paper having one of the two highest ratings obtainable from Moody’s Investors Service, Inc. or Standard & Poor’s Rating Services and, in each case, maturing within 12 months after the date of acquisition;
	(7) Indebtedness or preferred stock issued by Persons with a rating of “A” or higher from Standard & Poor’s Rating Services or “A2” or higher from Moody’s Investors Service, Inc. with maturities of 12 months or less from the date of acquisition; and
	(8) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (6) of this definition.

	(1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Issuer and its Subsidiaries taken as a whole to any “person” (as that term is used in Section 13(d) of the Exchange Act) other than Permitted Holders;
	(2) the adoption of a plan relating to the liquidation or dissolution of the Issuer;
	(3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any “person” (as defined above), other than Permitted Holders, becomes the Beneficial Owner, directly or indirectly, of more than 40% of the Voting Stock of the Issuer, measured by voting power rather than number of shares, unless the Permitted Holders are the Beneficial Owners of a greater percentage of the Voting Stock of the Issuer; provided, however, for purposes of this clause (3), each Person will be deemed to beneficially own any Voting Stock of another Person held by one or more of its Subsidiaries; or
	(4) the first day on which a majority of the members of the Board of Directors of the Issuer are not Continuing Directors.

	(1) the Fixed Charges of such Person and its Restricted Subsidiaries for the Measurement Period; plus
	(2) the consolidated income tax expense of such Person and its Restricted Subsidiaries for the Measurement Period; plus
	(3) the consolidated depreciation expense of such Person and its Restricted Subsidiaries for the Measurement Period; plus
	(4) the consolidated amortization expense of such Person and its Restricted Subsidiaries for the Measurement Period; plus
	(5) fees, costs and expenses paid or payable in cash by the Issuer or any of its Subsidiaries during the Measurement Period in connection with the Transactions (including, without limitation, retention payments paid as an incentive to retained employees in connection with the Transactions); plus
	(6) other non-cash expenses and charges for the Measurement Period reducing Consolidated Net Income (excluding any such non-cash item to the extent representing an accrual or reserve for potential cash items in any future period or amortization of a prepaid cash item that was paid in a prior period); plus
	(7) any non-recurring out-of-pocket expenses or charges for the Measurement Period relating to any offering of Equity Interests by the Issuer, Holdings or any other direct or indirect parent of the Issuer

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	or merger, recapitalization or acquisition transactions made by the Issuer or any of its Restricted Subsidiaries, or any Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries (in each case, whether or not successful); plus
	(8) all fees paid by the Issuer pursuant to clauses (8) and (15) of the covenant described under “Certain Covenants — Transactions with Affiliates”; plus
	(9) Consolidated Net Income attributable to minority interests of a Restricted Subsidiary (less the amount of any mandatory cash distribution with respect to any minority interest other than in connection with a proportionate discretionary cash distribution with respect to the interest held by the Issuer or any Restricted Subsidiary); plus
	(10) the amount of any restructuring charges or reserves (which, for the avoidance of doubt, shall include retention, severance, systems establishment cost, contract termination costs, including future lease commitments, and costs to consolidate facilities and relocate employees); minus
	(11) without duplication, other non-cash items (other than the accrual of revenue in accordance with GAAP consistently applied in the ordinary course of business) increasing Consolidated Net Income for the Measurement Period (excluding any such non-cash item to the extent it represents the reversal of an accrual or reserve for potential cash item in any prior period).

	(1) the Net Income (but not loss) of any other Person that is not a Restricted Subsidiary of such specified Person or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the specified Person;
	(2) the Net Income of any Restricted Subsidiary of such specified Person will be excluded to the extent that the declaration or payment of dividends or other distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; provided that (i) for purposes of clause (3) (a) of the first paragraph of the covenant described under “— Certain Covenants — Restricted Payments,” Consolidated Net Income of such Person shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash to (or to the extent converted into cash by) such Person or a Restricted Subsidiary thereof (subject to provisions of this clause (2)) during such period, to the extent not previously included therein and (ii) for all other purposes under the indenture, Consolidated Net Income of such Person shall be increased by the lesser of (x) the amount of dividends or distributions or other payments that are actually paid in cash to (or to the extent converted into cash by) such Person or a Restricted Subsidiary thereof (subject to the provisions of this clause (2)) during such period, to the extent not previously included therein and (y) the amount by which Consolidated Net Income of such Person was reduced in such period as a result of the operation of this clause (2);
	(3) the cumulative effect of a change in accounting principles will be excluded;
	(4) the amortization of any premiums, fees or expenses incurred in connection with the Transactions or any amounts required or permitted by Accounting Principles Board Opinions Nos. 16 (including non-cash write-ups and non-cash charges relating to inventory and fixed assets, in each case arising in connection with the Transactions) and 17 (including non-cash charges relating to intangibles and goodwill), in each case in connection with the Transactions, will be excluded;
	(5) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its

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	Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries will be excluded;
	(6) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss will be excluded;
	(7) income or losses attributable to discontinued operations (including, without limitation, operations disposed during such period whether or not such operations were classified as discontinued) will be excluded;
	(8) all extraordinary gains and losses will be excluded;
	(9) any non-cash charges (i) attributable to applying the purchase method of accounting in accordance with GAAP, (ii) resulting from the application of FAS 142 or FAS 144, and (iii) relating to the amortization of intangibles resulting from the application of FAS 141, will be excluded;
	(10) all non-cash charges relating to employee benefit or other management or stock compensation plans of the Issuer or a Restricted Subsidiary (excluding any such non-cash charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense incurred in a prior period) will be excluded to the extent that such non-cash charges are deducted in computing such Consolidated Net Income; provided, further, that if the Issuer or any Restricted Subsidiary of the Issuer makes a cash payment in respect of such non-cash charge in any period, such cash payment will (without duplication) be deducted from the Consolidated Net Income of the Issuer for such period; and
	(11) all unrealized gains and losses relating to hedging transactions and mark-to-market of Indebtedness denominated in foreign currencies resulting from the application of FAS 52 shall be excluded.

	(1) was a member of such Board of Directors on the Issue Date; or
	(2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election; or
	(3) was designated or appointed with the approval of Permitted Holders holding a majority of the Voting Stock of all of the Permitted Holders.

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	(1) any Indebtedness outstanding under the Credit Agreement; and
	(2) any other Senior Debt permitted under the indenture the principal amount of which is $25.0 million or more and that has been designated by the Issuer as “Designated Senior Debt.”

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	(1) Investments, acquisitions, mergers, consolidations and dispositions that have been made by the specified Person or any of its Restricted Subsidiaries, or any Person or any of its Restricted Subsidiaries acquired by, merged or consolidated with the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect, including giving effect to Pro Forma Cost Savings, as if they had occurred on the first day of the four-quarter reference period;
	(2) the Consolidated Adjusted EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;
	(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;
	(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
	(5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
	(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness).

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	(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, net of interest income, whether paid or accrued, including, without limitation, original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all cash payments made or received pursuant to Hedging Obligations in respect of interest rates, and excluding amortization of deferred financing costs; plus
	(2) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, but only to the extent that such Guarantee or Lien is called upon; plus
	(3) the product of (A) all cash dividends paid on any series of preferred stock of such Person or any of its Restricted Subsidiaries (other than to the Issuer or a Restricted Subsidiary of the Issuer), in each case, determined on a consolidated basis in accordance with GAAP multiplied by (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of the Issuer and its Restricted Subsidiaries expressed as a decimal; plus
	(4) the amount of dividends paid by the Issuer and its Restricted Subsidiaries pursuant to clause (19) of the covenant described under “— Certain Covenants — Restricted Payments.”

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	(1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements;
	(2) other agreements or arrangements designed to manage interest rates or interest rate risk; and
	(3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices.

	(1) in respect of borrowed money;
	(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) (other than letters of credit issued in respect of trade payables);
	(3) in respect of banker’s acceptances;
	(4) representing Capital Lease Obligations;
	(5) representing the balance deferred and unpaid of the purchase price of any property or services due more than twelve months after such property is acquired or such services are completed (except any such balance that constitutes a trade payable or similar obligation to a trade creditor); or
	(6) representing the net obligations under any Hedging Obligations,

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	(1) any available tax credits or deductions and any tax sharing arrangements;
	(2) amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale;
	(3) any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP;
	(4) any reserve for adjustment in respect of any liabilities associated with the asset disposed of in such transaction and retained by the Issuer or any Restricted Subsidiary after such sale or other disposition thereof;
	(5) any distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale; and
	(6) in the event that a Restricted Subsidiary consummates an Asset Sale and makes a pro rata payment of dividends to all of its stockholders from any cash proceeds of such Asset Sale, the amount of dividends paid to any stockholder other than the Issuer or any other Restricted Subsidiary, provided that any net proceeds of an Asset Sale by a Non-Guarantor Subsidiary that are subject to restrictions on repatriation to the Issuer will not be considered Net Proceeds for so long as such proceeds are subject to such restrictions.

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	(1) as to which neither the Issuer nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), or (b) is directly or indirectly liable as a guarantor or otherwise; and
	(2) as to which the lenders have been notified in writing or have agreed in writing (in the agreement relating thereto or otherwise) that they will not have any recourse to the stock or assets of the Issuer or any of its Restricted Subsidiaries except as permitted by the definition of “Unrestricted Subsidiary.”

	(1) any Investment in the Issuer or in a Restricted Subsidiary of the Issuer;
	(2) any Investment in Cash Equivalents;
	(3) any Investment by the Issuer or any Restricted Subsidiary of the Issuer in a Person, if as a result of such Investment:

	(a) such Person becomes a Restricted Subsidiary of the Issuer; or
	(b) such Person, in one transaction or a series of transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary of the Issuer;

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	(4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the covenant described above under the caption “— Repurchase at the Option of Holders — Asset Sales”;
	(5) any Investment solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Issuer;
	(6) any Investments received in compromise, settlement or resolution of (A) obligations of trade debtors or customers that were incurred in the ordinary course of business of the Issuer or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade debtor or customer, (B) litigation, arbitration or other disputes with Persons who are not Affiliates or (C) as a result of a foreclosure by the Issuer or any Restricted Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;
	(7) Investments represented by Hedging Obligations entered into to protect against fluctuations in interest rates, exchange rates and commodity prices;
	(8) any Investment in payroll, travel and similar advances to cover business-related travel expenses, moving expenses or other similar expenses, in each case incurred in the ordinary course of business;
	(9) Investments in receivables owing to the Issuer or any Restricted Subsidiary if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms; provided, however, that such trade terms may include such concessionary trade terms as the Issuer or any such Restricted Subsidiary deems reasonable under the circumstances;
	(10) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business;
	(11) obligations of one or more officers or other employees of the Issuer or any of its Restricted Subsidiaries in connection with such officer’s or employee’s acquisition of shares of Capital Stock of the Issuer or Capital Stock of Holdings (or any other direct or indirect parent company of the Issuer) so long as no cash or other assets are paid by the Issuer or any of its Restricted Subsidiaries to such officers or employees in connection with the acquisition of any such obligations;
	(12) loans or advances to and guarantees provided for the benefit of employees made in the ordinary course of business of the Issuer or the Restricted Subsidiary of the Issuer in an aggregate principal amount not to exceed $5.0 million at any one time outstanding;
	(13) Investments existing as on the Issue Date or an Investment consisting of any extension, modification or renewal of any Investment existing as of the Issue Date (excluding any such extension, modification or renewal involving additional advances, contributions or other investments of cash or property or other increases thereof unless it is a result of the accrual or accretion of interest or original issue discount or payment-in-kind pursuant to the terms, as of the Issue Date, of the original Investment so extended, modified or renewed);
	(14) repurchases of the notes;
	(15) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (15) that are at the time outstanding not to exceed $50.0 million; provided, however, that if any Investment pursuant to this clause (15) is made in any Person that is not a Restricted Subsidiary of the Issuer at the date of the making of such Investment and such Person becomes a Restricted Subsidiary of the Issuer after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (15) for so long as such Person continues to be a Restricted Subsidiary (it being understood that if such Person thereafter ceases to be a Restricted

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	Subsidiary of the Issuer, such Investment will again be deemed to have been made pursuant to this clause (15));
	(16) the acquisition by a Receivables Subsidiary in connection with a Qualified Receivables Transaction of Equity Interests of a trust or other Person established by such Receivables Subsidiary to effect such Qualified Receivables Transaction; and any other Investment by the Issuer or a Subsidiary of the Issuer in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Transaction customary for such transactions;
	(17) payments to any Captive Insurance Subsidiary in an amount equal to (i) the capital required under the applicable laws or regulations of the jurisdiction in which such Captive Insurance Subsidiary is formed or determined by independent actuaries as prudent and necessary capital to operate such Captive Insurance Subsidiary plus (ii) any reasonable general corporate and overhead expenses of such Captive Insurance Subsidiary;
	(18) Investments in joint ventures in an amount not to exceed $80.0 million outstanding at any time; provided that (i) substantially all of the business activities of any such joint venture consists of owning or operating facilities of the Issuer or a Restricted Subsidiary of the Issuer and (ii) a majority of the Voting Stock of such Person is owned by the Issuer, its Restricted Subsidiaries and/or other Persons that are not Affiliates of the Issuer; and
	(19) Guarantees of Indebtedness of the Issuer or a Restricted Subsidiary permitted under the covenant entitled “— Certain Covenants — Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and performance guarantees in the ordinary course of business.

	(1) Equity Interests in the Issuer or any Guarantor; or
	(2) unsecured debt securities that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the notes and the Subsidiary Guarantees are subordinated to Senior Debt under the indenture (including, in the case of Senior Debt under the Credit Facilities, with respect to payment blockage and turnover, and the maturity and weighted average life to maturity of which are at least six months greater than that of the Senior Debt and debt securities issued in exchange for Senior Debt).

	(1) Liens on assets of the Issuer or any of its Restricted Subsidiaries securing Senior Debt that was permitted by the terms of the indenture to be incurred;
	(2) Liens in favor of the Issuer or the Guarantors;
	(3) Liens on property or assets of a Person, plus renewals and extensions of such Liens, existing at the time such Person is merged with or into, consolidated with or acquired by the Issuer or any Restricted Subsidiary of the Issuer; provided that such Liens were in existence prior to the contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person merged into, consolidated with or acquired by the Issuer or such Subsidiary;
	(4) Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Issuer or any Restricted Subsidiary of the Issuer; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition;
	(5) Liens (including deposits and pledges) to secure the performance of public or statutory obligations, progress payments, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;
	(6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the covenant entitled “— Certain Covenants — Incurrence of Indebtedness and

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	Issuance of Disqualified Stock and Preferred Stock” covering only the assets acquired, constructed or improved with or financed by such Indebtedness;
	(7) Liens existing on the Issue Date, plus renewals and extensions of such Liens;
	(8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;
	(9) Liens imposed by law, such as carriers’, warehousemen’s, landlord’s, materialmen’s, laborers’, employees’, suppliers’ and mechanics’ Liens, in each case, incurred in the ordinary course of business;
	(10) survey exceptions, title defects, encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that do not materially interfere with the ordinary conduct of the business of the Issuer and its Subsidiaries, taken as a whole;
	(11) Liens created for the benefit of (or to secure) the notes (or the Subsidiary Guarantees);
	(12) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under the indenture; provided, however, that:

	(a) the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Indebtedness (plus improvements and accessions to, such property or proceeds or distributions thereof); and
	(b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;

	(13) Liens incurred in the ordinary course of business of the Issuer or any Subsidiary of the Issuer with respect to obligations that do not exceed $10.0 million at any one time outstanding;
	(14) Liens incurred in connection with a Qualified Receivables Transaction (which, in the case of the Issuer and its Restricted Subsidiaries (other than Receivables Subsidiaries) shall be limited to receivables and related assets referred to in the definition of Qualified Receivables Transaction);
	(15) security for the payment of workers’ compensation, unemployment insurance, other social security benefits or other insurance-related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) entered into in the ordinary course of business;
	(16) deposits or pledges in connection with bids, tenders, leases and contracts (other than contracts for the payment of money) entered into in the ordinary course of business;
	(17) zoning restrictions, easements, licenses, reservations, provisions, encroachments, encumbrances, protrusion permits, servitudes, covenants, conditions, waivers, restrictions on the use of property or minor irregularities of title (and with respect to leasehold interests, mortgages, obligations, liens and other encumbrances incurred, created, assumed or permitted to exist and arising by, through or under a landlord or owner of the leased property, with or without consent of the lessee), in each case, not materially interfering with the ordinary conduct of the business of the Issuer and its Subsidiaries, taken as a whole;
	(18) leases, subleases, licenses or sublicenses to third parties entered into in the ordinary course of business;

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	(19) Liens securing Hedging Obligations entered into to protect against fluctuations in interest rates, exchange rates and commodity prices;
	(20) Liens arising out of judgments, decrees, orders or awards in respect of which the Issuer shall in good faith be prosecuting an appeal or proceedings for review which appeal or proceedings shall not have been finally terminated, or if the period within which such appeal or proceedings may be initiated shall not have expired;
	(21) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligation of such Unrestricted Subsidiary;
	(22) Liens on the assets of Non-Guarantor Subsidiaries securing Indebtedness of the Issuer or the Restricted Subsidiaries that were permitted by the terms of the indenture to be incurred;
	(23) Liens arising from filing Uniform Commercial Code financing statements regarding leases;
	(24) Liens (i) of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection and (ii) in favor of banking institution encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry; and
	(25) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to brokerage accounts incurred in the ordinary course of business and not for speculative purposes.

(1) payments, directly or indirectly, to Holdings or any other direct or indirect parent company of the Issuer to be used by Holdings (or any other direct or indirect parent company of the Issuer) to pay (x) consolidated, combined or similar Federal, state and local taxes payable by Holdings (or such parent company) and directly attributable to (or arising as a result of) the operations of the Issuer and its Subsidiaries and (y) franchise or similar taxes and fees of Holdings (or such parent company) required to maintain Holdings’ (or such parent company’s) corporate or other existence and other taxes; provided that:

	(a) the amount of such dividends, distributions or advances paid shall not exceed the amount (x) that would be due with respect to a consolidated, combined or similar Federal, state or local tax return that included the Issuer and its Subsidiaries if the Issuer were a corporation for Federal, state and local tax purposes plus (y) the actual amount of such franchise or similar taxes and fees of Holdings (or such parent company) required to maintain Holdings’ (or such parent company’s) corporate or other existence and other taxes, each as applicable; and
	(b) such payments are used by Holdings (or such parent company) for such purposes within 90 days of the receipt of such payments; and

(2) payments, directly or indirectly, to Holdings or any other direct or indirect parent company of the Issuer if the proceeds thereof are used to pay general corporate and overhead expenses (including salaries and other compensation of employees) incurred in the ordinary course of its business or of the business of Holdings or such other parent company of the Issuer as a direct or indirect holding company for the Issuer or used to pay fees and expenses (other than to Affiliates) relating to any unsuccessful debt or equity financing.

	(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness

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	extended, renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees, commissions, discounts and expenses, including premiums, incurred in connection therewith);
	(2) either (a) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged or (b) all scheduled payments on or in respect of such Permitted Refinancing Indebtedness (other than interest payments) shall be at least 91 days following the final scheduled maturity of the notes;
	(3) if the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the notes on terms at least as favorable to the holders of notes as those contained in the documentation governing the Indebtedness being extended, renewed, refunded, refinanced, replaced, defeased or discharged; and
	(4) such Indebtedness is incurred

	(a) by the Issuer or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged;
	(b) by any Guarantor if the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is a Guarantor; or
	(c) by any Non-Guarantor Subsidiary if the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is a Non-Guarantor Subsidiary.

	(1) Cash Equivalents;
	(2) the Fair Market Value of assets that are used or useful in the Permitted Business; and
	(3) the Fair Market Value of the Capital Stock of any Person engaged primarily in a Permitted Business if, in connection with the receipt by the Issuer or any of its Restricted Subsidiaries of such

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	Capital Stock, such Person becomes a Restricted Subsidiary or such Person is merged or consolidated into the Issuer or any Restricted Subsidiary;

	(1) a Receivables Subsidiary (in the case of a transfer by the Issuer or any of its Subsidiaries, which transfer may be effected through the Issuer or one or more of its Subsidiaries); and
	(2) if applicable, any other Person (in the case of a transfer by a Receivables Subsidiary),

	(A) no portion of the Indebtedness or any other Obligations (contingent or otherwise) of which:

	(1) is guaranteed by the Issuer or any Subsidiary of the Issuer (excluding guarantees of Obligations (other than the principal of, and interest on, Indebtedness) pursuant to representations, warranties, covenants and indemnities entered into in the ordinary course of business in connection with a Qualified Receivables Transaction);
	(2) is recourse to or obligates the Issuer or any Subsidiary of the Issuer in any way other than pursuant to representations, warranties, covenants and indemnities customarily entered into in connection with a Qualified Receivables Transaction; or
	(3) subjects any property or asset of the Issuer or any Subsidiary of the Issuer (other than accounts receivable and related assets as provided in the definition of Qualified Receivables Transaction), directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to representations, warranties, covenants and indemnities customarily entered into in connection with a Qualified Receivables Transaction; and

(B) with which neither the Issuer nor any Subsidiary of the Issuer has any material contract, agreement, arrangement or understanding other than on terms no less favorable to the Issuer or such Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Issuer, other than as may be customary in a Qualified Receivables Transaction including for fees payable in the ordinary course of business in connection with servicing accounts receivable; and (C) with which neither the Issuer nor any Subsidiary of the Issuer has any obligation to maintain or preserve such Subsidiary’s financial condition or cause such Subsidiary to achieve certain levels of operating results.

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	Any such designation by the Board of Directors of the Issuer will be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Issuer giving effect to such designation and an officers’ certificate certifying that such designation complied with the foregoing conditions.

	(1) all Indebtedness of the Issuer or any Guarantor outstanding under the Credit Agreement or under any other Credit Facilities (including post-petition interest at the rate provided in the documentation with respect thereto, whether or not allowed as a claim in any bankruptcy proceeding), and all Hedging Obligations and Treasury Management Obligations with respect thereto;
	(2) any other Indebtedness of the Issuer or any Guarantor permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the notes or any Subsidiary Guarantee; and
	(3) all Obligations with respect to the items listed in the preceding clauses (1) and (2).

	(1) any liability for federal, state, local or other taxes owed or owing by the Issuer or the Guarantors;
	(2) any intercompany Indebtedness of the Issuer or any of its Subsidiaries to the Issuer or any of its Affiliates;
	(3) any trade payables;
	(4) the portion of any Indebtedness that is incurred in violation of the indenture (but only to the extent so incurred); provided that Indebtedness outstanding under Credit Facilities will not cease to be Senior Debt as a result of this clause (4) if the lenders or agents thereunder obtained a representation from the Issuer or any of its Subsidiaries on the date such Indebtedness was incurred to the effect that such Indebtedness was not prohibited by the indenture;
	(5) Indebtedness which is classified as non-recourse in accordance with GAAP or any unsecured claim arising in respect thereof by reason of the application of Section 1111(b) (1) of the Bankruptcy Code; or
	(6) Disqualified Stock.

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	(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders’ agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof);
	(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof); and
	(3) any third party professional corporation or similar business entity with which the Issuer or any Subsidiary of the Issuer has an exclusive management arrangement under which it manages the business of such entity and whose financial statements are consolidated with the Issuer’s financial statements for financial reporting purposes (it being understood that the limitations set forth in clause (2) of the definition of Consolidated Net Income shall not apply to any such entity).

	(1) has no Indebtedness other than Non-Recourse Debt; provided that this clause (1) shall be deemed to be satisfied for so long as the total amount of Indebtedness of all Unrestricted Subsidiaries that is not Non-Recourse Debt does not exceed, measured as of the date of incurrence thereof, 1% of Total Assets;
	(2) except with respect to any Indebtedness permitted by clause (1), is not party to any agreement, contract, arrangement or understanding with the Issuer or any Restricted Subsidiary of the Issuer unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Issuer or such Restricted Subsidiary than those permitted under the covenant described above under the caption “— Certain Covenants — Transactions with Affiliates”;
	(3) is a Person with respect to which neither the Issuer nor any of its Restricted Subsidiaries has any direct or indirect obligation to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

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	(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Issuer or any of its Restricted Subsidiaries.

	(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by
	(2) the then outstanding principal amount of such Indebtedness.

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	In General

	•	an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the “substantial presence” test under Section 7701(b) of the Code;
	•	a corporation (including an entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
	•	an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
	•	a trust if (1) a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust was in existence on August 20, 1996, was treated as a U.S. person prior to such date and has elected to continue to be treated as a U.S. person

	Payments of Interest

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	Sale, Exchange or Retirement of the Notes

	Exchange Offer

	Backup Withholding

	•	fails to furnish its taxpayer identification number (“TIN”) which, for an individual, is ordinarily his or her social security number;
	•	furnishes an incorrect TIN;
	•	is notified by the IRS that it has failed to properly report payments of interest or dividends; or
	•	fails to certify under penalties of perjury that it has furnished a correct TIN and that the IRS has not notified the U.S. Holder that it is subject to backup withholding.

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	Definition of Non-U.S. Holders

	Interest Payments

	•	such holder does not directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all of our classes of stock;
	•	such holder is not a controlled foreign corporation that is related to us through stock ownership;
	•	such holder is not a bank that received such notes on an extension of credit made pursuant to a loan agreement entered into in the ordinary course of its trade or business; and
	•	either (1) the non-U.S. Holder certifies in a statement provided to us or our paying agent, under penalties of perjury, that it is not a “United States person” within the meaning of the Code and provides its name and address (generally on IRS Form W-8BEN or applicable successor form), or (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the notes on behalf of the non-U.S. Holder certifies to us or our paying agent under penalties of perjury that it has received from the non-U.S. Holder a statement, under penalties of perjury, that such holder is not a “United States person” and provides us or our paying agent with a copy of such statement or (3) the non-U.S. Holder holds its notes through a “qualified intermediary” and certain conditions are satisfied.

	Sale or Other Taxable Disposition of Notes

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	Backup Withholding and Information Reporting

	•	a United States person;
	•	a controlled foreign corporation for U.S. federal income tax purposes;
	•	a foreign person 50% or more whose gross income is effectively connected with a U.S trade or business for a specified three-year period; or
	•	a foreign partnership, if at any time during its tax year, one or more of its partners are United States persons, as defined in Treasury Regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership or if, at any time during its tax year, the foreign partnership is engaged in a U.S. trade or business.

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Select Medical Corporation Audited Financial Statements
	Consolidated Financial Statements as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and 2004
		Report of Independent Accountants		F-2
		Consolidated Balance Sheets		F-3
		Consolidated Statements of Operations		F-4
		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)		F-5
		Consolidated Statements of Cash Flows		F-6
		Notes to Consolidated Financial Statements		F-7
Select Medical Corporation Unaudited Interim Financial Statements
	Consolidated Financial Statements as of March 31, 2005 and for the periods from January 1, 2005 to February 24, 2005 (Predecessor) and February 25, 2005 to March 31, 2005 (Successor)
		Consolidated Balance Sheets		F-42
		Consolidated Statements of Operations		F-43
		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss)		F-44
		Consolidated Statements of Cash Flows		F-45
		Notes to Consolidated Financial Statements		F-46

F-1

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F-2

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			December 31,
			2004				2003
			(In thousands, except share
			and per share amounts)
ASSETS
Current Assets:
	Cash and cash equivalents		$	247,476			$	165,507
	Restricted cash			7,031				—
	Accounts receivable, net of allowance for doubtful accounts of $94,622 and $111,517 in 2004 and 2003, respectively			216,852				230,171
	Current deferred tax asset			59,239				61,699
	Other current assets			18,737				27,689
Total Current Assets				549,335				485,066
Property and equipment, net				165,336				174,902
Goodwill				302,069				306,251
Trademarks				58,875				58,875
Intangible assets				19,429				22,876
Non-current deferred tax asset				—				6,603
Other assets				18,677				24,425
Total Assets			$	1,113,721			$	1,078,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Bank overdrafts		$	—			$	11,427
	Current portion of long-term debt and notes payable			3,557				10,267
	Accounts payable			48,632				59,569
	Accrued payroll			56,554				53,260
	Accrued vacation			23,102				21,529
	Accrued professional liability			14,627				12,777
	Accrued restructuring			4,924				10,375
	Accrued other			66,484				65,531
	Income taxes payable			4,474				—
	Due to third party payors			13,266				51,951
Total Current Liabilities				235,620				296,686
Long-term debt, net of current portion				351,033				357,236
Non-current deferred tax liability				4,458				—
Total Liabilities				591,111				653,922
Commitments and Contingencies (Note 16)
Minority interest in consolidated subsidiary companies				6,667				5,901
Stockholders’ Equity:
	Common stock — $.01 par value: Authorized shares — 200,000,000 in 2004 and 2003, Issued shares — 101,954,000 and 102,219,000 in 2004 and 2003, respectively			1,020				1,022
	Capital in excess of par			275,281				291,519
	Retained earnings			230,535				121,560
	Accumulated other comprehensive income			9,107				5,074
Total Stockholders’ Equity				515,943				419,175
Total Liabilities and Stockholders’ Equity			$	1,113,721			$	1,078,998

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			For the Year Ended December 31,
			2004				2003				2002
			(In thousands, except per share amounts)
Net operating revenues			$	1,660,791			$	1,392,366			$	1,126,559
Costs and expenses:
	Cost of services			1,294,903				1,112,176				922,553
	General and administrative			45,856				44,417				39,409
	Bad debt expense			48,522				51,320				37,318
	Depreciation and amortization			39,977				34,654				25,836
Total costs and expenses				1,429,258				1,242,567				1,025,116
Income from operations				231,533				149,799				101,443
Other income and expense:
	Equity in earnings from joint ventures			—				824				—
	Interest income			2,583				936				596
	Interest expense			(33,634	)			(26,340	)			(27,210	)
Income from continuing operations before minority interests and income taxes				200,482				125,219				74,829
Minority interest in consolidated subsidiary companies				3,448				2,402				2,022
Income from continuing operations before income taxes				197,034				122,817				72,807
Income tax expense				79,602				48,597				28,576
Income from continuing operations				117,432				74,220				44,231
Income from discontinued operations, net of tax				752				251				—
Net income			$	118,184			$	74,471			$	44,231
Net income per common share:
Basic:
	Income per share from continuing operations		$	1.15			$	0.76			$	0.48
	Income per share from discontinued operations			0.01				N/M				—
	Net income per share		$	1.16			$	0.76			$	0.48
Diluted
	Income per share from continuing operations		$	1.10			$	0.72			$	0.45
	Income per share from discontinued operations			0.01				N/M				—
	Net income per share		$	1.11			$	0.72			$	0.45
Dividends per share			$	0.09			$	0.03			$	—
Weighted average shares outstanding:
	Basic			102,165				97,452				92,928
	Diluted			106,529				103,991				98,256

F-4

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																							Accumulated
																							Other
							Common				Capital in												Comprehensive
			Common				Stock Par				Excess of				Retained				Treasury				Income				Comprehensive
			Shares				Value				Par				Earnings				Stock				(Loss)				Income
			(In thousands)
Balance at December 31, 2001				92,976			$	930			$	230,884			$	5,924			$	(1,560	)		$	(1,894	)
	Net income															44,231											$	44,231
	Other comprehensive income																							1,507				1,507
	Total comprehensive income																										$	45,738
	Issuance of common stock			1,298				12				4,089
	Retirement of treasury stock			(922	)			(8	)			(1,552	)							1,560
	Valuation of non-employee options											56
	Tax benefit of stock option exercises											2,239
Balance at December 31, 2002				93,352				934				235,716				50,155				—				(387	)
	Net income															74,471											$	74,471
	Other comprehensive income																							5,461				5,461
	Total comprehensive income																										$	79,932
	Issuance of common stock			8,867				88				28,525
	Cash dividends															(3,066	)
	Valuation of non-employee options											2,219
	Tax benefit of stock option exercises											25,059
Balance at December 31, 2003				102,219				1,022				291,519				121,560				—				5,074
	Net income															118,184											$	118,184
	Other comprehensive income																							4,033				4,033
	Total comprehensive income																										$	122,217
	Issuance of common stock			3,134				32				18,591
	Cash dividends															(9,209	)
	Repurchase of common stock			(3,399	)			(34	)			(48,024	)
	Valuation of non-employee options											151
	Tax benefit of stock option exercises											13,044
Balance at December 31, 2004				101,954			$	1,020			$	275,281			$	230,535			$	—			$	9,107

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				For the Year Ended December 31,
				2004				2003				2002
				(In thousands)
Operating activities
Net income				$	118,184			$	74,471			$	44,231
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				39,912				34,957				25,836
	Provision for bad debts				48,986				51,428				37,318
	Deferred income taxes				10,803				6,837				8,878
	Minority interests				3,448				2,402				2,022
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Accounts receivable			(22,864	)			8,838				(53,893	)
		Other current assets			8,594				(5,047	)			(387	)
		Other assets			2,778				4,898				2,671
		Accounts payable			(13,980	)			17,499				3,887
		Due to third-party payors			(52,296	)			21,228				12,979
		Accrued expenses			3,069				19,337				22,456
		Income taxes			27,642				9,400				14,814
Net cash provided by operating activities					174,276				246,248				120,812
Investing activities
Purchases of property and equipment					(32,626	)			(35,852	)			(43,183	)
Proceeds from sale of discontinued operations					11,554				—				—
Proceeds from sale of membership interests					4,064				—				—
Proceeds from disposal of assets					—				2,595				—
Earnout payments					(2,983	)			(464	)			(928	)
Acquisition of businesses, net of cash acquired					(1,937	)			(227,731	)			(9,937	)
Net cash used in investing activities					(21,928	)			(261,452	)			(54,048	)
Financing activities
Issuance of 71/2% Senior Subordinated Notes					—				175,000				—
Net repayments on credit facility debt					(8,483	)			(65,627	)			(22,672	)
Principal payments on seller and other debt					(3,904	)			(3,721	)			(6,173	)
Restricted cash					(7,031	)			—				—
Proceeds from issuance of common stock					18,623				28,613				4,101
Repurchase of common stock					(48,058	)			—				—
Payment of common stock dividends					(9,209	)			(3,066	)			—
Proceeds from (payments of) bank overdrafts					(11,427	)			307				5,038
Payment of deferred financing costs					—				(5,922	)			(67	)
Distributions to minority interests					(1,501	)			(1,266	)			(1,650	)
Net cash provided by (used in) financing activities					(70,990	)			124,318				(21,423	)
Effect of exchange rate changes on cash and cash equivalents					611				331				18
Net increase in cash and cash equivalents					81,969				109,445				45,359
Cash and cash equivalents at beginning of period					165,507				56,062				10,703
Cash and cash equivalents at end of period				$	247,476			$	165,507			$	56,062
Supplemental Cash Flow Information
Cash paid for interest				$	30,677			$	20,229			$	24,858
Cash paid for income taxes				$	42,134			$	33,344			$	5,352

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1.	Organization and Significant Accounting Policies

	Business Description

	Reclassifications

	Principles of Consolidation

	Use of Estimates

	Cash and Cash Equivalents

	Restricted Cash

F-7

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	Property and Equipment

Leasehold improvements			5 years
Furniture and equipment			5 – 20 years
Buildings			40 years

	Concentration of Credit Risk

	Income Taxes

	Intangible Assets

F-8

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Goodwill			Indefinite
Trademarks			Indefinite
Non-compete agreements			7 years

	Due to Third-Party Payors

	Insurance Risk Programs

	Minority Interests

	Treasury Stock

	Stock Options

F-9

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		For the Year Ended December 31,
		2004				2003				2002
		(In thousands, except per share
		amounts)
Net income available to common stockholders — as reported		$	118,184			$	74,471			$	44,231
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects			21,069				19,376				10,326
Net income available to common stockholders — pro forma		$	97,115			$	55,095			$	33,905
Weighted average grant-date fair value			6.42				6.64				3.54
Basic earnings per share — as reported			1.16				0.76				0.48
Basic earnings per share — pro forma			0.95				0.57				0.36
Diluted earnings per share — as reported			1.11				0.72				0.45
Diluted earnings per share — pro forma			0.91				0.53				0.35

	Revenue Recognition

F-10

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	Other Comprehensive Income (Loss)

		For the Year Ended December 31,
		2004				2003				2002
		(In thousands)
Net income		$	118,184			$	74,471			$	44,231
Unrealized losses on available for sale securities			(4	)			(49	)			—
Realized losses on available for sale securities			53				—				—
Realized loss on interest rate swap			—				313				1,264
Changes in foreign currency translation			3,984				5,197				243
Total comprehensive income		$	122,217			$	79,932			$	45,738

	Financial Instruments and Hedging

	Basic and Diluted Net Income Per Share

	Recent Accounting Pronouncements

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2.	Acquisitions, Disposal and Management Services Agreements

	For the Year Ended December 31, 2004

		December 31,
		2004				2003
		(In thousands)
Net revenue		$	10,432			$	4,407
Income from discontinued operations before income tax expense			1,262				415
Income tax expense			510				164
Income from discontinued operations, net of tax		$	752			$	251

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	For the Year Ended December 31, 2003

	For the Year Ended December 31, 2002

F-13

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		For the Year Ended December 31,
		2004				2003				2002
		(In thousands)
Cash paid (net of cash acquired)		$	1,937			$	227,731			$	9,937
Notes issued			214				316				1,864
			2,151				228,047				11,801
Liabilities assumed			573				36,513				345
Restructuring reserve (note 6)			—				16,213				—
			2,724				280,773				12,146
Fair value of assets acquired, principally accounts receivable and property and equipment			227				126,406				4,191
Trademark			—				21,000				—
Non-compete agreement			—				24,000				—
Minority interest liabilities relieved			1,069				1,405				70
Cost in excess of fair value of net assets acquired (goodwill)		$	1,428			$	107,962			$	7,885

		Pro Forma Unaudited Results
		of Operations
		For the Year Ended
		December 31,
		2003				2002
		(In thousands, except per
		share data)
Net revenue		$	1,539,580			$	1,340,588
Net income before cumulative effect of accounting change			62,834				47,521
Net income			62,834				22,207
Basic income per common share before cumulative effect of accounting change		$	0.64			$	0.51
Basic income per common share		$	0.64			$	0.24
Diluted income per common share before cumulative effect of accounting change		$	0.60			$	0.48
Diluted income per common share		$	0.60			$	0.23

3.	Merger

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4.	Property and Equipment

		December 31,
		2004				2003
		(In thousands)
Land		$	11,996			$	14,559
Leasehold improvements			90,919				81,134
Buildings			46,044				50,498
Furniture and equipment			159,240				142,664
Construction-in-progress			973				548
			309,172				289,403
Less: accumulated depreciation and amortization			143,836				114,501
Total property and equipment		$	165,336			$	174,902

5.	Intangible Assets

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		As of December 31, 2004
		Gross Carrying				Accumulated
		Amount				Amortization
		(In thousands)
Amortized intangible assets
Non-compete agreement		$	24,000			$	(4,571	)
Unamortized intangible assets
Goodwill		$	302,069
Trademarks			58,875
Total		$	360,944

		As of December 31, 2003
		Gross Carrying				Accumulated
		Amount				Amortization
		(In thousands)
Amortized intangible assets
Non-compete agreement		$	24,000			$	(1,124	)
Management services agreements			1,081				(1,081	)
Total		$	25,081			$	(2,205	)
Unamortized intangible assets
Goodwill		$	306,251
Trademarks			58,875
Total		$	365,126

		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(In thousands)
Balance as of January 1, 2003		$	84,391			$	111,912			$	584			$	196,887
Goodwill acquired during year			95,620				12,342				—				107,962
Income tax benefits recognized			—				(3,745	)			—				(3,745	)
Earn-out payments			—				464				—				464
Translation adjustment			—				4,706				—				4,706
Other			—				(23	)			—				(23	)
Balance as of December 31, 2003			180,011				125,656				584				306,251
Sale of discontinued operations			(2,693	)			—				—				(2,693	)
Assignment of membership interests			(1,351	)			—				—				(1,351	)
Income tax benefits recognized			—				(5,492	)			—				(5,492	)
Earn-out payments			—				2,983				—				2,983
Translation adjustment			—				1,999				—				1,999
Other			—				372				—				372
Balance as of December 31, 2004		$	175,967			$	125,518			$	584			$	302,069

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6.	Restructuring Reserves

		Lease
		Termination
		Costs				Severance				Total
		(In thousands)
January 1, 2002		$	1,687			$	132			$	1,819
Amounts paid in 2002			(899	)			(120	)			(1,019	)
December 31, 2002			788				12				800
2003 acquisition restructuring costs			5,886				10,327				16,213
Amounts paid in 2003			(869	)			(5,769	)			(6,638	)
December 31, 2003			5,805				4,570				10,375
Amounts paid in 2004			(2,580	)			(2,871	)			(5,451	)
December 31, 2004		$	3,225			$	1,699			$	4,924

7.	Long-Term Debt and Notes Payable

		December 31,
		2004				2003
		(In thousands)
91/2% Senior Subordinated Notes		$	175,000			$	175,000
71/2% Senior Subordinated Notes			175,000				175,000
Senior credit facility			—				8,483
Seller notes			3,406				7,174
Other			1,184				1,846
Total debt			354,590				367,503
Less: current maturities			3,557				10,267
Total long-term debt		$	351,033			$	357,236

F-17

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2006		$	814
2007			184
2008			35
2009			175,000
2010 and beyond			175,000

F-18

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8.	Stockholders’ Equity

	Stock Repurchase Program

	Shareholder Rights Plan

	Common Stock

9.	Stock Option Plans

F-19

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Table of Contents

											Weighted Average
			Price per Share				Shares				Exercise Price
			(In thousands, except per share amounts)
Balance, December 31, 2001			$	0.87 to  8.53				12,516			$	4.40
	Granted			6.33 to  7.63				8,900				7.44
	Exercised			3.04 to  5.88				(1,298	)			3.16
	Forfeited			3.04 to  8.53				(470	)			6.07
Balance, December 31, 2002			$	0.87 to  8.53				19,648			$	5.82
	Granted			16.50 to  6.68				7,899				15.12
	Exercised			0.87 to  8.53				(6,313	)			4.35
	Forfeited			3.04 to 16.50				(333	)			5.46
Balance, December 31, 2003			$	3.04 to 16.50				20,901			$	9.78
	Granted			13.86 to 15.50				3,704				14.74
	Exercised			3.04 to 14.53				(3,135	)			5.94
	Forfeited			3.04 to 16.50				(498	)			8.85
Balance, December 31, 2004			$	3.04 to 16.50				20,972			$	11.25

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		Range of Exercise Prices
		$0.87-$5.88				$6.33-$7.53				$7.63-$10.25				$14.53-$16.50
		(In thousands except per share amounts)
Number outstanding at December 31, 2001			12,306				96				114				—
Options outstanding weighted average remaining contractual life			8.4				9.9				9.7				—
Number of exercisable			6,222				—				—				—
Number outstanding at December 31, 2002			10,777				2,016				6,855				—
Options outstanding weighted average remaining contractual life			7.5				9.2				9.4				—
Number of exercisable			6,538				1,034				2,119				—
Number outstanding at December 31, 2003			4,817				2,033				6,280				7,771
Options outstanding weighted average remaining contractual life			6.9				8.2				8.4				9.7
Number of exercisable			2,297				1,253				2,597				3,550
Number outstanding at December 31, 2004			2,496				1,438				5,726				11,312
Options outstanding weighted average remaining contractual life			5.8				7.3				7.4				8.9
Number of exercisable			1,577				964				3,186				6,197

											Weighted Average
			Price per Share				Shares				Exercise Price
			(In thousands except per share amounts)
Balance, December 31, 2001			$	—				—			$	—
	Granted			7.02				56				7.02
Balance, December 31, 2002				7.02				56				7.02
	Granted			6.68 to 14.53				78				8.69
	Exercised			7.02				3				7.02
Balance, December 31, 2003				6.68 to 14.53				131				8.01
	Granted			15.50				111				15.50
Balance, December 31, 2004			$	6.68 to 15.50				242			$	11.44

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		$6.68				$7.02				$14.53				$15.50
Number outstanding at December 31, 2002			—				56				—				—
Options outstanding weighted average remaining contractual life			—				9.12				—				—
Number of excercisable			—				—				—				—
Number outstanding at December 31, 2003			58				53				20				—
Options outstanding weighted average remaining contractual life			9.14				8.12				9.61				—
Number of excercisable			—				8				—				—
Number outstanding at December 31, 2004			58				53				20				111
Options outstanding weighted average remaining contractual life			8.14				7.12				8.61				9.11
Number of excercisable			12				20				4				—

10.	Income Taxes

			For the Year Ended December 31,
			2004				2003				2002
			(In thousands)
Current:
	Federal		$	54,147			$	33,307			$	14,345
	State and local			12,111				6,258				3,599
	Foreign			3,051				2,359				1,754
Total current				69,309				41,924				19,698
Deferred				10,803				6,837				8,878
Total income tax provision(1)			$	80,112			$	48,761			$	28,576

(1)	Includes amounts associated with discontinued operations

		For the Year Ended
		December 31,
		2004				2003				2002
Expected federal tax rate			35.0	%			35.0	%			35.0	%
State and local taxes, net of federal benefit			3.1				3.0				2.9
Other permanent differences			0.8				1.2				0.5
Foreign taxes			0.3				0.4				0.5
Valuation Allowance			1.2				—				—
Other			—				—				0.4
Total			40.4	%			39.6	%			39.3	%

F-22

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		For the Year Ended
		December 31,
		2004				2003
		(In thousands)
Deferred tax assets — current
Allowance for doubtful accounts		$	37,846			$	42,991
Compensation and benefit related accruals			15,813				10,897
Malpractice insurance			1,082				1,246
Restructuring reserve			1,959				3,319
Patient care reserve			1,595				—
Other accruals, net			944				3,246
Net deferred tax asset — current			59,239				61,699
Deferred tax assets — non current
Expenses not currently deductible for tax			199				1,079
Net operating loss carry forwards			14,289				9,624
Depreciation and amortization			(8,440	)			420
Net deferred tax asset — non current			6,048				11,123
Net deferred tax asset before valuation allowance			65,287				72,822
Valuation allowance			(10,506	)			(4,520	)
Deferred tax asset		$	54,781			$	68,302

2005		$	97
2006			—
2007			—
2008			—
Thereafter through 2019		$	2,716

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11.	Retirement Savings Plan

12.	Segment Information

		Year Ended December 31, 2004
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(In thousands)
Net revenue		$	1,089,538			$	558,097			$	13,156			$	1,660,791
Adjusted EBITDA			236,181				81,616				(46,287	)			271,510
Total assets			520,572				318,180				274,969				1,113,721
Capital expenditures			23,320				5,885				3,421				32,626

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		Year Ended December 31, 2003
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(In thousands)
Net revenue		$	849,260			$	529,262			$	13,844			$	1,392,366
Adjusted EBITDA			145,650				74,988				(36,185	)			184,453
Total assets			512,956				365,534				200,508				1,078,998
Capital expenditures			22,559				8,514				4,779				35,852

		Year Ended December 31, 2002
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(In thousands)
Net revenue		$	625,238			$	485,101			$	16,220			$	1,126,559
Adjusted EBITDA			70,891				81,136				(24,748	)			127,279
Total assets			332,737				326,763				79,559				739,059
Capital expenditures			28,791				12,637				1,755				43,183

		For the Year Ended December 31,
		2004				2003				2002
		(In thousands)
Net income		$	118,184			$	74,471			$	44,231
Income tax expense			79,602				48,597				28,576
Minority interest			3,448				2,402				2,022
Interest expense			33,634				26,340				27,210
Interest income			(2,583	)			(936	)			(596	)
Equity in earnings from joint ventures			—				(824	)			—
Income from discontinued operations			(752	)			(251	)			—
Depreciation and amortization			39,977				34,654				25,836
Adjusted EBITDA		$	271,510			$	184,453			$	127,279

13.	Net Income per Share

			December 31,
			2004				2003				2002
			(In thousands except per share
			amounts)
Numerator:
	Income from continuing operations		$	117,432			$	74,220			$	44,231
	Income from discontinued operations, net of tax			752				251				—
	Net income		$	118,184			$	74,471			$	44,231

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			December 31,
			2004				2003				2002
			(In thousands except per share
			amounts)
Denominator:
	Denominator for basic earnings per share-weighted average shares			102,165				97,452				92,928
	Effect of dilutive securities:
	a) Stock options			4,364				5,853				3,178
	b) Warrants			—				686				2,150
Denominator for diluted earnings per share-adjusted weighted average shares				106,529				103,991				98,256
Basic income per common share:
	Income from continuing operations		$	1.15			$	0.76			$	0.48
	Income from discontinued operations			.01				N/M				—
	Net income per common share		$	1.16			$	0.76			$	0.48
Diluted income per common share:
	Income from continuing operations		$	1.10			$	0.72			$	0.45
	Income from discontinued operations			.01				N/M				—
	Net income per common share		$	1.11			$	0.72			$	0.45

		2004				2003				2002
Stock options			4,512				2,336				7,398

14.	Fair Value of Financial Instruments

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15.	Related Party Transactions

2005		$	1,731
2006			1,795
2007			1,783
2008			1,823
2009			1,660
Thereafter			9,226
		$	18,018

16.	Commitments and Contingencies

	Leases

2005		$	73,039
2006			56,938
2007			41,229
2008			25,072
2009			12,742
Thereafter			16,866
		$	225,886

F-27

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	Patient Care Obligation

	Other

	Litigation

F-28

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F-29

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17.	Supplemental Disclosures of Cash Flow Information

Description of Transaction		2004				2003				2002
		(In thousands)
Notes issued with acquisitions (Note 2)		$	214			$	316			$	1,864
Liabilities assumed with acquisitions (Note 2)			573				36,513				345
Tax benefit of stock option exercises		$	13,044			$	25,059			$	2,239

18.	Subsequent Events

	Bond tender offer

	Debt Offering

F-30

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	Acquisition

19.	Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries

Caritas Rehab Services, LLC Canadian Back Institute Limited and its   subsidiaries Cupertino Medical Center, P.C. Elizabethtown Physical Therapy Jeff Ayres, PT Therapy Center, Inc. Jeffersontown Physical Therapy, LLC Kentucky Orthopedic Rehabilitation, LLC Kessler Core PT, OT and Speech Therapy at   New York, LLC Langhorne, P.C. Lester OSM, P.C. Louisville Physical Therapy, P.S.C. Medical Information Management Systems, LLC Metropolitan West Physical Therapy and   Sports Medicine Services Inc. Metro Therapy, Inc. MKJ Physical Therapy, Inc. New York Physician Services, P.C.		North Andover Physical Therapy, Inc. OccuMed East, P.C. Ohio Occupational Health, P.C., Inc. Partners in Physical Therapy, PLLC Philadelphia Occupational Health, P.C. Rehabilitation Physician Services, P.C Robinson & Associates, P.C. Select Specialty Hospital – Central   Pennsylvania, L.P. Select Specialty Hospital – Houston, L.P. Select Specialty Hospital – Mississippi   Gulf Coast, Inc. Sprint Physical Therapy, P.C. Therex, P.C. TJ Corporation I, L.L.C. U.S. Regional Occupational Health II, P.C. U.S. Regional Occupational Health II of   New Jersey, P.C.

F-31

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			Select Medical
			Corporation
			(Parent Company				Subsidiary				Non-Guarantor
			Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
ASSETS
Current Assets:
	Cash and cash equivalents		$	161,704			$	74,641			$	11,131			$	—			$	247,476
	Restricted cash			7,031				—				—				—				7,031
	Accounts receivable, net			29				201,399				15,424				—				216,852
	Current deferred tax asset			8,962				46,172				4,105				—				59,239
	Other current assets			2,896				11,222				4,619				—				18,737
Total Current Assets				180,622				333,434				35,279				—				549,335
Property and equipment, net				8,038				139,610				17,688				—				165,336
Investment in affiliates				564,136				59,403				—				(623,539	)(a)			—
Goodwill				5,853				244,927				51,289				—				302,069
Trademark				—				58,875				—				—				58,875
Other intangibles				—				19,429				—				—				19,429
Other assets				12,439				5,003				1,235				—				18,677
Total Assets			$	771,088			$	860,681			$	105,491			$	(623,539	)		$	1,113,721
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current portion of long-term debt and notes payable		$	1,380			$	1,674			$	503			$	—			$	3,557
	Accounts payable			1,646				39,643				7,343				—				48,632
	Intercompany accounts			139,392				(140,606	)			1,214				—				—
	Accrued payroll			493				55,956				105				—				56,554
	Accrued vacation			2,528				18,957				1,617				—				23,102
	Accrued medical malpractice			14,627				—				—				—				14,627
	Accrued restructuring			—				4,924				—				—				4,924
	Accrued other			12,472				50,570				3,442				—				66,484
	Income taxes payable			(27,767	)			43,561				(11,320	)			—				4,474
	Due to third party payors			6,068				8,372				(1,174	)			—				13,266
Total Current Liabilities				150,839				83,051				1,730				—				235,620
Long-term debt, net of current portion				105,058				229,485				16,490				—				351,033
Noncurrent deferred tax liability				(752	)			4,395				815				—				4,458
Total liabilities				255,145				316,931				19,035				—				591,111
Commitments and Contingencies
Minority interest in consolidated subsidiary companies				—				414				6,253				—				6,667
Stockholders’ Equity:
	Common stock			1,020				—				—				—				1,020
	Capital in excess of par			275,281				—				—				—				275,281
	Retained earnings			230,535				218,749				49,351				(268,100	)(b)			230,535
	Subsidiary investment			—				324,587				30,852				(355,439	)(a)			—
	Accumulated other comprehensive loss			9,107				—				—				—				9,107
Total Stockholders’ Equity				515,943				543,336				80,203				(623,539	)			515,943
Total Liabilities and Stockholders’ Equity			$	771,088			$	860,681			$	105,491			$	(623,539	)		$	1,113,721

(a)	Elimination of investments in subsidiaries.

(b)		Elimination of investments in subsidiaries’ earnings.

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			For the Twelve Months Ended December 31, 2004
			Select Medical								Non-
			Corporation (Parent				Subsidiary				Guarantor
			Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
Net operating revenues			$	134			$	1,424,087			$	236,570			$	—			$	1,660,791
Costs and expenses:
	Cost of services			—				1,100,646				194,257				—				1,294,903
	General and administrative			44,494				1,362				—				—				45,856
	Bad debt expense			—				47,841				681				—				48,522
	Depreciation and amortization			2,349				32,937				4,691				—				39,977
Total costs and expenses				46,843				1,182,786				199,629				—				1,429,258
Income (loss) from operations				(46,709	)			241,301				36,941				—				231,533
Other income and expense:
Intercompany interest and royalty fees				26,736				(26,652	)			(84	)			—				—
Intercompany management fees				(100,099	)			96,659				3,440				—				—
Interest income				(1,367	)			(1,048	)			(168	)			—				(2,583	)
Interest expense				10,858				20,043				2,733				—				33,634
Income before minority interests and income taxes				17,163				152,299				31,020				—				200,482
Minority interest in consolidated subsidiary companies				—				249				3,199				—				3,448
Income from continuing operations before income taxes				17,163				152,050				27,821				—				197,034
Income tax expense				12,208				62,340				5,054								79,602
Income from continuing operations				4,955				89,710				22,767				—				117,432
Income from discontinued operations, net of tax				—				752				—				—				752
Equity in earnings of subsidiaries				113,229				17,965				—				(131,194	)(a)			—
Net income			$	118,184			$	108,427			$	22,767			$	(131,194	)		$	118,184

(a)	Elimination of equity in net income (loss) from consolidated subsidiaries.

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				For the Twelve Months Ended December 31, 2004
				Select Medical
				Corporation								Non-
				(Parent Company				Subsidiary				Guarantor
				Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(Dollars in thousands)
Operating activities
Net income				$	118,184			$	108,427			$	22,767			$	(131,194	)(a)		$	118,184
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				2,349				32,872				4,691				—				39,912
	Provision for bad debts				—				48,305				681				—				48,986
	Deferred income taxes				(1,164	)			11,483				484				—				10,803
	Minority interests				—				249				3,199				—				3,448
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			(113,229	)			(17,965	)			—				131,194	(a)			—
		Intercompany			61,633				(52,738	)			(8,895	)			—				—
		Accounts receivable			3				(33,463	)			10,596				—				(22,864	)
		Other current assets			1,277				2,726				4,591				—				8,594
		Other assets			1,286				1,783				(291	)			—				2,778
		Accounts payable			(6,813	)			(7,585	)			418				—				(13,980	)
		Due to third-party payors			—				(53,475	)			1,179				—				(52,296	)
		Accrued expenses			(575	)			3,346				298				—				3,069
		Income taxes			35,034				(843	)			(6,549	)			—				27,642
Net cash provided by operating activities					97,985				43,122				33,169				—				174,276
Investing activities
Purchases of property and equipment					(3,194	)			(26,181	)			(3,251	)			—				(32,626	)
Proceeds from sale of discontinued operations					—				11,554				—				—				11,554
Earnout payments					—				(2,983	)			—				—				(2,983	)
Proceeds from sale of membership interests					—				4,064				—				—				4,064
Acquisition of businesses, net of cash acquired					—				—				(1,937	)			—				(1,937	)
Net cash used in investing activities					(3,194	)			(13,546	)			(5,188	)			—				(21,928	)
Financing activities
Intercompany debt reallocation					21,415				(12,197	)			(9,218	)			—				—
Net repayments on credit facility debt					—				—				(8,483	)			—				(8,483	)
Principal payments on seller and other debt					—				(3,616	)			(288	)			—				(3,904	)
Restricted cash					(7,031	)			—				—				—				(7,031	)
Repurchases of common stock					(48,058	)			—				—				—				(48,058	)
Proceeds from issuance of common stock					18,623				—				—				—				18,623
Payment of common stock dividends					(9,209	)			—				—				—				(9,209	)
Repayment of bank overdrafts					(11,427	)			—				—				—				(11,427	)
Distributions to minority interests					—				—				(1,501	)			—				(1,501	)
Net cash used in financing activities					(35,687	)			(15,813	)			(19,490	)			—				(70,990	)
Effect of exchange rate changes on cash and cash equivalents					611				—				—				—				611
Net increase in cash and cash equivalents					59,715				13,763				8,491				—				81,969
Cash and cash equivalents at beginning of period					101,989				60,878				2,640				—				165,507
Cash and cash equivalents at end of period				$	161,704			$	74,641			$	11,131			$	—			$	247,476

(a)	Elimination of equity in earnings of subsidiary.

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			December 31, 2003
			Select Medical
			Corporation								Non-
			(Parent Company				Subsidiary				Guarantor
			Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(In thousands)
ASSETS
Current Assets:
	Cash and cash equivalents		$	101,989			$	60,878			$	2,640			$	—			$	165,507
	Accounts receivable, net			32				203,438				26,701				—				230,171
	Current deferred tax asset			12,900				46,783				2,016				—				61,699
	Other current assets			4,173				14,306				9,210				—				27,689
Total Current Assets				119,094				325,405				40,567				—				485,066
Property and equipment, net				8,232				148,336				18,334				—				174,902
Investment in affiliates				393,552				59,582				—				(453,134	)(a)			—
Goodwill				5,854				252,379				48,018				—				306,251
Trademark				—				58,875				—				—				58,875
Other intangibles				—				22,876				—				—				22,876
Non-current deferred tax asset				1,951				5,634				(982	)			—				6,603
Other assets				13,725				9,756				944				—				24,425
Total Assets			$	542,408			$	882,843			$	106,881			$	(453,134	)		$	1,078,998
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Bank overdrafts		$	11,427			$	—			$	—			$	—			$	11,427
	Current portion of long-term debt and notes payable			460				9,264				543				—				10,267
	Accounts payable			8,459				44,185				6,925				—				59,569
	Intercompany accounts			(14,028	)			13,725				303				—				—
	Accrued payroll			1,112				52,009				139				—				53,260
	Accrued vacation			2,277				17,701				1,551				—				21,529
	Accrued medical malpractice			—				12,777				—				—				12,777
	Accrued restructuring			—				10,375				—				—				10,375
	Accrued other			27,306				35,049				3,176				—				65,531
	Due to third party payors			1,657				52,647				(2,353	)			—				51,951
Total Current Liabilities				38,670				247,732				10,284				—				296,686
Long-term debt, net of current portion				84,563				237,185				35,488				—				357,236
Total liabilities				123,233				484,917				45,772				—				653,922
Commitments and Contingencies
Minority interest in consolidated subsidiary companies				—				362				5,539				—				5,901
Stockholders’ Equity:
	Common stock			1,022				—				—				—				1,022
	Capital in excess of par			291,519				—				—				—				291,519
	Retained earnings			121,560				110,322				26,584				(136,906	)(b)			121,560
	Subsidiary investment			—				287,242				28,986				(316,228	)(a)			—
	Accumulated other comprehensive income			5,074				—				—				—				5,074
Total Stockholders’ Equity				419,175				397,564				55,570				(453,134	)			419,175
Total Liabilities and Stockholders’ Equity			$	542,408			$	882,843			$	106,881			$	(453,134	)		$	1,078,998

(a)	Elimination of investments in subsidiaries.
(b)	Elimination of investments in subsidiaries’ earnings.

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			For the Year Ended December 31, 2003
			Select Medical
			Corporation								Non-
			(Parent Company				Subsidiary				Guarantor
			Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(In thousands)
Net operating revenues			$	8,689			$	1,171,602			$	212,075			$	—			$	1,392,366
Costs and expenses:
	Cost of services			—				931,085				181,091				—				1,112,176
	General and administrative			40,525				3,892				—				—				44,417
	Bad debt expense			—				40,555				10,765				—				51,320
	Depreciation and amortization			2,354				28,108				4,192				—				34,654
Total costs and expenses				42,879				1,003,640				196,048				—				1,242,567
Income (loss) from operations				(34,190	)			167,962				16,027				—				149,799
Other income and expense:
Intercompany interest and royalty fees				25,015				(25,033	)			18								—
Intercompany management fees				(125,527	)			122,929				2,598								—
Equity in earnings from joint ventures				—				(824	)			—								(824	)
Interest income				(554	)			(379	)			(3	)			—				(936	)
Interest expense				7,861				14,286				4,193				—				26,340
Income from continuing operations before minority interests and income taxes				59,015				56,983				9,221				—				125,219
Minority interest in consolidated subsidiary companies				—				231				2,171				—				2,402
Income from continuing operations before income taxes				59,015				56,752				7,050				—				122,817
Income tax expense				24,962				20,145				3,490				—				48,597
Income from continuing operations				34,053				36,607				3,560				—				74,220
Income from discontinued operations, net of tax				—				251				—				—				251
Equity in earnings of subsidiaries				40,418				(53	)			—				(40,365	)(a)			—
Net income			$	74,471			$	36,805			$	3,560			$	(40,365	)		$	74,471

(a)	Elimination of equity in net income (loss) from consolidated subsidiaries.

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				For the Year Ended December 31, 2003
				Select Medical
				Corporation								Non-
				(Parent Company				Subsidiary				Guarantor
				Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(In thousands)
Operating activities
Net income				$	74,471			$	36,805			$	3,560			$	(40,365	)(a)		$	74,471
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				2,354				28,411				4,192				—				34,957
	Provision for bad debts				—				40,663				10,765				—				51,428
	Deferred taxes				(2	)			6,878				(39	)			—				6,837
	Minority interests				—				231				2,171				—				2,402
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			(40,418	)			53				—				40,365	(a)			—
		Intercompany			(12,056	)			16,424				(4,368	)			—				—
		Accounts receivable			(317	)			9,712				(557	)			—				8,838
		Other current assets			(6,301	)			463				791				—				(5,047	)
		Other assets			(1,790	)			6,591				97				—				4,898
		Accounts payable			5,922				10,341				1,236				—				17,499
		Due to third-party payors			13,293				5,797				2,138				—				21,228
		Accrued expenses			9,339				7,232				2,766				—				19,337
		Income taxes			12,606				—				(3,206	)			—				9,400
Net cash provided by operating activities					57,101				169,601				19,546				—				246,248
Investing activities
Purchases of property and equipment					(4,690	)			(27,353	)			(3,809	)			—				(35,852	)
Proceeds from disposal of assets					2,400				195				—				—				2,595
Earnout payments					—				(464	)			—				—				(464	)
Acquisition of businesses, net of cash acquired					—				(227,541	)			(190	)			—				(227,731	)
Net cash used in investing activities					(2,290	)			(255,163	)			(3,999	)			—				(261,452	)
Financing activities
Intercompany debt reallocation					(111,696	)			121,961				(10,265	)			—				—
Issuance of 7.5% Senior Subordinated Notes					175,000				—				—				—				175,000
Payment of deferred financing costs					(5,922	)			—				—				—				(5,922	)
Net repayments on credit facility debt					(61,657	)			—				(3,970	)			—				(65,627	)
Principal payments on seller and other debt					(110	)			(3,543	)			(68	)			—				(3,721	)
Proceeds from issuance of common stock					28,613				—				—				—				28,613
Payment of common stock dividends					(3,066	)			—				—				—				(3,066	)
Repayment of bank overdrafts					307				—				—				—				307
Distributions to minority interests					—				—				(1,266	)			—				(1,266	)
Net cash provided by (used in) financing activities					21,469				118,418				(15,569	)			—				124,318
Effect of exchange rate changes on cash and cash equivalents					331				—				—				—				331
Net increase (decrease) in cash and cash equivalents					76,611				32,856				(22	)			—				109,445
Cash and cash equivalents at beginning of period					25,378				28,022				2,662				—				56,062
Cash and cash equivalents at end of period				$	101,989			$	60,878			$	2,640			$	—			$	165,507

(a)	Elimination of equity in earnings of subsidiary.

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			For the Year Ended December 31, 2002
			Select Medical
			Corporation								Non-
			(Parent Company				Subsidiary				Guarantor
			Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(In thousands)
Net operating revenues			$	14,902			$	918,376			$	193,281			$	—			$	1,126,559
Costs and expenses:
	Cost of services			—				761,361				161,192				—				922,553
	General and administrative			39,409				—				—				—				39,409
	Bad debt expense			—				31,946				5,372				—				37,318
	Depreciation and amortization			1,709				18,805				5,322				—				25,836
Total costs and expenses				41,118				812,112				171,886				—				1,025,116
Income (loss) from operations				(26,216	)			106,264				21,395				—				101,443
Other income and expense:
Intercompany interest and royalty fees				22,219				(22,697	)			478				—				—
Intercompany management fees				(52,395	)			49,441				2,954				—				—
Interest income				(445	)			(150	)			(1	)			—				(596	)
Interest expense				7,982				14,477				4,751				—				27,210
Income (loss) before minority interests and income taxes				(3,577	)			65,193				13,213				—				74,829
Minority interest in consolidated subsidiary companies				—				74				1,948				—				2,022
Income (loss) before income taxes				(3,577	)			65,119				11,265				—				72,807
Income tax expense				445				25,628				2,503				—				28,576
Equity in earnings of subsidiaries				48,253				6,239				—				(54,492	)(a)			—
Net income			$	44,231			$	45,730			$	8,762			$	(54,492	)		$	44,231

(a)	Elimination of equity in net income from consolidated subsidiaries.

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				For the Year Ended December 31, 2002
				Select Medical
				Corporation								Non-
				(Parent Company				Subsidiary				Guarantor
				Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(In thousands)
Operating activities
Net income				$	44,231			$	45,730			$	8,762			$	(54,492	)(a)		$	44,231
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				1,709				18,805				5,322				—				25,836
	Provision for bad debts				—				31,946				5,372				—				37,318
	Deferred taxes				(890	)			9,966				(198	)			—				8,878
	Minority interests				—				74				1,948				—				2,022
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			(48,253	)			(6,239	)			—				54,492	(a)			—
		Intercompany			(34,226	)			35,562				(1,336	)			—				—
		Accounts receivable			(206	)			(44,503	)			(9,184	)			—				(53,893	)
		Other current assets			(924	)			916				(379	)			—				(387	)
		Other assets			559				1,318				794				—				2,671
		Accounts payable			(553	)			3,321				1,119				—				3,887
		Due to third-party payors			17,815				(3,373	)			(1,463	)			—				12,979
		Accrued expenses			5,810				17,375				(729	)			—				22,456
		Income taxes			16,250				—				(1,436	)			—				14,814
Net cash provided by operating activities					1,322				110,898				8,592				—				120,812
Investing activities
Purchases of property and equipment					(1,722	)			(35,643	)			(5,818	)			—				(43,183	)
Earnout payments					—				(928	)			—				—				(928	)
Acquisition of businesses, net of cash acquired					—				(6,573	)			(3,364	)			—				(9,937	)
Net cash used in investing activities					(1,722	)			(43,144	)			(9,182	)			—				(54,048	)
Financing activities
Intercompany debt reallocation					36,312				(42,134	)			5,822				—				—
Net repayments on credit facility debt					(19,703	)			—				(2,969	)			—				(22,672	)
Principal payments on seller and other debt					(480	)			(5,684	)			(9	)			—				(6,173	)
Proceeds from issuance of common stock					4,101				—				—				—				4,101
Proceeds from bank overdrafts					5,038				—				—				—				5,038
Payment of deferred financing costs					(67	)			—				—				—				(67	)
Distributions to minority interests					—				—				(1,650	)			—				(1,650	)
Net cash provided by (used in) financing activities					25,201				(47,818	)			1,194				—				(21,423	)
Effect of exchange rate changes on cash and cash equivalents					18				—				—				—				18
Net increase in cash and cash equivalents					24,819				19,936				604				—				45,359
Cash and cash equivalents at beginning of period					559				8,086				2,058				—				10,703
Cash and cash equivalents at end of period				$	25,378			$	28,022			$	2,662			$	—			$	56,062

(a)	Elimination of equity in earnings of subsidiary.

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20	Selected Quarterly Financial Data (Unaudited)

				First				Second				Third				Fourth
				Quarter				Quarter				Quarter				Quarter
				(In thousands, except per share amounts)
Year ended December 31, 2004
	Net revenues			$	418,469			$	415,237			$	407,570			$	419,515
	Income from operations				59,275				59,111				54,963				58,184
	Income from continuing operations				29,423				30,462				27,671				29,876
	Income (loss) from discontinued operations, net of tax				147				509				146				(50	)
	Net income			$	29,570			$	30,971			$	27,817			$	29,826
Net income per common share:
	Basic:
		Income per common share from continuing operations		$	0.29			$	0.30			$	0.27			$	0.29
		Income per common share from discontinued operations			N/M				0.01				N/M				N/M
		Net income per common share		$	0.29			$	0.31			$	0.27			$	0.29
	Diluted:
		Income per common share from continuing operations		$	0.27			$	0.29			$	0.26			$	0.28
		Income per common share from discontinued operations			N/M				0.01				N/M				N/M
		Net income per common share		$	0.27			$	0.30			$	0.26			$	0.28

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				First Quarter				Second Quarter				Third Quarter				Fourth Quarter
				(In thousands, except per share amounts)
Year ended December 31, 2003
	Net revenues			$	312,307			$	326,218			$	352,402			$	401,439
	Income from operations				30,838				36,847				36,905				45,209
	Income from continuing operations				14,454				18,631				18,595				22,540
	Income from discontinued operations, net of tax				—				—				18				233
	Net income			$	14,454			$	18,631			$	18,613			$	22,773
Net income per common share:
	Basic:
		Income per common share from continuing operations		$	0.15			$	0.20			$	0.19			$	0.22
		Income per common share from discontinued operations			—				—				N/M				N/M
		Net income per common share		$	0.15			$	0.20			$	0.19			$	0.22
	Diluted:
		Income per common share from continuing operations		$	0.15			$	0.18			$	0.18			$	0.21
		Income per common share from discontinued operations			—				—				N/M				N/M
		Net income per common share		$	0.15			$	0.18			$	0.18			$	0.21

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			Predecessor					Successor
			December 31,					March 31,
			2004					2005
ASSETS
Current Assets:
	Cash and cash equivalents		$	247,476				$	19,343
	Restricted cash			7,031					6,935
	Accounts receivable, net of allowance for doubtful accounts of $94,622 and $107,375 in 2004 and 2005, respectively			216,852					312,155
	Current deferred tax asset			59,239					70,033
	Other current assets			18,737					21,560
Total Current Assets				549,335					430,026
Advances to Holdings				—					10,491
Property and equipment, net				165,336					178,899
Goodwill				302,069					1,341,807
Other identifiable intangibles				78,304					79,954
Non-current deferred tax asset				—					61,334
Other assets				18,677					66,913
Total Assets			$	1,113,721				$	2,169,424
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current portion of long-term debt and notes payable		$	3,557				$	8,978
	Accounts payable			48,632					63,778
	Accrued payroll			56,554					56,144
	Accrued vacation			23,102					26,275
	Accrued professional liability			14,627					15,433
	Accrued restructuring			4,924					4,067
	Accrued other			66,484					78,935
	Income taxes payable			4,474					4,727
	Due to third party payors			13,266					13,724
Total Current Liabilities				235,620					272,061
Long-term debt, net of current portion				351,033					1,441,119
Non-current deferred tax liability				4,458					—
Total Liabilities				591,111					1,713,180
Commitments and Contingencies
Minority interest in consolidated subsidiary companies				6,667					6,660
Stockholders’ Equity:
	Common stock, $0.01 par value, 200,000,000 shares authorized, 101,954,000 issued and outstanding (Predecessor) and $0.01 par value, 100 shares issued and outstanding (Successor)			1,020					—
	Capital in excess of par			275,281					435,493
	Retained earnings			230,535					13,073
	Accumulated other comprehensive income			9,107					1,018
Total Stockholders’ Equity				515,943					449,584
Total Liabilities and Stockholders’ Equity			$	1,113,721				$	2,169,424

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			Predecessor									Successor
							Period from					Period from
			Quarter				January 1					February 25
			Ended				through					through
			March 31,				February 24,					March 31,
			2004				2005					2005
Net operating revenues			$	418,469			$	287,787				$	195,112
Costs and expenses:
	Cost of services			325,745				225,428					145,608
	Stock compensation associated with merger			—				142,213					4,326
	General and administrative			11,613				7,484					4,356
	Bad debt expense			11,639				6,661					4,609
	Depreciation and amortization			10,197				6,177					4,248
Total costs and expenses				359,194				387,963					163,147
Income (loss) from operations				59,275				(100,176	)				31,965
Other income and expense:
Loss on early retirement of debt				—				42,736					—
Merger related charges				—				12,025					—
Interest income				(365	)			(523	)				(77	)
Interest expense				9,418				4,734					9,636
Income (loss) from continuing operations before minority interests and income taxes				50,222				(159,148	)				22,406
Minority interest in consolidated subsidiary companies				1,006				469					462
Income (loss) from continuing operations before income taxes				49,216				(159,617	)				21,944
Income tax expense (benefit)				19,793				(59,366	)				8,871
Income (loss) from continuing operations				29,423				(100,251	)				13,073
Income from discontinued operations, net of tax				147				—					—
Net income (loss)			$	29,570			$	(100,251	)			$	13,073

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																			Accumulated
			Common				Common				Capital in								Other
			Stock				Stock Par				Excess of				Retained				Comprehensive				Comprehensive
			Issued				Value				Par				Earnings				Income				Income
Predecessor:
Balance at December 31, 2004				101,954			$	1,020			$	275,281			$	230,535			$	9,107
	Net loss															(100,251	)						$	(100,251	)
	Other comprehensive loss																			(1,019	)			(1,019	)
	Total comprehensive loss																						$	(101,270	)
	Issuance of common stock			267				3				1,020
	Repurchase of non-employee options											(1,617	)
	Tax benefit of stock option exercises											1,507
Balance at February 24, 2005				102,221			$	1,023			$	276,191			$	130,284			$	8,088

																			Accumulated
			Common				Common				Capital in								Other
			Stock				Stock Par				Excess of				Retained				Comprehensive				Comprehensive
			Issued				Value				Par				Earnings				Income				Income
Successor:
Capitalization of Successor company at February 25, 2005											$	431,167
	Net income														$	13,073							$	13,073
	Other comprehensive income																		$	1,018				1,018
	Total comprehensive income																						$	14,091
	Contribution related to restricted stock award issuances by Holdings											3,944
	Contribution related to warrant issuance by Holdings											382
Balance at March 31, 2005				—			$	—			$	435,493			$	13,073			$	1,018

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				Predecessor									Successor
								Period from					Period from
				Quarter				January 1					February 25
				Ended				through					through
				March 31,				February 24,					March 31,
				2004				2005					2005
Operating activities
Net income (loss)				$	29,570			$	(100,251	)			$	13,073
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				10,429				6,177					4,248
	Provision for bad debts				11,741				6,661					4,609
	Loss on early retirement of debt				—				7,977					—
	Non cash compensation expense				—				—					4,326
	Minority interests				1,006				469					462
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Accounts receivable			(1,147	)			(48,976	)				(35,716	)
		Other current assets			215				1,816					(590	)
		Other assets			1,255				(622	)				(1,250	)
		Accounts payable			(11,042	)			5,250					3,769
		Due to third-party payors			19,523				667					(209	)
		Accrued expenses			(3,756	)			199,909					(191,047	)
		Income taxes			18,735				(60,021	)				6,354
Net cash provided by (used in) operating activities					76,529				19,056					(191,971	)
Investing activities
Purchases of property and equipment					(7,762	)			(2,586	)				(1,112	)
Earnout payments					(2,977	)			—					—
Acquisition of businesses, net of cash acquired					(438	)			(108,279	)				(2,215	)
Net cash used in investing activities					(11,177	)			(110,865	)				(3,327	)
Financing activities
Equity investment by Holdings					—				—					720,000
Proceeds from credit facility					—				—					780,000
Proceeds from senior subordinated notes					—				—					660,000
Repayment of senior subordinated notes					—				—					(344,250	)
Deferred financing costs					—				—					(57,198	)
Costs associated with equity investment of Holdings					—				—					(8,686	)
Net repayments on credit facility debt					(1,212	)			—					—
Principal payments on seller and other debt					(1,635	)			(528	)				(2,578	)
Repurchases of common stock and options					(19,852	)			—					(1,687,994	)
Proceeds from issuance of common stock					9,610				1,023					—
Payment of common stock dividends					(3,113	)			—					—
Repayment of bank overdrafts					(3,569	)			—					—
Restricted cash					—				108					(12	)
Distributions to minority interests					(271	)			(401	)				(466	)
Net cash provided by (used in) financing activities					(20,042	)			202					58,816
Effect of exchange rate changes on cash and cash equivalents					(33	)			(149	)				105
Net increase (decrease) in cash and cash equivalents					45,277				(91,756	)				(136,377	)
Cash and cash equivalents at beginning of period					165,507				247,476					155,720
Cash and cash equivalents at end of period				$	210,784			$	155,720				$	19,343
Supplemental Cash Flow Information:
Cash paid for interest				$	7,369			$	10,630				$	380
Cash paid for income taxes				$	2,104			$	1,502				$	2,305

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2.	Merger and Related Transactions

	•	a cash investment in common and preferred equity in Holdings by Welsh, Carson, Anderson & Stowe IX, L.P. and other equity investors of $570.0 million, which funds were contributed to the Company;

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	•	a senior subordinated notes offering by Holdings of $150.0 million, which funds were contributed to the Company;
	•	borrowing by the Company of $580.0 million in term loans and $200.0 million on the revolving loan facility under its new senior secured credit facility;
	•	the issuance by the Company of $660.0 million in aggregate principle amount of 75/8% senior subordinated notes; and
	•	$131.1 million of cash on hand at the closing date.

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Cash contributions from Holdings		$	720,000
Exchange of shares of predecessor company for shares of Holdings (at $18.00 per share)			151,992
Aggregate equity contribution			871,992
Continuing shareholders’ basis adjustment			(440,825	)
Equity contribution, net			431,167
Proceeds from borrowings			1,440,000
Purchase price allocated		$	1,871,167
Fair value of net tangible assets acquired:
Cash		$	34,484
Accounts receivable			280,891
Other current assets			90,813
Property and equipment			181,108
Non-current deferred tax asset			68,508
Other assets			21,655
Current liabilities			(267,832	)
Long-term debt			(7,052	)
Minority interest in consolidated subsidiary companies			(6,661	)
Net tangible assets acquired			395,914
Capitalized debt issuance costs			55,392
Intangible assets acquired			80,504
Goodwill			1,339,357
		$	1,871,167

		For the Three Months					For the Three Months
		Ended March 31,					Ended March 31,
		2004					2005
Net revenue		$	418,469				$	482,899
Net income (loss)			18,981					(94,365	)

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3.	Accounting Policies

	Use of Estimates

	Recent Accounting Pronouncements

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4.	Stock Option Plans

		2005				2006				2007				2008				2009				Thereafter
Compensation expense		$	6,095			$	2,868			$	2,868			$	1,427			$	1,139			$	190

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		Predecessor
						Period from
		For the Three				January 1
		Months Ended				through
		March 31,				February 24,
		2004				2005
		(Dollars in thousands)
Net income (loss) — as reported		$	29,570			$	(100,251	)
Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects			6,529				1,760
Net income (loss) — pro forma		$	23,041			$	(102,011	)
Weighted average grant-date fair value			4.14				4.48

5.	Accumulated Other Comprehensive Income (Loss)

		Predecessor									Successor
						Period from					Period from
		For the Three				January 1					February 25
		Months Ended				through					through
		March 31,				February 24,					March 31,
		2004				2005					2005
		(Dollars in thousands)
Net income (loss)		$	29,570			$	(100,251	)			$	13,073
Changes in foreign currency translation			(1,460	)			(1,019	)				1,018
Unrealized loss on available for sale securities			(4	)			—					—
Total comprehensive income (loss)		$	28,106			$	(101,270	)			$	14,091

6.	Intangible Assets

Predecessor

Successor

Period from

Period from

For the Three

January 1

February 25

Months Ended

through

through

March 31,

February 24,

March 31,

2004

2005

2005

(Dollars in thousands)

Amortization

$

857

$

576

$

904

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			Successor
			As of March 31, 2005
			Gross Carrying				Accumulated
			Amount				Amortization
			(Dollars in thousands)
Amortized intangible assets
Contract therapy relationships			$	32,070			$	(550	)
Non-Compete agreements				20,852				(354	)
	Total		$	52,922			$	(904	)
Unamortized intangible assets
Goodwill			$	1,341,807
Trademarks				21,000
Certificates of need				4,148
Accreditation				2,788
Total			$	1,369,743

7.	Restructuring Charges

		Lease
		Termination
		Costs				Severance				Total
		(Dollars in thousands)
January 1, 2005 (Predecessor)		$	3,225			$	1,699			$	4,924
Amounts paid in 2005			(272	)			(585	)			(857	)
March 31, 2005 (Successor)		$	2,953			$	1,114			$	4,067

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8.	Debt

		March 31,
		2005
Senior credit facility		$	780,000
75/8% Senior subordinated notes			660,000
91/2% Senior subordinated notes			5,750
Seller notes			2,120
Other			2,227
Total debt			1,450,097
Less: current maturities			8,978
Total long-term debt		$	1,441,119

	Senior Secured Credit Facility

	•	a $300.0 million revolving credit facility, $200.0 million of which was drawn at the closing of the Merger and is outstanding as of March 31, 2005 that will terminate in six years including both a letter of credit sub facility and a swing line loan sub facility and;
	•	a $580.0 million term loan facility with a maturity of seven years that was drawn at the closing of the Merger.

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	Senior Subordinated Notes

Year		Redemption Price
2010			103.813	%
2011			102.542	%
2012			101.271	%
2013 and thereafter			100.000	%

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	Registration Rights Agreement

	•	file within 150 days of February 24, 2005 a registration statement with respect to an offer to exchange the Notes for new registered notes of the Company having substantially identical terms. Other than with respect to transfer restrictions and registration rights, referred to as subordinated exchange notes;
	•	cause such registration statement to be declared effective prior to 240 days after February 3, 2005; and
	•	consummate such exchange offer within 270 days after February 3, 2005.

	Non-Tendered 91/2% Senior Subordinated Notes

	Future Principle Obligations

2006		$	5,300
2007			5,984
2008			5,835
2009			11,550
2010 and beyond			1,412,450

9.	Stockholder’s Equity

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10.	Segment Information

		Predecessor
		Three Months Ended March 31, 2004
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(Dollars in thousands)
Net revenue		$	269,379			$	145,664			$	3,426			$	418,469
Adjusted EBITDA			57,907				22,908				(11,343	)			69,472
Total assets			479,559				390,823				246,604				1,116,986
Capital expenditures			3,878				1,746				2,138				7,762

		Predecessor
		Period from January 1 through February 24, 2005
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(Dollars in thousands)
Net revenue		$	202,465			$	83,395			$	1,927			$	287,787
Adjusted EBITDA			44,343				11,531				(7,660	)			48,214
Total assets			782,119				281,505				105,212				1,168,836
Capital expenditures			1,163				408				1,015				2,586

		Successor
		Period from February 25 through March 31, 2005
		Specialty				Outpatient
		Hospitals				Rehabilitation				All Other				Total
		(Dollars in thousands)
Net revenue		$	139,046			$	54,837			$	1,229			$	195,112
Adjusted EBITDA			34,712				10,292				(4,465	)			40,539
Total assets			1,552,031				530,855				86,538				2,169,424
Capital expenditures			780				274				58				1,112

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		Predecessor									Successor
						Period from					Period from
		For the Three				January 1					February 25
		Months Ended				through					through
		March 31,				February 24,					March 31,
		2004				2005					2005
		(Dollars in thousands)
Net income (loss)		$	29,570			$	(100,251	)			$	13,073
Income tax expense (benefit)			19,793				(59,366	)				8,871
Minority interest			1,006				469					462
Interest expense, net			9,053				4,211					9,559
Merger related charges			—				12,025					—
Loss on early retirement of debt			—				42,736					—
Income from discontinued operations			(147	)			—					—
Depreciation and amortization			10,197				6,177					4,248
Stock compensation associated with merger			—				142,213					4,326
Adjusted EBITDA		$	69,472			$	48,214				$	40,539

11.	Acquisition

Cash paid, net of cash acquired		$	105,085
Fair value of net tangible assets acquired:
Accounts receivable			21,846
Other current assets			4,093
Property and equipment			9,308
Other assets			814
Current liabilities			(14,270	)
Long-term Debt			(893	)
Net tangible assets acquired			20,898
Intangible assets acquired			2,000
Goodwill			82,187
		$	105,085

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		For the Three Months
		Ended March 31,
		2004
Net revenue		$	452,381
Net income		$	31,208

12.	Discontinued Operations

		Predecessor
		Three Months
		Ended
		March 31,
		2004
		(Dollars in
		thousands)
Net revenue		$	3,524
Income from discontinued operations before income tax expense		$	245
Income tax expense			98
Income from discontinued operations		$	147

13.	Commitments and Contingencies

	Litigation

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14.	Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries

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Caritas Rehab Services, LLC		North Andover Physical Therapy, Inc.
Canadian Back Institute Limited and its subsidiaries		OccuMed East, P.C.
Cupertino Medical Center, P.C.		Ohio Occupational Health, P.C., Inc.
Elizabethtown Physical Therapy		Partners in Physical Therapy, PLLC
Jeff Ayres, PT Therapy Center, Inc.		Philadelphia Occupational Health, P.C.
Jeffersontown Physical Therapy, LLC		Rehabilitation Physician Services, P.C
Kentucky Orthopedic Rehabilitation, LLC		Robinson & Associates, P.C.
Kessler Core PT, OT and Speech Therapy at		Select Specialty Hospital — Central
New York, LLC		Pennsylvania, L.P.
Langhorne, P.C.		Select Specialty Hospital — Houston, L.P.
Lester OSM, P.C.		Select Specialty Hospital — Mississippi
Louisville Physical Therapy, P.S.C.		Gulf Coast, Inc.
Medical Information Management Systems, LLC		Sprint Physical Therapy, P.C.
Metropolitan West Physical Therapy and		Therex, P.C.
Sports Medicine Services Inc.		TJ Corporation I, L.L.C.
Metro Therapy, Inc.		U.S. Regional Occupational Health II, P.C.
MKJ Physical Therapy, Inc.		U.S. Regional Occupational Health II of
New York Physician Services, P.C.		New Jersey, P.C.

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			March 31, 2005
			Successor
			Select Medical
			Corporation (Parent				Subsidiary				Non-Guarantor
			Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
ASSETS
Current Assets:
	Cash and cash equivalents		$	8,712			$	2,815			$	7,816			$	—			$	19,343
	Restricted cash			6,935				—				—				—				6,935
	Accounts receivable, net			134				295,459				16,562				—				312,155
	Current deferred tax asset			15,430				50,762				3,841				—				70,033
	Other current assets			1,914				15,379				4,267				—				21,560
Total Current Assets				33,125				364,415				32,486				—				430,026
Property and equipment, net				7,687				154,188				17,024				—				178,899
Investment in affiliates				564,136				61,103				—				(625,239	)(a)			—
Advance to Holdings				10,491				—				—								10,491
Goodwill				—				1,341,807				—				—				1,341,807
Other identifiable intangibles				—				79,954				—				—				79,954
Non-current deferred tax asset				55,131				7,701				(1,498	)			—				61,334
Other assets				61,511				4,134				1,268				—				66,913
Total Assets			$	732,081			$	2,013,302			$	49,280			$	(625,239	)		$	2,169,424
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Current portion of long-term debt and notes payable		$	1,380			$	7,118			$	480			$	—			$	8,978
	Accounts payable			2,018				54,781				6,979				—				63,778
	Intercompany accounts			(941,501	)			941,191				310				—				—
	Accrued payroll			986				54,684				474				—				56,144
	Accrued vacation			2,794				21,457				2,024				—				26,275
	Accrued professional liability			15,433				—				—				—				15,433
	Accrued restructuring			—				4,067				—				—				4,067
	Accrued other			12,047				64,526				2,362				—				78,935
	Income taxes payable			(17,099	)			34,566				(12,740	)			—				4,727
	Due to third party payors			6,050				15,094				(7,420	)			—				13,724
Total Current Liabilities				(917,892	)			1,197,484				(7,531	)			—				272,061
Long-term debt, net of current portion				1,200,389				222,895				17,835				—				1,441,119
Noncurrent deferred tax liability				—				—				—				—				—
Total liabilities				282,497				1,420,379				10,304				—				1,713,180
Commitments and Contingencies
Minority interest in consolidated subsidiary companies				—				403				6,257				—				6,660
Stockholders’ Equity:
	Common stock			—				—				—				—				—
	Capital in excess of par			435,493				—				—				—				435,493
	Retained earnings			13,073				15,906				2,158				(18,064	)(b)			13,073
	Subsidiary investment			—				576,614				30,561				(607,175	)(a)			—
	Accumulated other comprehensive income			1,018				—				—				—				1,018
Total Stockholders’ Equity				449,584				592,520				32,719				(625,239	)			449,584
Total Liabilities and Stockholders’ Equity			$	732,081			$	2,013,302			$	49,280			$	(625,239	)		$	2,169,424

(a)	Elimination of investments in subsidiaries.

(b)		Elimination of investments in subsidiaries’ earnings.

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			For the Period January 1 through February 24, 2005
			Predecessor
			Select Medical
			Corporation (Parent				Subsidiary				Non-Guarantor
			Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
Net operating revenues			$	28			$	248,857			$	38,902			$	—			$	287,787
Costs and expenses:
	Cost of services			—				193,323				32,105				—				225,428
	Stock compensation associated with merger			142,213				—				—				—				142,213
	General and administrative			6,931				553				—				—				7,484
	Bad debt expense			—				6,223				438				—				6,661
	Depreciation and amortization			371				5,025				781				—				6,177
Total costs and expenses				149,515				205,124				33,324				—				387,963
Income (loss) from operations				(149,487	)			43,733				5,578				—				(100,176	)
Other income and expense:
Intercompany interest and royalty fees				6,261				(6,221	)			(40	)			—				—
Intercompany management fees				(213,822	)			213,436				386				—				—
Loss on early retirement of debt				42,736				—				—				—				42,736
Merger related charges				12,025				—				—				—				12,025
Interest income				(294	)			(229	)			—				—				(523	)
Interest expense				1,433				2,953				348				—				4,734
Income (loss) before minority interests and income taxes				2,174				(166,206	)			4,884				—				(159,148	)
Minority interest in consolidated subsidiary companies				—				7				462				—				469
Income (loss) before income taxes				2,174				(166,213	)			4,422				—				(159,617	)
Income tax expense (benefit)				130				(59,937	)			441				—				(59,366	)
Equity in earnings of subsidiaries				(102,295	)			3,192				—				99,103	(a)			—
Net income (loss)			$	(100,251	)		$	(103,084	)		$	3,981			$	99,103			$	(100,251	)

(a)	Elimination of equity in net income (loss) from consolidated subsidiaries.

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			For the Period February 25 through March 31, 2005
			Successor
			Select Medical
			Corporation (Parent				Subsidiary				Non-Guarantor
			Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
Net operating revenues			$	3			$	173,417			$	21,692			$	—			$	195,112
Costs and expenses:
	Cost of services			—				128,338				17,270				—				145,608
	Stock compensation associated with merger			4,326				—				—				—				4,326
	General and administrative			4,060				296				—				—				4,356
	Bad debt expense			—				4,443				166				—				4,609
	Depreciation and amortization			213				3,657				378				—				4,248
Total costs and expenses				8,599				136,734				17,814				—				163,147
Income (loss) from operations				(8,596	)			36,683				3,878				—				31,965
Other income and expense:
Intercompany interest and royalty fees				4,259				(4,238	)			(21	)			—				—
Intercompany management fees				(16,522	)			15,967				555				—				—
Interest income				(64	)			(13	)			—				—				(77	)
Interest expense				7,649				1,833				154				—				9,636
Income (loss) before minority interests and income taxes				(3,918	)			23,134				3,190				—				22,406
Minority interest in consolidated subsidiary companies				—				64				398				—				462
Income (loss) before income taxes				(3,918	)			23,070				2,792				—				21,944
Income tax expense (benefit)				(372	)			8,609				634								8,871
Equity in earnings of subsidiaries				16,619				1,445				—				(18,064	)(a)			—
Net income			$	13,073			$	15,906			$	2,158			$	(18,064	)		$	13,073

(a)	Elimination of equity in net income (loss) from consolidated subsidiaries.

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				For the Period January 1 through February 24, 2005
				Predecessor
				Select Medical
				Corporation (Parent				Subsidiary				Non-Guarantor
				Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(Dollars in thousands)
Operating activities
Net income (loss)				$	(100,251	)		$	(103,084	)		$	3,981			$	99,103	(a)		$	(100,251	)
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				371				5,025				781				—				6,177
	Provision for bad debts				—				6,223				438				—				6,661
	Loss on early retirement of debt				7,977				—				—				—				7,977
	Minority interests				—				7				462				—				469
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			102,295				(3,192	)			—				(99,103	)(a)			—
		Intercompany			(9,314	)			12,090				(2,776	)			—				—
		Accounts receivable			(133	)			(47,567	)			(1,276	)			—				(48,976	)
		Other current assets			1,899				(374	)			291				—				1,816
		Other assets			8,375				(9,045	)			48				—				(622	)
		Accounts payable			(296	)			6,128				(582	)			—				5,250
		Due to third-party payors			—				3,953				(3,286	)			—				667
		Accrued expenses			47,203				152,793				(87	)			—				199,909
		Income taxes			(59,190	)			—				(831	)			—				(60,021	)
Net cash provided by (used in) operating activities					(1,064	)			22,957				(2,837	)			—				19,056
Investing activities
Purchases of property and equipment					(305	)			(2,045	)			(236	)			—				(2,586	)
Acquisition of businesses, net of cash acquired					—				(105,092	)			(3,187	)			—				(108,279	)
Net cash used in investing activities					(305	)			(107,137	)			(3,423	)			—				(110,865	)
Financing activities
Intercompany debt reallocation					(2,964	)			63				2,901				—				—
Principal payments on seller and other debt					—				(528	)			—				—				(528	)
Restricted cash					108				—				—				—				108
Proceeds from issuance of common stock					1,023				—				—				—				1,023
Distributions to minority interests					—				—				(401	)			—				(401	)
Net cash provided by (used in) financing activities					(1,833	)			(465	)			2,500				—				202
Effect of exchange rate changes on cash and cash equivalents					(149	)			—				—				—				(149	)
Net decrease in cash and cash equivalents					(3,351	)			(84,645	)			(3,760	)			—				(91,756	)
Cash and cash equivalents at beginning of period					161,704				74,641				11,131				—				247,476
Cash and cash equivalents at end of period				$	158,353			$	(10,004	)		$	7,371			$	—			$	155,720

(a)	Elimination of equity in earnings of subsidiary.

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				For the Period February 25 through March 31, 2005
				Successor
				Select Medical
				Corporation (Parent				Subsidiary				Non-Guarantor
				Company Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(Dollars in thousands)
Operating activities
Net income				$	13,073			$	15,906			$	2,158			$	(18,064	)(a)		$	13,073
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				213				3,657				378				—				4,248
	Provision for bad debts				—				4,443				166				—				4,609
	Non-cash compensation expense				4,326				—				—				—				4,326
	Minority interests				—				64				398				—				462
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			(16,619	)			(1,445	)			—				18,064	(a)			—
		Intercompany			(118,035	)			114,494				3,541				—				—
		Accounts receivable			28				(35,882	)			138				—				(35,716	)
		Other current assets			(917	)			266				61				—				(590	)
		Other assets			(57,447	)			56,278				(81	)			—				(1,250	)
		Accounts payable			668				2,883				218				—				3,769
		Due to third-party payors			—				2,751				(2,960	)			—				(209	)
		Accrued expenses			(46,063	)			(144,767	)			(217	)			—				(191,047	)
		Income taxes			6,935				—				(581	)			—				6,354
Net cash provided by (used in) operating activities					(213,838	)			18,648				3,219				—				(191,971	)
Investing activities
Purchases of property and equipment					(313	)			(230	)			(569	)			—				(1,112	)
Acquisition of businesses, net of cash acquired					—				(2,215	)			—				—				(2,215	)
Net cash used in investing activities					(313	)			(2,445	)			(569	)			—				(3,327	)
Financing activities
Equity investment by Holdings					720,000				—				—				—				720,000
Proceeds from credit facility					780,000				—				—				—				780,000
Proceeds from senior subordinated notes					660,000				—				—				—				660,000
Repayment of senior subordinated notes					(344,250	)			—				—				—				(344,250	)
Deferred financing costs					(57,198	)			—				—				—				(57,198	)
Costs associated with equity investment of Holdings					(8,686	)			—				—				—				(8,686	)
Intercompany debt reallocation					2,545				(845	)			(1,700	)			—				—
Principal payments on seller and other debt					—				(2,539	)			(39	)			—				(2,578	)
Restricted cash					(12	)			—				—				—				(12	)
Repurchases of common stock					(1,687,994	)			—				—				—				(1,687,994	)
Distributions to minority interests					—				—				(466	)			—				(466	)
Net cash provided by (used in) financing activities					64,405				(3,384	)			(2,205	)			—				58,816
Effect of exchange rate changes on cash and cash equivalents					105				—				—				—				105
Net increase (decrease) in cash and cash equivalents					(149,641	)			12,819				445				—				(136,377	)
Cash and cash equivalents at beginning of period					158,353				(10,004	)			7,371				—				155,720
Cash and cash equivalents at end of period				$	8,712			$	2,815			$	7,816			$	—			$	19,343

(a)	Elimination of equity in earnings of subsidiary.

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			For the Three Months Ended March 31, 2004
			Predecessor
			Select Medical
			Corporation								Non-
			(Parent Company				Subsidiary				Guarantor
			Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
			(Dollars in thousands)
Net operating revenues			$	22			$	361,892			$	56,555			$	—			$	418,469
Costs and expenses:
	Cost of services			—				278,812				46,933				—				325,745
	General and administrative			11,073				540				—				—				11,613
	Bad debt expense			—				11,198				441				—				11,639
	Depreciation and amortization			467				8,616				1,114				—				10,197
Total costs and expenses				11,540				299,166				48,488				—				359,194
Income (loss) from operations				(11,518	)			62,726				8,067				—				59,275
Other (income) and expense:
Intercompany interest and royalty fees				7,526				(7,512	)			(14	)			—				—
Intercompany management fees				(21,526	)			20,717				809				—				—
Interest income				(269	)			(96	)			—				—				(365	)
Interest expense				3,307				5,206				905				—				9,418
Income (loss) before minority interests and income taxes				(556	)			44,411				6,367				—				50,222
Minority interest in consolidated subsidiary companies				—				87				919				—				1,006
Income (loss) before income taxes				(556	)			44,324				5,448				—				49,216
Income tax expense				1,119				17,441				1,233				—				19,793
Equity in earnings of subsidiaries				31,245				2,433				—				(33,678	)(a)			—
Income from discontinued operations, net of tax				—				147				—				—				147
Net income			$	29,570			$	29,463			$	4,215			$	(33,678	)		$	29,570

(a)	Elimination of equity in net income (loss) from consolidated subsidiaries.

F-67

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				For the Three Months Ended March 31, 2004
				Predecessor
				Select Medical
				Corporation								Non-
				(Parent Company				Subsidiary				Guarantor
				Only)				Guarantors				Subsidiaries				Eliminations				Consolidated
				(Dollars in thousands)
Operating activities
Net income				$	29,570			$	29,463			$	4,215			$	(33,678	)(a)		$	29,570
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization				467				8,848				1,114				—				10,429
	Provision for bad debts				—				11,300				441				—				11,741
	Minority interests				—				87				919				—				1,006
	Changes in operating assets and liabilities, net of effects from acquisition of businesses:
		Equity in earnings of subsidiaries			(31,245	)			(2,433	)			—				33,678	(a)			—
		Intercompany			64,116				(50,173	)			(13,943	)			—				—
		Accounts receivable			(17	)			(13,060	)			11,930				—				(1,147	)
		Other current assets			(2,954	)			(2,058	)			5,227				—				215
		Other assets			1,201				118				(64	)			—				1,255
		Accounts payable			(7,471	)			(3,420	)			(151	)			—				(11,042	)
		Due to third-party payors			4,183				19,516				(4,176	)			—				19,523
		Accrued expenses			(4,467	)			1,651				(940	)			—				(3,756	)
		Income taxes			18,117				—				618				—				18,735
Net cash provided by (used in) operating activities					71,500				(161	)			5,190				—				76,529
Investing activities
Purchases of property and equipment					(2,075	)			(4,861	)			(826	)			—				(7,762	)
Earnout payments					—				(2,977	)			—				—				(2,977	)
Acquisition of businesses, net of cash acquired					—				—				(438	)			—				(438	)
Net cash used in investing activities					(2,075	)			(7,838	)			(1,264	)			—				(11,177	)
Financing activities
Intercompany debt reallocation					2,211				(1,759	)			(452	)			—				—
Net repayments on credit facility debt					—				—				(1,212	)			—				(1,212	)
Principal payments on seller and other debt					—				(1,515	)			(120	)			—				(1,635	)
Repurchases of common stock					(19,852	)			—				—				—				(19,852	)
Proceeds from issuance of common stock					9,610				—				—				—				9,610
Payment of common stock dividends					(3,113	)			—				—				—				(3,113	)
Repayment of bank overdrafts					(3,569	)			—				—				—				(3,569	)
Distributions to minority interests					—				—				(271	)			—				(271	)
Net cash used in financing activities					(14,713	)			(3,274	)			(2,055	)			—				(20,042	)
Effect of exchange rate changes on cash and cash equivalents					(33	)			—				—				—				(33	)
Net increase (decrease) in cash and cash equivalents					54,679				(11,273	)			1,871				—				45,277
Cash and cash equivalents at beginning of period					101,989				60,878				2,640				—				165,507
Cash and cash equivalents at end of period				$	156,668			$	49,605			$	4,511			$	—			$	210,784

(a)	Elimination of equity in earnings of subsidiary.

F-68

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